Which of the following capital expenditure planning and control techniques has been
criticized because it might mistakenly imply that earnings are reinvested at the rate of
return earned by the investment?
a. payback method
b. accounting rate of return
c. net present value method
d. internal rate of return
The standard predominantly used in Western cultures for motivational purposes is a(n)
____ standard.
a. expected annual
b. ideal
c. practical
d. theoretical
The use of standard material or labor costs in job-order costing
a. is similar to the use of predetermined overhead rates in a normal costing system.
b. will keep actual costs of jobs from fluctuating due to changes in component costs.
c. is appropriate for any company making units to customer specification.
d. all answers are correct.
Smith Corporation
Smith Corporation is involved in the evaluation of a new computer-integrated
manufacturing system. The system has a projected initial cost of $1,000,000. It has an
expected life of six years, with no salvage value, and is expected to generate annual cost
savings of $250,000. Based on Smith Corporation’s analysis, the project has a net
present value of $57,625.
Refer to Smith Corporation. What is the project’s profitability index?
a. 1.058
b. .058
c. .945
d. 1.000
Process costing techniques should be used in assigning costs to products
a. if a product is manufactured on the basis of each order received.
b. when production is only partially completed during the accounting period.
c. if a product is composed of mass-produced homogeneous units.
d. whenever standard-costing techniques should not be used.
Baker Company
Baker Company produces three products: A, B, and C from the same process. Joint
costs for this production run are $2,100.
If the products are processed further, Baker Company will incur the following disposal
costs upon sale: A, $3.00; B, $2.00; and C, $1.00.
Refer to Baker Company. Using net realizable value at split-off, what amount of joint
processing cost is allocated to Product C (round to the nearest dollar)?
a. $706
b. $951
c. $444
d. $700
Patterson Company
The following information is for Patterson Company’s July production:
(Round all answers to the nearest dollar.)
Refer to Patterson Company. What is the material quantity variance?
a. $3,105 F
b. $1,050 F
c. $3,105 U
d. $1,890 U
McCoy Company manufactures tables. The beginning balance of Raw Material
Inventory was $5,500; raw material purchases of $31,500 were made during the month.
At month end, $8,200 of raw material was on hand. Raw material used during the
month was
a. $28,800
b. $31,500
c. $37,000.
d. $39,200
Value reflects the ability of a product to
a. provide the best quality at any price.
b. have all possible product and service characteristics.
c. meet the majority of a customer’s needs at the lowest possible price.
d. have the longest technical or service life and the best warranty.
A favorable fixed overhead volume variance occurs if
a. there is a favorable labor efficiency variance.
b. there is a favorable labor rate variance.
c. production is less than planned.
d. production is greater than planned.
In a lumber mill, which of the following would most likely be considered a primary
product?
a. 2 4 studs
b. sawdust
c. wood chips
d. tree bark
Since overhead costs are indirect costs,
a. they require some process of allocation.
b. they can be easily traced to production.
c. a predetermined overhead rate is not advantageous.
d. they cannot be allocated.
Truman Corporation
The following information has been extracted from the financial records of Truman
Corporation for its first year of operations:
Refer to Truman Corporation. Based on absorption costing, the Cost of Goods
Manufactured for Truman Corporation’s first year would be
a. $200,000.
b. $270,000.
c. $300,000.
d. $210,000.
A company’s return on investment is affected by a change in
a. Yes Yes
b. Yes No
c. No No
d. No Yes
Division A’s investment in a new project will raise the overall organization’s return on
investment if
a. the return on investment on the new project exceeds the target return of the overall
organization.
b. the return on investment on the new project exceeds the return on investment of
Division A.
c. the return on investment on the new project exceeds the overall organization’s return
on investment.
d. Division A’s return on investment exceeds the return on investment of the overall
organization.
Fixed costs are incurred evenly throughout the year. The following unfavorable
variances from standard costs were recorded during the first month of operations:
Required: Determine the following: (a) fixed overhead budgeted for a year; (b) the
number of units completed during January assuming no work in process at January 31;
(c) debits made to the Work in Process account for direct material, direct labor, and
manufacturing overhead; (d) number of pieces of material issued during January; (e)
total of direct labor payroll recorded for January; (f) total of manufacturing overhead
recorded in January.
Glassman Company
Glassman Company produces two products: A and B. The company has three overhead
functions that are required for both products.
Below is production information for Products A and B:
The company produces 800 units of Product A and 8,000 units of Product B each
period.
The overhead functions have the following hourly costs:
Refer to Glassman Company If total overhead is assigned to A and B on the basis of
overhead activity hours used, the total product cost per unit assigned to Product A will
be
a. $86.32.
b. $95.00.
c. $115.50.
d. None of the responses are correct.
The formula to compute cost of goods manufactured is
a. beginning Work in Process Inventory plus purchases of raw material minus ending
Work in Process Inventory.
b. beginning Work in Process Inventory plus direct labor plus direct material used plus
overhead incurred minus ending Work in Process Inventory.
c. direct material used plus direct labor plus overhead incurred.
d. direct material used plus direct labor plus overhead incurred plus beginning Work in
Process Inventory.
Saturn Corporation
Material A is added at the start of production, while Material B is added uniformly
throughout the process.
Refer to Saturn Corporation. Assuming a weighted average method of process costing,
compute EUP units for Materials A and B.
a. 2,700 and 2,280, respectively
b. 2,700 and 2,450, respectively
c. 2,000 and 2,240, respectively
d. 2,240 and 2,700, respectively
Bradley Corporation
Bradley Corporation has three production departments A, B, and C. Bradley
Corporation also has two service departments, Administration and Personnel.
Administration costs are allocated based on value of assets employed, and Personnel
costs are allocated based on number of employees. Assume that Administration
provides more service to the other departments than does the Personnel Department.
Refer to Bradley Corporation. Assume that Administration costs have been allocated
and the balance in Personnel is $860,000. What amount is allocated to B (round to the
nearest dollar)?
a. $213,964
b. $430,000
c. $106,982
d. $143,333
Joint cost allocation is useful for
a. decision making.
b. product costing.
c. control.
d. evaluating managers’ performance.
Downsizing may result in a(n)
a. reduction in workforce.
b. restructuring of processes.
c. elimination of noncore businesses.
d. all of the above.
Which of the following costs would be relevant in short-term decision making?
a. incremental fixed costs
b. all costs of inventory
c. total variable costs that are the same in the considered alternatives
d. the cost of a fixed asset that could be used in all the considered alternatives
Austin, Brown, and Freeman Companies
Below are income statements that apply to three companies: Austin, Brown, and
Freeman:
Refer to Austin, Brown, and Freeman Companies. Within the relevant range, if sales go
up by $1 for each firm, which firm will experience the greatest increase in profit?
a. Austin Company
b. Brown Company
c. Freeman Company
d. can’t be determined from the information given
StatPro Corporation
StatPro Corporation is a manufacturer of a versatile statistical calculator. The following
information is a summary of defective and returned units for the previous year.
Refer to StatPro Corporation. The total failure cost is
a. $15,000.
b. $13,500.
c. $11,250.
d. $8,250.
Pearce Company
Pearce Company uses a standard cost system for its production process. Pearce
Company applies overhead based on direct labor hours. The following information is
available for July:
Refer to Pearce Company Using the two-variance approach, what is the
noncontrollable variance?
a. $26,040 F
b. $0
c. $6,930 U
d. $13,260 U
Which of the following factors should notbe considered when deciding whether to
investigate a variance?
a. magnitude of the variance
b. trend of the variances over time
c. likelihood that an investigation will reduce or eliminate future occurrences of the
variance
d. whether the variance is favorable or unfavorable
A major difference between committed and discretionary fixed costs is that
a. incurring committed fixed costs is less risky than using discretionary costs.
b. managers are usually responsible for committed fixed costs but not for discretionary
fixed costs.
c. incurring discretionary fixed costs rather than committed fixed costs gives a company
more flexibility in controlling costs.
d. companies are using more discretionary fixed costs because labor is easier to
“remove” than technology.
Which of the following should be able to provide the financial information needed for
budget preparation?
a. no yes
yes
b. no yes
no
c. yes no
yes
d. yes yes
yes
Robertson Company.
Robertson Company uses a job-order costing system and the following information is
available from its records. The company has three jobs in process: #8, #12, and #15.
Direct material was requisitioned as follows for each job respectively: 25 percent, 30
percent, and 30 percent; the balance of the requisitions was considered indirect. Direct
labor hours per job are 2,800; 3,300; and 4,000; respectively. Indirect labor is $45,000.
Other actual overhead costs totaled $50,000.
Refer to Robertson Company. What is the total amount of overhead applied to Job #12?
a. $23,750
b. $29,450
c. $39,000
d. $39,188
If a strategic alliance is to function effectively, all parties involved must feel that they
are being fairly treated.
An indicator that reflects the results of past decisions is referred to as a(n)
______________________________.
Conducting a quality audit is an appraisal cost.
Responsibility reports at lower levels of the organization are less detailed than reports at
the higher levels.
Briefly discuss the four decisions that management must make concerning joint
processes.
Riley Industries is considering an investment that will require an initial cash outlay of
$200,000 to purchase non-depreciable assets. The project promises to return $60,000
per year (after-tax) for eight years with no salvage value. The company’s cost of capital
is 11 percent.
The company is uncertain about its estimate of the life expectancy of the project. How
many years must the project generate the $60,000 per year return for the company to at
least be indifferent about its acceptance? (Do not consider the possibility of partial year
returns.)
Present value tables or a financial calculator are required.
Performance measures must be quantitative to be useful.
An overhead efficiency variance is related entirely to variable overhead.
The decision concerning which assets to acquire to achieve an organization’s objectives
is an investing decision.
What are some common problems encountered in determining ROI?
In computing a transfer price, the minimum price should be no lower than the
incremental costs associated with the goods plus the opportunity cost of the facilities
used.
The weighted average costing method assumes that units in beginning inventory are the
first units transferred.
In a totally automated organization, using theoretical capacity will generally provide the
highest fixed overhead application rate.
A profit center is typically an independent organizational unit.
What are enterprise resource planning systems (ERPs)?
The life-cycle stage of a business is an important determinant of an organization’s
activities.