1) a company has a standard cost system in which fixed and variable manufacturing
overhead costs are applied to products on the basis of direct labor-hours. a fixed
manufacturing overhead volume variance will not necessarily occur in a month in
which actual direct labor-hours differ from standard hours allowed.
2) fixed cost per unit increases as activity decreases and decreases as activity increases.
3) the inventory of finished goods on hand at the end of a period is considered an asset,
but inventories of raw materials and work-in-process are not considered assets until
production is completed.
4) if the market value of a share of stock is greater than its book value, the stock is
probably overpriced.
5) a problem with directly comparing a static planning budget to actual costs is that this
comparison fails to distinguish between differences in costs that are due to changes in
activity and differences that are due to how well costs were controlled.
6) management by exception means that a manager’s attention is directed toward those
parts of the organization where things are not proceeding according to plans.
7) a cost that is obtained in large chunks and that increases or decreases only in
response to fairly wide changes in the activity level is known as a step-variable cost.
8) a sunk cost is a cost that has already been incurred but that can be avoided at least in
part depending on the action a manager takes.
9) the profitability index for a volume trade-off decision involving products should be
computed by dividing the unit contribution margin of a product by the selling price of
the product.
10) the price elasticity of demand is used in the absorption costing approach to
cost-plus pricing to determine the markup over cost.
11) one strength of the simple rate of return method is that it takes into account the time
value of money in computing the return on an investment project.
12) the cost per equivalent unit under the fifo method of process costing is equal to the
cost of beginning work in process inventory plus the costs added during the period, all
divided by the equivalent units of production for the period.
13) the standard direct labor rate should not include fringe benefits.
14) managerial accounting places less emphasis on nonmonetary data than financial
accounting.
15) on an income statement prepared by the traditional approach, costs are organized
and presented according to function.
16) murphree clinic uses client-visits as its measure of activity. during april, the clinic
budgeted for 3,300 client-visits, but its actual level of activity was 3,350 client-visits.
the clinic has provided the following data concerning the formulas used in its budgeting
and its actual results for april:
the activity variance for net operating income in april would be closest to:
a.$875 f
b.$6,265 f
c.$875 u
d.$6,265 u
17) schaich corporation’s maintenance department provides services to the company’s
two operating divisions-the paints division and the stains division. the variable costs of
the maintenance department are budgeted based on the number of cases produced by
the operating departments. the fixed costs of the maintenance department are budgeted
based on the number of cases produced by the operating departments during the peak
period. data appear below:
for performance evaluation purposes, how much maintenance department cost should
be charged to the stains division at the end of the year?
a.$219,710
b.$209,412
c.$232,051
d.$197,520
18) dwelmont hotel bases its budgets on guest-days. the hotel’s static budget for may
appears below:
the total variable cost at the activity level of 2,600 guest-days per month should be:
a.$36,920
b.$32,660
c.$45,540
d.$51,480
19) the opportunity cost of making a component part in a factory with excess capacity
for which there is no alternative use is:
a.the variable manufacturing cost of the component
b.the total manufacturing cost of the component
c.the fixed manufacturing cost of the component
d.zero
20) gebru industries is a division of a major corporation. last year the division had total
sales of $12,450,000, net operating income of $1,357,050, and average operating assets
of $3,000,000. the company’s minimum required rate of return is 10%.
required:
a. what is the division’s margin?
b. what is the division’s turnover?
c. what is the division’s return on investment (roi)?
21) kulp corporation has two major business segments-east and west. in july, the east
business segment had sales revenues of $900,000, variable expenses of $441,000, and
traceable fixed expenses of $171,000. during the same month, the west business
segment had sales revenues of $450,000, variable expenses of $234,000, and traceable
fixed expenses of $45,000. the common fixed expenses totaled $321,000 and were
allocated as follows: $180,000 to the east business segment and $141,000 to the west
business segment.
the contribution margin of the west business segment is:
a.$108,000
b.$675,000
c.$288,000
d.$216,000
22) goha company, a wholesale distributor, uses activity-based costing for its overhead
costs. the company has provided the following data concerning its annual overhead
costs and its activity based costing system:
the “other” activity cost pool consists of the costs of idle capacity and
organization-sustaining costs.
the amount of activity for the year is as follows:
required:
compute the activity rates (i.e., cost per unit of activity) for the filling orders and
product support activity cost pools by filling in the table below:
23) all production costs have been steadily rising in the donner company for several
periods. the company maintains large work in process inventories. donner company’s
cost per equivalent unit computed using the fifo method would be:
a.the same as that computed under the weighted-average method
b.higher than that computed under the weighted-average method
c.lower than that computed under the weighted-average method
d.could be lower than, the same as, or higher than that computed under the
weighted-average method
24) the management of matsuura corporation would like to set the selling price on a
new product using the absorption costing approach to cost-plus pricing. the company’s
accounting department has supplied the following estimates for the new product:
management plans to produce and sell 1,000 units of the new product annually. the new
product would require an investment of $254,000 and has a required return on
investment of 10%.
to the nearest whole percent, the markup percentage on absorption cost is:
a.10%
b.8%
c.18%
d.36%
25) (ignore income taxes in this problem.) the connelly company has funds available to
invest in the following project:
the working capital needed now would be released at the end of the seven years for
investment elsewhere.
consider only the cash flows for the seventh year. the present value of the net cash flow
(cash inflows less cash outflows) for this year only is:
a.$6,280
b.$25,120
c.$37,680
d.$56,520
26) gargymal company would like to estimate the variable and fixed components of its
electrical costs and has compiled the following data for the last five months of
operations.
using the high-low method of analysis, the estimated variable cost per machine hour for
electricity is closest to:
a.$0.40
b.$2.50
c.$0.98
d.$1.68
27) the management of haigler corporation would like to investigate the possibility of
basing its predetermined overhead rate on activity at capacity. the company’s controller
has provided an example to illustrate how this new system would work. in this example,
the allocation base is machine-hours and the estimated amount of the allocation base for
the upcoming year is 64,000 machine-hours. in addition, capacity is 80,000
machine-hours and the actual level of activity for the year is 66,300 machine-hours. all
of the manufacturing overhead is fixed and is $3,788,800 per year. for simplicity, it is
assumed that this is the estimated manufacturing overhead for the year as well as the
manufacturing overhead at capacity. it is further assumed that this is also the actual
amount of manufacturing overhead for the year.
if the company bases its predetermined overhead rate on capacity, the predetermined
overhead rate is closest to:
a.$47.36
b.$53.82
c.$59.20
d.$57.15
28) badal corporation processes sugar beets in batches. a batch of sugar beets costs $55
to buy from farmers and $18 to crush in the company’s plant. two intermediate
products, beet fiber and beet juice, emerge from the crushing process. the beet fiber can
be sold as is for $20 or processed further for $16 to make the end product industrial
fiber that is sold for $53. the beet juice can be sold as is for $33 or processed further for
$23 to make the end product refined sugar that is sold for $60. how much profit (loss)
does the company make by processing one batch of sugar beets into the end products
industrial fiber and refined sugar?
a.($20)
b.$21
c.$1
d.($112)
29) contribution margin is the excess of revenues over:
a.cost of goods sold
b.manufacturing cost
c.all direct costs
d.all variable costs
30) if a cost object such as a product or customer has a positive green margin, then:
a.its red margin will be positive
b.its red margin may be either positive, negative, or zero
c.its red margin will be negative
d.its red margin will be zero
31) earll company’s quality cost report is to be based on the following data:
what would be the total external failure cost appearing on the quality cost report?
a.$153,000
b.$26,000
c.$413,000
d.$69,000
32) davie corporation is preparing its manufacturing overhead budget for the fourth
quarter of the year. the budgeted variable factory overhead rate is $6.00 per direct
labor-hour; the budgeted fixed factory overhead is $92,000 per month, of which
$16,000 is factory depreciation.
if the budgeted direct labor time for october is 8,000 hours, then the total budgeted
factory overhead for october is:
a.$140,000
b.$76,000
c.$64,000
d.$124,000
33) legorreta corporation uses customers served as its measure of activity. the following
report compares the planning budget to the actual operating results for the month of
november:
required:
prepare the company’s flexible budget performance report for november. label each
variance as favorable (f) or unfavorable (u).
34) management is considering purchasing an asset for $30,000 that would have a
useful life of 5 years and no salvage value. for tax purposes, the entire original cost of
the asset would be depreciated over 5 years using the straight-line method. the asset
would generate annual net cash inflows of $18,000 throughout its useful life. the project
would require additional working capital of $8,000, which would be released at the end
of the project. the company’s tax rate is 30% and its discount rate is 14%.
required:
what is the net present value of the asset?
35) hodgin corporation uses the direct method to allocate its two service department
costs to its two operating departments. data concerning those departments follow:
service department a costs are allocated on the basis of allocation base a and service
department b costs are allocated on the basis of allocation base b.
required:
allocate the service department costs to the operating departments using the direct
method.
36) job 827 was recently completed. the following data have been recorded on its job
cost sheet:
the company applies manufacturing overhead on the basis of machine-hours. the
predetermined overhead rate is $13 per machine-hour.
required:
compute the unit product cost that would appear on the job cost sheet for this job.
37) a sales budget is given below for one of the products manufactured by the key co.:
the inventory of finished goods at the end of each month must equal 20% of the next
month’s sales. on december 31, the finished goods inventory totaled 4,000 units.
each unit of product requires three specialized electrical switches. since the production
of these specialized switches by key’s suppliers is sometimes irregular, the company has
a policy of maintaining an ending inventory at the end of each month equal to 30% of
the next month’s production needs. this requirement had been met on january 1 of the
current year.
required:
prepare a budget showing the quantity of switches to be purchased each month for
january, february, and march and in total for the quarter.
38) the management of drummer corporation is considering dropping product d84l. data
from the company’s accounting system appear below:
all fixed expenses of the company are fully allocated to products in the company’s
accounting system. further investigation has revealed that $201,000 of the fixed
manufacturing expenses and $156,000 of the fixed selling and administrative expenses
are avoidable if product d84l is discontinued.
required:
what would be the effect on the company’s overall net operating income if product d84l
were dropped? should the product be dropped? show your work!
39) the following data have been extracted from the year-end reports of two companies
company x and company y:
required:
fill in the missing data on the above table.
40) in december, one of the processing departments at pomainville corporation had
beginning work in process inventory of $20,000 and ending work in process inventory
of $35,000. during the month, the cost of units transferred out from the department was
$201,000.
required:
construct a cost reconciliation report for the department for the month of december.
41) proudfoot corporation uses the following activity rates from its activity-based
costing to assign overhead costs to products.
data concerning two products appear below:
required:
how much overhead cost would be assigned to each of the two products using the
company’s activity-based costing system?