The high-low method of estimating the fixed and variable components of a mixed cost
is a precise approach that uses a statistical technique.
Earnings per share represents how much of a company’s current net income could be
distributed for each share of stock held by an investor.
Customer profit margin is calculated as customer net profit divided by customer gross
profit.
Bottom-up budgeting is also referred to as a participative budgeting.
The inventories used in a process costing system include work-in-process and finished
goods, but not raw materials.
Auburn, Inc.’s overhead costs of $700,000 consist of machining $400,000; inspecting
$200,000; and packaging $100,000. Machining works 4,000 hours a year, 500
inspections occur each year, and 1,000 packing order occur each year. Information on
the company’s two products are as follows:
Determine how much overhead is allocated to Alpha assuming the use of a single
overhead rate (based on direct labor hours) and assuming the use of ABC, respectively.
a. $340,000 and $360,000
b. $340,000 and $175,000
c. $360,000 and $175,000
d. $360,000 and $525,000
Which of the following is not an example of how a company can help a customer
become a profitable customer?
a. Encourage them to order in larger quantities to reduce shipping charges
b. Encourage them to order through the cheaper internet sales channel rather than the
more costly catalog sales channel
c. Encourage them to delay payment on their account so as to forgo any sales discount
d. Ask them to pay all shipping charges
Once viable alternatives have been identified by a decision maker, which of the
following is not a step that should be followed?
a. Develop a list of relevant revenues and costs.
b. Identify any qualitative factors that may affect the decision.
c. Choose the alternative that produces the greatest benefit or the lowest cost.
d. All of the listed steps should be followed.
Barry Co. manufactures leather briefcases and carryalls. Barry ‘s production manager
has provided the following production budget. Each briefcase or carryall requires 1.2
yards of leather fabric and Barry maintains an ending inventory of leather fabric equal
to 25% of the next month ‘s production needs.
If each yard of leather fabric costs $6.40, how much should Barry budget for purchases
of fabric in February?
a. $468,480
b. $372,480
c. $310,400
d. $384,000
Stone Cliff Company manufactures custom-order furniture. During 2013, actual
manufacturing overhead totaled $720,000. Based on the 2013 results, and projected
production for 2014, management prepared the 2014 budget and estimated that
manufacturing overhead would total $800,000. The estimated number of direct labor
hours for 2014 is 500,000, and the estimated amount of direct labor cost is $1,000,000.
The company plans to use direct labor hours as the basis to allocate overhead to jobs.
During May and June 2014, employees worked on the following four jobs:
All jobs were started in May. Jobs X87 and A33 were completed and delivered to
customers during June. What was cost of goods sold for June?
a. $402,800
b. $421,024
c. $408,584
d. $419,202
When using the balanced scorecard to monitor performance, the customer perspective
answers which of the following questions?
a. Are we developing employees and providing technologies that facilitate change and
improvement?
b. Are we creating products and hiring employees with skills to create product and
deliver them in a timely manner?
c. Are we meeting our customers’ expectations?
d. Are we growing in a manner to be competitive in the industry?
Auburn, Inc.’s overhead costs of $700,000 consist of machining $400,000; inspecting
$200,000; and packaging $100,000. Machining works 4,000 hours a year, 500
inspections occur each year, and 1,000 packing order occur each year. Information on
the company’s two products are as follows:
Determine how much overhead is allocated to Omega assuming the use of a single
overhead rate (based on direct labor hours) and assuming the use of ABC, respectively.
a. $340,000 and $360,000
b. $340,000 and $175,000
c. $360,000 and $175,000
d. $360,000 and $525,000
Which of the following types of entities would probably use a process costing system?
a. Construction
b. Ship building
c. Soft drink bottler
d. CPA firm
R&N Manufacturing produces music boxes. The fixed overhead rate is $5.10 per direct
labor hour, and the company budgeted for 4,400 direct labor hours for the year. During
the year, R&N produced 2,500 music boxes using 4,800 direct labor hours. Actual fixed
overhead for the year was $23,000. What is the company’s fixed overhead spending
variance?
a. $560 favorable
b. $560 unfavorable
c. $1,480 favorable
d. $1,480 unfavorable
Given that selling price is $200, unit cost is $120, and a profit of $80. What is the
company’s markup percentage?
a. 50%
b. 66.7%
c. 150%
d. 250%
Assume a sales volume of 6,000 units, unit selling price of $20, unit variable cost of
$12, and total fixed costs of $20,000. What is the margin of safety in units?
a. 2,500
b. 3,500
c. 6,000
d. 8,000
The revenue a customer generates should cover which of the following costs?
a. Product
b. Selling
c. Administrative
d. All of these answer choices are correct
In preparing cash flows provided by operating activities using the indirect method,
which of the following items is deducted from net income?
a. Non-cash expenses such as amortization
b. Losses on investing and financing transactions
c. Decreases in current liability balances
d. Decreases in current asset balances
Selected financial statement data for Oran Company are presented below.
During 2014, net sales were $950,000, and cost of goods sold was $775,000. Required:
a. Compute the following ratios at December 31, 2014:
(1) Current
(2) Acid-test
(3) Average collection period
(4) Average days to sell inventory
b. Assume credit terms are 2/10, net 30. What conclusion could an analyst draw about
the management of accounts receivable?
Cleopatra Corporation ‘s Lingerie division has a segment margin of $729,000 and net
sales revenue of $5,400,000 for the current reporting period. Average total assets for the
period were $3,375,000. The division manager is considering implementing a new
inventory system which would reduce the average total assets by $675,000. Assuming
no change in sales or segment margin, the projected ROI with the reduction in
inventory would be
a. 13.5%.
b. 20%.
c. 21.6%.
d. 24%.
The difference between actual results and budgeted, or expected, results is referred to as
a
a. A variance.
b. A production flaw.
c. An unfavorable outcome.
d. None of these answer choices are correct.
A dollar received today is
a. Worth less than a dollar received in the future discounted at 12% interest.
b. Worth more than a dollar received at any time in the future.
c. Worth less than a dollar received in the future if the current interest rate is lower than
the anticipated future interest rate.
d. None of these answer choices are correct.
The standard price of direct labor includes all of the following except
a. Payroll taxes.
b. Health insurance.
c. Retirement contributions.
d. Reimbursement of travel expense.
The average collection period is calculated as
For each statement below, indicate the management tool being implemented.
Elton ‘s Electronics is a wholesale distributer for TVs and other electronics and
appliances. The selling price of TV Model 83G7 is $799. The following standard cost
data per Model 83G7 includes $300 direct material, $30 direct labor and $200
manufacturing overhead (75% variable, 25% fixed). Elton has received a special order
for 200 Model 83G7s at a price of $450 each. The only additional cost of accepting the
special order is a sales commission of $9 per unit. The special order is to a retail store
that will not be in competition with any other Elton customers. Ignoring qualitative
factors, should Elton accept the special order?
The following list includes activities that are performed in a women’s retail store. .
Classify each activity as value-added or non-value added.
The most common measure used as the denominator in the ROI calculation is a simple
average of the assets used during the year.
At the breakeven point, the total contribution margin equals total fixed costs.
Lakeside Industries ‘ operates as a decentralized organization. Its tent division
manufactures small camping tents. The fabricating division manufactures one
component needed by the tent division. The tent division has been purchasing the
component from an outside supplier, but top management has conducted a study and
believes the company could substantially cut costs by all divisions purchasing any
components made by other divisions from lakeside rather than an outside source.
Detailed unit cost for the fabricating component needed to make tents is given below:
The manufacturing overhead is 60% fixed and 40% variable.
Required:
c. What is the transfer price if Lakeside uses the market-based price?
d. What is the minimum transfer price?
Use the net present value to determine the acceptability of a project.
The DuPont Model decomposes the original ROI formula into two components to show
the different choices managers have to improve ROI. What are the terms for the two
components and how do you calculate the ratios?