Costs of activities related to a group of units sold to a customer is termed as customer
batch-level costs.
All costs other than direct materials and direct manufacturing labor are classified as
indirect costs.
Strategy describes how an organization matches its own capabilities with the
opportunities in the marketplace to accomplish its overall objectives.
Banks provide services or what some might call “intangible products” to their
customers.
Exact quantification of costs and benefits is not always possible when making a
decision.
Under the step-down method, once a support department’s costs have been allocated, all
subsequent support-department costs are allocated back to it.
For critical items such as product defects, a small variance may prompt investigation.
To take advantage of changing market opportunities, the annual budget should be
strictly enforced.
A positive aspect of backflush costing is the presence of the visible audit trail.
Lump-sum fixed costs of acquiring capacity decrease automatically if the capacity
needed turns out to be less than the capacity acquired.
The parts of the value chain associated with producing and delivering a product or
service–production and distribution – are referred to as the supply chain.
There is a tradeoff between the speed of production and the normal spoilage rate.
Under the opportunity cost approach, the cost of each alternative includes the
incremental costs and the opportunity cost.
The flexible budget highlights the differences between budgeted costs and budgeted
quantities versus actual costs and actual quantities for the budgeted output level.
Managers should look for evidence of cause-and-effect when choosing a cost driver
with the driver being the cause and the effect being the cost incurred.
In determining whether to keep a machine or replace it, the original cost of the machine
is a sunk cost and is NOT a relevant factor.
An Indian company selling a product in the United States at a price below the market
value of the product in India is an example of collusive pricing.
A customer cost hierarchy categorizes costs related to customers into different cost
pools on the basis of different cost drivers.
Capital budgeting is the process of making long-run planning decisions for investments
in projects.
Whether a company chooses to use either a job ob costing system or process costing
system depends on the nature of the product or service – whether the products or
services are heterogeneous or homogeneous.
One version of the reciprocal method of cost allocation uses a sequence that begins with
allocating the costs of the support department that renders the lowest amount of services
to support departments and ends with the allocation of costs of the department that
renders the highest dollar amount of services to other support departments.
A unit cost is computed by dividing total cost by the number of units.
Allocating all corporate costs motivates division managers to examine how corporate
costs are planned and controlled.
Only indirect costs are included in the cost pools of ABC.
Opportunity costs are not recorded in financial accounting systems because historical
record keeping is limited to transactions involving alternatives that managers actually
selected rather than alternatives that they rejected.
Ken’s Beer Emporium sells beer and ale in both pint and quart sizes. If Ken’s sells twice
as many pints as it sells quarts, and sells 2,400 items total, it will sell 800 quarts of ale.
Decisions about whether a producer of goods or services will insource or outsource are
also called make-or-buy decisions.
Administration of budgets is free of emotions as budgets are mechanical tools.
When there is a constraining resource, a firm should attempt to maximize sales of the
product or service with the greatest contribution margin per unit.
Net initial investment in the project includes the acquisition of assets and any associated
additions to working capital, minus the after-tax cash flow from the disposal of existing
assets.
If the government wants to contract a very large scale project with significant
uncertainty about what the final cost will be; often a cost-plus contract is awarded to
attract qualified contractors who may otherwise not be willing to accept the risks
inherent in a guaranteed bid price.
The value customers place on a product and the prices charged for competing products
affect demand and the cost of producing and delivering the product affect supply.
Relevant-cost and relevant-revenue analysis uses the allocated costs as the base for
calculating the costs of a quality improvement program.
Using practical capacity is best for evaluating the marketing manager’s performance for
a particular year.
Economic value added, unlike residual income, charges managers for the costs of their
investments in long-term assets and working capital.
Roberto Inc., operates a chain of luxury hotels in the Asia-Pacific region. It charges
$150 for one night stay. However when 90% of the rooms are occupied, Roberto
charges a premium of 20% on room tariff for the remaining rooms. What pricing
method has Roberto Inc. adopted?
A) customer-preference pricing
B) seasonal-load pricing
C) peak-load pricing
D) capacity pricing
Kaizen budgeting involves ________.
A) large cost reductions
B) management directed improvements
C) continual small cost reductions
D) continual small revenue increases
Given a constant contribution margin per unit and constant fixed costs, the
period-to-period change in operating income under variable costing is driven solely by
________.
A) changes in the quantity of units actually sold
B) changes in the quantity of units produced
C) changes in ending inventory
D) changes in sales price per unit
Overcosting a particular product may result in:
A) pricing the product too high
B) pricing the product too low
C) operating efficiencies
D) understating total product costs
Fast Track Auto produces and sells an auto part for $85 per unit. In 2017, 110,000 parts
were produced and 90,000 units were sold. Other information for the year includes:
What is the inventoriable cost per unit using absorption costing?
A) $30.00
B) $36.00
C) $37.18
D) $40.00
A.C. Tech Manufacturing Appliances manufactures three sizes of kitchen appliances:
small, medium, and large. Product information is provided below.
Small Medium Large
Unit selling price $430 $610 $1,210
Unit costs:
Variable manufacturing (270) (280) (530)
Fixed manufacturing (40) (170) (270)
Fixed selling and administrative (70) (75) (140)
Unit profit $50 $85 $270
Demand in units 150 170 150
Machine-hours per unit 60 60 150
The maximum machine-hours available are 6,500 per week.
Which of the three product models should be produced first if management incorporates
a short-run profit maximizing strategy?
A) small appliance
B) medium appliance
C) large appliance
D) both medium and large appliance
The ________ function supports the six functions of value-chain analysis.
A) controlling
B) administration
C) planning
D) direction
Sedgwick County Hospital uses an indirect job-costing system for all patients. In June,
the budgeted nursing care charges for each department and budgeted allocation bases of
nursing days are as follows:
Patient Ms. Graves spent six days in critical care and eight days in special care during
June. The remainder of the 30-day month was spent in the general care area.
Required:
a. Determine the budgeted overhead rate for each department.
b. What are the total charges to Ms. Graves if she was in the facility the entire month?
Which of the following is a corporate-sustaining cost?
A) design costs
B) corporate brand advertising
C) shipment costs
D) research and development costs
In its first year of operation, the Excellent Publishing Company sells 52,000 units and
has 1,700 units in stock at year end. The cost of goods sold are $3,100,000. What are
the total manufacturing costs for the year if the average unit cost is $8.50?
A) $3,114,450
B) $3,100,000
C) $3,085,550
D) $14,450
Activity-based budgeting ________.
A) uses one cost driver such as direct labor-hours
B) uses only output-based cost drivers such as units sold
C) focuses on activities necessary to produce and sell products and services
D) classifies costs by functional area within the value chain
Which of the following statements about pricing is true?
A) pricing for products sold to the federal government can be priced to include all costs
of the product including marketing costs
B) companies that sell commodity-like items usually use the cost-plus approach to
pricing
C) companies in competitive markets use the market approach to pricing
D) regulators will intervene in noncompetitive industries and markets but usually will
not regulate company pricing policies in competitive industries
Wainwright has budgeted construction overhead for August of $435,000 for fixed costs.
Actual costs for the month totaled for $450,000 for fixed. Allocated fixed overhead
totaled $430,000. The company tracks each item in an overhead control account before
allocations are made to individual jobs. The fixed overhead spending variance for
August was $15,000 unfavorable for fixed.
Required:
a. Make journal entries for the actual costs incurred.
b. Make journal entries to record the variances for August.
Which of the following statements is true of performance reports?
A) The performance report shows actual performance as compared to the budget.
B) The performance report depicts the performance of a firm’s competitors.
C) The performance report compares only the budgeted performance over the years.
D) The performance report contains no actual results due to confidentiality.
Furniture, Inc., estimates the following number of mattress sales for the first four
months of 2019:
Finished goods inventory at the end of December is 7,100 units. Target ending finished
goods inventory is 20% of the next month’s sales.
How many mattresses should be produced in the first quarter of 2019?
A) 108,580 mattresses
B) 99,940 mattresses
C) 67,680 mattresses
D) 67,620 mattresses
Wages paid to machine operators on an assembly line are classified as a ________.
A) direct material cost
B) direct manufacturing labor cost
C) manufacturing overhead cost
D) period cost
The formula for the predetermined indirect cost rate is:
A) Budgeted annual indirect costs divided by actual quantity of cost-allocation base
B) Budgeted annual indirect costs divided by budgeted annual quantity of
cost-allocation base
C) Actual annual indirect costs divided by budgeted annual quantity of cost-allocation
base
D) Actual annual indirect costs divided by actual annual quantity of cost-allocation base
In flexible budgets the costs that are not “flexed” because they remain the same within a
relevant range of activity (such as sales or output) are called ________.
A) total overhead costs
B) total budgeted costs
C) fixed costs
D) variable costs
Which of the following classifications of costs in the customer-cost hierarchy would be
most appropriate for the costs of activities to sell each unit to a customer?
A) customer-sustaining costs
B) division-sustaining costs
C) customer output unit-level costs
D) distribution-channel costs
Financial accounting provides the primary source of information for ________.
A) decision making in the assembly and finishing department
B) improving distribution and customer service
C) preparing the income statement for shareholders and other external parties
D) planning next year’s plans and specifically; the operating budget
Electro Corp sells a refrigerator and a freezer as a single package for $1,000. Other data
are in the chart below.
Using the stand-alone method with physical units as the weight for revenue allocation,
what amount will be allocated to the refrigerator?
A) $510
B) $180
C) $640
D) $820
Which of the following is NOT a discretionary cost?
A) the cost of social networking activities to promote a product
B) the cost of total quality management training for executives
C) legal costs
D) the cost to train factory general managers to use a new activity based management
system
Financial accounting is concerned primarily with ________.
A) external reporting to investors, creditors, and government authorities
B) cost planning and cost controls
C) product design and marketing strategies
D) providing information for strategic and tactical decisions
Bell Company sells several products. Information of average revenue and costs is as
follows:
Selling price per unit $33.00
Variable costs per unit:
Direct material $6.00
Direct manufacturing labor $1.50
Manufacturing overhead $0.30
Selling costs $2.25
Annual fixed costs $113,000
The company sells 10,000 units.
The contribution margin per unit is ________.
A) $11.65
B) $22.95
C) $25.20
D) $25.50
Davis Company produced 216,000 sport jackets during 2015 and 540,000 direct
manufacturing labor-hours were used at $2 per hour. The conversion costs were $1.20
per jackets produced.
What is the direct manufacturing labor partial productivity for Davis Company?
A) 0.40 unit per direct manufacturing labor-hour
B) 0.60 unit per direct manufacturing labor-hour
C) 2.50 unit per direct manufacturing labor-hour
D) 1.00 unit per direct manufacturing labor-hour
When budgeted cost-allocations rates are used ________.
A) user departments are not informed about the charges until the end of the period
which makes decision making during the period difficult
B) user departments can determine the amount of service to request and if allowed, can
determine whether to use an internal or external resource
C) user divisions pay for costs that exceed budgeted amounts
D) user divisions pay for inefficiencies of the supplier department
Which of the following is true of variance?
A) Managers should interpret a favorable variance as “good news”.
B) Managers should not simply interpret a favorable variance as good but should
understand why the variance occurred.
C) A small variance or zero variance definitively reveals efficient performance.
D) Managers’ performance must be evaluated solely on single variance.
Which of the following examples would have as its purpose the allocation of costs to
motivate employees?
A) deciding on a selling g price for a product
B) encouraging sales representatives to emphasize high-margin products
C) to cost products a a “fair” price under a government contract
D) to cost inventories for reporting to external parties
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 direct material and conversion costs of all the units that were initially in the
beginning work-in-process inventory and were subsequently shipped? Take into account
the costs related to the completion of the conversion of the units during the month. Use the
FIFO method of process costing. (Round any cost per unit calculations to the nearest cent.)
A) $78,336; $44,000
B) $0; $47,002
C) $54,835; $48,782
D) $40,239; $18,605
Raposa, Inc., produces a special line of plastic toy racing cars. Raposa, Inc., produces
the cars in batches. To manufacture a batch of the cars, Raposa, Inc., must set up the
machines and molds. Setup costs are batch-level costs because they are associated with
batches rather than individual units of products. A separate Setup Department is
responsible for setting up machines and molds for different styles of car.
Setup overhead costs consist of some costs that are variable and some costs that are
fixed with respect to the number of setup-hours. The following information pertains to
June 2015:
Calculate the efficiency variance for variable overhead setup costs. (Round all
intermediary calculations two decimal places and your final answer to the nearest whole
number.)
A) $4,810 unfavorable
B) $435 unfavorable
C) $4,810 favorable
D) $435 favorable
Shrinkage is measured by adding (a) the cost of the inventory recorded on the books in
the absence of theft and other incidents just mentioned, and (b) the cost of inventory
when physically counted.
Quality Stores, Inc., sells several products. Information of average revenue and costs is
as follows:
Selling price per unit $23
Variable costs per unit:
Direct material $6
Direct manufacturing labor $1.90
Manufacturing overhead $0.40
Selling costs $2
Annual fixed costs $96,000
The revenues that the company must earn annually to make a profit of $144,000 are
________. (Round the final answer to the nearest dollar.)
A) $375,510
B) $365,563
C) $434,646
D) $324,706
Line managers supervising individual refineries are concerned with ________.
A) obtaining information about the firm’s opportunity costs
B) obtaining information about the firm’s sunk costs
C) obtaining information about the firm’s equipment downtime and product quality
D) obtaining information about customer satisfaction and market share
Participation of employees in the budgeting process helps ________.
A) create greater commitment towards the budget
B) create demanding but achievable budget
C) decrease deviations from the budget
D) secure communication of sensitive information
What are three possible ways to dispose of underallocated or overallocated overhead
costs at the end of a fiscal year? Briefly comment on the theoretical correctness or
incorrectness of each method.
Retail Outlet is looking for a new location near a shopping mall. It is considering
purchasing a building rather than leasing, as it has done in the past. Three retail
buildings near a new mall are available but each has its own advantages and
disadvantages. The owner of the company has completed an analysis of each location
that includes considerations for the time value of money. The information is as follows:
The owner does not understand how the location with the highest percentage return has the
lowest net present value.
Required:
Explain to the owner what is (are) the probable cause(s) of the comparable differences.
How does the capacity level chosen to compute the budgeted fixed overhead cost rate
affect the production-volume variance?
Describe management accounting and financial accounting.
What is the role of unused capacity within the selling division in the determination of a
negotiated transfer price to another division?
Why do managers prepare cost-hierarchy-based operating incomes statements?
What are the five steps that are followed while implementing target pricing and target
costing?
Discuss the means by which a company goes about evaluating and installing a new
quality improvement program.
Archambeau Products Company manufactures office furniture. Recently, the company
decided to develop a formal cost accounting system and classify all costs into three
categories. Categorize each of the following items as being appropriate for (1) cost
tracing to the finished furniture, (2) cost allocation of an indirect manufacturing cost to
the finished furniture, or (3) as a nonmanufacturing item.
What is benchmarking, and how is it useful to a company?
You are the chief financial officer of a lumber mill, and you are becoming quite
concerned about the spoilage, scrap, and reworked items associated with your
production processes. Your firm produces mainly products for the building industry.
Required:
Discuss the problems associated with these items and the methods your company can
use to reduce spoilage, scrap, and reworked items.
Are relevant revenues and relevant costs the only information needed by managers to
select among alternatives? Explain using examples.
How does ABC costing system help service companies?
Weather Instruments assembles products from component parts. It has two departments
that process all products. During January, the beginning work in process in the
assembly department was half complete as to conversion and complete as to direct
materials. The beginning inventory included $12,000 for materials and $4,000 for
conversion costs. Overhead is applied at the rate of 50% of direct manufacturing labor
costs. Ending work-in-process inventory in the assembly department was 40%
complete. All spoilage is considered normal and is detected at the end of the process.
Required:
Prepare a production cost worksheet using weighted-average for the assembly department>
What are the differences between direct costs and indirect costs? Give an example of
each.
Comfort Company manufactures pillows. The 2015 operating budget is based on
production of 25,000 pillows with 0.75 machine-hour allowed per pillow. Budgeted
variable overhead per hour was $25.
Actual production for 2015 was 27,000 pillows using 19,050 machine-hours. Actual
variable costs were $23 per machine-hour.
Required:
Calculate the variable overhead spending and efficiency variances.