An organization’s hurdle rate should be at least equal to the organization’s cost of
capital.
The difference between actual and budgeted fixed factory overhead is referred to as a
fixed overhead spending variance.
When using a negotiated transfer price, a determination must be made if comparable
substitutes are available externally.
Research and development expenses are normally considered to be discretionary costs.
Conducting a quality audit is a prevention cost.
A calendar of scheduled budgetary activities helps to coordinate the budgeting
process.
A credit to the Factory Overhead account represents applied overhead costs.
Business value-added activities add value to a product.
In an outsourcing decision, variable costs of production are relevant.
Total quality management requires that an organization analyze the costs and benefits of
each of its customer segments.
A profit sharing plan is an example of a motivational element.
A budget manual should include a statement of the budgetary purpose and its desired
results.
A continuous loss is assumed to occur at a specific point in the production process.
In an outsourcing decision, rent received from an outside party for facility use is a
relevant cash inflow.
The final step in constructing the master budget is the preparation of pro-forma
financial statements for the period.
On December 30, a fire destroyed most of the accounting records of the Stone
Division, a small one-product manufacturing division that uses standard costs and
flexible budgets. All variances are written off as additions to (or deductions from)
income; none are pro-rated to inventories. You have the task of reconstructing the
records for the year. The general manager informs you that the accountant has been
experimenting with both absorption costing and variable costing.
The following information is available for the current year:
a. Cash on hand, December 31 $10
b. Sales $128,000
c. Actual fixed indirect manufacturing costs 21,000
d. Accounts receivable, December 31 20,000
e. Standard variable manufacturing costs per unit 1
f. Variances from standard of all variable manufacturing costs $5,000 U
g. Operating income, absorption-costing basis $14,400
h. Accounts payable, December 31 18,000
i. Gross profit, absorption costing at standard (before deducting variances)
22,400
j. Total liabilities 100,000
k. Unfavorable budget variance, fixed manufacturing costs 1,000 U
l. Notes receivable from chief accountant 4,000
m. Contribution margin, at standard (before deducting variances) 48,000
n. Direct-material purchases, at standard prices 50,000
o. Actual selling and administrative costs (all fixed) 6,000 Required:
Compute the following items (ignore income tax effects).
Which of the following qualitative factors favors the buy choice in a make or buy
decision for a part?
A. maintaining a long-term relationship with suppliers
B. quality control is critical
C. utilization of idle capacity
D. part is critical to product
If a company used two overhead accounts (actual overhead and applied overhead), the
one that would receive the most debits would be
A. actual overhead.
B. applied overhead.
C. both would receive an equal number of debits.
D. impossible to determine without additional information.
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.
The optimal size of the safety stock is defined by the point where the
A. costs of carrying the safety stock equal stockout costs.
B. setup costs equal stockout costs.
C. ordering costs equal stockout costs.
D. reorder point equals safety stock.
Mansfield Company uses a weighted average process costing system. Material is added
at the start of production. Mansfield Company started 14,000 units into production and
had 5,000 units in process at the start of the period that were 75 percent complete as to
conversion costs. If Mansfield Company transferred out 12,250 units, how many units
were in ending Work in Process Inventory?
A. 1,750
B. 3,000
C. 5,500
D. 6,750
Bentonville Medical Center has provided you with the following budget information
for July:
Bentonville has a policy of maintaining a minimum cash balance of $30,000 and
borrows only in $1,000 increments. How much will Bentonville borrow in July?
A. $ 70,400
B. $ 71,000
C. $100,400
D. $101,000
In a Pareto inventory analysis, the items that are most likely to be controlled with a
red-line system are the
A. A items.
B. B items.
C. C items.
D. items on a perpetual inventory.
Jennings Creations
Jennings Creations is considering an investment in a computer that is capable of
producing various images that are useful in the production of commercial art. The
computer would cost $20,000 and have an expected life of eight years. The computer is
expected to generate additional annual net cash receipts (before-tax) of $6,000 per year.
The computer will be depreciated according to the straight-line method and the firm’s
marginal tax rate is 25 percent.
Refer to Jennings Creations. What is the after-tax net present value of the proposed
project (using a 16 percent discount rate)? Present value tables or a financial calculator
are required.
A. $2,261
B. $(454)
C. $6,062
D. $(4,797)
Which of the following limits an organization’s ability to minimize the “gaps” found
when a gap analysis has been performed?
A. yes yes yes
B. yes no yes
C. no yes no
D. no no yes
Data mining
A. is packaged software.
B. is a method of examining processes.
C. uses statistical techniques to solve problems.
D. is a way to downsize.
Delta, Epilson, and Sigma Companies
Three new companies (Delta, Epilson, and Sigma) began operations on January 1 of the
current year. Consider the following operating costs that were incurred by these
companies during the complete calendar year:
Refer to Delta, Epilson, and Sigma Companies. Based on sales of 7,000 units, which
company will report the greater income before income taxes if absorption costing is
used?
A. Delta Company
B. Epsilon Company
C. Sigma Company
D. All of the companies will report the same income.
TriCities Corporation
TriCities Corporation adds material at the start to its production process and has the
following information available for August:
Refer to TriCities Corporation. Calculate equivalent units of production for conversion
using weighted average.
A. 34,325
B. 37,125
C. 38,375
D. 39,925
Ultimate Vision Corporation
Ultimate Vision Corporation has two product lines: LCD televisions and projection
televisions. The company has budgeted the following production and overhead costs for
the upcoming year:
Refer to Ultimate Vision Corporation. If the company uses total direct labor hours to
allocate factory overhead, the machine maintenance cost allocated to projection TVs
would be:
A. $ 72,000
B. $108,000
C. $110,769
D. $124,615
Why are fixed overhead variances considered noncontrollable?
What role does the budgeting activity play in managerial compensation and
performance evaluation?
What are some factors that a company must consider when deciding to raise or lower
sales prices on products?
Three groups of elements affecting the design of a cost management system are
____________________, ____________________, and ____________________.
An organizational unit that is responsible for the generation of revenues and has no
control over selling prices or costs is referred to as a
______________________________.
A performance measure that encompasses a firm’s long-run average activity is referred
to as ____________________ capacity.
