1) The opportunity cost of the stockout includes lost contribution margin on the sale not
made plus any contribution margin lost on future sales due to customer ill will.
2) Cost of quality financial measures will usually deteriorate when nonfinancial
measures of quality are emphasized and improved.
3) A control chart identifies potential causes of failures or defects.
4) The difference between total revenues and total variable costs is called profit margin.
5) The chart used to express customer profitability is called the whale curve because it
is backward-bending at the point where customers start to become unprofitable and thus
resembles a humpback.
6) Normal costing is a costing system that traces direct costs to a cost object by using
the actual direct-cost rates times the actual quantities of the direct-cost inputs.
7) It is appropriate for service organizations such as public accounting firms to use job
costing.
8) Genent Industries, Inc. (GII), developed standard costs for direct material and direct
labor. In 2015, GII estimated the following standard costs for one of their major
products, the 30-gallon heavy-duty plastic container.
During July, GII produced and sold 3,000 containers using 1,000 pounds of direct
materials at an average cost per pound of $19 and 625 direct manufacturing labor hours
at an average wage of $11.75 per hour.
The direct manufacturing labor flexible-budget variance during July is ________.
A) $375.00 unfavorable
B) $131.25 favorable
C) $143.75 unfavorable
D) $1,000 favorable
9) Which of the following statements best relates to the balanced scorecard’s financial
perspective?
A) How can we obtain greater profits for the current year?
B) How can we increase shareholder value?
C) How will we obtain continuous improvements?
D) How can we secure greater customer satisfaction?
10) To reduce distribution-channel costs, a company could ________.
A) improve the efficiency of the ordering process
B) make fewer customer visits
C) eliminate distribution to retailers and only service wholesalers
D) reduce product-handling costs
11) Zitriks Corp. manufactures two sizes of ceramic paperweights, regular and jumbo.
The following information applies to their expectations for the planning period:
Expected direct costs amounts to $960,000 for the period. Support cost requirements of
both products are substantially different from one another. Zitriks uses an ABC costing
system.
The setups activity-cost driver rate is ________.
A) $6.50 per setup
B) $5.93 per setup
C) $5.75 per setup
D) $5.24 per setup
12) The salary paid to the maintenance supervisor in a manufacturing plant is an
example of:
Product Cost Manufacturing Overhead
A) No Yes
B) Yes No
C) Yes Yes
D) No No
13) Which of the following entries is used to record the standard costs of direct
materials assigned to units worked on and total direct materials variances?
A) Work in Process (at standard costs)
Direct Materials Variances
Direct Materials Control
B) Work in Process (at actual costs)
Direct Materials Variances
Direct Materials Control
C) Direct Materials Variances
Direct Materials Control
Work in Process (at standard costs)
D) Direct Materials Variances
Direct Materials Control
Work in Process (at actual costs)
14) Which of the following statements is true?
A) The economic, legal, political, social, and cultural environments differ across
countries.
B) The import quotas and tariffs remain the same across all countries according to the
standards set by United Nations.
C) The advances in telecommunications and transportation, the availability of materials
and skilled labor does not differ significantly across countries.
D) The fixed rate policy is followed across all countries to avoid price fluctuations and
inflation.
15) Advocates of throughput costing maintain that ________.
A) both variable and fixed are necessary to produce goods; therefore, both types of
costs should be inventoried
B) all manufacturing costs plus some design costs should be inventoried
C) fixed manufacturing costs are related to the capacity to produce rather than to the
actual production of specific units
D) except direct labor no other costs are truly variable in output
16) Silicon Technologies, currently sells 17″ monitors for $270. It has costs of $210. A
competitor is bringing a new 17″ monitor to market that will sell for $230. Management
believes it must lower the price to $230 to compete in the market for 17″ monitors.
Silicon believes that the new price will cause sales to increase by 10%, even with a new
competitor in the market. Silicon’s sales are currently 5,000 monitors per year.
What is the change in operating income if marketing manager is correct and only the
sales price is changed?
A) $200,000
B) $190,000
C) $(190,000)
D) $(200,000)
17) Accrual accounting rate of return is calculated by dividing ________.
A) net initial investment by an increase in expected average annual after-tax operating
income
B) an increase in expected average annual after-tax operating income by the net initial
investment
C) an increase in expected average annual cash flow by the net initial investment
D) net initial investment by an increase in expected average annual cash flow
18) Purple Trees manufactures rustic furniture. The cost accounting system estimates
manufacturing costs to be $240 per table, consisting of 60% variable costs and 40%
fixed costs. The company has surplus capacity available. It is Purple Trees’ policy to
add a 75% markup to full costs.
A large hotel chain is currently expanding and has decided to decorate all new hotels
using the rustic style. Purple Trees is invited to submit a bid to the hotel chain. What per
unit price will Purple Trees most likely bid on this long-term order?
A) $168 per unit
B) $180 per unit
C) $252 per unit
D) $420 per unit
19) Demizio Valley Orchards, Inc. (DVO), developed standard costs for direct material
and direct labor. In 2015, DVO estimated the following standard costs for one of their
most well loved products, the DVO classic Grandma’s large apple pie which had a
brown sugar coating on the top of the crust as well as including cranberry and mince
ingredients in addition to the apples.
During September, DVO produced and sold 1,100 pies using 2,300 pounds of direct
materials at an average cost per pound of $6.00 and 200 direct labor hours at an average
wage of $13.25 per hour.
The direct material efficiency variance during September is ________.
A) $575 favorable
B) $575 unfavorable
C) $625 favorable
D) $625 unfavorable
20) For a given job the direct costs associated with the job are ________.
A) actual overhead
B) raw materials
C) sunk costs
D) fixed costs
21) Which one of the following is a variable cost for an insurance company?
A) rent of the building
B) CEO’s salary
C) electricity expenses
D) property taxes
22) Cobalt Company makes a household appliance with model number X500. The goal
for 2015 is to improve product design and outlook. No defective units are currently
produced. Manufacturing conversion costs depend on production capacity defined in
terms of X500 units that can be produced. The industry market size for appliances
increased 10% from 2014 to 2015. The following additional data are available for 2014
and 2015:
Out of the two basic strategies, Cobalt’s strategy is ________.
A) product differentiation because Cobalt is able to produce a given quantity of output
with a lower cost of inputs
B) cost leadership because Cobalt is able to produce a given quantity of output with a
lower cost of inputs
C) cost leadership because Cobalt is able to increase its output price faster than the
increase in its input prices
D) product differentiation because Cobalt is able to increase its output price faster than
the increase in its input prices
23) Midize Flower Company provides flowers and other nursery products for
decorative purposes in medium to large sized restaurants and businesses. The company
has been investigating the purchase of a new specially equipped van for deliveries. The
van has a value of $66,645 with a seven-year life. The expected additional cash inflows
are $15,000 per year. What is the internal rate of return?
A) 10%
B) 13%
C) 15%
D) 20%
24) Facility-sustaining costs are the costs of activities ________.
A) undertaken to support individual products or services regardless of the number of
units or batches in which the units are produced
B) related to a group of units of a product or service rather than each individual unit of
product or service
C) that managers cannot trace to individual products or services but that support the
organization as a whole
D) performed on each individual unit of a product or service such as the cost of energy,
machine depreciation, and repair