1) changing a cost accounting system is likely to meet with little resistance in an
organization since it is a technical matter of little interest to individuals outside of the
accounting department.
2) if a company is considering accepting a number of jobs, but there is insufficient
production capacity to do all of them, then the profitability index can be used to rank
the jobs and decide which should be accepted.
3) for external reporting purposes, the fasb recommends the indirect method of
determining the net cash provided by operating activities on the statement of cash
flows.
4) quality of conformance refers to the extent to which a product offered by one
company is similar to products offered by other companies.
5) companies that choose an operational excellence strategy are in essence saying to
their customers, “choose us because we can deliver products and services faster, more
conveniently, and at a lower price than our competitors.”
6) a cost formula may not be valid outside the relevant range of activity.
7) one of the dangers of allocating common fixed costs to a product line is that such
allocations can make the line appear less profitable than it really is.
8) at the break-even point, variable expenses and fixed expenses are equal.
9) price elasticity measures the degree to which unit sales are affected by a change in
price.
10) all other things the same, if a division’s traceable fixed expenses decrease the
division’s segment margin will increase.
11) in the cost reconciliation report, the costs accounted for equals the cost of ending
work in process inventory plus the costs added during the period.
12) one advantage of using actual cost incurred as the transfer price is that it provides a
strong incentive for the producing division to control its costs.
13) a merchandising company that buys all of its inventory from outside suppliers is an
example of a company that is vertically integrated.
14) the cash budget is developed from the budgeted income statement.
15) freisn corporation uses the fifo method in its process costing system. department a
is the first processing department the company’s production process. the following
information pertains to conversion costs in june for that department:
the equivalent units for conversion costs are:
a.160,000
b.168,000
c.180,000
d.176,000
16) razor kennel uses tenant-days as its measure of activity; an animal housed in the
kennel for one day is counted as one tenant-day. during november, the kennel budgeted
for 3,000 tenant-days, but its actual level of activity was 3,010 tenant-days. the kennel
has provided the following data concerning the formulas used in its budgeting and its
actual results for november:
the overall revenue and spending variance (i.e., the variance for net operating income in
the revenue and spending variance column on the flexible budget performance report)
for november would be closest to:
a.$3,520 f
b.$3,428 u
c.$3,520 u
d.$3,428 f
17) the following data have been provided by dicus corporation:
the variable overhead rate variance for supplies is closest to:
a.$133 u
b.$47 f
c.$180 u
d.$133 f
18) the holmes division recorded operating data as follows for the past year:
for the past year, the minimum required rate of return was:
a.11%
b.12%
c.13%
d.14%
19) roberts enterprises has budgeted sales in units for the next five months as follows:
past experience has shown that the ending inventory for each month must be equal to
10% of the next month’s sales in units. the inventory on may 31 contained 410 units. the
company needs to prepare a production budget for the second quarter of the year.
the beginning inventory in units for september is:
a.370 units
b.6,700 units
c.530 units
d.670 units
20) the budget or schedule that provides necessary input data for the direct labor budget
is the:
a.raw materials purchases budget
b.production budget
c.schedule of cash collections
d.cash budget
21) an investment project that requires a present investment of $210,000 will have cash
inflows of “r” dollars each year for the next five years. the project will terminate in five
years. consider the following statements (ignore income tax considerations):
i. if “r” is less than $42,000, the payback period exceeds the life of the project.
ii. if “r” is greater than $42,000, the payback period exceeds the life of the project.
iii. if “r” equals $42,000, the payback period equals the life of the project.
which statement(s) is (are) true?
a.only i and ii
b.only i and iii
c.only ii and iii
d.i, ii, and iii
e.none of these
22) schinkel corporation has provided the following data concerning its most important
raw material, compound x87c:
the raw material was purchased on account.
required:
a. record the purchase of the raw material in a journal entry.
b. record the use of the raw material in production in a journal entry.
23) faxon company, which has only one product, has provided the following data
concerning its most recent month of operations:
what is the unit product cost for the month under absorption costing?
a.$99
b.$131
c.$122
d.$108
24) silguero clinic has two service departments, administrative and support, and two
operating departments, adult medicine and pediatrics.
the clinic uses the direct method to allocate service department costs to operating
departments. administrative department costs are allocated on the basis of employee
hours and support department costs are allocated on the basis of space occupied in
square feet.
the total amount of administrative department cost allocated to the adult medicine
department is closest to:
a.$18,482
b.$14,333
c.$12,968
d.$14,720
25) idso industries is a division of a major corporation. the following data are for the
latest year of operations:
required:
what is the division’s residual income?
26) sid freeman has developed a new electronic device that he has decided to produce
and market. the production facility will be in a nearby industrial park which sid will
rent for $4,000 per month. utilities will cost about $500 per month. he will use his
personal computer, which he purchased for $2,000 last year, to monitor the production
process. the computer will become obsolete before it wears out from use. the computer
will be depreciated at the rate of $1,000 per year. he will rent production equipment at a
monthly cost of $8,000. sid estimates the material cost per finished unit of product to be
$50, and the labor cost to be $10. he will hire workers, and spend his time promoting
the product. to do this he will quit his job which pays $4,500 per month. advertising
will cost $2,000 per month. sid will not draw a salary from the new company until it
gets well established.
required:
complete the chart below by placing an “x” under each heading that helps to identify the
cost involved. there can be “xs” placed under more than one heading for a single cost;
e.g., a cost might be a sunk cost, an overhead cost, and a product cost. there would be
an “x” placed under each of these headings opposite the cost.
*between the alternatives of producing and not producing the device.
27) in august, one of the processing departments at marchese corporation had beginning
work in process inventory of $34,000 and ending work in process inventory of $35,000.
during the month, $401,000 of costs were added to production. the company uses the
fifo method in its process costing system.
required:
construct a cost reconciliation report for the department for the month of august.
28) (ignore income taxes in this problem.) the management of erion corporation is
considering the purchase of an automated molding machine that would cost $280,534,
would have a useful life of 5 years, and would have no salvage value. the automated
molding machine would result in cash savings of $74,000 per year due to lower labor
and other costs.
required:
determine the internal rate of return on the investment in the new automated molding
machine. show your work!
29) vojtko inc. uses the weighted-average method in its process costing. the following
data concern the company’s assembly department for the month of april.
required:
compute the costs per equivalent unit for the assembly department for april.
30) pugmire corporation’s net cash provided by operating activities was $169,000; its
net income was $161,000; its capital expenditures were $95,000; and its cash dividends
were $42,000.
required:
determine the company’s free cash flow.
31) wrape urban diner is a charity supported by donations that provides free meals to
the homeless. the diner’s budget for april was based on 2,100 meals. the diner’s director
has provided the following cost data to use in the budget: groceries, $2.55 per meal;
kitchen operations, $4,700 per month plus $1.70 per meal; administrative expenses,
$3,300 per month plus $0.60 per meal; and fundraising expenses, $1,000 per month. the
director has also provided the diner’s statement of actual expenses for the month:
required:
prepare a flexible budget performance report showing both the activity variances and
the spending variances for each of the expenses and for total expenses for april. label
each variance as favorable (f) or unfavorable (u).
