Units spoiled due to machine breakdowns and operator errors are normal spoilage.
The two broad strategies that companies follow are cost leadership strategy and product
differentiation strategy.
U.S. tax reporting requires end-of-period reconciliation between actual and applied
indirect costs using the adjusted allocation-rate method or the proration method.
For benchmarking purposes for long-range planning, it is best to use master-budget
capacity because all competitors use about the same about of capacity for production.
Abnormal spoilage is spoilage that should arise under efficient operating conditions.
One of the most common problems reported by companies using variable costing is the
difficulty of classifying costs into fixed or variable categories.
A master budget is called a static budget because it is developed around a single
planned output level.
With a direct materials price variance of $40,000 F and direct materials efficiency,
direct manufacturing labor price, and direct labor efficiency variances of $60,000 U,
20,000 U, and 15,000 U, the write-off to cost of goods sold if these are deemed
immaterial would be a debit of $55,000.
In a cost function y = 18,000, the slope coefficient is zero.
A key type of sensitivity analysis for managers is to play “what-if” with the cash budget
so as to anticipate outcomes and take steps to minimize the effects of shortfalls in cash
balances.
Costs are accounted for in two basic stages: assignment followed by accumulation.
The productivity component measures the amount by which operating income increases
by using inputs efficiently to lower costs.
An investment center is always a decentralized subunit.
Avoidable variable and fixed costs should be considered relevant when deciding
whether to discontinue a product, product line, business segment, or customer.
Companies can decide on an appropriate strategy based strictly on internally available
information.
Variable overhead has no production-volume variance.
The juncture in a joint production process when two products become separable is the
byproduct point.
Under standard costing the cost per equivalent-unit calculation is more difficult than in
either weighted average or FIFO.
Costs of displays at customer sites is an example of customer batch-level costs.
Physical measures such as weight or volume are the best indicators of the benefits
received for allocating joint costs.
The only allowable method of joint cost allocation is net realizable value which is
specified by FASB.
The choice of a transfer-pricing method has minimal effect on the allocation of
company-wide operating income among divisions.
A profit-volume graph shows the impact on operating income from changes in the
output level.
A management accountant who is not capable of completing a project because her
skills, knowledge, and abilities are lacking could be ethically in violation of the
competence standard.
A flat or slightly sloped regression line indicates a strong relationship between the cost
driver and costs.
One concern with dual pricing is that it leads to disputes about which price should be
used when computing the taxable income of subunits located in different tax
jurisdictions.
If planned net income is $30,000 and the tax rate is 30%, then planned operating
income would be $39,000.
A company may use job costing to assign costs to different product lines and then use
process costing to calculate unit costs within each product line.
Under the incremental method, the first incremental user receives the largest allocation
of the common costs.
Companies often use costing systems that have features of ABC systems but that do not
emphasize individual activities.
Normal spoilage rates are computed by dividing units of normal spoilage by total good
units completed, NOT total actual units started in production.
The more owners have access to sensitive performance measures, the more they can
rely on incentive compensation for their managers.
Hybrid transfer prices can be arrived at through negotiations.
Direct costs are traced the same way for actual costing and normal costing.
Bar charts and a whale curve are some of the common ways of displaying the results of
customer-profitability analysis.
The sales-mix variance can be explained in terms of the budgeted contribution margin
per composite unit of the sales mix.
Francis and Hartley Law Office employs 12 full-time attorneys and 10
paraprofessionals. Direct and indirect costs are applied on a professional labor-hour
basis that includes both attorney and paraprofessional hours. Following is information
for 2018:
How much should the client be billed in an actual costing system if 220 professional
labor-hours are used?
A) $5,940
B) $7,744
C) $8,228
D) $7,040
Best products, an Atlanta based company, is in the midst of its budgeting process. It has
already prepared its direct materials usage budget and is now in the process of
preparing its direct material purchase budget. In addition to the details gathered to
prepare the direct materials usage budget, Best also must know ________.
A) the target direct materials ending inventory
B) the ratio of direct materials to cost of goods sold
C) the beginning direct materials inventory level
D) the quantity of direct materials to be purchased
Unit cost data can most mislead decisions by ________.
A) not computing fixed overhead costs
B) computing labor and materials costs only
C) computing administrative costs
D) not computing unit costs at the same output level
Branded Shoe Company manufactures only one type of shoe and has two divisions, the
Stitching Division and the Polishing Division. The Stitching Division manufactures
shoes for the Polishing Division, which completes the shoes and sells them to retailers.
The Stitching Division “sells” shoes to the Polishing Division. The market price for the
Polishing Division to purchase a pair of shoes is $50. (Ignore changes in inventory.)
The fixed costs for the Stitching Division are assumed to be the same over the range of
40,000-103,000 units. The fixed costs for the Polishing Division are assumed to be $22
per pair at 103,000 units.
Stitching‘s costs per pair of shoes are:
Direct materials $11
Direct labor $9
Variable overhead $7
Division fixed costs $5
Polishing‘s costs per completed pair of shoes are:
Direct materials $20
Direct labor $7
Variable overhead $10
Division fixed costs $16
Calculate and compare the difference in overall corporate net income of Branded Shoe
Company between Scenario A and Scenario B if the Assembly Division sells 103,000
pairs of shoes for $120 per pair to customers.
Scenario A: Negotiated transfer price of $33 per pair of shoes
Scenario B: Market-based transfer price
A) $1,751,000 more net income under Scenario A
B) $1,751,000 less net income using Scenario B
C) $103,000 less net income using Scenario A.
D) The net income would be the same under both scenarios.
Rockford Company manufactures a part for use in its production of hats. When 10,000
items are produced, the costs per unit are:
Direct materials $0.75
Direct manufacturing labor 3.00
Variable manufacturing overhead 1.50
Fixed manufacturing overhead 1.60
Total $6.85
Angel Company has offered to sell to Rockford Company 10,000 units of the part for
$6.00 per unit. The plant facilities could be used to manufacture another item at a
savings of $9,000 if Rockford accepts the offer. In addition, $1.00 per unit of fixed
manufacturing overhead on the original item would be eliminated.
Required:
a. What is the relevant per unit cost for the original part?
b. Which alternative is best for Rockford Company? By how much?
________ method includes fixed manufacturing overhead costs as inventoriable costs.
A) Variable costing
B) Absorption costing
C) Throughput costing
D) Activity-based costing
Buck Corporation plans to grow by offering a computer monitor, the CM3000 that is
superior and unique from the competition. Buck believes that putting additional
resources into R&D and staying ahead of the competition with technological
innovations are critical to implementing its strategy.
Required:
a. Is Buck’s strategy one of product differentiation or cost leadership? Explain briefly.
Identify at least one key element that you would expect to see included in the balanced
scorecard:
b. for the financial perspective.
c. for the customer perspective.
d. for the internal business process perspective.
e. for the learning and growth perspective.
Which of the following is true of financial accounting information?
A) It is prepared based on cost-benefit analysis.
B) It is primarily used by managers to make internal business decisions.
C) It focuses on the past-oriented financial performance of a company.
D) It only measures the cash transactions of a company.
The list of representative cost drivers in the right column below are randomized with
respect to the list of functions in the left column. That is, they do not match.
Required:
Match each business function with its representative cost driver.
Venus Corporation incurred fixed manufacturing costs of $6,300 during 2017. Other
information for 2017 includes:
The budgeted denominator level is 1,600 units.
Units produced total 770 units.
Units sold total 600 units.
Beginning inventory was zero.
The company uses variable costing and the fixed manufacturing cost rate is based on
the budgeted denominator level. Manufacturing variances are closed to cost of goods
sold.
Fixed manufacturing costs expensed on the income statement (excluding adjustments
for variances) total ________.
A) $2,363
B) $4,909
C) $6,300
D) $0
Velim Electronics manufactures electric shavers and is considering decreasing the price
by $3 a unit for the coming year. With a $3 price decrease, the unit demand is expected
to increase by 25%, and a high volume materials discount is expected to decrease the
variable costs per unit by $2 per unit.
Would you recommend the $3 price decrease?
A) Yes, because demand decreases.
B) No, because the selling price decreases.
C) Yes, because operating income increases.
D) No, because contribution margin per unit increases.
Under the FIFO method, all spoilage costs are assumed to be related to the units
________.
A) in beginning inventory, plus the units completed during the period
B) completed during the period, using the unit costs of that period
C) in ending inventory
D) in both beginning and ending inventory plus the units completed during the period
The breakeven point is .
A) where selling one more unit will not increase income
B) where contribution margin equals fixed costs
C) where total revenues equal contribution margin
D) fixed costs divided by revenues equals zero
Stark Corporation has two departments, Car Rental and Truck Rental. Central costs may
be allocated to the two departments in various ways.
If administrative expense of $77,500 is allocated on the basis of number of employees, the
amount allocated to the Car Rental Department would be ________.
A) $38,750.00
B) $52,364.86
C) $25,135.14
D) $51,278.20
Homogeneous cost pool leads to which of the following?
A) more accurate costs of a given cost object
B) more resources being assigned to that cost object
C) the need for more cost drivers
D) the need for different cost allocation bases to allocate the costs
In a combined 3-variance analysis, the total spending variance would be ________.
A) $20,600 F
B) $30,800 U
C) $20,600 U
D) $45,200 F
Which of the following is an advantage of using practical capacity to allocate costs?
A) is that it allows a downward supply spiral to develop
B) is that it focuses management’s attention on managing unused capacity
C) is that budgets are much easier to develop
D) is that it results in departments bearing a lower percentage of fixed costs
Colil Computer Systems, Inc., manufactures printer circuit cards. All direct materials
are added at the inception of the production process. During January, the accounting
department noted that there was no beginning inventory. Direct materials of $310,000
were used during the month. Work-in-process records revealed that 12,000 card units
were started in January, 6000 card units were complete, and 4600 card units were
spoiled as expected. Ending work-in-process card units are complete in respect to direct
materials costs. Spoilage is not detected until the process is complete.
What is the direct material cost per equivalent unit? (Please round the final answer to
the nearest cent.)
A) $17.22
B) $25.83
C) $21.68
D) $29.99
The tool crib at a large manufacturing company is responsible for providing tools to the
factory workers on demand. The tool crib has a variable demand. Historically, its
demand has ranged from 300 to 560 small tools per day with an average of 430. Diane,
the tool crib attendant, works eight hours a day, five days a week. Each order is for one
small tool and each small tool takes Diane 1 minute to retrieve from the bins.
What is the average waiting time, in minutes? (Round the final answer to the first
decimal place.)
A) 1.0
B) 3.3
C) 4.3
D) 5.3
Which of the following statements is true of just-in-time (JIT) purchasing?
A) In JIT purchasing, the optimal safety-stock level is the quantity of safety stock that
minimizes the sum of annual relevant stockout and carrying costs.
B) JIT purchasing is guided solely by the EOQ model because that model emphasizes
the tradeoff between relevant carrying and ordering costs.
C) In JIT purchasing, raw materials (or goods) are purchased so that products are
delivered just as needed for production or sales.
D) Only disadvantage of JIT purchasing is the higher level carrying and inspection
costs.
Freemore Company has the following sales budget for the last six months of 2018:
Sales are immediately due, however the cash collection of sales, historically, has been as
follows:
55% of sales collected in the month of sale,
35% of sales collected in the month following the sale,
7% of sales collected in the second month following the sale, and
3% of sales are uncollectible.
Cash collections for September are ________.
A) $126,710
B) $173,750
C) $188,170
D) $199,930
J&J Materials and Construction Corporation produces mulch and distributes the product
by using dump trucks. The company uses budgeted fleet hours to allocate variable
manufacturing overhead. The following information pertains to the company’s
manufacturing overhead data:
What is the budgeted variable manufacturing overhead cost per unit?
A) $154.50 per unit
B) $177.13 per unit
C) $130.54 per unit
D) $123.60 per unit
In the graph method of CVP analysis, ________.
A) The total revenue line starts at the origin and the total costs line starts at the fixed
intercept.
B) The operating income line starts at the origin and the total costs line starts at the
fixed intercept.
C) The breakeven point is at the fixed intercept where the total revenues line intersects.
D) The operating income area is the section where the total costs line is above the total
revenues line.
The reciprocal allocation method ________.
A) is the most widely used because of its simplicity
B) requires the ranking of support departments in the order that the allocation is to
proceed
C) fully incorporates interdepartmental relationships into the support-department cost
allocations
D) allocates support-department costs to other support departments and to operating
departments in a sequential manner that partially recognizes the mutual services
provided among all support departments
A well-designed, activity-based cost system helps managers make better decisions
because information derived from an ABC analysis ________.
A) can be used to eliminate nonvalue-added activities
B) is easy to analyze and interpret
C) takes the choices and judgment challenges away from the managers
D) emphasizes how managers can achieve higher sales
The Berkel Corporation manufactures Widgets, Gizmos, and Turnbols from a joint
process. June production is 7000 widgets; 10,500 gizmos; and 12,500 turnbols.
Respective per unit selling prices at split-off are $80, $55, and $30. Joint costs up to the
split-off point are $188,500. If joint costs are allocated based upon the sales value at
split-off, what amount of joint costs will be allocated to the widgets? (Do not round any
intermediary calculations.)
A) $23,492
B) $69,792
C) $46,736
D) $71,973
Which of the following differentiates confidentiality and credibility under the Standards
of Ethical Conduct?
A) Credibility deals with refraining from activities that would prejudice carrying duties
ethically, while confidentiality deals with communicating information fairly and
objectively.
B) Confidentiality deals with refraining from the usage of critical information for
unethical or illegal advantage, while credibility ensures disclosing the relevant
information that would help the intended user’s understanding.
C) Credibility deals with refraining from the usage of critical information for unethical
or illegal advantage, while confidentiality ensures disclosing the relevant information
that would help the user’s understanding.
D) Credibility ensures appropriate level of professional expertise by continually
developing knowledge and skills, while confidentiality encourages mitigation of actual
conflicts of interest.
Aerated Water Company makes internal transfers at 175% of full cost. The Soda
Refining Division purchases 30,500 containers of carbonated water per day, on average,
from a local supplier, who delivers the water for $31 per container via an external
shipper. To reduce costs, the company located an independent supplier in Missouri who
is willing to sell 30,500 containers at $28 each, delivered to Aerated Water Company’s
Shipping Division in Missouri. The company’s Shipping Division in Missouri has
excess capacity and can ship the 30,500 containers at a variable cost of $8.00 per
container. What is the total cost to Aerated Water Company if the carbonated water is
purchased from the local supplier?
A) $945,500
B) $892,125
C) $2,318,000
D) $1,654,625
When a job is complete ________.
A) actual indirect manufacturing labor is excluded from the total cost of the job
B) Finished Goods Control is debited
C) the cost of the job is transferred to Manufacturing Overhead Control
D) it is reduced from Manufacturing Overhead Control account
________ are the costs of activities undertaken to support individual products or
services regardless of the number of units or batches in which the units are produced.
A) Unit-level costs
B) Batch-level costs
C) Product-sustaining costs
D) Facility-sustaining costs
Product mix decisions ________.
A) have a long-run focus
B) help determine how to maximize operating profits
C) focus on selling price per unit
D) help maximizing opportunity costs
The sales-volume variance is the difference between ________.
A) a sales-mix variance and the corresponding sales-quantity variance
B) a flexible-budget amount and the corresponding static-budget amount
C) a market-share variance and the corresponding market-size variance
D) a sales-mix variance and the corresponding market size variance
Pat, a Pizzeria manager, replaced the convection oven just six months ago. Today,
Turbo Ovens Manufacturing announced the availability of a new convection oven that
cooks more quickly with lower operating expenses. Pat is considering the purchase of
this faster, lower-operating cost convection oven to replace the existing one they
recently purchased. Selected information about the two ovens is given below:
Existing New Turbo Oven
Original cost $60,000 $50,000
Accumulated depreciation $ 5,000 —
Current salvage value $40,000 —
Remaining life 5 years 5 years
Annual operating expenses $10,000 $ 7,500
Disposal value in 5 years $ 0 $ 0
Required:
a. What costs are sunk?
b. What costs are relevant?
c. What are the net cash flows over the next 5 years assuming the Pizzeria purchases the
new convection oven?
d. What other items should Pat, as manager of the Pizzeria, consider when making this
decision?
