1) Merchandising companies include both wholesalers and retailers.
2) Managers’ decisions are based solely on quantitative factors.
3) When making outsourcing (make-or-buy) decisions, the focus is on how best to use
available resources.
4) The end goal of process costing and job costing at a manufacturing company is the
same: to find the cost of producing one unit of product.
5) On a CVP graph, the vertical distance between the total expense line and the total
fixed cost line equals the variable expenses.
6) The duties of an investment center manager are similar to those of a CFO.
7) When computing the present value of a future sum, the interest rate must always be
expressed as an annual rate.
8) Companies that use ABC trace direct materials and direct labor to cost objects just as
would be done using traditional costing systems.
9) The schedule of cost of goods manufactured is prepared before the income statement
for a manufacturing company.
10) Over the long-term all costs are uncontrollable.
11) When setting prices, managers need to consider all costs.
12) A production schedule always covers a one-year period of time.
13) The traditional income statement is considered by most companies to be a better
management tool than the contribution margin income statement.
14) Revenue center performance reports are reports that list variances.
15) The “total physical units to account for” is the sum of the units in beginning WIP
inventory plus the units started in production during the period.
16) Companies that decentralize split their operations into different divisions or
operating units.
17) If the actual number of units manufactured is less than the number of units
anticipated to be manufactured, then the fixed overhead volume variance will always be
unfavorable.
18) The “total physical units to account for” is the sum of the units in beginning WIP
inventory plus the units in ending WIP inventory.
19) Manufacturers follow four steps to implement a manufacturing overhead allocation
system. The last step is to estimate the total amount of manufacturing overhead costs
for the year.
20) Spinelli Company is deciding whether to automate one phase of its production
process. The equipment has a six year life and will cost $450,000. The interest rate is
12%. Net cash inflows per year:
a.What is the present value of the net inflow for year 1?
b.What is the present value of the net inflow for year 5?
21) Managers who practice total quality management
A) invest more resources at the front end of the value chain in research and
development and design to produce a superior product
B) invest more resources in inspecting and repairing products once they are produced
C) practice both A and B
D) practice neither A nor B
22) Back Porch Company manufactures lawn chairs using an activity-based costing
system to allocate all manufacturing conversion costs. The following information is
provided for the month of June:
Each lawn chair consists of 8 parts; the total direct materials cost per pillow is $10.00.
If the cost to purchase the same lawn chair from a supplier is $35.00, what should Back
Porch do to maximize profits?
A) Purchase the lawn chair from the supplier
B) Continue to manufacture the lawn chair
C) Since the cost to manufacture the lawn chair is also $32.20, the company would
make the same profit whether it bought the lawn chair or manufactured it
D) Close down the business
23) State whether each company below would be more likely to use a job costing
system or a process costing system.
A)________custom home builder
B)________paint manufacturer
C)________carpet manufacturer
D)________concrete manufacturer
E)________jumbo jet manufacturer
24) Cooper’s Bags Company manufactures cloth grocery bags to be sold to grocery
stores and other retailers. Cooper’s Bags Company sells the bags in cases of 1,000 bags.
The bags come in three sizes: Large, Medium, and Small. Currently, Cooper’s Bags
Company uses a single plant-wide overhead rate to allocate its $8,088,000 of annual
manufacturing overhead. Of this amount, $2,210,000 is associated with the Large Bag
line, $3,418,800 is associated with the Medium Bag line, and $2,459,200 is associated
with the Small Bag line. Cooper’s Bags Company is currently running a total of 40,000
machine hours: 13,000 in the Large Bag line, 15,400 in the Medium Bag line, and
11,600 in the Small Bag line. Cooper’s Bags Company uses machine hours as the cost
driver for manufacturing overhead costs.
The plant-wide manufacturing overhead rate would be closest to
A) $ 55.25 per machine hour
B) $170.00 per machine hour
C) $222.00 per machine hour
D) $202.20 per machine hour
25) Howard, Fine, & Howard is an advertising agency. The firm uses an activity-based
costing system to allocate overhead costs to its services. Information about the firm’s
activity cost pool rates follows:
Stooge Company was a client of Howard, Fine, & Howard. Recently, 7 administrative
assistant hours, 3 new ad campaigns, and 8 meeting hours were incurred for the Stooge
Company account.
Using the activity-based costing system, how much overhead cost would be allocated to
the Stooge Company account?
A) $917
B) $501
C) $195
D) $3,484
26) Vertical analysis would rarely be performed on which of the following?
A) Income statement
B) Schedule of depreciation
C) Balance sheet
D) All of the above are common targets of vertical analysis
27) (Present value tables are required.) Karpets Industries is investing in a new
high-speed loom for weaving its rugs and carpets. The new loom will have a useful life
of 7 years and cost $80,000. The loom’s residual value is $5,000. Assume that Karpets
requires a return of 10% and that the loom will create annual cost savings of $16,250.
What is the net present value (NPV) of the new loom?
A) $1,670
B) ($3,460)
C) $81,670
D) ($895)
28) Biltz Company uses a predetermined overhead rate based on direct labor hours to
allocate manufacturing overhead to jobs. During the year, the company actually
incurred manufacturing overhead costs of $582,000 and 135,000 direct labor hours
were worked. The company estimated that it would incur $525,000 of manufacturing
overhead during the year and that 150,000 direct labor hours would be worked.
By how much was manufacturing overhead overallocated or underallocated for the
year?
A) $109,500 underallocated
B) $57,000 overallocated
C) $57,000 underallocated
D) $109,500 overallocated
29) Sherwin Chemicals produces commercial strength cleansing supplies. Two of its
main products are window cleanser that uses ammonia, and floor cleanser that uses
bleach. Information for the most recent period follows:
What is the standard price for bleach?
A) $0.79/oz
B) $0.88/oz
C) $0.92/oz
D) $1.14/oz
30) The store manager for the Dick’s Sporting Goods location in Columbus, Ohio, is in
charge of a(n)
A) cost center
B) investment center
C) profit center
D) revenue center
31) The contribution margin income statement presents ________ below the
contribution margin line.
A) only variable expenses relating to selling and administrative activities
B) only fixed expenses relating to selling and administrative activities
C) all fixed expenses
D) all variable expenses
32) Which of the following does not appear on an income statement prepared using
variable costing?
A) Fixed production costs
B) Contribution margin
C) Gross margin
D) Variable production costs
33) The ________ section from the statement of cash flows would include the payment
of a long-term mortgage payable with cash.
A) investing
B) financing
C) operating
D) None of the above
34) Pendant Publishing reported the following results for its Textbook Division:
Pendant’s target rate of return is 15% and the weighted average cost of capital is 10%.
Its effective tax rate is 35%.
What is the Textbook Division’s Return on Investment (ROI)?
A) 20.00%
B) 45.45%
C) 40.00%
D) 200.00%
35) Which of the following is an example of an industry that would use a process
costingrather than a job costingsystem?
A) Brugman Custom Cabinetry
B) Computer Repair
C) Pepsi
D) Smith & Zu Certified Public Accountants
36) The present value of $1,000,000 received in 13 years, given an interest rate of 3%,
is
A) $681,000
B) $661,000
C) $1,469,000
D) $10,635,000
37) Kramer Manufacturing produces blenders. Its total fixed costs are $30,000. Its
variable costs are $55.00 per blender. As production of blenders increases (within the
relevant range), fixed costs will
A) stay the same per unit
B) decrease as production increases
C) decrease per unit as production increases
D) increase as production decreases
38) A ________ is a measure of the total emissions of carbon dioxide and other
greenhouse gases.
A) carbon footprint
B) waste footprint
C) carbon mark
D) water footprint
39) “Financial budget” is best described by which of the following?
A) A company’s plan for purchases of property, plant and equipment, and other
long-term assets
B) A budget that projects cash inflows and outflows and the end of period budgeted
balance sheet
C) A budget that shows projected sales, purchases and operating expenses
D) A system for evaluating the performance of each responsibility center and its
manager
40) The actual cost of direct materials is $50.25 per pound. The standard cost per pound
is $56.00. During the current period, 6,800 pounds were used in production. The
standard quantity for actual units produced is 6.500 pounds. How much is the direct
materials price variance?
A) $37,375 favorable
B) $37,375 unfavorable
C) $39,100 favorable
D) $39,100 unfavorable
41) Which of the following descriptions do apply to cash equivalents?
A) Cash equivalents’ values change because of interest rate changes
B) Cash equivalents are invested in fixed assets
C) Cash equivalents are highly liquid
D) Cash equivalents are long-term
42) The Jones Corporation uses a process system. During the current period, 2,500 units
were started and 1,100 units were completed and transferred out. Ending units were
60% complete for materials and 50% complete for conversion costs. Direct materials
costs added were $35,405 and conversion costs added were $32,870. There was no
beginning WIP inventory and conversion costs are added evenly throughout the
process. At the end of the period, the cost per equivalent unit for direct materials would
be closest to:
A) $19.00
B) $18.25
C) $32.19
D) $29.88
43) Gomez Corporation is considering two alternative investment proposals with the
following data:
How long is the payback period for Proposal Y?
A) 21.25 years
B) 6.00 years
C) 6.80 years
D) 11.70 years
44) The first three steps to allocating manufacturing overhead are taken before the year
begins and include all of the following except
A) estimating total manufacturing overhead costs for the coming year
B) selecting an allocation base and estimating the total amount that will be used during
the year
C) allocating some manufacturing overhead to each individual job
D) calculating the predetermined manufacturing overhead rate
45) Paula Corporation is trying to predict its manufacturing overhead costs for the
upcoming year; they are debating the use of the high-low method versus the use of
regression analysis. They have gathered information about their manufacturing
overhead costs in each of the past six months. A table containing their cost data and the
associated machine hours in each month (the cost driver) follows.
The company performed a regression analysis using the above data and had the
following results. (Note: the results are excerpts so not all of the regression analysis
results are presented.)
Required:
a.What is the cost equation if the high-low method is used to estimate costs?
b.Using the high-low method, predict total manufacturing overhead costs if Paula
Corporation uses 12,000 hours.
c.What is the cost equation if regression analysis is used to estimate costs (use the
results from the regression analysis provided)?
d.Using the results from the regression analysis provided, predict total manufacturing
overhead costs if Paula Corporation uses 12,000 hours.
e.Which method (high-low or regression analysis) is a better predictor of total
manufacturing overhead costs? Why?
46) Peterson Company gathered the following information for the year ended December
31:
Peterson Company uses a job costing system.
What would the predetermined manufacturing overhead rate for the year be using direct
labor hours as the allocation base?
A) $1.11 per direct labor hour
B) $1.00 per direct labor hour
C) $1.30 per direct labor hour
D) $.90 per direct labor hour
47) Identify five benefits of standard costs.
48) Describe the scattergraph method. Discuss the advantages and disadvantages of
using the scattergraph method.
49) Pyne Corporation’s actual output for a period was assigned the standard labor cost
of $32,500. If the company had an unfavorable direct labor rate variance of $1,750 and
a favorable direct labor efficiency variance of $975, what was the total actual cost of
direct labor incurred during the period?
50) Is financial accounting or managerial accounting more useful to a plant (factory)
manager? Explain your answer.
51) List and describe reasons why a company might choose to decentralize.