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The Big Tool Company has budgeted sales of $300,000 with the following budgeted
costs:
Compute the average markup percentage for setting prices as a percentage of:
a. The full cost of the product
b. The variable cost of the product
c. Variable manufacturing costs
d. Total manufacturing costs
Which of the following is an example of sunk costs?
A) wages to security staffs
B) cost of purchasing raw materials
C) cost of an alternative investment
D) wages payable to skilled laborers to make a product
The sales-mix variance is calculated by ________.
A) deducting budgeted contribution margin based on actual units at budgeted mix from
budgeted contribution margin based on actual units sold at the actual mix
B) deducting budgeted contribution margin based on budgeted units at actual mix from
budgeted contribution margin based on actual units sold at the budgeted mix
C) deducting budgeted contribution margin based on actual units at actual mix from
budgeted contribution margin based on budgeted units sold at the budgeted mix
D) deducting budgeted contribution margin based on actual units at actual mix from
budgeted contribution margin based on actual units sold at the actual mix
Franklin Inc. manufactures pipes and applies manufacturing overhead costs to
production at a budgeted indirect-cost rate of $15 per direct labor-hour. The following
data are obtained from the accounting records for June 2018:
The amount of manufacturing overhead allocated to all jobs during June 2018 totals
________.
A) $91,500
B) $60,000
C) $76,000
D) $60,500
Inventoriable costs ________.
A) include administrative and marketing costs
B) are expensed in the accounting period in which the products are sold
C) are expensed in the accounting period in which the products are manufactured
D) are also referred to as nonmanufacturing costs
A study by a consultant shows that a company that had $2,000,000 of inventory was
holding excess inventory of $320,000 that could be eliminated with a few process
improvements. It also has $620,000 in marketable securities that yield 5% per year.
What is the estimated annual opportunity cost of holding the excess inventory?
A) $16,000
B) $100,000
C) $31,000
D) $47,000
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
Times Corporation, whose tax rate is 30%, has two sources of funds: long-term debt
with a market value of $6,500,000 and an interest rate of 7%, and equity capital with a
market value of $18,000,000 and a cost of equity of 11%. Times Corporation's after-tax
cost of debt is ________.
A) 9.38%
B) 4.90%
C) 7.00%
D) 11.00%
Franklin Company is in the process of evaluating a new part using the following
information.
∙ Part SLC2002 has one production run each month, each with $18,000 in setup costs.
∙ Part SLC2002 incurred $40,000 in development costs and is expected to be produced
over the next three years.
∙ Direct costs of producing Part SLC2002 are $56,000 per run of 24,000 parts each.
∙ Indirect manufacturing costs charged to each run are $88,000.
∙ Destination charges for each run average $15,000.
∙ Part SLC2002 is selling for $14.00 in the United States and $25 in all other countries.
Sales are one-third domestic and two-thirds exported.
∙ Sales units equal production units each year.
Required:
a. What are the estimated life-cycle revenues?
b. What is the estimated life-cycle operating income for the first year?
The Fortise Corporation manufactures two types of vacuum cleaners, the Victor for
commercial building use and the House-Mate for residences. Budgeted and actual
operating data for the year 2017 were as follows:
What is the total static-budget variance in terms of the contribution margin?
A) $680,000 favorable
B) $1,320,000 favorable
C) $1,320,000 unfavorable
D) $680,000 unfavorable
The sales-mix variance will be unfavorable when which of the following occurs?
A) the actual sales mix shifts toward the less profitable units
B) the contribution margin per composite unit for the actual mix is greater than the
budgeted mix
C) the actual unit sales are less than the budgeted unit sales
D) the actual contribution margin is less than the static-budget contribution margin
To guide cost allocation decisions, the benefits-received criterion ________.
A) generally uses the cost driver as the cost allocation base
B) advocates allocating costs in proportion to the cost object's ability to bear costs
allocated to it
C) is the primarily used criterion in activity-based costing
D) may use an allocation base of division revenues to allocate advertising costs
In a process-costing system average unit costs are calculated ________.
A) by dividing total costs in a given accounting period by total units produced in that
period
B) by multiplying total costs in a given accounting period by total units produced in that
period
C) by dividing total costs in a given accounting period by units started in that period
D) by multiplying total costs in a given accounting period by units started in that period
Which of the following describes rework?
A) units of production that do not meet the specifications required by customers but that
are
subsequently repaired and sold as good finished units
B) products of a joint production process that have low total sales values relative to the
total sales value of the main product
C) units of production whether fully or partially completed, that do not meet the
specifications
required by customers for good units and are discarded or sold at reduced prices
D) residual material that results from manufacturing a product
Financial planning software packages assist management with ________.
A) assigning responsibility to various levels of management
B) identifying the target customer
C) sensitivity analysis in their planning and budgeting activities
D) achieving greater commitment from lower management
Freetown Corporation incurred fixed manufacturing costs of $34,000 during 2017.
Other information for 2017 includes:
The budgeted denominator level is 2,000 units.
Units produced total 1,800 units.
Units sold total 1,300 units.
Beginning inventory was zero.
The company uses absorption costing and the fixed manufacturing cost rate is based on
the budgeted denominator level. Manufacturing variances are closed to cost of goods
sold.
Operating income using absorption costing will be ________ than operating income if
using variable costing. (Round any intermediary calculations to the nearest cent and
your final answer to the nearest dollar.)
A) $11,900 higher
B) $9,444 lower
C) $8,500 higher
D) $22,100 lower
Ms. Sophia Jones, the company president, has heard that there are multiple breakeven
points for every product. She does not believe this and has asked you to provide the
evidence of such a possibility. Some information about the company for 2017 is as
follows:
What are breakeven sales in units using absorption costing if the production units are
actually 50,000? (Round any intermediary calculations to the nearest cent and your final
answer up to the next whole unit.)
A) 13,142 units
B) 5,603 units
C) 7,907 units
D) 8,601 units
Ralph was in the process of completing the quarterly planning for the purchasing
department when a major computer malfunction lost most of his data. For direct
material XXX he was able to recover the following:
Ralph purchases at the EOQ quantity level.
Required:
Determine the annual demand, the cost of placing an order, the annual carrying cost of one
unit, and the economic order quantity.
Corny Solutions processes various corn related food items. One of its facilities located
in Iowa, performs some initial processing of corn on the cob once it arrives from the
corn fields. The corn from that facility will be further processed elsewhere into corn for
popping and corn meal. The costs incurred at the Iowa plant would be considered
________.
A) combined costs
B) distinct costs
C) fixed costs
D) common costs
Brown Laundry has a variable demand. The daily demand ranges from 100 to 140
customers a day with an average of 5 items. The average daily demand is 110
customers. The laundry operates 10 hours a day. Each order takes approximately 5
minutes.
Required:
a. What is the average customer waiting time, in minutes?
b. What is the cycle time for an order?
c. The manager has decided that the waiting time is too long and has increased the
workday to 11 hours. What is the waiting time now? Will the customers be any happier?
The H.W. Grant Corporation used regression analysis to predict the annual cost of
indirect materials. The results were as follows:
Indirect Materials Cost Explained by Units Produced
Constant $15,640
Standard error of Y estimate $3,600
r2 0.7704
Number of observations 22
X coefficient(s) 11.25
Standard error of coefficient(s) 2.19
What is the cost estimation equation?
A) Y = $15,640 + $11.25X
B) Y = $3,600 + $8.67X
C) Y = $19,240 + $5.14X
D) Y = $12,040 + $11.25X
A company has two distribution channels: wholesale and business sales. Which of the
following costs would be allocated as distribution-channel-level costs when analyzing
the profitability of customer distribution channels?
A) sales order costs
B) customer visit costs
C) salary of the wholesale distribution channel manager
D) corporate adminstration costs
Rosewood company sells wooden carvings for $300 each. The direct materials cost per
unit is $160 and the direct labor is 2 hours at a rate of $26 per hour. Manufacturing
overhead is applied on the basis of labor hours at a rate of $36 per hour. Rosewood
makes and sells 1,000 units per period. How many units must Rosewood sell to
breakeven?
A) 409 units
B) 450 units
C) 240 units
D) 818 units
Which of the following is most likely to be a cost driver for the variable portion of
marketing costs?
A) percentage of markup on cost
B) number of units produced
C) increase in revenues attributable to such marketing
D) number of units units sold
It is most difficult to estimate ________ because of the need to predict demand for the
next few years.
A) practical capacity
B) theoretical capacity
C) master-budget capacity utilization
D) normal capacity utilization
________ are all manufacturing costs that are related to the cost object but cannot be
traced to that cost object in an economically feasible way.
A) Indirect manufacturing costs
B) Marketing costs incurred
C) Variable manufacturing costs
D) Custom duties paid for the materials
Salter Manufacturing Company produces inventory in a highly automated assembly
plant in Fall River, Massachusetts. The automated system is in its first year of operation
and management is still unsure of the best way to estimate the overhead costs of
operations for budgetary purposes. For the first six months of operations, the following
data were collected:
Machine-hours Kilowatt-hours Total Overhead Costs
January 4,560 5,424,000 $405,600
February 4,380 5,208,000 404,160
March 4,680 5,400,000 407,040
April 3,960 5,148,000 404,160
May 3,900 5,040,000 391,200
June 3,720 4,944,000 384,000
Required:
a. Use the high-low method to determine the estimating cost function with
machine-hours as the cost driver.
b. Use the high-low method to determine the estimating cost function with
kilowatt-hours as the cost driver.
c. For July, the company ran the machines for 4,000 hours and used 4,550,000
kilowatt-hours of power. The overhead costs totaled $365,000. Which cost driver was
the best predictor for July?
Process costing would most likely be used to assign costs to products produced by
which of these companies?
A) Jones Flour Mill
B) Riley Automobile Dealer
C) Big Time Yacht Corporation
D) Sullivan and Murphy Law Firm LLC
Variable costing regards fixed manufacturing overhead as a(n) ________.
A) administrative cost
B) inventoriable cost
C) period cost
D) product cost
The seller of Product A has no idle capacity and can sell all it can produce at $59 per
unit. Outlay cost is $20. What is the opportunity cost, assuming the seller sells
internally?
A) $20
B) $39
C) $59
D) $79
Einstein Motors, has a capacity to produce 38,000 electric cars. Due to a temporary
subsidy announced, there is a sudden increase in demand. Einstein decides to adopt
peak-load pricing and charge a premium of 30% over its normal selling price of $4000.
It has already accepted orders for 29,000 units at normal selling price. What is the total
contribution to the company on sale of additional 9000 units if the variable cost per unit
is $2000?
A) $36,000,000
B) $28,800,000
C) $18,000,000
D) $10,800,000
Outside the relevant range, variable costs, such as direct material costs ________.
A) will decrease proportionately with changes in sales volumes
B) will remain the same with changes in production volumes
C) will not change proportionately with changes in production volumes
D) will increase proportionately with changes in sales volumes
