ABC systems help managers to ________.
A) value ending inventory more accurately
B) identify new designs to reduce costs
C) evaluate direct material costs more efficiently
D) improve the inventory turnaround time
In a perfectly competitive market, which of the following is a primary factor
influencing pricing decisions?
A) cost of production
B) availability of raw materials in the market
C) information on competitor’s cost structure
D) value customers place on product
Which of the following statements refers to management accounting information?
A) There are no regulations governing the reports.
B) The reports are generally delayed and historical.
C) The audience tends to be stockholders, creditors, and tax authorities.
D) It primarily measures manager’s compensation on reported financial results.
The Enor Machine Company is evaluating a capital expenditure proposal that requires
an initial investment of $99,360 and has predicted cash inflows of $20,000 per year for
8 years. It will have no salvage value.
Required:
a. Using a required rate of return of 10%, determine the net present value of the
investment proposal.
b. Determine the proposal’s internal rate of return.
Stefan Ceramics is in the business of selling ceramic vases. It has two departments –
molding and finishing. Molding department purchases tungsten carbide and produces
ceramic vases out of it. Ceramic Vases are then transferred to finishing department,
which designs it as per the requirement of the customers.
During the month of July, molding department purchased 720 kgs of tungsten carbide at
$280 per kg. It started manufacture of 4200 vases and completed and transferred 3800
vases during the month. It has 400 vases in the process at the end of the month. It
incurred direct labor charges of $1700 and other manufacturing costs of $600, which
included electricity costs of $700. Stefan had no inventory of tungsten carbide at the
end of the month. It also had no beginning inventory of vases. The ending inventory
was 40% complete in respect of conversion costs. What is the total conversion costs for
the month of July?
A) $3000
B) $2300
C) $1600
D) $1700
Jamal, Kareem, Rashid and Associates are in the process of evaluating its new client
services for the business consulting division.
∙ Estate Planning, a new service, incurred $190,000 in development costs and employee
training.
∙ The direct costs of providing this service, which is all labor, averages $29 per hour.
∙ Other costs for this service are estimated at $410,000 per year.
∙ The current program for estate planning is expected to last for two years. At that time,
a new law will be in place that will require new operating guidelines for the tax
consulting.
∙ Customer service expenses average $104 per client, with each job lasting an average
of 450 hours. The current staff expects to bill 67,500 hours for each of the two years the
program is in effect. Billing averages $49 per hour.
What is the estimated life-cycle operating income for the first two years?
A) $6,615,000
B) $1,658,800
C) $924,400
D) $734,400
A grouping of all the different types of equipment used to make a given product is
referred to as ________.
A) total quality management
B) materials requirements planning
C) manufacturing cells
D) economic order quantity
Springfield Corporation, whose tax rate is 34%, has two sources of funds: long-term
debt with a market value of $6,000,000 and an interest rate of 9%, and equity capital
with a market value of $16,000,000 and a cost of equity of 14%. What is Springfield’s
weighted average cost of capital (WACC)?
A) 14.00%
B) 9.97%
C) 11.80%
D) 12.64%
The Charmatz Corporation has a central copying facility. The copying facility has only
two users, the Marketing Department and the Operations Department. The following
data apply to the coming budget year:
Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 80,000 copies and by the
Operations Department was 320,000 copies. If a single-rate cost-allocation method is used,
what amount of copying facility costs will be budgeted for the Marketing Department?
(Round any intermediary calculations to the nearest cent.)
A) $18,200
B) $6000
C) $12,200
D) $21,250
Bob’s Cellular Phone Company uses ROI to measure divisional performance. Annual
ROI calculations for each division have traditionally employed the ending amount of
invested capital along with annual operating income and net revenue. The Dupont
method is generally used. The company’s Phone Accessories Division had the following
results for the last two years:
2015 ROI = ($2,000,000/$20,000,000) × ($20,000,000/$10,000,000) = 0.20
2016 ROI = ($2,400,000/$25,000,000) × ($25,000,000/$15,000,000) = 0.16
Corporate management was disappointed in the performance of the division for 2016,
since it had made an additional investment in the division that was budgeted for a 23%
ROI.
Required:
a. Discuss some factors that may have contributed to the decrease in ROI for 2016.
b. Would there have been any substantial difference if average capital had been used?
During February the Lungren Manufacturing Company’s costing system reported
several variances that the production manager was surprised to see. Most of the
company’s monthly variances are under $125, even though they may be either favorable
or unfavorable. The following information is for the manufacture of garden gates, its
only product:
1. Direct materials price variance, $800 unfavorable.
2. Direct materials efficiency variance, $1,800 favorable.
3. Direct manufacturing labor price variance, $4,000 favorable.
4. Direct manufacturing labor efficiency variance, $600 unfavorable.
Required:
a. Provide the manager with some ideas as to what may have caused the price variances.
b. What may have caused the efficiency variances?
Which of the following statements about a company’s supply chain is true?
A) A company’s supply chain is always internal to a firm.
B) A company’s supply chain is always external to a firm.
C) A company’s supply chain is the same thing as a company’s value chain.
D) Management accountants provide information to enhance a company’s supply chain.
Troy City Inc., manufactures a product and is considering raising the price by $20 a unit
for the coming year. With a $20 price increase, demand is expected to fall by 2500
units.
Would you recommend the $20 price increase?
A) No, because demand decreased.
B) No, because the contribution margin decreases.
C) Yes, because inventory turnover increases.
D) Yes, because operating income increases.
________ is the usual starting point for budgeting.
A) The revenues budget
B) The estimated net income
C) The production budget
D) The cash budget
Which of the following statements is true of successfully implementing a balanced
scorecard?
A) External auditors should design and implement the balanced scorecard.
B) Balanced scorecard should never be communicated to all employees.
C) Balanced scorecard should be formed exclusively by top management.
D) Management accountants should determine the balanced scorecard measures.
A unit cost is computed by ________.
A) multiplying total cost by the number of units produced
B) dividing total cost by the number of units produced
C) dividing variable cost by the number of units produced
D) dividing fixed cost by the number of units produced
An increase in direct labor cost per unit ________.
A) increases the fixed cost
B) increases profits
C) increases the variable cost
D) increases overhead costs
The Green Company processes unprocessed goat milk up to the split-off point where
two products, condensed goat milk and skim goat milk result. The following
information was collected for the month of October:
The costs of purchasing the of unprocessed goat milk and processing it up to the split-off
point to yield a total of 102,500 gallons of saleable product was $189,480. There were no
inventory balances of either product. Condensed goat milk may be processed further to
yield 44,500 gallons (the remainder is shrinkage) of a medicinal milk product, Xyla, for an
additional processing cost of $6 per usable gallon. Xyla can be sold for $22 per gallon.
Skim goat milk can be processed further to yield 56,200 gallons of skim goat ice cream,
for an additional processing cost per usable gallon of $6. The product can be sold for $14
per gallon.
There are no beginning and ending inventory balances.
How much (if any) extra income would Green earn if it produced and sold all of the Xyla
from the condensed goat milk? Allocate joint processing costs based upon relative sales
value on the split-off. (Extra income means income in excess of what Green would have
earned from selling condensed goat milk.) (Round intermediary percentages to the nearest
hundredth.)
A) $621,566
B) $277,100
C) $554,500
D) $350,554
Finished goods inventory would normally include ________.
A) direct materials in stock and awaiting use in the manufacturing process
B) goods partially worked on but not yet fully completed
C) goods fully completed but not yet sold
D) goods returned after being sold to be re-worked on further improvements and quality
Kellogg Parts Company provided the following information:
Budgeted input 90,000 gallons
Actual input 91,000 gallons
Budgeted production 87,600 units
Actual production 89,400 units
What is the partial productivity ratio?
A) 1.03 units per gallon
B) 1.02 units per gallon
C) 0.98 units per gallon
D) 0.96 units per gallon
Kitchens Sales Inc. is approached by Mr. Louis Cifer, a new customer, to fulfill a large
one-time-only special order for a product similar to one offered to regular customers.
The following per unit data apply for sales to regular customers:
Direct materials $556
Direct labor 362
Variable manufacturing support 60
Fixed manufacturing support 126
Total manufacturing costs 1,104
Markup (50%) 552
Targeted selling price $1,656
Kitchens Sales Inc. has excess capacity. Mr. Cifer wants the cabinets in cherry rather
than oak, so direct material costs will increase by $70 per unit. The average marketing
cost of Kitchens Sales product is $173 per order. For Kitchens, what is the full cost of
the one-time-only special order?
A) $1,034
B) $1,174
C) $1,104
D) $1,347
Alex is injured and rushed to Care Hospitals for treatment. He spent 76 minutes at the
hospital out of which he filled a form for 25 minutes, stood in the queue for 19 minutes,
doctor treated him for 18 minutes, and payment time was 14 minutes. What is the
service cycle efficiency for his visit?
A) 24.56%
B) 18.42%
C) 76.32%
D) 23.68%
The Brital Company processes unprocessed milk to produce two products, Butter
Cream and Condensed Milk. The following information was collected for the month of
June:
Direct Materials processed: 28,000 gallons
The costs of purchasing the of unprocessed milk and processing it up to the split-off point
to yield a total of 28,000 gallons of saleable product was $113,100.
The company uses constant gross-margin percentage NRV method to allocate the joint
costs of production. If separable costs of Butter Cream was $17,500 and constant gross
margin was 20%, what would have been the allocated joint costs of Condensed Milk?
A) $20,900
B) $34,900
C) $92,200
D) $87,200
J&J Materials and Construction Corporation produces fertilizer 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 flexible-budget variance for variable manufacturing overhead?
A) $4,800 favorable
B) $4,800 unfavorable
C) $2,139 favorable
D) $2,139 unfavorable
Moto Corp allows its divisions to operate as autonomous units. The operating data for
2015 follow:
Required:
a. Compute the investment turnover for each division.
b. Compute the return on sales for each division.
c. Compute the return on investment for each division.
d. Which division manager is doing best? Why?
e. What other factors should be included when evaluating the managers?
For parts (b) and (c) income is defined as operating income.
The Allianz Company produces a specialty wood furniture product, and has the
following information available concerning its inventory items:
Annual demand is 35,000 packages per year. The purchase price per package is $52.
How many deliveries will be required at the economic order quantity?
A) 16.36 deliveries
B) 15.91 deliveries
C) 20.12 deliveries
D) 23.14 deliveries
A manager of a revenue center is responsible ________.
A) for only the profits of his center
B) for investments, revenues, and costs
C) for only the sales and fees generated by his center
D) for the revenues,costs, and profits of his center
Majestic Corporation manufactures wheel barrows and uses budgeted machine hours to
allocate variable manufacturing overhead. The following information relates to the
company’s manufacturing overhead data:
What is the flexible-budget variance for variable manufacturing overhead?
A) $35,309 unfavorable
B) $52,909 unfavorable
C) $35,309 favorable
D) $52,909 favorable
Handley Manufacturing Company has prepared the following flexible budget for
August and is in the process of interpreting the variances. F denotes a favorable
variance and U denotes an unfavorable variance.
The most likely explanation of the above direct manufacturing labor variances is that
________.
A) the average wage rate paid to employees was less than expected
B) employees did not work as efficiently as expected to accomplish the job
C) the company may have assigned more experienced employees this month than
originally planned
D) management may have a problem with budget slack and might be using lax standards
for both labor-wage rates and expected efficiency
Luzent Company produces two types of entry doors: Deluxe and Standard. The
assignment basis for support costs has been direct labor dollars. For 2018, Luzent
compiled the following data for the two products:
Deluxe Standard
Sales units 50,000 400,000
Sales price per unit $650.00 $475.00
Prime costs per unit $180.00 $130.00
Direct materials cost per unit $95.00 $75.00
Direct labor costs per unit $75.00 $55.00
Manufacturing support costs per unit $ 80.00 $120.00
Last year, Luzent Manufacturing purchased an expensive robotics system to allow for
more decorative door products in the deluxe product line. The CFO suggested that an
ABC analysis could be valuable to help evaluate a product mix and promotion strategy
for the next sales campaign. She obtained the following ABC information for 2018:
Required:
a. Using the current system, what is the estimated
1. total cost of manufacturing one unit for each type of door?
2. profit per unit for each type of door?
b. Using the current system, estimated manufacturing overhead costs per unit are less for
the deluxe door ($80 per unit) than the standard door ($120 per unit). What is a likely
explanation for this?
c. “ABC systems may result in misallocation of indirect costs.” Do you agree? Give
reasons for your answer.
d. What considerations need to be examined when determining a sales mix strategy?
e. While implementing an ABC system for the first time, achieving a significant change
overnight is difficult and this may de motivate employees. How can managers overcome
this problem?
Dandy Manufacturing Company uses two different independent variables
(machine-hours and number of packages) in two different equations to evaluate costs of
the packaging department. The most recent results of the two regressions are as follows:
Machine-hours:
Variable Coefficient Standard Error t-Value
Constant $748.30 $341.20 2.19
Independent Variable $52.90 $35.20 1.50
r2 = 0.33
Number of packages:
Variable Coefficient Standard Error t-Value
Constant $242.90 $75.04 3.24
Independent Variable $5.60 $2.00 2.80
r2 = 0.73
Required:
a. What are the estimating equations for each cost driver?
b. Which cost driver is best and why?
Which of the following formulas determine cost of goods sold in a merchandising
entity?
A) Beginning inventory + Purchases + Ending inventory = Cost of goods sold
B) Beginning inventory + Purchases – Ending inventory = Costs of goods sold
C) Beginning inventory – Purchases + Ending inventory = Cost of goods sold
D) Beginning inventory – Ending inventory – Purchases = Cost of goods sold
A master budget ________.
A) is the initial plan of what the company intends to accomplish in the period and
evolves from
both the operating and financing decisions
B) is only prepared for manufacturers as they are the only type of company with
material purchases and work-in-process accounts.
C) improves companies’ market capitalization and evolves from both the investing and
financing decisions
D) is another name given to the financial budget
The Holiday Card Company, a producer of specialty cards, has asked you to complete
several calculations based upon the following information:
Required:
a. What is the breakeven point in cards?
b. What sales volume is needed to earn an after-tax net income of $13,028.40?
c. How many cards must be sold to earn an after-tax net income of $18,480?
A benefit of using a market-based transfer price is that the ________.
A) profits of the transferring division are sacrificed for the overall good of the
corporation
B) profits of the division receiving the products are sacrificed for the overall good of
the corporation
C) economic viability and profitability of each division can be evaluated individually
D) transferring division can be assured of recovering its full costs in all scenarios