1) Indicate whether each of the following statements is true or false.
1>A decision to eliminate a segment of a business is likely to have long-term
consequences because re-establishing the segment might be difficult
2>In making a decision to eliminate a segment of a business, managers should compare
differential revenues for the segment to its avoidable costs
3>Eliminating one segment of a business has no effect on the profitability of the other
segments
4>Eliminating one segment of a business has no effect on the customers of the other
segments
5>The opportunity cost, alternative use for facilities, should be considered in deciding
whether to retain a segment of a business
2) Enberg’s is a store with three departments, Appliances, Tools, and Home
Improvements. The company expects to incur the following indirect costs related to its
operations:
Store manager’s salary
Store supplies
Electric bill
Clerical staff salaries
Payroll taxes
Office supplies
Water bill
Sewer bill
Medical insurance
Vacation pay
Required:
1) Organize the indirect costs into three cost pools: Store Administration, Utilities, and
Fringe Benefit Costs, assuming that each department is a cost object.
2) Identify an appropriate cost driver for each cost pool.
3) Under what circumstances is a contingent liability not reported on the balance sheet?
4) What is the relationship between a cost object and the cost driver?
5) Coburn Corporation has been operating well above its break-even point. What will
happen to Coburn’s margin of safety if the variable cost per unit increases?
6) What term is used for the process of expense allocation of natural resources?
7) Indicate whether each of the following statements is true or false.
1>If the actual sales price per unit is higher than the standard, a company’s sales price
variance is unfavorable
2>Managerial performance can be evaluated by comparing actual amounts with
standard amounts
3>Differences between flexible budget costs and revenues and the actual results are
volume variances
4>When actual results are compared to a flexible budget based on actual volume of
activity, any variances result from differences between standard and actual per unit
amounts
5>Differences between standard and actual amounts are called variances