1) Direct materials and direct manufacturing labor become a part of work-in-process
inventory on the balance sheet because the direct manufacturing labor transforms the
direct materials to another asset, work-in-process inventory.
2) Service-sector companies have no use of variance analysis as only few costs can be
traced to their outputs in a cost effective way.
3) When there are multiple cost drivers the simple CVP formula of Q = (FC + OI)/CMU
can still be used.
4) Customer relationship management initiatives use technology to coordinate all
customer-facing activities (such as marketing, sales calls, distribution, and after-sales
support) and the design and production activities necessary to get products to
customers.
5) The proration approach to allocating overapplied or underapplied overhead adjusts
individual job-cost records.
6) A primary consideration in assigning a cost to a responsibility center is ________.
A) whether the cost is fixed or variable
B) whether the cost is direct or indirect
C) who can best control the change in that cost
D) where in the organizational structure the cost was incurred
7) Boundary systems ________.
A) describe standards of behavior and codes of conduct expected of all employees
B) articulate the mission, purpose, and core values of a company
C) are formal information systems managers use to focus the company’s attention and
learning on key strategic issues
D) describe the geographic limits of a company and help organize its layout
8) In certain high-cost defense contracts involving new weapons and equipment,
contracts are rarely subject to competitive bidding because ________.
A) the government taxes the defense companies at a higher level than that of other
public sector companies
B) there is an implicit agreement among defense contractors to ‘share contracts”
C) all defense contractors have essentially the same cost structure
D) no contractor is willing to assume all the risk of receiving a fixed price for the
contract
9) Successful implementation of a cost leadership strategy will result in ________.
A) large favorable growth and price-recovery components
B) large favorable price-recovery and productivity components
C) large favorable productivity and growth components
D) only a large favorable growth component
10) For Divaxo Company, labor-hours are 30,000 and wages $130,000 at the high point
of the relevant range, and labor-hours are 18,000 and wages $85,000 at the low point of
the relevant range.
What is the estimated total labor costs at Divaxo Company when 11,000 labor-hours are
used?
A) $51,944
B) $58,750
C) $56,270
D) $52,042
11) Diemia Hospital has been considering the purchase of a new x-ray machine. The
existing machine is operable for five more years and will have a zero disposal price. If
the machine is disposed now, it may be sold for $80,000. The new machine will cost
$600,000 and an additional cash investment in working capital of $25,000 will be
required. The new machine will reduce the average amount of time required to take the
x-rays and will allow an additional amount of business to be done at the hospital. The
investment is expected to net $50,000 in additional cash inflows during the year of
acquisition and $200,000 each additional year of use. The new machine has a five-year
life, and zero disposal value. These cash flows will generally occur throughout the year
and are recognized at the end of each year. Income taxes are not considered in this
problem. The working capital investment will not be recovered at the end of the asset’s
life.
What is the net present value of the investment, assuming the required rate of return is
11%? Would the hospital want to purchase the new machine?
A) $(59,050); no
B) $55,430 no
C) $59,050; yes
D) $55,430; yes
12) Which of the following functions represents the least total cost assuming the
number of units is equal in each case?
A) y = 180 + 7X
B) y = 90 + 6X
C) y = 90 + 7X
D) y = 180 + 6X
13) Which of the following statements about the cost-benefit approach is true?
A) Resources should be spent if the expected costs exceed the expected benefits of the
company.
B) In a cost-benefit analysis, both costs and benefits are not easy to measure.
C) Resources should be spent if the costs of a decision outweigh the benefits of the
decision.
D) A cost-benefit approach would not be appropriate for a decision to install a
budgeting system.
14) Helping Hands is a nonprofit organization that supplies electric fans during summer
for individuals in need. Fixed costs are $225,000. The fans cost $25.00 each. The
organization has a budgeted appropriation of $675,000. How many people can receive a
fan during summer?
A) 15,000 people
B) 18,000 people
C) 22,000 people
D) 16,000 people
15) To apply CVP analysis in the hotel industry, which of the following is the most
important measure of
output?
A) number of room-nights occupied
B) number of visitors
C) number of dishes on the menu
D) number of employees
16) Managers identify the relevant costs and benefits for each solution by focusing on
________.
A) the alternative solution that will derive maximum customer satisfaction
B) how total costs and total revenues will change under each alternative solution
C) how the employees of a company would be able to implement a change
D) how long it will take for the improved program to be fully functional
17) Tony placed an order for a customized watch. The customer response time is 36
hours, its receipt time is 8 hours, and manufacturing cycle time is 24 hours. Calculate
the delivery time of the product.
A) 12 hours
B) 4 hours
C) 16 hours
D) 2 hours
18) Digital Cellular sells phones for $100. The unit variable cost per phone is $50 plus a
selling commission of 10%. Fixed manufacturing costs total $1,250 per month, while
fixed selling and administrative costs total $2,500.
Required:
a.What is the contribution margin per phone?
b.What is the breakeven point in phones?
c.How many phones must be sold to earn pretax income of $7,500?
19) A favorable variance indicates that ________.
A) budgeted costs are less than actual costs
B) actual revenues exceed budgeted revenues
C) actual operating income is less than the budgeted amount
D) budgeted contribution margin is more than the actual amount
20) Conversion cost was:
A) $200,000
B) $240,000
C) $265,000
D) $415,000
21) Activity based costing system differs from traditional costing systems in the
treatment of ________.
A) direct labor costs
B) direct material costs
C) prime costs
D) indirect costs
22) This question refers to flexible-budget variance formulas with the following
descriptions for the variables: A = Actual; B = Budgeted; P = Price; Q = Quantity.
The best label for the formula (AP – BP) AQ is the ________.
A) efficiency variance
B) price variance
C) total flexible-budget variance
D) spending variance
23) Yahoo, an Internet search firm, would be classified as a(n) ________.
A) manufacturing-sector company
B) merchandising-sector company
C) service-sector company
D) financial services