The accuracy of the completion estimate of conversion costs depends on the care, skill,
and experience of the estimator and also the nature of the conversion process.
The degree of operating leverage at a specific level of sales helps the managers
calculate the effect that potential changes in sales will have on operating income.
In regression analysis, the term “goodness of fit” indicates the strength of the
relationship between the cost driver and the costs.
The larger the vertical difference between actual costs and predicted costs the better the
goodness of fit.
Department stores, such as Macy’s and Khols, are examples of a merchandising
company.
A distinctive feature of the FIFO process costing method is that the work done on
beginning inventory before the current period is kept separate from work done in the
current period.
Complete reciprocated costs is the support department’s own costs plus any
interdepartmental cost allocations.
Purchasing costs arise in preparing and issuing purchase orders, receiving and
inspecting the items included in the orders, and matching invoices received, purchase
orders, and delivery records to make payments.
A budget is the quantitative expression of a proposed plan of action by management for
a specified period.
Generally a coefficient of determination (r2) of 0.30 or higher passes a goodness of fit
test.
At the start of the budget period, management will have made most decisions regarding
the level of fixed overhead costs to be incurred.
The supply chain describes the flow of goods, services, and information from the initial
sources of materials and services to the delivery of products to consumers, regardless of
whether those activities occur in the same company or in other companies.
The proration approach to allocating overapplied or underapplied overhead adjusts
individual job-cost records.
The unit cost of a product is always higher in variable costing than in absorption
costing.
When management develops cost estimations, they must chose one method, such as
industrial engineering, conference, account analysis, or quantitative analysis, and stay
consistently with that method as each method is mutually exclusive of the others.
The EOQ model factors in the probability of stockouts.
A budget is a communication aid, informing staff of expectations and providing
information that is essential to coordinating what needs to be done to implement the
proposed plan.
To determine the predicted results, such as the change in budgeted operating income if
there was a decrease in the selling price of a product by 5% and an increase in material
costs of 3%.
Nonlinear cost functions can result because of learning curves.
The EOQ model is solved using calculus but the key intuition is that relevant total costs
are minimized when relevant ordering costs equal relevant carrying costs.
A company may choose to keep one set of accounting records for tax reporting and a
second set for internal management reporting.
In costs-plus-fixed-fee contracts the allocation of a specific cost may be difficult to
defend on the basis of any cause-and-effect reasoning.
Cost of quality financial measures will usually deteriorate when nonfinancial measures
of quality are emphasized and improved.
The technical considerations of budgeting encourage managers and other employees to
strive for achieving the goals of the organization.
An important consideration in designing compensation arrangements is the tradeoff
between creating incentives and imposing risks.
Financing decisions deal with how to best use the limited resources of an organization.
A cost object is anything for which a cost measurement is desired.
The objective of the Theory of Constraints is to increase throughput margin while
increasing investment in plant and equipment.
The additional cost of producing and transferring the product or service is called
variable manufacturing cost.
If manufacturing labor costs are added to the process at a different time compared to
other conversion costs, an additional cost category—direct manufacturing labor costs—
would be needed to assign these costs to products.
At the end of the fiscal year, the fixed overhead spending variance is always prorated
among work-in-process control, finished goods control, and cost of goods sold on the
basis of the fixed overhead allocated to these accounts.
Spoilage always occurs at beginning stages of a production process and can be detected
only at the end of process.
Counting spoiled units as part of output units in a process-costing system usually results
in a higher cost per unit.
Throughput margin equals revenues minus all product costs.
The production method for recognizing byproducts reduces the cost of manufacturing
the main or joint products in the income statement.
Under the FIFO method of process-costing, costs incurred and units produced in the
current period are used to calculate the cost per equivalent unit of work in the current
period in contrast the weighted-average method which merges the units and costs of the
previous period with that of the current period.
Benchmarking is the continuous process of measuring products, services, and activities
against the best possible levels of performance, either inside or outside the organization.
Higher inflation will lead to higher prices for goods or services, which will increase a
company’s operating income and lead to a higher ROI.
Fixed manufacturing overhead is a period cost both under variable costing and under
absorption costing.
Managing inventories to increase net income requires companies to effectively manage
costs associated with goods for sale.
Required:
Classify the below listed items as either Purchasing Costs, Ordering Costs, Carrying
Costs, Stockout Costs, Costs of Quality, or Shrinkage Costs.
________ a. costs of obtaining purchase approvals
________ b. costs resulting from embezzlement by employees
________ c. internal failure costs
________ d. opportunity cost of the investment tied up in inventory
________ e. costs associated with storage
________ f. costs of lost sales as a result of not having an item requested by a customer
________ g. freight-in charges
________ h. special processing costs
________ i. costs of wages for work-in-process inspections
________ j. costs that result from misclassifications and clerical errors
Heavy Products, Inc. developed standard costs for direct material and direct labor. In
2017, AII estimated the following standard costs for one of their major products, the
10-gallon plastic container.
During June, Heavy Products produced and sold 15,000 containers using 25,000 pounds of
direct materials at an average cost per pound of $64 and 12,000 direct manufacturing
labor-hours at an average wage of $21.56 per hour.
June’s direct material flexible-budget variance is ________.
A) $60,000 unfavorable
B) $100,000 favorable
C) $880,000 unfavorable
D) $18,720 favorable
Which of the following would not be a GAAP or managerial accounting reason for
allocating joint costs?
A) to calculate cost of goods sold
B) to analyze the profitability of various products
C) for reimbursement of costs under a federal contract
D) to evaluate the performance of division managers
Sharing sales information throughout the supply chain leads to which of the following?
A) larger stockouts
B) increased manufacturing of products not immediately needed by retailers
C) fewer manufacturing orders that had to be expedited
D) higher inventories held by each company in the supply chain
Twenty Technologies, currently sells 17″ monitors for $270. It has costs of $230. A
competitor is bringing a new 17″ monitor to market that will sell for $245. Management
believes it must lower the price to $245 to compete in the market for 17″ monitors.
Twenty Technologies believes that the new price will cause sales to increase by 10%,
even with a new competitor in the market. Twenty Technologies’s sales are currently
5200 monitors per year.
What is the change in operating income if marketing manager is correct and only the
sales price is changed?
A) $130,000
B) $122,200
C) ($122,200)
D) ($130,000)
Taunton Company uses the high-low method to estimate its cost function. The
information for 2017 is provided below:
Machine-hours Costs
Highest observation of cost driver 3,000 $300,000
Lowest observation of cost driver 2,500 $277,500
What is the constant for the estimated cost equation?
A) $277,500
B) $300,000
C) $165,000
D) $135,000
Which of the following would be a consideration in a make-or-buy decision?
A) excess capacity
B) wages to CEO
C) marketing costs
D) audit expenses
Bismite Corporation purchases trees from Cheney lumber and processes them up to the
split-off point where two products (paper and pencil casings) emerge from the process.
The products are then sold to an independent company that markets and distributes
them to retail outlets. The following information was collected for the month of
October:
The cost of purchasing 270 trees and processing them up to the split-off point to yield
180,000 sheets of paper and 180,000 pencil casings is $15,000.
Bismite’s accounting department reported no beginning inventory.
What are the paper’s and the pencil’s approximate weighted cost proportions using the
sales value at
split-off method, respectively?
A) 50.00% and 50.00%
B) 45.06% and 54.94%
C) 48.54% and 51.46%
D) 46.51% and 53.49%
Following a strategy of product differentiation, Izzy’s Limited Company makes a
high-end Appliance, XT15. Izzy’s Limited presents the following data for the years
2017 and 2018:
Izzy’s Limited produces no defective units but it wants to reduce direct materials usage per
unit of XT15. Manufacturing conversion costs in each year depend on production capacity
defined in terms of XT15 units that can be produced. Selling and customer-service costs
depend on the number of customers that the customer and service functions are designed to
support. Izzy’s Limited had 180 customers in 2017 and 185 customers in 2018.
What is the revenue effect of the price-recovery component?
A) $3,132,000 U
B) $1,320,000 U
C) $1,320,000 F
D) $3,132,000 F
Beryl Company sells 900 flash drives per week. Purchase-order lead time is 2 weeks
and the economic-order quantity is 1625 units. What is the reorder point?
A) 3250 units
B) 1450 units
C) 1800 units
D) 1625 units
Lancelot Manufacturing is a small textile manufacturer using machine-hours as the
single indirect-cost rate to allocate manufacturing overhead costs to the various jobs
contracted during the year. The following estimates are provided for the coming year
for the company and for the Case High School band jacket job.
Company Case High School Job
Direct materials $60,000 $2,400
Direct labor $15,000 $600
Manufacturing overhead costs $50,000
Machine-hours 100,000 mh 1,000 mh
What amount of manufacturing overhead costs will be allocated to this job?
A) $500
B) $1,250
C) $450
D) $650
Emrald Corp currently uses a manufacturing facility costing $560,000 per year; 90% of
the facility’s capacity is currently being used. A start-up business has proposed a plan
that would utilize the other 10% of the facility and increase the overall costs of
maintaining the space by 11%. If the incremental method were used, what amount of
cost would be allocated to the start-up business?
A) $50,400
B) $61,600
C) $62,160
D) $56,560
Three Bears Manufacturing produces an auto-quartz watch movement called OM362.
Three Bears expects to sell 20,000 units of OM362 and to have an ending finished
inventory of 5,000 units. Currently, it has a beginning finished inventory of 1,100 units.
Each unit of OM362 requires two labor operations, two labor hour(s) of assembling and
three labor hour(s) of polishing. The direct labor rate for assembling is $11 per
assembling hour and the direct labor rate for polishing is $14.50 per polishing hour.
The expected number of hours of direct labor for OM362 is ________.
A) 32,200 hours of assembling; 48,300 hours of polishing
B) 47,800 hours of assembling; 71,700 hours of polishing
C) 48,300 hours of assembling; 32,200 hours of polishing
D) 71,700 hours of assembling; 47,800 hours of polishing
Which of the following is a graph of a series of successive observations of a particular
step, procedure, or operation taken at regular intervals of time?
A) control chart
B) Pareto diagram
C) cause-and-effect diagram
D) fishbone diagrams
Netzone Company is in semiconductor industry and fabrication of silicon-wafer chips
splits off two types of memory chips, Standard and Premium. The following
information was collected for last quarter of the calendar year:
The cost of purchasing 400 kgs of direct materials and processing it up to the split-off
point to yield a total of 20,400 chips of good products was $2,020,000. Beginning
inventories totalled 130 chips for Standard and 60 chips for Premium. Ending inventory
amounts reflected 130 chips of Standard and 60 chips of Premium. October costs per unit
were the same as November. What are the physical-volume proportions for products
Standard and Premium, respectively?
A) 64.29% and 35.71%
B) 66.33% and 33.67%
C) 63.73% and 36.27%
D) 50.00% and 50.00%
The following information pertains to Alleigh’s Mannequins:
What is the amount of gross margin?
A) $1,995,000
B) $2,170,000
C) $2,565,000
D) $570,000
Heavy Products, Inc. developed standard costs for direct material and direct labor. In
2017, AII estimated the following standard costs for one of their major products, the
10-gallon plastic container.
During June, Heavy Products produced and sold 15,000 containers using 2,400 pounds of
direct materials at an average cost per pound of $92 and 3,750 direct manufacturing
labor-hours at an average wage of $91.25 per hour.
The direct manufacturing labor efficiency variance during June is ________.
A) $85,547 unfavorable
B) $229,687.5 favorable
C) $918,750 unfavorable
D) $0
Kanga Company is considering two different production plans.
Option one: Fixed costs of $10,000 and a breakeven point of 500 units.
Option two: Fixed costs of $20,000 and a breakeven point of 700 units.
Which option should Kanga choose if it is expecting to produce 600 units?
A) Option one.
B) Option two.
C) Both options are equally good.
D) It isn’t possible to determine from the information given.
Which of the following is true of line management?
A) It is directly responsible for achieving the goals of the organization.
B) It is responsible of management accounting functions.
C) It provides advice, support, and assistance to staff management.
D) It only includes the top level management.
The Maintenance Department has been servicing Gizmo Production for four years.
Beginning next year, the company is adding a Scrap-Processing Department to recycle
the materials from Gizmo Production. As a result, maintenance costs are expected to
increase from $460,000 per year to $525,000 per year. The Scrap-Processing
Department will use 25% of the maintenance efforts.
Required:
a. Using the stand-alone cost-allocation method, identify the amount of maintenance
cost that will be allocated to Gizmo Production and the Scrap-Processing Department
next year.
b. Using the incremental cost-allocation method, identify the amount of maintenance
cost that will be allocated to Gizmo Production and the Scrap-Processing Department
next year.
A company purchases $650,000 of materials on credit. The standard cost for the
materials is $675,000. Which of the following would be the correct journal entries to
record the purchase under a standard costing system?
If the contribution margin ratio is 0.60, targeted operating income is $50,000, and fixed
costs are $75,000, then sales volume in dollars is ________. (Round the final answer to
the nearest dollar.)
A) $312,500
B) $208,333
C) $125,000
D) $83,333
Which of the following statements best defines an enterprise resource planning (ERP)
system?
A) a demand-pull system in which each component in a production line is produced
immediately as needed by the next step in the production line as planned by enterprise
resource management
B) a system that comprises a single database that collects data and feeds it into software
applications supporting all of a company’s business activities
C) a planning system that omits recording some of the journal entries relating to the
stages from the purchase of direct materials to the sale of finished goods
D) a system that is made up of work areas with different types of equipment grouped
together to make related products
Which of the following is true of goal congruence?
A) It exists when the management’s strategy is in line with the shareholders’
requirements.
B) It exists when individuals and groups work toward achieving the organization’s
goals.
C) It exists when both internal and external stakeholders of an organization have similar
goals.
D) It exists when an organization’s goals are in line with the social acceptability of
organizational goals.
Which of the following statements is true of conversion costs?
A) Estimating the degree of completion is usually easier for direct material costs than
for conversion costs.
B) The calculation of equivalent units is relatively easy for the textile industry.
C) The conversion cost needed for a completed unit and the conversion cost in a
partially completed unit can be measured accurately.
D) If conversion costs are added evenly during the assembly we can conclude that there
are more than one indirect-cost category.
Which of the following is a benefit of decentralization?
A) It creates greater responsiveness to local needs.
B) It helps in rasing capital at a local level.
C) It relieves top managers of accountability.
D) It sharpens the focus of subunits and broadens the reach of top management
The variable overhead efficiency variance is computed ________ and interpreted
________ the direct-cost efficiency variance.
A) the same as; the same as
B) the same as; differently than
C) differently than; the same as
D) differently than; differently than
Snapper Tool Company has plenty of excess capacity to accept a special order. Shown
below is an “what-if” analysis of the special order. Which of the following is the correct
decision and reason?
A) Yes, since the goal is to fill capacity as much as possible to keep fixed overhead
variances as low as possible.
B) No, the company will only break even.
C) No, since only the employees will benefit from this in that they will earn more
overtime.
D) Yes, since operating profits will most likely increase.
W.T. Ginsburg Engine Company manufactures part ACT31107 used in several of its
engine models. Monthly production costs for 1,010 units are as follows:
Direct materials $41,000
Direct labor 7,500
Variable overhead costs 34,500
Fixed overhead costs 18,000
Total costs $101,000
It is estimated that 7% of the fixed overhead costs assigned to ACT31107 will no longer
be incurred if the company purchases ACT31107 from the outside supplier. W.T.
Ginsburg Engine Company has the option of purchasing the part from an outside
supplier at $94.75 per unit.
The maximum price that W.T. Ginsburg Engine Company should be willing to pay the
outside supplier is
________.
A) $82 per ACT31107 part
B) $83.43 per ACT31107 part
C) $100 per ACT31107 part
D) $101.25 per ACT31107 part
Flexible budget contribution margin is equal to ________.
A) actual contribution margin per unit times actual units sold of each product
B) actual contribution margin per unit times budgeted units sold of each product
C) budgeted contribution margin per unit times budgeted units sold of each product
D) budgeted contribution margin per unit times actual units sold of each product
Why is the depreciation of an old equipment irrelevant to decision making?
What are joint costs, separable costs, and a split-off point?
Firms should be wary of using the full cost of a joint product as the basis for making
pricing decisions. Why?
Describe the value chain and how it can help organizations become more effective.
What are the factors involved in choosing the timing of the feedback in designing
accounting-based performance measures?
Describe the differences between process costing and job costing. Discuss some typical
products which would be more likely to use process costing as compared to some which
would be more likely to use job costing.
The two basic aspects of quality are quality of design and conformance quality. Define
and give an example of each.
What is the advantage and disadvantage of early inspections?
What is decentralization and what are its benefits?
What are opportunity costs? Explain why opportunity costs are not recorded in financial
accounting systems.
What are the two components of sales-volume variance? Explain why sales-volume
variance could be helpful to managers.
Duffy Corporation has prepared the following sales budget:
Collections are 40% in the month of sale, 45% in the month following the sale, and 10%
two months following the sale. The remaining 5% is expected to be uncollectible.
Required:
Prepare a schedule of cash collections for July through September.
How do job-costing systems account for spoilage?
How does a manager go about choosing which of three products to produce and sell
when each product uses a single machine with a limited capacity?
Galliart Company has two identical divisions, East and West. Their sales, production
volume, and fixed manufacturing costs have been the same for the last five years. The
amounts for each division were as follows:
East Division uses absorption costing and West Division uses variable costing.
Both use FIFO inventory methods.
Variable manufacturing costs are $5 per unit.
Selling and administrative expenses were identical for each division.
There were no inventories at the beginning of 2014.
Which division reports the highest income each year? Explain.
Spoilage can be a significant cost for many organizations. Discuss when spoilage might
happen and how the costs of normal spoilage get allocated.
Manufacturing cycle times affect both revenues and costs. Explain.
Is it advisable to ignore facility-sustaining cost drivers during product costing?
