Managers need to know program costs to make ongoing decisions such as which
programs to emphasize or deemphasize and the pricing of programs.
Local managers in decentralized organizations tend to duplicate services that may be
less expensive if centralized.
Scarce resources include labor hours.
The unfavorable variances resulting from ideal standards are intended to constantly
remind personnel of the continuous need for improvement.
Evaluations of the responsibility center manager’s performance should ignore
uncontrollable costs.
The four categories of quality costs include production costs, appraisal costs, internal
failure costs and external failure costs.
Target costing sets prices by computing an average cost and then adding a desired
markup.
Job-order costing can be used only in manufacturing environments.
When evaluating a segment manager, unallocated costs usually include central
corporate costs.
Joint costs from producing multiple products are allocated to main products and to
by-products.
Budgeted performance goals generally provide a better basis for evaluating actual
performance than past performance.
The essence of the just-in-time philosophy is to eliminate waste.
For both merchandising and manufacturing firms, selling and administrative costs are
period costs.
Rent received in advance of the rental period would be considered to be a prepaid asset
by the landlord.
Gross profit equals sales minus cost of goods sold.
Some management experts have said that the only sustainable competitive advantage is
the rate at which a company’s managers learn.
Decreasing cycle time often results in bringing products more quickly to customers.
One of the first questions a manager should consider when explaining a large variance
is whether expectations are valid.
Segment autonomy means that the activities of segment managers are directed by top
managers.
During an engineering analysis, knowledge about new costs may be obtained from
experiments with prototypes.
Selling expenses are found in the cost of goods sold.
The use of high-technology methods rather than labor in manufacturing products
usually means a much greater fixed-cost component to total costs.
By-products normally have significant sales value in comparison with other
jointly-produced products emerging at the split-off point.
Fixed manufacturing overhead costs are excluded from product costs under absorption
costing.
Variable costs per unit of the cost driver increase when the cost-driver level increases in
the relevant range.
The relative-sales-value method of allocating joint costs requires a common physical
unit for measuring the output of each product.
Fixed costs not controllable by a segment manager usually include depreciation and
property taxes on the building used by the segment.
Good performance measures should be reasonably subjective.
The indirect method of preparing the statement of cash flows is the most popular
method in the United States.
The overhead cost applied to a job is equal to the budgeted overhead rate times the
budgeted amount of the cost driver.
The greater the influence of noncontrollable factors on responsibility center results, the
more problems there are in using the results to measure and reward a manager’s
performance.
The total project approach to investments can be used to compare any number of
projects.
The first step in preparing the master budget is the preparation of the budgeted income
statement.
In a manufacturing company, unsold, fully complete products are called
Work-In-Process Inventory.
Marginal cost is the additional cost resulting from producing and selling one additional
unit.
A flexible budget is different from a variable budget.
The horizontal axis on the CVP graph is the dollars of cost and revenue.
Profit-center managers always have more decentralized decision-making authority than
cost-center managers.
The disposal value of old equipment is relevant in equipment replacement decisions.
What is Other Comprehensive Income?
A) unrealized gains and loss that are reported on the Statement of Retained Earnings
B) unrealized gains and losses that are reported on the traditional Income Statement
C) unrealized gains and losses that are reported on the Balance Sheet
D) unrealized gains and losses that are not reported on the financial statements
LIFO uses the ________ costs to measure the cost of goods sold.
A) latest
B) earliest
C) average
D) weighted-average
When allocating indirect production costs to cost objects, which of the following is/are
a cost-allocation base(s)?
A) some measure of input or output that determines the amount of cost to be allocated
to a cost object
B) a measure used to assign indirect costs to cost objects
C) a measure used to assign direct costs to cost objects
D) A and B
Barber Company produces 2,500 units. Each unit was expected to require 2 labor hours
at a cost of $10 per hour. Total labor cost was $52,250 for 4,750 hours worked. Direct
labor is measured in labor hours. What is the direct labor price variance?
A) $2,500 Favorable
B) $2,500 Unfavorable
C) $4,750 Favorable
D) $4,750 Unfavorable
The ownership claim arising from the reinvestment of previous profits is called
________.
A) net assets
B) stockholders’ equity
C) investment income
D) retained earnings
A budget prepared for different levels of activity is called a ________.
A) rolling budget
B) operating budget
C) flexible budget
D) static budget
What is the most common value-chain function outsourced in most businesses?
A) production process
B) research and development
C) product design
D) corporate support
Cesar Company has three product lines: A, B and C. The following annual information
is available:
Product A Product B Product C
Sales $100,000 $90,000 $44,000
Variable costs 76,000 48,000 35,000
Contribution margin 24,000 42,000 9,000
Avoidable fixed costs 9,000 18,000 3,000
Unavoidable fixed costs 6,000 9,000 7,700
Operating income(loss) $9,000 $15,000 $(1,700)
Assume Cesar Company drops Product C. Cesar Company then doubles the production
and sales of Product B without increasing fixed costs. What will happen to operating
income?
A) increase by $15,000
B) increase by $24,000
C) increase by $36,000
D) increase by $42,000
The cash received from the sale of land is included in the ________ section of the
statement of cash flows.
A) operating
B) investing
C) financing
D) noncash
Downers Grove Corporation has a joint process that produces three products: P, G and
A. Each product may be sold at split-off or processed further and then sold.
Joint-processing costs for a year amount to $25,000. The production level for each
product is 10,000 units. Other data follows:
Sales Value Separable Processing Sales Value
Product at Split-Off Costs after Split-Off at Completion
P $12 $10 $21
G 12 4 17
A 10 6 19
To maximize profits, Downers Grove Corporation should process ________ further.
A) Product P only
B) Product G only
C) Product A only
D) Products G and A only
The cash paid to settle a long-term note payable is included in the ________ section of
the statement of cash flows.
A) operating
B) investing
C) financing
D) noncash
Rainbow Company is considering the production of a new product. Rainbow Company
has the following data available:
Expected product life 5 years
Expected sales (units) over product life 2,000
Variable production costs $42 per unit
Variable selling costs $16 per unit
Annual fixed production costs $15,000
Annual fixed selling costs $5,000
What is the total fixed cost of the product over the product life cycle?
A) $20,000
B) $100,000
C) $116,000
D) $464,000
Cash collections from customers who purchased goods on credit will decrease
________.
A) Accounts Receivable
B) Accounts Payable
C) Cash
D) Retained Earnings
Franklin Company produces only one product. The selling price is $100 per unit and the
variable cost is $60 per unit. Total fixed costs are $120,000.
Required:
A) Compute break-even point in units.
B) Compute break-even point in dollars.
Wingate Company has the following information available for three divisions of the
company:
Division A Division B Division C
Sales $250,000 $400,000 $350,000
Variable expenses 52% 30% 40%
Fixed expenses controllable by division manager $60,000 $200,000 $175,000
Fixed expenses controllable by others $10,000 $5,000 $7,500
Unallocated expenses for all three divisions are $22,000. What is the contribution by
Division A?
A) $28,000
B) $50,000
C) $60,000
D) $120,000
On a cost-volume-profit graph, at the point where the Total Revenue line intersects the
Total Cost line, ________.
A) net income is positive
B) net income is negative
C) net income is zero
D) not enough information is given
The following data are available for Atkinson Company for the year ended December
31, 2015:
Sales 38,000 units
Sales price $50 per unit
Actual variable manufacturing costs $1,400,000
Actual fixed manufacturing costs $228,000
Actual variable nonmanufacturing costs $76,000
Actual fixed nonmanufacturing costs $135,000
Work-in-process inventory, January 1, 2015 0
Finished goods inventory, January 1, 2015 0
Direct materials inventory, January 1, 2015 0
Work-in-process inventory, December 31, 2015 0
Direct materials inventory, December 31, 2015 0
Expected production 40,000 units
Actual production 40,000 units
Required:
A) Using the variable-costing approach, prepare an income statement for the year ended
December 31, 2015. Assume actual fixed costs were equal to budgeted fixed costs.
B) Using the absorption-costing approach, prepare an income statement for the year
ended December 31, 2015. Assume actual fixed costs were equal to budgeted fixed
costs.
Economic profit is ________ less ________.
A) net operating profit; capital charge
B) residual income; capital charge
C) income before interest expense and taxes; capital charge
D) income before interest expense but after taxes; capital charge
Uptown Company purchases $4,000 of inventory on account. Uptown Company should
debit ________.
A) Cash for $1,000, and credit Accounts Payable for $4,000
B) Cash for $1,000, and credit Note Payable for $4,000
C) Inventory for $4,000, and credit Cash for $4,000
D) Inventory for $4,000, and credit Accounts Payable for $4,000
Gnat Company, a producer of electronic devices, has the following information:
Selling price per unit $5.00
Variable cost per unit $3.00
Total fixed costs $90,000.00
The contribution-margin ratio is ________.
A) 30%
B) 40%
C) 60%
D) 100%
Scott is a management accountant in a large company. Scott observed unethical
behavior by a coworker who is also a management accountant. The coworker is a
relative of the company’s president and he always receives preferential treatment. Scott
observed the coworker putting office supplies and small pieces of electronic equipment
in his briefcase. The company does not have a code of ethics or a set of policies for
ethical problems. According to the IMA, what course of action should Scott take?
A) He should report the observation to the police. The coworker is stealing from the
company.
B) He should report the observation to his immediate supervisor.
C) He should report the observation to the Securities and Exchange Commission.
D) He should do nothing.
Why do companies develop cost allocation methods to assign service department costs
to producing departments?
A) to identify the total cost of production
B) to accurately determine the cost of a product
C) to develop transfer prices for products
D) A and B
When choosing between two alternatives, what of the following are relevant costs?
A) future variable costs that are the same under two alternatives
B) future variable costs that are different under two alternatives
C) future fixed costs that are different under two alternatives
D) B and C
In a partnership, a partner’s capital account is increased by ________.
A) dividends
B) a partner’s share of net income
C) contributions made by a partner
D) B and C
Uptown Corporation has a joint process that produces three products: P, G and A. Each
product may be sold at split-off or processed further and then sold. Joint-processing
costs for a year amount to $20,000. Other data follows:
Sales Value Separable Processing Sales Value
Product at Split-Off Costs after Split-Off at Completion
P $32,000 $5,000 $39,000
G 16,500 7,500 29,000
A 6,400 8,000 10,000
Processing Product P beyond the split-off point will cause profits to ________.
A) be unchanged
B) increase by $2,000
C) increase by $3,000
D) increase by $7,000
What does the margin of safety in units measure?
A) how far fixed costs can rise before an operating loss occurs
B) how far variable costs can rise before an operating loss occurs
C) how far total costs can rise before an operating loss occurs
D) how far sales can fall before an operating loss occurs
Fixed selling expenses affect the calculation of ________ on the contribution income
statement.
Fixed selling expenses do NOT affect the calculation of ________ on the absorption
income statement.
A) contribution margin; gross margin
B) gross margin; contribution margin
C) operating income; gross margin
D) operating income; contribution margin
Healthy Connection Company uses a backflush-costing system to account for bicycles.
Bicycles are scheduled for production only after orders are received and products are
shipped to customers immediately upon completion. No Finished Goods Inventory is
maintained and product costs are applied directly to Cost of Goods Sold. The standard
cost for materials is $150 per bicycle. The standard cost for conversion costs is $75 per
bicycle.
During the current month, Healthy Connection Company purchased $6,000 of direct
materials and incurred $3,000 in conversion costs to produce 40 bicycles. When
production is complete, the journal entry has a Debit to ________.
A) Finished Goods Inventory for $9,000
B) Conversion Costs for $9,000
C) Cost of Goods Sold for $9,000
D) No entry is needed
Comparing a company’s current ratio today with the same company’s current ratio for
the past ten years is called a(n) ________.
A) cross-sectional comparison
B) benchmark comparison
C) industry comparison
D) time-series comparison
An increase in total variable costs usually indicates that ________.
A) the cost-driver activity level is decreasing
B) the cost-driver activity level is increasing
C) variable costs per unit is decreasing
D) fixed costs per unit is increasing
Goal congruence exists when ________.
A) short-run goals and long-run goals are the same
B) employees respond to incentives created by a management control system and make
decisions that help meet the goals of the organization
C) the management control system reflects the organization’s goals
D) performance reports are used constructively
Golden Company manufactures a part for its production cycle. The annual costs per unit
for 10,000 units of the part are as follows:
Per Unit
Direct materials $20.00
Direct labor 15.00
Variable factory overhead 6.00
Fixed factory overhead 10.00
Total costs $51.00
The fixed factory overhead costs are unavoidable. Olson Company has offered to sell
10,000 units of the same part to Golden Company for $55 per unit. The facilities
currently used to make the part could be used to make 10,000 units per year of a new
product that has a contribution margin of $20 per unit. No additional fixed costs would
be incurred with the new product. Golden Company should ________.
A) make the part to save $40,000
B) make the part to save $140,000
C) make the new product and buy the part to save $60,000
D) make the new product and buy the part to save $140,000
