1) A cost that can be avoided by choosing one alternative over another is not relevant
for decision purposes.
2) Pricing decisions are most difficult in those situations in which a company makes a
product that is in competition with other, identical products for which a market already
exists.
3) If a company’s operating cycle is much longer than its average payment period for
suppliers, it creates the need to borrow money to fund its inventories and accounts
receivable.
4) Reynold Enterprises sells a single product for $25. The variable expense per unit is
$15 and the fixed expense per unit is $5 at the current level of sales. The company’s net
operating income will increase by $10 if one more unit is sold.
5) On a cost-volume-profit graph, the revenue line will be shown below the total
expense line for any activity level above the break-even point.
6) The revenue and spending variances are the differences between the flexible budget
and the actual results for the period.
7) One way to compute the total contribution margin is to deduct total fixed expenses
from net operating income.
8) The use of a predetermined overhead rate in a job-order cost system makes it
possible to compute the total cost of a job before production is begun.
9) The sum of all amounts transferred from the Work in Process account to the Finished
Goods account represents the Cost of Goods Sold for the period.
10) The book value of old equipment is a relevant cost in a decision to replace that
equipment. (Ignore taxes.)
11) Laurey Inc. is working on its cash budget for May. The budgeted beginning cash
balance is $45,000. Budgeted cash receipts total $129,000 and budgeted cash
disbursements total $124,000. The desired ending cash balance is $60,000. To attain its
desired ending cash balance for May, the company needs to borrow:
A.$110,000
B.$0
C.$60,000
D.$10,000
12) If substantial batch-level or product-level costs exist, then overhead allocation
based on a measure of volume such as direct labor-hours alone:
A.is a key aspect of the activity-based costing model.
B.will systematically overcost high-volume products and undercost low-volume
products.
C.will systematically overcost low-volume products and undercost high-volume
products.
D.must be used for external financial reporting since activity-based costing cannot be
used for external reporting purposes.
13) Wexell Framing’s cost formula for its supplies cost is $1,230 per month plus $10 per
frame. For the month of October, the company planned for activity of 592 frames, but
the actual level of activity was 597 frames. The actual supplies cost for the month was
$7,050. The activity variance for supplies cost in October would be closest to:
A.$50 F
B.$50 U
C.$100 F
D.$100 U
14) Fulton Corporation uses the weighted-average method in its process costing system.
This month, the beginning inventory in the first processing department consisted of 800
units. The costs and percentage completion of these units in beginning inventory were:
A total of 9,900 units were started and 8,900 units were transferred to the second
processing department during the month. The following costs were incurred in the first
processing department during the month:
The ending inventory was 70% complete with respect to materials and 60% complete
with respect to conversion costs.
Note: Your answers may differ from those offered below due to rounding error. In all
cases, select the answer that is the closest to the answer you computed. To reduce
rounding error, carry out all computations to at least three decimal places.
The cost of ending work in process inventory in the first processing department
according to the company’s cost system is closest to:
A.$39,216
B.$65,360
C.$45,752
D.$41,633
15) The simple rate of return would be about:
A.26.7%
B.16.7%
C.25.0%
D.40.0%
16) Bowdish Corporation purchases potatoes from farmers. The potatoes are then
peeled, producing two intermediate products-peels and depeeled spuds. The peels can
then be processed further to make a cocktail of organic nutrients. And the depeeled
spuds can be processed further to make frozen french fries. A batch of potatoes costs
$37 to buy from farmers and $14 to peel in the company’s plant. The peels produced
from a batch can be sold as is for animal feed for $22 or processed further for $13 to
make the cocktail of nutrients that are sold for $40. The depeeled spuds can be sold as is
for $37 or processed further for $21 to make frozen french fries that are sold for $53.
Required:
a. Assuming that no other costs are involved in processing potatoes or in selling
products, how much money does the company make from processing one batch of
potatoes into the cocktail of organic nutrients and frozen french fries? Show your work!
b. Should each of the intermediate products, peels and depeeled spuds, be sold as is or
processed further into an end product? Explain.
17) Up to how much should the company be willing to pay to obtain enough of the
constrained resource to satisfy demand for the two existing products?
A.$3.60 per minute
B.$38.00 per minute
C.$57.60 per minute
D.$3.80 per minute
Production of product B27D would be 3,200 minutes / 16 minutes per unit of B27D =
200 units of B27D.
Because unsatisfied demand exists for product B27D, the company should be willing to
pay up to $3.60 per minute for more of the constrained resource.
18) Phong Corporation has two divisions: Consumer Division and Business Division.
The following data are for the most recent operating period:
The company’s common fixed expenses total $102,340.
The company’s overall break-even sales is closest to:
A.$412,314
B.$584,762
C.$544,679
D.$172,448
19) Axsom Inc. bases its manufacturing overhead budget on budgeted direct
labor-hours. The direct labor budget indicates that 1,300 direct labor-hours will be
required in March. The variable overhead rate is $8.90 per direct labor-hour. The
company’s budgeted fixed manufacturing overhead is $20,020 per month, which
includes depreciation of $2,600. All other fixed manufacturing overhead costs represent
current cash flows. The company recomputes its predetermined overhead rate every
month. The predetermined overhead rate for March should be:
A.$22.30
B.$24.30
C.$15.40
D.$8.90
20) Lake Corporation has an activity-based costing system with three activity cost
pools-Processing, Supervising, and Other. In the first stage allocations, costs in the two
overhead accounts, equipment expense and indirect labor, are allocated to the three
activity cost pools based on resource consumption. Data used in the first stage
allocations follow:
Processing costs are assigned to products using machine-hours (MHs) and Supervising
costs are assigned to products using the number of batches. The costs in the Other
activity cost pool are not assigned to products. Activity data for the company’s two
products follow:
Finally, the costs of Processing and Supervising are combined with the following sales
and direct cost data to determine product margins.
What is the product margin for Product L2 under activity-based costing?
A.$32,764
B.$69,300
C.$17,344
D.$56,200
21) Eberley Corporation’s cost formula for its manufacturing overhead is $25,700 per
month plus $10 per machine-hour. For the month of July, the company planned for
activity of 5,900 machine-hours, but the actual level of activity was 5,920
machine-hours. The actual manufacturing overhead for the month was $86,800.
The manufacturing overhead in the flexible budget for July would be closest to:
A.$84,900
B.$84,700
C.$84,987
D.$86,800