1) Accounting methods for internal reporting purposes are specified by Generally
Accepted Accounting Principles (GAAP).
2) A favorable flexible-budget variance for variable costs may be the result of using
more input quantities than were budgeted.
3) The supply chain always occurs within a single organization.
4) If a worker is paid for 40 hours, but is idle for 5 of those 40 hours, the 5 hour of idle
time would be considered a component of direct labor.
5) The production-volume variance, which relates only to fixed manufacturing
overhead, exists under absorption costing but not under variable costing.
6) When benchmarking it is best when management accountants simply analyze the
costs and allow management to provide the insight as to why the revenues and costs
differ between companies.
7) In an EVA calculation, the appropriate measure of a division’s profit would be that
division’s pre-tax operating income.
8) Each manager, regardless of level, is in charge of a responsibility center.
9) A unit cost is computed by dividing total cost by the number of units.
10) The quantitative analysis method uses a formal mathematical method to identify
cause-and-effect relationships among past data observations.
11) Budgeting includes only the financial aspects of the plan and NOT any nonfinancial
aspects such as the number of physical units manufactured.
12) Deducting depreciation from operating cash flows would result in counting the
initial investment twice in a discounted cash flow analysis.
13) Administration of budgets is free of emotions as budgets are mechanical tools.
14) Throughput costing provides less incentive to produce for inventory than either
variable costing or, especially, absorption costing.
15) Surveys indicate that decisions made most frequently at the corporate level are
related to sources of supplies and products to manufacture.
16) Rachel’s Pet Supply Corporation manufactures two models of grooming stations, a
standard and a deluxe model. The following activity and cost information has been
compiled:
Assume a traditional costing system applies the $160,000 of overhead costs based on
direct labor hours.
a.What is the total amount of overhead costs assigned to the standard model?
b.What is the total amount of overhead costs assigned to the deluxe model?
Assume an activity-based costing system is used and that the number of setups and the
number of components are identified as the activity-cost drivers for overhead.
c.What is the total amount of overhead costs assigned to the standard model?
d.What is the total amount of overhead costs assigned to the deluxe model?
e.Explain the difference between the costs obtained from the traditional costing system
and the ABC system. Which system provides a better estimate of costs? Why?
17) Which of the following factors affect the direct/indirect classification of a cost?
A) the level of budgeted profit for the next year
B) the estimation of time required to complete the order
C) the ability to execute an order in the most cost-efficient manner
D) the design of the operation
18) An analysis of Baker, Inc.’s operating income for the last two years showed the
following:
This gain in operating income is consistent with a ________.
A) downsizing strategy
B) reengineering strategy
C) product differentiation strategy
D) cost leadership strategy
19) Violet Sales Corp, reports the year-end information from 2016 as follows:
Violet is developing the 2016 budget. In 2016 the company would like to increase
selling prices by 3.5%, and as a result expects a decrease in sales volume of 15%. All
other operating expenses are expected to remain constant. Assume that cost of goods
sold is a variable cost and that operating expenses are a fixed cost.
What is budgeted cost of goods sold for 2016?
A) $89,250
B) $98,250
C) $15,750
D) $257,040
20) Zitrik Corporation manufactured 90,000 buckets during February. The variable
overhead cost-allocation base is $5.05 per machine-hour. The following variable
overhead data pertain to February:
What is the actual variable overhead cost?
A) $463,500
B) $436,500
C) $50,470
D) $49,490
21) The top management at Groundsource Company, a manufacturer of lawn and
garden equipment, is attempting to recover from a fire that destroyed some of their
accounting records. The main computer system was also severely damaged. The
following information was salvaged:
Tractor Division Tiller Division Digger Division
Sales $10,000,000 (a) $2,400,000
Net operating income $1,000,000 $1,440,000 $600,000
Operating assets (b) (c) $2,000,000
Return on investment 0.2 0.1 (d)
Return on sales (e) 0.12 0.25
Investment turnover (f) (g) 1.2
What is the Tiller Division’s investment turnover?
A) .50
B) .833
C) 1.2
D) 1.5
22) Lukehart Industries, Inc., produces air purifiers. Lukehart, Inc., produces the air
purifiers in batches. To manufacture a batch of the purifiers, Lukehart, Inc., must set up
the machines and assembly line tooling. Setup costs are batch-level costs because they
are associated with batches rather than individual units of products. A separate Setup
Department is responsible for setting up machines and tooling for different models of
the air purifiers.
Setup overhead costs consist of some costs that are variable and some costs that are
fixed with respect to the number of setup-hours. The following information pertains to
June 2015:
One possible reason for unfavorable variable overhead efficiency variance for materials
handling is ________.
A) inefficient layout of product distribution channels
B) loosely budgeted standard hours
C) very low wait time at work centers
D) experienced but unmotivated employees
23) More insight into the static-budget variance can be gained by subdividing it into
________.
A) the sales-mix variance and the sales-quantity variance
B) the market-share variance and the market-size variance
C) the flexible-budget variance and the sales-volume variance
D) the flexible-budget variance and the sales-mix variance
24) Contribution margin equals ________.
A) revenues minus period costs
B) revenues minus product costs
C) revenues minus variable costs
D) revenues minus fixed costs
25) Genent Industries, Inc. (GII), developed standard costs for direct material and direct
labor. In 2015, GII estimated the following standard costs for one of their major
products, the 30-gallon heavy-duty plastic container.
During July, GII produced and sold 3,000 containers using 1,000 pounds of direct
materials at an average cost per pound of $19 and 625 direct manufacturing labor hours
at an average wage of $11.75 per hour.
The direct material efficiency variance during July is ________.
A) $1,000 unfavorable
B) $1,100 favorable
C) $2,000 unfavorable
D) $1,000 favorable
26) Genent Company manufactures tires. Some of the company’s data was misplaced.
Use the following information to replace the lost data:
Actual Results Flexible Budget Variances Flexible Budget Sales-Volume Variances
Static Budget
Units sold 495,000 495,000 453,750
Revenues $185,150 $4,400 F (A) $6,160 U (B)
Variable costs (C) $880 U $69,780 $10,300 F $88,080
Fixed costs $36,430 $3,770 F $40,200 0 $40,200
Operating income $78,060 (D) $70,770 (E) $66,630
What is the total flexible-budget variance (D)?
A) $240 unfavorable
B) $0
C) $1,360 favorable
D) $7,290 favorable
27) Which of the following inventory costing methods shown below is most likely to
cause undesirable incentives for managers to build up finished goods inventory?
A) absorption costing
B) variable costing
C) throughput costing
D) direct costing
28) Businesses offer bundled products to ________.
A) increase customer exposure
B) avoid the problems of cost allocation
C) avoid the problems of revenue allocation
D) decrease taxes
29) Syosis Company uses the high-low method to estimate its cost function. The
information for 2015 is provided below:
What is the estimated total cost when 1,300 machine-hours are used?
A) $411,100
B) $204,000
C) $456,000
D) $156,000
30) The sales-mix variance will be favorable when ________.
A) the actual contribution margin is greater than the static-budget contribution margin
B) actual unit sales are more than budgeted unit sales
C) the actual sales mix shifts toward the less profitable units
D) the budgeted contribution margin for actual sales mix is greater than for the
budgeted mix