Internal performance measures focus on the efficiency and effectiveness of an
organization’s production process.
Expected capacity is a long-run measure of activity.
A specific product cannot be a cost object.
In an actual cost system, factory overhead is applied to Work in Process using a
predetermined overhead rate.
An organization’s discount rate should be less than the organization’s cost of capital.
There is typically a direct relationship between prevention costs and failure costs.
Plantwide overhead rates provide a less accurate computation of factory overhead than
departmental overhead rates
Texas Metal Company
Texas Metal Company has developed standard overhead costs based on a monthly
capacity of 180,000 machine hours as follows:
During November, 90,000 units were scheduled for production, but only 80,000 units
were actually produced. The following data relate to November:
Actual machine hours used were 165,000.
Actual overhead incurred totaled $1,378,000 ($518,000 variable plus $860,000 fixed).
All inventories are carried at standard cost.
Refer to Texas Metal Company. The fixed overhead spending variance for November
was
A. $40,000 U.
B. $40,000 F.
C. $60,000 F.
D. $60,000 U.
Income taxes are levied on
A. net cash flow.
B. income as measured by accounting rules.
C. net cash flow plus depreciation.
D. income as measured by tax rules.
Which of the following is not a trend promoting the increased use of business process
reengineering (BPR)?
A. advancement of technology
B. pursuit of increased quality
C. price competition caused by globalization
D. business expansion
Wightman Industries has two sales territories-East and West. Financial information for
the two territories is presented below:
Because the company is in a start-up stage, corporate management feels that the East
sales territory is creating too much of a cash drain on the company and it should be
eliminated. If the East territory is discontinued, one sales manager (whose salary is
$40,000 per year) will be relocated to the West territory. By how much would
Wightman’s income change if the East territory is eliminated?
A. increase by $88,000
B. increase by $48,000
C. decrease by $267,000
D. decrease by $227,000
Carson Company produces and sells two products: A and B in the ratio of 3A to 5B.
Selling prices for A and B are, respectively, $1,200 and $240; respective variable costs
are $480 and $160. The company’s fixed costs are $1,800,000 per year.
Compute the volume of sales in units of each product needed to:
Required:
Hogan Company uses a weighted average process costing system and started 30,000
units this month. Hogan had 12,000 units that were 20 percent complete as to
conversion costs in beginning Work in Process Inventory and 3,000 units that were 40
percent complete as to conversion costs in ending Work in Process Inventory. What are
equivalent units for conversion costs?
A. 37,800
B. 40,200
C. 40,800
D. 42,000
Which of the following organizations would be most likely to use a job-order costing
system?
A. the loan department of a bank
B. the check clearing department of a bank
C. a manufacturer of processed cheese food
D. a manufacturer of video cassette tapes
Jean Simmons Company
Below is an income statement for Jean Simmons Company:
Refer to Jean Simmons Company. If the unit sales price for Jean Simmons’s sole
product was $10, how many units would it have needed to sell to produce a profit of
$40,000?
A. 27,500
B. 29,000
C. 28,000
D. can’t be determined from the information given
Residual income is used as a performance measure in
A. profit centers.
B. cost centers.
C. investment centers.
D. revenue centers.
In a make or buy decision, the opportunity cost of capacity could
A. be considered to decrease the price of units purchased from suppliers.
B. be considered to decrease the cost of units manufactured by the company.
C. be considered to increase the price of units purchased from suppliers.
D. not be considered since opportunity costs are not part of the accounting records.
Pests Away Company manufactures a product effective in controlling beetles. The
company uses a standard cost system and a flexible budget. Standard cost of a gallon is
as follows:
The flexible budget system provides for $50,000 of fixed overhead at normal capacity
of 10,000 direct labor hours. Variable overhead is projected at $1 per direct labor hour.
Actual results for the period indicated the following:
Required:
1> What is the application rate per direct labor hour, the total overhead cost equation,
the standard quantity for each material, and the standard hours?
2> Compute the following variances:
a. Total material price variance
b. Total material quantity variance
c. Labor rate variance
d. Labor efficiency variance
e. MOH volume variance
f. MOH efficiency variance
g. MOH spending variance, both fixed and variable
A(n) ____ cost increases or decreases in intervals as activity changes.
A. historical cost
B. fixed cost
C. step cost
D. budgeted cost
Which of the following costing systems allows management to quickly recognize
materials, labor, and overhead variances and take measures to correct them?
A. yes yes
B. yes no
C. no yes
D. no no
Glassman Company
Glassman Company produces two products: A and B. The company has three overhead
functions that are required for both products.
Below is production information for Products A and B:
The company produces 800 units of Product A and 8,000 units of Product B each
period.
The overhead functions have the following hourly costs:
Refer to Glassman Company If total overhead is assigned to A and B on the basis of
direct labor hours, Product B will have an overhead cost per unit of
A. $76.97
B. $87.75
C. $88.64
D. None of the responses are correct.
Priceless Memories Company
Priceless Memories Company manufactures toy trains. Information on Priceless
Memories Company’s labor costs follow:
The following information applies to the upcoming month of July for Priceless
Memories Company:
Refer to Priceless Memories Company. What amount of budgeted labor cost would
appear in the July selling, general, and administrative expense budget?
A. $12,000
B. $21,000
C. $19,800
D. $32,800
Crosby Corporation
Crosby Corporation has two service departments: Data Processing and
Administration/Personnel. The company also has three divisions: X, Y, and Z. Data
Processing costs are allocated based on hours of use and Administration/Personnel costs
are allocated based on number of employees.
Assume that Data Processing provides more service than Administration/Personnel.
Refer to Crosby Corporation. Using the direct method, what amount of Data Processing
costs is allocated to Z (round to the nearest dollar)?
A. $211,765
B. $0
C. $152,542
D. $450,000
A benchmarking process that focuses on how best-in-class companies achieve their
results is referred to as ___________________________________.
Bridges Corporation
Bridges Corporation manufactures and sells two products: A and B. The projected
information on these two products for the coming year is presented below:
Total fixed costs for the company are projected at $10,000.
Refer to Bridges Corporation. How many units would the company need to sell to
produce an income before income taxes equal to 15 percent of sales?
An indicator that reflects the results of past decisions is referred to as a(n)
______________________________.
Performance measures that reflect an organization’s ability to satisfy customers better
than rival firms do are referred to as ____________________ measures.
Why do managers frequently prefer variable costing to absorption costing for internal
use?
Distinguish between the four-variance, three-variance, two-variance, and one-variance
approaches for computing factory overhead variances.
