Staff managers give advice to line managers and have authority over line managers.
In a linear mixed cost function, the slope of the function is the fixed cost per unit of the
cost driver.
The phrase ” cost distribution” refers to the allocation of total departmental costs to
revenue-producing products or services.
Nearly all companies sell more than one product, and thus, they must be concerned with
sales mix.
Currently attainable standards are levels of performance that can be achieved by
realistic levels of effort.
One of a controller’s responsibilities is risk management.
If the vast majority of costs were directly traceable to cost objects, then cost allocation
would be a minor issue.
Managers may lie to increase the resources allocated to their departments.
An example of an operating activity on the statement of cash flows is federal taxes paid.
Assume the direct method is used.
Journal entries for the expiration of unexpired assets are usually made before the related
cash flows.
When managers make decisions, the accountant is seen as the technical expert on
financial analysis.
In cases of constrained capacity, the opportunity cost of transferring a product internally
is zero.
A small margin of safety may indicate a risky situation.
The immediate write-off method of disposing of underapplied overhead subtracts the
dollar amount from Cost of Goods Sold.
A static budget has multiple levels of activity.
Qualitative information can influence decisions to add or drop a department.
Allocation of costs to cost objects may be described as absorb or apply.
Least-squares regression provides statistical information about the reliability of its cost
estimates.
A small margin of safety may indicate a risky situation.
Separable costs are part of a joint process and cannot be exclusively identified with
individual products.
Account analysis is one method of approximating cost functions.
Once a management control system is designed for a nonprofit organization, it does not
have to be altered in the future.
Accountants use actual overhead rates when applying overhead costs to jobs as they are
completed.
A favorable expense variance is when budgeted expenses are less than actual expenses.
Managers may lie to increase the resources allocated to their departments.
Managers should apply plausibility and reliability to obtain accurate and useful cost
functions.
The static budget variance is the difference between actual results and the static budget
for the original planned level of output.
Capital turnover equals revenue divided by invested capital.
Qualitative aspects of information are those for which measurement in dollars and cents
is easy and precise.
A change in the tax rate will not affect the break-even point.
The cash budget begins with the ending cash balance from the previous period.
High Division sells a part internally to Low Division. Low Division uses the part to
produce inexpensive products sold at discount stores. High Division incurs costs of
$1.50 per part, while Low Division incurs additional costs of $4.80 per product. High
Division sells the part to Low Division for $2.00 per part.
Low Division can purchase the part from an outside supplier for $1.00 per part, but
does not accept the offer. The final product is sold to external customers for $8.00 each.
Which of the following formulas correctly reflects the company’s operating income?
A) $8.00 – $1.50 – $4.80 – $2.00 – $1.00 = $(1.30)
B) $8.00 – $1.50 – $4.80 = $1.70
C) $8.00 – $4.80 – $2.00 = $1.20
D) $8.00 – $1.50 = $6.50
Presented below is the balance sheet of Hellman Company at January 1, 2015:
Cash $100
Net Fixed Assets 400
Total Assets $500
Accounts Payable $20
Long-term Bonds Payable 220
Stockholders’ Equity 260
Total Liabilities and Stockholders’ Equity $500
The balance sheet of Swenson Company at January 1, 2015 is below:
Cash $400
Net Fixed Assets 380
Total Assets $780
Accounts Payable $120
Long-term Bonds Payable 280
Stockholders’ Equity 380
Total Liabilities and Stockholders’ Equity $780
On January 1, 2015, Swenson Company acquired 100 percent of the outstanding
common stock of Hellman Company for $260 cash. The book value and fair value of
Hellman’s assets and liabilities were equal. The net income for the year ending
December 31, 2015 was $30 for Hellman Company. The net income for the year ending
December 31, 2015 was $40 for Swenson Company. There were no intercompany sales.
What is the net income on the consolidated income statement for the year ended
December 31, 2015?
A) $0
B) $30
C) $40
D) $70
When preparing segmented income statements, unallocated costs do NOT include
________.
A) cost of public relations department
B) salaries of top management
C) corporate level advertising
D) segment level advertising
Santana Company has no beginning and ending inventories, and reports the following
information for its only product:
Direct materials used $250,000
Direct labor $120,000
Fixed indirect manufacturing $60,000
Variable indirect manufacturing $20,000
Variable selling and administrative $50,000
Fixed selling and administrative $10,000
Units produced and sold 40,000
Santana Company uses the absorption approach to prepare the income statement. What
is the product cost per unit?
A) $11.00
B) $11.25
C) $12.00
D) $12.75
The following information is available for Company ZZ:
Sales $1,000,000
Variable Selling Expenses 22,000
Fixed Selling Expenses 33,000
Variable Administrative Expenses 30,000
Fixed Administrative Expenses 10,000
Variable Cost of Goods Sold 400,000
Fixed Cost of Goods Sold 100,000
If sales increase to $1,500,000, what is operating income?
A) $405,000
B) $500,000
C) $548,000
D) $679,000
Step Company has total variable costs of 80% of total revenues and fixed costs of $20
million per year. What is the break-even point expressed in total revenue dollars?
A) $10 million
B) $12.5 million
C) $20 million
D) $100 million
If individual cost steps are uniform and the decision being made spans a number of
steps, the step costs are treated as a ________.
A) fixed cost
B) mixed cost
C) incremental cost
D) variable cost
Brankovich Company uses a job-order costing system and has the following data
available:
Beginning Direct Materials Inventory $26,000
Beginning Work-In-Process Inventory $64,000
Beginning Finished Goods Inventory $58,000
Direct materials purchased on account $148,000
Direct materials requisitioned $90,000
Direct labor cost incurred $130,000
Factory overhead incurred $146,000
Cost of goods completed $292,000
Cost of Goods Sold $256,000
Overhead application rate (based on direct labor cost) 125%
What is the cost of the ending inventory of Direct Materials?
A) $84,000
B) $90,000
C) $108,000
D) $174,000
In practice, companies often inappropriately allocate fixed cost pools for service
departments to producing departments on the basis of ________ instead of ________.
A) budgeted costs; actual costs
B) actual costs; budgeted costs
C) capacity used; capacity available
D) capacity available; capacity used
Cleveland Corporation has a joint process that produces three products: X, Y and Z.
Each product may be sold at split-off or processed further and then sold.
Joint-processing costs for a year amount to $100,000. Other data follows:
Sales Value Separable Processing Sales Value
Product at Split-Off Costs after Split-Off at Completion
X $128,000 $16,000 $140,000
Y 50,000 27,000 76,000
Z 25,600 10,000 40,000
To maximize profits, the corporation should process ________ further.
A) Product Z only
B) Product Y only
C) Product X only
D) Products X, Y and Z
If the Production Department is the cost object, the salary of the factory supervisor is
a(n) ________ cost for the department. If the product made in the factory is the cost
object, the salary of the factory supervisor is a(n) ________ cost for the product.
A) direct; indirect
B) indirect; direct
C) direct; direct
D) indirect, indirect
A disadvantage of the accounting rate of return model is ________.
A) it focuses on cash flows
B) it is inconsistent with accrual accounting
C) it is not based on the familiar financial statements
D) it ignores the time value of money
Due to the use of statistics, least squares regression analysis estimates a cost function
more ________ than other cost measurement methods.
A) easily
B) rapidly
C) reliably
D) subjectively
Sunset Motel’s cost function is given as:
Y = $75,000 + $9.50X
Where:
Y = annual custodial cost
X = number of guest-days of occupancy
In the current year, Sunset Motel has 8,000 guest days. In the next year, Sunset Motel
expects an occupancy level of 10,000 guest days. (All costs next year will remain in the
same relevant range as the current year.) What is the expected total variable custodial
cost for next year?
A) $60,000
B) $75,000
C) $95,000
D) $170,000
Differences between actual results and the static budget at the original planned level of
output are ________ variances.
A) flexible budget
B) financial budget
C) operating budget
D) static budget
Victor Company incurred actual overhead costs of $297,500 for the year. A budgeted
factory overhead rate of 150% of direct labor cost was determined at the beginning of
the year. Budgeted factory overhead was $300,000 and budgeted direct labor cost was
$200,000. Actual direct labor cost was $205,000 for the year. The factory overhead
variance for the year was ________.
A) $2,500 underapplied
B) $2,500 overapplied
C) $10,000 underapplied
D) $10,000 overapplied
A sorority held a party. The sorority prepared the following budget for 25 expected
attendees:
Room rental $270
Food 250
Entertainment 150
Decorations 75
Total Costs $745
Twenty-five people attended the party. The costs incurred were:
Room rental $140
Food 320
Entertainment 125
Decorations 75
Total Costs $660
What is the variance for the room rental cost?
A) $85 Unfavorable
B) $85 Favorable
C) $130 Favorable
D) $130 Unfavorable
Why do some companies prefer the use of economic profit over return on investment in
decision-making?
A) The calculations for economic profit are easier.
B) The data needed to calculate return on investment are not always available.
C) Return on investment can motivate managers to make investment decisions that are
not in the best interests of the company as a whole.
D) The concept behind economic profit is more logical.
Ivanovich 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 flexible budget variance for direct
labor?
A) $2,250 Favorable
B) $2,250 Unfavorable
C) $7,500 Favorable
D) $7,500 Unfavorable
During the month of May, Sanchez Clothing transferred 140,000 shirts to Finished
Goods Inventory. There was no beginning work-in-process inventory. The company had
40,000 shirts in process at May 31 and the shirts were 50 percent complete with respect
to conversion costs. All direct materials are added at the beginning of the production
process. The equivalent units for materials for May are ________.
A) 90,000
B) 140,000
C) 160,000
D) 180,000
Which of the following statements is FALSE about a strategic plan?
A) A strategic plan does not deal with a specific time period.
B) A strategic plan does not produce forecasted financial statements.
C) A strategic plan guides day-to-day operations.
D) A strategic plan provides an overall framework for a long-range plan.
A measure of how much of the fluctuation of a cost is explained by changes in the cost
driver is ________.
A) least squares regression analysis
B) standard error of coefficient
C) standard error of constant
D) coefficient of determination
Jensen Company is preparing a cash budget for the month of June. The following
information is available:
Cash Balance, May 31, 2015 $10,000
Cash collections from customers in June 76,000
Cash paid for merchandise in June 42,000
Paid operating expenses in June 17,000
Purchase furniture for cash in June 5,000
Depreciation expense in June 2,000
Amortization expense in June 3,000
The minimum cash balance desired is $10,000. What are the net cash receipts and
disbursements for the month of June?
A) $7,000
B) $10,000
C) $12,000
D) $17,000
In the relevant range, the sales-activity variance for fixed costs is always ________.
A) greater than the flexible budget variance
B) less than the flexible budget variance
C) greater than the static budget variance
D) zero
Product costs for variable costing include direct materials, direct labor and ________.
A) variable selling costs
B) fixed manufacturing overhead costs
C) variable manufacturing overhead costs
D) variable manufacturing overhead costs plus variable selling costs
Beckronski Company has the following information available for the month of March:
Units Transferred- Direct Conversion
in Costs Materials Costs
Work-in-process inventory, March 1 240 $33,600 0 $18,000
*Percent complete 100% 0% 62.5%
Transferred-in during March 400
Completed in March 440
Work-in-process inventory, March 31 200
*Percent complete 100% 0% 80%
Costs added in March $52,000 $13,200 $48,600
The company uses the weighted-average cost method of process costing. What are the
equivalent units for March for direct materials?
A) 400
B) 440
C) 600
D) 640
On a cost-volume-profit graph, when the Total Cost line is higher than the Total
Revenue line, the difference represents ________.
A) net income
B) a positive return on the investment
C) a net loss
D) not enough information is presented
Wendell Company has the following information available for the past quarter:
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 $25,000. What is the contribution by
Division C?
A) $2,500
B) $27,500
C) $35,000
D) $210,000
Sterling Company’s revenues are $300 for the year. Average invested capital for the
year is $240. Expenses are currently 70% of revenues. If Sterling Company can reduce
its average invested capital by 25%, return on investment will be ________.
A) 18.75%
B) 50.00%
C) 75.00%
D) 93.75%
If the Machining Department is the cost object, attaching costs to the Machining
Department is called ________.
A) cost pooling
B) cost accumulation
C) cost assignment
D) applying a cost driver
The purpose of depreciation is to ________.
A) establish the current replacement cost of a fixed asset
B) accumulate funds to replace a fixed asset
C) set aside cash to replace a fixed asset
D) allocate the original cost of a fixed asset to the periods that benefit from the use of
the fixed asset
________ involves an analysis of alternative courses of action and the identification of
the best course of action to follow.
A) Scorekeeping
B) Attention directing
C) Problem-solving
D) Internal auditing
Which statement about JIT is FALSE?
A) JIT minimizes inventories of raw materials, work in process and finished goods.
B) JIT eliminates non-value-added activities such as inspection.
C) JIT decreases the amount of time products spend in the production process.
D) JIT focuses on customer satisfaction and the prevention of defects.
If a company chooses to allocate central support costs, it is important to allocate them
using ________.
A) actual or estimated usage
B) a fair approach accepted by managers
C) the indirect costs of each division
D) A and B
For external financial reporting, ________ costs are assigned to products or services.
A) some production
B) all production
C) all value chain function
D) all production and some value chain function