1) Cost-plus pricing is essentially the opposite of target-costing.
2) The fixed cost per unit of activity varies with changes in volume.
3) Horizontal analysis is the study of percentage changes in comparative financial
statements.
4) The gross profit on the sale of a job is the difference between the sales price and the
total cost reported on the job cost record.
5) A common size statement reports only percentages.
6) Indirect labor would not be a component of conversion costs.
7) Calculating interest on the principal and on all the interest earned to date is called
compound interest.
8) Management by exception is used to determine which variances to investigate.
9) If all other factors are constant, any decrease in fixed costs will decrease the
breakeven point.
10) Under absorption costing, fixed manufacturing costs are not expensed until the units
are sold.
11) The standard for the direct labor rate per hour does not include fringe benefits such
as health care insurance and vacations.
12) Total mixed costs can be expressed as a combination of the fixed and sunk cost
equations.
13) The role of accounting in sustainability is limited to mandatory external reporting.
14) If the data points in a scatter plot fall in a fairly straight line, it means that there is a
fairly strong relationship between cost and volume.
15) Merchandising companies prepare a manufacturing overhead budget.
16) Manufacturers follow four steps to implement a manufacturing overhead allocation
system. The first step is to estimate the total manufacturing overhead costs for the
coming year.
17) Second or subsequent departments must account for units and costs transferred in
from previous departments.
18) When deciding whether to accept a special order, managers need to consider
whether they have available excess capacity.
19) The costs to develop a major website for a company would be considered to be a
capital asset if those costs are significant and material (for example, the costs to develop
the website exceed $100,000).
20) Small companies tend to use decentralized decision making.
21) Before the year began, Murphy Manufacturing estimated that manufacturing
overhead for the year would be $175,500 and that 13,000 direct labor hours would be
worked. Actual results for the year included the following:
The amount of manufacturing overhead allocated for the year based on direct labor
hours would have been
A) $179,750
B) $195,750
C) $175,500
D) $184,000
22) A company has monthly fixed costs of $112,500. The variable costs are $6.00 per
unit. If the sales price of a unit is $19.00 and we sell 7,500 units, the company’s total
variable costs will be
A) $112,500
B) $45,000
C) $142,500
D) $97,500
23) In developing an ABC system, what is the last step?
A) Identify the primary activities and estimate a total cost pool for each
B) Select an allocation base for each activity
C) Allocate the costs to the cost object using the activity cost allocation rates
D) Calculate an activity cost allocation rate for each activity
24) The costs associated with reengineering machinery and its location within the
factory to increase efficiency would be considered which part of the value chain?
A) Customer service
B) Marketing
C) Research and development
D) Design
25) Missy & Daughters allocates manufacturing overhead to jobs based on machine
hours. The company has the following estimated costs for the upcoming year:
The company estimates that 1,360 direct labor hours will be worked in the upcoming
year, while 1,000 machine hours will be used during the year. The predetermined
manufacturing overhead rate per machine hour will be
A) $29
B) $124
C) $244
D) $68
26) (Present value tables are required.) The Speedy-Delivery Company has two options
for its delivery truck. The first option is to purchase a new truck for $15,000. The new
truck will have a useful life of 5 years and a residual value of $2,000. Operating costs
for the new truck will be $200. The second option is to overhaul its existing truck. The
cost of the overhaul will be $8,000. The overhauled truck will have a useful life of 5
years and a residual value of $0. Operating costs for the overhauled truck will be $600.
Using Speedy’s discount rate of 5%, which option is better and by what amount?
A) Better to overhaul by $3,700
B) Better to purchase new by $3,700
C) Better to overhaul by $5,144
D) Better to purchase new by $5,144
27) Cross Roads Manufacturing currently uses a traditional costing system. The
company allocates overhead to its two products, Zips and Dees, using a predetermined
manufacturing overhead rate based on direct labor hours. Here is data related to the
company’s two products:
Information about the company’s estimated manufacturing overhead for the year
follows:
Total estimated direct labor hours for the company for the year are 110,000 hours.
The company is evaluating whether it should use an activity-based costing system in
place of its traditional costing system. Additional information about production needed
for the activity-based costing system follows:
The amount of manufacturing overhead that would be allocated to one unit of Dees
using an activity-based costing system would be closest to
A) $94.82
B) $64.46
C) $48.53
D) $13.20
28) If manufacturing overhead has been overallocated during the period, then
A) the jobs produced during the period have been undercosted
B) the jobs produced during the period have been overcosted
C) the jobs produced during the period have been costed correctly
D) none of the above
29) The higher the operating leverage factor, the
A) lesser the impact of volume on operating income
B) greater the impact of volume on operating income
C) more likely operating income is to stay constant
D) none of the above
30) The two fixed overhead variances are the
A) budget and volume variances
B) rate and efficiency variances
C) price and usage variances
D) rate and volume variances
31) A purpose for the statement of cash flows could be which of the following?
A) To evaluate board of directors’ decisions
B) To determine the ability to pay dividends to stockholders and interest and principle
to creditors
C) To help predict management’s future decisions
D) To report the earnings per share
32) Cash received from selling merchandise would be considered a
A) cash inflow from investing activities
B) cash inflow from financing activities
C) cash inflow from operating activities
D) cash outflow from operating activities
33) Part P40 is a part used in the production of air conditioners at Jackson Corporation.
The following costs and data relate to the production of Part P40:
Jackson Corporation can purchase the part from an outside supplier for $4.25 per unit.
If they purchase from the outside supplier, 50% of the fixed costs would be avoided. If
Jackson Corporation buys the part, what is the most Jackson Corporation can spend per
unit so that operating income is equal to $97,000?
A) $5.32
B) $3.50
C) $1.93
D) $1.00
34) When Doubletree Hotel in Oregon created a “green” floor, it saw decreased
housekeeping costs, laundry costs, and personal consumables costs. This situation is an
example of which type of reason to implement sustainable initiatives?
A) Stakeholder influence
B) Competitive strategy
C) Cost reduction
D) None of the above
35) Farrar Industries reported the following results from its most recent quarter:
What is Farrar’s direct material quantity variance?
A) $2,750 favorable
B) $2,750 unfavorable
C) $2,875 unfavorable
D) $2,875 favorable
36) To follow is selected financial data from Turtle Bay Manufacturing for the most
recent year.
What is the beginning finished goods inventory?
A) $138,200
B) $18,200
C) $78,200
D) $(2,800)
37) The following information is provided by Zander Corporation:
The units in ending WIP inventory were 80% complete for materials and 45% complete
for conversion costs.
What are the total equivalent units for direct materials?
A) 14,000
B) 5,000
C) 4,000
D) 13,000
38) The income statement is organized by ________ under absorption costing.
A) period costs only
B) fixed costs only
C) variable costs only
D) product and period costs
39) Which item would appear last on a production cost report?
A) Cost of goods finished for the month
B) Total costs accounted for
C) Beginning WIP inventory, if any
D) Ending WIP inventory, if any
40) The costs incurred to get merchandise to a company’s retail store would be
considered to be what part of the value chain?
A) Marketing
B) Customer service
C) Production or purchases
D) Research and development
41) Regarding the budgeting process, which of the following statements is TRUE?
A) The budget should always be designed by top corporate management
B) The budget should be approved by the company’s external auditors
C) The budget should be designed from the bottom up, with input from employees at all
levels
D) All of the listed statements are TRUE regarding the budgeting process
42) On the direct labor budget, the total quantity of direct labor hours needed is
computed as
A) units to be produced direct labor hour per unit
B) quantity needed for production + indirect labor hours – direct labor hours
C) units to be produced – indirect labor hours cost per labor hour
D) estimated direct labor hours needed cost per hour
43) Deen Enterprises currently sells its products for $1,200 per unit. Management is
contemplating a 10% increase in the selling price for the next year. Variable costs are
currently 40% of sales revenue and are not expected to change next year. Fixed
expenses are $147,000 per year.
What is the breakeven point in units at the anticipated selling price per unit next year?
A) 175 units
B) 82 units
C) 245 units
D) 408 units
44) A(n) ________ is an estimated manufacturing overhead rate computed before the
year begins.
A) cost allocation
B) cost driver
C) predetermined manufacturing overhead rate
D) actual manufacturing overhead rate
45) Which of the activities sections of the statement of cash flows would include a loss
of $20,000 from the sale of equipment?
A) Investing
B) Operating
C) Financing
D) Would not be on the statement of cash flows
46) Which of the following items is most likely to be found on an environmental
management accounting report?
A) CEO’s salary
B) Public accounting firm’s fee for doing financial accounting audit
C) Ratio of recycled trash to total trash
D) Regional sales revenue
47) Which of the following would appear on a statement of cash flows prepared using
the direct method?
A) Interest received on a loan would appear on the statement
B) Collections from customers would appear on the statement
C) Cash payment of dividends would appear on the statement
D) All of the above would appear on the statement
48) A system for assigning costs for products made in a continuous process is
A) process costing
B) job costing
C) equivalent units costing
D) conversion cost costing
49) Materials are added at the beginning of the process and conversion costs are added
uniformly.
What is the total number of physical units to account for?
A) 56,500
B) 47,500
C) 43,000
D) 38,500
50) How would Chevrolet classify its partially completed vehicles?
A) Finished goods
B) Raw materials
C) Work in process
D) Supplies