1) Direct material price variance is likely to be unfavorable if the purchasing manager
switched to a lower-price supplier.
2) A linear cost function can only represent fixed cost behavior.
3) The goal of variance analysis is for managers to understand why variances arise, to
learn, and to improve future performance.
4) Under the proration approach, the sum of the amounts shown in the subsidiary
ledgers will not match the amounts shown in the general ledger because no adjustments
from budgeted to actual manufacturing overhead rates are made in the individual
job-cost records.
5) The basis of the difference between variable costing and absorption costing is how
fixed manufacturing costs are accounted for.
6) It is best to compare this year’s performance with last year’s actual performance
rather than this year’s budget.
7) Companies must always examine pricing decisions through the eyes of their
creditors.
8) Overhead costs allocated each month are expected to equal actual overhead costs
incurred each month.
9) The process of preparing a budget forces coordination and communication
throughout the company.
10) A budget aids to coordinate what needs to be done to implement the proposed plan.
11) A rolling budget is the same as a continuous budget.
12) All other things held constant, increase in assets such as receivables or decrease in
operating income results in an increase in return on investment.
13) Which of the following is true of variable costing?
A) It expenses administrative costs as cost of goods sold.
B) It treats direct manufacturing costs as a product cost.
C) It includes fixed manufacturing overhead as an inventoriable cost.
D) It is required for external reporting to shareholders.
14) Which of the following is a disadvantage of an enterprise resource planning (ERP)
system?
A) The use of standard costing systems is not allowed in an ERP system.
B) Shifting manufacturing and distribution plans rapidly in response to changes in
supply and demand is not possible in an ERP system.
C) The ERP systems must often be customized to fit the strategic needs of the user.
D) The ERP system increases lead times when purchasing material from a different
supplier.
15) At the Verill Company, the cost of the library and information center has always
been charged to the various departments based upon number of employees. Recently,
opinions gathered from the department managers indicate that the number of engineers
within a department might be a better predictor of library and information center costs.
Total library and information center costs are $200,000.
Which cost estimation method is being used by Isondo’s TV and Appliance Store?
A) the operating costing method
B) the marginal costing method
C) the account analysis method
D) the cost-volume-profit analysis method
16) Argon Company makes clocks. The fixed overhead costs for 2015 total $880,000.
The company uses direct labor-hours for fixed overhead allocation and anticipates
220,000 hours during the year for 330,000 units. An equal number of units are budgeted
for each month.
During June, 32,000 clocks were produced and $72,000 was spent on fixed overhead.
Required:
a.Determine the fixed overhead rate for 2015 based on units of input.
b.Determine the fixed overhead static-budget variance for June.
c.Determine the production-volume overhead variance for June.
17) Eagle Eye Company produces two types of lensesL7 and L9.
What is the total indirect costs (a) under ABC system?
A) $53,000
B) $57,000
C) $57,500
D) $40,000
18) What would be the average fixed inspection cost per unit at an activity level of
6,700 machine-hours in a month? Assume that this level of activity is within the
relevant range.
A) $23.04
B) $90.32
C) $24.12
D) $45.83
19) Country Charm Restaurant is open 24 hours a day and always has a fire going in the
fireplace in the middle of its dining area. The cost of the firewood for this fire is fixed
with respect to the number of meals served at the restaurant.
20) Karen Hefner, a florist, operates retail stores in several shopping malls. The average
selling price of an arrangement is $30 and the average cost of each sale is $18. A new
mall is opening where Karen wants to locate a store, but the location manager is not
sure about the rent method to accept. The mall operator offers the following three
options for its retail store rentals:
1.paying a fixed rent of $15,000 a month, or
2.paying a base rent of $9,000 plus 10% of revenue received, or
3.paying a base rent of $4,800 plus 20% of revenue received up to a maximum rent of
$25,000.
Required:
a.For each option, compute the breakeven sales and the monthly rent paid at
break-even.
b.Beginning at zero sales, show the sales levels at which each option is preferable up to
5,000 units.
21) Bouvous Corporation had the following information for 2015:
What is the return on investment?
A) 10%
B) 20%
C) 25%
D) 18.2%
22) Examples of nonfinancial measures of quality include the ________.
A) inspection costs incurred
B) number of customer complaints
C) design engineering costs
D) quality training costs
23) Which of the following is true of an executive compensation plan?
A) The compensation paid to the executives should be linked only to the financial
performance of the company.
B) The executive compensations should be reported to credit rating agencies.
C) It does not help balancing risk with short-run and long-run incentives.
D) It includes benefits such as medical benefits, pension plans, and life insurance.
24) The coefficient of determination is important in explaining variances in estimating
equations. For a certain estimating equation, the unexplained variation was given as
22,506. The total variation was given as 51,150. What is the coefficient of
determination for the equation?
A) 0.34
B) 0.43
C) 0.56
D) 0.75
25) Which of the following statements best define a product differentiation strategy?
A) It describes how an organization can increase customer base by differentiating its’
product prices from its competitors.
B) It is an organization’s ability to achieve lower costs relative to competitors through
productivity and efficiency improvements, elimination of waste, and tight cost control.
C) It describes how an organization can decrease product prices by differentiating its’
raw materials from its competitors.
D) It is an organization’s ability to offer products or services its customers perceive to
be superior and unique relative to the products or services of its competitors.
26) Zephyr Apparels is a clothing retailer. Unit costs associated with one of its products,
Product DCT121, are as follows:
What are the indirect nonmanufacturing variable costs per unit associated with Product
DCT121?
A) $5
B) $21
C) $90
D) $142
27) Which of the following is a benefit of decentralization?
A) It creates greater responsiveness to local needs.
B) It helps in rasing capital at a local level.
C) It relieves top managers of accountability.
D) It eliminates the need for enforcing goal congruence among the departments.
28) Using the high-low method, the estimate of the fixed component of inspection cost
per month is closest to:
A) $16,210
B) $7,746
C) $15,761
D) $16,111
