1) Supply chain management may result in buyers and suppliers sharing information
about each other’s companies.
2) Total-life-cycle costing manages costs along the entire value chain.
3) Fixed costs depend on the resources acquired, not the resources used.
4) Quality is the degree of conformance between what the customer is promised and
what the customer receives.
5) Deciding how to allocate organizational resources over a product’s life cycle is
primarily determined during the manufacturing stage.
6) Processing cycle efficiency is calculated as processing time divided by the sum of
processing time, moving time, storage time, and inspection time.
7) A major role for management accounting and control systems is to motivate behavior
consistent with the desires of the organization.
8) An indirect cost will be traced to the cost object.
9) The over-allocation of overhead to a product distorts the product’s cost and therefore
the evaluation of the product’s profitability.
10) Capacity cost rates also change when the denominator, practical capacity, changes.
11) Customized delivery is a characteristic of a high cost-to-serve customer.
12) Work-in-process inventory generally decreases after the implementation of a
just-in-time inventory system.
13) Important measures in the customer perspective usually include the percentage of
repeat customers and growth in sales to existing customers.
14) For external reporting, generally accepted accounting principles require that costs
be classified as either variable or fixed costs.
15) An example of a sunk cost is the historical cost paid for equipment.
16) Baldwin Printers has contracts to complete weekly supplements required by
forty-two customers. For the year 2011, manufacturing overhead cost estimates total
$1,840,000 for an annual production capacity of 20 million pages.
For 2011 Baldwin Printers has decided to evaluate the use of additional cost pools.
After analyzing manufacturing overhead costs, it was determined that number of design
changes, setups, and inspections are the primary manufacturing overhead cost drivers.
The following information was gathered during the analysis:
During 2011, two customers, Wellington Drugs and Home Again, are expected to use
the following printing services:
When overhead costs are assigned using the single cost driver, number of pages printed,
then
A) Baldwin Printers will want to retain this highly-profitable customer
B) Wellington Drugs will likely seek to do business with competitors in the future
C) Wellington Drugs is unfairly overbilled for its use of printing resources
D) Wellington Drugs is grossly underbilled for the job, while other jobs will be unfairly
overbilled
17) Sunshine, Inc. sells a single product. The company’s most recent income statement
is given below.
Required:
a. Contribution margin per unit is _______________
b. If sales are doubled to $240,000,
total variable costs will equal _______________
c. If sales are doubled to $240,000,
total fixed costs will equal _______________
d. If Sunshine is past the breakeven point and
10 more units are sold, profits will increase by _______________
e. Compute how many units must be sold to break even. _______________
f. Compute how many units must be sold
to achieve a profit of $20,000. _______________
18) Managers are often subject to intense pressures from their job circumstances to
suspend their ethical judgment, which might include all of the choices below EXCEPT:
A) requests to tailor information to favor particular individuals or groups
B) pressures to ignore questionable or unethical practices
C) solicitations for confidential information
D) pleas to verify reports or test results
19) Nonfinancial information might be used for all of the following except:
A) improve product quality
B) reduce cycle times
C) satisfy customers’ needs
D) All of the above are used
20) A restaurant is deciding whether it wants to update its image or not. It currently has
a cozy appeal with an outdated dcor that is still in good condition, menus and carpet
that need to be replaced anyway, and loyal customers.
Identify for the restaurant management
a. those costs that are relevant to this decision,
b. those costs that are not relevant,
c. and qualitative considerations.
21) Department income totals $200,000, investment in the department is $2,000,000,
and the company’s cost of capital is 8%.
Required:
a. Calculate the return on investment (ROI).
b. Calculate economic value added.
c. Assume there is a capital project that requires a $200,000 investment for a $18,000
return. Would the department manager be more likely to accept the project if
department performance was evaluated using ROI or economic value added? Why?
22) Baldwin Printers has contracts to complete weekly supplements required by
forty-two customers. For the year 2011, manufacturing overhead cost estimates total
$1,840,000 for an annual production capacity of 20 million pages.
For 2011 Baldwin Printers has decided to evaluate the use of additional cost pools.
After analyzing manufacturing overhead costs, it was determined that number of design
changes, setups, and inspections are the primary manufacturing overhead cost drivers.
The following information was gathered during the analysis:
During 2011, two customers, Wellington Drugs and Home Again, are expected to use
the following printing services:
Assuming activity-cost pools are used, what are the activity-cost driver rates for design
changes, setups, and inspections cost pools?
A) $1,300 per design change, $130.00per setup, $20 per inspection
B) $360 per design change, $3.20per setup, $6.40 per inspection
C) $1,680 per design change, $5.38 per setup, $42 per inspection
D) $286 per design change, $15.38 per setup, $20 per inspection
23) If initial budgets prove unacceptable, planners achieve the MOST benefit from:
A) repeating the budgeting cycle with a new set of decisions
B) deciding not to budget this year
C) accepting an unbalanced budget
D) using last year’s budget
24) The cost of reworking defective components is an example of:
A) prevention costs
B) appraisal costs
C) internal failure costs
D) external failure costs
25) Wisconsin Electronics has received an order for 1,000 specially designed TV/VCR
combinations. The following standards were compiled for this order:
The estimated direct labor cost for this order is:
A) $30,000
B) $40,000
C) $80,000
D) $115,000
26) The management accountant for Tony’s Skateboard Company has prepared the
following segmented income statement for each of its three product lines.
JammerCruiseFlightTotal
Sales$400,000$250,000$350,000$1,000,000
Variable expenses260,000150,000190,000600,000
Contribution margin140,000100,000160,000400,000
Other costs 20,000 30,000 20,000 70,000
Segment margin120,00070,000140,000330,000
Allocated avoidable costs 30,000 30,000 20,000 80,000
Segment income90,00040,000120,000250,000
Allocated corporate costs 50,000 50,000 50,000150,000
Corporate profit$40,000$(10,000)$70,000$100,000
Required:
a. Do you recommend dropping the Cruise product line? Why or why not?
b. If the Jammer product line had been discontinued, the short-term effect on corporate
profits would be a decrease of what amount?
c. Assume that the Flight product line has been discontinued and long-term capacity has
had time to adjust. The projected long-term effect of this action on annual corporate
profits would be a decrease of what amount?
d. Assume that an advertising campaign could increase revenues for any of the products
by $15,000. To maximize corporate profits, which product line should receive the
advertising dollars? Why?
e. How would you change the format of the segment margin statement above to make it
more understandable?
27) ________ starts with the estimated product costs and next determines the estimated
selling price.
A) Standard costing
B) Target costing
C) Kaizen costing
D) Traditional costing
28) In ________, all similar equipment or functions are grouped together.
A) a process layout
B) a product layout
C) cellular manufacturing
D) just-in-time production
29) For 2011, Steve’s Plastics Manufacturing uses a normal job order costing system.
The accounting records contain the following information:
The only cost driver is machine hours.
The bid price for this special order is:
A) $77,000
B) $97,000
C) $121,250
D) $175,000
30) The roles of performance measurement systems in organizations include all of the
following EXCEPT:
A) motivate employees to help the organization achieve its strategic objectives
B) help managers with resource allocation
C) create value from intangible assets as well as their physical and financial assets
D) communicate the company’s strategic objectives
31) The actual information pertains to the month of June. As part of the budgeting
process, Petrified Products Company developed the following master budget for June.
The manager, Pete, is in the process of preparing the flexible budget and understanding
the results.
The flexible budget will report $________ for the flexible (variable) costs.
A) $512,000
B) $600,000
C) $480,000
D) $640,000
32) If overhead cost driver rates are calculated monthly, distortions might occur because
of:
A) rental costs paid monthly
B) property tax payments made in July and December
C) routine, monthly preventive maintenance costs that benefit future months
D) property tax payments made in July and December, and routine, monthly
preventative maintenance costs that benefit future months
33) With traditional costing systems, products manufactured in large batches and in
large annual volumes may be ________ because batch-related and product-sustaining
costs are assigned using unit-related cost drivers..
A) overcosted
B) undercosted
C) fairly costed
D) ignored
34) Which of the following types of information are used in management accounting?
A) financial information
B) nonfinancial information
C) information focused on the long term
D) All of the above are correct
35) Smaller cost distortions occur when the traditional cost systems’ unit-level
assignments and the alternative activity cost driver assignments:
A) are different in proportion to each other
B) are similar in proportion to each other
C) are more different than alike
D) use the same cost driver units
36) JB Juice Company uses a manufacturing process that has two distinct stages: the
juicing process (P1) and the straining process (P2). Raw material is consumed in P1 at
the beginning of the process. No additional raw material is required in the second stage
of the process (in P2). The following information pertains to the production of 5,000
units of output in March 2011:
Assume 5,000 units are 100% complete with respect to raw materials and conversion
costs at the end of March.
The conversion costs for P1, the juicing process, total:
A) $120,000
B) $160,000
C) $100,000
D) $180,000
37) A well-designed, activity-based cost system helps managers make better decisions
because information derived from an ABC analysis:
A) can be used to eliminate nonvalue-added activities
B) is easy to analyze and interpret
C) takes the choices and judgment challenges away from the managers
D) emphasizes how managers can achieve higher sales
38) For 2011, Steve’s Plastics Manufacturing uses a normal job order costing system.
The accounting records contain the following information:
The only cost driver is machine hours.
Manufacturing overhead cost estimates for this special order total:
A) $7,000
B) $36,000
C) $45,990
D) $63,000
39) The person MOST likely to use ONLY financial accounting information is a:
A) factory shift supervisor
B) vice president of operations
C) current shareholder
D) department manager
40) Fixed manufacturing overhead costs remain constant at $400,000 per month and are
allocated based on a monthly professional labor-hour allocation rate. Professional labor
hours are estimated at 12,000 for high-output months and 3,000 for low-output months.
The final customer price includes a markup of 50% of cost. As a result:
A) low-output months will allocate less manufacturing overhead costs to each job
B) low-output months will deter customers due to the higher prices
C) the high-output months present a more accurate method of pricing
D) an annual allocation rate would result in lower prices during the high-output months
than the monthly allocation rate
41) The key attribute of intrinsic rewards for compensation is that they:
A) have a well-defined monetary value
B) are provided by one person to another
C) are common across individuals in a given situation
D) come from inside the individual
42) To effectively use the Balanced Scorecard, nonprofit and government organizations:
A) must identify a clear strategy with outcomes identified
B) must focus on financial success as their primary objective
C) must shift thinking from what it plans to accomplish to what it plans to do
D) These organizations cannot effectively use the Balanced Scorecard
43) All of the following are assumed in a cost-volume-profit analysis EXCEPT:
A) a constant product mix
B) fixed costs increase when activity increases
C) revenue per unit does not change as volume changes
D) all costs can be classified as either fixed or variable
44) Why do product costing systems using the direct method, sequential method, and
reciprocal method allocate service department overhead costs first to the production
departments before assigning them to individual jobs?