In a job-costing system the cost object is an individual unit, batch, or lot of a distinct
product or service.
Fluctuations in exchange rates between different countries’ currencies affect costs and
pricing decisions of a company.
In each period, job costing divides the total cost of producing an identical or similar
product produced in batches by the total number of units produced to obtain a per-unit
cost.
The sum of all entries in underlying subsidiary ledgers equals the total amount in the
corresponding general ledger control accounts.
Preparation of the budgeted balance sheet is the final step in preparing the operating
budget.
Balanced scorecards are almost exclusively utilized in profit-seeking organizations as
nonprofits cannot benefit from focusing on financial perspectives such as net income
and shareholder value.
Improvements in information-gathering technologies are making it possible to trace
more costs as direct.
It is best to rely totally on financial performance measures rather than using a
combination of financial and nonfinancial performance measures.
An organization which uses product differentiation strategy will charge higher prices.
The average waiting time is the average amount of time an order will wait at the
company’s shipping office before it is sent to the customer.
Increased used of automation, computer integrated manufacturing, and utilization of
robots have lead to an increase in indirect costs relative to direct costs.
In joint costing, the sales value at split-off method is typically used in preference to the
NRV method only when net realizable value for one or more products at split-off do not
exist.
Customer-profitability analysis is the reporting and assessment of revenues earned from
customers and the costs incurred to earn those revenues.
An operation-costing system is a hybrid-costing system applied to batches of similar,
but NOT identical, products.
Effort in terms of management control systems is defined in terms of physical exertion
such as a worker producing at a faster rate.
Purchases of materials are credited to materials control.
A capital budget spans only a one-year period.
Normal capacity utilization is the level of capacity that satisfies average customer
demand over a period and takes into account seasonal, cyclical, and trend factors.
Historical costs are costs recognized in particular situations that are not usually
recognized by accrual accounting procedures.
A life-cycle budget is usually prepared to budget for costs and production for a period
of one year.
Discretionary costs are not easily controllable compared to engineered costs.
In a process-costing system, there is always a separate Work-in-Process account for
each different process. or department in the process.
In some service organizations, a variation of normal costing is used to provide timely
information during the progression of the year, using budgeted direct labor costs and
allocated budgeted overhead.
Proponents of lean accounting argue that the lack of individual product cost information
is irrelevant because most decisions about products are made at the product line level
making value stream costs more relevant than product costs.
A favorable variance indicates that budgeted costs are less than actual costs.
Predatory pricing occurs when companies in an industry conspire in their pricing and
production decisions to achieve a price above the competitive price and so restrain
trade.
Managers implementing ABC systems for the first time always start by analyzing
budgeted costs to identify activity-cost pools.
For a company operating in a perfectly competitive market, cost information affects the
pricing decisions of the company.
Advertising cost is an example of a discretionary cost.
ABC systems attempt to trace more costs as indirect costs.
Some amounts of spoilage, rework, or scrap are inherent in many production processes.
If a company has a degree of operating leverage of 4.0, that means a 10% increase in
sales will result in a 40% increase in operating income.
Line operators and other plant personnel generally can decrease or eliminate normal
spoilage by identifying the reasons for machine breakdowns, operator errors.
If U.S dollar strengthens against the Japanese Yen, Japanese producers selling goods in
U.S markets will have to increase the prices of products to recover the extra cost arising
from currency fluctuation.
When benchmarking it is best when management accountants simply analyze the costs
and allow management to provide the insight as to why the revenues and costs differ
between companies.
The contribution-margin format of the income statement distinguishes manufacturing
costs from nonmanufacturing costs.
The formal management control system includes shared values, loyalties, and mutual
commitments among members of the company, company culture, and norms about
acceptable behavior for managers and other employees.
Which of the following includes both traced direct costs and allocated indirect costs?
A) cost tracing
B) cost pools
C) cost assignments
D) cost allocations
What is the term for an organization’s ability to achieve lower costs relative to
competitors through productivity and efficiency improvements, elimination of waste,
and tight cost control?
A) Marketing strategy
B) Product differentiation
C) Cost leadership
D) Competitor differentiation
Staff management includes ________.
A) manufacturing managers
B) management accountants
C) purchasing managers
D) distribution managers
Bristol Fabricators, Inc., produces air purifiers in batches. To manufacture a batch of the
purifiers, Bristol Fabricators, Inc, Inc., must set up the machines and assembly line
tooling. Setup costs are batch-level costs because they are associated with batches
rather than individual units of products. A separate Setup Department is responsible for
setting up machines and tooling for different models of the air purifiers.
Setup overhead costs consist of some costs that are variable and some costs that are
fixed with respect to the number of setup-hours. The following information pertains to
June 2015:
Calculate the efficiency variance for variable overhead setup costs. (Round all
intermediary calculations two decimal places and your final answer to the nearest whole
number.)
A) $315 favorable
B) $218 favorable
C) $533 unfavorable
D) $533 favorable
Which of the following companies is most likely to use process costing?
A) Crimpson Color, a company selling customized garments for niche customers
B) Effel & Associates, a consulting firm providing various audit and related services
C) Dental Bright Inc., a company manufacturing and selling toothpaste on a large scale
D) Grimpy Corp., a company manufacturing furniture for customers as per their
requirements
In general, which of the following budgets is prepared first?
A) sales budget
B) production budget
C) direct labor budget
D) overhead budget
A local engineering firm is bidding on a design project for a new client. The total
budgeted direct-labor costs for the firm are $400,000. The total budgeted indirect costs
are $600,000. It is estimated that there are 8,000 billable hours in total.
Required:
a. What is the budgeted direct-labor cost rate?
b. What is the budgeted indirect-cost rate assuming direct-labor cost is the allocation
base?
c. What should be the engineering firm bid on the project if the direct labor hours are
estimated at 300 hours?
Which of the following is true of absorption costing?
A) It expenses marketing costs as cost of goods sold.
B) It treats direct manufacturing costs as a period cost.
C) It includes fixed manufacturing overhead as an inventoriable cost.
D) It treats indirect manufacturing costs as a period cost.
A band of normal activity or volume in which specific cost-volume relationships are
maintained is referred to as the ________.
A) average range
B) cost-allocation range
C) cost driver range
D) relevant range
The total production-volume variance should be ________.
A) $90,000 F
B) $90,000 U
C) $118,300 F
D) $118,300 U
Operating income reported on the end-of-period financial statements is changed when
________ is used to handle the production-volume variance at the end of the accounting
period.
A) the adjusted allocation-rate approach
B) the proration approach
C) the write-off variances to cost of goods sold approach
D) the reinstatement approach
Which of the following is an assumption of CVP analysis?
A) Total costs can be divided into a fixed component and a component that is variable
with respect to the level of output.
B) When graphed, total costs curve upward.
C) The unit-selling price is variable as it is subject to demand and supply.
D) Total costs can be divided into inventoriable and period costs with respect to the
level of output.
Effective planning of fixed overhead costs includes ________.
A) planning day-to-day operational decisions
B) eliminating value-added costs
C) determining which products are to be produced
D) choosing the appropriate level of investment in productive assets
Give examples of bundled products for each of the following industries:
a. Resort hotel
b. Bank
c. Restaurant
d. Computer store
e. Super markets
f. Personal care products manufacturer
Extreme Manufacturing Company provides the following ABC costing information:
The above activities are used by Departments A and B as follows:
How much of the total costs will be assigned to Department A?
A) $88,825
B) $118,825
C) $120,000
D) $85,075
Cause-and-effect diagrams are used in quality management systems to ________.
A) identify and respond to potential reasons of failure
B) indicate how frequently each type of failure occurs
C) distinguish random from nonrandom variations in an operating process
D) evaluate the tradeoffs among prevention costs, appraisal costs, and failure costs
Cold Products Corporation manufactured 27,000 ice chests during September. The
variable overhead cost-allocation base is $15.00 per machine-hour. The following
variable overhead data pertain to September:
What is the flexible-budget amount?
A) $90,000
B) $121,500
C) $318,600
D) $324,000
Lincoln Corporation used the following data to evaluate their current operating system.
The company sells items for $18 each and used a budgeted selling price of $18 per unit.
What is the static-budget variance of operating income?
A) $164,000 favorable
B) $164,000 unfavorable
C) $181,000 favorable
D) $181,000 unfavorable
A company reported revenues of $377,000, cost of goods sold of $122,000, selling
expenses of $12,000, and total operating costs of $72,000. Gross margin for the year is
________.
A) $255,000
B) $243,000
C) $171,000
D) $293,000
Apple Valley Corporation uses a job cost system and has two production departments, A
and B. Budgeted manufacturing costs for the year are:
The actual material and labor costs charged to Job #432 were as follows:
Apple Valley applies manufacturing overhead costs to jobs on the basis of direct
manufacturing labor cost using departmental rates determined at the beginning of the year.
For Department A, the manufacturing overhead allocation rate is ________.
A) 40.0%
B) 50.0%
C) 250.0%
D) 90.0%
Extracts from cost information of Hebar Corp.:
Assuming that setup-hours is considered a more effective cost drive for allocating setup
costs than direct labor-hours. Which of the following statements is true of Hebar’s setup
costs under traditional costing?
A) L3 pack is undercosted by $5,850
B) L7 pack is undercosted by $5,750
C) L3 pack is overcosted by $5,850
D) L7 pack is overcosted by $5,850
What is the name of a cost of production process that yields multiple products
simultaneously?
A) byproduct
B) joint
C) main
D) separable
The Kenton Company processes unprocessed milk to produce two products, Butter
Cream and Condensed Milk. The following information was collected for the month of
June:
Direct Materials processed: 23,000 gallons (after shrinkage)
The cost of purchasing the of unprocessed milk and processing it up to the split-off point
to yield a total of 23,000 gallons of saleable product was $48,000.
The company uses constant gross-margin percentage NRV method to allocate the joint
costs of production. Which of the following statements is true of Kenton’s joint cost
allocations?
A) The gross margin is same for both products because constant gross margin percentage
NRV method ignores profits earned before the split-off point.
B) One product can receive negative joint costs allocations to bring the other unprofitable
product to the overall average gross margin.
C) Kenton has chosen the easiest method for allocating its joint costs of production.
D) The gross profit percent of condensed milk is lower than the gross profit of butter
cream.
Which of the following measures capacity levels in terms of demand for the output of
the plant?
A) practical capacity and theoretical capacity
B) theoretical capacity and normal capacity utilization
C) normal capacity utilization and master-budget capacity utilization
D) master-budget capacity utilization and practical capacity
The sales-mix variance will be favorable when ________.
A) the actual contribution margin is greater than the static-budget contribution margin
B) actual unit sales are more than budgeted unit sales
C) the actual sales mix shifts toward the less profitable units
D) the budgeted contribution margin for actual sales mix is greater than for the
budgeted mix
Springer Products manufactures three different product lines, Model X, Model Y, and
Model Z. Considerable market demand exists for all models. The following per unit
data apply:
Model X Model Y Model Z
Selling price $54 $62 $73
Direct materials 7 7 7
Direct labor ($17 per hour) 17 17 34
Variable support costs ($7 per machine-hour) 7 14 14
Fixed support costs 13 13 13
Which model has the greatest contribution margin per machine-hour?
A) Model X
B) Model Y
C) Model Z
D) Both Model X and Model Y have the highest and same contribution margin per
machine-hour
When the firm uses the target-costing approach to pricing, the target cost per unit is the
difference between the per unit target price and the per unit target ________.
A) contribution margin
B) operating income
C) cost of goods sold
D) gross margin
Which of the following costs will be treated as period costs under absorption costing?
A) raw materials used in the production
B) sales commission paid on sale of product
C) depreciation on factory equipment
D) rent for factory building
Apple Valley Corporation uses a job cost system and has two production departments, A
and B. Budgeted manufacturing costs for the year are:
The actual material and labor costs charged to Job #432 were as follows:
Apple Valley applies manufacturing overhead costs to jobs on the basis of direct
manufacturing labor cost using departmental rates determined at the beginning of the year.
Manufacturing overhead costs allocated to Job #432 total ________.
A) $78,000
B) $12,000
C) $36,000
D) $48,000
The following information pertains to the January operating budget for Murphy
Corporation, a retailer:
Budgeted sales are $208,000 for January
Collections of sales are 60% in the month of sale and 40% the next month
Cost of goods sold averages 64% of sales
Merchandise purchases total $154,000 in January
Marketing costs are $3,600 each month
Distribution costs are $5,000 each month
Administrative costs are $10,500 each month
For January, budgeted gross margin is ________.
A) $124,800
B) $133,120
C) $74,880
D) $54,000
When designing the steps in accounting-based performance measures, should the
decisions in these steps be sequential?
What are the two components of the sales-quantity variance?
The manager of the manufacturing division of Iowa Windows does not understand why
income went down when sales went up. Some of the information he has selected for
evaluation include:
The division operated at normal capacity during January.
Variable manufacturing cost per unit was $5, and the fixed costs were $400,000.
Selling and administrative expenses were all fixed.
Required:
Explain the profit differences. How would variable costing income statements help the
manager understand the division’s operating income?
What is meant by the term breakeven point? Why should a manager be concerned about
the breakeven point and what helps them study the breakeven analysis?
Describe the concept of kaizen budgeting.
Robolane Incorporated manufactures and distributes small robotic toys.
What are the four methods of allocating joint costs to individual products? Which of
these methods is preferred, and what are two advantages of this method?
What are ISO 9000 and ISO 14000?
Dynalia Florists operate a flower shop.
Even though there are no inventories for service companies, ABC systems are of great
use for service companies. Explain why and how.
Dolph and Evan started the DE Restaurant in 2015. They rented a building, bought
equipment, and hired two employees to work full time at a fixed monthly salary.
Utilities and other operating charges remain fairly constant during each month.
During the past two years, the business has grown with average sales increasing 1% a
month. This situation pleases both Dolph and Evan, but they do not understand how
sales can grow by 1% a month while profits are increasing at an even faster pace. They
are afraid that one day they will wake up to increasing sales but decreasing profits.
Required:
Explain why the profits have increased at a faster rate than sales. Use the terms variable
costs and fixed costs in your response.
Vision Enterprises manufactures converter boxes for high definition TVs. All
processing is initiated when an order is received. For March there were no beginning
inventories. Conversion Costs and Direct Materials are the only manufacturing cost
accounts. Direct Materials are purchased under a just-in-time system. Backflush costing
is used with a finished goods trigger point. Additional information is as follows:
Required:
Record all journal entries for the monthly activities related to the above transactions if
backflush costing is used.
The president of the Gulf Coast Refining Corporation wants to know why his golfing
partner, who is the chief financial officer of a large construction company, calculates his
costs by the job, but his own corporation calculates costs by large units rather than by
individual barrel of oil.
Dawn and Kim just bought a bed and breakfast inn at a very attractive price. The
business had been doing poorly. Before they reopened the inn for business, they
attended a seminar on operating a high quality business. Now that they are ready to
open the inn, they need some advice on quality costs and management.
Required:
Identify four categories of quality costs. In addition, identify three items that would be
classified in each of the categories.
Gibson Manufacturing is considering buying an automated machine that costs
$600,000. It requires working capital of $60,000. Annual cash savings are anticipated to
be $280,200 for five years. The company uses straight-line depreciation. The salvage
value at the end of five years is expected to be $24,000. The working capital will be
recovered at the end of the machine’s life.
Required:
Compute the accrual accounting rate of return based on the initial investment.
