Carriage Incorporated manufactures horse carriages. The company has two divisions,
Wheels and Assembly. Because of different accounting methods and inflation rates, the
company is considering multiple evaluation measures. The following information is
provided for 2018:
ASSETS INCOME
The company is currently using a 12% required rate of return.
What are Wheels’s and Assembly’s residual incomes based on book values, respectively?
A) $71,400; $81,800
B) $81,800; $71,400
C) $68,000; $51,000
D) $51,000; $68,000
Consider the following information attributed to the material management department
Budgeted usage of materials-handling labor-hours 3500
Budgeted cost pools:
Fixed costs $154,000
Variable costs $126,000 (3500 hours x $36 per hour)
The company uses the single-rate method to allocate support costs to the Machining and
Assembly Departments. Assuming that the actual hours tracked in the Machining and
Assembly department are 500 for the month, what would be the allocation rate and how
much cost would be allocated to the Machining and Assembly Department for the
operations of the month? (Round final answers to the nearest dollar.)
A) $80 an hour for a total of $40,000
B) $36 an hour for a total of $40,000
C) $36 an hour for a total of $18,000
D) $560 an hour for a total of $80
Which of the following defines spoilage?
A) units of production that do not meet the specifications required by customers but that
are subsequently repaired and sold as good finished units
B) units of production whether fully or partially completed, that do not meet the
specifications required by customers for good units and are discarded or sold at reduced
prices
C) residual material that results from manufacturing a product
D) products of a joint production process that have low total sales values relative to the
total sales value of the main product
Golden Generator Supply is approached by Mr. Stephen, a new customer, to fulfill a
large one-time-only special order for a product similar to one offered to regular
customers. Golden Generator Supply has excess capacity. The following per unit data
apply for sales to regular customers:
For Golden Generator Supply, what is the minimum acceptable price of this one-time-only
special order?
A) $1930.00
B) $2140.00
C) $2290.00
D) $2748.00
Recognizing ABC information is not always perfect because ________.
A) it mostly uses far too many indirect cost pools than what is actually required
B) it balances the need for better information against the costs of creating a complex
system
C) it lacks the simplicity that traditional systems used to have to allocate overhead costs
D) it never measures how the resources of an organization are used
Total manufacturing costs are comprised of ________.
A) direct materials costs and period costs
B) direct materials costs, direct manufacturing labor costs, and manufacturing overhead
costs
C) indirect materials costs, indirect manufacturing labor costs, and manufacturing
overhead costs
D) prime costs and period costs
________ is a method of inventory costing in which only variable manufacturing costs
are included as inventoriable costs.
A) Fixed costing
B) Variable costing
C) Absorption costing
D) Mixed costing
For last year, Watson Limited reported revenues of $420,000, cost of goods sold of
$118,000, cost of goods manufactured of $105,000, and total operating costs of
$60,000. Operating income for that year was ________.
A) $315,000
B) $302,000
C) $255,000
D) $242,000
Hypore Darby Park Department is considering a new capital investment. The following
information is available on the investment. The cost of the machine will be $348,400.
The annual cost savings if the new machine is acquired will be $80,000. The machine
will have a 6-year life, at which time the terminal disposal value is expected to be zero.
Hypore Park Department is assuming no tax consequences. What is the internal rate of
return for Hypore Park Department?
A) 5%
B) 10%
C) 9%
D) 11%
Which of the following is a learning-and-growth measure to study the output during
bottleneck situations?
A) manufacturing cycle efficiency for key processes
B) carrying cost of inventories
C) number of employees trained to manage bottlenecks
D) improve customer-response time during bottlenecks
Heavy Products, Inc. developed standard costs for direct material and direct labor. In
2017, AII estimated the following standard costs for one of their major products, the
10-gallon plastic container.
During June, Heavy Products produced and sold 19,000 containers using 1,200 pounds of
direct materials at an average cost per pound of $63 and 17,100 direct manufacturing
labor-hours at an average wage of $31.25 per hour.
The direct manufacturing labor price variance during June is ________.
A) $21,375 unfavorable
B) $21,375 favorable
C) $3,600 unfavorable
D) $950,400 unfavorable
The actual information pertains to the third quarter. As part of the budgeting process,
the controller for Foley Manufacturing had developed the following static budget for
the third quarter. The company is in the process of preparing the flexible budget and
understanding the results.
The primary reason for high actual operating profits was ________.
A) the variable-cost variance
B) increased fixed costs
C) flexible budget variance for revenues
D) lower sales volume than planned
Aqua Company produces two products–Alpha and Beta. Alpha has a high market share
and is produced in bulk. Production of Beta is based on customer orders and is custom
designed. Also, 55% of Beta’s cost is shared between design and setup costs, while
Alpha’s major portions of costs are direct costs. Alpha is using a single cost pool to
allocate indirect costs. Which of the following statements is true of Aqua?
A) Aqua will overcost Beta’s direct costs as it is using a single cost pool to allocate
indirect costs.
B) Aqua will undercost Alpha’s indirect costs because alpha has high direct costs.
C) Aqua will overcost Alpha’s indirect costs as it is using a single cost pool to allocate
indirect costs.
D) Aqua will overcost Beta’s indirect costs because beta has high indirect costs.
Dr. Charles Hunter, MD, performs a certain outpatient procedure for $1,300. His fixed
costs are $24,000 per month and his variable costs are $500 per procedure. Dr. Hunter
currently plans to perform 400 procedures this month. What is the breakeven point for
the month assuming that Dr. Hunter plans to perform the procedure 400 times?
A) 30 times
B) 19 times
C) 28 times
D) 10 times
Outose Concept manufactures small tables in its Processing Department. Direct
materials are added at the initiation of the production cycle and must be bundled in
single kits for each unit. Conversion costs are incurred evenly throughout the
production cycle. Before inspection, some units are spoiled due to undetectable
materials defects. Spoiled units generally constitute 5% of the good units. Data for
December 2017 are as follows:
What cost is allocated to abnormal spoilage using the weighted-average process-costing
method? (Round any cost per unit calculations to the nearest cent.)
A) $ 0
B) $28,150
C) $25,177
D) $77,200
Which of the following is a drawback of decentralizing a multinational company?
A) It may lead to increased exchange rate risk.
B) It may result in lack of control and results in increasing risk.
C) It creates less responsiveness to the needs of a subunit’s customers, suppliers, and
employees.
D) It may lead to an increase in bureaucracy.
The learning-curve models presented in the text examine ________.
A) how quality increases over time
B) how efficiency increases as more units are produced
C) how setup costs decline as more workers are added
D) the change in variable costs when quantity discounts are available
A demand-pull system in which each component in a production line is produced
immediately as needed by the next step in the production line is referred to as
________.
A) just-in-time production
B) materials requirements planning
C) relevant total costs
D) economic order quantity
When 24,000 units are produced, variable costs are $12.00 per unit. Therefore, when
18,000 units are produced ________.
A) variable costs will remain at $12.00 per unit
B) variable costs will total $288,000
C) variable unit costs will increase to $16.00 per unit
D) variable unit costs will decrease to $9.00 per unit
A company which favors the residual income approach to financial performance
evaluation wants managers to ________.
A) concentrate on maximizing an absolute amount of dollars of residual income as
opposed to a percentage yield as is the case with ROI
B) concentrate on maximizing a percentage return in excess of the cost of capital
C) maximize the investment turnover ratio
D) maximize return on sales
For make-or-buy decisions, a supplier’s ability to maintain secrecy of intellectual
property is considered a(n) ________.
A) qualitative factor
B) irrelevant cost
C) differential factor
D) opportunity cost
Which of the following best describes transferred-in costs in process costing?
A) These costs are incurred in previous departments that are carried forward to
subsequent departments.
B) These costs are transferred in to the company by an external vendor.
C) These costs are incurred in transferring raw materials and labor from the place of
availability to the factory.
D) These costs cannot be controlled by an organization as they are transferred to the
organization from the market participants.
Generally, companies follow one of two broad strategies: offering a quality product at a
low price, or offering a unique product or service priced higher than the competition.
Assume you are opening a small food outlet across the street from your campus. How
might that business be operated under each of the two broad strategies? Consider the
following specific operational areas:
a. target customers
b. products offered
c. product pricing
d. location choice
e. advertising content
f. advertising media
Sales of Granite City Products Inc. have been on a steady decline for the last 12
months. A market research study conducted revealed that the product of Granite City
Products Inc. can be sold only for $500 as opposed to the current market price charged
of $600 per unit. Granite City Products Inc. has decided to revise its sales price to $500.
The annual sales target volume of the product after price revision is 200 units. Granite
City Products Inc. wants to earn 40% on its sales amount.
What is the total target cost?
A) $140,000
B) $60,000
C) $100,000
D) $40,000
Due to unprecedented growth during the year, Flowers by Kelly decided to use some of
its surplus cash to increase the size of several inventory order quantities that had been
previously determined using an EOQ model.
Required:
Identify whether increasing the size of inventory orders will increase, decrease, or have
no effect on each of the following items.
________ a. Average inventory
________ b. Cost of goods sold
________ c. Number of orders per year
________ d. Total annual carrying costs
________ e. Total annual carrying and ordering costs
________ f. Total annual ordering costs
________ is used to record and accumulate all the costs assigned to a specific job.
A) Job-cost record
B) Materials-requisition record
C) Cost-allocation base
D) Labor-requisition record
Bauer Manufacturing uses departmental cost driver rates to allocate manufacturing
overhead costs to products. Manufacturing overhead costs are allocated on the basis of
machine-hours in the Machining Department and on the basis of direct labor-hours in
the Assembly Department. At the beginning of 2018, the following estimates were
provided for the coming year:
The accounting records of the company show the following data for Job #316:
What amount of manufacturing overhead costs will be allocated to Job #316?
A) $1,460.00
B) $970.00
C) $1,748.00
D) $1,188.00
Which of the following is true of flexible budget?
A) It calculates total variable cost by multiplying actual units by budgeted variable cost
per unit.
B) It calculates total fixed cost by multiplying actual units by budgeted fixed cost per
unit.
C) It calculates revenues by multiplying budgeted units by actual selling price per unit.
D) It calculates contribution margin by multiplying budgeted units by actual
contribution margin per unit.
Genent’s Preserves currently makes jams and jellies and a variety of decorative jars
used for packaging. An outside supplier has offered to supply all of the needed
decorative jars. For this make-or-buy decision, a cost analysis revealed the following
avoidable unit costs for the decorative jars:
Direct materials $0.52
Direct labor 0.12
Unit-related support costs 0.23
Batch-related support costs 0.30
Product-sustaining support costs 0.49
Facility-sustaining support costs 0.60
Total cost per jar $2.26
The maximum price that Genent’s Preserves should be willing to pay for the decorative
jars is ________.
A) $0.64 per jar
B) $0.87 per jar
C) $0.49 per jar
D) $2.26 per jar
J&J Materials and Construction Corporation produces mulch and distributes the product
by using dump trucks. The company uses budgeted fleet hours to allocate variable
manufacturing overhead. The following information pertains to the company’s
manufacturing overhead data:
What is the flexible-budget amount for variable manufacturing overhead? (Round
intermediary calculations two decimal places and your final answer to the nearest whole
dollar.)
A) $81,801
B) $94,392
C) $86,184
D) $89,592