1) Increasing prices in the face of falling demand is never a good strategy and can cause
what is called a death spiral.
2) Individuals are motivated by both financial and nonfinancial means of compensation.
3) Nonprofit and government organizations generally place an objective related to their
social impact and mission at the top of their scorecard and strategy map.
4) The performance measures chosen should influence the employees’ decision-making
behavior.
5) The scientific school of management recognizes that employees want respect and a
feeling that they make an important contribution.
6) Target costing starts by estimating expected product costs.
7) For general customers, the price charged for a product must cover its long-run cost to
the organization.
8) Consequences resulting from violating an organization’s code of ethics should
intentionally be vague to allow for maximum flexibility.
9) The International Accounting Standards Board sets the guidelines used for
management accounting.
10) In job order costing, individual jobs and products will be allocated different
amounts of overhead costs depending on whether a single cost pool or multiple cost
pools is used.
11) Problems involving two or more constraints are often solved using linear
programming.
12) Companies who adopt a MACS generally agree with the human resources model of
motivation.
13) Lois Manufacturing is a small clothing manufacturer using machine hours as the
single cost driver to allocate manufacturing overhead costs to the various jobs
contracted during the year. The following estimates are provided for the coming year
for the company and for the Harford County School Uniform job.
CompanyHarford County Job
Direct materials$1,000,000$2,000
Direct labor$120,000$3,200
Manufacturing
Overhead costs$320,000
Markup32%
Machine hours80,0001,200
Required:
a. For Lois Manufacturing, determine the annual manufacturing overhead cost driver
rate.
b. Determine the amount of manufacturing overhead costs estimated for the Harford
County job.
c. Determine the bid price for the Harford County’s job.
14) In ________, as one budget period passes, planners delete that budget period from
the master budget and add another one.
A) zero-based budgeting
B) periodic budgeting
C) incremental budgeting
D) continuous budgeting
15) When sales people are evaluated strictly on sales quotas:
A) they will attempt to sell as much high price merchandise as possible
B) they are likely to have buy-in
C) they always become unmotivated
D) none of the above
16) Assume that only the specified parameters change in a sensitivity analysis. The
contribution margin ratio increases when:
A) total capacity-related (fixed) costs increase
B) total capacity-related (fixed) costs decrease
C) flexible (variable) costs per unit increase
D) flexible (variable) costs per unit decrease
17) Marine Industrial Coatings, Inc. is considering replacing its existing computer
system with a new computer system. The new system can offer considerable savings in
computer processing and inventory management costs. Information about the existing
system and the new system follow:
If Marine Industrial Coatings replaces the existing computer system with the new one,
over the next 5 years operating income will:
A) increase by $2,500
B) increase by $17,500
C) decrease by $10,000
D) increase by $5,000
18) The following information pertains to the October operating budget for Flockhart
Corporation.
Budgeted sales for October $100,000 and November $200,000.
Collections for sales are 60% in the month of sale and 40% the next month.
Gross margin is 30% of sales.
Administrative costs are $10,000 each month.
Beginning accounts receivable (October 1) $20,000.
Beginning inventory (October 1) $14,000.
Beginning accounts payable (October 1) $60,000. (All from inventory purchases.)
Purchases are paid in full the following month.
Desired ending inventory is 20% of next month’s cost of goods sold (COGS).
No loans are outstanding on October 1
For October, budgeted cost of goods sold is:
A) $20,000
B) $30,000
C) $40,000
D) None of the above is correct
19) Inspection costs of purchased parts and materials are examples of:
A) prevention costs
B) appraisal costs
C) internal failure costs
D) external failure costs
20) These questions refer to flexible budget variance formulas with the following
descriptions for the variables: A = Actual; P = Price; Q = Quantity; S = Standard.
The best label for the formula (AP – SP) AQ is the:
A) materials quantity variance
B) materials price variance
C) total cost variance for materials
D) labor efficiency variance
21) The measurement of the objectives for the Balanced Scorecard:
A) creates focus for the future
B) communicates an important message to all employees
C) focuses the entire organization on strategic implementation of company’s outcomes
D) All of the above are correct
22) A flexible budget contains:
A) cost targets for actual output
B) cost targets for planned output
C) the difference between planned and actual output
D) actual costs for actual output
23) The rate per hour of each order entry employee is $56.00 per hour. On average, it
takes an order entry employee about 0.1 hour to enter the basic customer information
for a manual customer order. In addition, manual orders require an operator to spend an
additional 0.02 hour to enter each line item on the order. What is the order entry cost
associated with a manual order with 10 line items?
A) $0.30
B) $5.60
C) $11.20
D) $16.80
24) Narly Skateboards manufactures three different product lines, Base, Long, and
Trick. Considerable market demand exists for all models. The following per unit data
apply:
If there is a machine breakdown, which model is the most profitable to produce?
A) base model
B) long model
C) trick model
D) both the long model and the trick model
25) The theory of constraints:
A) emphasizes long-term optimization
B) maintains that carefully managing production bottlenecks will increase operating
income
C) helps managers make special one-time decisions
D) suggests that some component parts should be outsourced
26) Standard costing includes:
A) continuous improvement
B) monthly cost reduction targets
C) the assumption that workers closest to the process know best
D) goals to meet performance standards
27) Critical dimensions of the regulatory and social performance from the process
perspective of the Balanced Scorecard include all of the following EXCEPT:
A) community investment
B) health and safety
C) the environment
D) All of the above are correct
28) ________ specifies when items such as acquisitions for buildings and
special-purpose equipment must be made to meet activity level objectives.
A) The capital-spending plan
B) The production plan
C) The materials purchasing plan
D) The administrative and discretionary spending plan
29) Costs are relevant to a particular decision if they:
A) are variable costs
B) are fixed costs
C) differ across, the decision alternatives being considered
D) remain unchanged across the alternatives being considered
30) The following information pertains to Ortega Corporation:
MonthSalesPurchases
July$15,000$5,000
August17,0006,000
September19,0007,000
October21,0008,000
November24,0009,000
December30,00010,000
Cash is collected from customers in the following manner:
Month of sale (2% cash discount) 30%
Month following sale50%
Two months following sale15%
Amount uncollectible5%
40% of purchases are paid for in cash in the month of purchase, and the balance is paid
the following month.
Required:
a.Prepare a summary of cash collections for the 4th quarter.
b.Prepare a summary of cash disbursements for the 4th quarter.
31) Which of the following is NOT part of the pricing waterfall chart?
A) dealer list price
B) customer discount price
C) invoice price
D) actual net price
32) Assumptions of the human resources model of motivation include all of the
following EXCEPT:
A) employees prefer to follow highly-detailed, prescribed procedures
B) individuals are motivated by both financial and nonfinancial awards
C) employees are knowledgeable about their jobs
D) individuals are highly creative, ethical, and responsible
33) The predetermined overhead cost driver rate is calculated using ________ overhead
costs.
A) actual
B) allocated
C) direct
D) estimated
34) Employee morale at Dos Santos, Inc., is very high. This type of information is
known as:
A) a qualitative factor
B) a quantitative factor
C) a differential factor
D) an opportunity cost
35) Blitzer Enterprises has identified three cost pools and three corresponding cost
drivers to allocate overhead costs. The following estimates are provided for the coming
year:
The accounting records show the Gergen Job consumed the following resources:
If direct labor-hours are considered as the only overhead cost driver, what is the single
cost driver rate for Blitzer Enterprises?
A) $0.60 per direct labor-hour
B) $0.80 per direct labor-hour
C) $1.20 per direct labor-hour
D) $6.00 per direct labor-hour
36) Grey Manufacturing has prepared the following flexible budget for October and it is
in the process of interpreting the variances. F denotes a favorable variance and U
denotes an unfavorable variance.
Flexible ———-Variances————Actual
BudgetPrice/RateQuantity/EfficiencyResults
Material A$30,000$1,000F$3,000U$32,000
Material B40,000500U1,500F39,000
Direct labor50,000500U2,500F48,000
Required:
a. Explain what each of the following variances indicates.
1> For Material A, the favorable price variance indicates that
2> For Material A, the unfavorable quantity variance indicates that
3> For direct labor, the unfavorable price variance indicates that
4> For direct labor, the favorable efficiency variance indicates that
b. Which two variances do you think should be investigated by management? Why?
37) Which of the following manufactured products would use process costing?
A) polo shirts imprinted with individualized logos
B) picnic packs containing ketchup, mustard, and relish
C) customized boats used for racing
D) handmade stained-glass lamps for recreational rooms
38) Operating budgets include the:
A) projected balance sheet
B) projected income statement
C) capital spending plan
D) expected cash flow statement
39) As part of the budgeting process, Drago Company developed the following master
budget for September. Drago is in the process of preparing the flexible budget and
understanding the results.
MasterFlexibleActual
BudgetBudgetResults
Sales volume (in units)30,00025,000
========
Sales revenues$3,600,000$$3,000,000
Flexible (variable) costs 2,160,000$ _________ 1,930,000
Contribution margin1,440,000 $1,070,000
Capacity-related (fixed) costs 900,000$ _________ 970,000
Operating profit$ 540,000 $ $ 100,000
Required:
a. Prepare the flexible budget in the area provided above.
b. Determine the flexible budget variance for flexible (variable) costs.
c. Determine the planning variance for flexible (variable) variance costs.
d. Should the manager be congratulated for keeping costs under control? Explain.
40) The following information for the second quarter of 2011 pertains to Huffington
Company:
Cash is collected from customers in the following manner:
40% of purchases are paid for in cash in the month of purchase, and the balance is paid
the following month.
Labor costs are 20% of sales. Other operating costs are $45,000 per month (including
$12,000 of depreciation). Both of these are paid in the month incurred.
The cash balance on June 1 is $6,000. A minimum cash balance of $4,500 is required at
the end of the month. Money can be borrowed in multiples of $3,000.
No loans outstanding on June 1 .
How much cash will be paid to suppliers in June?
A) $69,600
B) $56,000
C) $88,000
D) None of the above is correct.
41) Conecuh Sausage Company is considering replacing its giant sausage mixer with a
new one. The following data have been compiled to evaluate the decision.
Required:
a. What costs are relevant?
b. What costs are sunk?
c. What are the net cash flows over the next 10 years assuming Conecuh Sausage
Company purchases the new sausage mixer?
42) Activity-based costing systems provide better product costs when they:
A) employ more activity cost drivers
B) employ fewer activity cost drivers
C) identify and cost more overhead cost differences among products
D) always yield more accurate product costs than traditional cost systems
43) Conversion costs:
A) include all the factors of production
B) include direct materials
C) in process costing are usually considered to be added evenly throughout the
production process
D) include direct materials, and in process costing are usually considered to be added
evenly throughout the production process
44) Measures of JIT (just-in-time) manufacturing reliability include all of the following
EXCEPT:
A) defect rates
B) labor and machine utilization ratios
C) cycle times
D) percent of on-time deliveries
45) The Jordan Company manufacturers only one type of shoe and has two divisions,
the Sole Division and the Assembly Division. The Sole Division manufactures soles
and then ‘sells” them to the Assembly Division, which completes the shoes and sells
them to retailers. The market price for the Assembly Division to purchase a pair of soles
is $40. Fixed costs are per pair at 100,000 units.
If the cost-based transfer price is 180% of variable costs , what is the transfer price per
pair of soles from the Sole Division to the Assembly Division?
A) $28.8
B) $25.20
C) $32.40
D) $57.60
46) In evaluating different alternatives, it is useful to concentrate on:
A) variable costs
B) fixed costs
C) total costs
D) relevant costs
47) Community Manufacturing Inc. developed the following standard costs for direct
material and direct labor for one of their major products, the 30-gallon heavy-duty
plastic container.
During May, Community produced and sold 10,000 containers using 2,200 pounds of
direct materials at an average cost per pound of $24 and 1,050 direct labor hours at an
average wage of $14.75 per hour.
May’s direct labor rate variance was:
A) $750.00 unfavorable
B) $262.50 favorable
C) $487.50 favorable
D) indeterminable using the above information
48) Target costing is:
A) customer-driven
B) value-driven
C) engineering-driven
D) market-driven
49) An administered transfer price:
A) is most often used for infrequent transactions
B) retains the accountability of both parties
C) reflects pure economic considerations
D) provides an arbitrary distribution of revenues and costs between the responsibility
centers
50) A PRIMARY reason for assigning selling and distribution costs to products and
customers for analytical purposes is:
A) to justify a varied product mix
B) that controllers are required to assign all costs when valuing inventories
C) that different products, and customers require different quantities of selling and
distribution activities
D) that all indirect costs must be assigned
51) Input-based compensation:
A) is considered superior to output-based compensation
B) requires employees’ understanding of company objectives
C) bases compensation on employees’ training and job qualifications
D) is generally affected by factors beyond employees’ control
52) Product costs estimated using the sequential method of cost allocation
A) the first step is to develop a reciprocal cost equation
B) the first step is to allocate the service department costs to the production departments
C) one service department is chosen to allocate costs first
D) service department costs are allocated directly to the production departments
53) The two most common types of control are task control and results control. Define
and then explain when each is appropriate to use.
54) Bingington Corporation is using the Kaizen approach to budgeting for 2011 . The
budgeted income statement for the month ended January 31, 2011 is as follows:
Sales (360,000 units)$1,080,000
Less: Cost of goods sold720,000
Gross margin360,000
Operating expenses (includes $54,000 of fixed costs)270,000
Net income$ 90,000
Under the Kaizen approach, cost of goods sold and variable operating expenses are
budgeted to decline by 2% per month.
Required:
Prepare a Kaizen-based budgeted income statement for the month ended February 28,
2011 . Assume sales are constant each month.
55) What is meant by the term break-even point? Why should a manager be concerned
about the break-even point?
56) Compare the 80-20 rule and the whale curve as it relates to customer profitability.
57) What is the primary purpose of the Balanced Scorecard?
58) Discuss the terms discretionary expenditures and committed expenditures and give
an example of each.
59) In a job order costing system, explain why it is necessary to apply overhead costs to
production through the use of a predetermined activity cost driver rate.