The net present value of all cash flows over the life of an investment equals the net
present value of the operating incomes.
Absorption costing is the required inventory method for external financial reporting in
most countries.
All else being constant, an increase in operating income will result in an increase in net
income.
A control chart identifies potential causes of failures or defects.
An additional criticism of team-based compensation is that there can be problems
managing team members who are not productive contributors to a team’s success but
who, nevertheless, share in the team’s rewards.
Data from the revenues budget is utilized in the production budget.
The objective of maximizing return on investment may induce managers of highly
profitable divisions to reject projects that from the viewpoint of the overall organization
should be accepted.
Target cost per unit is arrived at by adding the target operating income to the target
price of the product.
Under standard costing, there is no need to calculate a cost per equivalent unit.
Advances in information-gathering technology make it more likely that multiple
cost-pool systems will pass the cost-benefit test.
Inventoriable costs are reported as a liability on the balance sheet when incurred and
expensed on the income statement when the product is sold.
Kaizen budgeting encourages dramatic improvements and substantial reduction in
costs.
Historical-cost-based accounting measures are usually inadequate for evaluating
economic returns on new investments and, in some cases, create disincentives for
expansion.
A difference between the static-budget and the flexible-budget amounts is called the
sales-volume variance.
In calculating cost per equivalent unit, the FIFO method of process costing merges the
work and the costs of the beginning inventory with the work and the costs done during
the current period.
The Japanese use kaizen to mean financing alternatives.
Price discrimination is the practice of charging a higher price for the same product or
service when demand approaches the physical limit of the capacity to produce that
product or service.
When considering how well a company is doing keeping customers happy and
understanding their needs and wants, financial and nonfinancial measures can be used.
The salary component of compensation dominates when performance measures that are
sensitive to managers’ actions are not available.
The customer perspective of the balanced scorecard focuses on the success of the
company in its target market.
The FASB (Financial Accounting Standards Board) provides cost accounting guidance
(standards) for U.S. government contractors who do business with the federal
government.
The price-recovery component of the change in operating income measures solely the
effect of price changes on revenues but not costs.
Total costs of quality help managers aggregate costs to evaluate the tradeoffs of
incurring prevention costs and appraisal costs to eliminate internal and external failure
costs.
Some companies prefer not to allocate production or plant administration costs to jobs,
products or customers because these costs are fixed and independent of the level of
activity.
Normal costing assigns indirect costs based on an actual indirect-cost rate.
In CVP analysis, the graph of total revenues versus total costs is linear in nature relation
to units sold within a relevant range and time period.
To achieve success, it is important to set nonfinancial objectives as well as financial
objectives.
The sales-mix variance is the difference between budgeted contribution margin for the
actual sales mix and the budgeted contribution margin for the budgeted sales mix.
Costs of abnormal spoilage are separately accounted for as losses of the period.
Carrying costs only include those costs that are entered into the financial accounting
system and do not include the opportunity cost of the investment tied up in inventory.
All other things held constant, increase in assets such as receivables or decrease in
operating income results in an increase in return on investment.
Companies that are substituting variable costs for fixed costs receive a greater per unit
return above the breakeven point.
Global Giant, a multinational corporation, has a producing subsidiary in a low tax rate
country and a marketing subsidiary in a high tax country. If Global Giant wants to
minimize its worldwide tax liability, we would expect Global Giant to ________.
A) stop producing in the low tax rate country
B) stop marketing in the high tax rate country
C) establish a low transfer price when the producing unit sells to the marketing unit
D) establish a high transfer price when the producing unit sells to the marketing unit
Buzz’s Educational Software Outlet sells two or more of the video games as a single
package. Managers are keenly interested in individual product-profitability figures.
Information pertaining to three bundled products and the stand-alone prices is as
follows:
Using the stand-alone method with selling price as the weight for revenue allocation, what
amount of revenue will be allocated to Math Fun in the package that contains all three
products? (Do not round any intermediary calculations.)
A) $16.51
B) $31.00
C) $23.33
D) $29.39
Breakeven point in units is ________.
A) total costs divided by profit margin per unit
B) contribution margin per unit divided by total cost per unit
C) fixed costs divided by contribution margin per unit
D) the sum of fixed and variable costs divided by contribution margin per unit
Standard labor rate is $7.50 per hour. Standard labor allowed per unit is 0.7 hours.
Actual cost per labor hour is $7.00 and actual labour hour per unit is 1 hours. What is
the standard labor cost per output unit?
A) $4.90
B) $5.25
C) $7.50
D) $7.00
Stark Corporation has two departments, Car Rental and Truck Rental. Central costs may
be allocated to the two departments in various ways.
If the facility lease expense of $380,000 is allocated on the basis of vehicles in the fleet,
the amount allocated to the Truck Rental Department would be ________. (Do not round
interim calculations. Round the final answer to the nearest whole dollar.)
A) $131,273
B) $247,826
C) $132,174
D) $190,000
The payback method of capital budgeting approach to an investment decision
________.
A) considers cash flows over the life of the investment
B) assumes that cash flows occur uniformly throughout the year
C) considers time value of money
D) ignores the initial investment
Gracius Manufacturing is approached by a European customer to fulfill a one-time-only
special order for a product similar to one offered to domestic customers. Gracius
Manufacturing has a policy of adding a 20% markup to full costs and currently has
excess capacity. The following per unit data apply for sales to regular customers:
If the European customer wanted a long-term commitment, and not a one-time-only
special order, for supplying this product, calculate the most likely price to be quoted
assuming the markup remains the same?
A) $110
B) $250
C) $300
D) $190
Slickware sells porcelain cups. The breakeven point is 5,000 units. The variable cost per
unit is $18 and the fixed costs are $20,000. What is the contribution margin at 5,000
units?
A) 20,000
B) 90,000
C) 110,000
D) 40,000
The ________ is primarily responsible for management accounting and financial
accounting.
A) COO (Chief Operating Officer)
B) CIO (Chief Information Officer)
C) treasurer
D) controller
Control measures should ________.
A) be set and not changed until the next budget cycle so as to provide an effective
benchmark
B) be set by excluding nonfinancial information
C) be kept confidential from employees so that competitors don’t have an opportunity to
gain a competitive advantage
D) be linked by feedback to help learning and future planning
Sky High Company has two departments, X and Y. The following estimates are for the
coming year:
The budgeted indirect-cost driver rate for Y based on the number of machine-hours is in
excess of X by ________. (Round interim and the final answer to the nearest cent.)
A) $6.50 per machine-hour
B) $21.50 per machine-hour
C) $1.50 per machine-hour
D) $16.50 per machine-hour
Jacobs Company manufactures refrigerators. The company uses a budgeted
indirect-cost rate for its manufacturing operations and during 2018 allocated $1,000,000
to work-in-process inventory. Actual overhead incurred was $1,100,000.
Ending balances in the following accounts are:
Work-in-Process $ 100,000
Finished Goods 750,000
Cost of Goods Sold 4,150,000
Required:
a. Prepare a journal entry to write off the difference between allocated and actual
overhead directly to Cost of Goods Sold. Be sure your journal entry closes the related
overhead accounts.
b. Prepare a journal entry that prorates the write-off of the difference between allocated
and actual overhead using ending account balances. Be sure your journal entry closes
the related overhead accounts.
Brix, Inc., prepares frozen food for fast-food restaurants. It has two workstations,
cooking and assembly. The cooking station is limited by the cooking time of the food.
Assembly is limited by the speed of the workers. Assembly normally waits on food
from cooking. Because the demand has increased in recent months to 2,800 dozen units,
management is considering adding another cooking station or else having the cooks
start to work earlier. The monthly cost of operating the cooking station one more hour
each day is $2,400. The cost of adding another cooking station would add an average of
$10 per hour. The current operating hours total eight hours a day, 22 days a month. The
contribution margin of the finished products is currently $8 per dozen. Inventory
carrying costs average $2.00 per dozen per month. Either the extra hour or the new
cooking station would increase production by 20 dozen a day, with a long-run increase
of 80 dozen units in finished goods inventory to 280 dozen.
Required:
a. What is the total production per month if the change is made?
b. What is the increase in the expected monthly product contribution for each of the
possible changes? Assume long-run production equals sales.
Which of the following statements best defines a materials requirements planning
system?
A) 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
B) a push-through system that manufactures finished goods for inventory on the basis
of demand forecasts
C) a demand-pull system that manufactures finished goods for inventory on the basis of
demand forecasts
D) a push-through system in which each component in a production line is produced
immediately as needed by the next step in the production line
Which of the following formulas would calculate the net realizable value of a product?
A) sales value at the split-off point less cost to produce up to the split-off point
B) sales value x constant gross-margin
C) final sales value minus cost of goods sold
D) final sales value minus separable costs
Shiffon Electronics manufactures music player. Its costing system uses two cost
categories, direct materials and conversion costs. Each product must pass through the
Assembly Department, the Programming department, and the Testing Department.
Direct materials are added at the beginning of the production process. Conversion costs
are allocated evenly throughout production. Shiffon Electronics uses weighted-average
costing.
The following information is available for the month of March 2017 for the Assembly
department.
What are the equivalent units for direct materials and conversion costs, respectively, for
March?
A) 1230 units; 1230 units
B) 1180 units; 1230 units
C) 1230 units; 1180 units
D) 1130 units; 1180 units
Fairhaven Composite Poles manufactures fishing poles that have a price of $125.00. It
has costs of $90. A competitor is introducing a new fishing pole that will sell for
$115.00. Management believes it must lower the price to $110.00 to compete in the
highly cost-conscious fishing pole market. Marketing department believes that the new
price will allow Carbon to maintain the current sales level of 200,000 poles per year.
Required:
a. What is the target cost for the new price if target operating income is 25% of sales?
b. What is the change in operating income for the year if only the selling price is
changed and costs remain the same?
c. What is the target cost per unit if the selling price is reduced to $110.00 and the
company wants to maintain its same income level?
Place the following steps in the order suggested by the seven steps used to assign costs
to individual jobs:
A. Identify indirect costs
B. Compute the total cost of the job
C. Select cost-allocation bases
D. Compute the indirect cost rate
A) ACDB
B) CADB
C) BACD
D) DCAB
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: 27,500 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 27,500 gallons of saleable product was $53,000.
The company uses constant gross-margin percentage NRV method to allocate the joint
costs of production. What is the allocated joint costs of Butter Cream? (Round
intermediary percentages to the nearest hundredth.)
A) $33,580
B) $13,000
C) $35,600
D) $19,428
The optimal safety stock level is the quantity of safety stock that minimizes the sum of
the annual relevant ________.
A) stockout costs and carrying costs
B) ordering costs and carrying costs
C) ordering costs and stockout costs
D) ordering costs and purchasing costs
South Coast Appliance Store is a small company that has hired you to perform some
management advisory services. The following information pertains to 2017 operations.
Sales (5,000 microwave ovens) $5,000,000
Cost of goods sold 825,000
Store manager’s salary per year 110,000
Operating costs per year 230,000
Advertising and promotion per year 30,000
Commissions (4.0% of sales) 200,000
Which cost estimation method is being used by South Coast Appliance Store?
A) the account analysis method
B) the operating costing method
C) the marginal costing method
D) the cost-volume-profit analysis method
Jackson Corporation produced 1,000 units of a product in 2017 that required 25,000
pounds of material. The price for the material was $3.00 per pound in 2017 and $3.25 in
2016 . Jackson’s cost accountant has estimated that to produce the same 1,000 units in
2016 would have required 29,700 pounds of material. What was the cost effect of
productivity for materials?
A) $15,275 F
B) $14,100 F
C) $14,100 U
D) $15,275 U
Better Products Inc. planned to use $40 of material per unit but actually used $30 of
material per unit, and planned to make 1,560 units but actually made 1,310 units.
The sales-volume variance for materials is ________.
A) $10,000 favorable
B) $10,000 unfavorable
C) $7,500 unfavorable
D) $7,500 favorable
Under absorption costing, fixed manufacturing costs ________.
A) are period costs
B) are inventoriable costs
C) are treated as an expense
D) are sunk costs
For 2018, Franklin Manufacturing uses machine-hours as the only overhead
cost-allocation base. The estimated manufacturing overhead costs are $300,000 and
estimated machine hours are 50,000. The actual manufacturing overhead costs are
$420,000 and actual machine hours are 60,000.
Using job costing, the 2018 budgeted manufacturing overhead rate is ________.
(Round the final answer to the nearest cent.)
A) $8.40 per machine-hour
B) $5.00 per machine-hour
C) $7.00 per machine-hour
D) $6.00 per machine-hour
All of the following are examples of quantitative factors except:
A) cost of direct materials
B) budget for marketing activities
C) product development time
D) employee morale
When demand for a product is very elastic and prices are increased, demand will
________.
A) remain the same, and operating profits will increase
B) remain the same, and operating profits may either increase or decrease
C) decrease, and operating profits will decrease
D) decrease, and operating profits may either increase or decrease
Coptermagic Company supplies helicopters to corporate clients. Coptermagic has two
sources of funds: long term debt with a market and book value of $32 million issued at
an interest rate of 10%, and equity capital that has a market value of $18 million (book
value of $8 million). The cost of equity capital for Coptermagic is 15%, and its tax rate
is 30%. Coptermagic has profit centers in four divisions that operate autonomously. The
company’s results for 2015 are as follows:
Required:
a. Compute Coptermagic’s weighted average cost of capital.
b. Compute each division’s Economic Value Added.
c. Rank the divisions by EVA.
Vital Industries manufactured 2400 units of its product Huge in the month of April. It
incurred a total cost of $132,000 during the month. Out of this $132,000, $45,700
comprised of direct materials used in the product and the rest was incurred because of
the conversion cost involved in the process. Ryan had no opening or closing inventory.
What will be the total cost per unit of the product, assuming conversion costs contained
$10,000 of indirect labor?
A) $55
B) $50
C) $39
D) $35
Which of the following is an advantage of nonfinancial measures of quality?
A) They help managers aggregate costs to evaluate the tradeoffs of incurring prevention
costs and appraisal costs to eliminate internal and external failure costs.
B) They detect and provide immediate short-run feedback on whether
quality-improvement efforts are succeeding.
C) They focus managers’ attention on how poor quality affects operating income.
D) They direct attention to financial processes that help managers identify the precise
problem areas that need improvement.
South Coast Appliance Store is a small company that has hired you to perform some
management advisory services. The following information pertains to 2017 operations.
Sales (6,000 microwave ovens) $6,000,000
Cost of goods sold 870,000
Store manager’s salary per year 192,000
Operating costs per year 305,000
Advertising and promotion per year 40,000
Commissions (4.1% of sales) 246,000
What are the estimated total costs if South Coast’s store expects to sell 8,900 units next
year?
A) $3,567,950
B) $2,192,400
C) $4,104,950
D) $901,900
Crush Company makes internal transfers at 155% of full cost. The Soda Refining
Division purchases 41,000 containers of carbonated water per day, on average, from a
local supplier, who delivers the water for $58 per container via an external shipper. To
reduce costs, the company located an independent supplier in Illinois who is willing to
sell 41,000 containers at $38 each, delivered to Crush Company’s Shipping Division in
Missouri. The company’s Shipping Division in Missouri has excess capacity and can
ship the 41,000 containers at a variable cost of $12.50 per container. What is the total
cost of purchasing the water from the Illinois supplier and shipping it to the Soda
Division?
A) $1,558,000
B) $2,070,500
C) $2,378,000
D) $512,500
Period costs ________.
A) include only fixed costs
B) seldom influence financial success or failure
C) include the cost of selling, delivering, and after-sales support for customers
D) should be treated as an indirect cost rather than as a direct manufacturing cost
Freddie’s Company has mostly fixed costs and Valerie’s Company has mostly variable
costs. Which company has the greatest risk of a net loss? Explain why.
Explain why sunk costs are not considered relevant when choosing among alternatives
with example.
Provide the missing data for the following situations:
The manufacturing manager of New Technology Company is concerned about the
company’s newest plant. When the plant began operations three years ago, it had the
best of everything. It had modern equipment, well-trained employees, engineered work
and assembly stations, and a controlled environment. During the first two years, the
evaluation results were very good with almost all cost variances being favorable.
However, recently, things have turned negative.
In recent months, everything seems to be operating in a crisis management mode.
Although most cost variances remain favorable, the plant’s segment contribution is
declining and customers are complaining about poor quality and slow delivery. Several
customers have suggested that they may take their business elsewhere if things do not
improve.
The shop floor is in continual turmoil. In-process inventory is everywhere, production
employees have difficulty finding jobs that need to be worked on, and scheduling has
requested a larger computer to keep track of work in process.
The vice president of sales does not know where to begin with solving the customers’
problems. It seems that everyone is working very hard and the plant has the best
facilities and trained employees in the industry.
Required:
What is the nature of the plant’s problems? What recommendation would you make to
help improve the situation?
Griffith Vehicle has received three proposals for its new vehicle-painting machine.
Information on each proposal is as follows:
Required:
Determine each proposal’s payback.
What are the four alternative methods for evaluating capital budgeting projects? What is
an advantage and disadvantage of each method?
Johnson Realty bought a 2,000-acre island for $10,000,000 and divided it into 200
equal size lots.
Zenon Chemical, Inc., processes pine rosin into three products: turpentine, paint
thinner, and spot remover. During May, the joint costs of processing were $240,000.
Production and sales value information for the month is as follows:
Required:
Determine the amount of joint cost allocated to each product if the physical-measure
method is used.
The executive vice president of Robotics, Inc., is concerned because the cost of
materials has not been in line with the budget for several periods, even after
implementing an EOQ model. The company has the normal direct material variance
computations of price and efficiency at the end of each month. The price variance of the
direct materials used is usually near expectations. The vice president does not
understand how the budget differences are always larger than the material price
variances.
Required:
What explanation can you give for the evaluation problems presented?
Wharf Fisheries processes many of its seafood items to the demands of its largest
customers, most of which are large retail distributors. To keep the accounting system
simple, it has always assigned cost by the weight of the finished product. However, with
increased competition, it has had to watch its prices closely and, in recent years, several
items have incurred zero profit margins. After several weeks of investigation, your
consulting firm has found that, while weight is important in processing of seafood,
numerous items have very distinct processing steps and some items are processed
through more steps than others.
Required:
Based on the findings of your consulting firm, what changes might you recommend to
the company in the way of cost allocation among its products?
Jordana Woolens is a manufacturer of wool cloth. The information for March is as
follows:
Beginning work in process was half converted as to labor and overhead. Direct materials
are added at the beginning of the process. All conversion costs are incurred evenly
throughout the process. Ending work in process was 60% complete.
Required:
Prepare a production cost worksheet using the weighted-average method. Include any
necessary supporting schedules.
Cedile Trailer Supply has received three proposals for its new trailer assembly line.
Information on each proposal is as follows:
Required:
Determine each proposal’s payback.
A company financial analyst estimates that a project that will cost $150,000 will return
the following cash flows:
Year 1 $45,000
Year 2 $55,000
Year 3 $60,000
year 4 $85,000
Year 5 $90,000
Calculate the discounted payback period if required rate of return is 10%