1) At the end of the fiscal year, the fixed overhead spending variance is always prorated
among work-in-process control, finished goods control, and cost of goods sold on the
basis of the fixed overhead allocated to these accounts.
2) Kaizen budgeting encourages dramatic improvements and substantial reduction in
costs.
3) An appropriate cost driver for shipping costs might be the number of units shipped.
4) One of the five forces of industry analysis is understand the bargaining power of
customers.
5) Static-budget variance for operating income is calculated by taking a difference
between static-budget operating income and actual operating income.
6) “Cooking the books” means reporting of understated assets and overstated liabilities.
7) Prevention costs include inspection and product testing.
8) Conversion cost is the sum of direct labor cost and direct materials cost.
9) Crimpson Corp., a California-based company is selling its products for $23. Its
average variable costs is $21 and the average selling price of its competitors is $26.
This is an example of ________.
A) dumping
B) collusive pricing
C) predatory pricing
D) suicidal pricing
10) A master budget forces managers to examine the business as they plan, so they can
________.
A) detect inaccurate historical records to avoid errors in budgets
B) set expectations against which actual results can be compared
C) complete the budgeting task on time
D) ensure that only financial risks and opportunities are incorporated
11) Following a strategy of product differentiation, Arseniq Company makes a high-end
Appliance, XT15. Arseniq presents the following data for the years 2014 and 2015:
Arseniq produces no defective units but it wants to reduce direct materials usage per
unit of XT15. Manufacturing conversion costs in each year depend on production
capacity defined in terms of XT15 units that can be produced. Selling and
customer-service costs depend on the number of customers that the customer and
service functions are designed to support. Arseniq had 140 customers in 2014 and 145
customers in 2015.
What is the cost effect of the price-recovery component?
A) $375,000 F
B) $375,000 U
C) $1,506,250 U
D) $1,506,250 F
12) Costs which are NOT economically feasible to trace but which are related to a cost
object are known as ________.
A) incremental costs
B) marginal costs
C) indirect costs
D) variable costs
13) Munoz, Inc., produces a special line of plastic toy racing cars. Munoz, Inc.,
produces the cars in batches. To manufacture a batch of the cars, Munoz, Inc., must set
up the machines and molds. 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 molds for different styles of car.
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.
A) $1,900 unfavorable
B) $600 unfavorable
C) $1,900 favorable
D) $600 favorable
14) Which of the following statements regarding manufacturing overhead allocation is
true?
A) It includes all manufacturing costs that cannot be directly traced to a product or
service.
B) The costs can be grouped only as a single indirect-cost pool.
C) Total costs are unknown at the end of the accounting period.
D) Allocated amounts are debited to Manufacturing Overhead Control.
15) The nursing station on the fourth floor of Central Hospital is responsible for the
care of orthopedic surgery patients. The costs of prescription drugs administered by the
nursing station to patients should be classified as:
A) direct patient costs.
B) indirect patient costs.
C) overhead costs of the nursing station.
D) period costs of the hospital.
16) Control measures should ________.
A) be set and not changed until the next budget cycle
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 future planning
17) The use of activity-based budgeting is growing because of ________.
A) the increased use of activity-based costing
B) the increased use of kaizen costing
C) increases in work-in-process inventory
D) increases in direct materials inventory
18) An example of a denominator reason for calculating annual indirect-cost rates
includes ________.
A) higher heating bills in the winter
B) semi-annual insurance payments in March and September
C) higher levels of output demanded during the fall months
D) All of these answers are correct.
19) If each motorcycle requires a belt that costs $20 and 2,000 motorcycles are
produced for the month, the total cost for belts is ________.
A) considered to be a direct fixed cost
B) considered to be a direct variable cost
C) considered to be an indirect fixed cost
D) considered to be an indirect variable cost
20) Henderson Company is in the process of evaluating a new part using the following
information.
Part SLC2002 has one production run each month, each with $16,000 in setup costs.
Part SLC2002 incurred $40,000 in development costs and is expected to be produced
over the next three years.
Direct costs of producing Part SLC2002 are $56,000 per run of 24,000 parts each.
Indirect manufacturing costs charged to each run are $88,000.
Destination charges for each run average $18,000.
Part SLC2002 is selling for $12.50 in the United States and $25 in all other countries.
Sales are one-third domestic and two-thirds exported.
Sales units equal production units each year.
Required:
a.What are the estimated life-cycle revenues?
b.What is the estimated life-cycle operating income for the first year?
21) An organization that is using the cost leadership approach would ________.
A) incur costs for innovative R&D
B) provide products at a higher cost than competitors
C) focus on productivity through efficiency improvements
D) bring products to market rapidly
22) Under production method, Product X NRV would be offset against the costs of
Product Y by ________.
A) $26,500
B) $26,875
C) $50,000
D) $48,125
23) A firm’s inefficiencies, such as the wastage of direct materials, are incorporated in
past data. Hence the data represents the ideal performance of a firm.
24) The two basic aspects of quality are quality of design and conformance quality.
Define and give an example of each.
25) Should a company with high fixed costs and unused capacity raise selling prices to
try to fully recoup its costs?
26) High Universal Industries operates a division in Brazil, a country with very high
inflation rates. Traditionally, the company has used the same costing techniques in all
countries to facilitate reporting to corporate headquarters. However, the financial
accounting reports from Brazil never seem to match the actual unit results of the
division. Management has studied the problem and it appears that beginning inventories
may be the cause of the unmatched information. The reason for this is that the
inventories have a different financial base because of the severe inflation.
Required:
How can process costing assist in addressing the problem facing Universal Industries?
27) Executive compensation plans are based on both financial and nonfinancial
performance measures. Discuss
28) ROI, RI, or EVA measures are more appropriate than ROS to measure the
performance of a company. Why?
29) A corporation can measure its quality performance by using financial or
nonfinancial measures of quality. Discuss the merits of each method and whether the
use of one precludes the use of the other.