1) A company may use job costing to assign costs to different product lines and then use
process costing to calculate unit costs within each product line.
2) Long-run pricing is an operational decision and not a strategic decision as perceived
by many.
3) The net present value method can be used in situations where the required rate of
return varies over the life of the project.
4) A revenue driver is a variable, such as volume, that causally affects revenues.
5) The EOQ model is solved using calculus but the key intuition is that relevant total
costs are minimized when relevant ordering costs equal relevant carrying costs.
6) Capital budgeting is the process of making long-run planning decisions for
investments in projects.
7) Companies that are substituting variable costs for fixed costs receive a greater per
unit return above the breakeven point.
8) The formal management control system includes the shared values, loyalties, and
mutual commitments among members of the organization.
9) Incongruent decision making occurs when individuals and groups work toward
achieving the organization’s goals even if departmental performance is adversely
affected.
10) Two different approaches to pricing decisions are market based and cost based.
11) Under variable costing, if a manager’s bonus is tied to operating income, then
increasing inventory levels compared to last year would result in ________.
A) increasing the manager’s bonus
B) decreasing the manager’s bonus
C) not affecting the manager’s bonus
D) being unable to determine the manager’s bonus using only the above information
12) ________ costs support the organization as a whole.
A) Unit-level
B) Batch-level
C) Product-sustaining
D) Facility-sustaining
13) Which of the following can be used to determine markup percentage in the case of
cost-plus pricing?
A) Target annual operating income / Invested capital
B) Estimated annual dividend / Invested capital
C) Target sales revenue / Target annual operating income
D) Estimated annual dividend / Target annual operating income
14) Most of the decisions determining the level of fixed overhead costs to be incurred
will be made ________.
A) by the end of a budget period
B) by the middle of a budget period
C) on a day-to-day ongoing basis
D) at the start of a budget period
15) Tiscara Company manufactures insulation and applies manufacturing overhead
costs to production at a budgeted indirect-cost rate of $15 per direct labor-hour. The
following data are obtained from the accounting records for June 2014:
The actual amount of manufacturing overhead costs incurred in June 2014 totals
________.
A) $278,500
B) $100,000
C) $80,000
D) $110,000
16) Harold’s Picture manufactures various picture frames. Each new employee takes 6
hours to make the first picture frame and 4.8 hours to make the second. The
manufacturing overhead charge per hour is $25.
Required:
a.What is the learning-curve percentage, assuming the cumulative average method?
b.What is the time needed to build 8 picture frames by a new employee using the
cumulative average-time method? You may use an index of -0.1520.
c.What is the time needed to produce the 16th frame by a new employee using the
incremental unit-time method? You may use an index of -0.3219.
d.How much manufacturing overhead would be charged to the 16 picture frames using
the average-time approach?
17) The Speedjet Aircraft Corporation has a central materials laboratory. The laboratory
has only two users, the Large Plane Department and the Small Plane Department. The
following data apply to the coming budget year:
Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 70,000 technician hours
and by the Small Plane Department was 65,000 technician hours.
If a dual-rate cost-allocation method is used, what amount of cost will be allocated to
the Night Light Division? Assume budgeted usage is used to allocate fixed operating
costs and actual usage is used to allocate variable operating costs.
A) $810,000
B) $765,000
C) $790,000
D) $750,000
18) The annual relevant carrying costs of inventory consists of the sum of the
________.
A) relevant ordering costs and the relevant costs of quality
B) relevant ordering costs plus the relevant opportunity costs of capital
C) relevant incremental costs plus the relevant opportunity costs of capital
D) relevant incremental costs plus the relevant ordering costs
19) The net realizable value method ________.
A) allocates joint costs to joint products on the basis of a comparable physical measure
at the splitoff point
B) allocates joint costs to joint products on the basis of the relative sales value at the
splitoff point
C) allocates joint costs to joint products in a way that each product has an identical
gross-margin percentage
D) allocates joint costs to joint products on the basis of relative NRV
20) Gregory Enterprises has identified three cost pools to allocate overhead costs. The
following estimates are provided for the coming year:
The accounting records show the Mossman Job consumed the following resources:
Which method of allocation probably best estimates actual overhead costs used? Why?
A) Single direct labor-hours cost driver because it is best to allocate total costs
uniformly to individual jobs.
B) Single direct labor-hours cost driver because it is easiest to analyze and interpret.
C) Three activity-cost drivers because they best reflect the relative consumption of
resources.
D) Three activity-cost drivers because product costs can be significantly
cross-subsidized.
21) Bedtime Bedding Company manufactures pillows. The Cover Division makes
covers and the Assembly Division makes the finished products. The covers can be sold
separately for $5.00. The pillows sell for $6.00. The information related to
manufacturing for the most recent year is as follows:
Required:
Compute the operating income for each division and the company as a whole. Use
market value as the transfer price. Are all managers happy with this concept? Explain.
22) A number of costs and measures of activity are listed below.
Required:
For each item above, indicate whether the cost is MAINLY fixed or variable with
respect to the possible measure of activity listed next to it.
23) What are the two methods to account for byproducts. Which is the more appropriate
method to use and why?
24) Discuss the potential use of nonlinear curves in cost functions and cost analysis.
Give some examples.
25) What is goal congruence?
26) 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?
27) Firms should be wary of using the full cost of a joint product as the basis for
making pricing decisions. Why?
28) John Peters is drafting the provisions of a cost-plus contract and is concerned with
ironing out any possible misunderstandings during the life of the contract. What advice
can you provide to reduce contract disputes over reimbursement amounts based on
costs?
29) What is a “common cost”? What are two methods that a manager can use to allocate
common costs to two or more users?