1) Under the step-down method, once a support department’s costs have been allocated,
all subsequent support-department costs are allocated back to it.
2) The equivalent unit concept is a means by which a process costing system can
compare partially completed work done in each of the various process categories to
obtain a total measure of work done.
3) Conversion cost equals product cost less direct labor cost.
4) The production method for recognizing byproducts is simpler and is often used in
practice, primarily because the dollar amounts of byproducts are immaterial.
5) Companies have an incentive to lower the transfer prices of products they are
exporting into a country to reduce the tariffs and customs duties charged on those
products.
6) Unskilled workforce can lead to unfavorable efficiency variance.
7) One assumption frequently made in cost behavior estimation is that changes in total
costs can be explained by changes in the level of a single activity.
8) When adequate capacity exists in the current year to produce next year’s output, the
cost effect of growth for capacity-related fixed costs will be zero.
9) Idle time wages consists of the wages paid to all workers (for both direct labor and
indirect labor) in excess of their straight-time wage rates.
10) Sensitivity analysis helps to evaluate the risk associated with decisions.
11) ABC systems provide greater insight than traditional systems into the management
of indirect costs.
12) Budgeting often plays a major role in affecting behavior and decisions.
13) A company’s CFO oversees banking and short- and long-term financing,
investments, and cash management.
14) Given a constant contribution margin per unit and constant fixed costs, the
period-to-period change in operating income under variable costing is driven solely by
changes in the quantity of units actually manufactured.
15) The degree to which a predetermined objective or target is met is known as
________.
A) efficiency
B) variance
C) effectiveness
D) benchmarking
16) Products with a relatively low sales value are known as ________.
A) primary products
B) main products
C) joint products
D) byproducts
17) Stark Corporation has two departments, Car Rental and Truck Rental. Central costs
may be allocated to the two departments in various ways.
If administrative expense of $77,500 is allocated on the basis of number of employees,
the amount allocated to the Car Rental Department would be ________.
A) $47,387.50
B) $48,437.50
C) $46,877.50
D) $49,247.50
18) Life-cycle costing is the name given to ________.
A) a method of cost planning to reduce manufacturing costs to targeted levels
B) the process of examining each component of a product to determine whether its cost
can be reduced
C) the process of managing all costs along the value chain
D) a system that focuses on reducing costs during the manufacturing cycle
19) Bright Colors Company placed 315,000 gallons of direct materials into the mixing
process. All direct materials are placed in mixing at the beginning of the process and
conversion costs occur evenly during the process. Bright Colors uses weighted-average
costing. The initial forecast for the end of the month was to have 75,000 gallons still in
process, 15% converted as to labor and factory overhead.
Required:
a.Determine the total equivalent units (in process and transferred out) for direct
materials and for conversion costs, assuming there was no beginning inventory.
b.With the installation of a new paint processing filtration device, the forecast for the
end of the month was to have 50,000 gallons still in process, 70% converted as to labor
and factory overhead. In this event, determine the equivalent units (in process and
transferred out) for direct materials and for conversion costs, assuming there was no
beginning inventory.
20) Which of the following is regarded as a purpose of cost allocation?
A) It helps in identifying the potential customers for a product.
B) It provides the profit margin earned.
C) It helps in maintaining decorum among managers.
D) It provides information for economic decisions.
21) Sobota Corporation has provided the following partial listing of costs incurred
during August:
Required:
a. What is the total amount of product cost listed above? Show your work.
b. What is the total amount of period cost listed above? Show your work.
22) In a flexible budget ________.
A) variable costs are calculated proportionately for the budgeted level of sales
B) fixed costs are calculated proportionately for the actual level of sales
C) fixed costs are kept at the same level of static budget
D) variable costs are kept at the same level of static budget
23) The use of theoretical capacity results in an unrealistically low fixed manufacturing
cost per unit because it is based on ________.
A) real available capacity
B) an unattainable level of capacity
C) normal capacity utilization
D) normal costing
24) ________ would be an uncontrollable factor that a firm would need to consider
when evaluating the return on investment of an international division.
A) Manager’s experience
B) Manager’s compensation
C) Pricing decisions
D) Custom duties
25) A liability claim is an example of ________.
A) prevention costs
B) appraisal costs
C) internal failure costs
D) external failure costs
26) Contribution margin means:
A) what remains from total sales after deducting fixed expenses.
B) what remains from total sales after deducting cost of goods sold.
C) the sum of cost of goods sold and variable expenses.
D) what remains from total sales after deducting all variable expenses.
27) Which of the following is a possible reason to allocate joint costs to individual
products?
A) rate regulation requirements
B) to prepare financial statements
C) for product design decisions
D) to determine tax rates
28) 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 net effect on operating income as a result of the price-recovery component?
A) $1,118,750 F
B) $875,000 U
C) $1,118,750 U
D) $875,000 F
29) When a product is the result of a joint process, the decision to process the product
past the splitoff point further should be influenced by the ________.
A) total amount of the joint costs
B) portion of the joint costs allocated to the individual products
C) extra revenue earned past the splitoff point
D) extra operating income earned past the splitoff point
30) Lobster Liquidators will make $500,000 if the fishing season weather is good,
$200,000 if the weather is fair, and would actually lose $50,000 if the weather is poor
during the season. If the weather service gives a 40% probability of good weather, a
25% probability of fair weather, and a 35% probability of poor weather, what is the
expected monetary value for Lobster Liquidators?
A) $500,000
B) $232,500
C) $267,500
D) $200,000
31) Which of the following is an example of financial performance measure?
A) number of square yards of cloth used to produce 1,000 jackets
B) direct manufacturing labor efficiency variance
C) the percentage of jackets started and completed without requiring any rework
D) quality of direct material
32) Which of the following is a corporate-sustaining cost?
A) design costs
B) corporate brand advertising
C) shipment costs
D) research and development costs
33) 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 single-rate cost-allocation method is used, what amount of materials laboratory
costs will be allocated to the Large Plane Department? Assume actual usage is used to
allocate copying costs.
A) $8,166,666.67
B) $8,766,666.67
C) $8,433,333.33
D) $8,633,333.33