1) Fox Studios, the movie production house, uses process costing to estimate costs.
2) Merchandising companies hold only one type of inventory: direct material.
3) Management accountants might provide information on decisions on whether to buy
a product from outside or manufacture it in-house.
4) In the “make predictions” stage of the capital budgeting process, a company forecasts
all potential net income additions those are attributable to the alternative projects.
5) Computer-based systems, like ERP, help managers budget for all manufacturing
costs but lack the ability to help managers budget for non-manufacturing costs.
6) The actual costs of all individual overhead categories are recorded in the
Manufacturing Overhead Control account.
7) Goal congruence exists when individuals work toward achieving one goal, and
groups work toward achieving a different goal.
8) If a company has a degree of operating leverage of 4.0, that means a 10% increase in
sales will result in a 40% increase in operating income.
9) 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
10) 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 Reading Fun in the first package (Reading
Fun & Math Fun)?
A) $20
B) $22
C) $19
D) $25
11) To the nearest whole cent, what should be the average sales commission per unit at
a sales volume of 33,600 units? (Assume that this sales volume is within the relevant
range.)
A) $14.54
B) $15.00
C) $15.63
D) $15.32
12) Apple Valley Corporation uses a job cost system and has two production
departments, A and B. Budgeted manufacturing costs for the year are:
The actual material and labor costs charged to Job #432 were as follows:
Apple Valley applies manufacturing overhead costs to jobs on the basis of direct
manufacturing labor cost using departmental rates determined at the beginning of the
year.
Manufacturing overhead costs allocated to Job #432 total ________.
A) $30,000
B) $12,000
C) $24,000
D) $36,000
13) Which of the following is a reason for companies to use absorption costing for
internal accounting?
A) It is the required inventory method for internal accounting as per GAAP.
B) It measures the cost of all resources, whether manufacturing or nonmanufacturing,
necessary to produce inventory.
C) It does not take into account fixed manufacturing overhead while valuing inventory
and hence is more suited for decision making.
D) It can help prevent managers from taking actions that make their performance
measure look good but that hurt the income they report to shareholders.
14) ________, in the perspective of an effective management control, is the extent to
which managers strive or endeavor in order to achieve a goal.
A) Efficiency
B) Effectiveness
C) Effort
D) Variance
15) Jupiter Corporation incurred fixed manufacturing costs of $16,000 during 2015.
Other information for 2015 includes:
The budgeted denominator level is 2,000 units.
Units produced total 2,200 units.
Units sold total 1,900 units.
Variable cost per unit is $4.
Beginning inventory is zero.
The fixed manufacturing cost rate is based on the budgeted denominator level.
Under absorption costing, fixed manufacturing costs expensed on the income statement
(excluding adjustments for variances) total ________.
A) $26,400
B) $22,800
C) $24,000
D) $21,818
16) Genent Company manufactures tires. Some of the company’s data was misplaced.
Use the following information to replace the lost data:
Actual Results Flexible Budget Variances Flexible Budget Sales-Volume Variances
Static Budget
Units sold 495,000 495,000 453,750
Revenues $185,150 $4,400 F (A) $6,160 U (B)
Variable costs (C) $880 U $69,780 $10,300 F $88,080
Fixed costs $36,430 $3,770 F $40,200 0 $40,200
Operating income $78,060 (D) $70,770 (E) $66,630
What is the total sales-volume variance (E)?
A) $14,960 unfavorable
B) $7,290 unfavorable
C) $4,140 favorable
D) $14,960 favorable
17) Axelia Corporation has two divisions, Refining and Extraction. The company’s
primary product is Luboil Oil. Each division’s costs are provided below:
The Refining Division has been operating at a capacity of 40,000 barrels a day and
usually purchases 25,000 barrels of oil from the Extraction Division and 15,000 barrels
from other suppliers at $60 per barrel.
Assume 200 barrels are transferred from the Extraction Division to the Refining
Division for a transfer price of $18 per barrel. The Refining Division sells the 200
barrels at a price of $120 each to customers. What is the operating income of both
divisions together?
A) $7,200
B) $9,600
C) $10,800
D) $20,400
18) A favorable efficiency variance for direct materials might indicate that ________.
A) lower-quality materials were purchased
B) work is scheduled efficiently
C) there is an unexpected increase in direct labor rates
D) management hired underskilled workers
19) In the formula for calculating the average waiting time, the squared manufacturing
time indicates ________.
A) that the shorter the manufacturing time, the greater the chance that the machine will
remain idle in the process
B) that the shorter the manufacturing time, the greater the chance that the machine will
be in use when an order arrives
C) the disproportionately large impact the manufacturing time has on the waiting time
D) a measure of the unused capacity or cushion
20) If breakeven point is 1,000 units, each unit sells for $30, and fixed costs are
$10,000, then on a graph the ________.
A) total revenue line and the total cost line will intersect at $30,000 of revenue
B) total cost line will be zero at zero units sold
C) revenue line will start at $10,000
D) total revenue line and the total cost line will intersect at $40,000 of revenue
21) Data for Cost A and Cost B appear below:
Which of the above best describes the behavior of Costs A and B?
A) Cost A is fixed, Cost B is variable.
B) Cost A is variable, Cost B is fixed.
C) Both Cost A and Cost B are variable.
D) Both Cost A and Cost B are fixed.
22) Which of the following companies would have the highest proportion of variable
costs in its cost structure?
A) Public utility.
B) Airline.
C) Fast food outlet.
D) Architectural firm.
23) Which of the following is a fixed cost?
A) monthly rent payment
B) electricity expenses
C) travel expenses
D) direct material costs
24) Uniformly assigning the costs of resources to cost objects when those resources are
actually used in a nonuniform way is called ________.
A) activity-based costing
B) uniform costing
C) peanut-butter costing
D) department costing
25) The Cybertronics Corporation reported the following information for its Cyclotron
Division:
Income is defined as operating income.
What is the Cyclotron Division’s return on sales?
A) 20%
B) 40%
C) 50%
D) 60%
26) Ambinu Flower Company provides flowers and other nursery products for
decorative purposes in medium to large sized restaurants and businesses. The company
has been investigating the purchase of a new specially equipped van for deliveries. The
van has a value of $113,750 with a seven-year life. The expected additional cash
inflows are $32,500 per year. What is the payback period for this investment?
A) 3 years
B) 3.5 years
C) 6 years
D) 4 years
27) Under the dual-rate cost-allocation method, when fixed costs are allocated based on
actual usage then ________.
A) user-division managers are motivated to make accurate long-run usage forecasts
B) user-division managers can better plan for the short-run and for the long-run
C) the costs of unused capacity are highlighted
D) variations in one division’s usage affect another division’s allocation
28) Wilson’s Language School manufactures CDs and DVDs to teach English as a
Second Language. Wilson has just prepared a Cost of Quality Report, and the staff has
noticed a decline in prevention costs as a percentage of total sales over a three-year
period. What changes might Wilson expect to see in appraisal costs as a percentage of
sales, internal failure costs as a percentage of sales, and external failure costs as a
percentage of sales given this trend?
29) What is the difference between a weighted-average method of process costing and a
first-in, first-out method of process costing?
30) What are transfer prices and what are its criteria?
31) Describe job-costing and process-costing systems. Explain when it would be
appropriate to use each.
32) Berkel Company processes sugar cane into three products. During May, the joint
costs of processing were $600,000. Production and sales value information for the
month were as follows:
Required:
Determine the amount of joint cost allocated to each product if the sales value at splitoff
method is used.
33) Give at least three good reasons why a favorable price variance for direct materials
might be reported.