1) A variance is the difference between the actual cost for the current and expected (or
budgeted) performance.
2) Operating income plus total fixed costs equals the contribution margin.
3) In activity based costing systems, limiting cost-allocation bases to only units of
output strengthens the cause-and-effect relationship between the cost-allocation base
and the costs in a cost pool.
4) Managers can use variance analysis to make decisions about the mix of products to
make.
5) In companies that produce masses of identical or similar units of output and
consequently use process-costing systems, it is relatively easy to set standards and use a
standard cost as the cost per equivalent unit.
6) Responsibility accounting focuses on control, NOT on information and knowledge.
7) A weaknesses of the payback method is that it does not consider a project’s cash
flows after the payback period.
8) The risk-return tradeoff across alternative cost structures can be measured as
operating leverage.
9) The accounting entry to record the conversion cost of the Assembly Department is:
Work in Process-Assembly Department
Accounts Payable Control
10) Costs of quality (COQ) reports usually consider opportunity costs.
11) Financial accounting is broader in scope than management accounting.
12) The first-in, first-out process-costing method assumes that the earliest equivalent
units in work in process are completed first.
13) Assume only the specified parameters change in a cost-volume-profit analysis. If
the contribution margin increases by $6 per unit, then ________.
A) fixed costs increases by $6 per unit
B) operating profits decreases by $6 per unit
C) fixed costs decreases by $6 per unit
D) operating profits increases by $6 per unit
14) Which of the methods of allocating joint costs usually is considered the simplest to
implement?
A) estimated net realizable value
B) constant gross-margin percentage NRV
C) sales value at splitoff
D) physical measures
15) Which of the following is referred to as the bottom-up aspect of the budgeting
process?
A) lower-level managers setting their individual targets that aggregate to be the
company-wide target
B) senior managers consulting middle- and lower-level managers to investigate any
deviations from the budget
C) lower-level managers implementing the budgets with senior managers monitoring
progress and investigating deviations
D) lower-level managers providing inputs to the budgeting process based on their
specialized knowledge
16) An example of a numerator reason for calculating annual indirect-cost rates
includes ________.
A) fewer production workdays in a month
B) cost of raw materials purchased
C) higher snow-removal costs during the winter
D) the number of units produced
17) Collin Inc. produces hospital equipment and the setup requirements vary from
product to product. Collin produces its products based on customer orders and uses
ABC costing. In one of its indirect cost pools, setup costs and distribution costs are
pooled together. Costs in this pool are allocated using number of customer orders for
the easiness of costing operations. Based on the information provided, which of the
following arguments is valid?
A) Collin has clearly failed to identify as many direct costs as is economically feasible.
B) All costs in a homogeneous cost pool have the same or a similar cause-and-effect
relationship with the single cost driver that is used as the cost-allocation base for Collin.
C) Collin has unnecessarily wasted resources by classifying setup and distribution costs
as they could have been considered as direct costs.
D) Collin has failed to use the correct cost driver as the cost-allocation base for setup
costs.
18) To give more weight to the product that most likely drives the sales of the bundled
product, the revenue allocation should be weighted using ________.
A) selling prices
B) unit costs
C) physical units
D) stand-alone product revenues
19) Furniture, Inc., estimates the following number of mattress sales for the first four
months of 2016:
Finished goods inventory at the end of December is 6,600 units. Target ending finished
goods inventory is 20% of the next month’s sales.
How many mattresses need to be produced in January 2016?
A) 15,400 mattresses
B) 21,560 mattresses
C) 28,460 mattresses
D) 34,160 mattresses
20) When direct material and direct labor is the limiting factor, revenue budgets are
usually based on ________.
A) expected demand of the company’s products
B) the capital in the budget period
C) the supply of indirect material and labor in the market
D) maximum units that can be manufactured
21) The sales-quantity variance will be favorable when ________.
A) sales-volume variance and flexible-budget variance are favorable
B) actual units of all products sold exceed budgeted units of all products sold
C) the actual sales mix shifts towards the more profitable units
D) static-budget variance and flexible-budget variance are favorable
22) Raul Technologies is concerned that increased sales did not result in increased
profits for 2016. Both variable unit and total fixed manufacturing costs for 2015 and
2016 remained constant at $35 and $3,500,000, respectively.
In 2015, the company produced 100,000 units and sold 80,000 units at a price of $87.50
per unit. There was no beginning inventory in 2015. In 2016, the company made 70,000
units and sold 90,000 units at a price of $87.50. Selling and administrative expenses
were all fixed at $350,000 each year.
Required:
a.Prepare income statements for each year using absorption costing.
b.Prepare income statements for each year using variable costing.
c.Explain why the income was different each year using the two methods. Show
computations.
23) Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product
profitability is analyzed as follows:
Using an ABC system, next year’s estimates show manufacturing overhead costs will
total $228,300 for 52,000 T-shirts. If all other T-shirt costs and sales prices remain the
same, the profitability that can be expected is ________.
A) $5.41 per t-shirt
B) $4.39 per t-shirt
C) $1.11 per t-shirt
D) ($0.81) per t-shirt
24) The amount of time from when a customer places an order for a product or requests
a service to when the product or service is delivered to the customer is referred to as
________.
A) manufacturing lead time
B) delivery time
C) customer-response time
D) a time driver
25) The Allianz Company produces a specialty wood furniture product, and has the
following information available concerning its inventory items:
Relevant ordering costs per purchase order$450
Relevant carrying costs per year for each package:
Required annual return on investment15%
Required other costs per year$4
Annual demand is 30,000 packages per year. The purchase price per package is $48.
What is the economic order quantity assuming each order was made at the
economic-order-quantity amount?
A) 1,485 units
B) 1,000 units
C) 780 units
D) 3,000 units
26) Syosis Company uses the high-low method to estimate its cost function. The
information for 2015 is provided below:
What is the slope coefficient?
A) $120.00
B) $147.00
C) $80.00
D) $130.00
27) Grounded Coffee Products manufactures coffee tables. Grounded Coffee Products
has a policy of adding a 20% markup to full costs and currently has excess capacity.
The following information pertains to the company’s normal operations per month:
For long-run pricing of the coffee tables, what price will most likely be used by
Grounded Coffee?
A) $134.76
B) $161.70
C) $222.25
D) $266.70
28) Kramer Enterprises reports year-end information from 2015 as follows:
Kramer is developing the 2016 budget. In 2016 the company would like to increase
selling prices by 12.5%, and as a result expects a decrease in sales volume of 9%. All
other operating expenses are expected to remain constant. Assume that cost of goods
sold is a variable cost and that operating expenses are a fixed cost.
What is budgeted cost of goods sold for 2016?
A) $720,000
B) $582,400
C) $691,200
D) $640,000
29) Which of the following statements is true?
A) In a job-costing system, average production cost is calculated for all units produced.
B) In a process-costing system, each unit uses approximately the same amount of
resources.
C) In a job-costing system, overheads are allocated to all units equally.
D) In a process-costing system, individual jobs use different quantities of production
resources.
30) Autogas Corporation manufactures industrial-sized gas furnaces and uses budgeted
machine hours to allocate variable manufacturing overhead. The following information
relates to the company’s manufacturing overhead data:
What is the flexible-budget amount for variable manufacturing overhead?
A) $348,750
B) $370,755
C) $384,000
D) $360,727