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1) Aerated Water Company makes internal transfers at 180% of full cost. The Soda
Refining Division purchases 30,000 containers of carbonated water per day, on average,
from a local supplier, who delivers the water for $30 per container via an external
shipper. To reduce costs, the company located an independent supplier in Missouri who
is willing to sell 30,000 containers at $22 each, delivered to Aerated Water Company's
Shipping Division in Missouri. The company's Shipping Division in Missouri has
excess capacity and can ship the 30,000 containers at a variable cost of $1.50 per
container. What is the total cost to Aerated Water Company if the carbonated water is
purchased from the local supplier?
A) $900,000
B) $1,200,000
C) $1,501,000
D) $1,620,000
2) Which of the following items will be same for a flexible budget and a master budget?
A) total variable cost
B) total fixed costs
C) total contribution margin
D) total revenues
3) Which of the following statements is true of gross-margin format of the income
statement?
A) It distinguishes between manufacturing and nonmanufacturing costs.
B) It distinguishes variable costs from fixed costs.
C) It is used for variable costing.
D) It calculates the contribution margin from sales.
4) Net initial investment includes ________.
A) depreciation on new equipment, cash outflow for working capital, and after-tax cash
inflow from disposal of the old equipment
B) cash outflow to purchase new equipment, depreciation on new equipment, and
after-tax cash inflow from disposal of the old equipment
C) cash outflow to purchase new equipment, cash outflow for working capital, and
after-tax cash inflow from disposal of the old equipment
D) cash outflow to purchase new equipment, cash outflow for working capital, and
depreciation on new equipment
5) Which of the following denotes minimum transfer price?
A) Minimum transfer price = Incremental cost per unit incurred up to the point of
transfer + Opportunity cost per unit to the selling subunit
B) Minimum transfer price = Total cost per unit incurred up to the point of transfer +
Sunk cost per unit to the selling subunit
C) Minimum transfer price = Current cost per unit incurred up to the point of transfer +
Historical cost per unit to the selling subunit
D) Minimum transfer price = Variable cost per unit incurred up to the point of transfer +
Fixed cost per unit to the selling subunit
6) When performing a sensitivity analysis, if the selling price per unit is increased, then
the ________.
A) per unit fixed administrative costs will increase
B) per unit direct materials purchase price will increase
C) total volume of sales will increase
D) total costs for sales commissions and other nonmanufacturing variable costs will
increase
7) The following costs were incurred in April:
Prime costs during the month totaled:
A) $53,000
B) $67,000
C) $38,000
D) $103,000
8) For last year, Wampum Enterprises reported revenues of $420,000, cost of goods
sold of $108,000, cost of goods manufactured of $101,000, and total operating costs of
$70,000. Operating income for that year was ________.
A) $319,000
B) $312,000
C) $249,000
D) $242,000
9) Which of the following formulas determine cost of goods sold in a manufacturing
entity?
A) Beginning work-in-process inventory + Cost of goods manufactured - Ending
work-in-process inventory = Cost of goods sold
B) Beginning work-in-process inventory + Cost of goods manufactured + Ending
work-in-process inventory = Cost of goods sold
C) Cost of goods manufactured - Beginning finished goods inventory - Ending finished
goods inventory = Cost of goods sold
D) Cost of goods manufactured + Beginning finished goods inventory - Ending finished
goods inventory = Cost of goods sold
10) The Esther Valve Corporation was recently formed to produce a brass valve that
forms an essential part of a compressor manufactured by a major corporation. The
direct materials are added at the start of the production process while conversion costs
are added uniformly throughout the production process. September is Parson's first
month of operations, and therefore, there was no beginning inventory. Direct materials
cost for the month totaled $2,800,000, while conversion costs equaled $3,600,000.
Accounting records indicate that 1,600,000 valves were started in September and
1,400,000 valves were completed.
Ending inventory was 20% complete as to conversion costs.
Required:
a.What is the total manufacturing cost per valve for September?
b.Allocate the total costs between the completed valves and the valves in ending
inventory.
11) The Japanese use the term kaizen when referring to________.
A) scarce resources
B) pro forma financial statements
C) continuous improvement
D) the sales forecast
12) Which of the following is required to arrive at the budgeted units to be produced in
a year?
A) estimated direct materials inventory required at the end of the year
B) estimated finished goods inventory required at the end of the year
C) amount of direct materials to be used during the year
D) amount of manufacturing overhead to be incurred
