Price dumping occurs when a domestic company is trying to get rid of out-of-style
products at a substantially reduced price.
The choice of the capacity level used to allocate budgeted fixed manufacturing costs to
products can greatly affect the product-cost information available to managers.
Value engineering can have undesirable effects if the product remains in development
for a long time as the reengineering team repeatedly evaluates alternative designs.
Revenue allocation based on the number of physical units is only appropriate when
individual products in the bundle are of equal value.
When preparing a flexible budget, fixed costs must be adjusted to reflect actual costs at
actual output.
The cost of goods sold budget is calculated by deducting beginning finished-goods
from cost of goods available for sale.
Under absorption costing, managers can increase operating income by holding less
inventories at the end of the period.
The direct allocation method provides key information for outsourcing decisions
regarding support services.
Budgetary slack is the practice of underestimating costs so as to project an optimistic
future outlook.
Static-budget variance for operating income is calculated by taking a difference
between static-budget operating income and actual operating income.
Over time, the cost of design activities depend largely on the time designers spend on
designing and modifying the product not on the number of products made or the
number of batches produced.
Omitting basic maintenance expenditures out of a budget could be considered unethical
if the risks of a breakdown and loss are substantial.
Discounted cash flow methods of evaluating capital expenditures focuses on the
operating income as calculated under accrual accounting rules.
Regression analysis is a statistical method that measures the average amount of change
in the dependent variable associated with a unit change in one or more independent
variables.
In long-run pricing, decisions should consider all manufacturing and
non-manufacturing costs but should consider all future direct and indirect costs as
irrelevant.
Activity -based costing plays a more significant role in job costing as compared to
process costing as companies using process costing have homogeneous products.
Indirect manufacturing costs include the compensation of all manufacturing labor that
can be traced to the cost object in an economically feasible way.
An advantage of the physical-measure method is that obtaining physical measures for
all products is an easy task.
Transfer prices do not affect managers whose compensation is directly dependent on an
organization’s operating income because transfer prices affect only divisional profits
and not the organization’s profit.
The three common discounted cash flow methods are net present value, internal rate of
return, and payback.
Prorated allocation of production-volume variance results in a higher operating income
for current year than if the entire favorable production-volume variance were credited
to Cost of Goods Sold.
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.
In case of pricing for special orders, managers include all future costs, variable costs,
and costs that are fixed in the short run.
Standard costing is a costing system that allocates overhead costs on the basis of the
standard overhead-cost rates times the standard quantities of the allocation bases
allowed for the actual outputs produced.
The ability-to-bear criterion is considered superior when the purpose of cost allocation
is motivation.
A standard is attainable through efficient operations but allows for normal disruptions
such as machine breakdowns and defective production.
Efficiency is the relative amount of inputs used to achieve a given output level.
Under the opportunity-cost approach, the relevant cost of any alternative is the
incremental of the alternative plus the opportunity cost of the profit foregone from
choosing the alternative.
Allocating variable costs on the basis of budgeted usage would provide the user
departments with no incentive to control their consumption of support services.
In the cumulative average-time learning model, cumulative average time per unit
declines by a constant percentage each time the cumulative quantity of units produced
doubles.
A planned increase in advertising would be considered an increase in variable costs in
CVP analysis.
ISO 9000 are standards designed to encourage organizations to develop environmental
management systems to reduce environmental costs.
The management accountant for Giada’s Book Store has prepared the following income
statement for the most current year:
Cookbook Travel Book Classics Total
Sales $65,000 $164,000 $55,000 $284,000
Cost of goods sold 37,000 67,000 20,000 124,000
Contribution margin 28,000 97,000 35,000 160,000
Order and delivery processing 21,000 25,000 11,000 57,000
Rent (per sq. foot used) 5,000 4,000 4,000 13,000
Allocated corporate costs 10,000 10,000 10,000 30,000
Corporate profit $ (8,000) $58,000 $10,000 $60,000
If the travel book line had been discontinued, corporate profits for the current year
would have decreased by ________.
A) $97,000
B) $72,000
C) $68,000
D) $58,000
Crimson Services, Inc., employs 8 individuals. They are all paid $16.50 per hour. How
would total costs of personnel be classified?
A) variable cost
B) mixed cost
C) irrelevant cost
D) fixed cost
Zitrik Corporation manufactured 110,000 buckets during February. The variable
overhead cost-allocation base is $5.45 per machine-hour. The following variable
overhead data pertain to February:
What is the variable overhead spending variance?
A) $1,050 favorable
B) $1,000 unfavorable
C) $1,050 unfavorable
D) $1,000 favorable
Sparkle Jewelry sells 500 units resulting in $10,000 of sales revenue, $4,000 of variable
costs, and $1,500 of fixed costs. Calculate the variable cost per unit. (Round the final
answer to the nearest cent.)
A) $12.00
B) $6.00
C) $2.00
D) $8.00
Columbus Company provides the following ABC costing information:
The above activities used by their three departments are:
How much of the total costs will be assigned to the Lawn Department?
A) $192,000
B) $464,000
C) $174,800
D) $154,667
Kaizen refers to incorporating cost reductions ________.
A) in each successive budgeting period
B) in each successive sales forecast
C) in all customer service centers
D) in all areas of the organization
Cost tracing is ________.
A) the assignment of direct costs to the chosen cost object
B) a function of cost allocation
C) the process of tracking both direct and indirect costs associated with a cost object
D) the process of determining the actual cost of the cost object
Which of the following statements is true regarding cost-plus pricing?
A) It starts with a target price which is the estimated price for a product.
B) A company uses a markup percentage that estimates a product price that covers full
product costs and earns the required return on investment.
C) It first determines product characteristics and target price on the basis of customer
preferences and then computes a target cost.
D) The cost-plus price chosen has already been studied for customer reaction to the
price.
Four Seasons Company makes snow blowers. Materials are added at the beginning of
the process and conversion costs are uniformly incurred. At the beginning of
September, work in process is 40% complete and at the end of the month it is 60%
complete. Other data for the month include:
Required:
a. Prepare a production cost worksheet with supporting schedules using the
weighted-average method of process costing.
b. Prepare journal entries to record transferring of materials to processing and from
processing to finished goods.
Moira Company has just finished its first year of operations and must decide which
method to use for adjusting cost of goods sold. Because the company used a budgeted
indirect-cost rate for its manufacturing operations, the amount that was allocated
($435,000) to cost of goods sold was different from the actual amount incurred
($425,000).
Ending balances in the relevant accounts were:
Work-in-Process $ 40,000
Finished Goods 80,000
Cost of Goods Sold 680,000
Required:
a. Prepare a journal entry to write off the difference between allocated and actual
overhead directly to Cost of Goods Sold. Be sure your journal entry closes the related
overhead accounts.
b. Prepare a journal entry that prorates the write-off of the difference between allocated
and actual overhead using ending account balances. Be sure your journal entry closes
the related overhead accounts.
High Tech Manufacturing Inc., incurred total indirect manufacturing labor costs of
$480,000. The company is labor intensive. Total labor hours during the period were
5,000. Using qualitative analysis, the manager and the management accountant
determine that over the period the indirect manufacturing labor costs are mixed costs
with only one cost driver–labor-hours. They separated the total indirect manufacturing
labor costs into costs that are fixed ($140,000 based on 8,500 hours of labor) and costs
that are variable ($340,000) based on the number of labor-hours used. The company has
estimated 7,400 labor hours during the next period.
What will be the variable cost per hour?
A) $68.00
B) $40.00
C) $56.47
D) $96.00
Identify the appropriate order of the following steps in the procedure for process costing
with spoilage.
a. summarize total costs to account for
b. assign total costs to units completed, to spoiled units, and to units in ending inventory
c. summarize the flow of physical units
d. compute output in terms of equivalent units
e. compute cost per equivalent unit
Step 1 ________
Step 2 ________
Step 3 ________
Step 4 ________
Step 5 ________
Many government agency contracts exclude all but which of the following costs from
reimbursement under cost-plus agreements?
A) marketing costs
B) design costs
C) production costs
D) part of the research and development costs
Which of the following statements is true of a balanced scorecard?
A) The balanced scorecard reduces managers’ emphasis on long-run financial
performance.
B) The balanced scorecard reduces managers’ emphasis on short-run financial
performance.
C) The primary goal of using the balanced scorecard is to sustain short-run financial
performance.
D) The primary goal of using the balanced scorecard is to sustain short-run nonfinancial
performance.
Katrina’s Bridal Shoppe sells wedding dresses. The average selling price of each dress
is $1,200, variable costs are $400, and fixed costs are $110,000. What is Katrina’s
operating income when 200 dresses are sold?
A) $50,000
B) $240,000
C) $80,000
D) $130,000
Puritan Apparels is a clothing retailer. Unit costs associated with one of its products,
Product AHF 130, are as follows:
What are the direct variable manufacturing costs per unit associated with Product AHF
130?
A) $288
B) $200
C) $245
D) $255
Komerica Corp is committed to its quality program. It works with all areas of the
company to establish sound quality programs within reasonable budget guidelines. For
2018, it has budgeted $1,000,000 for prevention costs and $900,000 for appraisal costs.
Internal failure has a budget of $100 per failed item, while external failure has a total
budget of $600,000.
Product Testing has proposed to management a change in the 2018 budget for a new
method of testing products. If management decides to implement the new method,
$1.50 per unit of appraisal costs will be saved, up to a level of 150,000 tests. No
additional savings are expected past the 150,000 level. The new method involves
$95,000 in training costs and $65,000 in yearly testing supplies.
Traditionally, 5% of all completed items have to be reworked. External failure costs
average $120 per failed unit. The company’s average external failures are 1% of units
sold. The company carries no ending inventories.
Required:
a. What is the adjusted budget for appraisal costs, assuming the new method is
implemented and 800,000 units are tested during the manufacturing process in 2017?
b. How much do internal failure costs change, assuming 500,000 units are tested under
the new method and it reduces the amount of unacceptable units in the manufacturing
process by 40%?
c. What would be the change in the external failure budget, assuming external failures
are reduced by 60% and the same facts as in part (b)?
Ruben intends to sell his customers a special round-trip airline ticket package. He is
able to purchase the package from the airline carrier for $170 each. The round-trip
tickets will be sold for $200 each and the airline intends to reimburse Ruben for any
unsold ticket packages. Fixed costs include $5,140 in advertising costs. For every
$27,000 of ticket packages sold, operating income will increase by ________.
A) $4,050
B) $34,000
C) $22,950
D) $27,000
A well-designed management control system uses information from ________.
A) internal sources only as they are the most reliable sources of information
B) external sources only as they are more dynamic and future oriented
C) both internal and external sources as a wide range of information is required
D) external sources only as they are the most reliable sources of information
Violet Sales Corp, reports the year-end information from 2018 as follows:
Violet is developing the 2019 budget. In 2019 the company would like to increase selling
prices by 3.5%, and as a result expects a decrease in sales volume of 14%. 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.
Should Violet increase the selling price in 2019?
A) Yes, because sales revenue increases for 2019.
B) Yes, because gross margin increases for 2019.
C) No, because sales volume decreases for 2019.
D) No, because operating income decreases for 2019.
The first step in estimating a cost function using quantitative analysis is to plot the data.
Stewart Corporation plans to grow by offering a sound system, the SS3000, that is
superior and unique from the competition. Stewart believes that putting additional
resources into R&D and staying ahead of the competition with technological
innovations is critical to implementing its strategy. Which of the following terms best
describes Stewart’s strategy?
A) product differentiation
B) scalability
C) product leadership
D) cost leadership
The Cybertronics Corporation reported the following information for its Cyclotron
Division:
Revenues $2,300,000
Operating costs 1,700,000
Operating assets 1,100,000
Income is defined as operating income.
What is the Cyclotron Division’s return on investment?
A) 35.3%
B) 70.6%
C) 27.3%
D) 54.5%
Under the weighted-average method, how would you calculate the cost per equivalent
units with regards to conversion costs?
A) conversion costs for work done in the current period/units completed and transferred
out in the current period
B) (total conversion costs in beginning work in process)/(units completed and
transferred out during the period + equivalent units in ending inventory)
C) (total conversion costs in beginning work in process + conversion cost for work
done in the current period)/(units completed and transferred out during the period +
equivalent units in ending inventory)
D) (total direct labor costs in beginning work in process + conversion cost for work
done in the current period)/(units completed and transferred out during the period +
equivalent units in ending inventory)
Which of the following statements concerning an organization’s strategy is true?
A) Strategy specifies how an organization matches its own capabilities with the
opportunities in the marketplace to accomplish its objectives.
B) Cost accountants formulate strategy in an organization since they have more inputs
about costs.
C) A good strategy will always overcome poor implementation.
D) Businesses usually follow one of two broad strategies: offering a quality product at a
high price, or offering a unique product or service priced lower than the competition.
River Falls Manufacturing uses a normal cost system and had the following data
available for 2018:
Direct materials purchased on account $150,000
Direct materials requisitioned 84,000
Direct labor cost incurred 125,000
Factory overhead incurred 146,000
Cost of goods completed 288,000
Cost of goods sold 258,000
Beginning direct materials inventory 25,000
Beginning WIP inventory 69,000
Beginning finished goods inventory 51,000
Overhead application rate, as a percent of direct-labor costs 120 percent
The journal entry to record the materials placed into production would include a
________.
A) credit to Direct Materials Inventory for $84,000
B) debit to Direct Materials Inventory for $150,000
C) credit to WIP Inventory for $84,000
D) debit to WIP Inventory for $150,000
Marriott International, would be classified as a(n) ________.
A) manufacturing-sector company
B) merchandising-sector company
C) service-sector company
D) financial services firm
Which of the following helps in avoiding costly transfer-pricing disputes between
taxpayers and tax authorities?
A) transfer price redressal panel
B) grievance redressal forum
C) transfer price agreements
D) advanced pricing agreements
North Street Corporation manufactures two models of motorized go-carts, a standard
and a deluxe model. The following activity and cost information has been compiled:
Assume a traditional costing system applies the $37,960 of overhead costs based on direct
labor hours. What is the total amount of overhead cost assigned to the deluxe model? (Do
not round interim calculations. Round the final answer to the nearest whole dollar.)
A) $14,109
B) $23,851
C) $23,294
D) $14,666
Difend Cleaners has been considering the purchase of an industrial dry-cleaning
machine. The existing machine is operable for three more years and will have a zero
disposal price. If the machine is disposed now, it may be sold for $170,000. The new
machine will cost $360,000 and an additional cash investment in working capital of
$170,000 will be required. The new machine will reduce the average amount of time
required to wash clothing and will decrease labor costs. The investment is expected to
net $130,000 in additional cash inflows during the first year of acquisition and
$290,000 each additional year of use. The new machine has a three-year life, and zero
disposal value. These cash flows will generally occur throughout the year and are
recognized at the end of each year. Income taxes are not considered in this problem.
The working capital investment will not be recovered at the end of the asset’s life.
What is the net present value of the investment, assuming the required rate of return is
6%? Would the company want to purchase the new machine?
A) $264,290; yes
B) $243,489.592; yes
C) $($243,489.592); no
D) $($264,290); no
