Companies that overcost products risk becoming less effective on pricing and losing
market share when competition utilizes more accurate cost systems.
The process of preparing a budget encourages coordination and communication
throughout the company.
If variable costs per unit increase, then the breakeven point will decrease.
An increase in production capacity will always result in a favorable cost effect of
productivity for variable costs in the short run.
Faraway Corporation is located in Providence, RI and manufactures a product that costs
$100 and charges McLeod Company, a Massachusetts based retailer, $300 but charges a
customer located in China $310 as it costs more to ship the product oversees. This is an
example of illegal price discrimination under the U.S. Robinson-Patman Act of 1936.
Budgeting is a mechanical tool because the budgeting techniques are free of emotions.
The use of an accelerated method of depreciation for tax purposes would usually
decrease the present value of the investment.
The cost data produced by an ABC system for either a service or a product are only
derived from indirect costs.
Absorption costing helps managers to artificially inflate profits by encouraging the
production of products that absorb the highest amount of fixed manufacturing costs.
Managers rely on management accounting information to evaluate alternative
investment and R&D decisions.
A cost concept used for the purposes of external reporting will always be appropriate
for internal reporting.
Evaluating performance of managers over a long period, say over three-to five-years,
helps to reduce undesirable buildup of inventories.
Competence includes maintaining an appropriate level of professional expertise by
continually developing knowledge and skills.
Feedback from previous decisions uses historical information and, therefore, is
irrelevant for making future predictions.
It is difficult for firms to find appropriate benchmarks because differences can exist
across companies in their strategies, inventory costing methods, depreciation methods,
and so on.
The demand-pull feature of JIT production systems results in close coordination among
workstations and smooths the flow of goods.
The increasing pace of technological information has resulted in longer product life
cycles.
A cost function is a mathematical description of how a cost changes with changes in the
level of an activity relating to that cost.
Prevention costs include inspection and product testing.
When making decisions for product mix and pricing, the focus should be on total costs
and not unit costs.
Equal weight must be given to qualitative factors and quantitative nonfinancial factors
while making decisions.
Relevant cash flows are expected future cash flows that differ among the alternative
uses of investment funds.
As a discounted cash flow method does not report good operating income results in the
project’s early years, managers are tempted to not use discounted cash flow methods
even though the decisions based on them would be in the best interests of the company
as a whole over the long run.
An item classified as spoilage has no value.
When a company has the least fixed costs, the company is operating at a very high
operating leverage.
Separable costs include manufacturing costs only.
An effective way to cut costs is to eliminate activities that do NOT improve the product
attributes that customers value.
An effective activity-based cost system always ignores facility-sustaining cost drivers.
Longer manufacturing cycle times increase the inventory carrying costs and decrease
revenues.
Inflation and fluctuations in foreign-currency exchange rates affect performance
measurement.
Minimum transfer price can be arrived at by adding incremental cost per unit incurred
up to the point of transfer with the markup required.
A budget is a benchmark against which actual performance can be compared.
Managers can always view a favorable variable overhead spending variance as
desirable.
Accrual accounting rate of return is calculated by dividing increase in expected average
annual after-tax operating income by the net initial investment.
The account analysis method estimates cost functions by classifying various cost
accounts as variable, fixed, or mixed with respect to the identified level of activity.
Linear programming is a tool that maximizes total contribution margin of a mix of
products with multiple constraints.
When replacing an old machine with a new machine, the new machine’s depreciation
expense is relevant.
The difference between total revenues and total variable costs is called contribution
margin.
Qualitative factors are important in the decision-making process even though they
cannot be measured numerically.
Performance evaluation focuses on responsibility centers for a specific period, not on
projects or individual items of equipment over their useful lives.
Soul Socket Inc. manufactures socket wrenches.
∙ For next month, the vice president of production plans on producing 4,450 wrenches
per day.
∙ The company can produce as many as 5,000 wrenches per day, but is more likely to
produce 4,500 per day.
∙ The demand for wrenches for the next three years is expected to average 4,250
wrenches per day.
∙ Fixed manufacturing costs per month total $374,000.
∙ The company works 22 days a month.
∙ Fixed manufacturing overhead is charged on a per-wrench basis.
Required:
a. What is the theoretical fixed manufacturing overhead rate per wrench for the next
month?
b. What is the practical fixed manufacturing overhead rate per wrench for the next
month?
c. What is the normal fixed manufacturing overhead rate per wrench for the next
month?
d. What is the master-budget fixed manufacturing overhead rate per wrench for the next
month?
Which of the following statements is true?
A) Managers can lower operating risk by changing fixed costs to variable costs in the
long-term.
B) Managers can lower operating risk by changing variable costs to fixed costs in the
long-term.
C) Managers can lower operating risk by reducing the selling price and increasing
volume.
D) Managers can lower operating risk by increasing the selling price and reducing
volume.
Which of the following classifications would be the most relevant for the costs incurred
to process orders?
A) customer output unit-level cost
B) customer batch-level cost
C) customer-sustaining cost
D) corporate-sustaining cost
Ben and Mildred’s Stables used two different independent variables (trainer hours and
number of horses) in two different equations to evaluate the cost of training horses. The
most recent results of the two regressions are as follows:
Trainer’s hours:
Variable Coefficient Standard Error t-Value
Constant $1,005.45 $217.52 4.61
Independent Variable $22.54 $3.23 7.40
r2 = 0.56
Number of horses:
Variable Coefficient Standard Error t-Value
Constant $5,240.20 $1,180.32 4.44
Independent Variable $951.73 $271.85 4.75
r2 = 0.63
What is the estimated total cost for the coming year if 14,700 trainer hours are incurred
and the stable has 310 horses to be trained, based upon the best cost driver?
A) $7,992.85
B) $300,276.50
C) $332,343.45
D) $13,995,671.20
Russo Corporation manufactured 21,000 air conditioners during November. The
overhead cost-allocation base is $34.25 per machine-hour. The following variable
overhead data pertain to November:
What is the variable overhead spending variance?
A) $3,600.00 unfavorable
B) $3,325.00 unfavorable
C) $3,600.00 favorable
D) $3,325.00 favorable
To record the write-off of these variances at the end of the accounting period, Bismith
would ________.
A) credit Fixed Manufacturing Overhead Allocated for $700,000
B) debit Fixed Manufacturing Overhead Spending Variance for $40,000
C) credit Fixed Manufacturing Production-Volume Variance for $30,000
D) debit Fixed Manufacturing Control for $700,000
If the rework is abnormal ________.
A) it is debited to Wages Payable Control
B) it is credited to Wages Payable Control
C) it is credited to Loss from Abnormal Rework
D) it is debited to Loss from Abnormal Rework
An unfavorable efficiency variance for direct manufacturing labor might indicate that
________.
A) there is unexpected increase in direct labor rates
B) work is scheduled inefficiently
C) lower-quality materials were purchased
D) more higher-skilled workers were scheduled than planned
Which of the following is true of the Work-in-Process Control account?
A) It tracks all direct material purchases.
B) Its balance is the sum of amounts from all in-process individual job-cost records.
C) It is an expense account.
D) It tracks overhead costs in-process from beginning through completion.
Fish Fillet Incorporated obtains fish and then processes them into frozen fillets and then
prepares the frozen fish fillets for distribution to its retail sales department. Direct
materials are added at the initiation of the cycle. Conversion costs are incurred evenly
throughout the production cycle. Before inspection, some fillets are spoiled due to
undetectable defects. Spoiled fillets generally constitute 4% of the good fillets. Data for
April 2017 are as follows:
Abnormal spoilage totals ________.
A) 8440 units
B) 0 units
C) 7560 units
D) 16,000 units
Which of the following is not a reason why a company would adopt JIT purchasing
practices?
A) high shrinkage costs
B) low ordering costs
C) low carrying costs of inventory
D) reliable supply chains
When individual activities within a cost pool have a similar relationship with the cost
driver, which of the following could be said about the cost pool?
A) the costs accumulated in the cost pool are not used for customer-profitability
analysis
B) there is a need for need multiple cost drivers to allocate costs from the pool to
customers
C) the cost pool is considered a homogeneous cost pool
D) the cost pool is considered contains only direct variable costs
Vision Company sells optical equipment. Blitz Company manufactures special glass
lenses. Vision orders 11,700 lenses per year, 260 per week, at $38 per lens. Blitz covers
all shipping costs. Vision earns 22% on its cash investments. The purchase-order lead
time is 4.0 weeks. Vision sells 315 lenses per week. The following data are available:
What is the economic order quantity for Vision?
A) 439 lenses
B) 356 lenses
C) 276 lenses
D) 195 lenses
Excluding spoiled units in the equivalent-unit calculation results in ________.
A) lower cost per good unit.
B) higher cost per good unit
C) better management information
D) higher cost for spoiled units
Actual costing is a costing system that traces direct costs to a cost object by ________.
A) using the budgeted direct cost rates times the budgeted quantities of direct-cost
inputs
B) using the actual direct costs rates times the budgeted quantities of the direct-cost
inputs
C) using the actual direct cost rates times the actual quantities of the direct-cost inputs
D) using the budgeted direct cost rates times the actual quantities of the direct cost
inputs
Nantucket Industries manufactures and sells two models of watches, Prime and
Luxuria. It expects to sell 3,800 units of Prime and 1,300 units of Luxuria in 2019.The
following estimates are given for 2019:
Nantucket had an inventory of 240 units of Prime and 125 units of Luxuria at the end of
2018. It has decided that as a measure to counter stock outages it will maintain ending
inventory of 350 units of Prime and 230 units of Luxuria.
Each Luxuria watch requires one unit of Crimpson and has to be imported at a cost of $13.
There were 140 units of Crimpson in stock at the end of 2018. The management does not
want to have any stock of Crimpson at the end of 2019.
What is the total budgeted cost of goods manufactured in 2019?
A) $1,153,000
B) $1,093,350
C) $1,212,650
D) $1,272,750
Franklin Inc. manufactures pipes and applies manufacturing overhead costs to
production at a budgeted indirect-cost rate of $18 per direct labor-hour. The following
data are obtained from the accounting records for June 2018:
For June 2018, manufacturing overhead is ________.
A) overallocated by $7,300
B) underallocated by $20,700
C) overallocated by $20,700
D) underallocated by $7,300
Comfort chair company manufacturers a standard recliner. During February, the firm’s
Assembly Department started production of 73,700 chairs. During the month, the firm
completed 78,500 chairs, and transferred them to the Finishing Department. The firm
ended the month with 11,200 chairs in ending inventory. There were 16,000 chairs in
beginning inventory. All direct materials costs are added at the beginning of the
production cycle and conversion costs are added uniformly throughout the production
process. The FIFO method of process costing is used by Comfort. Beginning work in
process was 20% complete as to conversion costs, while ending work in process was
80% complete as to conversion costs.
What is the amount of direct materials cost assigned to ending work-in-process inventory
at the end of February?
(Round intermediary calculations to the nearest cent.)
A) $21,760
B) $25,536
C) $27,200
D) $28,800
Predatory pricing is a type of price discrimination that ________.
A) allows prices to be cut to the level of variable costs
B) is required when a company declares bankruptcy so that it can sell its remaining
goods quickly
C) is used in the food industry for perishable goods
D) deliberately sets prices very low, sometimes even below costs, to minimize
competition
Wallace Company provides the following data for next year:
The gross profit rate is 35% of sales. Inventory at the end of December is $29,600 and
target ending inventory levels are 10% of next month’s sales, stated at cost.
What is the amount of purchases budgeted for January?
A) $70,980
B) $55,420
C) $78,000
D) $85,020
Which of the following is an example of value added cost?
A) cost of machine breakdown
B) cost of defective products
C) rework costs
D) direct machining costs
When a single manufacturing process yields two products, one of which has a relatively
high sales value compared to the other, the two products are respectively known as
________.
A) joint products and byproducts
B) joint products and scrap
C) main products and byproducts
D) main products and joint products
________ is a method of inventory costing in which all variable manufacturing costs
and all fixed manufacturing costs are included as inventoriable costs.
A) Variable costing
B) Mixed costing
C) Absorption costing
D) Standard costing
Which of the following groups would be least likely to receive detailed management
accounting reports?
A) stockholders
B) sales managers
C) production supervisors
D) distribution managers
In the manufacturing plant, Alex is paid $40 an hour for straight-time and $60 an hour
for overtime. One week she worked 54 hours, which included 8 hours of overtime, and
6 hours of idle time caused by material shortages.
Required:
a. What is Alex’s total compensation for the week?
b. What amount of compensation would be reported as direct manufacturing labor?
c. What amount of compensation would be reported as manufacturing overhead?
Aeralia Inc., has two regional offices. The data for each are as follows:
Maryland New Jersey
Revenues $292,000 $302,000
Operating assets 2,900,000 4,800,000
Net operating income 1,300,000 1,500,000
What is the Maryland Division’s return on investment?
A) 44.8%
B) 10.1%
C) 31.3%
D) 22.5%
An assumption of the FIFO process-costing method is that ________.
A) the units in beginning inventory are not necessarily assumed to be completed by the
end of the period
B) the units in beginning inventory are assumed to be completed first
C) ending inventory will always be completed in the next accounting period
D) no calculation of conversion costs is possible
Which of the following is an irrelevant cost when considering where to drop a
customer?
A) cost of goods sold
B) marketing support
C) depreciation
D) sales order and delivery processing
Shiffon Electronics manufactures music player. Its costing system uses two cost
categories, direct materials and conversion costs. Each product must pass through the
Assembly Department, the Programming department, and the Testing Department.
Direct materials are added at the beginning of the production process. Conversion costs
are allocated evenly throughout production. Shiffon Electronics uses weighted-average
costing.
The following information is available for the month of March 2017 for the Assembly
department.
What amount of direct materials costs is assigned to the ending Work-in-Process account
for March?
(Round intermediary calculations to the nearest whole dollar.)
A) $47,931
B) $96,621
C) $104,632
D) $144,480
Zitrik Corporation manufactured 130,000 buckets during February. The variable
overhead cost-allocation base is $5.30 per machine-hour. The following variable
overhead data pertain to February:
What is the variable overhead efficiency variance?
A) $2,650 unfavorable
B) $2,675 favorable
C) $2,650 favorable
D) $2,675 unfavorable.
To prepare the direct materials labor costs budget, which of the following budget must
be prepared first?
A) direct material purchase budget
B) production budget
C) direct material usage budget
D) budgeted manufacturing overhead
Each time Mayberry Nursery hires a new employee, it must wait for some period of
time before the employee can meet production standards. Management is unsure of the
learning curve in its operations but it knows the first job by a new employee averages
40 hours and the second job averages 32 hours. Assume all jobs to be equal in size.
Required:
a. What is the learning-curve percentage, assuming the cumulative average-time
method?
b. What is the time for a new employee to build 16 units with this learning curve using
the cumulative average-time method? You may use an index of −0.1520.
Which account is credited to write off the difference between allocated and actual
overhead using the proration approach?
A) Work-in Process Control
B) Manufacturing Overhead Allocated
C) Finished Goods Control
D) Manufacturing Overhead Control
Tryst University offers only high-tech graduate-level programs. Tryst has two principal
operating departments, Engineering and Social Sciences, and two support departments,
Facility and Technology Maintenance and Enrollment Services. The base used to
allocate facility and technology maintenance is budgeted total maintenance hours. The
base used to allocate enrollment services is number of credit hours for a department.
The Facility and Technology Maintenance budget is $450,000, while the Enrollment
Services budget is $900,000. The following chart summarizes budgeted amounts and
allocation-base amounts used by each department:
Required:
Use the direct method to allocate support costs to each of the two principal operating
departments, Engineering and Social Sciences. Prepare a schedule showing the support
costs allocated to each department.
Nig Car Company manufactures automobiles. The Fastback Car Division sells its cars
for $50,000 each to the general public. The fastback cars have manufacturing costs of
$30,000 each for variable and $15,000 each for fixed costs. The division’s total fixed
manufacturing costs are $75,000,000 at the normal volume of 5,000 units.
The Coupe Car Division has been unable to meet the demand for its cars this year. It
has offered to buy 1,000 cars from the Fastback Car Division at the full cost of $40,000.
The Fastback Car Division has excess capacity and the 1,000 units can be produced
without interfering with the current outside sales of 5,000. The 6,000 volume is within
the division’s relevant operating range.
Explain whether the Fastback Car Division should accept the offer.
How can conflicts arise between the decision model and the performance evaluation
model used to evaluate managers? Provide an example of this type of conflict.
What factors may influence the level of markups?
Can a company identify unused capacity and, if so, how can unused capacity be
managed?
What is throughput costing? What advantages does it have over variable and absorption
costing?
The president of the company, Peter Francis, has come to you for help. Use the
following data to prepare a flexible budget for possible sales/production levels of
10,000, 15,000, and 20,000 units. Show the contribution margin at each activity level.
List and describe the five steps in process costing.
Explain sensitivity analysis and how do managers use sensitivity analysis to evaluate its
implications?
Super Shoes Company manufactures sneakers. The Athletic Division sells its socks for
$18 a pair to outsiders. Sneakers have manufacturing costs of $6.00 each for variable
and $6.00 for fixed. The division’s total fixed manufacturing costs are $315,000 at the
normal volume of 70,000 units.
The European Division has offered to buy 15,000 Sneakers at the full cost of $12. The
Athletic Division has excess capacity and the 15,000 units can be produced without
interfering with the current outside sales of 70,000. The 85,000 volume is within the
division’s relevant operating range.
Explain whether the Athletic Division should accept the offer.
ROI, RI, or EVA measures are more appropriate than ROS to measure the performance
of a company. Why?
What are transfer prices and what are its criteria?
Explain why the term tax shield is used in conjunction with depreciation.
What is an operating department and how is it different from a support department?
Give examples of each.
Explain the meaning of the terms spoilage, scrap, and rework. Provide an example of
each. Is it possible for a single firm to have all three from a single productive process?
Discuss the methods used to identify quality problems.