How is differential analysis used to determine when to add or drop parts of an
operation?
A.If the differential costs required to provide the product for sale exceeds the
differential revenue from the sale of a product, then the product generates profits and
the firm should continue its production.
B.If the differential costs required to provide the product for sale exceeds the
differential revenue from the sale of a product, then the product generates losses and the
firm should continue its production.
C.If the differential revenue from the sale of a product exceeds the differential costs
required to provide the product for sale, then the product generates profits and the firm
should continue its production.
D.If the differential revenue from the sale of a product exceeds the differential costs
required to provide the product for sale, then the product generates profits and the firm
should discontinue its production.
Why do direct labor variances occur?
A.Managers do not correctly anticipate changes in wage rates.
B.Poor materials are used in production.
C.Supervisors encounter scheduling problems.
D.All of the above.
What is a disadvantage of top management intervention in setting transfer prices
between divisions?
A.Top management may become swamped with pricing disputes.
B.Division managers will lose the flexibility and other advantages of autonomous
decision making.
C.The approach reduces the benefits of decentralization.
D.All of the answers are correct.
Pete’s PCs, Inc. budgeted manufacturing overhead costs for the year are:
Under a traditional cost system, the company estimated the budgeted capacity for
machine hours to be 40,000 hours. Bill is considering changing to an activity-based cost
system. Thus, the following estimates were provided:
The following information was provided concerning the production of 1,000 units of
model #1040:
REQUIRED:
a. What are the manufacturing costs per PC under the traditional cost system that
applies manufacturing overhead costs based on machine hours?
b. What are the manufacturing costs per PC if the activity-based costing system is
implemented?
c. Explain the difference between activity-based costing and conventional costing
methods, and how ABC might enhance the financial reporting of Pete’s PCs, Inc.
Which of the following is used to measure on-time performance?
A.The number of on-time deliveries.
B.The ratio of on-time deliveries to total deliveries.
C.The ratio of total deliveries to on-time deliveries.
D.The number of total deliveries.
How do customers influence pricing decisions?
A.By substituting a more expensive product.
B.By using credit cards instead of cash.
C.By substituting a less expensive product.
D.None of the answers is correct.
Which of the following represents the formula for the margin of safety?
A.Total Fixed Costs / Unit Contribution Margin.
B.(Total Fixed Costs + Target Profit) / Unit Contribution Margin.
C.Sales Units – Break-Even Sales Units.
D.None of the answers is correct.
In an aircraft factory, the inventory of direct materials would not include:
A.Glue for the passenger seats
B.Electronic instruments to be installed in aircraft.
C.Lavatory equipment
D.Sheet aluminum to be used for the exterior of the aircraft.
How do common costs arise?
A.From the joint use of a facility or a service by several products, departments, or
processes.
B.From the direct use of a facility or a service by several products, departments, or
processes.
C.From the variable use of a facility or a service by several products, departments, or
processes.
D.From the marginal use of a facility or a service by several products, departments, or
processes.
Josephson and Associates is a consulting firm that spends $60,000 per year advertising
the company’s brand names and trademarks. Gross margin on sales after taxes is up
$66,000 each year because of these advertising expenditures. For the purposes of this
problem, assume that the firm makes all advertising expenditures on the first day of
each year and that the $66,000 extra after-tax gross margin on sales occurs on the first
day of the next year. Excluding any advertising assets or profits,
Josephson has $200,000 of other assets that have produced an after-tax income of
$20,000 per year. Josephson follows a policy of declaring dividends each year equal to
net income, and it has a cost of capital of 10 percent per year.
Required:
a. Is the advertising policy a sensible one? Explain.
b. How should accounting report the expenditures for advertising in Josephson’s
financial statements to reflect accurately the managerial decision of advertising at the
rate of $60,000 per year? In other words, how can the firm account for the advertising
expenditures in such a way that the accounting rate of return for the advertising project
and the rate of return on assets for the firm reflect the 10-percent return from
advertising?
Terrapin Computing Systems
Terrapin Computing Systems manufactures and sells various computer products and has
two decentralized divisions: (1) Production and (2) Marketing. The Marketing Division
has always purchased a particular large tower case from Production at $58 per unit. The
Production Division is considering raising the price to $75 per unit. The Production
Division’s costs related to the large tower case production is as follows:
The Marketing Division handles the promotion and distribution of the large tower case
purchases from the Production Division and sells each large tower case for $100.
Marketing Division incurs monthly fixed costs of $5,000. Marketing Division sells
2,000 units per month. Marketing Division can buy the same large tower case from
outside suppliers for $75.
Refer to Terrapin Computing Systems. The Production Division is operating at
maximum capacity because of strong worldwide demand for the product and the
Production Division can sell all it produces to outside customers for $75 per large tower
case.
What should be the large tower case transfer price between the Production Division and
Marketing Division in order for Terrapin to optimize profits?
A.$ 55
B.$ 58
C.$ 75
D.$100
Actual costing does not use which of the following to measures product costs?
A.Actual direct material costs
B.Actual direct labor costs
C.An amount representing “normal” manufacturing overhead
D.Actual manufacturing overhead
Which of the following terms describes the range of activity over which the firm
expects a set of cost behaviors to be consistent?
A.irrelevant range.
B.relevant range.
C.short-range.
D.long-range.
Rebecca’s Pottery Loft makes a variety of handmade pottery items. She has asked for
your advice on one of the items manufactured, a clay pelican. The following
information is provided.
REQUIRED:
a. Calculate the total profits lost, due to sale of some defective pelicans by Rebecca.
b. Calculate the rework cost.
c. Calculate the cost of processing customer returns.
d. Calculate total failure cost.
e. Calculate total quality cost.
Which statement is true concerning flexible manufacturing systems?
A.Although costs are saved, flexible manufacturing systems increase the amount of
time it takes to make changeovers.
B.These systems require that accountants spend an increased amount of time on
inventory valuation for external reporting.
C.These systems enhance a firm’s ability to utilize just-in-time.
D.All of the answers are correct.