Garcia Company has two service departments, Maintenance and Human Resources.
Garcia Company also has two production departments, Mixing and Finishing.
Maintenance costs are allocated based on square footage while Human Resources costs
are allocated based on number of employees. The following information has been
gathered for the current year:
Human
Maintenance Resources Mixing Finishing
Direct costs $126,000 $84,000 $105,000 $175,000
Square footage 800 400 1,600 1,200
Number of employees 8 12 24 32
Assume the step-down method is used to allocate service department costs. Which
department should be allocated first?
A) Maintenance
B) Human Resources
C) Mixing
D) Finishing
To determine the cost of serving a specific type of customer, such as the retail customer,
which of the following are followed?
A) first step, cost assignment and second step, cost allocation
B) first step, cost accumulation and second step, cost assignment
C) first step, cost allocation and second step, cost apportionment
D) first step, cost absorption and second step, cost attribution
Book value on a depreciable asset is defined as ________.
A) residual value less cost
B) residual value less accumulated depreciation
C) cost less accumulated depreciation
D) residual value
Presented below is the production data for the first six months of the year showing the
mixed costs incurred by Eunice Company.
Month Cost Units
January $7,500 4,000
February 13,000 7,500
March 11,500 9,000
April 11,700 11,500
May 13,500 12,000
June 11,850 6,000
Eunice Company uses the high-low method to analyze mixed costs. The variable cost
per unit is ________.
A) $0.625
B) $0.75
C) $1.25
D) $1.31
What happens when the cost-driver activity level decreases within the relevant range?
A) Total fixed costs increase.
B) Fixed costs per unit of cost driver decrease.
C) Total variable costs increase.
D) Variable costs per unit of cost driver are unchanged.
Chicago Corporation has a joint process that produces three products: X, Y and Z. Each
product may be sold at split-off or processed further and then sold. Joint-processing
costs for a year amount to $100,000. Other data follows:
Sales Value Separable Processing Sales Value
Product at Split-Off Costs after Split-Off at Completion
X $128,000 $16,000 $152,000
Y 50,000 26,000 76,000
Z 25,600 20,000 40,000
Processing Product X beyond the split-off point will cause profits to ________.
A) be unchanged
B) increase by $8,000
C) increase by $24,000
D) decrease by $24,000
Zimmerman Company manufactures plastic cups in one department. The following
information is available:
Work-In-Process Inventory, beginning 0
Units started 60,000
Units completed and transferred 48,000
Work-In-Process Inventory, end 12,000
Direct materials added $180,000
Direct labor $165,600
Factory overhead $82,800
The units in the ending Work-In-Process Inventory are 50 percent complete with respect
to direct materials and 60 percent complete with respect to conversion costs. The unit
cost of direct materials is ________.
A) $1.00
B) $3.00
C) $3.33
D) $5.00
If a department in a department store is eliminated, ________ costs will not continue.
A) unavoidable
B) common
C) corporate
D) avoidable
The traditional approach to cost allocation focuses on accumulating and reporting costs
by ________. The activity-based approach to cost allocation focuses on accumulating
and reporting costs by ________.
A) cost behavior; resources used
B) departments; activities
C) fixed costs; variable costs
D) product; customer
Account analysis and engineering analysis will remain the ________ methods of
measuring cost behavior because the other methods ________.
A) unused; are more objective
B) unused; are more accurate
C) popular; require more past cost data
D) popular; are too difficult to work with
Management cannot influence the price of a new product. The market price is $100 per
unit. The estimated production cost is $30 per unit. The estimated nonproduction cost is
$40 per unit. If the gross profit is 40 percent of the market price, what is the target cost
of the new product?
A) $30
B) $40
C) $60
D) $70
What is the most common value-chain function outsourced in most businesses?
A) production process
B) research and development
C) product design
D) corporate support
The IMA’s ethical standard for confidentiality includes all of the following EXCEPT
________.
A) keep information confidential except when disclosure is authorized or legally
required
B) inform all relevant parties regarding appropriate use of confidential information.
Monitor subordinates’ activities to ensure compliance
C) refrain from using confidential information for unethical or illegal advantage
D) refrain from engaging in any conduct that would prejudice carrying out duties
ethically
To compare companies that differ in size, analysts use ________.
A) MD&A
B) 10-K filings with the Securities and Exchange Commission
C) common size financial statements
D) consolidated financial statements
The difference in variable costing operating income and absorption costing operating
income equals ________.
A) the change in Work-In-Process Inventories times the budgeted fixed overhead rate
B) the change in Finished Goods Inventories times the budgeted fixed overhead rate
C) the change in Raw Materials Inventories times the budgeted variable overhead rate
D) the change in Work-In-Process Inventories times the budgeted variable overhead rate
A company is setting the price on a special order of a manufactured product routinely
made. What type of information is needed to set the price?
A) scorekeeping
B) attention directing
C) problem-solving
D) interim reports
St. Vincent’s Hospital uses a job-order costing system for all patients who have surgery.
The following information is available:
Budgeted indirect costs—pre-operating room $84,000
Budgeted indirect costs—operating room $66,000
Budgeted indirect costs—surgery recovery floor $600,000
Budgeted nursing hours—pre-operating room 4,000
Budgeted nursing hours—operating room 1,000
Budgeted nursing hours—surgery recovery floor 7,500
The cost driver for all indirect costs is nursing hours. The hospital uses a budgeted rate
for indirect costs. The budgeted rate for indirect costs for the operating room is
________.
A) $21.00
B) $66.00
C) $69.75
D) $80.00
The three methods for allocating service department costs to other departments are
________.
A) step-down, indirect and reciprocal allocation
B) direct, step-up and reciprocal allocation
C) step-down, direct and reciprocal allocation
D) step-up, indirect and simultaneous equations
Which of the following costs is NOT an inventoriable cost for a manufacturing firm?
A) Marketing Expense
B) Factory Supervisor’s Salary Expense
C) Wages Expense for security guard in factory
D) Wages Expense for forklift operator in factory
Simmons Company has the following information available for variable overhead costs.
Direct labor hours are the cost driver for variable overhead costs.
Actual variable overhead costs $4,700
Standard variable overhead costs $1.20 per hour
Actual direct labor hours 3,750 hours
Standard direct labor hours per unit 5 hours
Units produced 700
What is the variable overhead spending variance?
A) $200 Favorable
B) $200 Unfavorable
C) $500 Favorable
D) $500 Unfavorable
Wetzel Company has variable costs of $5 per unit and a selling price of $10 per unit.
Fixed costs are $200,000. Planned unit sales for 2015 are 45,000 units. Actual unit sales
for 2014 were 42,000. What is the margin of safety in units for 2015?
A) 2,000 units
B) 3,000 units
C) 5,000 units
D) 7,000 units
Marian Company is considering the purchase of equipment for $400,000. The
equipment will have a ten year life with no terminal salvage value. Straight-line
depreciation will be used for tax purposes. It is expected that the equipment will
generate annual sales of $200,000 for ten years and annual production costs, exclusive
of depreciation, of $120,000 for ten years. The tax rate is 40%. The required rate of
return is 10%. The present value of one for 10 years at 10% is 0.3855. The present
value of an ordinary annuity of one for 10 years at 10% is 6.1446. What is the net
present value of the equipment?
A) $(6,746)
B) $(42,411)
C) $(80,000)
D) $(105,059)
A parent company purchases 100 percent of the outstanding common stock in a
subsidiary. What happens to the subsidiary the day after the purchase? Which of the
following statements is FALSE?
A) The purchase by the parent company does not affect the subsidiary’s books.
B) The subsidiary ceases to exist.
C) The subsidiary continues as a separate legal entity.
D) The subsidiary has its own set of books.
How do we assign indirect costs to cost objects?
A) based on the proportion of indirect costs to total costs
B) based on the proportion of indirect costs to direct costs
C) in proportion to the cost object’s use of a cost-allocation base
D) based on the amount of direct cost used by the cost object
________ expense is driven by sales volume.
A) Rent
B) Insurance
C) Depreciation
D) Sales commission
The minimum desired rate of return on an investment is sometimes referred to as
________.
A) the discount rate
B) the hurdle rate
C) the required rate of return
D) all of the above
A favorable materials price variance can affect all of the following variances except
________.
A) labor rate variance
B) labor efficiency variance
C) materials quantity variance
D) flexible budget variance for direct materials
The following information is available for Paperback Books Inc. and its two divisions,
Books and Periodicals:
Whole Books Periodicals
Company Division Division
Division
Net Sales $100,000 $60,000 $40,000
Fixed Costs Controllable
By Division Manager 26,500 22,500 4,000
Fixed Costs Not Controlled
By Division Manager 18,000 15,000 3,000
Variable Costs:
Cost of Merchandise Sold 24,500 17,500 7,000
Operating Expenses 26,400 20,000 6,400
Unallocated Costs 7,000
What is the contribution margin for the Books Division?
A) $15,000
B) $22,500
C) $32,500
D) $42,500
Marian Company is considering the purchase of equipment for $400,000. The
equipment will have a ten year life with no terminal salvage value. Straight-line
depreciation will be used for tax purposes. It is expected that the equipment will
generate annual sales of $200,000 for ten years and annual production costs, exclusive
of depreciation, of $120,000 for ten years. The tax rate is 40%. The required rate of
return is 10%. The present value of one for 10 years at 10% is 0.3855. The present
value of an ordinary annuity of one for 10 years at 10% is 6.1446. What is the net
present value of the equipment?
A) $(6,746)
B) $(42,411)
C) $(80,000)
D) $(105,059)
Atkinson Company has the following information:
Month Budgeted Sales
January $76,000
February 85,000
March 92,000
April 80,000
Budgeted Operating Expenses Per Month
Wages $15,000
Advertising 12,000
Depreciation 3,000
Other expenses 4% of sales
All cash expenses are paid as incurred. What are the total operating expenses budgeted
for the month of April?
A) $3,160
B) $30,000
C) $33,200
D) $33,680
Gerald Eiche Company uses a job-order costing system and has the following data
available:
Beginning Direct Materials Inventory $26,000
Beginning Work-In-Process Inventory $64,000
Beginning Finished Goods Inventory $58,000
Direct materials purchased on account $148,000
Direct materials requisitioned $82,000
Direct labor cost incurred $130,000
Factory overhead incurred $146,000
Cost of goods completed $292,000
Cost of Goods Sold $260,000
Overhead application rate (based on direct labor cost) 125%
The journal entry to record the cost of goods sold would include a ________.
A) Debit to Finished Goods Inventory for $292,000
B) Credit to Finished Goods Inventory for $260,000
C) Credit to Work-In-Process Inventory for $260,000
D) Credit to Cost of Goods Sold for $292,000
Information is relevant in business decisions if it is a(n) ________.
A) expected future revenue or it differs among alternatives
B) expected future revenue and it differs among alternatives
C) past revenue and it differs among alternatives
D) expected future revenue that differs from past revenue
Accountants require investors that have control over the decisions of an investee firm to
use the ________ method.
A) consolidated financial statements
B) cost
C) market value
D) lower of cost or market
Which of the following is(are) characteristic(s) of joint products?
A) when two or more products can be identified before the split-off point.
B) when two or more products have significant sales value.
C) when two or more products are not separately identifiable as individual products
until the split-off point.
D) B and C
A proposed project will require the use of ten machines in a company. Each machine
has five alternative uses. What is the simplest way to evaluate the desirability of the
project?
A) incremental analysis
B) cost-volume-profit analysis
C) opportunity cost approach
D) scarce resource approach