1) The tariffs and customs duties governments levy on imports of products into a
country also affect the transfer pricing practices of multinationals.
2) An organization should design its management control system independently of its
strategies, so that the system is not affected by change of strategies in future.
3) A budget is the quantitative expression of a proposed plan of action by management
for a specified period.
4) The balanced scorecard in most organizations is broken down into the following
categories: commercial perspective, supplier perspective, external business-process
perspective, and productivity perspective.
5) A company may choose to keep one set of accounting records for tax reporting and a
second set for internal management reporting.
6) Gross Margin will always be greater than contribution margin.
7) The final activity in the capital budgeting process is to obtain funding and make the
investments identified in the make decisions by choosing among alternatives stage of
the process.
8) Proration approach restates all amounts in the general and subsidiary ledgers by
using actual rather than budgeted cost rates.
9) Actual costing helps managers get information earlier and take corrective measures
to improve labor efficiency.
10) A flexible-budget variance can be subdivided into the static-budget variance and the
sales-volume variance.
11) If deciding whether to eliminate a distribution channel, allocating
corporate-sustaining costs to distribution channels ________.
A) helps define cost reduction possibilities
B) gives the misleading impression of potential cost savings
C) identifies administrative inefficiencies
D) evaluates the effectiveness of sales personnel
12) Which of the following is an advantage of the single-rate method?
A) It is less costly to implement.
B) It classifies costs as fixed and variable costs.
C) It gives signals regarding how variable and fixed costs behave differently.
D) It helps the managers on short-run and long-run planning due to fixed cost allocation
as per budgeted usage.
13) Stones Manufacturing, sells a marble slab for $1,000. Fixed costs are $30,000,
while the variable costs are $400 per slab. The company currently plans to sell 200
slabs this month. What is the margin of safety assuming 75 slabs are budgeted?
A) $40,000
B) $38,000
C) $25,000
D) $33,000
14) Return on investment is also known as the ________.
A) net present value
B) accounting rate of return
C) residual income
D) economic value added
15) Which of the following are reasons for using longer periods, such as a year, to
calculate indirect cost rates?
A) shorter the period, the greater is the influence of seasonal patterns on the amount of
costs
B) longer the period, the greater is the influence of seasonal patterns on the amount of
costs
C) shorter the period, the smaller is the influence of seasonal patterns on the amount of
opportunity costs
D) longer the period, the smaller is the influence of seasonal patterns on the amount of
opportunity costs
16) Which of the following will increase a company’s breakeven point?
A) increasing variable cost per unit
B) increasing contribution margin per unit
C) reducing its total fixed costs
D) increasing the selling price per unit
17) The variable overhead flexible-budget variance can be further subdivided into the
________.
A) price variance and the efficiency variance
B) static-budget variance and sales-volume variance
C) spending variance and the efficiency variance
D) sales-volume variance and the spending variance
18) Which of the journal entries properly records conversion costs?
A) Conversion Costs 400,000
Various Accounts 400,000
B) Various Accounts 400,000
Conversion Costs 400,000
C) Conversion Costs 400,000
Inventory: Direct Materials 400,000
D) Inventory: Direct Materials 400,000
Conversion Costs 400,000
19) LaserLife Printer Cartridge Company is a decentralized organization with several
autonomous divisions. The division managers are evaluated, in part, on the basis of the
change in their return on invested assets. Operating results for the Packer Division for
2015 are budgeted as follows:
Operating assets for the division are currently $3,600,000. For 2015, the division can
add a new product line for an investment of $600,000. The new product line will
generate sales of $1,600,000 and will incur fixed expenses of $600,000 annually.
Variable costs of the new product will average 60% of the selling price.
Required:
a.What is the effect on ROI of accepting the new product line?
b.If the company’s required rate of return is 6% and residual income is used to evaluate
managers, would this encourage the division to accept the new product line? Explain
and show computations.
20) Nichols Inc. manufactures remote controls. Currently the company uses a
plant-wide rate for allocating manufacturing overhead. The plant manager is
considering switching-over to ABC costing system and has asked the accounting
department to identify the primary production activities and their cost drivers which are
as follows:
The current traditional cost method allocates overhead based on direct manufacturing
labor hours using a rate of $200 per labor hour.
Nichols’ management is considering to implement ABC system because ________.
A) ABC system can be implemented cheaply
B) ABC system provides more accurate direct cost figures
C) ABC system is a highly refined costing system
D) ABC system requires minimal expertise to operate
21) Process costing should be used to assign costs to products when ________.
A) the units produced are similar
B) cost reduction is the top most priority
C) the units produced are dissimilar
D) cost reduction is not the primary objective