Franklin Company uses activity-based costing, and normally produces 1,000,000 units
per month. At this level of production, the costs per unit are as follows:
Direct materials used $14
Direct labor $6
Variable indirect production $1
Setup costs $3
For 1,000,000 units, 500 setups are required at a cost of $6,000 per setup. The company
has received a special order for 100,000 units at $22 per unit. The company has excess
capacity. The company estimates that 5 setups will be required for the special order.
What is the cost of the special order?
A) $2,100,000
B) $2,130,000
C) $2,400,000
D) $2, 430,000
The first step in preparing the financial budget is the ________.
A) cash budget
B) capital budget
C) operating expense budget
D) sales budget
A manager has several forecasts of sales corresponding to different levels of
advertising. The manager decides to implement $1 million of advertising in the next
fiscal year. At this level of advertising, the manager uses the ________ in the ________.
A) sales goal; sales forecast
B) sales budget; sales forecast
C) sales forecast; sales goal
D) sales forecast; sales budget
Benson Company is considering the replacement of a machine that is presently used in
production. The following data are available:
Old Machine New Machine
Original cost $57,000 $35,000
Useful life in years 17 5
Current age in years 12 0
Book value $39,000 –
Disposal value now $8,000 –
Disposal value in 5 years 0 0
Annual cash operating costs $7,000 $4,000
Adding all five years together, the total relevant costs to consider if the new machine is
purchased is ________.
A) $12,000
B) $27,000
C) $47,000
D) $55,000
Gerald Corporation and Nell Corporation are two companies in the same industry.
Comparative data for two years are given below:
Gerald Nell
Corporation Corporation
Sales revenue 20X1 $905,520 $1,090,000
20X6 1,950,000 2,962,500
Number of employees 20X1 1,750 2,500
20X6 2,250 4,375
Assume each 20X1 dollar is equivalent to 2.00 dollars in 20X6 due to inflation.
Required:
A) After considering inflation, compute the revenue per employee for each company for
20X1 and 20X6.
B) What is the change in productivity between the five years for each company?
The following information pertains to a segment of the Moore Company. Invested
capital is defined as total assets. The weighted average cost of capital is 10%. The ROI
of the segment before the project is 20%. The ROI of the segment after the project is
18%. The manager is evaluated based on the segment’s ROI. A project earning a ROI of
12% should be ________.
A) accepted
B) rejected
C) compared to the company’s ROI
D) compared to the company’s residual income
Cornell Company had the following information available for its specialty product:
Standards for one unit of product:
Direct Materials: 5 pounds at $2 per pound
Direct Labor: 0.50 hour at $16 per hour
Materials and Labor Used to produce 8,500 units:
Direct Materials: 46,000 pounds at $3 per pound
Direct Labor: 4,000 hours at ? per hour
If the Direct Labor Price Variance is $4,600 Unfavorable, what is the actual labor rate
per hour?
A) $16.00
B) $16.50
C) $17.10
D) $17.15
Melody Scott 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 $256,000
Overhead application rate (based on direct labor cost) 130%
The journal entry to record the actual factory overhead costs incurred would include a
________.
A) Debit to Factory Department Overhead Control for $146,000
B) Credit to Factory Department Overhead Control for $169,000
C) Debit to Work-In-Process Inventory for $146,000
D) Credit to Work-In-Process Inventory for $169,000
Johnson Company produces dolls. Each doll sells for $20.00. Variable costs per unit are
$14.00 and total fixed costs for the period are $300,000. What is the break-even volume
in dollars?
A) $50,000
B) $621,429
C) $1,000,000
D) $1,450,000
Rent Expense on the Factory Building of $100,000 is allocated to three departments.
The cost-allocation base for this expense is number of square feet, which equals 50,000
square feet. Information for the three departments housed in the factory building are as
follows:
Department Square Feet Cubic Feet
Department A 15,000 15,000
Department B 5,000 5,000
Department C 30,000 20,000
How much Rent Expense is allocated to the three departments?
Department A Department B Department C
A) $15,000 $5,000 $30,000
B) $37,500 $12,500 $50,000
C) $30,000 $10,000 $60,000
D) none of the above
Jorgensen Company is considering the replacement of equipment used in operations.
The following data are available:
Old Equipment New Equipment
Original cost $210,000 $40,000
Useful life in years 12 7
Current age in years 5 0
Book value $65,000 –
Disposal value now $30,000 –
Disposal value in 7 years 0 0
Annual cash operating costs $9,000 $8,000
Required:
A) Prepare a cost comparison for replacing the old equipment. Use only relevant items
and add the items together for the next 7 years.
B) Should the old equipment be replaced?
If a department in a department store is eliminated, ________ costs will not continue.
A) unavoidable
B) common
C) corporate
D) avoidable
Why is it important to identify the most appropriate cost drivers for a particular
product?
A) so managers can identify the activities necessary to manufacture a product
B) so managers can control product costs better
C) so managers can predict product costs better and make better decisions
D) B and C
Assume the following information for two products, Hawaii Fantasy and Hawaii Joy.
Hawaii Fantasy Hawaii Joy
Sales mix 2 units 1 unit
Selling price per unit $15 $100
Variable cost per unit $10 $40
Fixed expenses total $490,000 per year. What is the breakeven point in units for each
product?
A) 4,575 units of Hawaii Fantasy and 18,300 units of Hawaii Joy
B) 7,000 units of Hawaii Fantasy and 14,000 units of Hawaii Joy
C) 18,300 units of Hawaii Fantasy and 4,575 units of Hawaii Joy
D) 14,000 units of Hawaii Fantasy and 7,000 units of Hawaii Joy
Saint Paul Company owns a fixed asset with an original cost of $100,000. The company
estimates it will use the fixed asset for four years, at which time it will be sold for
$10,000. The company uses straight-line depreciation. The book value of the fixed asset
after three years of use is ________.
A) $22,500
B) $25,000
C) $32,500
D) $35,000
When allocating central corporate support costs to products, companies often use
revenues as the allocation base because ________.
A) revenues are the cost driver
B) revenues approximate the actual cost driver
C) revenues represent an ” ability to bear” philosophy of cost allocation
D) revenues represent the actual usage of resources
Which of the following statements about performance measures is FALSE?
A) Organizational goals without performance measures do not motivate managers.
B) Every performance measure used to evaluate employees should be consistent with
organizational goals.
C) An ideal management control system should include at least one performance
measure related to every goal.
D) Performance measures become more specific at higher levels of the organization.
Cash payments for interest expense are reported in the ________ section of the
statement of cash flows. The direct method is used.
A) operating activities
B) investing activities
C) financing activities
D) noncash investing and financing activities
________ costs can be eliminated from a product. ________ costs cannot be eliminated
from a product but can be reduced.
A) Value-added; Non-value-added
B) Non-value-added; Value-added
C) Resource; Activity
D) Activity; Resource
Stevens Company has two production departments called Assembly and Finishing. The
maintenance department serves both production departments. Maintenance costs are
allocated based on labor hours. Budgeted fixed costs for the maintenance department
are $40,000. Budgeted variable costs for the maintenance department are $4.00 per
labor hour. Other relevant data follow:
Assembly Finishing
Capacity available 18,000 labor hours 12,000 labor hours
Capacity used 15,000 labor hours 9,000 labor hours
Actual maintenance department costs:
Fixed $36,000
Variable $100,000
The amount of fixed maintenance department costs allocated to the Assembly
Department should be ________.
A) $16,000
B) $22,500
C) $24,000
D) $25,000
When the number of units sold exceeds the number of units produced, net income under
variable costing ________ net income under absorption costing.
A) is less than
B) exceeds
C) equals
D) not enough information to determine
Smith Company gathered the following information for the year ended April 30, 2015:
Units produced 11,200
Units expected to be produced 11,200
Units sold 8,400
Direct labor $99,600
Direct materials used $155,000
Fixed selling and administrative expenses $64,800
Fixed manufacturing overhead $52,640
Variable manufacturing overhead $70,200
Direct materials inventory, April 30, 2015 0
Direct materials inventory, April 30, 2014 0
Work-in-process inventory, April 30, 2015 0
Work-in-process inventory, April 30, 2014 0
Finished goods inventory, April 30, 2014 0
Required:
A) Under variable costing, what is the cost of the finished goods inventory on April 30,
2015?
B) Under absorption costing, what is the cost of the finished goods inventory on April
30, 2015?
A five year recovery period for a long-term asset means ________.
A) the number of years it takes to recover the cost of a long-term asset
B) the number of years a company expects to use a long-term asset
C) the number of years a company can depreciate a long-term asset for tax purposes
D) the number of years a long-term asset will generate future cash inflows
Gonzalez Company reports the following information:
Net operating income after taxes $200,000
Before-tax operating income $300,000
Average invested capital $500,000
After-tax cost of capital 10%
What is the residual income for Gonzalez Company?
A) $30,000
B) $50,000
C) $150,000
D) $250,000
Zemrowski Company has the following data available:
Credit Sales for the year ended December 31, 2015 $500
Cash Sales for the year ended December 31, 2015 $400
Cost of Goods Sold for the year ended December 31, 2015 $290
Total Accounts Receivable, December 31, 2015 $200
Total Accounts Receivable, December 31, 2014 $100
Total Inventory, December 31, 2015 $200
Total Inventory, December 31, 2014 $250
What is the average collection period for the fiscal year ending December 31, 2015?
A) 110 days
B) 150 days
C) 220 days
D) 283 days
The Kaprelian Company reports the following information:
Sales for the year ended December 31, 2012 $106,950
Gross profit for the year ended December 31, 2012 $45,150
Net income for the year ended December 31, 2012 $7,300
Total Current Assets, December 31, 2012 $18,700
Total Current Liabilities, December 31, 2012 $7,600
Total Assets, December 31, 2012 $48,400
Total Liabilities, December 31, 2012 $20,850
Average total common shares outstanding in 2012 1,000
Market price per share, December 31, 2012 $75.00
Dividends per share, for the year ended December 31, 2012 $5.00
What is the dividend yield at December 31, 2012?
A) 6.7%
B) 9.7%
C) 25.8%
D) 68.2%
Martin Company purchased 10% of the outstanding shares of Winn Company. Martin
Company classifies the investments as trading securities. At the end of the year, the
market value of the shares increased from the prior year. The increase in market value
of Winn Company’s shares will affect Martin Company by ________.
A) increasing cash and increasing investments
B) decreasing investments and increasing retained earnings
C) increasing investments and increasing retained earnings
D) increasing cash and increasing stockholders’ equity
Investigating the reasons for the variances on a department’s performance report is an
example of ________.
A) scorekeeping
B) attention directing
C) problem solving
D) auditing
Examples of business process reengineering do NOT include ________.
A) computer-aided design
B) computer-aided manufacturing
C) robots
D) labor-intensive machines
Division South does not have excess capacity to produce Product Y. The division can
sell Product Y for $10 per unit outside the company. Variable costs are $6 per unit.
Division North wants to purchase Product Y from Division South to use in Product ZZ.
The selling price of Product ZZ is $25 per unit and variable costs to finish the product
after the transfer are $12 per unit. An outside supplier will sell Product Y for $12 per
unit. What is the maximum price Division North will pay for Product Y?
A) $12 per unit
B) $13 per unit
C) $25 per unit
D) none of the above
Which of the following is an advantage of the absorption approach to pricing products?
A) It displays variable and fixed cost behavior patterns.
B) It offers insights into the long run and short run effects of cutting prices on special
orders.
C) It can easily address changes in sales volume.
D) It recovers all costs necessary for a firm to stay in business.
The cost object is an upholstered chair made by craftsmen in a factory. An accountant
can identify the amount and cost of fabric used to manufacture the chair. This is called
________ a ________ to a cost object.
A) assigning; indirect cost
B) allocating; indirect cost
C) allocating; direct cost
D) tracing; direct cost
Slocum Company has determined the following information about a new product. The
manufacturing process used for the product is very complex and it has a higher
proportion of indirect costs than direct costs. The company wants a 100% markup on
cost. The following data is available:
Product cost according to traditional costing system $4.00 per unit
Product cost according to activity-based costing system $7.00 per unit
What price per unit should Slocum Company use for this new product?
A) $4.00
B) $7.00
C) $8.00
D) $14.00