Deducting depreciation from operating cash flows would result in counting the initial
investment twice in a discounted cash flow analysis.
Costs of quality (COQ) reports usually consider opportunity costs.
Recognizing the value of scrap in the accounting records is always done at the time the
scrap is produced.
The smaller the amount of a cost the more likely it is economically feasible to trace it to
a particular cost object.
Costs in a homogeneous cost pools have the same or a similar cause-and-effect or
benefits-received relationship with the cost-allocation base.
The fixed setup overhead flexible-budget variance is calculated as actual costs –
flexible-budget variance.
A cost driver is a variable, such as the level of activity or volume that causally affects
costs over a given time span.
Rolling budgets are constantly updated to reflect the latest cost and revenue
information.
The first step in the five-step procedure for process costing with spoilage is to compute
the output in terms of equivalent units.
Quality-inspection costs is an example of batch-level costs.
The key to a company’s success is creating value for customers while differentiating
itself from its competitors.
Management accountants must promote fact-based analysis and make tough-minded,
critical judgments
without being adversarial.
When capacity is constrained, relevant costs equal incremental costs plus opportunity
costs.
ABC reveals opportunities to reduce costs on nonvalue added activities.
The actual indirect-cost rate is calculated by dividing actual total indirect costs by the
budgeted total quantity of the cost-allocation base.
Usually there is no production-volume variance when normal capacity utilization is
used as the denominator level.
Managers consider the accuracy gained by converting from a traditional cost accounting
system to the cost of implementation and measurement required by ABC.
In a period of falling prices, the lower cost of goods sold under the FIFO method leads
to higher operating income and higher tax payments.
Kaizen budgeting allows for budgeting of small incremental increases in costs each
budgeting period to allow for the effects of normal inflation.
A flexible-budget variance can be subdivided into the static-budget variance and the
sales-volume variance.
Distribution of questionnaires to customers regarding product quality and improving the
product on certain key areas based on the inferences drawn from the questionnaires is
an example of a nonfinancial measure of quality.
Management accounting is playing an increasingly important role by helping managers
develop and implement strategy.
When using variance analysis for performance evaluation, managers often focus on
effectiveness and efficiency as two of the common attributes used in comparing
expected results with actual results.
When calculating indirect cost rates, the longer the time period, the greater the
influence of seasonal patterns on the amount of costs.
When there is a lesser degree of homogeneity, fewer cost pools are required to
accurately explain the use of company resources.
Just-in-time purchasing describes the flow of goods, services, and information from the
initial sources of materials and services to the delivery of products to consumers,
regardless of whether those activities occur in the same organization or in other
organizations.
The balanced scorecard in most organizations is broken down into the following
categories: commercial perspective, supplier perspective, external business-process
perspective, and productivity perspective.
Both theoretical capacity and master-budget capacity measure capacity levels in terms
of demand for the output of the plant.
Data collection problems can arise when extreme values of observations occur.
Just-in-Time (JIT) production systems are also referred to as lean production.
Ireland Corporation planned to be in operation for three years.
∙ During the first year, 2017, it had no sales but incurred $240,000 in variable
manufacturing expenses and $80,000 in fixed manufacturing expenses.
∙ In 2018, it sold half of the finished goods inventory from 2017 for $200,000 but it had
no manufacturing costs.
∙ In 2019, it sold the remainder of the inventory for $240,000, had no manufacturing
expenses and went out of business.
∙ Marketing and administrative expenses were fixed and totaled $40,000 each year.
Required:
a. Prepare an income statement for each year using absorption costing.
b. Prepare an income statement for each year using variable costing.
Based on the theory of constraints, investments equal ________.
A) the sum of material costs in direct and indirect materials, work-in-process, and
finished goods inventories; R&D costs; and business function costs
B) the sum of material costs in direct materials, work-in-process, and finished goods
inventories; R&D costs; and capital costs of equipment and buildings
C) the sum of material costs in direct and indirect materials, work-in-process, and
finished goods inventories; R&D costs; and full costs
D) the sum of material costs in direct materials, work-in-process, and finished goods
inventories; R&D costs; sunk costs, full costs, and business function costs
The actual information pertains to the third quarter. As part of the budgeting process,
the Duck Decoy Department of Paralith Incorporated had developed the following static
budget for the third quarter. Duck Decoy is in the process of preparing the flexible
budget and understanding the results.
The flexible-budget variance for variable costs is ________. (Round the final answer to the
nearest dollar.)
A) $17,000 favorable
B) $33,400 unfavorable
C) $17,000 unfavorable
D) $63,000 favorable
For a manufacturing firm that produces multiple families of products requiring various
combinations of different types of parts, what would be the best allocation base for
human resource adminstration costs?
A) direct labor hours
B) electricity costs
C) number of parts purchased
D) machine hours
The Green Company processes unprocessed goat milk up to the split-off point where
two products, condensed goat milk and skim goat milk result. The following
information was collected for the month of October:
The costs of purchasing the of unprocessed goat milk and processing it up to the split-off
point to yield a total of 104,000 gallons of saleable product was $186,480. There were no
inventory balances of either product. Condensed goat milk may be processed further to
yield 45,000 gallons (the remainder is shrinkage) of a medicinal milk product, Xyla, for an
additional processing cost of $4 per usable gallon. Xyla can be sold for $19 per gallon.
Skim goat milk can be processed further to yield 57,200 gallons of skim goat ice cream,
for an additional processing cost per usable gallon of $4. The product can be sold for $9
per gallon.
There are no beginning and ending inventory balances.
Using estimated net realizable value, what amount of the joint costs would be allocated
Xyla and the skim goat ice cream? (Round intermediary percentage calculations to the
nearest hundredth.)
A) $675,000 and $286,000
B) $130,984 and $55,496
C) $93,240 and $93,240
D) $86,448 and $100,032
Grader Company manufactures road graders. Because its managers all have engineering
backgrounds, they prefer nonfinancial information for their decision-making models.
Therefore, they require the accountants gather data to assist in the examination of
nonfinancial results of operations. The following information relates to the manufacture
of a paver:
Required:
a. What is the partial productivity for direct materials for each year?
b. What is the partial productivity for direct manufacturing labor for each year?
c. What is the total factor productivity for each year?
The amount reported for fixed overhead on the static budget is also reported ________.
A) as actual fixed costs
B) as allocated fixed overhead costs
C) as flexible budget costs
D) as committed variable costs
Which of the following is the mathematical expression to calculate the coefficient of
determination?
A) Coefficient of determination = 1 – (Unexplained variation / Total variation)
B) Coefficient of determination = (1 + Total variation ) / Unexplained variation)
C) Coefficient of determination = (1 – Unexplained variation ) / Total variation)
D) Coefficient of determination = 1 – Unexplained variation + Total variation)
The standard-costing method ________.
A) adds a layer of complexity to the calculation of equivalent-unit costs in a
process-costing environment
B) makes calculating equivalent-unit costs unnecessary
C) requires an analysis of the spoilage costs in beginning inventory
D) requires an analysis of the spoilage costs in ending inventory
The actual information pertains to the month of June. As part of the budgeting process,
Colonial Fencing Company developed the following static budget for September.
Colonial is in the process of preparing the flexible budget and understanding the results.
The flexible budget for sales revenues will be?
A) $615,000
B) $510,000
C) $635,500
D) $570,000
Emerging Dock Company manufactures boat docks on an assembly line. Its standard
costing system uses two cost categories, direct materials and conversion costs. Each
product must pass through the Assembly Department and the Finishing Department.
Direct materials are added at the beginning of the production process. Conversion costs
are allocated evenly throughout production.
Which of the following journal entries records the total conversion costs variances of the
Assembly Department, assuming that conversion costs are 15% higher than expected?
A)
B)
C)
D)
Which of the following is a step followed by an analyst to overcome problems related
to data collection for estimating cost function?
A) to use cash accounting
B) to consider fixed costs as variable costs and treat allocated fixed cost per unit as a
variable cost
C) to eliminate unusual observations if extreme values of observations occur
D) to include the inflationary price effects in the data
Which of the following is a stage of the capital budgeting process during which a plant
manager is queried for assembly time?
A) make decisions by choosing among alternatives stage
B) obtain information stage
C) make predictions stage
D) implement the decision, evaluate performance, and learn stage
The following information pertains to the January operating budget for Casey
Corporation.
∙ Budgeted sales for January $209,000 and February $109,000.
∙ Collections for sales are 60% in the month of sale and 40% the next month.
∙ Gross margin is 35% of sales.
∙ Administrative costs are $10,000 each month.
∙ Beginning accounts receivable is $25,000.
∙ Beginning inventory is $23,000.
∙ Beginning accounts payable is $72,000. (All from inventory purchases.)
∙ Purchases are paid in full the following month.
∙ Desired ending inventory is 20% of next month’s cost of goods sold (COGS).
At the end of January, budgeted accounts receivable is ________.
A) $43,600
B) $83,600
C) $125,400
D) $165,800
High Traffic Products Corporation has two departments, Small and Large. Central costs
could be allocated to the two departments in various ways.
If total advertising expense of $629,300 is allocated on the basis of sales, the amount
allocated to the Large Department would be ________.
A) $107,300
B) $558,000
C) $522,000
D) $314,650
Fast Track Auto produces and sells an auto part for $60 per unit. In 2017, 120,000 parts
were produced and 75,000 units were sold. Other information for the year includes:
What is the inventoriable cost per unit using variable costing?
A) $20
B) $25
C) $28
D) $35
Atlas Manufacturing produces a unique valve, and has the capacity to produce 50,000
valves annually. Currently Atlas produces 40,000 valves and is thinking about
increasing production to 45,000 valves next year. What is the most likely behavior of
total manufacturing costs and unit manufacturing costs given this change?
A) Total manufacturing costs will increase and unit manufacturing costs will stay the
same.
B) Total manufacturing costs will increase and unit manufacturing costs will decrease.
C) Total manufacturing costs will stay the same and unit manufacturing costs will stay
the same.
D) Total manufacturing costs will increase and unit manufacturing costs will also
increase.
While calculating the costs of products and services, a standard costing system
________.
A) allocates overhead costs on the basis of the actual overhead-cost rates
B) uses standard costs to determine the cost of products
C) does not keep track of overhead cost
D) traces direct costs to output by multiplying the standard prices or rates by the actual
quantities
Which of the following is a disadvantage of single-rate method?
A) It is very costly to implement.
B) It may lead operating department managers to make sub-optimal decisions that are in
their own best interest.
C) It does not signal to department managers how variable costs and fixed costs behave
differently.
D) It requires managers to distinguish variable costs from fixed costs, which is often a
challenging task.
The loss from abnormal spoilage account would appear ________.
A) on a balance sheet
B) as a detailed item in the retained earnings schedule of a balance sheet
C) a separate line item on an income statement
D) a deduction from the cost of goods sold
Which of the following departments is most likely to be a profit center?
A) the accounting department of a company that also assists in budgeting process
B) the research and development department of a company
C) the sales department of a company whose objective is to maximize the revenues
D) the consulting department of a law firm
When costs can be traced to a particular cost object in an economically feasible way, the
cost is a:
A) direct cost
B) indirect cost
C) allocated cost
D) budgeted cost
Whippany manufacturing wants to estimate costs for each product they produce at its
Troy plant. The Troy plant produces three products at this plant, and runs two flexible
assembly lines. Each assembly line can produce all three products.
Required:
a. Classify each of the following costs as either direct or indirect for each product.
b. Classify each of the following costs as either fixed or variable with respect to the
number of units produced of each product.
Worcester Manufacturing produces electronic storage devices, and uses the following
three-part classification for its manufacturing costs: direct materials, direct
manufacturing labor, and indirect manufacturing costs. Total indirect manufacturing
costs for January were $300 million, and were allocated to each product on the basis of
direct manufacturing labor costs of each line. Summary data (in millions) for January
for the most popular electronic storage device, the Big Brain, was:
Required:
a. Compute the manufacturing cost per unit for each product produced in January.
b. Suppose production will be reduced to 30,000 units in February. Speculate as to whether
the unit costs in February will most likely be higher or lower than unit costs in January; it
is not necessary to calculate the exact February unit cost. Briefly explain your reasoning.
Production is the ________.
A) generation of, and experimentation with, ideas related to new products, services, or
processes
B) processing orders and shipping products or services to customers
C) acquisition, coordination, and assembly of resources to produce a product or deliver
a service
D) detailed planning and engineering of products, services, or processes
River Falls Manufacturing uses a normal cost system and had the following data
available for 2018:
Direct materials purchased on account $148,000
Direct materials requisitioned 88,000
Direct labor cost incurred 127,000
Factory overhead incurred 148,000
Cost of goods completed 299,000
Cost of goods sold 250,000
Beginning direct materials inventory 34,000
Beginning WIP inventory 70,000
Beginning finished goods inventory 55,000
Overhead application rate, as a percent of direct-labor costs 105 percent
The ending balance of work-in-process inventory is ________.
A) $418,350
B) $119,350
C) $127,000
D) $426,000
Capity Tea Products has an exclusive contract with British Distributors. Calamine and
Capity are two brands of teas that are imported and sold to retail outlets. The following
information is provided for the month of March:
Budgeted and actual fixed corporate-sustaining costs are $1,850 and $2,300, respectively.
What is the actual contribution margin for the month?
A) $12,236
B) $9770
C) $9900
D) $10,386
The ideal database for estimating cost functions contains ________.
A) numerous cost driver observations
B) only the independent variable and not the dependent variable
C) cost driver observations spanning a narrow range
D) a few values of the cost driver that are grouped closely together
Short-run prices should at least recover ________.
A) full cost of producing a product
B) fixed manufacturing overhead
C) variable cost of producing a product
D) variable and fixed manufacturing overhead
A restaurant is deciding whether it wants to update its image or not. It currently has a
cozy appeal with an outdated decor that is still in good condition, menus and carpet that
need to be replaced anyway, and loyal customers.
Identify for the restaurant management
a. those costs that are relevant to this decision,
b. those costs that are not differential,
c. and qualitative considerations.
Katrina’s Bridal Shoppe sells wedding dresses. The average selling price of each dress
is $1,100, variable costs are $500, and fixed costs are $100,000. How many dresses are
sold when operating income is zero?
A) 200 dresses
B) 167 dresses
C) 310 dresses
D) 91 dresses
Lauren had been a manager of a major hotel chain for 15 years. Due to a hotel owner’s
illness, Lauren was offered the opportunity to purchase a hotel near a vacation area she
had often visited. It was a great place surrounded by mountains and known for its
scenic beauty. After obtaining a lawyer and an accountant to assist her, Lauren did an
analysis of the business and evaluated several contingencies relating to various
scenarios. Since the expected monetary value of the various scenarios was much higher
than the price of the hotel, she decided to purchase the hotel. She resigned her position,
obtained a loan, and purchased the hotel. The following year, there was a severe
economic downturn and also a very bad weather season that reduced the number of
guests and also caused a resulting mold situation in the hotel building that required
expensive repair work. Lauren ran short of cash, became emotionally distraught, and
eventually had to sell the hotel at a significant loss. Was it a bad decision for her to
purchase the hotel instead of keeping her other managerial position? Explain.
Bedtime Bedding Company manufactures pillows. The Cover Division makes covers
and the Assembly Division makes the finished products. The covers can be sold
separately for $5.00. The pillows sell for $6.00. The information related to
manufacturing for the most recent year is as follows:
Required:
Compute the operating income for each division and the company as a whole. Use market
value as the transfer price. Are all managers happy with this concept? Explain.
Explain three approaches to determining weights for the the stand-alone
revenue-allocation. Which method do managers prefer?
Tornado Electronics manufactures stereos. All processing is initiated when an order is
received. For April there were no beginning inventories. Conversion Costs and Direct
Materials are the only manufacturing cost accounts. Direct Materials are purchased
under a just-in-time system. Backflush costing is used with a finished goods trigger
point. Additional information is as follows:
Required:
Record all journal entries for the monthly activities related to the above transactions if
backflush costing is used.
There are basically two distinct methods of calculating product costs.
Required:
Compare and contrast the two methods.
When should an overtime premium of direct manufacturing labor be considered an
indirect manufacturing cost? A direct manufacturing cost?
Explain why there is no efficiency variance for fixed manufacturing overhead costs.
Explain how using master-budget capacity utilization for setting prices can lead to a
downward demand spiral.
Pilgrim Corporation processes frozen turkeys. The company has not been pleased with
its profit margin per product because it appears that the high value items have too few
costs assigned to them, while the low value items have too many costs assigned to
them. The processing results in several products, the primary one of which is frozen
small turkeys. Other products include frozen parts such as wings and legs, byproducts
such as skin and bones, and unused scrap items.
Required:
What may be the cost assignment problem if a key consideration is the value of the
products being sold?
Perry Company has provided the following information:
In addition, the gross profit rate is 40% and the desired inventory level is 30% of next
month’s cost of sales.
Required:
Prepare a purchases budget for April through June.
ss
What areas of responsibility does a chief financial officer have in a typical
organization?
Why do organizations use budgeted rates instead of actual rates to allocate the costs of
support departments to each other and to user departments and divisions? Explain.
Ralph Company has been very aggressive in developing various types of financial and
nonfinancial measurement schemes to help with the evaluation of its manufacturing
processes. It appears that some of the managers are suboptimizing in that their decision
processes are geared solely for their department’s benefit, sometimes to the detriment of
the organization as a whole.
Required:
What changes in the evaluation system could the company implement to help minimize
the suboptimization of the managers’ decision-making process?
Give at least three good reasons why an unfavorable efficiency variance for direct
manufacturing labor might be reported.
Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned
tomatoes. During the summer of 2017, the joint costs of processing the tomatoes were
$420,000. There was no beginning or ending inventories for the summer. Production
and sales value information for the summer is as follows:
Required:
Determine the amount allocated to each product if the estimated net realizable value
method is used, and compute the cost per case for each product.
Claudia Geer, controller, discusses the pricing of a new product with the sales manager,
James Nolan. What major influences must Claudia and James consider in pricing the
new product? Discuss each briefly.
An analysis of Terbolt Corporation’s operating income changes between 2017 and 2018
show the following:
Operating income for 2017 $4,750,000
Add growth component 75,000
Add price-recovery component 398,000
Deduct productivity component (50,000)
Operating income for 2018 $5,173,000
Required:
Is Terbolt’s operating income gain consistent with the product differentiation or cost
leadership strategy? Explain briefly.
The managers of the production department have decided to use the production levels
of 2017 and 2018 as examples of the highest and lowest years of operating levels. Data
for those years are as follows:
Year Chemicals used Overhead Costs
2017 336,000 gallons $292,800
2018 288,000 gallons $254,400
Required:
What is the cost estimating equation for the department if gallons of chemicals are used
as the cost driver?