Carter Corporation has a target return of 15%. If a prospective investment has an
estimated return on investment of 20%, and a residual income of $10,000, what is the
estimated cost of the investment?
a. $200,000
b. $ 66,667
c. $ 50,000
d. The answer can’t be determined from this information.
When variable costing is used,
a. all product costs are considered to be variable.
b. all period costs are considered to be variable.
c. all product costs are considered to be fixed.
d. product costs are separated into fixed and variable components.
The Lakeview Corporation had the following account balances:
Required:
a. What was the cost of raw material put into production during the year?
b. How much of the material from question 1 consisted of indirect material?
c. How much of the factory labor cost for the year consisted of indirect labor?
d. What was the cost of goods manufactured for the year?
e. What was the cost of goods sold for the year (before considering under- or
overapplied overhead)?
f. If overhead is applied to production on the basis of direct material, what rate was in
effect during the year?
g. Was manufacturing overhead under- or overapplied? By how much?
h. Compute the ending balance in the Work in Process Inventory account. Assume that
this balance consists entirely of goods started during the year. If $32,000 of this balance
is direct material cost, how much of it is direct labor cost? Manufacturing overhead
cost?
The sum of the material mix and material yield variances equals
a. the material purchase price variance.
b. the material quantity variance.
c. the total material variance.
d. none of the above.
Reactions to information provided by the management control system are
a. formulated in the organization’s strategic plan.
b. judgmental, and are based on interpretations and circumstances.
c. assessed by the communications network of the MCS.
d. determined as those activities that will be most efficient and effective given the
organization’s available technology.
Actual fixed overhead is $33,300 (12,000 machine hours) and fixed overhead was
estimated at $34,000 when the predetermined rate of $3.00 per machine hour was set. If
11,500 standard hours were allowed for actual production, applied fixed overhead is
a. $33,300.
b. $34,000.
c. $34,500.
d. not determinable without knowing the actual number of units produced.
Which performance plan is most tied to company objectives?
a. profit sharing
b. pensions
c. piece rate
d. merit pay
Information about the life-cycle performance of a product or service should be provided
in the
a. yes yes
b. yes no
c. no yes
d. no no
The net cost of normal spoilage in a job-order costing system in which spoilage is
common to all jobs should be
a. assigned directly to the jobs that caused the spoilage.
b. charged to manufacturing overhead during the period of the spoilage.
c. charged to a loss account during the period of the spoilage.
d. allocated only to jobs that are completed during the period.
Rubenstein Company makes small metal containers. The company began April with
250 containers in process that were 30 percent complete as to material and 40 percent
complete as to conversion costs. During the month, 5,000 containers were started. At
month end, 1,700 containers were still in process (45 percent complete as to material
and 80 percent complete as to conversion costs). Using the weighted average method,
what are the equivalent units for conversion costs?
a. 3,450
b. 4,560
c. 4,610
d. 4,910
Which of the following would need to be allocated to a cost object?
a. direct material
b. direct labor
c. direct production costs
d. indirect production costs
Which measure is limited by the fact that it uses accounting income?
a. ROI
b. RI
c. EVA
d. All of the above
Which of the following items should not be included in a company’s budget manual?
a. sample budgetary forms
b. a statement of desired results of the budget
c. a listing of budgetary activities to be performed
d. financial statements for the upcoming fiscal year
Refer to Atlantic Princess Corporation. If the ship produces equal annual labor cost
savings over its 10-year life, how much do the annual savings in labor costs need to be
to generate a net present value of $0 on the project? (Round to the nearest dollar.)
Present value tables or a financial calculator are required.
a. $68,492
b. $115,154
c. $88,492
d. $157,487
In a job-order costing system, the subsidiary ledger for Finished Goods Inventory is
comprised of
a. all job-order cost sheets.
b. job-order cost sheets for all uncompleted jobs.
c. job-order cost sheets for all completed jobs not yet sold.
d. job-order cost sheets for all ordered, uncompleted, and completed jobs.
Which of the following are considered controllable variances?
a. yes yes yes
b. no no yes
c. no yes no
d. yes yes no
In the pharmaceutical or food industries, quality control inspections would most likely
be viewed as
a. non-value-added activities.
b. business-value-added activities.
c. value-added-activities.
d. process-efficiency activities.
Spears Manufacturing Company
Spears Manufacturing Company produces beach chairs. Chair frames are all the same
size, but can be made from plastic, wood, or aluminum. Regardless of frame choice, the
same sailcloth is used for the seat on all chairs. Spears has set a standard for sailcloth of
$9.90 per square yard and each chair requires 1 square yard of material. Spears
produced 500 plastic chairs, 100 wooden chairs, and 250 aluminum chairs during June.
The total cost for 1,000 square yards of sailcloth during the month was $10,000. At the
end of the month, 50 square yards of sailcloth remained in inventory.
Refer to Spears Manufacturing Company. Spears could set a standard cost for which of
the following?
a. yes yes yes
b. no no no
c. yes no no
d. no yes yes
Service departments provide functional tasks for which of the following?
a. no no
b. yes no
c. no yes
d. yes yes
The maximum allowable expenditure is the
a. appropriation.
b. allowance.
c. allocation.
d. committed fixed cost.
In relationship to changes in activity, variable overhead changes
a. no no
b. no yes
c. yes yes
d. yes no
Which of the following is false as it relates to quality?
a. Quality is the total of all characteristics of a product or service that impacts on its
ability to meet the needs of a specific person.
b. Quality must always be viewed from the user’s perspective.
c. Quality is never concerned with what the user thinks, feels, or deems important.
d. The definition of quality has evolved through time and is more currently
comprehensive than in the past.
Activity-based costing and activity-based management are effective in helping
managers do all of the following except
a. trace technology costs to products.
b. promote excellence standards.
c. identify only value-added activities.
d. analyze performance problems.
A kanban plays an important role in
a. JIT.
b. EOQ.
c. ABC.
d. CPM.
A mixed cost has which of the following components?
a. yes no
b. yes yes
c. no no
d. no yes
Lance is interested in entering the catfish farming business. He estimates if he enters
this business, his fixed costs would be $50,000 per year and his variable costs would
equal 30 percent of sales. If each catfish sells for $2, how many catfish would Lance
need to sell to generate a profit that is equal to 10 percent of sales?
a. 40,000
b. 41,667
c. 35,000
d. No level of sales can generate a 10 percent net return on sales.
What factor, related to manufacturing costs, causes the difference in net earnings
computed using absorption costing and net earnings computed using variable costing?
a. Absorption costing considers all costs in the determination of net earnings, whereas
variable costing considers fixed costs to be period costs.
b. Absorption costing allocates fixed overhead costs between cost of goods sold and
inventories, and variable costing considers all fixed costs to be period costs.
c. Absorption costing “inventories” all direct costs, but variable costing considers direct
costs to be period costs.
d. Absorption costing “inventories” all fixed costs for the period in ending finished
goods inventory, but variable costing expenses all fixed costs.
Victoria Company
Victoria Company manufactures three products in a joint process which costs $25,000.
Each product can be sold at split-off or processed further and then sold. 10,000 units of
each product are manufactured. The following information is available for the three
products:
Refer to Victoria Company. To maximize profits, which products should Victoria
process further?
a. Product A only
b. Product B only
c. Product C only
d. Products A, B, and C
For Raw Material B, a company maintains a safety stock of 5,000 pounds. Its average
inventory (taking into account the safety stock) is 8,000 pounds. What is the apparent
order quantity?
a. 16,000 lbs.
b. 6,000 lbs.
c. 10,000 lbs.
d. 21,000 lbs.
Refer to Richardson Company. If Richardson Company had used variable costing, what
amount of income before income taxes would it have reported?
a. $30,000
b. ($7,500)
c. $67,500
d. cannot be determined from the information given
The quantity of good output generated from a specific of output during a time period is
referred to as ____________________.
The difference between budgeted variable overhead for actual hours and standard
overhead is the variable overhead efficiency variance.
In a just-in-time (JIT) environment, quality is determined at quality control checkpoints
in the manufacturing process.
A company that manufactures custom bridal gowns will use a process costing system to
track costs.
The estimated maximum potential activity for a specified time is known as theoretical
capacity.
There is a direct relationship between the complexity of a production process and
overhead costs.
How do differences in sales and production level affect net income computed under
absorption costing and variable costing?
On a CVP graph, the total cost line intersects the y-axis at zero.
List and explain three types of quality costs.
A company that produces sugar will use a job-order costing system to track production
costs.
Practical capacity is the capacity that can be achieved during normal working hours.
The total variance can provide useful information about the source of cost differences.
Favorable variances are always desirable for production.
Fixed costs per unit remain constant with levels of production.