Increasing the capacity of a bottleneck resource increases manufacturing cycle times
and delays.
Costs of abnormal spoilage are NOT considered to be inventoriable costs and are
written off as costs of the accounting period in which the abnormal spoilage is detected.
It is best to compare this year’s performance with last year’s actual performance rather
than this year’s budget.
Reverse engineering has the objective of reducing costs while still satisfying customer
needs.
The static-budget variance is the difference between an actual result and the
corresponding budgeted amount in the static budget.
Costs are assigned to scrap only if it is abnormal scrap.
Given a constant contribution margin per unit and constant fixed costs, the
period-to-period change in operating income under variable costing is driven solely by
changes in the quantity of units actually manufactured.
Activity-based costing attempts to identify the most relevant cause-and-effect
relationship for each activity pool without restricting the cost driver to only units of
output or variables related to units of output.
Both the market-based transfer pricing approach and cost-based methods are useful for
evaluating subunit performance.
Under variable costing, lease charges paid on the factory building is an inventoriable
cost.
A favorable flexible-budget variance for variable costs may be the result of using more
input quantities than were budgeted.
If indirect-cost rates were based on actual short-term usage, periods of lower demand
would result in lower costs per unit.
Reducing the investment base to improve ROI involves decreasing idle cash, paying
down debt, determining proper inventory levels, and spending carefully on long-term
assets.
For external reporting purposes, indirect manufacturing costs must be allocated to
individual units.
A Pareto diagram is usually in a bar-chart format, that indicates how frequently each
type of defect occurs, ordered from the most frequent to the least frequent.
Two common forms of quantitative analysis methods of cost estimation are the
high-low method and regression analysis.
Budgeted financial statements are called pro forma statements.
One of the steps in planning is evaluating the performance and taking corrective
measures.
Managers prefer projects with higher IRRs to projects with lower IRRs, if all other
things are equal.
Cost accounting provides information for both management accounting and financial
accounting professionals.
Cost drivers casually affect total costs of a cost object over a given time span.
Strategic cost management describes cost management that specifically focuses on
strategic issues.
A favorable expense variance results when actual costs exceed budgeted costs.
All customers are equally important to a company and should receive equal levels of
attention.
Just-in-time systems are similar to materials requirement planning systems as both
systems are demand-pull systems.
When the operating budget is used as a control device, managers are less likely to be
motivated to budget higher sales than actually anticipated.
The goal of variance analysis is for managers to understand why variances arise, to
learn, and to improve future performance.
In job costing, only direct costs are used to determine the cost of a job.
Throughput margin is equal to revenues minus direct materials and direct labor of the
cost of goods sold.
Some companies are budgeting annual carbon emissions of their operations after
considering an annual global emissions budget, a share for individual sectors of the
economy, and what a reasonable annual allocation would be for the company.
When the selling prices of all products at the split-off point are unavailable, the
________ is the best alternative for allocating joint costs.
A) sales value at split-off method
B) NRV method
C) physical measures method
D) constant gross-margin percentage method
The theory of constraints (TOC) defines throughput margin as ________.
A) operating income minus the direct material costs of the goods sold
B) operating income minus the direct labor costs of the goods sold
C) revenues minus the direct material costs of the goods sold
D) revenues minus the full costs of the goods sold
a. Explain the difference between the variable and absorption costing methods.
b. Which method(s) are required for external reporting? For internal reporting?
Lincoln Corporation used the following data to evaluate their current operating system.
The company sells items for $18 each and used a budgeted selling price of $18 per unit.
What is the static-budget variance of variable costs?
A) $6,000 favorable
B) $11,000 unfavorable
C) $14,000 favorable
D) $5,000 unfavorable
The range over which two divisions will negotiate a transfer price is ________.
A) between the supplying division’s variable cost and the market price of the product
B) between the supplying division’s variable cost and its full cost of the product
C) it could be anywhere above the supplying division’s full cost of the product
D) between the supplying division’s full cost and 180% above its full cost
The Dougherty Furniture Company manufactures tables. In March, the two production
departments had budgeted allocation bases of 4,000 machine-hours in Department 100
and 8,000 direct manufacturing labor-hours in Department 200. The budgeted
manufacturing overheads for the month were $57,500 and $62,500, respectively. For
Job A, the actual costs incurred in the two departments were as follows:
Job A incurred 800 machine-hours in Department 100 and 300 manufacturing labor-hours
in Department 200. The company uses a budgeted overhead rate for applying overhead to
production.
Required:
a. Determine the budgeted manufacturing overhead rate for each department.
b. Prepare the necessary journal entries to summarize the March transactions for
Department 100.
c. What is the total cost of Job A?
Assume your goal in life is to retire with 1 million dollars. How much would you need
to save at the end of each year if investment rates average 5% and you have a 16-year
work life?
A) $3125
B) $42,270
C) $458,112
D) $125,000
Increases in the carrying cost and decreases in the ordering cost per purchase order
result in ________.
A) smaller EOQ amounts
B) larger EOQ amounts
C) larger relevant total costs
D) smaller relevant total costs
Abby Company has just implemented a new cost accounting system that provides two
variances for fixed manufacturing overhead. While the company’s managers are
familiar with the concept of spending variances, they are unclear as to how to interpret
the production-volume overhead variances. Currently, the company has a production
capacity of 54,000 units a month, although it generally produces only 46,000 units.
However, in any given month the actual production is probably something other than
46,000.
Required:
a. Does the production-volume overhead variance measure the difference between the
54,000 and 46,000, or the difference between the 46,000 and the actual monthly
production? Explain.
b. What advice can you provide the managers that will help them interpret the
production-volume overhead variances?
The practice of developing reasonably challenging budgets tend to help:
A) discourage out-of-the-box and creative thinking as there is very little room for error
B) set unrealistic expectations and are perceived as overly ambitious and unachievable
C) increase anxiety without motivation not meeting them is viewed as a failure
D) motivate improved performance as employees work more intensely to avoid failure
Sky High sells helicopters. During the current year, 130 helicopters were sold resulting
in $840,000 of sales revenue, $260,000 of variable costs, and $350,000 of fixed costs.
The number of helicopters that must be sold to achieve $320,000 of operating income is
________.
A) 151 units
B) 104 units
C) 79 units
D) 130 units
Which of the following methods is described as follows: “It calculates the expected
monetary gain or loss from a project by discounting all expected future cash inflows
and outflows to the present point in time using the required rate of return”?
A) payback method
B) accrual accounting rate-of-return method
C) internal rate of return
D) net present value method
Morgan Clay Products manufactures clay molded pottery on an assembly line. Its
standard costing system uses two cost categories, direct materials and conversion costs.
Each product must pass through the Molding Department and the Finishing
Department. Direct materials are added at the beginning of the production process.
Conversion costs are allocated evenly throughout production.
What is the balance in ending work-in-process inventory?
A) $61,500
B) $21,850
C) $18,373
D) $19,038
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 contribution margin for the flexible budget?
A) $8961
B) $9855
C) $9266
D) $10,811
Sparkle Jewelry sells 800 units resulting in $9,000 of sales revenue, $3,000 of variable
costs, and $1,500 of fixed costs. Contribution margin per unit is ________. (Round the
final answer to the nearest cent.)
A) $13.75
B) $11.25
C) $7.50
D) $5.00
Better Products Inc. planned to use $43 of material per unit but actually used $32 of
material per unit, and planned to make 1,510 units but actually made 1,340 units.
The flexible-budget amount for materials is ________.
A) $57,620
B) $64,930
C) $48,320
D) $42,880
A supplier offers to make Part A for $30. Altec Services Corporation has relevant costs
of $47 a unit to manufacture 1,020 units of Part A. If there is excess capacity, the
opportunity cost of buying Part A from the supplier is ________.
A) $0
B) $47,940
C) $30,600
D) $78,540
When variances are immaterial, which of the following statements is true of the journal
entry to write-off the variable overhead variance accounts?
A) Cost of Goods Sold account will always be debited.
B) Unfavorable efficiency variance will be credited.
C) Favorable efficiency variance will be credited.
D) Cost of Goods Sold account will always be credited.
Which of the following classifications would the cost of visiting customers would most
likely fit into?
A) customer output unit-level cost
B) customer batch-level cost
C) customer-sustaining cost
D) corporate-sustaining cost
Raposa, Inc., produces a special line of plastic toy racing cars. Raposa, Inc., produces
the cars in batches. To manufacture a batch of the cars, Raposa, Inc., must set up the
machines and molds. Setup costs are batch-level costs because they are associated with
batches rather than individual units of products. A separate Setup Department is
responsible for setting up machines and molds for different styles of car.
Setup overhead costs consist of some costs that are variable and some costs that are
fixed with respect to the number of setup-hours. The following information pertains to
June 2015:
Calculate the flexible-budget variance for variable overhead setup costs. (Round all
intermediary calculations two decimal places and your final answer to the nearest whole
number.)
A) $312 favorable
B) $2,490 favorable
C) $312 unfavorable
D) $2,490 unfavorable
U.S. Systems Inc., had the following activities during 2018:
Required:
a. What is the cost of direct materials used during 2018?
b. What is cost of goods manufactured for 2018?
c. What is cost of goods sold for 2018?
d. What amount of prime costs was added to production during 2018?
e. What amount of conversion costs was added to production during 2018?
Rapid Cabinet Makers Inc. provided the following information for last month:
If sales reduce to half the amount in the next month, what is the projected operating
income?
A) $1,000
B) $6,000
C) $4,500
D) $18,500
In the cash budget, the total cash available for needs is calculated using which of the
following formulas?
A) ending cash + receipts
B) beginning cash + receipts
C) beginning cash + receipts – disbursements
D) beginning cash + projected depreciation expense
Which of the following best describes interactive control systems?
A) it articulates the mission, purpose, and core values of a company
B) it articulates standards of behavior and codes of conduct expected of all employees
and help in achieving the maximum benefit
C) they are formal information systems managers use to focus the company’s attention
and learning on key strategic issues
D) it describes the geographic limits of a company and help organize its layout
Which of the following is the mathematical expression for the budgeted fixed overhead
cost per unit of cost allocation base?
A) Budgeted fixed overhead cost per unit of cost allocation base = Actual total costs in
fixed overhead cost pool Budgeted total quantity of cost allocation base
B) Budgeted fixed overhead cost per unit of cost allocation base = Budgeted total costs
in fixed overhead cost pool Budgeted total quantity of cost allocation base
C) Budgeted fixed overhead cost per unit of cost allocation base = Actual total costs in
fixed overhead cost pool Actual total quantity of cost allocation base
D) Budgeted fixed overhead cost per unit of cost allocation base = Budgeted total costs
in fixed overhead cost pool Actual total quantity of cost allocation base
For financial reporting, SFAS 151 requires:
A) the allocation of fixed manufacturing overhead to production must be based on
theoretical capacity of the facilities
B) the allocation of fixed manufacturing overhead to production must be based on
normal capacity of the facilities
C) the allocation of fixed manufacturing overhead to production must be based on
practical capacity of the facilities
D) the allocation of fixed manufacturing overhead to production must be based on the
average of the capacity of the facilities over the three most recent period
In designing strategy, a company must match its opportunities in the marketplace with
________.
A) environmental friendly goals
B) its resources and capabilities
C) branding opportunities
D) the requirements of credit rating agencies
As a result of learning curve, ________.
A) unit costs increase as productivity increases and the unit-cost function behaves
nonlinearly
B) unit costs decrease as productivity increases and the unit-cost function behaves
nonlinearly
C) unit costs increase as productivity increases and the unit-cost function behaves
linearly
D) unit costs decrease as productivity increases and the unit-cost function behaves
linearly
Salary of top management and general-administration costs is an example of which of
the following?
A) customer output unit-level costs
B) customer batch-level costs
C) distribution-channel costs
D) corporate-sustaining costs
The return on investment is usually considered the most popular approach to measure
performance because ________.
A) it blends all the ingredients of profitability into a single percentage
B) once determined, there is no need to use it with other measures of performance
C) it throws light on the company’s working capital
D) it measures the cash balance of the company in the most efficient manner
If 800 units are produced and 1,200 units are sold, the costing method which will result
in the greatest operating income is ________.
A) throughput costing
B) variable costing
C) absorption costing
D) period costing
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
Canary’s Products Inc. manufactures three different product lines, Basic, Better, and
Best. Considerable market demand exists for all models. The following per unit data
apply:
Basic Better Best
Selling price $170 $190 $210
Direct materials 60 60 60
Direct labor ($20 per hour) 30 30 40
Variable support costs ($10 per machine-hour) 10 20 20
Fixed support costs 40 40 40
a. For each model, compute the contribution margin per unit.
b. For each model, compute the contribution margin per machine-hour.
c. If there is excess capacity, which model is the most profitable to produce? Why?
d. If there is a machine breakdown, which model is the most profitable to produce?
Why?
e. How can Canary encourage its sales people to promote the more profitable model?