1) The selling price per unit is $25, variable cost per unit $15, and fixed cost per unit is
$4. When this company operates above the breakeven point, the sale of one more unit
will increase net income by $6.
2) If the value of a byproduct drops significantly, it could also be viewed as a joint
product.
3) Price discounts must be uniform among all customers.
4) When a company has the least fixed costs, the company is operating at a very high
operating leverage.
5) Cost effect of productivity for fixed costs is calculated by multiplying the difference
in units of capacity (current year capacity units minus the previous year capacity units)
by price per unit of capacity of the previous year.
6) Rent on a factory building used in the production process would be classified as a
product cost and as a fixed cost.
7) Relevant-cost and relevant-revenue analysis uses the allocated costs as the base for
calculating the costs of a quality improvement program.
8) The revenue effect of growth is calculated by multiplying the difference in units sold
(current year minus the previous year) by selling price in the current year.
9) Variance analysis of fixed nonmanufacturing costs, such as distribution costs, can
also be useful when planning for capacity.
10) In successful quality programs, companies decrease costs of quality and, in
particular, internal and external failure costs as a percentage of revenues.
11) To convert the operating income for an overseas branch into US dollars, the
historical rate of exchange is used for its conversion into US dollars.
12) Managers who utilize customer profitability charts should drop customers that
generate a negative customer operating income, since dropping an unprofitable
customer will automatically cause overall income to increase.
13) Companies that adopt the EVA concept define investment as total assets employed
minus current liabilities.
14) The reciprocal method allocates support-department costs to operating departments
by fully recognizing the mutual services provided among all support departments.
15) A full-cost formula for pricing does not require the management accountant to
perform a detailed analysis of cost-behavior patterns.
16) Gracius Manufacturing is approached by a European customer to fulfill a
one-time-only special order for a product similar to one offered to domestic customers.
Gracius Manufacturing has a policy of adding a 10% markup to full costs and currently
has excess capacity. The following per unit data apply for sales to regular customers:
If the European customer wanted a long-term commitment, and not a one-time-only
special order, for supplying this product, calculate the most likely price to be quoted
assuming the markup remains same?
A) $70.00
B) $190.00
C) $209.00
D) $239.00
17) Which of the following is an advantage of decentralization?
A) It creates greater responsiveness to local needs.
B) It focuses managers’ attention on the organization as a whole.
C) It does not result in a duplication of activities.
D) It encourages suboptimal decision making.
18) Which of the following is the first stage to the capital budgeting process?
A) forecast all potential cash flows attributable to the alternative projects
B) determine which investment yields the greatest benefit and the least cost to the
organization
C) obtain funding and make the investments selected
D) identify potential capital investments that agree with the organization’s strategy
19) Customer-response time is ________.
A) the amount of time from when an order is ready to start on the production line to
when the product or service is delivered to the customer
B) the amount of time it takes to deliver a completed order to a customer
C) the amount of time from when a customer places an order for a product or requests a
service to when the product or service is delivered to the customer
D) the amount of time from when an order is ready to start on the production line to
when it becomes a finished good
20) Which of the following is true of the physical-measure approach of allocating joint
costs?
A) Costs cannot be allocated if the measurement basis for each product are different.
B) Physical measures usually result in less costs being allocated to the product that
weighs the most.
C) The physical measure reflects a product’s ability to generate revenues.
D) Obtaining comparable physical measures for all products is always straightforward.
21) Pearl Corp. applies manufacturing overhead costs to products at a budgeted
indirect-cost rate of $60 per direct manufacturing labor-hour. A retail outlet has
requested a bid on a special order of a necklace. Estimates for this order include: Direct
materials of $50,000; 400 direct manufacturing labor-hours at $20 per hour; and a 30%
markup rate on total manufacturing costs.
Estimated total product costs for this special order equal ________.
A) $96,000
B) $76,000
C) $80,000
D) $82,000
22) Technical consideration ________.
A) help managers make wise economic decisions by providing them with the desired
information
B) focus on encouraging individuals to do their jobs better
C) focus on compensating the managers for good performance
D) emphasize on different costs for different purposes
23) Costs incurred on defective products before being shipped to customers are
________.
A) prevention costs
B) appraisal costs
C) internal failure costs
D) external failure costs
24) Long-term financing is an integral part of the ________ function in an organization.
A) CFO’s
B) controller’s
C) auditor’s
D) president’s
25) For each of the following Balanced Scorecard measures, identify which of the four
perspectives (Financial, Customer, Internal Business Process, or Learning and Growth)
the measure best represents.
________a.On-time delivery of gasoline from refineries to retail stations
________b.Customer satisfaction
________c.Common stock price
________d.Return on investment
________e.Market share
________f.Number of days lost to accidents
________g.Employee satisfaction
________h.Friendliness of employees
________i.Repeat purchases
________j.Cash flow from operations
26) Option one: Fixed costs of $10,000 and a breakeven point of 500 units.
Option two: Fixed costs of $20,000 and a breakeven point of 700 units.
Which option should you choose if you are expecting to produce 600 units?
A) Option one as sales is higher than breakeven
B) Option two as sales is lower than breakeven
C) Option two as it would lead to a higher operating income
D) Option one as fixed costs is more
27) How many deliveries will be made during each time period?
A) 72.19 deliveries
B) 60.11 deliveries
C) 89.23 deliveries
D) 52.18 deliveries
28) Cannady produces six products. Under their traditional cost system using one cost
driver, SR6 costs $168.00 per unit. An analysis of the activities and their costs revealed
that three cost drivers would be used under the new ABC system. The new cost of SR6
was determined to be $178.00 per unit.
Given this change in the cost ________.
A) SR6 will now command a higher sales price
B) SR6 has benefited from the new system
C) SR6 is definitely more accurately costed
D) the costing results for SR6 under the new system depend on the adequacy and
quality of the estimated cost drivers and costs used by the system
29) Branded Shoe Company manufactures only one type of shoe and has two divisions,
the Stitching Division and the Polishing Division. The Stitching Division manufactures
shoes for the Polishing Division, which completes the shoe and sells it to retailers. The
Stitching Division ‘sells’shoes to the Polishing Division. The market price for the
Polishing Division to purchase a pair of shoes is $42. (Ignore changes in inventory.)
The fixed costs for the Stitching Division are assumed to be the same over the range of
40,000-100,000 units. The fixed costs for the Polishing Division are assumed to be $14
per pair at 100,000 units.
Stitching’s costs per pair of soles are:
Polishing’s costs per completed pair of shoes are:
Calculate and compare the difference in overall corporate net income of Branded Shoe
Company between Scenario A and Scenario B if the Assembly Division sells 100,000
pairs of shoes for $120 per pair to customers.
Scenario A: Negotiated transfer price of $30 per pair of soles
Scenario B: Market-based transfer price
A) $1,000,000 more net income under Scenario A
B) $1,000,000 of net income using Scenario B
C) $200,000 of net income using Scenario A.
D) The net income would be the same under both scenarios.
30) Stewart Corporation plans to grow by offering a sound system, the SS3000, that is
superior and unique from the competition. Stewart believes that putting additional
resources into R&D and staying ahead of the competition with technological
innovations is critical to implementing its strategy. Stewart’s strategy is ________.
A) product differentiation
B) downsizing
C) product leadership
D) cost leadership
31) When comparing the operating incomes between absorption costing and variable
costing, and ending finished inventory exceeds beginning finished inventory, it may be
assumed that ________.
A) sales decreased during the period
B) variable cost per unit is more than fixed cost per unit
C) there is a favorable production-volume variance
D) absorption costing operating income exceeds variable costing operating income
32) Which of the following is a disadvantage of an activity-based costing system?
A) It classifies some indirect costs as direct costs.
B) It assumes all costs as direct costs.
C) It needs activity-cost rates to be updated regularly.
D) It ignores direct costs of a product.
