A long-run challenge for a business is achieving profitability.
The higher an organization’s capital costs, the greater the opportunity cost of holding
idle cash.
A company that manufactures custom bridal gowns will use a job-order costing system
to track production costs.
Responsibility reports at lower levels of the organization are less detailed than reports
at the higher levels.
Speed of delivery is an example of a leading indicator.
A cost that shifts upward or downward when activity changes by a certain interval is
referred to as a step cost.
In an actual cost system, factory overhead is assigned directly to products and services.
Normal continuous losses are absorbed by all units in ending inventory and transferred
out on a EUP basis.
Using FIFO costing, equivalent units of production (EUP) can be determined by
subtracting EUP’s in Beginning work in process from weighted average EUP.
Performance measures need not be correlated with the mission of a subunit.
A fixed cost remains constant on a per-unit basis as production changes.
The weighted average method separates beginning inventory and current production to
compute cost per unit of production.
Warning Industries is considering two alternative ways to depreciate a proposed
investment. The investment has an initial cost of $100,000 and an expected five-year
life. The two alternative depreciation schedules follow:
Assuming that the company faces a marginal tax rate of 40 percent and has a cost of
capital of 10 percent, what is the difference between the two methods in the present
value of the depreciation tax benefit? Present value tables or a financial calculator are
required.
A. $7,196
B. $0
C. $2,878
D. $6,342
Predetermined overhead rates are computed based on
A. yes yes
B. yes no
C. no yes
D. no no
Which performance plan is most motivating?
A. health insurance
B. piece rate
C. hourly wages
D. pensions
The Statement of Cash Flows may be superior to the cash budget as a performance
evaluation measure because
A. cash flows are shown on the accrual basis on the cash budget.
B. the cash budget does not include capital investments.
C. cash flows are arranged by activity.
D. of all the above reasons.
If a firm’s net income does not change as its volume changes, the firm(‘s)
A. must be in the service industry.
B. must have no fixed costs.
C. sales price must equal $0.
D. sales price must equal its variable costs.
The ____ is the highest rate of return that can be earned from the most attractive,
alternative capital project available to the firm.
A. accounting rate of return
B. internal rate of return
C. hurdle rate
D. opportunity cost of capital
Prime cost consists of
A. no yes no
B. yes yes no
C. yes no yes
D. no yes yes
Office Systems Corporation
Office Systems Corporation manufactures and sells various high-tech office automation
products. Two divisions of Office Systems Corporation are the Computer Chip Division
and the Computer Division. The Computer Chip Division manufactures one product, a
‘super chip,” that can be used by both the Computer Division and other external
customers. The following information is available on this month’s operations in the
Computer Chip Division:
Presently, the Computer Division purchases no chips from the Computer Chips
Division, but instead pays $45 to an external supplier for the 4,000 chips it needs each
month.
Refer to Office Systems Corporation. Assume that next month’s costs and levels of
operations in the Computer and Computer Chip Divisions are similar to this month.
What is the minimum of the transfer price range for a possible transfer of the super chip
from one division to the other?
A. $50
B. $45
C. $20
D. $35
The Meyer Company has been operating a small lunch counter for the convenience of
employees. The counter occupies space that is not needed for any other business
purpose. The lunch counter has been managed by a part-time employee whose annual
salary is $3,000. Yearly operations have consistently shown a loss as follows:
A company has offered to sell Meyer Company automatic vending machines for a total
cost of $12,000. Sales terms are cash on delivery. The old equipment has zero disposal
value.
The predicted useful life of the equipment is 10 years, with zero scrap value. The
equipment will easily serve the same volume that the lunch counter handled. A catering
company will completely service and supply the machines. Prices and variety of food
and drink will be the same as those that prevailed at the lunch counter. The catering
company will pay 5 percent of gross receipts to the Meyer Company and will bear all
costs of food, repairs, and so forth. The part-time employee will be discharged. Thus,
Meyer Company’s only cost will be the initial outlay for the machines.
Consider only the two alternatives mentioned. Present value tables or a financial
calculator are required.
Required:
The cost of normal discrete losses is
A. absorbed by all units past the inspection point on an equivalent unit basis.
B. absorbed by all units in ending inventory.
C. considered a period cost.
D. written off as a loss on an equivalent unit basis.
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.
Costs incurred to correct defects in products after shipment are referred to as
________________________________________.
Texoma Corporation
Texoma Corporation is comprised of two divisions: X and Y. X currently produces and
sells a gear assembly used by the automotive industry in electric window assemblies. X
is currently selling all of the units it can produce (25,000 per year) to external
customers for $25 per unit. At this level of activity, X’s per unit costs are:
Y Division wants to purchase 5,000 gear assemblies per year from X Division. Y
Division currently purchases these units from an outside vendor at $22 each.
Refer to Texoma Corporation. What is the minimum price per unit that X Division
could accept from Y Division for 5,000 units of the gear assembly and be no worse off
than currently?
When one responsibility center uses a transfer price to transfer goods or services to
another responsibility center a ___________________________________ is created.
List and explain the six steps of cost assignment when using process costing. How does
cost assignment differ between the weighted average and FIFO methods?
A budget that is expressed in terms of both units and dollars is referred to a(n)
______________________________.
The document that results from the budgeting process is referred to as the
______________________________.