1) Lukehart Industries, Inc., produces air purifiers. Lukehart, Inc., produces the air
purifiers in batches. To manufacture a batch of the purifiers, Lukehart, Inc., must set up
the machines and assembly line tooling. 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 tooling for different models of
the air purifiers.
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 spending variance for fixed overhead setup costs.
A) $250 unfavorable
B) $150 unfavorable
C) $250 favorable
D) $150 favorable
2) Dynozz Corporation currently produces cardboard boxes in an automated process.
Expected production per month is 15,000 units, direct material costs are $0.50 per unit,
and manufacturing overhead costs are $15,000 per month. Manufacturing overhead is
all fixed costs. What are the flexible budget for 10,000 and 15,000 units, respectively?
A) $15,000; $22,500
B) $15,000; $17,500
C) $20,000; $22,500
D) $20,000; $17,500
3) Which of the following steps can a management take to reduce the undesirable
effects of absorption costing?
A) It can evaluate managers on quarterly basis rather than the usual yearly period
thereby mitigating the undesirable effects of absorption costing.
B) It can delegate powers to managers to decide which orders they want to accept so
that any order which will lead to inventory build-up can be rejected.
C) It can empower managers to decide the timings of maintenance of plants thereby
ensuring that the production is not affected.
D) It can encourage using nonfinancial measures such as units in ending inventory
compared to units in sales.
4) Which capital budgeting technique measures all expected future cash inflows and
outflows as if they occurred at a single point in time?
A) net present value method
B) accrual accounting rate-of-return method
C) payback method
D) sensitivity analysis
5) How much of the total costs will be assigned to Department B?
A) $117,350
B) $113,250
C) $113,750
D) $112,350
6) Which of the following is a sign that a ‘smoothing out” costing system exists?
A) Very few indirect costs are identified as output unit-level costs.
B) Products that a company is well suited to make and sell show large profits.
C) Operations staff has no substantial disagreements with the reported costs of
manufacturing and marketing products and services.
D) The company loses bids they believe were priced competitively.
7) When there is unused capacity, ________.
A) the transfer-price range lies between the its variable cost per unit and the higher of
its contribution or price at which the product is available from external suppliers
B) the transfer-price range lies between the maximum price at which the selling
division is willing to sell and the minimum price the buying division is willing to pay
C) the transfer-price range lies between the minimum price at which the selling division
is willing to sell and the maximum price the buying division is willing to pay
D) the transfer-price range lies between the its fixed cost per unit and the higher of its
contribution or price at which the product is available from external suppliers
8) Zitriks Corp. manufactures two sizes of ceramic paperweights, regular and jumbo.
The following information applies to their expectations for the planning period:
Expected direct costs amounts to $960,000 for the period. Support cost requirements of
both products are substantially different from one another. Zitriks uses an ABC costing
system.
Which of the following is true of Zitriks’ overhead costing?
A) Multiple cost pools are appropriate for Zitriks because of high direct costs.
B) Single cost pool is appropriate for Zitriks because of high direct costs.
C) Multiple cost pools are appropriate for Zitriks because of diverse support costs.
D) Single cost pool is appropriate for Zitriks because of diverse support costs.
9) Bright Inc., manufactures table lamps and is considering raising the price by $30 a
unit for the coming year. With a $30 price increase, demand is expected to fall by 2,000
units.
Bright Inc., has a capacity to produce 25,000 units. Due to an increase in the electricity
costs, there is a sudden spike in demand by 2,000 units. If the company adopts
peak-load pricing policy and charges a premium of 30% over the current sales price,
what is the total contribution on the sale of additional units?
A) $190,000
B) $200,000
C) $390,000
D) $290,000
10) The Green Company processes unprocessed goat milk up to the splitoff 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 splitoff
point to yield a total of 98,000 gallons of saleable product was $184,480. There were no
inventory balances of either product.
Condensed goat milk may be processed further to yield 42,000 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 $20 per gallon.
Skim goat milk can be processed further to yield 54,200 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 the sales value at splitoff method, what is the gross-margin percentage for skim
goat milk at the splitoff point?
A) 51.74%
B) 50.00%
C) 35.83%
D) 48.26%