A project has an initial cost of $100,000 and generates a present value of net cash
inflows of $120,000. What is the project’s profitability index?
a. .20
b. 1.20
c. .80
d. 5.00
One major difference between financial and management accounting is that
a. financial accounting reports are prepared primarily for users external to the company.
b. management accounting is not under the jurisdiction of the Securities and Exchange
Commission.
c. government regulations do not apply to management accounting.
d. all of the above are true.
An objective of activity-based management is to
a. eliminate the majority of centralized activities in an organization.
b. reduce or eliminate non-value-added activities incurred to make a product or provide
a service.
c. institute responsibility accounting systems in decentralized organizations.
d. all of the above
A service department includes which of the following?
a. yes no
b. yes yes
c. no yes
d. no no
In allocating fixed costs to products in activity-based costing,
a. direct labor hours should always be used as the allocation base.
b. a company should use the same allocation base that it uses for variable costs.
c. a cost driver that is not volume-related should be used.
d. machine hours should always be used.
Phillips Company has 3 divisions: X, Y, and Z. Division X’s income statement shows
the following for the year ended December 31:
Cost of goods sold is 75 percent variable and 25 percent fixed. Of the fixed costs, 60
percent are avoidable if the division is closed. All of the selling expenses relate to the
division and would be eliminated if Division X were eliminated. Of the administrative
expenses, 90 percent are applied from corporate costs. If Division X were eliminated,
Phillips’s income would
a. increase by $150,000.
b. decrease by $ 75,000.
c. decrease by $155,000.
d. decrease by $215,000.
A cost driver
a. causes fixed costs to rise because of production changes.
b. has a direct cause-effect relationship to a cost.
c. can predict the cost behavior of a variable, but not a fixed, cost.
d. is an overhead cost that causes distribution costs to change in distinct increments
with changes in production volume.
Smith Corporation
Smith Corporation has two service departments: Data Processing and Personnel. Data
Processing provides more service than does Personnel. Smith Corporation also has two
production departments: A and B. Data Processing costs are allocated on the basis of
assets used while Personnel costs are allocated based on the number of employees.
Refer to Smith Corporation. Using the direct method, what amount of Data Processing
costs is allocated to A (round to the nearest dollar)?
a. $362,319
b. $637,681
c. $253,623
d. $446,377
A process costing system
a. yes yes
b. no no
c. yes no
d. no yes
The four categories of product quality costs are
a. external failure, internal failure, prevention, and carrying.
b. external failure, internal failure, prevention, and appraisal.
c. external failure, internal failure, training, and appraisal.
d. warranty, product liability, training, and appraisal.
Minimizing period-by-period increases in unit variable costs and total fixed costs
defines efforts of cost
a. control.
b. avoidance.
c. containment.
d. reduction.
Jean Simmons Company
Below is an income statement for Jean Simmons Company:
Refer to Jean Simmons Company. If the unit sales price for Jean Simmons’s sole
product was $10, how many units would it have needed to sell to produce a profit of
$40,000?
a. 27,500
b. 29,000
c. 28,000
d. can’t be determined from the information given
If a company’s fixed costs were to increase, the effect on a profit-volume graph would
be that the
a. contribution margin line would shift upward parallel to the present line.
b. contribution margin line would shift downward parallel to the present line.
c. slope of the contribution margin line would be more pronounced (steeper).
d. slope of the contribution margin line would be less pronounced (flatter).
One unit requires 2 direct labor hours to produce. Standard variable overhead per unit is
$1.25 and standard fixed overhead per unit is $1.75. If 330 units were produced this
month, what total amount of overhead is applied to the units produced?
a. $990
b. $1,980
c. $660
d. cannot be determined without knowing the actual hours worked
Knowing specific job costs enables managers to effectively perform which of the
following tasks?
a. estimate costs of future jobs.
b. establish realistic job selling prices.
c. evaluate job performance.
d. all answers are correct.
Lawson Corporation
Lawson Corporation has the following data for use of its machinery
Refer to Lawson Corporation. Using the high-low method, compute the fixed cost
element (to the nearest whole dollar).
a. $225
b. $138
c. $411
d. $364
Customer measures on the balanced scorecard should be
a. yes no no
yes
b. no yes yes
no
c. no yes no
yes
d. yes yes yes
yes
The variable costing format is often more useful to managers than the absorption
costing format because
a. costs are classified by their behavior.
b. costs are always lower.
c. it is required for external reporting.
d. it justifies higher product prices.
Office Systems Center (OSC), a division of Edwards Corporation buys and installs
modular office components. For the most recent year, the division had the following
performance targets:
Actual information concerning the company’s performance for last year follows:
Required:
a. For OSC, compute the segment margin and the average assets for the year.
b. Based on segment margin and average assets, compute the profit margin, asset
turnover and ROI.
c. Evaluate the ROI performance of OSC.
d. Using your answers from part b., compute the residual income of OSC.
e. Compute the EVA of OSC. Why are the EVA and RI levels different?
f. Based on the data given in the problem, discuss why ROI, EVA and RI may be
inappropriate measures of performance for OSC.
The Mahan Corporation is considering an investment in a project that generates a
profitability index of 1.3. The present value of the cash inflows on the project is
$44,000. What is the net present value of this project?
a. $10,154
b. $13,200
c. $57,200
d. $33,846
Southern Digital, Inc.
The Southern Digital, Inc. produces a high-quality computer chip. Unit production costs
(based on capacity production of 100,000 units per year) follow:
Refer to Southern Digital, Inc. Assume, for this question only, that the Memory
Division is producing and selling at capacity. What is the minimum selling price that
the division would consider on a “special order” of 1,000 chips on which no variable
period costs would be incurred?
a. $100
b. $72
c. $81
d. $94
Under an acceptable method of costing by-products, inventory costs of the by-product
are based on the portion of the joint production cost allocated to the by-product
a. but any subsequent processing cost is debited to the cost of the main product.
b. but any subsequent processing cost is debited to revenue of the main product.
c. plus any subsequent processing cost.
d. minus any subsequent processing cost.
Houston National Bank
Houston National Bank had the following activities, traceable costs, and physical flow
of driver units:
The above activities are used by the Memorial branch and the University branch:
Refer to Houston National Bank. What is the cost per driver unit for the deposit
activity?
a. $0.09
b. $0.075
c. $30.00
d. $50.00
Daybreak Corporation
Daybreak Corporation manufactures and sells two products: A and B. The operating
results of the company are as follows:
In addition, the company incurred total fixed costs in the amount of $10,000.
Refer to Daybreak Corporation. If the company had sold a total of 10,500 units,
consistent with CVP assumptions, how many of those units would be Product B?
a. 5,250
b. 6,000
c. 7,000
d. 7,875
Traditional overhead allocations result in which of the following situations?
a. Overhead costs are assigned as period costs to manufacturing operations.
b. High-volume products are assigned too much overhead, and low-volume products are
assigned too little overhead.
c. Low-volume products are assigned too much, and high-volume products are assigned
too little overhead.
d. The resulting allocations cannot be used for financial reports.
For the month of November, Whetzel Corporation. predicts total cash collections to be
$1 million. Also for November, Whetzel Corporation. estimates that its beginning cash
balance will be $50,000 and that it will borrow cash in the amount of $70,000. If
Whetzel Corporation. estimates an ending cash balance of $30,000 for November, what
must its projected cash disbursements be?
a. $1,090,000
b. $1,120,000
c. $1,070,000
d. $1,020,000
If abnormal spoilage occurs in a job-order costing system, has a material dollar value,
and is related to a specific job, the recovery value of the spoiled goods should be
a. a scrap inventory account the specific job in
process
b. the specific job in process overhead
c. a loss account the specific job in
process
d. factory overhead sales
Texas Metal Company
Texas Metal Company has developed standard overhead costs based on a monthly
capacity of 180,000 machine hours as follows:
During November, 90,000 units were scheduled for production, but only 80,000 units
were actually produced. The following data relate to November:
Actual machine hours used were 165,000.
Actual overhead incurred totaled $1,378,000 ($518,000 variable plus $860,000 fixed).
All inventories are carried at standard cost.
Refer to Texas Metal Company. The fixed overhead spending variance for November
was
a. $40,000 U.
b. $40,000 F.
c. $60,000 F.
d. $60,000 U.
In the future competitive environment, companies will emphasize
a. achievement of financial results.
b. development of strategic alliances.
c. development of annual plans.
d. conformity to project expectations.
Beasley Company
Beasley Company prepared a cash budget by quarters for the upcoming year. Missing
data amounts are indicated with question marks or lower case letters; these lower case
letters will be referred to in the questions that follow.
Beasley requires a minimum balance of $10,000 to start a quarter.
All data are in thousands.
Beasley Corporation
Cash Budget
Refer to Beasley Company. The total disbursements during the third quarter (item f) is:
a. $84
b. $78
c. $82
d. $59
Three monetary measures used to allocate joint costs to products are
________________________________________,
________________________________________, and
____________________________________________________________.
A measuring device that identifies what is actually happening in the process being
controlled is an assessor.
Trump Corporation operates a factory. One of its departments has three kinds of
employees on its direct labor payroll, classified as pay grades A, B, and C. The
employees work in 10-person crews in the following proportions:
The work crews cannot work short-handed. To keep a unit operating when one of the
regular crew members is absent, the head of the department first tries to reassign one of
the department’s other workers from indirect labor operations.
If no one in the department is able to step in, plant management will pull maintenance
department workers off their regular work, if possible, and assign them temporarily to
the department. These maintenance workers are all classified as Grade D employees,
with a standard wage rate of $10 an hour.
The following data relate to the operations of the department during the month of May:
Required: Compute labor rate, mix, and yield variances.
Engineered costs may be either variable or fixed.
What is open-book management?
A budget manual should include pro-forma financial statements for the upcoming
period.
Activity-based costing is appropriate for a company that manufactures a single product.
Why is it likely that a subordinate manager would be more attentive to certain
performance measures than overall corporate objectives to guide his decision making?
Overapplied overhead that is material in amount is allocated between Finished Goods
Inventory, Work in Process, and Cost of Goods Sold at year end.
When using the risk-adjusted discount rate method, a manager increases the rate used
for discounting future cash inflows.
When one responsibility center uses a transfer price to transfer goods or services to
another responsibility center a ___________________________________ is created.
Activity-based costing is appropriate for a company that has high overhead costs that
are notproportional to unit volumes of individual products.
The point of purchase model calculates the materials price variance using the quantity
of materials purchased.
A responsibility center in which a manger has only the authority to control cost is
referred to as a(n) _________________________.
If actual overhead exceeds applied overhead, factory overhead is said to be
underapplied.
Ideal standards generally yield favorable variances.
When using a negotiated transfer price, a determination must be made if comparable
substitutes are available externally.