Budgetary slack is an effective motivator for employees, because it reduces employee
frustration when goals cannot be achieved.
The segment margin of a profit or investment center does not include allocated common
costs.
A company should strive to reduce all non-value added activities to a minimum.
Costs of normal shrinkage and normal continuous losses in a process costing
environment are handled by the method of accretion.
In an actual cost system, overhead is assigned to Work in Process Inventory with a
credit entry to the account.
If underapplied factory overhead is immaterial, the account is closed by a debit to Cost
of Goods Sold.
If incremental revenues beyond split-off exceed incremental costs, a product should be
processed further.
In an actual job-order costing system, factory overhead is assigned to a job
continuously during the production process.
The profitability index gauges the efficiency of a firm’s use of capital.
In a manufacturing organization, the cash budget is prepared immediately after the
sales budget.
Maintaining excessive cash may reduce firm profitability because of low returns on
cash investments.
Results benchmarking creates the risk for a company to become stagnant.
A cost that shifts upward or downward when activity changes by a certain interval is
referred to as a mixed cost.
The Robinson-Patman Act prohibits companies from pricing products at different
levels when there are no significant differences in production costs.
Top management can reduce slack by using a bonus system to link performance to the
budget.
Wright Company
Wright Company adds material at the start of production. The following production
information is available for September:
Refer to Wright Company. What is the cost of units completed using the weighted
average method?
A. $237,510
B. $266,742
C. $278,400
D. $282,576
Austin, Brown, and Freeman Companies
Below are income statements that apply to three companies: Austin, Brown, and
Freeman:
Refer to Austin, Brown, and Freeman Companies. At sales of $100, which firm has the
highest margin of safety?
A. Austin Company
B. Brown Company
C. Freeman Company
D. They all have the same margin of safety.
Saturn Corporation
Material A is added at the start of production, while Material B is added uniformly
throughout the process.
Refer to Saturn Corporation Assuming a FIFO method of process costing, compute the
average cost per EUP for Material A.
A. $31.25
B. $20.10
C. $20.00
D. $31.00
The indirect costs of converting raw material into finished goods are called
A. period costs.
B. prime costs.
C. overhead costs.
D. conversion costs.
The efficiency variance computed on a three-variance approach is
A. equal to the efficiency variance computed on the four-variance approach.
B. equal to the variable overhead spending variance plus the efficiency variance
computed on the four-variance approach.
C. computed as the difference between applied variable overhead and actual variable
overhead.
D. computed as actual variable overhead minus the flexible budget for variable
overhead based on actual hours worked.
Given the following information for Simpson Corporation, prepare the necessary
journal entries, assuming that the Raw Material Inventory account contains both direct
and indirect material.
a. Purchased raw material on account $28,500.
b. Put material into production: $15,000 of direct material and $3,000 of indirect
material.
c. Accrued payroll of $90,000, of which 70 percent was direct and the remainder was
indirect.
d. Incurred and paid other overhead items of $36,000.
e. Transferred items costing $86,500 to finished goods.
f. Sold goods costing $71,300 on account for $124,700.
The cost sheets for incomplete jobs at the end of the period comprise the subsidiary
ledger for
A. Finished Goods Inventory.
B. Raw Material Inventory.
C. Work in Process Inventory.
D. Supplies Inventory.
Buckingham Company
Buckingham Company uses a standard cost system for its production process and
applies overhead based on direct labor hours. The following information is available for
May when Buckingham produced 4,500 units:
Refer to Buckingham Company. Using the two-variance approach, what is the
noncontrollable variance?
A. $3,125 F
B. $3,875 U
C. $3,875 F
D. $6,062 U
Ineffective budgets and/or control systems are characterized by the use of
A. budgets as a planning tool only and disregarding them for control purposes.
B. budgets for motivation.
C. budgets for coordination.
D. the budget for communication.
Deluxe Jewelry Corporation produces quality jewelry items for various retailers. For
the coming year, it has estimated it will consume 500 ounces of gold. Its carrying costs
for a year are $2 per ounce. No safety stock is maintained. If the EOQ is 100 ounces,
what would be the estimate for Deluxe Jewelry’ total carrying costs for the coming
year?
A. $200
B. $250
C. $100
D. $1,000
Depreciation on the production equipment would appear in which of the following
budgets?
A. cash budget
B. production budget
C. selling and administrative expense budget
D. manufacturing overhead budget
Relative to traditional product costing, activity-based costing differs in the way costs
are
A. processed.
B. allocated.
C. benchmarked.
D. incurred.
Romano Company
The following information pertains to Romano Company for September:
Romano Company applies overhead for Job #323 at 140 percent of direct labor cost and
at 150 percent of direct labor cost for Jobs #325 and #401. The total cost of Jobs #323
and #325 is identical.
Refer to Romano Company. What is the amount of direct materials for Job #325?
A. $1,950
B. $1,500
C. $3,700
D. $7,500
Absorption costing differs from variable costing in all of the following except
A. treatment of fixed manufacturing overhead.
B. treatment of variable production costs.
C. acceptability for external reporting.
D. arrangement of the income statement.
Economic value added (EVA) is focused on short-term performance measurement.
Nelson Corporation
Nelson Corporation has the following information available for May of the current
year:
All material is added at the start of production and all products completed are
transferred out.
Refer to Nelson Corporation. Prepare a schedule showing the assignment of costs
assuming the (a) FIFO and (b) weighted average method.
Ultralinear Electronics Corporation
Ultralinear Electronics Corporation manufactures and sells FM radios. Information on
the prior year’s operations (sales and production Model A1) is presented below:
Refer to Ultralinear Electronics Corporation. The Model B2 radio is currently in
production and it renders the Model A1 radio obsolete. If the remaining 500 units of the
Model A1 radio are to be sold through regular channels, what is the minimum price the
company would accept for the radios?
A. $30
B. $27
C. $18
D. $4
Phoenix Corporation
The records of Phoenix Corporation revealed the following data for the current year.
Refer to Phoenix Corporation. Assume that Phoenix has underapplied overhead of
$37,200 and that this amount is material. What journal entry is needed to close the
overhead account? (Round decimals to nearest whole percent.)
A. Debit Work in Process $8,456; Finished Goods $13,294; Cost of Goods Sold
$15,450 and credit Overhead $37,200
B. Debit Overhead $37,200 and credit Work in Process $8,456; Finished Goods
$13,294; Cost of Goods Sold $15,450
C. Debit Work in Process $37,200 and credit Overhead $37,200
D. Debit Cost of Goods Sold $37,200 and credit Overhead $37,200
Tisdale Company reported the following results from sales of 5,000 units of Product A
for June:
Assume that Tisdale increases the selling price of Product A by 10 percent in July. How
many units of Product A would have to be sold in July to generate an operating income
of $20,000?
A. 4,000
B. 4,300
C. 4,545
D. 5,000
The dollar amount of overhead assigned to work-in-process inventory using a
predetermined rate is known as ____________________ overhead.
The difference between total actual cost incurred and total standard cost applied is
referred to as _________________________.
Seminole Wire Corporation
The Wire Products Division of Seminole Wire Corporation produces “bales” of steel
wire that are used in various commercial applications. The bales sell for an average of
$20 each and The Wire Products Division has the capacity to produce 10,000 bales per
month. The Consumer Products Division of Seminole Wire Corporation uses
approximately 2,000 bales of steel wire each month in its production of various
appliances. The operating information for the Wire Products Division at its present level
of operations (8,000 bales per month) follows:
The Consumer Products Division currently pays $15 per bale for wire obtained from its
external supplier.
Refer to Seminole Wire Corporation. Assuming, for this question only, that the Wire
Products Division would not incur any variable selling costs on internal sales, what is
the minimum price that it would consider accepting for sales of bales to the Consumer
Products Division?
Contribution margin divided by revenue is referred to as the
________________________________________.
How are capital budgeting models affected by potential investments in automated
equipment investment decisions?