Casey Corporation produces a special line of basketball hoops. Casey Corporation
produces the hoops in batches. To manufacture a batch of the basketball hoops, Casey
Corporation must set up the machines and molds. 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 molds for
different styles of basketball hoops.
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
January 2005.
Required:
a. Calculate the efficiency variance for variable overhead setup costs.
b. Calculate the spending variance for variable overhead setup costs.
c. Calculate the flexible-budget variance for variable overhead setup costs.
d. Calculate the spending variance for fixed overhead setup costs.
e. Calculate the production-volume variance for fixed overhead setup costs.
Which of the following inventory costing methods shown below is required by GAAP
(Generally Accepted Accounting Principles) for external financial reporting?
A) absorption costing
B) variable costing
C) throughput costing
D) direct costing
Problems with costing occur when ________.
A) incorrect job numbers are recorded on source documents
B) bar coding is used to record materials used on the job
C) a computer screen requests an employee number before that employee is able to
work on information related to a specific job
D) incorrect product delivery forms are entered into the system
Sky High sells helicopters. During the current year, 130 helicopters were sold resulting
in $820,000 of sales revenue, $250,000 of variable costs, and $345,000 of fixed costs.
Breakeven point in units is ________.
A) 95 units
B) 58 units
C) 79 units
D) 55 units
You have been employed as an entry-level management accountant for a little under a
year. You suspect that your immediate supervisor is involved in a significant fraud
involving diverting of company assets to personal use. Briefly describe the steps you
might take to resolve this dilemma.
The gross-margin format is used for ________.
A) variable costing income statement
B) mixed costing income statement
C) absorption costing income statement
D) standard costing income statement
ABC and traditional systems are quite similar in ________.
A) the treatment of direct costs
B) the allocation of overheads
C) evaluating performance
D) the identification of cost pools
Springer Products manufactures three different product lines, Model X, Model Y, and
Model Z. Considerable market demand exists for all models. The following per unit
data apply:
Model X Model Y Model Z
Selling price $56 $68 $78
Direct materials 7 7 7
Direct labor ($16 per hour) 16 16 32
Variable support costs ($7 per machine-hour) 7 15 14
Fixed support costs 15 15 15
How can Lisa Dynondo encourage her salespeople to promote the more profitable
model?
A) Put all sales persons on fixed salary.
B) Provide higher sales commissions for higher priced items.
C) Provide higher sales commissions for items with the greatest contribution margin per
constrained resource.
D) Provide higher sales commissions for items which has the lowest cost and lower
sales commissions for items with highest cost.
Bismite Corporation purchases trees from Cheney lumber and processes them up to the
split-off point where two products (paper and pencil casings) emerge from the process.
The products are then sold to an independent company that markets and distributes
them to retail outlets. The following information was collected for the month of
October:
The cost of purchasing 330 trees and processing them up to the split-off point to yield
190,000 sheets of paper and 190,000 pencil casings is $15,500.
Bismite’s accounting department reported no beginning inventory.
If the sales value at split-off method is used, what is the approximate production cost for
each pencil
casing? (Round intermediary percentages to the nearest hundredth.)
A) $0.035
B) $0.049
C) $0.034
D) $0.048
Which of the following is true about discontinuing an unprofitable customer?
A) will eliminate all corporate costs assigned to and may result in losing more revenues
relative to costs saved
B) will eliminate all costs assigned to and may result in gaining more revenues relative
to costs saved
C) will not eliminate all costs assigned to and may result in losing more revenues
relative to costs saved
D) will not eliminate all corporate costs assigned to and may result in gaining more
revenues relative to costs saved
Aaron Corp’s net income is $25,000. What is the amount of the investment if the return
on investment is 30%?
A) $50,000
B) $58,333
C) $83,333
D) $108,333
The controller at TellCo is examining her books. She determines that at the breakeven
point of 5,000 units, variable costs total $4,000 and fixed costs total $7,000. Therefore,
5,001st unit sold will contribute ________ to profits. (Round the final answer to the
nearest cent.)
A) $0.80
B) $0.60
C) $1.40
D) $2.20
Quality Stores, Inc., sells several products. Information of average revenue and costs is
as follows:
What is the contribution margin percentage? (Round your answer to the nearest whole
percent.)
A) 54%
B) 69%
C) 43%
D) 47%
Which item is an indication of integrity under the Standards of Ethical Conduct?
A) Refrain from engaging in any conduct that would prejudice carrying out duties
ethically.
B) Communicate information fairly and objectively.
C) Keep information confidential except when disclosure is authorized or legally
required.
D) Recognize and communicate professional limitations or other constraints that would
preclude responsible judgment or successful performance of an activity.
Which of the following is an example of an allowable cost considered by U.S.
government contract?
A) supervision costs
B) costs of lobbying activities
C) costs of alcoholic beverages
D) costs of vacation for executives
The Fortise Corporation manufactures two types of vacuum cleaners, the Victor for
commercial building use and the House-Mate for residences. Budgeted and actual
operating data for the year 2017 were as follows:
What is the total sales-mix variance in terms of the contribution margin? (Round any
intermediary calculations two decimal places.)
A) $925,600 unfavorable
B) $613,600 unfavorable
C) $312,000 favorable
D) $1,237,600 favorable
Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is
analyzed as follows:
What is the projected decline in operating income if the direct materials costs of T-Shirts
increase to $3.50 per unit and direct labor costs of Sweatshirts increase to $14.00 per unit?
A) $216,500
B) $100,500
C) $116,000
D) $514,500
Sodius Chemical Inc. placed 220,000 liters of direct materials into the mixing process.
At the end of the month, 5,000 liters were still in process, 30% converted as to labor
and factory overhead. All direct materials are placed in mixing at the beginning of the
process and conversion costs occur evenly during the process. Sodius uses
weighted-average costing.
Required:
a. Determine the equivalent units in process for direct materials and conversion costs,
assuming there was no beginning inventory.
b. Determine the equivalent units in process for direct materials and conversion costs,
assuming that 12,000 liters of chemicals were 40% complete prior to the addition of the
220,000 liters.
Colise Services is a repair-service company specializing in small household jobs. Each
client pays a fixed monthly service fee based on the number of rooms in the house.
Records are kept on the time and material costs used for each repair. The following
profitability data apply to five customers:
Required:
a. Compute the operating income for each of the five customers.
b. What options should Colise Services consider in light of the customer-profitability
results?
c. What problems might Colise Services encounter in accurately estimating the operating
costs of each customer?
A ________ is a grouping of individual indirect cost items.
A) cost-allocation base
B) cost assignment
C) cost pool
D) job-costing system
Hanung Corp has two service departments, Maintenance and Personnel. Maintenance
Department costs of $310,000 are allocated on the basis of budgeted
maintenance-hours. Personnel Department costs of $190,000 are allocated based on the
number of employees. The costs of operating departments A and B are $200,000 and
$300,000, respectively. Data on budgeted maintenance-hours and number of employees
are as follows:
Production
Support Departments Departments
Using the direct method, what amount of Maintenance Department costs will be allocated
to Department A? (Do not round any intermediary calculations.)
A) $145,277
B) $334,211
C) $133,684
D) $207,211
Why is choosing the correct cost driver to estimate indirect manufacturing costs
important?
A) Identifying the wrong driver can lead management to incorrect and costly decisions
B) Identifying the wrong driver can increase actual overhead costs
C) Identifying the wrong driver can increase the usage of the correct driver
D) Identifying the wrong driver can increase the direct costs of the cost object
Nichols Inc. manufactures remote controls. Currently the company uses a plant-wide
rate for allocating manufacturing overhead. The plant manager is considering
switching-over to ABC costing system and has asked the accounting department to
identify the primary production activities and their cost drivers which are as follows:
The current traditional cost method allocates overhead based on direct manufacturing labor
hours using a rate of $30 per labor hour.
Nichols’ management is considering to implement ABC system because ________.
A) ABC system can be implemented cheaply
B) ABC system provides more accurate direct cost figures
C) ABC system is a highly refined costing system
D) ABC system requires minimal expertise to operate
A stretch budget is a budget that ________.
A) crosses more than one responsibility center
B) represents a challenging, but achievable level of performance
C) is impossible to implement in a cost center
D) is designed to include the effects of exchange rate fluctuations
A well-conceived plan allows managers the ability to ________.
A) set static goals and still be flexible
B) control lower-level managers from implementing change
C) conservatively estimate costs so that actual operating results will be favorable when
comparisons are made
D) take advantage of unforeseen opportunities
Throughput contribution equals ________.
A) variable costs minus fixed costs
B) revenues minus all direct labor costs
C) revenues minus all direct material cost of goods sold
D) revenues minus manufacturing overhead
Which of the following is not true about the cause-and-effect criterion when estimating
a cost function?
A) Correlation of variables proves cause-and-effect
B) Managers must be careful not to equate high correlation between two variables to
mean that either variable causes the other
C) Knowledge of operations can help managers discover cause-and-effect relationships
D) Contractual arrangements may show a direct cause and effect between two variables
Quantum Company uses the high-low method to estimate the cost function. The
information for 2017 is provided below:
Machine-hours Labor Costs
Highest observation of cost driver 400 $20,000
Lowest observation of cost driver 100 $8,000
What is the slope coefficient?
A) $80.00
B) $56.00
C) $40.00
D) $50.00
Costs that are initially recorded as assets and expensed when goods sold are called
________.
A) period costs
B) inventoriable costs
C) irrelevant costs
D) research and development costs
Ballpark Concessions currently sells hot dogs. During a typical month, the stand reports
a profit of $9,000 with sales of $50,000, fixed costs of $21,000, and variable costs of
$0.64 per hot dog.
Next year, the company plans to start selling nachos for $3 per unit. Nachos will have a
variable cost of $0.72 and new equipment and personnel to produce nachos will
increase monthly fixed costs by $8,808. Initial sales of nachos should total 5,000 units.
Most of the nacho sales are anticipated to come from current hot dog purchasers,
therefore, monthly sales of hot dogs are expected to decline to $20,000.
After the first year of nacho sales, the company president believes that hot dog sales
will increase to $33,750 a month and nacho sales will increase to 7,500 units a month.
Required:
a. Determine the monthly breakeven sales in dollars before adding nachos.
b. Determine the monthly breakeven sales during the first year of nachos sales,
assuming a constant sales mix of 1 hotdog and 2 units of nachos.
The time it takes the marketing department to specify to the manufacturing department
the exact requirements of the customer’s order is referred as ________.
A) receipt time
B) waiting time
C) delivery time
D) manufacturing cycle time
Pearl Manufacturing Company provides glassware machines for major department store
retailers. The company has been investigating a new piece of machinery for its
production department. The old equipment has a remaining life of six years and the new
equipment has a value of $319,400 with a six-year life. The expected additional cash
inflows are $113,000 per year. What is the payback period for this investment?
A) 1.8 years
B) 3.8 years
C) 2.8 years
D) 6 years
The fundamental rethinking and redesign of business processes to achieve
improvements in critical measures of performance, such as cost, quality, service, speed,
and customer satisfaction is ________.
A) directing
B) controlling
C) reengineering
D) structuring
Which of the following statements is true?
A) A direct cost of one cost object will always be a direct cost of another cost object.
B) Because of a cost-benefit tradeoff, some direct costs may be treated as indirect costs.
C) All fixed costs are indirect costs.
D) All direct costs are variable costs.
Hanung Corp has two service departments, Maintenance and Personnel. Maintenance
Department costs of $400,000 are allocated on the basis of budgeted
maintenance-hours. Personnel Department costs of $200,000 are allocated based on the
number of employees. The costs of operating departments A and B are $240,000 and
$360,000, respectively. Data on budgeted maintenance-hours and number of employees
are as follows:
Production
Support Departments Departments
Using the direct method, what amount of Personnel Department costs will be allocated to
Department A? (Do not round any intermediary calculations.)
A) $58,824
B) $52,632
C) $70,588
D) $141,176