1) Gambino Corporation is a wholesaler that sells a single product. Management has
provided the following cost data for two levels of monthly sales volume. The company
sells the product for $138.80 per unit.
The best estimate of the total monthly fixed cost is:
A) $776,400
B) $340,200
C) $812,750
D) $849,100
2) Prelia’s Storage ran its freezer in February, a slow month, for 378 hours for a total
cost of $61,230. In July, a peak month, the freezer ran for 756 hours for a total cost of
$87,690.
Required:
a.What is the cost estimating equation for the department if hours of freezer use are
used as the cost driver?
b.What is the estimated total cost at an operating level of 600 hours?
3) Capity Tea Products has an exclusive contract with British Distributors. Calamine
and Capity are two brands of teas that are imported and sold to retail outlets. The
following information is provided for the month of March:
Budgeted and actual fixed corporate-sustaining costs are $1,850 and $2,300,
respectively.
What is the actual contribution margin for the month?
A) $9,680
B) $9,350
C) $10,560
D) $9,900
4) Grader Company manufactures road graders. Because its managers all have
engineering backgrounds, they prefer nonfinancial information for their
decision-making models. Therefore, they require the accountants gather data to assist in
the examination of nonfinancial results of operations. The following information relates
to the manufacture of a paver:
Required:
a.What is the partial productivity for direct materials for each year?
b.What is the partial productivity for direct manufacturing labor for each year?
c.What is the total factor productivity for each year?
5) Overcosting a particular product may result in ________.
A) loss of market share
B) pricing the product too low
C) operating efficiencies
D) understating total product costs
6) Which of the following is a characteristic of a management control system?
A) It aids and coordinates the process of making decisions.
B) It encourages short-term profitability and maximizing net income.
C) It helps individuals throughout the organization to act independently and maximize
the profitability of their departments.
D) It deals with coordinating planning across the organization and is not concerned with
behavioral aspects of management like employee motivation.
7) A single indirect-cost rate distort product costs because ________.
A) there is an assumption that all support activities affect all products
B) it recognizes specific activities that are required to produce a product
C) competitive pricing is ignored
D) it assumes all costs are product costs
8) Knowledge Transfer Associates is in the process of evaluating its new client services
for the business systems consulting division.
Server Planning, a new service, incurred $250,000 in development costs.
The direct costs of providing the service, which is all labor, averages $50 per hour.
Other costs for this service are estimated at $300,000 per year.
The current program for server planning is expected to last for two years. At that time,
expected new operating systems are likely to make the service non viable.
Customer service expenses average $250 per client, with each job lasting an average of
40 hours. The current staff expects to bill 15,000 hours for each of the two years the
program is in effect. Billing averages $90 per hour.
What are the estimated life-cycle revenues?
A) $2,700,000
B) $3,000,000
C) $3,400,000
D) $1,350,000
9) Conversion costs are an example of ________.
A) direct engineered costs
B) indirect engineered costs
C) discretionary costs
D) unused capacity costs
10) Process costing is ________.
A) used to enhance employees’ job satisfaction
B) used by businesses to price unique products or identical products produced in
batches
C) used by businesses to price identical products
D) used by businesses when manufacturing goods above normal capacity
11) Knowledge Transfer Associates is in the process of evaluating its new client
services for the business systems consulting division.
Server Planning, a new service, incurred $250,000 in development costs.
The direct costs of providing the service, which is all labor, averages $50 per hour.
Other costs for this service are estimated at $300,000 per year.
The current program for server planning is expected to last for two years. At that time,
expected new operating systems are likely to make the service non viable.
Customer service expenses average $250 per client, with each job lasting an average of
40 hours. The current staff expects to bill 15,000 hours for each of the two years the
program is in effect. Billing averages $90 per hour.
What is the estimated life-cycle operating income for both years combined?
A) $206,250
B) $162,500
C) $(43,750)
D) $(87,500)
12) Which of the following is a disadvantage of a dual-rate method?
A) It allocates fixed costs on the basis of budgeted long-run usage may tempt some
managers to underestimate their planned usage.
B) It may lead operating department managers to make sub-optimal decisions that are in
their own best interest.
C) It allocates fixed and variable-cost pool using the same cost-allocation base, which
will mislead managers in making decisions.
D) It does not guide department managers to make decisions that benefit both the
organization as a whole and each department.