In a service firm, it may be necessary to have several activity bases to properly match
the change in costs with the changes in various activities.
a. True
b. False
Smith Company reports the following information:
Factory overhead is 75% of the cost of direct labor. Work in process inventory on
December 31, is a. $16,250
b. $8,500
c. $18,750
d. $13,500
In a process costing system, the cost per equivalent unit is computed before computing
equivalent units.
a. True
b. False
Some organizations use internal service departments to provide like services to several
divisions or departments within an organization. Which of the following would
probably not lend itself as a service department?
a. inventory control
b. payroll accounting
c. information systems
d. human resources
A process cost accounting system provides product costs for each of the departments or
processes within the factory.
a. True
b. False
The following items are reported on a company’s balance sheet:
Determine the (a) current ratio, and (b) quick ratio. Round your answer to one decimal
place.
If employees are given bonuses for exceeding normal standards, the standards may be
very effective in motivating employees.
a. True
b. False
Service companies can effectively use single facility-wide overhead costing to compute
product (service) costs.
a. True
b. False
The reliability of cost-volume-profit analysis does not depend on the assumption that
costs can be accurately divided into fixed and variable components.
a. True
b. False
The three common types of responsibility centers are referred to as cost centers, profit
centers, and investment centers.
a. True
b. False
Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income
from operations amounting to $302,500, and a desired minimum rate of return of 15%.
The profit margin for Chicks is
a. 25%
b. 22%
c. 15%
d. 27.5%
The amount of time spent by an employee in the factory is usually recorded on
a. time tickets
b. job order cost sheets
c. employees’ earnings records
d. statement of owners’ equity
A responsibility center in which the department manager has responsibility for and
authority over costs, revenues, and assets invested in the department is termed a cost
center.
a. True
b. False
If sales totaled $200,000 for the current year (10,000 units at $20 each) and planned
sales totaled $212,500 (12,500 units at $17 each), the effect of the unit price factor on
the change in sales is a:
a. $30,000 increase
b. $12,500 increase
c. $7,500 increase
d. $30,000 decrease
When a corporation discontinues a segment of its operations at a loss, the loss should be
reported as a separate item after income from continuing operations on the income
statement.
a. True
b. False
Manufacturers must conform to the Robinson-Patman Act, which prohibits price
discrimination within the United States unless differences in prices can be justified by
different costs of serving different customers.
a. True
b. False
A company is planning to purchase a machine that will cost $24,000, have a 6-year life,
and have no salvage value. The company expects to sell the machine’s output of 3,000
units evenly throughout each year. Total income over the life of the machine is
estimated to be $12,000. The machine will generate net cash flows per year of $6,000.
The payback period for the machine is 4 years.
a. True
b. False
Materials must have which two qualities in order to be classified as direct materials?
a. They must be classified as both prime costs and conversion costs.
b. They must be introduced into the process in both work-in-process inventories and
finished goods inventories.
c. They must be an integral part of the finished product, but can be an insignificant
portion of the total product cost.
d. They must be an integral part of the finished product and be a significant portion of
the total product cost.
Penny, Inc. employs a process costing system. Direct materials are added at the
beginning of the process. Here is information about July’s activities:
Using the FIFO method, the cost per equivalent unit for materials used during July was
a. $10.78
b. $10.33 c. $9.78 d. $10.65
Shubelik Company is changing to an activity-based costing method. They have
determined that they will use three cost pools: setups, inspections, and assembly. Which
of the following would not be used as the activity base for any of these three activities?
a. number of units to be produced
b. number of setups
c. number of inspections
d. number of direct labor hours
Department W had 2,400 units, one-third completed at the beginning of the period;
16,000 units were transferred to Department X from Department W during the period;
and 1,800 units were one-half completed at the end of the period. Assume the
completion ratios apply to direct materials and conversion costs.
What is the total number of units to be assigned cost on the cost of production report for
Department W?
a. 12,000 units
b. 13,600 units
c. 18,500 units
d. 17,800 units
Sprinkles for decoration (indirect material)
Match the items below for a bakery to the type of cost (a-d).
a. Direct materials
b. Direct labor
c. Factory overhead
d. Non-manufacturing cost
Next year’s sales forecast shows that 20,000 units of Product A and 22,000 units of
Product B are going to be sold for prices of $10 and $12 per unit, respectively. The
desired ending inventory of Product A is 20% higher than its beginning inventory of
2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending
inventory of B is 3,000 units.
Budgeted production of Product A for the year would be
a. 22,400 units
b. 20,400 units
c. 20,000 units
d. 12,200 units
Responsibilities delegated to unit managers
Match each of the following phrases as describing (a) an advantage, (b) a
disadvantage, or (c) neither of decentralization.
a. Advantage of decentralization
b. Disadvantage of decentralization
c. Neither an advantage or disadvantage