McCoy Corporation
McCoy Corporation sells a product for $21 per unit, and the standard cost card for the
product shows the following costs:
Refer to McCoy Corporation. McCoy received a special order for 1,200 units of the
product. The only additional cost to McCoy would be foreign import taxes of $2 per
unit. If McCoy is able to sell all of the current production domestically, what would be
the minimum sales price that McCoy would consider for this special order?
a. $10.00
b. $15.00
c. $21.00
d. $23.00
Relating resource consumption and cost to alternative product and process designs can
be achieved through
a. kaizen costing.
b. reverse engineering.
c. computer simulation.
d. all of the above.
At the break-even point, fixed costs are always
a. less than the contribution margin.
b. equal to the contribution margin.
c. more than the contribution margin.
d. more than the variable cost.
Cibolo Company
Cibolo Company has the following information available for March when 4,200 units
were produced (round answers to the nearest dollar).
Refer to Cibolo Company. What is the labor efficiency variance?
a. $ 2,955 F
b. $ 2,955 U
c. $ 3,000 U
d. $ 3,000 F
An increase in direct fixed costs could reduce all of the following except
a. product line contribution margin.
b. product line segment margin.
c. product line operating income.
d. corporate net income.
The term “standard hours allowed” measures
a. budgeted output at actual hours.
b. budgeted output at standard hours.
c. actual output at standard hours.
d. actual output at actual hours.
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 four-variance approach, what is the volume
variance?
a. $3,125 F
b. $3,875 F
c. $6,063 U
d. $3,875 U
The capital budgeting technique known as accounting rate of return uses
a. no no
b. no yes
c. yes yes
d. yes no
Which of the following is not one of the three objectives of a quality program?
a. Product quality should be consistent to always meet the purchaser’s need(s).
b. A quality program should give management confidence that the quality is and will be
at a constant level.
c. A quality program should give customers confidence that the intended quality will be
achieved in products.
d. Product quality should always vary because customers change their wants and needs
over time.
If there is no “a” value in a linear cost equation, this is an indication that the cost is
a. fixed.
b. mixed.
c. variable.
d. either fixed or mixed.
Which of the following statements regarding standard cost systems is true?
a. Favorable variances are not necessarily good variances.
b. Managers will investigate all variances from standard.
c. The production supervisor is generally responsible for material price variances.
d. Standard costs cannot be used for planning purposes since costs normally change in
the future.
Buxton Company
One of the products manufactured by Buxton Company is a plastic tray. The
information below relates to the Tray Production Department:
Refer to Buxton Company. What is the process productivity in the Tray Production
Department?
a. 588
b. 625
c. 667
d. 833
In allocating variable costs to products,
a. a volume-based cost driver should be used.
b. direct labor hours should always be used as the allocation base.
c. a company should use the same allocation base that it uses for fixed costs.
d. a company should never use more than one cost driver.
Chambers Company
Chambers Company produces two products from a joint process: X and Z. Joint
processing costs for this production cycle are $8,000.
If X and Z are processed further, no disposal costs will be incurred or such costs will be
borne by the buyer.
Refer to Chambers Company. Using approximated net realizable value at split-off, what
amount of joint processing cost is allocated to Product X (round to the nearest dollar)?
a. $3,090
b. $5,204
c. $4,000
d. $2,390
Which of the following affects the order point?
a. daily usage
b. lead time
c. safety stock
d. all of the above
Which method of evaluating capital projects assumes that cash inflows can be
reinvested at the discount rate?
a. internal rate of return
b. payback period
c. profitability index
d. accounting rate of return
The size of the safety stock is directly affected by all of the following exceptthe
a. cost of a stockout.
b. probability of a stockout.
c. carrying cost of stock.
d. economic order quantity.
The Lumber Division
The Lumber Division of Home Innovations Company reported the following results for
a recent year
Refer to the Lumber Division
What was the profit margin for the Lumber Division?
a. 68%
b. 35%
c. 32%
d. 22%
Broncho Industries is considering the purchase of a $100,000 machine that is expected
to result in a decrease of $15,000 per year in cash expenses. This machine, which has
no residual value, has an estimated useful life of 10 years and will be depreciated on a
straight-line basis. For this machine, the accounting rate of return would be
a. 10 percent.
b. 15 percent.
c. 30 percent.
d. 35 percent.
Mistakes not eliminated by prevention costs may cause
a. no no
b. no yes
c. yes no
d. yes yes
Under variable costing, which of the following are costs that can be inventoried?
a. variable selling and administrative expense
b. variable manufacturing overhead
c. fixed manufacturing overhead
d. fixed selling and administrative expense
Which of the following is not a reason to use predetermined overhead rates?
a. to overcome the problems of assigning overhead to diverse types of products
b. to compensate for fluctuations in monthly overhead costs
c. to provide a means for assigning overhead during the period rather than at the end of
the period
d. to smooth out the amount of overhead cost assigned to products when monthly
production activity differs
Sunderland Wood Creations
Sunderland Wood Creations is considering a proposal to sell an existing lathe and
purchase a new computer-operated lathe. Information on the existing lathe and the
computer-operated lathe follow:
Refer to Sunderland Wood Creations. If the company uses 10 percent as its discount
rate, what is the net present value of the proposed new lathe purchase? Present value
tables or a financial calculator are required.
a. $236,465
b. $256,465
c. $195,485
d. $30,422
Improved effectiveness and efficiency of a product is considered a ____ performance
measurement?
a. subjective
b. financial
c. quantitative
d. qualitative
If no safety stock is carried, the average inventory is equal to the
a. order point/2.
b. order point 2.
c. economic order quantity/2.
d. economic order quantity 2.
Refer to Wyatt Corporation. Under absorption costing, the standard production cost per
unit for the current year was
a. $ 7.30.
b. $11.30.
c. $11.55.
d. $13.05.
To compute equivalent units of production using the FIFO method of process costing,
work for the current period must be stated in units
a. completed during the period and units in ending inventory.
b. completed from beginning inventory, units started and completed during the period,
and units partially completed in ending inventory.
c. started during the period and units transferred out during the period.
d. processed during the period and units completed during the period.
Variance analysis would be appropriate to measure performance in
a. profit centers.
b. investment centers.
c. cost centers.
d. all of the above.
Which service department cost allocation method provides for reciprocal allocation of
service costs among the service department as well as to the revenue producing
departments?
a. algebraic method
b. indirect method
c. step method
d. direct method
Falcon Crest Corporation manufactures two brands of wine: Regular and Extra
Rich Below is the current year production data for the company:
The 335,000 pounds of material had a total cost of $753,750. Direct labor is $21 per
hour.
The company has total overhead production costs of $2,212,125.
a. If Falcon Crest Corporation applies factory overhead using direct labor hours,
compute the total production cost and the unit cost for each brand
b. If Falcon Crest Corporation applies factory overhead using machine hours, compute
the total production cost and the unit cost for each brand.
c. Assume that Falcon Crest Corporation has established the following activity centers,
cost drivers, and costs to apply factory overhead.
Compute the total cost and the unit cost for each brand.
d. Explain why the unit cost for each model is different across the three methods of
overhead application. How can this information benefit the organization?
When using CVP analysis to determine sales level for a desired amount of profit, the
profit is treated as an additional cost to be covered.
Supply chain management can reduce the processing time for an organization to obtain
raw materials.
An organizational unit that provides specific tasks for other internal units is referred to
as a(n) ______________________________.
The financial budget is prepared before the operating budget.
Why will there frequently be a difference between the budgeted cost of material in the
material purchases budget and the budgeted cash disbursement for material in the cash
budget?
Gap analysis is a beneficial tool in implementing a cost management system.
When manufacturing overhead is charged to a job, the manufacturing overhead account
is debited.
Describe the lowest internal transfer price that an autonomous division manager of an
investment center would consider accepting for a product that his/her division produces.
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 notincur 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?
Why don’t upper-level managers simply dictate transfer prices to divisional managers,
and thereby avoid all the hassles and expense of the negotiations between them
(divisional managers)?
In a normal cost system, factory overhead is applied to Work in Process using a
predetermined overhead rate.
Preparation of a value chart is the first step in activity analysis
List and explain the six steps of cost assignment when using process costing. How does
cost assignment differ between the weighted average and FIFO methods?
The Hanks Company normally produces 150,000 units of Product AB per year. Due to
an economic downturn, the company has some idle capacity. Product AB sells for $15
per unit.
The firm’s production, marketing, and administration costs at its normal capacity are:
Required:
Denton Company
Denton Company manufactures three products (A, B, and C) from three raw materials
(X, Y, and Z). The following table indicates the number of pounds of each material that
is required to manufacture each type of product:
The company has a policy of maintaining an inventory of finished goods on all three
products equal to 25 percent of the next month’s budgeted sales. Listed below is the
sales budget for the first quarter of the current year:
Refer to Denton Company. Unit costs of materials X, Y, and Z are respectively $4, $3,
and $5. The Denton Company has a policy of maintaining its raw material inventories
at 50 percent of the next month’s production needs. Assuming that this policy is
satisfied, prepare a material purchases budget for all three materials in both pounds and
dollars for January.
The weighted average cost of an organization’s various sources of funds is referred to as
______________________________.
Anything for which management wants to accumulate or collect costs is known as a
_________________________.
In an actual cost system, overhead is assigned to Work in Process Inventory with a
credit entry to the account.