In evaluating the performance of a profit center manager, he/she should be evaluated on
a. all revenues and costs that can be traced directly to the unit.
b. all revenues and costs under his/her control.
c. the variable costs and the revenues of the unit.
d. the same costs and revenues on which the unit is evaluated.
Assume that X represents a sum of money that Bill has available to invest in a project
that will yield a return of r. In the formula Y = X(1 + r), Y represents the
a. future value of X in one period.
b. future value interest factor associated with r.
c. present value of X.
d. present value interest factor associated with r.
Which of the following accounts is credited when abnormal spoilage is written off in an
actual cost system?
a. Miscellaneous Revenue
b. Loss from Spoilage
c. Finished Goods
d. Work in Process
The overhead variance calculated as total budgeted overhead at the actual input
production level minus total budgeted overhead at the standard hours allowed for actual
output is the
a. efficiency variance.
b. spending variance.
c. volume variance.
d. budget variance.
CVP analysis requires costs to be categorized as
a. either fixed or variable.
b. direct or indirect.
c. product or period.
d. standard or actual.
Costs that are incurred to preclude defects and improper processing are:
a. prevention costs
b. detection costs
c. appraisal costs
d. failure costs
Profit sharing is a method of employee compensation that
a. allocates an equal amount of profit reward to each manager in the organization.
b. allows organizational profits to be divided among employees in a non-taxable status.
c. is contingent based on the level of subunit profit generated.
d. is used in many foreign companies but is virtually nonexistent in most U.S.
organizations.
Which of the following add customer value?
a. setup time
b. storage time
c. idle time
d. processing time
Crosby Corporation
Crosby Corporation has two service departments: Data Processing and
Administration/Personnel. The company also has three divisions: X, Y, and Z. Data
Processing costs are allocated based on hours of use and Administration/Personnel costs
are allocated based on number of employees.
Assume that Data Processing provides more service than Administration/Personnel.
Refer to Crosby Corporation. Assume that Data Processing costs have been allocated
and the balance in Administration is $600,000. Using the step method, what amount is
allocated to X?
a. $257,143
b. $112,500
c. $200,000
d. $187,500
Conversion of inputs to outputs is recorded in the
a. Work in Process Inventory account.
b. Finished Goods Inventory account.
c. Raw Material Inventory account.
d. both a and b.
What term identifies an accounting system in which the operations of the business are
broken down into reportable segments, and the control function of a foreperson, sales
manager, or supervisor is emphasized?
a. responsibility accounting
b. operations-research accounting
c. control accounting
d. budgetary accounting
Ryan Company
Ryan Company manufactures products X and Y from a joint process that also yields a
by-product, Z. Revenue from sales of Z is treated as a reduction of joint costs.
Additional information is as follows:
Joint costs were allocated using the sales value at split-off approach.
Refer to Ryan Company. The joint costs allocated to product Y were
a. $ 84,000
b. $100,800.
c. $150,000.
d. $168,000.
A primary purpose of using a standard cost system is
a. to make things easier for managers in the production facility.
b. to provide a distinct measure of cost control.
c. to minimize the cost per unit of production.
d. b and c are correct.
Marshall Company has only 30,000 hours of machine time each month to manufacture
its two products. Product X has a contribution margin of $60, and Product Y has a
contribution margin of $72. Product X requires 6 hours of machine time, and Product Y
requires 10 hours of machine time. If Marshall Company wants to dedicate 85 percent
of its machine time to the product that will provide the most income, the company will
have a total contribution margin of
a. $216,000
b. $228,600.
c. $287,400
d. $300,000
Office Systems Corporation
Office Systems Corporation manufactures and sells various high-tech office automation
products. Two divisions of Office Systems Corporation are the Computer Chip Division
and the Computer Division. The Computer Chip Division manufactures one product, a
“super chip,” that can be used by both the Computer Division and other external
customers. The following information is available on this month’s operations in the
Computer Chip Division:
Presently, the Computer Division purchases no chips from the Computer Chips
Division, but instead pays $45 to an external supplier for the 4,000 chips it needs each
month.
Refer to Office Systems Corporation. Assume that next month’s costs and levels of
operations in the Computer and Computer Chip Divisions are similar to this month.
What is the maximum of the transfer price range for a possible transfer of the chip from
one division to the other?
a. $50
b. $45
c. $35
d. $30
The following items are used in tracing costs in an ABC system. In which order are they
used?
a. 1, 2, 3, 4
b. 2, 3, 4, 1
c. 2, 4, 3, 1
d. 4, 3, 1, 2
Management would generally expect unfavorable variances if standards were based on
which of the following capacity measures?
a. yes no no
b. no no no
c. no yes yes
d. yes yes no
The minimum potential transfer price is determined by
a. incremental costs in the selling division.
b. the lowest outside price for the good.
c. the extent of idle capacity in the buying division.
d. negotiations between the buying and selling division.
Cost-volume-profit analysis is a technique available to management to understand
better the interrelationships of several factors that affect a firm’s profit. As with many
such techniques, the accountant oversimplifies the real world by making assumptions.
Which of the following is nota major assumption underlying CVP analysis?
a. All costs incurred by a firm can be separated into their fixed and variable
components.
b. The product selling price per unit is constant at all volume levels.
c. Operating efficiency and employee productivity are constant at all volume levels.
d. For multi-product situations, the sales mix can vary at all volume levels.
Delta, Epilson, and Sigma Companies
Three new companies (Delta, Epilson, and Sigma) began operations on January 1 of the
current year. Consider the following operating costs that were incurred by these
companies during the complete calendar year:
Refer to Delta, Epilson, and Sigma Companies. Based on sales of 7,000 units, which
company will report the greater income before income taxes if variable costing is used?
a. Delta Company
b. Epsilon Company
c. Sigma Company
d. All of the companies will report the same income.
The cost of abnormal discrete units must be assigned to
a. yes yes
b. no no
c. yes no
d. no yes
The ethical standards established for management accountants are in the areas of
a. competence, licensing, reporting, and education.
b. budgeting, cost allocation, product costing, and insider trading.
c. competence, confidentiality, integrity, and credibility.
d. disclosure, communication, decision making, and planning.
Broadly speaking, cost accounting can be defined as a(n)
a. external reporting system that is based on activity-based costs.
b. system used for providing the government and creditors with information about a
company’s internal operations.
c. internal reporting system that provides product costing and other information used by
managers in performing their functions.
d. internal reporting system needed by manufacturers to be in compliance with Cost
Accounting Standards Board pronouncements.
The set of processes that convert inputs into services and products that consumers use is
called
a. a core competency.
b. an operational plan.
c. the value chain.
d. the product life cycle.
Ultimate Vision Corporation
Ultimate Vision Corporation has two product lines: LCD televisions and projection
televisions. The company has budgeted the following production and overhead costs for
the upcoming year:
Refer to Ultimate Vision Corporation. If the company uses an activity-based costing
(ABC) system to allocate factory overhead, the machine maintenance cost allocated to
projection TVs would be:
a. $ 72,000
b. $108,000
c. $110,769
d. $124,615
The JIT philosophy indicates that inventory, as well as which of the following, should
be eliminated?
a. yes yes yes yes
b. yes yes no no
c. no no yes no
d. no yes no yes
All of the following are explanations of cost changes. Which of these influences can be
substantially affected by cost containment measures?
a. inflation/deflation
b. changes in quantities purchased
c. technological change
d. changes in supply chain costs
What costs are treated as product costs under variable (direct) costing?
a. only direct costs
b. only variable production costs
c. all variable costs
d. all variable and fixed manufacturing costs
As the marginal tax rate goes up, the benefit from the depreciation tax shield
a. decreases.
b. increases.
c. stays the same.
d. can move up or down depending on whether the firm’s cost of capital is high or low.
Production overhead does not include the costs of
a. factory depreciation and supplies.
b. factory employees’ cafeteria departments.
c. production line labor.
d. the maintenance department for the factory.
A service department provides specific functional tasks for other internal units. Which
of the following activities would not be engaged in by a service department?
a. purchasing
b. warehousing
c. distributing
d. manufacturing
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 conversion cost per equivalent unit using the
FIFO method?
a. $1.05
b. $.95
c. $1.61
d. $1.55
Patterson Company
The following information is for Patterson Company’s July production:
(Round all answers to the nearest dollar.)
Refer to Patterson Company. What is the material price variance (calculated at point of
purchase)?
a. $2,700 U
b. $2,700 F
c. $2,610 F
d. $2,610 U
Two methods of accounting for cost flows in process costing are
______________________________ and ____________________.
If a project’s internal rate of return is greater than or equal to an organization’s hurdle
rate, the project is considered to be an unacceptable investment.
The usage variance reflects the difference between the price paid for inputs and the
standard price for those inputs.
An organizational unit that performs management activities, such as personnel services,
that benefit the entire organization is referred to as a(n)
________________________________________.
What are the usual sources for cash in an organization?
Lincoln Company
Lincoln Company applies overhead based on direct labor hours and has the following
available for the current month:
Refer to Lincoln Company. Compute all the appropriate variances using the
two-variance approach.
The proportion of good units resulting from activities is referred to as
________________________________________.
Depreciation of fixed assets is considered to be a discretionary cost.
Wholesome Wheat Corporation
Wholesome Wheat Corporation grows grain in rural areas of the South. The
corporation’s costs per bushel of grain (based on an average yield of 130 bushels per
acre) follow:
Wholesome Wheat Corporation defines direct material costs as seed, fertilizer, water,
and other chemicals. The variable overhead costs represent maintenance and repair
costs of machinery. The fixed overhead costs are completely comprised of depreciation
expense on machinery and real estate taxes.
Refer to Wholesome Wheat Corporation. Assume for this question only that the
company decided to plant the grain. A local oil refiner has approached the company
about converting the crop to grain alcohol (used to make gasohol) rather than selling the
grain to the local grain elevator. If Wholesome Wheat converts the grain to alcohol, it
will incur additional costs of $0.60 per bushel, and the company will be able to sell the
crop to the oil refiner for the equivalent of $2.60 per bushel. Otherwise, the company
can sell the grain crop to the local grain elevator for $1.85 per bushel. If Wholesome
Wheat elects to sell the grain to the refinery, the company will not incur the variable
selling costs. What should the company do? Support your answer with calculations.
The evaluation of future long-range projects to allocate resources effectively and
efficiently is referred to as ______________________________________.
What are the major differences between variable and absorption costing?
If the cost of an additive is $5,000 + $0.50 for every unit of solvent produced, the cost
is classified as a step cost.
An annual budget is an example of a strategic plan.
Productivity is measured by the quantity of good output generated from a specific
amount of input during a time period.
Why has BPR usage increased?
In an outsourcing decision, avoidable fixed costs are irrelevant.
Net realizable value is considered to be the best measure of the expected contribution of
each product to the coverage of joint costs.
When computing profit on an after-tax basis, it is necessary to multiply the pretax profit
by (1 – effective tax rate).
Cooper Industries has the following data for the current year:
What is the amount of under- or overapplied overhead? Prepare the necessary journal
entry to dispose of under- or overapplied overhead.
