1) Post-investment audits prevent managers from overstating the expected cash inflows
from projects and accepting projects they should reject.
2) Activity-based budgeting would permit the use of multiple drivers and multiple cost
pools in the budgeting process.
3) From an accounting standpoint, favorable cost variances are debit entries, while
unfavorable ones are credits.
4) When actual indirect costs exceed allocated indirect costs, indirect costs have been
underapplied.
5) Discounted cash flow methods focus on operating income.
6) In multiproduct situations when sales mix shifts toward the product with the highest
contribution margin, operating income will be higher.
7) One criticism of team-based compensation is that it diminishes the incentives of
individual employees, which can harm a firm’s overall performance.
8) When using variance analysis for performance evaluation, managers often focus on
effectiveness and efficiency as two of the common attributes used in comparing
expected results with actual results.
9) Dual pricing insulates managers from the realities of the marketplace because costs,
not market prices, affect the revenues of the supplying division.
10) If a cost pool is homogeneous, the cost allocations using that pool will be the same
as they would be if costs of each individual activity in that pool were allocated
separately.
11) Prorated allocation of production-volume variance results in a higher operating
income for current year than if the entire favorable production-volume variance were
credited to Cost of Goods Sold.
12) Higher selling prices, rather than unique products or services, provide a competitive
advantage for the cost leader companies.
13) When using a control chart, the observations outside the upper and lower control
limits are ordinarily regarded as nonrandom and worth investigating.
14) Management accounting information and reports do not have to follow set
principles or rules such as GAAP.
15) Which of the following best describes a rolling budget?
A) It is a budget that outlines the amount required to roll over debt in a future period.
B) It is a budget that is always available for a specified future time period.
C) It is a budget that outlines budgeted expenses.
D) It is a budget that is submitted to a bank at the beginning of every month as per a
loan covenant.
16) FIFO Aluminum processes a single type of aluminum. During the current period the
following information was given:
All materials are added at the beginning of the production process. The beginning
inventory was 30% complete as to conversion, while the ending inventory was 40%
completed for conversion purposes.
FIFO Aluminum uses the first-in, first-out system of process costing.
What were the costs assigned to the units transferred out this period (round equivalent
unit cost to the nearest penny)?
A) $113,160
B) $113,236
C) $113,980
D) $122,300
17) Forise Water Company drills small commercial water wells. The company is in the
process of analyzing the purchase of a new drill. Information on the proposal is
provided below.
What is the net present value of the investment? Assume there is no recovery of
working capital.
A) $(124,280)
B) $21,400
C) $82,724
D) $149,400
18) Following a strategy of product differentiation, Arseniq Company makes a high-end
Appliance, XT15. Arseniq presents the following data for the years 2014 and 2015:
Arseniq produces no defective units but it wants to reduce direct materials usage per
unit of XT15. Manufacturing conversion costs in each year depend on production
capacity defined in terms of XT15 units that can be produced. Selling and
customer-service costs depend on the number of customers that the customer and
service functions are designed to support. Arseniq had 140 customers in 2014 and 145
customers in 2015.
What is the net effect on operating income as a result of the growth component?
A) $1,118,750 F
B) $875,000 F
C) $875,000 U
D) $1,118,750 U
19) Variance analysis should be used ________.
A) to understand why variances arise and to improve future performance
B) as the sole source of information for performance evaluation
C) to punish employees that do not meet standards
D) to set the standards which are very easy to achieve to encourage employees to focus
on meeting standards
20) The best estimate of the total cost to manufacture 6,300 units is closest to:
A) $984,060
B) $1,031,310
C) $1,047,060
D) $1,078,560
21) The advantage of using practical capacity to allocate costs ________.
A) is that it allows a downward supply spiral to develop
B) is that it focuses management’s attention on managing unused capacity
C) is that budgets are much easier to develop
D) is that it results in departments bearing a lower percentage of fixed costs
22) Using the high-low method, the estimate of the variable component of electrical
cost per machine-hour is closest to:
A) $0.12
B) $20.38
C) $7.98
D) $3.97
23) Service companies, in particular, find great value from ABC because a vast majority
of their cost structure is composed of ________ costs.
A) prime
B) factory
C) indirect
D) committed
24) Customer revenues and ________ are the determinants of customer profitability.
A) customer profile
B) customer costs
C) customer location
D) customer industry
25) What is operating income for 2015?
A) $116,000
B) $137,000
C) $126,000
D) $144,000
26) Contract disputes regarding cost allocation can be reduced by defining ________.
A) the material items allowed for production
B) the terms used, such as what constitutes direct labor
C) permissible tax deductions
D) minimum profit level the company should earn
27) Xylon Corp. has contracts to complete weekly supplements required by forty-six
customers. For the year 2015, manufacturing overhead cost estimates total $840,000 for
an annual production capacity of 10 million pages.
For 2015, Xylon decided to evaluate the use of additional cost pools. After analyzing
manufacturing overhead costs, it was determined that number of design changes,
setups, and inspections are the primary manufacturing overhead cost drivers. The
following information was gathered during the analysis:
During 2015, two customers, Money Managers and Hospital Systems, are expected to
use the following printing services:
If manufacturing overhead costs are considered one large cost pool and are assigned
based on 10 million pages of production capacity, what is the cost driver rate?
A) $0.750 per page
B) $0.240 per page
C) $0.670 per page
D) $0.091 per page
28) The list of representative cost drivers in the right column below are randomized
with respect to the list of functions in the left column. That is, they do not match.
Function Representative Cost Driver
1. Purchasing A. Number of employees
2. Billing B. Number of shipments
3. Shipping C. Number of customers
4. Computer Support D. Number of invoices
5. Personnel E. Number of desktop computers
6. Customer Service F. Number of purchase orders
Required:
Match each business function with its representative cost driver.
29) In making the decision to buy the model 230 machine rather than the model 380
machine, the differential cost was:
A) $71,000
B) $59,000
C) $12,000
D) $39,000
30) Plastic Products Company manufactures pipes and applies manufacturing costs to
production at a budgeted indirect-cost rate of $12 per direct labor-hour. The following
data are obtained from the accounting records for June 2014:
Required:
a.What actual amount of manufacturing overhead costs was incurred during June 2014?
b.What amount of manufacturing overhead was allocated to all jobs during June 2014?
c.For June 2014, was manufacturing overhead underallocated or overallocated?
Explain.
31) When using the high-low method, the numerator of the equation that determines the
slope is the ________.
A) difference between the positive and negative values of dependent and independent
variables
B) difference between the fixed cost and variable cost associated with the cost driver
C) difference between the high and low observations of the cost driver
D) difference between the costs associated with highest and lowest observations of the
cost driver
32) The sales-mix variance is calculated by ________.
A) deducting budgeted contribution margin based on actual units at budgeted mix from
budgeted contribution margin based on actual units sold at the actual mix
B) deducting budgeted contribution margin based on budgeted units at actual mix from
budgeted contribution margin based on actual units sold at the budgeted mix
C) deducting budgeted contribution margin based on actual units at actual mix from
budgeted contribution margin based on budgeted units sold at the budgeted mix
D) deducting budgeted contribution margin based on actual units at actual mix from
budgeted contribution margin based on actual units sold at the actual mix