1) The production method for recognizing byproducts reduces the cost of
manufacturing the main or joint products in the income statement.
2) All costs other than direct materials and direct manufacturing labor are classified as
indirect costs.
3) A capital budget spans only a one-year period.
4) In regression analysis, the term “goodness of fit” indicates the strength of the
relationship between the cost driver and the costs.
5) Adjusted allocation-rate approach restates all amounts in the general and subsidiary
ledgers by using actual rather than budgeted cost rates.
6) An effective balanced scorecard helps to communicate the strategy to all members of
the organization by translating the strategy into a coherent and linked set of
understandable and measurable operational targets.
7) All contracts with U.S. government agencies must comply with the cost accounting
standards issued by the SEC.
8) Sensitivity analysis is a “what-if” technique that managers use to examine how a
result will change if the originally predicted data are not achieved or if an underlying
assumption changes.
9) Computing standard costs at the start of the budget period results in a complex record
keeping system.
10) In general, distribution-channel costs are more easily influenced by customer
actions than customer batch-level costs.
11) Allocating common costs can best be achieved by using the stand-alone
cost-allocation method.
12) Using practical capacity as the denominator level sets the cost of capacity at the
cost of supplying the capacity, regardless of the demand for the capacity.
13) An expected value is the weighted average of the outcomes, with the probability of
each outcome serving
as the weight.
14) The Japanese use kaizen to mean financing alternatives.
15) The planning horizon for a committed fixed cost usually encompasses many years.
16) Frazer Corp sells several products. Information of average revenue and costs is as
follows:
If the company decides to lower its selling price by 12.25%, the operating income is
reduced by ________.
A) $52,500
B) $50,500
C) $55,500
D) $29,500
17) The breakeven point is the activity level where ________.
A) revenues equal fixed costs
B) revenues equal variable costs
C) contribution margin equals total costs
D) revenues equal the sum of variable and fixed costs
18) Critics of absorption costing suggest evaluating management on its ability to
________.
A) exceed production quotas
B) increase operating income
C) decrease fixed costs
D) decrease variable costs
19) Star Jewelry sells 500 units resulting in $75,000 of sales revenue, $28,000 of
variable costs, and $18,000 of fixed costs.
Breakeven point in units is ________.
A) 196 units
B) 203 units
C) 185 units
D) 192 units
20) The new cost analyst in your accounting department has just received a
computer-generated report that contains the results of a simple regression program for
cost estimation. The summary results of the report appear as follows:
Required:
a.What is the cost estimation equation according to the report?
b.What is the goodness of fit? What does it tell about the estimating equation?
21) The minimum annual acceptable rate of return on an investment is the ________.
A) accrual accounting rate of return
B) hurdle rate
C) internal rate of return
D) net present value
22) In a process-costing system, the calculation of equivalent units is used for
calculating ________.
A) the dollar amount of sales affected during the period
B) the dollar amount of the cost of goods sold for the accounting period
C) the dollar price earned for a particular job
D) the dollar amount of revenue for the period including the revenue estimated to be
received from the sale of equivalent units
23) Multiple cost drivers ________.
A) have only one revenue driver
B) can utilize the simple CVP formula
C) have no unique breakeven point
D) are the result of multiple products
24) The following information pertains to Brian Stone Corporation:
What is the difference between operating incomes under absorption costing and
variable costing?
A) $750
B) $7,500
C) $15,000
D) $30,750
25) The total of the period costs listed above for September is:
A) $303,000
B) $59,000
C) $366,000
D) $362,000
26) What type of cost is the result of an event that results in more than one product or
service simultaneously?
A) byproduct cost
B) joint cost
C) main cost
D) separable cost
27) Which of the following influences the make or buy decision to the company?
A) opportunity cost
B) sunk cost
C) historical cost
D) plant depreciation
28) Lavender Company is a logistics company and has recently implemented ABC
system. Using activity-based information, it decides to reduce the bulkiness of the
packages delivered, thereby reducing costs. This suggests that ABC system helps
managers in ________ decisions.
A) pricing
B) product-mix
C) process-improvement
D) product-design
29) Plish Company manufactures only one type of washing machine and has two
divisions, the Compressor Division, and the Fabrication Division. The Compressor
Division manufactures compressors for the Fabrication Division, which completes the
washing machine and sells it to retailers. The Compressor Division ‘sells” compressors
to the Fabrication Division. The market price for the Fabrication Division to purchase a
compressor is $40.00. (Ignore changes in inventory.) The fixed costs for the
Compressor Division are assumed to be the same over the range of 5,000-10,000 units.
The fixed costs for the Fabrication Division are assumed to be $7.50 per unit at 10,000
units.
Compressor’s costs per compressor are:
Fabrication’s costs per completed air conditioner are:
What is Division A’s operating income per burger, assuming the transfer price of the
ground veal is set at $2.00 per burger?
A) $0.75
B) $1.50
C) $2.25
D) $3.00
30) Strategic Analysis of Profitability of Ransham Company:
Income Statement Amounts in 2014 Revenue and Cost Effects of Growth
Component in 2015 Revenue and Cost Effects of Price-Recovery Component in
2015 Cost Effect of Productivity Component in 2015 Income Statement Amounts
in 2015
Revenues ($) 34,000 10,000 F 1,000 U (b) (e)
Costs 23,500 (a) 500 U (c) 26,100
Operating income 10,500 5,500 F 1,500 U 2,400 F (d)
What is the cost effect of the growth component (a)?
A) $15,500 F
B) $4,500 U
C) $15,500 U
D) $4,500 F
31) Which of the following is true of net income?
A) Net income is operating income divided by income tax rate.
B) Net income is operating income plus operating revenues minus operating costs
minus income taxes.
C) Net income is operating income plus nonoperating revenues minus nonoperating
costs minus income taxes.
D) Net income is operating income minus nonoperating revenues minus nonoperating
costs minus sales taxes.
32) Which of the following statements is true of productivity?
A) Partial productivity compares the quantity of output produced with the cost of all
inputs used.
B) Productivity will increase when the partial productivity is high.
C) Prices of inputs are incorporated in the partial productivity ratio.
D) Partial productivity compares the quantity of output produced with the quantity of
all inputs used.
33) Dynondo Incorporated planned to use materials of $12 per unit but actually used
materials of $13 per unit, and planned to make 1,500 units but actually made 1,800
units.
The flexible-budget amount for materials is ________.
A) $18,000
B) $19,500
C) $21,600
D) $23,400
34) What is the revenue effect of the growth component?
A) $450,000 U
B) $135,000 F
C) $135,000 U
D) $450,000 F
35) Which of the following companies is part of the service sector of our economy?
A) Target
B) Ernst & Young
C) Nokia
D) Amazon.com
36) Describe the benefits of preparing an operating budget to an organization.
37) Zenon Chemical, Inc., processes pine rosin into three products: turpentine, paint
thinner, and spot remover. During May, the joint costs of processing were $240,000.
Production and sales value information for the month is as follows:
Required:
Determine the amount of joint cost allocated to each product if the physical-measure
method is used.
38) Corry Corporation manufactures filters for cars, vans, and trucks. A backflush
costing system is used and standard costs for a filter are as follows:
Filters are scheduled for production only after orders are received, and are shipped
immediately upon completion. This results in product costs being charged directly to
cost of goods sold. In December, 3,000 filters were produced and shipped. Materials
were purchased at a cost of $8,450 and actual conversion costs of $13,650 were
recorded.
Required:
Prepare journal entries to record December’s costs for the production of the filters.
39) Cornerstone Company has two divisions. The Bottle Division produces products
that have variable costs of $3 per unit. Its 20X5 sales were 140,000 to outsiders at $5
per unit and 40,000 units to the Mixing Division at 140% of variable costs. Under a
dual transfer-pricing system, the Mixing Division pays only the variable cost per unit.
The fixed costs of the Bottle Division are $125,000 per year.
Mixing sells its finished products to outside customers for $11.50 per unit. Mixing has
variable costs of $2.50 per unit in addition to the costs from the Bottle Division. The
annual fixed costs of Mixing were $85,000. There were no beginning or ending
inventories during the year.
Required:
What are the operating incomes of the two divisions and the company as a whole for
the year? Explain why the company’s operating income is less than the sum of the two
divisions’ total income.
40) Explain net income and what implications can tax have on it that influences a
manager’s decision?
41) Bock Construction Company is considering four proposals for the construction of
new loading facilities that will include the latest in ship loading/unloading equipment.
After careful analysis, the company’s accountant has developed the following
information about the four proposals:
Required:
How can this information be used in the decision-making process for the new loading
facilities? Does it cause any confusion?