1) Management is primarily a human activity that should focus on encouraging
individuals to do their jobs better.
2) As budgeting is not a cross-functional activity, it tends to be accurate and reliable
with regard to forecasts.
3) Cost accounting provides information for both management accounting and financial
accounting professionals.
4) All separable costs in joint-cost allocations are always incremental costs.
5) When faced with a potential ethical conflict, the managerial accountant should first
consult IMA ethics counselor.
6) ABC costing systems cannot be used in marketing decisions.
7) A learning curve is a function that measures how labor-hours per unit decrease, as
units of production decrease.
8) Using job costing in the shipping industry would be more appropriate than process
costing.
9) Peak-load pricing is the practice of charging a lower price for the same product or
service when the demand for it approaches the physical limit of the capacity to produce
that product or service.
10) Fixed manufacturing overhead is a period cost both under variable costing and
under absorption costing.
11) The traditional format income statement provides managers with an income
statement that clearly distinguishes between fixed and variable costs and therefore aids
planning, control, and decision making.
12) Accrual accounting rate of return is calculated by dividing increase in expected
average annual after-tax operating income by the net initial investment.
13) Reverse engineering has the objective of reducing costs while still satisfying
customer needs.
14) All else being equal, an increase in advertising expenditures will ________.
A) reduce operating income
B) reduce contribution margin
C) increase variable costs
D) increase selling price
15) Which of the following is an advantage of using full cost of the product as the cost
base?
A) Managers are informed regarding the minimum long-run cost they need to recover to
stay in business.
B) Using the full cost of the product as a basis for pricing increases the temptation to
cut prices below full costs.
C) Fixed cost allocations can be arbitrary while using full cost of the product as the cost
base.
D) It requires a detailed analysis of cost behavior for computations and hence promotes
a better understanding of the cost behavior.
16) Mariposa Corporation sells “Bigger”, its only product. The following information is
available for the current month:
What is the variable costing breakeven point in units?
A) 833 units
B) 5,556 units
C) 5,838 units
D) 6,000 units
17) Financial accounting is concerned primarily with ________.
A) external reporting to investors, creditors, and government authorities
B) cost planning and cost controls
C) product design and marketing strategies
D) providing information for strategic and tactical decisions
18) Which of the following is true of performance measurement?
A) Preferred performance measures do not change much with changes in factors that
are beyond manager’s control.
B) Sensitive performance measures increases the cost of providing incentives.
C) Less-sensitive performance measures induce managers to improve.
D) Managers’ performances should be evaluated based on the financial measures such
as residual income and economic value added.
19) Emrald Corp currently uses a manufacturing facility costing $500,000 per year;
90% of the facility’s capacity is currently being used. A start-up business has proposed a
plan that would utilize the other 10% of the facility and increase the overall costs of
maintaining the space by 5%.
If the stand-alone method were used, what amount of cost would be allocated to the
start-up business?
A) $48,000
B) $50,000
C) $50,500
D) $52,500
20) Which of the following statements is true of accrual accounting rate of return
(AARR) method and internal rate of return (IRR) method?
A) AARR method calculates the return in absolute terms, whereas IRR method
calculates the result in terms of percentage.
B) The AARR method calculates the return using operating-income numbers after
considering accruals and taxes, whereas the IRR method calculates the return using
after-tax cash flows and the time value of money.
C) The AARR method calculates the return considering the time value of money,
whereas the IRR method calculates the return ignoring the time value of money.
D) The AARR method considers cash flows, whereas the IRR method considers
operating income.
21) Alex Miller, Inc., sells car batteries to service stations for an average of $30 each.
The variable cost of each battery is $20 and monthly fixed manufacturing costs total
$10,000. Other monthly fixed costs of the company total $8,000.
Required:
a.What is the breakeven point in batteries?
b.What is the margin of safety, assuming sales total $60,000?
c.What is the breakeven level in batteries, assuming variable costs increase by 20%?
d.What is the breakeven level in batteries, assuming the selling price goes up by 10%,
fixed manufacturing costs decline by 10%, and other fixed costs decline by $100?
22) Outside the relevant range, variable costs, such as direct material costs ________.
A) will decrease proportionately with changes in sales volumes
B) will remain the same with changes in production volumes
C) will not change proportionately with changes in production volumes
D) will increase proportionately with changes in sales volumes
23) Wilson’s Winter Woolens manufactures jackets and other wool clothing. A certain
designed ski parka requires the following:
During the third quarter, the company made 1,500 parkas and used 3,150 square yards
of fabric costing $39,375. Direct labor totaled 2,100 hours for $45,150.
Required:
a.Compute the direct materials price and efficiency variances for the quarter.
b.Compute the direct manufacturing labor price and efficiency variances for the quarter.
24) Bullz Company manufactures an energy drink. The company uses a budgeted
indirect-cost rate for its manufacturing operations and during 2014 allocated $1,000,000
to work-in-process inventory. Actual overhead incurred was $1,200,000.
Ending balances in the following accounts are:
Required:
a.Prepare a journal entry to write off the difference between allocated and actual
overhead directly to Cost of Goods Sold. Be sure your journal entry closes the related
overhead accounts.
b.Prepare a journal entry that prorates the write-off of the difference between allocated
and actual overhead using ending account balances. Be sure your journal entry closes
the related overhead accounts.