A company is trying to decide which product to manufacture. The following
information is available:
Costs Product A Product B
Direct Materials 1 $2.00 per unit $2.20 per unit
Direct Materials 2 $1.25 per unit $1.50 per unit
Direct Materials 3 $0.50 per unit $0.80 per unit
Direct Labor $0.70 per unit $0.70 per unit
Which product cost is irrelevant to the decision?
A) Direct Materials 1
B) Direct Materials 2
C) Direct Materials 3
D) Direct Labor
Freedom Company has three departments. Data for the most recent year are presented
below:
Dept. X Dept. Y Dept. Z
Sales $400 $200 $80
Variable expenses 128 52 34
Unavoidable fixed expenses 96 52 12
Avoidable fixed expenses 116 104 54
Required:
A) Compute the operating income for Freedom Company.
B) Compute the contribution margin for each department.
C) Compute the operating income for each department.
D) Which department(s) should be eliminated? Why?
When developing a price for a new product, the price must cover ________.
A) costs in phase-out and product development cycles only
B) costs in mature market and introduction to market cycles only
C) costs in product development and phase-out cycles plus direct production costs
D) costs incurred in all stages of the product life cycle
Contribution margin is equal to ________.
A) sales minus variable costs
B) sales minus fixed costs
C) sales minus variable production costs
D) sales minus production costs
Under the contribution approach to the income statement, the difference between sales
and ________ is contribution margin.
A) cost of goods sold
B) manufacturing costs
C) all variable expenses
D) all fixed expenses
Variable costing net income does not equal absorption costing net income due to
________.
A) variable selling costs
B) variable manufacturing overhead costs
C) fixed manufacturing overhead costs
D) variable and fixed manufacturing overhead costs
________ costs include those costs that a manager’s decisions and actions can influence
to a reasonable degree.
A) uncontrollable
B) controllable
C) third party
D) allocated
In companies with segment autonomy, who determines the transfer price for internal
sales and purchases of products?
A) all segment managers
B) segment mangers involved in transfer
C) upper management
D) outside suppliers
Randy Company acquired 40% of the voting stock of Biel Company for $40 million. At
the end of Year 1, Biel Company reports net income of $15 million and pays cash
dividends of $5 million. At the end of Year 1, the market value of Randy Company’s
investment in Biel Company is $44 million. The ________ method should be used by
Randy Company to account for the investment.
A) market-value
B) consolidated
C) cost
D) equity
The board of directors of Schwinn Company declared a cash dividend. Two weeks later,
the dividend was disbursed to stockholders. The dividend disbursement will ________.
A) decrease net income
B) decrease stockholders’ equity
C) decrease liabilities
D) increase stockholders’ equity
In process costing, the journal entry to transfer completed units from Department A to
Department B would include a ________.
A) Credit to Direct Materials Inventory
B) Debit to Work-In-Process Inventory—Department A
C) Credit to Work-In-Process Inventory—Department B
D) Debit to Work-In-Process Inventory—Department B
Assume machine hours are the cost-allocation base for the budgeted rate for fixed
overhead costs. The total fixed overhead cost applied to a product is the result of
multiplying the ________ by the ________ for the product.
A) budgeted fixed overhead costs; percent of completion
B) actual fixed overhead rate; budgeted machine hours
C) budgeted fixed overhead costs; budgeted machine hours
D) budgeted fixed overhead rate; actual machine hours used
Jantore Industries Inc. reported the following information about the production and sale
of its only product during the first month of operations:
Selling price per unit $65.00
Sales $78,000
Direct materials used $25,000
Direct labor $42,000
Variable factory overhead $17,000
Fixed factory overhead $15,000
Variable selling and administrative expenses $3,000
Fixed selling and administrative expenses $5,000
Production volume variance 0
The company sold one-half of the units it produced. Under absorption costing, what is
the cost of goods sold?
A) $30,000
B) $42,000
C) $49,500
D) $78,000
Potential problems that can limit the benefits of budgeting do NOT include ________.
A) low levels of employee participation in the budget process
B) incentives to lie and cheat in the budget process
C) difficulties in obtaining accurate sales forecasts
D) an emphasis on functional budgeting
In a master budget, a capital budget is used to prepare the ________.
A) sales budget
B) budgeted income statement
C) purchases and cost of goods sold budget
D) cash budget
The IMA’s ethical standard of confidentiality does NOT require each member to
________.
A) keep information confidential except when disclosure is authorized or legally
required
B) inform all relevant parties regarding appropriate use of confidential information
C) refrain from using confidential information for unethical or illegal advantage
D) provide confidential decision support information and recommendations that are
accurate, clear, concise and timely
When evaluating a cost function estimated by least squares regression, it is important to
see if the estimated cost function makes economic sense. This is assessed by ________.
A) examining the sign of the coefficient of determination
B) examining the sign of the fixed cost estimate
C) examining the sign of the variable cost estimate
D) examining the standard deviation of the cost driver
A magazine publisher sells annual subscriptions for magazines. The publisher requires
cash payment before the magazines are sent out. When the first monthly issue is sent
out, the company will ________.
A) increase liabilities and increase assets
B) increase assets and increase revenues
C) increase revenues and decrease liabilities
D) increase liabilities and decrease revenues
The Dorkin Company used regression analysis to predict the annual cost of indirect
materials. The results were as follows:
Indirect Materials Cost
Explained by Units Produced
Constant 4,200
Standard error of Y estimate 2,300
R-Squared 0.78
No. of observations 22
Degrees of freedom 20
X Coefficient 250.25
Standard error of coefficient 22.25
The total fixed cost is ________.
A) $22.25
B) $250.25
C) $2,300
D) $4,200
Davidson Company produces a part that is used in the manufacture of one of its
products. The costs associated with the production of 5,000 units of this part are as
follows:
Direct materials $108,000
Direct labor 156,000
Variable factory overhead 70,000
Fixed factory overhead 168,000
Total costs $502,000
Of the fixed factory overhead costs, $72,000 are avoidable. Assuming there is no other
use for the facilities. What is the highest price Davidson Company should be willing to
pay for 5,000 units of the part?
A) $264,000
B) $334,000
C) $406,000
D) $502,000
On the cash budget, how do we obtain the available cash balance?
A) beginning cash balance
B) minimum cash balance desired
C) total cash increase from financing plus net cash receipts and disbursements
D) beginning cash balance minus minimum cash balance desired
The accounting convention of ________ means selecting the method of measurement
that provides the most pessimistic immediate results.
A) cost benefit
B) objectivity
C) materiality
D) conservatism
Investments of large amounts of cash in plant assets are called ________.
A) cash outflows
B) capital budgeting
C) capital projects
D) capital outlays
Sebring Company has the following data:
Month Budgeted Sales
April $40,000
May 44,000
June 50,000
July 52,000
August 48,000
The cost of goods sold percentage is 70% of sales and the desired ending inventory
level is 25% of next month’s sales at cost. ________ was the beginning inventory on
May 1.
A) $3,300
B) $7,700
C) $8,750
D) $11,000
In job-order costing, all the costs for a particular product or batch of products are
recorded on the ________.
A) materials requisition form
B) labor time ticket
C) time card
D) job-cost record
Amounts owed to vendors for purchases on credit are called ________. Amounts due
from customers for credit sales are called ________.
A) accounts payable; notes receivable
B) notes payable; notes receivable
C) accounts payable; accounts receivable
D) debt payable; debt receivable
Couric Company reported the following information about the production and sale of
its only product during the first month of operations:
Selling price per unit $117.00
Sales $117,000
Direct materials used $37,500
Direct labor $63,000
Variable factory overhead $25,500
Fixed factory overhead $80,000
Variable selling and administrative expenses $4,500
Fixed selling and administrative expenses $7,500
Units produced 2,000 units
Units sold 1,000 units
Production volume variance $0
Under absorption costing, what is the Cost of Goods Sold?
A) $63,000
B) $103,000
C) $126,000
D) $206,000
The function of the value chain that provides support activities to the customer is called
________.
A) marketing
B) distribution
C) customer service
D) consumer relations
The two main components of the master budget are the ________.
A) cash budget and the capital budget
B) purchases budget and the budgeted income statement
C) budgeted income statement and the budgeted balance sheet
D) operating budget and the financial budget
Boston Corporation has a joint process that produces three products: X, Y and Z. Each
product may be sold at split-off or processed further and then sold. Joint-processing
costs for a year amount to $100,000. Other data follows:
Sales Value Separable Processing Sales Value
Product at Split-Off Costs after Split-Off at Completion
X $128,000 $16,000 $160,000
Y 50,000 25,000 77,000
Z 25,600 20,000 40,000
Processing Product Y beyond the split-off point will cause profits to ________.
A) be unchanged
B) increase by $1,000
C) increase by $2,000
D) increase by $27,000
The variable cost of Part X is $50 per unit and the full cost of the part is $80 per unit.
The part is produced in Country Z and transferred to a plant in Country B. Country Z
has a 10% income tax rate. Country B has a 50% income tax rate and an import duty
equal to 10% of the price of the item. Part X can be transferred at full cost or variable
cost. Assume Part X is transferred at full cost. By using full cost instead of variable cost
for the transfer price, the income tax effect per unit in Country B is ________.
A) a decrease in tax by $9 per unit
B) an increase in tax by $9 per unit
C) a decrease in tax by $15 per unit
D) an increase in tax by $15 per unit
The degree of operating leverage for a firm equals the ratio of ________ to ________.
A) fixed costs; variable costs
B) variable costs; fixed costs
C) fixed costs: operating profit
D) contribution margin; net income