1) The classification of costs as variable and fixed depends on the relevant range, the
length of the time horizon, and the specific decision situation.
2) To determine outputs at each stage of production, MRP uses a bill of materials
detailing the materials, components, and subassemblies for each final product.
3) Increased global competition is placing pressure on companies to reduce costs.
4) If variance analysis is used for performance evaluation, managers are encouraged to
meet targets using creativity and resourcefulness.
5) Required rate of return multiplied by the investment is the weighted average cost of
the investment.
6) A fixed cost remains unchanged in total for a given time period, despite wide
changes in the related level
of total activity or volume of output produced.
7) Possible operational causes of an unfavorable direct materials efficiency variance
include poor design of products or processes.
8) Employees logging in to production floor terminals and other modern technologies
greatly facilitate the use of a standard costing system.
9) What is the total amount of the costs listed above that are NOT direct costs of the
Brentwood Store?
A) $161,000
B) $86,000
C) $32,000
D) $38,000
10) Atlanta Radio Supply sells only two products, Product X and Product Y.
Atlanta Radio Supply sells three units of Product X for each two units it sells of Product
Y. Atlanta Radio Supply has a tax rate of 25%.
Required:
a.What is the breakeven point in units for each product, assuming the sales mix is 3
units of Product X for each two units of Product Y?
b.How many units of each product would be sold if Atlanta Radio Supply desired an
after-tax net income of $210,000, using its tax rate of 25%?
11) Lunicious Corporation currently produces baseball caps in an automated process.
Expected production per month is 15,000 units, direct material costs are $3.50 per unit,
and manufacturing overhead costs are $40,000 per month. Manufacturing overhead is
entirely fixed costs. What is the flexible budget for 12,000 and 15,000 units,
respectively?
A) $74,000; $92,500
B) $74,000; $84,500
C) $82,000; $92,500
D) $82,000; $84,500
12) Flify Manufacturing Inc., incurred total indirect manufacturing labor costs of
$500,000. The company is labor intensive. Total labor hours during the period were
5,000. Using qualitative analysis, the manager and the management accountant
determine that over the period the indirect manufacturing labor costs are mixed costs
with only one cost driverlabor-hours. They separated the total indirect manufacturing
labor costs into costs that are fixed ($110,000 based on 8,000 hours of labor) and costs
that are variable ($390,000) based on the number of labor-hours used. The company has
estimated 7,000 labor hours during the next period.
What will be the variable cost per hour?
A) $78
B) $48.75
C) $62.50
D) $100
13) In general, profit potential of an organization decreases with ________.
A) lesser competition and stronger potential entrants
B) greater competition and stronger potential entrants
C) lesser competition and weaker potential entrants
D) greater competition and weaker potential entrants
14) ________ are subtracted from sales to calculate gross margin.
A) Variable manufacturing costs
B) Fixed administrative costs
C) Variable administrative costs
D) Fixed selling costs
15) The best estimate of the total variable cost per unit is:
A) $131.80
B) $53.10
C) $66.40
D) $120.90
16) Trintal Corporation manufactures two models of motorized go-carts, a standard and
a deluxe model. The following activity and cost information has been compiled:
Number of setups and number of components are identified as activity-cost drivers for
overhead. Assuming an activity-based costing system is used, what is the total amount
of overhead cost assigned to the standard model?
A) $13,450
B) $14,350
C) $14,650
D) $15,150
17) Demizio Valley Orchards, Inc. (DVO), developed standard costs for direct material
and direct labor. In 2015, DVO estimated the following standard costs for one of their
most well loved products, the DVO classic Grandma’s large apple pie which had a
brown sugar coating on the top of the crust as well as including cranberry and mince
ingredients in addition to the apples.
During September, DVO produced and sold 1,100 pies using 2,300 pounds of direct
materials at an average cost per pound of $6.00 and 200 direct labor hours at an average
wage of $13.25 per hour.
The direct labor price variance during September is ________.
A) $260.00 unfavorable
B) $280.00 favorable
C) $50.00 unfavorable
D) $50.00 favorable
18) At Deutschland Electronics, product lines are charged for call center support costs
based on sales revenue. Last year’s summary of call center operations revealed the
following:
Deutschland Electronics currently allocates call center support costs using a rate of
0.5% of sales revenue.
Required:
a.Compute the amount of call center support costs allocated to each product line under
the current system.
b.Assume Deutschland decides to use the average call length for information to assign
last year’s support costs. Does this allocation method seem more appropriate than
percentage of sales? Why or why not?
c.Assume Deutschland decides to use the numbers of calls for information and for
warranties to assign last year’s support costs of $65,000. Compute the amount of call
center support costs assigned to each product line under this revised ABC system.
d.Deutschland Electronics assigns bonuses based on departmental profits. How might
the Specialty Products manager try to obtain higher profits for next year if support costs
are assigned based on the average call length for information?
e.Discuss the barriers for implementing ABC for this call center.
19) Which of the following is not a concern for management accountants in formulating
a strategy?
A) identifying the most important warehouse location for the distribution of goods
B) substituting products that exist in the marketplace
C) strategizing compliance with GAAP (Generally Accepted Accounting Principles)
D) maintaining adequate fixed assets available to implement the strategy
20) Lukehart Industries, Inc., produces air purifiers. Lukehart, Inc., produces the air
purifiers in batches. To manufacture a batch of the purifiers, Lukehart, Inc., must set up
the machines and assembly line tooling. Setup costs are batch-level costs because they
are associated with batches rather than individual units of products. A separate Setup
Department is responsible for setting up machines and tooling for different models of
the air purifiers.
Setup overhead costs consist of some costs that are variable and some costs that are
fixed with respect to the number of setup-hours. The following information pertains to
June 2015:
Calculate the production-volume variance for fixed overhead setup costs.
A) $1,800 favorable
B) $1,800 unfavorable
C) $250 unfavorable
D) $250 favorable
21) When 20,000 units are produced, fixed costs are $16 per unit. Therefore, when
16,000 units are produced, fixed costs will ________.
A) increase to $20 per unit
B) remain at $16 per unit
C) decrease to $10 per unit
D) total $160,000
22) Write a linear cost function equation for each of the following conditions. Use y for
estimated costs and X for activity of the cost driver.
a.Direct manufacturing labor is $10 per hour.
b.Direct materials cost $15.60 per cubic yard.
c.Utilities have a minimum charge of $5,000, plus a charge of $0.30 per kilowatt-hour.
d.Machine operating costs include $300,000 of machine depreciation per year, plus
$100 of utility costs for each day the machinery is in operation.
23) ________ is the level of capacity based on producing at full efficiency all the time.
A) Practical capacity
B) Theoretical capacity
C) Normal capacity
D) Demand capacity
24) The partial productivity of overhead resources can be measured by considering the
cost driver as ________.
A) budgeted input
B) the denominator
C) the fixed input
D) the numerator
25) Property taxes on a manufacturing facility are classified as:
Conversion cost Period cost
A) Yes No
B) Yes Yes
C) No Yes
D) No No
26) Assuming previous year’s production capacity was adequate to produce current year
output, the cost effect of growth for fixed costs is calculated by multiplying the
difference between ________ by price per unit of capacity in the previous year.
A) actual units of capacity in current year and actual units of capacity in previous year
B) capacity units required to produce current year output in previous year and the
current year capacity units
C) actual units of capacity in previous year and actual units of capacity in previous year
D) capacity units required to produce previous year output in current year and the
previous year capacity units
27) Briefly explain the planning and control activities in management accounting. How
are these two activities linked to each other?
28) Samiera, Inc., reports the following information for September sales:
Required:
If sales double in October, what is the impact on the variable costs?
29) Discuss in brief how easy it is for companies to classify products as main products,
joint products, and byproducts.
30) What is the difference between an actual cost system and a normal cost system?
31) What are the factors involved in choosing the timing of the feedback in designing
accounting-based performance measures?
32) Describe a variable cost. Describe a fixed cost. Explain why the distinction between
variable and fixed costs is important in cost accounting.
33) Teddy Company uses a standard cost system. In May, $234,000 of variable
manufacturing overhead costs were incurred and the flexible-budget amount for the
month was $240,000. Which of the following variable manufacturing overhead entries
would have been recorded for May?