The primary difference between the FIFO and weighted average methods of process
costing is
a. in the treatment of beginning Work in Process Inventory.
b. in the treatment of current period production costs.
c. in the treatment of spoiled units.
d. none of the above.
The weighted average cost of capital approach to decision making is not directly
affected by the
a. value of the common stock.
b. current budget for capital expansion.
c. cost of debt outstanding.
d. proposed mix of debt, equity, and existing funds used to implement the project.
Profit margin indicates the portion of sales that
a. covers fixed expenses.
b. is not used to cover expenses.
c. equals contribution margin.
d. equals product contribution margin.
Prepare the necessary journal entries from the following information for Parrish
Company, which uses a perpetual inventory system.
a. Purchased raw material on account, $61,200.
b. Requisitioned raw material for production as follows: direct material-75 percent of
purchases; indirect material-20 percent of purchases.
c. Direct labor wages of $35,500 are accrued as are indirect labor wages of $14,100.
d. Overhead incurred and paid for is $68,100.
e. Overhead is applied to production based on 125 percent of direct labor cost.
f. Goods costing $99,500 were completed during the period.
g. Goods costing $53,400 were sold on account for $81,200.
The following information was taken from the records of the Slidell Corporation for the
month of July. (There were no inventories of work in process or finished goods on July
1.)
Indirect manufacturing costs are applied on a direct labor cost basis. The under-applied
balance is due to seasonal variations and will be carried forward. The following cost
estimates have been submitted for the work in process inventory of July 31: material,
$3,000; direct labor, $2,000.
Required:
a. Determine the number of units that were completed and transferred to finished goods
during the month.
b. Complete the estimate of the cost of work in process on July 31.
c. Compute cost of goods manufactured for the month.
d. Determine the cost of each unit completed during the month.
e. Determine the total amount debited to the Overhead Control accounts during the
month.
Crosby Corporation
Crosby Corporation has two service departments: Data Processing and
Administration/Personnel. The company also has three divisions: X, Y, and Z. Data
Processing costs are allocated based on hours of use and Administration/Personnel costs
are allocated based on number of employees.
Assume that Data Processing provides more service than Administration/Personnel.
Refer to Crosby Corporation. Using the direct method, what amount of Data Processing
costs is allocated to Z (round to the nearest dollar)?
a. $211,765
b. $0
c. $152,542
d. $450,000
The internal business perspective of the balanced scorecard addresses how well the
organization is doing with regard to important customer criteria.
Witte Company produces three products from a joint process. The products can be sold
at split-off or processed further. In deciding whether to sell at split-off or process
further, management should
a. allocate the joint cost to the products based on relative sales value prior to making the
decision.
b. allocate the joint cost to the products based on a physical quantity measure prior to
making the decision.
c. subtract the joint cost from the total sales value of the products before determining
relative sales value and making the decision.
d. ignore the joint cost in making the decision.
A firm presently has total sales of $100,000. If its sales rise, its
a. net income based on variable costing will go up more than its net income based on
absorption costing.
b. net income based on absorption costing will go up more than its net income based on
variable costing.
c. fixed costs will also rise.
d. per unit variable costs will rise.
Refer to Richards Company. Cost of Goods Sold was
a. $691.
b. $716.
c. $736.
d. $801.
Careful analysis of the capital budget is an important control activity for
a. variable costs.
b. discretionary costs.
c. committed costs.
d. period costs.
Daybreak Corporation
Daybreak Corporation manufactures and sells two products: A and B. The operating
results of the company are as follows:
In addition, the company incurred total fixed costs in the amount of $10,000.
Refer to Daybreak Corporation. How many total units would the company have needed
to sell to break even?
a. 333
b. 1,111
c. 2,333
d. 3,332
The balanced scorecard perspective that addresses things that an organization needs to
do well to meet customer needs and expectations:
a. learning and growth perspective
b. internal business perspective
c. customer value perspective
d. financial perspective
Eichholtz Company uses 10,000 units of a part in its production process. The costs to
make a part are: direct material, $12; direct labor, $25; variable overhead, $13; and
applied fixed overhead, $30. Eichholtz has received a quote of $55 from a potential
supplier for this part. If Eichholtz buys the part, 70 percent of the applied fixed
overhead would continue. Eichholtz Company would be better off by
a. $50,000 to manufacture the part.
b. $150,000 to buy the part.
c. $40,000 to buy the part.
d. $160,000 to manufacture the part.
Phoenix Corporation
The records of Phoenix Corporation revealed the following data for the current year.
Refer to Phoenix Corporation. Assume that Phoenix has underapplied overhead of
$37,200 and that this amount is material. What journal entry is needed to close the
overhead account? (Round decimals to nearest whole percent.)
a. Debit Work in Process $8,456; Finished Goods $13,294; Cost of Goods Sold $15,450
and credit Overhead $37,200
b. Debit Overhead $37,200 and credit Work in Process $8,456; Finished Goods
$13,294; Cost of Goods Sold $15,450
c. Debit Work in Process $37,200 and credit Overhead $37,200
d. Debit Cost of Goods Sold $37,200 and credit Overhead $37,200
When inventory sits idle in a department, this would notaffect the department’s
a. processing time.
b. throughput.
c. process quality yield.
d. dollar days.
Crosson Corporation
Crosson Corporation operates its factory 300 days per year. Its annual consumption of
Material Y is 1,200,000 gallons. It carries a 10,000 gallon safety stock of Material Y
and its lead time is 12 business days.
Refer to Crosson Corporation. If the EOQ for Material Y is 30,000 gallons, and the
carrying cost per gallon per year is $.25, what is the total annual carrying cost for
Material Y?
a. $3,750
b. $7,500
c. $6,250
d. $10,000
A total variance is best defined as the difference between total
a. actual cost and total cost applied for the standard output of the period.
b. standard cost and total cost applied to production.
c. actual cost and total standard cost of the actual input of the period.
d. actual cost and total cost applied for the actual output of the period.
In a cost of production report using process costing, transferred-in costs are similar to
the
a. cost of material added at the beginning of production.
b. conversion cost added during the period.
c. cost transferred out to the next department.
d. cost included in beginning inventory.
For one product that a firm produces, the manufacturing cycle efficiency is 20 percent.
If the total production time is 12 hours, what is the total manufacturing time?
a. 15.0 hours
b. 60.0 hours
c. 12.0 hours
d. 2.4 hours
If a company used two overhead accounts (actual overhead and applied overhead), the
one that would receive the most debits would be
a. actual overhead.
b. applied overhead.
c. both would receive an equal number of debits.
d. impossible to determine without additional information.
Pearce Company
Pearce Company uses a standard cost system for its production process. Pearce
Company applies overhead based on direct labor hours. The following information is
available for July:
Refer to Pearce Company Using the three-variance approach, what is the spending
variance?
a. $23,850 U
b. $23,850 F
c. $14,280 F
d. $14,280 U
Saturn Corporation
Material A is added at the start of production, while Material B is added uniformly
throughout the process.
Refer to Saturn Corporation Assuming a weighted average method of process costing,
compute the average cost per EUP for Material B.
a. $20.00
b. $31.25
c. $20.10
d. $31.00
Underapplied overhead resulting from unanticipated and immaterial price increases for
overhead items should be written off by
a. decreasing Cost of Goods Sold.
b. increasing Cost of Goods Sold.
c. decreasing Cost of Goods Sold, Work in Process Inventory, and Finished Goods
Inventory.
d. increasing Cost of Goods Sold, Work in Process Inventory, and Finished Goods
Inventory.
Economic value added (EVA) is focused on short-term performance measurement.
Pearce Company
Pearce Company uses a standard cost system for its production process. Pearce
Company applies overhead based on direct labor hours. The following information is
available for July:
Refer to Pearce Company Using the two-variance approach, what is the controllable
variance?
a. $21,650 U
b. $16,480 U
c. $5,775 U
d. $12,080 U
Which of the following is not an objective for computing full cost?
a. to reflect production’s “fair share” of costs
b. to instill a consideration of support costs
c. to reflect usage of services on a fair and equitable basis
d. to provide for cost recovery
Which ethical standard has been violated if an accountant fails to prepare financial
statements according to industry standards?
a. Competence
b. Confidentiality
c. Integrity
d. Credibility
Sensitivity analysis is
a. an appropriate response to uncertainty in cash flow projections.
b. useful in measuring the variance of the Fisher rate.
c. typically conducted in the post investment audit.
d. useful to compare projects requiring vastly different levels of initial investment.
Smith Corporation
Smith Corporation is involved in the evaluation of a new computer-integrated
manufacturing system. The system has a projected initial cost of $1,000,000. It has an
expected life of six years, with no salvage value, and is expected to generate annual cost
savings of $250,000. Based on Smith Corporation’s analysis, the project has a net
present value of $57,625.
Refer to Smith Corporation. What discount rate did the company use to compute the net
present value? Present value tables or a financial calculator are required.
a. 10%
b. 11%
c. 12%
d. 13%
Griffith Corporation
Griffith Corporation is considering an investment in a labor-saving machine.
Information on this machine follows:
Refer to Griffith Corporation. Assume for this question only that Griffith Corporation
uses a discount rate of 16 percent to evaluate projects of this type. What is the project’s
net present value? Present value tables or a financial calculator are required.
a. $(6,283)
b. $(3,806)
c. $(23,451)
d. $(22,000)
What factors influence the present value of the depreciation tax benefit?
A hybrid costing system would be appropriate for a company that manufactures
automobiles.
The customer value perspective of the balanced scorecard addresses stakeholder
concerns about profitability and organizational growth.
If actual overhead exceeds applied overhead, factory overhead is said to be
____________________.
In a standard job-order costing system, factory overhead is applied using predetermined
rates times actual input.
A measuring device that identifies what is happening in a process being controlled is
referred to as a(n) ____________________.
A performance measure that encompasses a firm’s long-run average activity is referred
to as ____________________ capacity.
A search for various feasible combinations of resources and methods that will increase
functionality and reduce costs is referred to as ______________________________.
When raw materials are placed into production, the materials inventory account is
debited.
What are the advantages and disadvantages of market value as a transfer price?
Return on investment was used in the 1900’s to evaluate business operations.
The difference between the standard hours worked for a specific level of production and
the actual hours worked is the labor rate variance.
What role does the budgeting activity play in managerial compensation and
performance evaluation?
The relevant range is valid for all levels of activity.
Tax deferral is the most desirable form of tax treatment for employee compensation
elements.
Target costing is most frequently used in the development stage of a product.
Automated technology makes cost control less difficult for a firm.