The numerator in the formula for equivalent units includes all beginning inventory
costs when using the weighted average costing assumption.
Overapplied factory overhead that is material in amount is closed to cost of goods sold
at year end.
Reworking a product is an appraisal cost.
The point of purchase model calculates the materials price variance using the quantity
of materials purchased.
In evaluating alternative courses of action, a manager should select the alternative that
provides the highest incremental benefit to the company.
Customer satisfaction is an example of a qualitative performance measure.
An enterprise resource planning system is composed of numerous software modules.
In a normal cost system, factory overhead is assigned directly to products and services.
Suboptimization occurs when a manager of a cost center focuses on the goals of the
cost center rather than on the goals of the organization as a whole.
Automated technology makes cost control less difficult for a firm.
Efficient inventory management relies largely on cost-minimization strategies.
The effect of substituting a non-standard mix of materials during the production
process is referred to as a material yield variance.
The operating budget is expressed both in units and dollars.
The customer value perspective of the balanced scorecard addresses stakeholder
concerns about profitability and organizational growth.
All of the following objectives are reasons that service department allocations can
motivate managers except to
A. instill a consideration of support costs in production managers.
B. encourage production managers to help service departments control costs.
C. encourage the usage of certain services.
D. determine divisional profitability.
For cost control purposes, fixed costs are classified as
A. product or period costs.
B. discretionary or committed.
C. direct or common.
D. sunk or avoidable.
Houston National Bank
Houston National Bank had the following activities, traceable costs, and
physical flow of driver units:
The above activities are used by the Memorial branch and the University branch:
Refer to Houston National Bank. How much of the loan application cost will be
assigned to the Memorial branch?
A. $3,000
B. $4,800
C. $ 7,800
D. $27,000
Godfrey Corporation would like to institute an activity-based costing system to price
products. The company’s Purchasing Department incurs costs of $550,000 per year and
has six employees. Purchasing has determined the three major activities that occur
during the year.
During the year, 50,000 phone calls were made in the department; 15,000 purchase
orders were issued; and 10,000 shipments were received. Product A required 200 phone
calls, 150 receiving reports, and 50 purchase orders. Product B required 350 phone
calls, 400 receiving reports, and 100 purchase orders.
Colorful Creations Corporation
The Colorful Creations Corporation makes wreaths in two departments: Forming and
Decorating. Forming began the month with 500 wreaths in process that were 100
percent complete as to material and 40 percent complete as to conversion. During the
month, 6,500 wreaths were started. At month end, Forming had 2,100 wreaths that were
still in process that were 100 percent complete as to material and 50 percent complete
as to conversion. Assume Forming uses the weighted average method of process
costing. Costs in the Forming Department are as follows:
The Decorating Department had 600 wreaths in process at the beginning of the month
that were 80 percent complete as to material and 90 percent complete as to conversion.
The department had 300 units in ending Work in Process that were 50 percent complete
as to material and 75 percent complete as to conversion. Decorating uses the FIFO
method of process costing, and costs associated with Decorating are:
Refer to Colorful Creations Corporation. Assume 8,000 units were transferred to
Decorating. Compute the number of equivalent units as to costs in Decorating for the
transferred-in cost component.
A. 7,400
B. 7,700
C. 8,000
D. 8,600
Which of the following would not normally affect the compensation strategy of a
firm?
A. organizational goals
B. location of firm
C. competition
D. number of subsidiaries
The distinction between direct and indirect costs depends on whether a cost
A. is controllable or non-controllable.
B. is variable or fixed.
C. can be conveniently and physically traced to a cost object under consideration.
D. will increase with changes in levels of activity.
Bridges Corporation
The following information has been taken from the cost records of Bridges Corporation
for the past year:
Refer to Bridges Corporation. The cost of raw material purchased during the year was
A. $326.
B. $346
C. $375
D. $426
The criteria that are most often used to decide on allocation bases are?
A. yes yes no
B. yes yes yes
C. no yes yes
D. no no no
Most discretionary costs relate to
A. plant and equipment acquisitions.
B. long-term investments.
C. basic personnel costs.
D. service activities.
The process that determines an allowable product cost while setting market price and
allowing for an acceptable profit margin is known as
A. target costing.
B. product life cycle costing.
C. activity-based costing.
D. responsibility costing.
Jenkins Manufacturing
The following information is available for Jenkins Manufacturing Company for the
month of June when the company produced 2,100 units:
Refer to Jenkins Manufacturing Company. What is the material quantity variance?
A. $275 F
B. $290 F
C. $290 U
D. $275 U
TriCities Corporation
TriCities Corporation adds material at the start to its production process and has the
following information available for August:
Refer to TriCities Corporation. Calculate equivalent units of production for conversion
using FIFO.
A. 30,125
B. 34,325
C. 37,125
D. 39,000
Smith Corporation
Smith Corporation has two service departments: Data Processing and Personnel. Data
Processing provides more service than does Personnel. Smith Corporation also has two
production departments: A and B. Data Processing costs are allocated on the basis of
assets used while Personnel costs are allocated based on the number of employees.
Refer to Smith Corporation. Using the direct method, what amount of Personnel costs is
allocated to B (round to the nearest dollar)?
A. $123,750
B. $206,250
C. $112,500
D. $187,500
The sum of the material price variance (calculated at point of purchase) and material
quantity variance equals
A. the total cost variance.
B. the material mix variance.
C. the material yield variance.
D. no meaningful number.
In which life-cycle stage are product quality improvements and stable selling prices
likely to occur?
A. introduction
B. growth
C. maturity
D. decline
Falcon Crest Corporation manufactures two brands of wine: Regular and Extra Rich
Below is the current year production data for the company:
The 335,000 pounds of material had a total cost of $753,750. Direct labor is $21 per
hour.
The company has total overhead production costs of $2,212,125.
a. If Falcon Crest Corporation applies factory overhead using direct labor hours,
compute the total production cost and the unit cost for each brand
b. If Falcon Crest Corporation applies factory overhead using machine hours, compute
the total production cost and the unit cost for each brand.
c. Assume that Falcon Crest Corporation has established the following activity centers,
cost drivers, and costs to apply factory overhead.
Compute the total cost and the unit cost for each brand.
d. Explain why the unit cost for each model is different across the three methods of
overhead application. How can this information benefit the organization?
The pre-tax cost of capital is higher than the after-tax cost of capital because
A. interest expense is deductible for tax purposes.
B. principal payments on debt are deductible for tax purposes.
C. the cost of capital is a deductible expense for tax purposes.
D. dividend payments to stockholders are deductible for tax purposes.
Cibolo Company
Cibolo Company has the following information available for March when 4,200 units
were produced (round answers to the nearest dollar).
Refer to Cibolo Company. What is the labor rate variance?
A. $3,780 F
B. $3,780 U
C. $3,825 F
D. $3,825 U
A responsibility accounting system provides information to top management about the
A. organizational responsibilities of each subunit manager.
B. performance of each organizational subunit and its manager.
C. ability of each subunit manager to ensure a satisfactory cost to revenue relationship.
D. all of the above.
The formula for margin of safety is
_____________________________________________.
Garfield Company
Garfield Company applies overhead based on direct labor hours and has the following
available for the current month:
Refer to Garfield Company. Compute all the appropriate variances using the
four-variance approach.
The amount of revenue that differs across decision choices is referred to as
______________________________.
In a(n) ____________________ cost system, factory overhead is assigned to an
overhead control account and then allocated to products and services.
When manufacturing overhead is applied to a job in process, the
______________________________ account is credited.
The ratio of income to sales is referred to as ______________________________.
Fancy Food Corporation manufactures a special blend of beef marinade. The company
buys one of the spices used in the marinade in 10-pound bags that cost $5 each. The
company uses 50,000 of the bags per year, and usage occurs evenly throughout the year.
The average cost to carry a 10-pound bag in inventory per year is $1. The cost to place
an order is $12.
1> Determine the economic order quantity for the spice in terms of 10 pound bags.
2> If the company works 250 days per year, on average how many bags of spice are
used per working day?
3> If the lead time for an order is normally five working days, determine the reorder
point.
4> If the company normally carries 50 bags as safety stock, determine the reorder point
for the spice.
A statement that identifies fundamental beliefs about what is important to an
organization is referred to as a ______________________________.
Santa Fe Music, Inc.
Santa Fe Music, Inc. sells electronic keyboards. The following information regarding
operating costs has been extracted from budgets of Santa Fe Music for December of
this year and the first few months of next year:
In addition to the above operating costs, enough keyboards are purchased each month to
maintain the inventory at 40 percent of the projected next month’s sales. The firm is
expected to be in compliance with this policy on December 1. Budgeted sales are:
Refer to Santa Fe Music, Inc. The average cost of a keyboard is $500. Merchandise is
paid for in the month following its purchase. All other expenses are paid in the month in
which they are incurred. On average, a keyboard sells for $1,500. Of each sale, 40
percent of the sales price is collected in the month of sale. The balance is collected in
the month following the sale.
Prepare a cash budget for the first three months of next year. The beginning cash
balance on January 1 is budgeted to be $50,000.
In a _________________________________ project situation, if one project is chosen,
all related projects are also chosen.