Joint costs are incurred beyond the split-off point and are assignable to individual
products.
IMA’s overarching ethical principles include: Honesty, Fairness, Objectivity, and
Responsibility.
The constant gross-margin percentage NRV method is the only method of allocating
joint costs under which products may receive negative allocations.
The unit costs of normal and abnormal spoilage are the same when the two are detected
at the same inspection point.
Companies use safety stock as a buffer against unexpected decreases in demand.
The incremental unit-time learning model with a 80% learning curve indicates that if it
takes 150 minutes to manufacture the first unit of a new model, then the second unit
will take only 120 minutes to manufacture.
With disregard to other factors, direct manufacturing labor efficiency variance is likely
to be unfavorable if underskilled workers are put on a job.
The last step in the decision-making process is to make decisions by choosing among
alternatives.
The stand-alone cost allocation method ranks the individual users of a cost object in
order of users most responsible for a common cost and then uses these rankings to
allocate the costs among the users.
The dual-rate cost-allocation method provides better information for decision making
than the single-rate method as it differentiates between fixed and variable costs and its
allocation.
The journal entry to dispose of the difference between actual conversion costs incurred
and standard conversion costs allocated is different under backflush costing and
sequential tracking.
In general, distribution-channel costs are more easily influenced by customer actions
than customer batch-level costs.
The production cost budget identifies how each product is manufactured and specifies
all the materials, the quantity of materials in each finished product, and the work
centers where the operations will be performed.
Marketing costs will be an irrelevant cost in the decision making of a one-time-only
special order.
A rolling budget is the same as a continuous budget.
When an organization allocated indirect costs to departments by relative size of the
budgets, it is based on the criterion of benefits received.
“Cooking the books” means reporting of understated assets and overstated liabilities.
ABC system are likely to provide the most benefits to a company with significant
amounts of indirect costs that are allocated using just one or two costs pools and
products that make diverse demands on resources.
Return on investment, Residual income, or Economic value added measures are more
appropriate than return on sales because they consider only the investment to measure
the performance.
Interactive control systems are informal information systems managers use to focus the
company’s attention and learning on key strategic issues.
An organization should design its management control system independently of its
strategies, so that the system is not affected by change of strategies in future.
The actual costs of all individual overhead categories are recorded in the Manufacturing
Overhead Control account.
Abnormal spoilage is spoilage inherent in a particular production process.
For best results, cost management emphasizes independently coordinating supply chain
activities within your company and with other companies that act as suppliers and
customers.
If the value of a byproduct drops significantly, it could also be viewed as a joint
product.
In the “Identify projects” stage of capital budgeting, companies gather information from
all parts of the value chain to evaluate alternative projects.
If two different direct materials—such as the circuit board and microphone—are added
to the process at different times, a company will need two different direct-materials
categories to assign direct materials cost.
Required rate of return multiplied by the investment is the weighted average cost of the
investment.
The proration approach restates only the ending balances of two inventory accounts:
work-in-process and finished goods, to what they would have been if actual rates had
been used.
The first step in designing accounting based performance measures is to choose a target
level of performance and feedback mechanism.
Past costs are also called sunk costs because they are unavoidable and cannot be
changed no matter what action is taken.
A company may use absorption costing for external reporting and still choose to use
throughput costing for internal reports.
Some companies present financial and nonfinancial performance measures for various
organization units in a single report called the balanced scorecard.
If contribution margin decreases by $1 per unit, then operating profits will increase by
$1 per unit.
Using net book value as an investment base will result in a lower ROI than using gross
book value as an investment base.
________ is a philosophy in which management improves operations throughout the
value chain to deliver products and services that exceed customer expectations.
A) Cost-benefit approach
B) Customer focus
C) Customer relationship management
D) Total quality management
Which of the following might explain why one manager might assign certain costs to a
cost object while a different manager might assign some different costs to that same
cost object?
A) one manager might classify one cost as direct while another might classify that same
cost as indirect
B) For financial statement purposes, one manager might include all the costs of the
value chain while the other might only only include GAAP cost
C) one manager might value an inventory item for the balance sheet as the sum of all
the value chain costs while another manager might choose to only recognize variable
costs as inventoribale costs for GAAP purposes.
D) one manager might be pricing a cost object while the other manager might be
seeking the inventoriable cost
Extreme Manufacturing Company provides the following ABC costing information:
The above activities are used by Departments A and B as follows:
How much of correspondence costs will be assigned to Department A?
A) $22,000
B) $49,500
C) $11,000
D) $11,242
Mid City Products Inc. (MCP), developed standard costs for direct material and direct
labor. In 2017, MCP estimated the following standard costs for one of their most
popular products.
During September, MCP produced and sold 1,000 units using 1,400 pounds of direct
materials at an average cost per pound of $8.00 and 160 direct labor hours at an average
wage of $13.50 per hour.
The direct material price variance during September is ________.
A) $840 favorable
B) $840 unfavorable
C) $2,600 unfavorable
D) $2,600 favorable
Freemore Company has the following sales budget for the last six months of 2018:
Sales are immediately due, however the cash collection of sales, historically, has been as
follows:
55% of sales collected in the month of sale,
35% of sales collected in the month following the sale,
7% of sales collected in the second month following the sale, and
3% of sales are uncollectible.
Cash collections for October are ________.
A) $102,850
B) $186,360
C) $199,450
D) $181,390
At breakeven point, ________.
A) operating income is equal to zero
B) contribution margin minus fixed costs is equal to profits earned
C) revenues equal fixed costs minus variable costs
D) breakeven revenues equal fixed costs divided by the variable cost per unit
Exceptional Manufacturing Co. wants to classify costs for the product produced at its
facility. The company produces only one product at the facility and operates
continually. The cost categories are:
Product cost
Prime cost
Conversion cost
Period cost
The following costs are found in the accounting records:
a. Quality control inspection wages
b. Raw material purchases
c. Sales commissions
d. Factory depreciation
e. Assembly wages
Required:
Assign each of the above costs to the most appropriate cost categories.
A golf shoe manufacturer makes and sells thousands of golf shoes each year through
two channels: wholesale to sporting good stores and direct to consumers through it’s
custom portal. Customers can specify modifications to 6 basic golf shoe models
including spiked or spikeless, traditional or casual, even laced or other closures. From
there, customers can specify many details to their preferred model such as size and
width (different for each foot), favorite colors for the base, saddle, accents and laces. A
customer can choose to embroidered a name or initials or include the logo of their
favorite MLB, NFL, NHL or NCAA team. Which of the following costing systems
would make the most sense for the custom golf shoe operation and the main product
operation (not customized/wholesale)?
A) Operation-costing and job costing
B) job costing for both operations
C) Operation-costing and process costing
D) process costing for both operations
Games R Us manufactures various games. For March, there were no beginning
inventories of direct materials and no beginning or ending work in process. Conversion
costs is the only indirect manufacturing cost category currently used. Journal entries are
recorded when materials are purchased and when conversion costs are allocated under
backflush costing.
Which of the following entries properly records the cost of goods sold for the month?
A)
B)
C)
D)
Which of the following statements about the cost-benefit approach is true?
A) Resources should be spent if the expected costs exceed the expected benefits of the
company.
B) In a cost-benefit analysis, both costs and benefits are not easy to measure.
C) Resources should be spent if the costs of a decision outweigh the benefits of the
decision.
D) A cost-benefit approach would not be appropriate for a decision to install a
budgeting system.
When corporate-sustaining costs are fully allocated to distribution channels, then the
sum of the operating income from each distribution-channel is ________.
A) greater than company wide operating income
B) equal to company wide operating income
C) equal to customer-level operating income
D) greater than customer-level operating income
Negotiated transfer prices are often employed when ________.
A) market prices are stable
B) market prices are volatile
C) market prices change by a regular percentage each year
D) goal congruence is not a major objective
Batman Abstract Company has three divisions that operate autonomously. Their results
for 2015 are as follows:
The company’s desired rate of return is 20%.
Required:
a. Compute each division’s ROI.
b. Compute each division’s residual income.
c. Rank each division by both ROI and residual income.
d. Which division had the best performance in 2015? Why?
Which of the following taxes does transfer pricing affect?
A) customs duties
B) taxes on dividends received
C) corporate income taxes
D) foreign property taxes
Which of the following is the first stage to the capital budgeting process?
A) forecast all potential cash flows attributable to the alternative projects
B) determine which investment yields the greatest benefit and the least cost to the
organization
C) obtain funding and make the investments selected
D) identify potential capital investments that agree with the organization’s strategy
Which of the following steps are part of the first-in, first-out (FIFO) process-costing
method?
A) assignment of costs of the current period’s equivalent units to the first units
completed and transferred out of the process
B) assumes as part of its first step that the most recently worked on units are completed
and transferred out first
C) assumes as part of its first step that there is no beginning work-in-process
D) assignment of costs of the previous period’s equivalent units in beginning
work-in-process inventory to the first units completed and transferred out of the process
The cost function y = 2,700 + 8X ________.
A) has a slope coefficient of 2,700
B) has an intercept of 8
C) is a straight line
D) represents a fixed cost
The balance sheet of a manufacturing-sector companies would report ________.
A) only merchandise inventory
B) only finished goods inventory
C) direct materials inventory, work-in-process inventory, and finished goods inventory
accounts
D) direct materials inventory and finished goods inventory accounts only
Which of the following is true of target pricing?
A) it is used for short-term pricing decisions.
B) it is one form of cost-based pricing.
C) a price is an estimate of customers’ perceived value of the product.
D) a price is calculated by adding a markup component to the cost base.
The Speedjet Aircraft Corporation has a central materials laboratory. The laboratory has
only two users, the Large Plane Department and the Small Plane Department. The
following data apply to the coming budget year:
Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 60,000 technician hours and
by the Small Plane Department was 80,000 technician hours. If a single-rate
cost-allocation method is used, what amount of materials laboratory costs will be allocated
to the Large Plane Department? Assume actual usage is used to allocate laboratory costs.
A) $10,228,571.4
B) $8,960,000
C) $7,671,429
D) $6,720,000
Ruben is a travel agent. He intends to sell his customers a special round-trip airline
ticket package. He is able to purchase the package from the airline for $140 each. The
round-trip tickets will be sold for $230 each and the airline intends to reimburse Ruben
for any unsold ticket packages. Fixed costs include $5,500 in advertising costs. How
many ticket packages will Ruben need to sell in order to achieve $60,000 of operating
income?
A) 62 packages
B) 667 packages
C) 285 packages
D) 728 packages
Swan Textiles Inc. produces and sells a decorative pillow for $98.00 per unit. In the first
month of operation, 2,200 units were produced and 1,800 units were sold. Actual fixed
costs are the same as the amount budgeted for the month. Other information for the
month includes:
What is the operating income using variable costing?
A) $129,780
B) $69,480
C) $104,580
D) $56,080
Shiffon Electronics manufactures music player. Its costing system uses two cost
categories, direct materials and conversion costs. Each product must pass through the
Assembly Department, the Programming department, and the Testing Department.
Direct materials are added at the beginning of the production process. Conversion costs
are allocated evenly throughout production. Shiffon Electronics uses weighted-average
costing.
The following information is available for the month of March 2017 for the Assembly
department.
What is the direct materials cost per equivalent unit during March? (round to the nearest
dollar)
A) $903
B) $857
C) $575
D) $281
Which of the following ordering of the levels best depicts the cost hierarchy within an
ABC system?
A) batch-level, output unit-level, product-sustaining level, and facility-sustaining level
B) batch-level, output unit-level, facility-sustaining levels, product-sustaining levels
C) output unit-level, batch-level, product-sustaining level, and facility-sustaining level
D) facility-sustaining level, output unit-level, batch-level, product-sustaining level
Plish Company manufactures only one type of washing machine and has two divisions,
the Compressor Division, and the Fabrication Division. The Compressor Division
manufactures compressors for the Fabrication Division, which completes the washing
machine and sells it to retailers. The Compressor Division “sells” compressors to the
Fabrication Division. The market price for the Fabrication Division to purchase a
compressor is $56.00. (Ignore changes in inventory.) The fixed costs for the
Compressor Division are assumed to be the same over the range of 11,000-16,000 units.
The fixed costs for the Fabrication Division are assumed to be $8.50 per unit at 16,000
units.
Compressor’s costs per compressor are:
Direct materials $20
Direct labor $13.50
Variable overhead $3.00
Division fixed costs $7.50
Fabrication‘s costs per completed air conditioner are:
Direct materials $156.00
Direct labor $63.50
Variable overhead $20.00
Division fixed costs $7.50
What is the transfer price per compressor from the Compressor Division to the
Fabrication Division if the method used to place a value on each compressor is 115% of
variable costs?
A) $28.50
B) $41.98
C) $43.00
D) $46.50
Which of the following statements is true of the sales method of accounting for
byproducts?
A) It makes journal entries when the byproducts are produced.
B) It is the preferred method because of the matching principle.
C) It allows a firm to manage its reported earnings by timing the sale of byproducts.
D) This method recognizes the byproduct inventory in the accounting period in which it
is produced.
Which of the following is the best definition of inventory management?
A) planning and control of the flow inventory into and through an organization
B) planning, coordinating, and controlling activities related to the flow of inventory
into, through, and out of an organization
C) planning and coordinating activities related to the flow of inventory into and through
an organization
D) planning, coordinating, and control of inventory into an organization
The variable overhead efficiency variance measures the difference between the
________, multiplied by the budgeted variable overhead cost per unit of the
cost-allocation base.
A) budgeted quantity of the cost-allocation base used and the budgeted quantity of the
cost-allocation base that should have been used to produce the actual output
B) actual quantity of the cost-allocation base used and the budgeted quantity of the
cost-allocation base that should have been used to produce the actual output
C) actual cost incurred and the budgeted quantity of the cost-allocation base that should
have been used to produce the actual output
D) budgeted cost and the actual cost used to produce the actual output
Which of the following is not true of the joint allocation methods?
A) the sales value at the split-off method is the best measure of benefits received
B) when selling prices of all products at the split-off are unavailable, the NRV method
is the best alternative
C) the constant gross-margin percentage NRV method treats the joint products as
though they comprise a single product
D) when selling prices are at the split-off point are available but further processing is
necessary, the NRV method is the preferred allocation method
The Allianz Company produces a specialty wood furniture product, and has the
following information available concerning its inventory items:
Annual demand is 33,000 packages per year. The purchase price per package is $49.
What is the economic order quantity?
A) 1875.37 units
B) 1059.38 units
C) 1498.19 units
D) 2490.78 units
Furniture, Inc., estimates the following number of mattress sales for the first four
months of 2019:
Finished goods inventory at the end of December is 7,000 units. Target ending finished
goods inventory is 20% of the next month’s sales.
How many mattresses need to be produced in January 2019?
A) 27,800 mattresses
B) 30,160 mattresses
C) 41,800 mattresses
D) 44,160 mattresses
Capacity constraints include ________.
A) increased demand of warranty services for a pharmaceutical product
B) increased need of display space for a retailer
C) decreased demand for a pharmaceutical product
D) increased fuel efficiency of cars
Supply the missing data for each of the following proposals:
Which of the following methods utilizes discounted cash flows when analyzing
potential capital expenditures?
Methods:
1. Accrual accounting rate-of-return
2. Internal Rate of Return (IRR)
3. Payback Period
4. Net Present Value (NPV)
A) 1 only
B) 1 and 2
C) 1 and 3
D) 2 and 4
Diemia Hospital has been considering the purchase of a new x-ray machine. The
existing machine is operable for five more years and will have a zero disposal price. If
the machine is disposed now, it may be sold for $120,000. The new machine will cost
$650,000 and an additional cash investment in working capital of $105,000 will be
required. The new machine will reduce the average amount of time required to take the
x-rays and will allow an additional amount of business to be done at the hospital. The
investment is expected to net $130,000 in additional cash inflows during the year of
acquisition and $110,000 each additional year of use. The new machine has a five-year
life, and zero disposal value. These cash flows will generally occur throughout the year
and are recognized at the end of each year. Income taxes are not considered in this
problem. The working capital investment will not be recovered at the end of the asset’s
life.
What is the net present value of the investment, assuming the required rate of return is
16%? Would the hospital want to purchase the new machine?
A) $112,060, yes
B) -$257,620; no
C) -$257,620; yes
D) $52,360; yes
