Wilde Corporation budgeted the following costs for the production of its one and only
product for the next fiscal year:
Wilde has an annual target operating income of $920,000.
The markup percentage for setting prices as a percentage of variable manufacturing costs
is ________.
A) 52.83%
B) 89.73%
C) 65.31%
D) 21.17%
DesMoines Valley Company has two divisions, Computer Services and Consultancy
Services. In addition to their external customers, each division performs work for the
other division. The external fees earned by each division in 20X5 were $200,000 for
Computer Services and $350,000 for Consultancy Services. Computer Services worked
3,000 hours for Consultancy Services, who, in turn, worked 1,200 hours for Computer
Services. The total costs of external services performed by Computer Services were
$110,000 and $240,000 by Consultancy Services.
Required:
a. Determine the operating income for each division and for the company as a whole if
the transfer price from Computer Services to Consultancy Services is $15 per hour and
the transfer price from Consultancy Services to Computer Services is $12.50 per hour.
b. Determine the operating income for each division and for the company as a whole if
the transfer price between divisions is $17 per hour.
c. What are the operating income results for each division and for the company as a
whole if the two divisions net the hours worked for each other and charge $12.50 per
hour for the one with the excess? Which division manager prefers this arrangement?
Which of the following assumes that capacity will be decreased because of slowdowns
due to plant maintenance or other interruptions of the production lines?
A) Practical capacity
B) Theoretical capacity
C) Master-budget capacity utilization
D) Normal capacity utilization
Forise Water Company drills small commercial water wells. The company is in the
process of analyzing the purchase of a new drill. Information on the proposal is
provided below.
Initial investment:
Asset $700,000
Working capital $188,000
Operations (per year for four years):
Cash receipts $530,000
Cash expenditures $240,000
Disinvestment:
Salvage value of drill (existing) $120,000
Discount rate 18%
What is the net present value of the investment? Assume there is no recovery of
working capital.
A) -$188,000
B) $12,100
C) $290,000
D) $200,100
Handley Manufacturing Company has prepared the following flexible budget for
August and is in the process of interpreting the variances. F denotes a favorable
variance and U denotes an unfavorable variance.
The actual amount spent for Material B was ________.
A) $58,200
B) $59,800
C) $61,000
D) $62,200
For each of the following items identify whether it is spoilage, reworked units, or scrap.
________ a. Defective shirts sold as seconds
________ b. End cuts from suit-making operations that are discarded
________ c. Edges from plastic moldings that is a low value byproduct
________ d. Carpets sold as seconds in a factory outlet at a deep discount
________ e. Precision tools that are not built successfully to the necessary tolerance,
but which can be successfully converted to a saleable product
________ f. Rock extracted as a result of mining processing
________ g. Complex defective products such as semiconductors
Which of the following is the mathematical expression of contribution margin ratio?
A) Contribution margin ratio = Contribution margin percentage × Revenues (in dollars)
B) Contribution margin ratio = Contribution margin percentage × Fixed costs (in
dollars)
C) Contribution margin ratio = Contribution margin percentage × Variable costs (in
dollars)
D) Contribution margin ratio = Contribution margin percentage × Operating leverage
High Traffic Products Corporation has two departments, Small and Large. Central costs
could be allocated to the two departments in various ways.
If total rent expense of $71,550 is allocated on the basis of square footage, the amount
allocated to the Small Department would be ________. (Do not round interim calculations.
Round the final answer to the nearest whole dollar.)
A) $51,900
B) $19,650
C) $35,775
D) $27,090
A job-cost sheet details the ________.
A) direct materials purchased and paid
B) direct labor costs incurred
C) indirect labor costs incurred
D) actual indirect overhead costs incurred
Midend’s Camera Shop has prepared the following flexible budget for September and is
in the process of interpreting the variances. F denotes a favorable variance and U
denotes an unfavorable variance.
The actual amount spent for Material B was ________.
A) $38,600
B) $37,800
C) $40,200
D) $39,400
If cost accountants decide to use production of prior periods as a cost driver for repair
cost of the current period they understand that
A) there is no correlation between repair costs and levels of production
B) repair costs tend to lag periods of high production
C) cost accountants do not need to understand operations
D) there is no cause-and-effect between production and repair costs
The cost allocation base ________.
A) is a grouping of individual indirect cost items
B) are costs related to a particular cost object that cannot be traced to that cost object in
an economically feasible way
C) is anything for which a measurement of costs is desired
D) is a systematic way to link an indirect cost or group of indirect costs to cost objects
The Alfarm Corporation processes raw milk up to the split-off point where two
products, cream and liquid skim, are produced and sold. There was no beginning
inventory. The following material was collected for the month of February:
The cost of purchasing 820,000 gallons of direct materials and processing it up to the
split-off point to yield a total of 797,500 gallons of good product was $2,350,000. What
are the physical-volume proportions to allocate joint costs for cream and liquid skim,
respectively?
A) 54.02% and 45.98%
B) 55.55% and 44.45%
C) 50.00% and 50.00%
D) 53.17% and 46.83%
Cysco Corp has a budget of $1,202,000 in 2017 for prevention costs. If it decides to
automate a portion of its prevention activities, it will save $100,000 in variable costs.
The new method will require $50,000 in training costs and $149,000 in annual
equipment costs. Management is willing to adjust the budget for an amount up to the
cost of the new equipment. The budgeted production level is 205,000 units.
Appraisal costs for the year are budgeted at $505,000. The new prevention procedures
will save appraisal costs of $50,600. Internal failure costs average $34 per failed unit of
finished goods. The internal failure rate is expected to be 6% of all completed items.
The proposed changes will cut the internal failure rate by one-half. Internal failure units
are destroyed. External failure costs average $58 per failed unit. The company’s average
external failures average 2.7% of units sold. The new proposal will reduce this rate to
2%. Assume all units produced are sold and there are no ending inventories.
What is the net change in the budget of prevention costs if the procedures are automated
in 2017? Will management agree with the changes?
A) $100,000 decrease, yes
B) $99,600 decrease, yes
C) $100,000 increase, no
D) $99,600 increase, yes
Which of the following costs is inventoried when using absorption costing?
A) variable selling costs
B) fixed administrative costs
C) variable manufacturing costs
D) fixed selling costs
New-product development time is the time taken to ________.
A) test the prototype and start the large scale production of a product
B) design and develop the prototype product
C) create new products and bring them to market
D) improvise existing products and re-launch them to market
A product is sold for $130. Its cost consists of $25 of direct materials, $10 of direct
labor, and $30 of manufacturing overhead. What is the throughput margin?
A) $105
B) $95
C) $130
D) $65
Globe Inc. is a distributor of DVDs. DVD Mart is a local retail outlet which sells blank
and recorded DVDs. DVD Mart purchases DVDs from Globe at $30.00 per DVD;
DVDs are shipped in packages of 66. Globe pays all incoming freight, and DVD Mart
does not inspect the DVDs due to Globe’s reputation for high quality. Annual demand is
312,000 DVDs at a rate of 6500 DVDs per week. DVD Mart earns 10% on its cash
investments. The purchase-order lead time is one week. The following cost data are
available:
How many deliveries will be made during each time period?
A) 63.71 deliveries
B) 39.89 deliveries
C) 90.10 deliveries
D) 62.84 deliveries
Sunk costs ________.
A) are future costs for decision making
B) are avoidable costs
C) are irrelevant for decision making
D) are foregone contribution by not using a limited resource in its next-best alternative
use
The collection of cost data in an organized way, such as in various categories such as
materials, labor, and manufacturing overhead, is called:
A) cost application
B) cost accumulation
C) cost assignment
D) cost reporting
Sensitive performance measures ________.
A) the salary component of the managers
B) are not affected by managers’ performance and fail to induce them to improve
C) motivate the manager as well as limit the manager’s exposure to risk, reducing the
cost of providing incentives.
D) increases the exposure of credit
Which of the following statements is false with regards to departmental cost
allocations?
A) amounts allocated to departments will most likely differ depending on the cost
allocation method used
B) the total amount allocated among departments will differ in total depending on the
cost allocation method used
C) the reciprocal method is usually the most conceptually precise method because it
considers mutual services provided among all support departments
D) the step-down and direct methods are simple for managers to compute and
understand relative to the reciprocal method
Which of the following companies is part of the service sector of our economy?
A) Macy’s
B) KPMG
C) Apple Inc.
D) Amazon.com
A decision model involves a(n) ________.
A) informal method of making a choice at the lower level management using sensitivity
analysis
B) formal method of making a choice that often involves both quantitative and
qualitative analyses
C) informal method of making a choice which is discussed in detailed in the financial
reports
D) formal method of making a choice at the lower level management using advanced
management techniques such as balance scorecard
The Green Company processes unprocessed goat milk up to the split-off point where
two products, condensed goat milk and skim goat milk result. The following
information was collected for the month of October:
The costs of purchasing the of unprocessed goat milk and processing it up to the split-off
point to yield a total of 102,000 gallons of saleable product was $188,480. There were no
inventory balances of either product. Condensed goat milk may be processed further to
yield 42,000 gallons (the remainder is shrinkage) of a medicinal milk product, Xyla, for an
additional processing cost of $4 per usable gallon. Xyla can be sold for $20 per gallon.
Skim goat milk can be processed further to yield 58,200 gallons of skim goat ice cream,
for an additional processing cost per usable gallon of $4. The product can be sold for $12
per gallon.
There are no beginning and ending inventory balances.
What is the estimated net realizable value of the skim goat ice cream at the split-off point?
A) $465,600
B) $476,000
C) $672,000
D) $680,000
A plot of data that results in one extreme observation most likely indicates that
________.
A) more than one cost pool should be used
B) an unusual event such as a plant shutdown occurred during that month
C) the cost-allocation base has been incorrectly identified
D) individual cost items do not have the same cost driver
If the sales mix shifts to one unit of Product X and two units of Product Y, then the
weighted-average contribution margin will ________.
A) increase per unit
B) stay the same
C) decrease per unit
D) decrease by $0.50 per unit
The new cost analyst in your accounting department has just received a
computer-generated report that contains the results of a simple regression program for
cost estimation. The summary results of the report appear as follows:
Variable Coefficient Standard Error t-Value
Constant $74.79 $16.82 4.45
Independent variable $1,081.76 $215.67 5.02
r2 = 0.75
Required:
a. What is the cost estimation equation according to the report?
b. What is the goodness of fit? What does it tell about the estimating equation?
Which of the following statements is true of productivity factors?
A) Partial-productivity focus on a multiple inputs simultaneously.
B) Total factor productivity (TFP) focus on a single input.
C) It is the ratio of the quantity of output produced to the costs of all inputs used based
on current prices.
D) Comparable data for total factor productivity measurements are easily available.
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 70,000 technician hours and
by the Small Plane Department was 90,000 technician hours. If a single-rate
cost-allocation method is used, what is the allocation rate per hour used? (Round the final
answer to the nearest dollar.)
A) $120.50
B) $101.60
C) $158.75
D) $77.12
Care Inc., has two divisions that operate independently of one another. The financial
data for the year 2015 reported the following results:
North South
Sales $6,000,000 $5,000,000
Operating income 1,700,000 1,300,000
Taxable income 1,700,000 775,000
Investment 15,000,000 11,000,000
The company’s desired rate of return is 10%. Income is defined as operating income.
Which division has the best return on investment and which division has the best
residual income figure, respectively?
A) North, North
B) South, South
C) North, South
D) South, North
Managers use cost-volume-profit (CVP) analysis to ________.
A) forecast the cost of capital for a given period of time
B) to study the behavior of and relationship among the elements such as total revenues,
total costs, and income
C) estimate the risks associated with a given job
D) analyse a firm’s profitability and help to decide wealth distribution among its
stakeholders
Which of the following statements is true of joint production process and its
components?
A) Distribution costs incurred beyond the split-off point assignable to each of the
specific products identified at the split-off point are considered as joint costs.
B) Decisions relating to the sale or further processing of each identifiable product can
be made independently of decisions about the other products beyond the split-off point.
C) When a joint production process yields two or more products with low total sales
values relative to the total sales values of other products, those products are called joint
products.
D) The primary purpose of joint costing is to allocate the separable costs to the
individual products that are eventually sold.
The following information is for Alex Corp:
What is the breakeven point assuming the sales mix consists of two units of Product X and
one unit of Product Y?
A) 842.5 units of Y and 1,685 units of X
B) 3,000 units of Y and 1,500 units of X
C) 1 units of Y and 10,000 units of X
D) 1,500 units of Y and 3,000 units of X
