Following a strategy of product differentiation, Izzy’s Limited Company makes a
high-end Appliance, XT15. Izzy’s Limited presents the following data for the years
2017 and 2018:
Izzy’s Limited produces no defective units but it wants to reduce direct materials usage per
unit of XT15. Manufacturing conversion costs in each year depend on production capacity
defined in terms of XT15 units that can be produced. Selling and customer-service costs
depend on the number of customers that the customer and service functions are designed to
support. Izzy’s Limited had 160 customers in 2017 and 165 customers in 2018.
What is the net effect on operating income as a result of the price-recovery component?
(Round any intermediary calculations to two decimals and your final answer to the nearest
dollar.)
A) $1,292,700 F
B) $1,545,000 U
C) $1,292,700 U
D) $1,545,000 F
Dalrymple Company produces a special spray nozzle. The budgeted indirect total cost
of inserting the spray nozzle is $68,750. The budgeted number of nozzles to be inserted
is 11,000. What is the budgeted indirect cost allocation rate for this activity?
A) $0.16
B) $0.32
C) $1.16
D) $6.25
Jack’s Back Porch manufactures rustic furniture. The cost accounting system estimates
manufacturing costs to be $300 per table, consisting of 60% variable costs and 40%
fixed costs. The company has surplus capacity available. It is Jack’s Back Porch’s policy
to add a 70% markup to full costs.
Jack’s Back Porch is invited to bid on a one-time-only special order to supply 150 rustic
tables. What is the lowest price Jack’s Back Porch should bid on this special order?
A) $45,000
B) $18,000
C) $27,000
D) $76,500
Product costs used for government contracts generally include ________.
A) marketing costs, and customer service costs
B) design costs and production costs
C) all the costs for pricing and product-mix decisions
D) production costs, distribution costs, marketing costs, and customer service costs
Slickware sells porcelain cups. The breakeven point is 5,000 units. The variable cost per
unit is $12 and the fixed costs are $20,000. What is the selling price?
A) $16
B) $24
C) $28
D) $20
Hartley’s Meat Pies is considering replacing its existing delivery van with a new one.
The new van can offer considerable savings in operating costs. Information about the
existing van and the new van follow:
Existing van New van
Original cost $50,000 $93,000
Annual operating cost $17,500 $11,000
Accumulated depreciation $32,000 —
Current salvage value of the existing van $23,500 —
Remaining life 10 years 10 years
Salvage value in 10 years $ 0 $ 0
Annual depreciation $1,800 $9,300
Relevant costs for this decision include ________.
A) the original cost of the existing van
B) accumulated depreciation
C) the annual operating cost
D) the book value of the existing van
In joint costing, which method assumes that all the markup is attributable to the joint
process costs?
A) sales value at split-off method
B) NRV method
C) constant gross-margin percentage method
D) physical measures method
Flash City Inc. manufactures small flash drives and is considering raising the price by
75 cents a unit for the coming year. With a 75-cent price increase, demand is expected
to fall by 7,000 units.
Current Projected
Demand 78,000 units 71,000 units
Selling price $9.00 $9.75
Incremental cost per unit $6.80 $6.80
Would you recommend the 75-cent price increase?
A) No, because demand decreased.
B) No, because the selling price increases.
C) Yes, because contribution margin per unit increases.
D) Yes, because operating profits increase.
Which of the following cost and cost allocation base have a strong cause and effect
relationship?
A) administration costs and cubic feet
B) setup costs and square feet
C) quality control costs and the number of inspections
D) machine maintenance and setup hours
The approach often used when dealing with small amounts of underallocated or
overallocated overhead is the ________.
A) adjusted allocation-rate approach
B) proration approach
C) write-off to cost of goods sold approach
D) adjusted write-off approach
Which of the following is true about the process of making cost allocations?
A) the costs of designing and implementing a cost allocation system are less visible
than the benefits of such a system
B) a cost benefit-analysis cannot be performance on cost allocation systems because the
benefits are difficult to estimate
C) the costs of cost allocation systems is mostly the cost of collection
D) as the cost of collecting and processing cost allocation information decreases, it
becomes more economically feasible to provide more detailed cost allocations
A budget ________.
A) is the qualitative expression of a proposed plan of action by management
B) is an aid for coordinating what needs to be done to execute a plan
C) helps in identifying problems and uncertainties
D) promotes production automation
A report that measures financial and nonfinancial performance measures for various
organization units in a single report is called a(n) ________.
A) balanced scorecard
B) financial report scorecard
C) goal-congruence report
D) investment success report
In the service sector, to achieve timely reporting on the profitability of an engagement,
a company will use ________.
A) budgeted rates for all direct costs
B) budgeted rates for indirect costs
C) actual costing
D) budgeted rates for some direct costs and indirect costs
Dantley’s Furniture manufactures rustic furniture. The cost accounting system estimates
manufacturing costs to be $240 per table, consisting of 75% variable costs and 25%
fixed costs. The company has surplus capacity available. It is Back Forrest’s policy to
add a 45% markup to full costs. A large hotel chain is currently expanding and has
decided to decorate all new hotels using the rustic style. Dantley’s Furniture
Incorporated is invited to submit a bid to the hotel chain. What is the lowest price per
unit Dantley’s Furniture should bid on this long-term order?
A) $168
B) $180
C) $240
D) $348
At the Spring Valley Company, the cost of the personnel department has always been
charged to production departments based upon number of employees. Recently,
opinions gathered from the department managers indicate that the number of new hires
might be a better predictor of personnel costs.
Total personnel department costs are $299,000.
Department A B C
Number of employees 80 280 225
Number of new hires 15 17 16
If the number of employees is considered the cost driver, what amount of personnel
costs will be allocated to Department A? (Round any intermediary calculations to two
decimal places and your final answer to the nearest dollar.)
A) $41,860
B) $7,085
C) $143,111
D) $44,874
Activity-based budgeting makes it easier to ________.
A) determine a rolling budget
B) prepare pro forma financial statements
C) determine how to reduce costs
D) execute a financial budget
Hartley’s Meat Pies is considering replacing its existing delivery van with a new one.
The new van can offer considerable savings in operating costs. Information about the
existing van and the new van follow:
Existing van New van
Original cost $56,000 $95,000
Annual operating cost $22,500 $15,000
Accumulated depreciation $33,000 —
Current salvage value of the existing van $27,500 —
Remaining life 10 years 10 years
Salvage value in 10 years $ 0 $ 0
Annual depreciation $2,300 $9,500
If Hartley’s Meat Pies replaces the existing delivery van with the new one, over the next
10 years operating income will ________.
A) decrease by $95,000
B) increase by $75,000
C) decrease by $75,000
D) increase by $95,000
Which of the following is an example of time-series data:
A) loan processing times in each of 26 similar branch offices over the last 12 months
B) Direct labor hours in the Boston, Massachusetts and the New York City facility for
each of the last 12 months
C) indirect labor costs and machine-hours in a manufacturer’s assembly department
each month for the last 12 months
D) Store sales for each U.S. based Wal-Mart for each the last 10 years.
Which of the following statements is true of relevant inventory costs?
A) The salaries paid to clerks, stock keepers, and materials handlers are relevant
carrying costs if they are unaffected by changes in inventory levels.
B) The costs of expediting an order from a supplier are relevant incremental costs of
stockouts.
C) Warehouse rent, warehouse workers’ salaries and costs of insurance, that change
with the quantity of inventory held are irrelevant carrying costs.
D) Those ordering costs that change with the number of orders placed are irrelevant
ordering costs.
The Comil Corporation recently purchased a new machine for its factory operations at a
cost of $328,325. The investment is expected to generate $115,000 in annual cash flows
for a period of four years. The required rate of return is 13%. The old machine has a
remaining life of four years. The new machine is expected to have zero value at the end
of the four-year period. The disposal value of the old machine at the time of
replacement is zero. What is the internal rate of return?
A) 12%
B) 13%
C) 14%
D) 15%
Which of the following projects is rejected on the basis of net present value method?
A) Project A with an NPV of $10,000
B) Project B with an NPV of $(15,000)
C) Project C with an NPV of $21,000
D) Project D with an NPV of $1200
Quantitative factors ________.
A) include financial information, but not nonfinancial information
B) include both financial and nonfinancial information
C) are always relevant when making decisions
D) include employee morale
Engineered costs ________.
A) possess a high level of uncertainty but are significant costs when they are incurred
B) are non repetitive but are physically observable
C) are from physically observable activities and have a repetitive relationship with
output
D) are embedded in the manufacturing process but have no measurable cause-and-effect
relationship between output and resources used
When managers set and measure target levels of performance and feedback, ________.
A) the historical-cost-based accounting measures are usually adequate for evaluating
economic returns on new investments
B) the historical-cost ROIs cannot be used to evaluate current performance
C) the timing of feedback is not dependent on the sophistication of the organization’s
information technology
D) how critical the information is for success of the organization and the management
level receiving the feedback
Advanced Enterprises reports year-end information from 2018 as follows:
Advanced is developing the 2019 budget. In 2019 the company would like to increase
selling prices by 14.5%, and as a result expects a decrease in sales volume of 9%. All other
operating expenses are expected to remain constant. Assume that cost of goods sold is a
variable cost and that operating expenses are a fixed cost.
Should Advanced increase the selling price in 2019?
A) Yes, because operating income increases for 2019.
B) Yes, because sales revenue increases for 2019.
C) No, because sales volume decreases for 2019.
D) No, because gross margin decreases for 2019.
John’s 8-year-old Chevrolet Trail Blazer requires repairs estimated at $7,000 to make it
road worthy again. His wife, Sherry, suggested that he should buy a 5-year-old used
Jeep Grand Cherokee instead for $7,000 cash. Sherry estimated the following costs for
the two cars:
Trail Blazer Grand Cherokee
Acquisition cost $30,000 $7,000
Repairs $7,000 —
Annual operating costs
(Gas, maintenance, insurance) $2,580 $1,700
What should John do? What are his savings in the first year?
A) Buy the Grand Cherokee; $8,700
B) Fix the Trail Blazer; $4,380
C) Buy the Grand Cherokee; $880
D) Fix the Trail Blazer; $7,247
Presented below are the production data for the first six months of the year for the
mixed costs incurred by Venus Company.
Month Cost Units
January $5,210 4,100
February $4,800 3,200
March $6,780 5,470
April $10,250 8,200
May $5,900 5,030
June $7,370 6,570
Venus Company uses the high-low method to analyze mixed costs.
What is the estimated total cost at an operating level of 6,300 units?
A) $9,450
B) $8,179
C) $6,867
D) $7,875
Classic Products Company manufactures colonial style desks. Some of the company’s
data was misplaced. Use the following information to replace the lost data:
What is the total static-budget variance?
A) $11,790 favorable
B) $7,350 favorable
C) $4,440 unfavorable
D) $4,440 favorable
Classifying a cost as either direct or indirect depends upon ________.
A) the behavior of the cost in response to volume changes
B) whether the cost is expensed in the period in which it is incurred
C) whether the cost can be traced to a particular cost object in an economically feasible
way
D) whether a cost is fixed or variable