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Which of the following statements is true of an abnormal spoilage?
A) It is a spoilage which is inherent in a particular production process.
B) It arises even when the process is carried out in an efficient manner.
C) It is usually regarded as avoidable and controllable.
D) The costs of abnormal spoilage are typically included as a component of the costs of
good units manufactured.
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 140 customers in 2017 and 145 customers in 2018.
What is operating income in 2018?
A) $7,463,500
B) $15,841,900
C) $9,212,000
D) $15,921,775
Which of the following statements is true of lean accounting?
A) It is much complex than traditional product costing but produces more accurate
product unit costs.
B) It does not always compute costs for individual products but does emphasize product
costs by value stream.
C) It omits recording some of the journal entries relating to the stages from the purchase
of direct materials to the sale of finished goods.
D) It is acceptable under GAAP.
The minimum annual acceptable rate of return on an investment is the ________.
A) accrual accounting rate of return
B) hurdle rate
C) internal rate of return
D) net present value
Which of the following is a limitation of AARR method?
A) It is difficult to compare projects as its result is expressed in dollars and not in
percentage terms.
B) It does not consider income earned throughout a project's expected useful life.
C) It does not track initial investment.
D) It does not consider time value of money.
Managers who feel that top management does not believe in the budget are most likely
to ________.
A) pick up the slack and participate in the budgeting process
B) to face little interference in the day-to-day aspects of running the business
C) be less engaged participants in the budgeting process and less committed to
achieving budgeted targets
D) convert the budget to a shorter more reasonable time period that will help with real
time reporting
Which of the following is true of COQ measures?
A) They forecast customer satisfaction and employee satisfaction, which are useful
indicators of long-run performance.
B) They help managers evaluate costs and benefits of incurring prevention and
appraisal costs
C) They direct attention to financial processes that help managers identify the precise
problem areas that need improvement.
D) They provide immediate short-run feedback on whether quality-improvement efforts
are succeeding.
NOT allocating some corporate costs to divisions and products results in which of the
following?
A) an increase in overall corporate profitability
B) the sum of individual product profitability being less than overall company
profitability
C) the sum of individual product profitability being greater than overall company
profitability
D) a decrease in overall corporate profitability
Which of the following is true of plant utility costs?
A) It increases the Materials Control account.
B) It increases the Manufacturing Overhead Control account.
C) It increases the Work-in-Process Control account.
D) It is a direct cost.
Cysco Corp has a budget of $1,207,000 in 2017 for prevention costs. If it decides to
automate a portion of its prevention activities, it will save $109,000 in variable costs.
The new method will require $50,300 in training costs and $144,000 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 202,000 units.
Appraisal costs for the year are budgeted at $501,000. The new prevention procedures
will save appraisal costs of $50,100. Internal failure costs average $36 per failed unit of
finished goods. The internal failure rate is expected to be 5% 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 $56 per failed unit. The company's average
external failures average 4.1% of units sold. The new proposal will reduce this rate to
2%. Assume all units produced are sold and there are no ending inventories.
How much do external failure costs change if all the changes are as the new prevention
procedures anticipated? Assume all units produced are sold and there are no ending
inventories.
A) $279,576 decrease
B) $237,552 decrease
C) $226,240 decrease
D) $254,520 decrease
Archoid's Flowering Plants provides the following information for the month of May:
What is the budgeted contribution margin per composite unit for the budgeted mix?
(Round any intermediary calculations two decimal places.)
A) $17.02
B) $15.20
C) $19.00
D) $15.98
Outose Concept manufactures small tables in its Processing Department. Direct
materials are added at the initiation of the production cycle and must be bundled in
single kits for each unit. Conversion costs are incurred evenly throughout the
production cycle. Before inspection, some units are spoiled due to undetectable
materials defects. Inspection occurs when units are 60% converted. Spoiled units
generally constitute 6% of the good units. Data for December 2017 are as follows:
What is the number of total spoiled units?
A) 10,435 units
B) 4338 units
C) 4162 units
D) 8500 units
There is no output-level variance for variable costing, when ________.
A) the inventory level decreases during the period
B) the inventory level increases during the period
C) fixed manufacturing overhead is allocated to work in process
D) fixed manufacturing overhead is not allocated to work in process
Which of the following is true of an opportunity cost?
A) It is the income foregone by not using a resource in an alternative way.
B) The higher the opportunity costs, the lower is the relevant cost.
C) It is recorded as an expense in the accounting records.
D) It is an unavoidable cost that cannot be changed no matter what action is taken.
The following information pertains to the January operating budget for Casey
Corporation.
∙ Budgeted sales for January $206,000 and February $109,000.
∙ Collections for sales are 50% in the month of sale and 50% the next month.
∙ Gross margin is 25% of sales.
∙ Administrative costs are $19,000 each month.
∙ Beginning accounts receivable is $29,000.
∙ Beginning inventory is $14,000.
∙ Beginning accounts payable is $74,000. (All from inventory purchases.)
∙ Purchases are paid in full the following month.
∙ Desired ending inventory is 20% of next month's cost of goods sold (COGS).
At the end of January, budgeted ending inventory is ________.
A) $5,450
B) $16,350
C) $21,800
D) $30,350
A limitation of using past performance as a basis for judging actual results is that
________.
A) future conditions can be different from the past
B) any undervaluation of profits in the past period is likely to continue
C) any subsequent change in accounting treatment will distort performance evaluation
D) they tend to distort results when current and past conditions are similar
Vien's Fashion Company retains the services of Kennywood Textiles to perform stain
control treatments on its women's dresses. This is practice is known as ________.
A) insourcing
B) outsourcing
C) fragmentation
D) in-housing
Brilliant Accents Company manufactures and sells three styles of kitchen faucets:
Brass, Chrome, and White. Production takes 25, 25, and 10 machine hours to
manufacture 1000-unit batches of brass, chrome and white faucets, respectively. The
following additional data apply:
BRASS CHROME WHITE
Projected sales in units 30,000 50,000 40,000
PER UNIT data:
Selling price $40 $20 $30
Direct materials $ 8 $ 4 $ 8
Direct labor $15 $ 3 $ 9
Overhead cost based on direct labor hours
(traditional system) $12 $ 3 $ 9
Hours per 1000-unit batch:
Direct labor hours 40 10 30
Machine hours 25 25 10
Setup hours 1.0 0.5 1.0
Inspection hours 30 20 20
Total overhead costs and activity levels for the year are estimated as follows:
Activity Overhead costs Activity levels
Direct labor hours 2,900 hours
Machine hours 2,400 hours
Setups $465,500 95 setup hours
Inspections $405,000 2,700 inspection hours
$870,500
Required:
a. Using the traditional system, determine the operating profit per unit for each style of
faucet.
b. Determine the activity-cost-driver rate for setup costs and inspection costs.
c. Using the ABC system, for each style of faucet
1. compute the estimated overhead costs per unit.
2. compute the estimated operating profit per unit.
d. Explain the differences between the profits obtained from the traditional system and
the ABC system. Which system provides a better estimate of profitability? Why?
Which of the following is true of CVP analysis?
A) Costs may be separated into separate inventoriable and period components with
respect to the level of output.
B) Total revenues and total costs are linear in relation to output units.
C) Unit selling price, unit variable costs, and unit fixed costs are known and remain
constant.
D) Proportion of different products will vary according to demand and supply when
multiple products are sold.
Which of the following is true of weighted-average process-costing?
A) It does not represent the average cost of units when inputs prices fluctuates
markedly from month to month.
B) It facilitates period-to-period comparisons and hence is very useful in analyzing the
performances of managers for different periods.
C) It arrives at the same unit costs as arrived under FIFO method, but the computations
are easier under weighted-average process-costing.
D) It calculates the cost per equivalent unit of all work done to date, regardless of the
accounting period in which it was done.
M & G TV and Appliance Store is a small company that has hired you to perform some
management advisory services. The following information pertains to 2017 operations.
Sales (1,500 televisions) $1,500,000
Cost of goods sold 555,000
Store manager's salary per year 120,000
Operating costs per year 210,000
Advertising and promotion per year 18,000
Commissions (2.8% of sales) 42,000
What were total fixed costs for 2017?
A) $945,000
B) $597,000
C) $348,000
D) $330,000
Which of the following is not a nonlinear cost function?
A) increase of $20,000 revenues with increase in sales in units
B) total fixed cost of $25,000
C) variable cost of $5 per unit
D) a step cost function
The following conditions with departmental indirect-cost rates will result in allocation
of costs similar to ABC costing except:
A) a single activity accounts for a sizable portion of the costs of the department
B) Significant costs are incurred on different activities within a department
C) several activities cause a sizable portion of the costs of the department
D) significant costs are incurred for different activities with different cost -allocation
bases within a department
Tally Corp. sells softwares during the recruiting seasons. During the current year,
14,000 software packages were sold resulting in $460,000 of sales revenue, $110,000 of
variable costs, and $50,000 of fixed costs.
Contribution margin per software is ________.
A) $32.86
B) $25.00
C) $29.29
D) $7.86
Comfort Corporation manufactures two models of office chairs, a standard and a deluxe
model. The following activity and cost information has been compiled:
Assume a traditional costing system applies the overhead costs based on direct labor hours.
What is the total amount of overhead costs assigned to the standard model? (Do not round
interim calculations. Round the final answer to the nearest whole dollar.)
A) $62,950
B) $54,151
C) $71,749
D) $36,929
________ is the detailed planning and engineering and testing of products, services, or
processes.
A) Plan of implementation
B) Design
C) Production
D) Research and development
Indirect manufacturing costs ________.
A) can be traced to the product that created the costs
B) can be easily identified with the cost object
C) generally include the cost of material and the cost of labor
D) may include both variable and fixed costs
Which of the following is a chart which indicates how frequently each type of defect
occurs?
A) control chart
B) Pareto diagram
C) scatter diagram
D) fishbone diagram
Refining a cost system involves which of the following?
A) classifying as many costs as indirect costs as is feasible
B) creating as many cost pools as possible to capture all costs
C) identifying the activities involved in a process and understanding how those
activities consume resources
D) Seeking an easier and more cost effective way to calculate average costs
What is operating income for 2018?
A) $199,000
B) $110,000
C) $125,000
D) $140,000
