1) In a just-in-time production system, inventory carrying costs would be high.
2) Wood used to manufacture chairs is considered a direct variable cost.
3) An unfavorable price variance for materials-handling labor indicates that the actual
cost per materials-handling labor-hour is less than the budgeted cost per
materials-handling labor-hour.
4) If planned net income is $30,000 and the tax rate is 30%, then planned operating
income would be $39,000.
5) To determine the Economic Order Quantity, the relevant ordering costs are
maximized and the relevant carrying costs are minimized.
6) Cost of acquiring reliable data is considered when choosing a cost-allocation base to
allocate costs in ABC systems.
7) The cumulative average-time learning model with a 85% learning curve indicates
that if it takes 200 minutes to manufacture the first unit of a new model, then the second
unit will take only 170 minutes to manufacture.
8) Period costs are included in the cost of goods sold.
9) A major advantage of using the FIFO process-costing method is that ________.
A) FIFO makes the unit cost calculations simpler
B) in contrast with the weighted-average method, FIFO is considered GAAP
C) FIFO provides managers with information about changes in the costs per unit from
one period to the next
D) in the period of rising prices, it leads to lower operating income and lower tax
payments, saving the company cash and increasing the company’s value
10) Sail Safe currently sells motor boats for $60,000. It has costs of $46,500. A
competitor is bringing a new motor boat to the market that will sell for $55,000.
Management believes it must lower the price to $55,000 to compete in the market for
motor boats. The marketing department believes that the new price will cause sales to
increase by 12.5%, even with a new competitor in the market. Sail Safe’s sales are
currently 2,000 motor boats per year. 3
Required:
a. What is the target cost for the new target price if target operating income is 20% of
sales?
b. What is the change in operating income if marketing department is correct and only
the sales price is changed?
c. What is the target cost if the company wants to maintain its same income level, and
marketing department is correct?
11) When individual activities within a cost pool have a similar relationship with the
cost driver, the cost pool ________.
A) is not considered for customer-profitability analysis
B) need multiple cost drivers
C) is considered a homogeneous cost pool
D) is considered an allocated cost pool
12) More insight into the sales-volume variance can be gained by subdividing it into
________.
A) the sales-mix variance and the sales-quantity variance
B) the market-share variance and the sales-mix variance
C) the flexible-budget variance and the market-size variance
D) the flexible-budget variance and the sales-mix variance
13) All of the following costs would be found in a companys accounting records except:
A) sunk cost.
B) opportunity cost.
C) indirect costs.
D) direct costs.
14) Job costing is ________.
A) used by businesses to price identical products
B) used by businesses to price unique products for different jobs
C) used to calculate equivalent units
D) used to calculate the percentage of work completed
15) Nichols Inc. manufactures remote controls. Currently the company uses a
plant-wide rate for allocating manufacturing overhead. The plant manager is
considering switching-over to ABC costing system and has asked the accounting
department to identify the primary production activities and their cost drivers which are
as follows:
The current traditional cost method allocates overhead based on direct manufacturing
labor hours using a rate of $200 per labor hour.
What are the indirect manufacturing costs per remote control assuming an
activity-based-costing method is used and a batch of 100 remote controls are produced?
The batch requires 450 parts, 8 direct manufacturing labor hours, and 10 minutes of
inspection time.
A) $11.00 per remote control
B) $10.90 per remote control
C) $11.05 per remote control
D) $10.95 per remote control
16) Place the five steps in the decision-making process in the correct order:
A = Obtain information
B = Make decisions by choosing among alternatives
C = Identify the problem and uncertainties
D = Implement the decision, evaluate performance, and learn
E = Make predictions about the future
A) C D B E A
B) E D A B C
C) C A E B D
D) A E B D C
17) In a cost-benefit approach, managers should spend resources if the ________.
A) marginal costs to the company exceed the marginal benefits
B) expected benefits to the company exceed the expected costs
C) marginal costs to the company equal the marginal benefits
D) expected benefits to the company equal the expected costs
18) What is the constant gross-margin percent for Kenton?
A) 10%
B) 6.3%
C) 11%
D) 6.5%
19) While allocating corporate costs to divisions ________.
A) only fixed costs should be allocated
B) no homogeneous cost pools should be constructed
C) all the costs in the cost pool should not have the same or a similar cause-and-effect
or benefits-received relationship with the cost-allocation base
D) allocate both variable and fixed costs to divisions and then to customers
20) Soul Socket Inc. manufactures socket wrenches.
For next month, the vice president of production plans on producing 4,450 wrenches
per day.
The company can produce as many as 5,000 wrenches per day, but is more likely to
produce 4,500 per day.
The demand for wrenches for the next three years is expected to average 4,250
wrenches per day.
Fixed manufacturing costs per month total $374,000.
The company works 22 days a month.
Fixed manufacturing overhead is charged on a per-wrench basis.
Required:
a.What is the theoretical fixed manufacturing overhead rate per wrench for the next
month?
b.What is the practical fixed manufacturing overhead rate per wrench for the next
month?
c.What is the normal fixed manufacturing overhead rate per wrench for the next month?
d.What is the master-budget fixed manufacturing overhead rate per wrench for the next
month?
21) Belief system ________.
A) describe standards of behavior and codes of conduct expected of all executives and
board of directors
B) articulate the mission, purpose, and core values of a company
C) are formal information systems managers use to focus the company’s attention and
learning on key strategic issues
D) describe standards of behavior and codes of conduct expected of all employees
22) Bell Company sells several products. Information of average revenue and costs is as
follows:
The company sells 10,000 units.
The contribution margin per unit is ________.
A) $15
B) $20
C) $22
D) $125
23) Bismite Corporation purchases trees from Cheney lumber and processes them up to
the splitoff point where two products (paper and pencil casings) are obtained. The
products are then sold to an independent company that markets and distributes them to
retail outlets. The following information was collected for the month of October:
The cost of purchasing 250 trees and processing them up to the splitoff point to yield
180,000 sheets of paper and 180,000 pencil casings is $12,500.
Bismite’s accounting department reported no beginning inventory.
What is the total sales value at the splitoff point for paper?
A) $26,775
B) $20,880
C) $21,600
D) $27,000