1) Inventoriable costs and period costs flow through the income statement at a
merchandising company similar to the way costs flow at a manufacturing company.
2) A particular cost item could be variable for one cost object and fixed for another cost
object.
3) All manufacturing costs are period costs.
4) Management accounting information helps managers calculate a target cost for a
product by subtracting from the target price the net income per unit of product that the
company wants to earn.
5) ABC reveals opportunities to reduce costs on nonvalue added activities.
6) After conducting a market research study, Ed Manufacturing decided to produce a
new interior door to complement its exterior door line. It is estimated that the new
interior door can be sold at a target price of $240. The annual target sales volume for
interior doors is 20,000. Ed has target operating income of 20% of sales.
What is the target cost?
A) $5,760,000
B) $4,800,000
C) $3,840,000
D) $960,000
7) If the breakeven point is 1,000 units and each unit sells for $50, then ________.
A) selling 1,040 units will result in a loss
B) selling $60,000 will result in a loss
C) selling $50,000 will result in zero profit
D) selling $45,000 will result in profit
8) Gabat Inc. is a merchandising company. Last month the company’s merchandise
purchases totaled $67,000. The company’s beginning merchandise inventory was
$19,000 and its ending merchandise inventory was $22,000. What was the company’s
cost of goods sold for the month?
A) $108,000
B) $67,000
C) $64,000
D) $70,000
9) Sharing sales information throughout the supply chain leads to ________.
A) larger stockouts
B) increased manufacturing of products not immediately needed by retailers
C) fewer manufacturing orders that had to be expedited
D) higher inventories held by each company in the supply chain
10) To the nearest whole cent, what should be the average cost of operating the helpline
per call at a volume of 31,300 calls in a month? (Assume that this call volume is within
the relevant range.)
A) $12.30
B) $11.79
C) $10.92
D) $12.05
11) Capity Tea Products has an exclusive contract with British Distributors. Calamine
and Capity are two brands of teas that are imported and sold to retail outlets. The
following information is provided for the month of March:
Budgeted and actual fixed corporate-sustaining costs are $1,850 and $2,300,
respectively.
What is the contribution margin for the flexible budget?
A) $9,900
B) $9,680
C) $10,560
D) $9,350
12) Supply costs at Chobot Corporations chain of gyms are listed below:
Management believes that supply cost is a mixed cost that depends on client-visits. Use
the high-low method to estimate the variable and fixed components of this cost.
Compute the variable component first, rounding off to the nearest whole cent. Then
compute the fixed component, rounding off to the nearest whole dollar. Those estimates
are closest to:
A) $2.18 per client-visit; $26,745 per month
B) $1.01 per client-visit; $14,330 per month
C) $1.04 per client-visit; $13,949 per month
D) $0.99 per client-visit; $14,607 per month
13) The determination of a cost as either direct or indirect depends upon the ________.
A) accounting standards
B) tax system chosen
C) inventory valuation
D) cost object chosen
14) What is budgetary slack? What are the pros and cons of building slack into the
budget from the point of view of (a) an employee and (b) a senior manager?
15) Russo Corporation manufactured 16,000 air conditioners during November. The
overhead cost-allocation base is $31.50 per machine-hour. The following variable
overhead data pertain to November:
What is the actual variable overhead cost?
A) $244,125
B) $279,000
C) $248,063
D) $250,000
16) Markswell Corp uses a budgeted factory overhead rate to apply overhead to
production. The following data are available for the year ended December 31, 2014.
The company has budgeted factory overhead of $750,000, direct labor costs of
$500,000, and direct labor hours of 15,000. The actual factory overhead incurred is
$800,000, direct labor costs of 450,000, and direct labor hours of 17,000.
Required:
a.Determine the budgeted factory overhead rate based on direct labor-hours.
b.What is the applied overhead based on direct labor-hours?
c.Is overhead overapplied or underapplied? Explain.
17) Abbott Company’s manufacturing overhead is 20% of its total conversion costs. If
direct labor is $38,000 and if direct materials are $23,000, the manufacturing overhead
is:
A) $9,500
B) $152,000
C) $5,750
D) $15,250
18) Which of the following statements is true of conversion costs?
A) Estimating the degree of completion is usually easier for direct material costs than
for conversion costs.
B) The calculation of equivalent units is relatively easy for the textile industry.
C) The conversion cost needed for a completed un0it and the conversion cost in a
partially completed unit can be measured accurately.
D) If conversion costs are added evenly during the assembly we can conclude that there
are more than one indirect-cost category.
19) Team incentives encourage cooperation by ________.
A) identifying an efficient and a nonefficient employee
B) enhancing the incentives of individual employees leading to overall positive
performance
C) letting individuals help one another as they strive toward a common goal
D) rewarding all teams by the same margin
20) 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 $80,000. The new machine will cost
$600,000 and an additional cash investment in working capital of $25,000 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 $50,000 in additional cash inflows during the year of
acquisition and $200,000 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
18%? Would the hospital want to purchase the new machine?
A) $33,910; yes
B) $(46,650); no
C) $(46,650); yes
D) $50,800; yes
21) The budgeted fixed manufacturing cost rate is the lowest for ________.
A) practical capacity
B) theoretical capacity
C) master-budget capacity utilization
D) normal capacity utilization
22) The conference method estimates cost functions ________.
A) using quantitative methods that can be very time consuming and costly
B) based on analysis and opinions gathered from various departments
C) using time-and-motion studies
D) by mathematically analyzing the relationship between inputs and outputs in physical
terms
23) 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 $40.00. (Ignore changes in inventory.) The fixed costs for the
Compressor Division are assumed to be the same over the range of 5,000-10,000 units.
The fixed costs for the Fabrication Division are assumed to be $7.50 per unit at 10,000
units.
Compressor’s costs per compressor are:
Fabrication’s costs per completed air conditioner are:
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 150% of
variable costs?
A) $22.50
B) $37.88
C) $45.00
D) $50.50
24) The following data for the Panoid Garden Supplies Company pertains to the
production of 2,000 garden spades during March. The spade consists of a wooden
handle and a metal forged tool that comes in contact with the ground.
Direct Materials (all materials purchased were used):
Standard cost: $1.00 per handle and $3.00 per metal tool.
Total actual cost: $9,000.
Materials flexible-budget efficiency variance was $500 unfavorable.
Direct Manufacturing Labor:
Standard cost is 5 garden spades per hour at $20.00 per hour.
Actual cost per hour was $21.00.
Labor efficiency variance was $500 favorable.
Required:
a.What is the standard direct material amount per garden spade?
b.What is the standard cost allowed for all units produced?
c.What is the total direct materials flexible-budget variance?
d.What is the direct material flexible-budget price variance?
e.What is the total actual cost of direct manufacturing labor?
f.What is the labor price variance for direct manufacturing labor?