1) Manufacturing overhead cost is an example of indirect engineered costs.
2) Downsized capacity is the amount of productive capacity available over and above
the productive capacity employed to meet customer demand in the current period.
3) If the selling subunit is operating at capacity, the opportunity cost of transferring a
unit internally rather than selling it externally is equal to the market price minus the
variable cost.
4) The Institute of Management Accountants provides a hotline to discuss ethical issues.
5) To prove predatory pricing, one of conditions established by the U.S. Supreme Court
is that the company should be charging a price below 60% of its total costs.
6) Cost based transfer prices are the only price that a firm should use when transferring
goods from one subunit to another subunit.
7) A company may use absorption costing for external reporting and still choose to use
throughput costing for internal reports.
8) Normal costing assigns indirect costs based on an actual indirect-cost rate.
9) Prorated allocation of production-volume variance has the effect of approximating
the allocation of fixed costs based on actual costs and actual output.
10) Direct material costs are generally fixed costs.
11) Budgeted financial statements are called pro forma statements.
12) The principal difference between process costing and job costing is that in job
costing an averaging process is used to compute the unit costs of products or services.
13) Longball Company manufactures basketball backboards. The following information
pertains to the company’s normal operations per month:
Required:
a.For long-run pricing, what is the full-cost base per unit?
b.Longball Company is approached by an overseas city to fulfill a one-time-only
special order for 1,000 units. All cost relationships remain the same except for an
additional one-time setup charge of $40,000. No additional design, marketing, or
distribution costs will be incurred. What is the minimum acceptable bid per unit on this
one-time-only special order?
14) Following a strategy of product differentiation, Sting Corporation makes a high-end
computer monitor, CM7. Sting Corporation presents the following data for the years
2012 and 2013:
Sting Corporation produces no defective units but it wants to reduce direct materials
usage per unit of CM7 in 2013. Manufacturing conversion costs in each year depend on
production capacity defined in terms of CM7 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. Ernsting Corporation has 100 customers in
2012 and 115 customers in 2013. The industry market size for high-end computer
monitors increased 5% from 2012 to 2013.
Required:
a.What is the revenue effect of the growth component?
b.What is the cost effect of the growth component?
c.What is the net effect on operating income as a result of the growth component?
15) What are the three criteria a company should use to evaluate and choose a cost
driver? Briefly explain each of the three criteria.
16) The following information pertains to the January operating budget for Casey
Corporation.
Budgeted sales for January $200,000 and February $100,000.
Collections for sales are 60% in the month of sale and 40% the next month.
Gross margin is 30% of sales.
Administrative costs are $10,000 each month.
Beginning accounts receivable is $20,000.
Beginning inventory is $14,000.
Beginning accounts payable is $65,000. (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).
For January, budgeted cash collections are ________.
A) $200,000
B) $140,000
C) $120,000
D) $20,000
17) Greentree Incorporated manufactures rustic furniture. The cost accounting system
estimates manufacturing costs to be $120 per table, consisting of 60% variable costs
and 40% fixed costs. The company has surplus capacity available. It is Greentree’s
policy to add a 30% markup to full costs.
a.Greentree Incorporated is invited to bid on an order to supply 100 rustic tables. What
is the lowest price Greentree should bid on this one-time-only special order?
b.A large hotel chain is currently expanding and has decided to decorate all new hotels
using the rustic style. Greentree Incorporated is invited to submit a bid to the hotel
chain. What is the lowest price per unit Greentree should bid on this long-term order?
18) Veach Corporation incurred fixed manufacturing costs of $6,000 during 2015. Other
information for 2015 includes:
The budgeted denominator level is 1,000 units.
Units produced total 750 units.
Units sold total 600 units.
Beginning inventory was zero.
The company uses variable costing and the fixed manufacturing cost rate is based on
the budgeted denominator level. Manufacturing variances are closed to cost of goods
sold.
Operating income using variable costing will be ________ than operating income if
using absorption costing.
A) $2,400 higher
B) $2,400 lower
C) $3,600 higher
D) $900 lower
19) Ricwy Corporation uses the cost formula Y = $4,800 + $0.40X for the maintenance
cost, where X is machine-hours. The August budget is based on 9,000 hours of planned
machine time. Maintenance cost expected to be incurred during August is:
A) $4,800
B) $3,600
C) $8,400
D) $1,200
20) Which of the following is a step followed by an analyst to overcome problems
related to data collection for estimating cost function?
A) to use cash accounting
B) to consider fixed costs as variable costs and treat allocated fixed cost per unit as a
variable cost
C) to eliminate unusual observations if extreme values of observations occur
D) to include the inflationary price effects in the data
21) Which of the following is true of absorption costing?
A) It expenses marketing costs as cost of goods sold.
B) It treats direct manufacturing costs as a period cost.
C) It includes fixed manufacturing overhead as an inventoriable cost.
D) It treats indirect manufacturing costs as a period cost.
22) Payment of the factory rent increases the ________.
A) Work-in-Process Control account
B) Manufacturing Overhead Control account
C) Cost of Goods Sold account
D) Factory Depreciation account
23) Comfort chair company manufacturers a standard recliner. During February, the
firm’s Assembly Department started production of 73,000 chairs. During the month, the
firm completed 78,000 chairs, and transferred them to the Finishing Department. The
firm ended the month with 10,000 chairs in ending inventory. There were 15,000 chairs
in beginning inventory. All direct materials costs are added at the beginning of the
production cycle and conversion costs are added uniformly throughout the production
process. The FIFO method of process costing is used by Comfort. Beginning work in
process was 30% complete as to conversion costs, while ending work in process was
80% complete as to conversion costs.
What were the equivalent units for conversion costs during February?
A) 81,500
B) 83,000
C) 73,000
D) 77,500