The costs that result when a company runs out of a particular item for which there is a
customer demand are ________.
A) shrinkage costs
B) shortage costs
C) stockout costs
D) EOQ estimation costs
Spoilage, rework, scrap, and machine repairs are all examples of ________.
A) prevention costs
B) appraisal costs
C) internal failure costs
D) external failure costs
Which of the following statements is true of ABC systems?
A) ABC systems provide less insight than traditional systems into the management of
the indirect costs.
B) ABC systems are used by managers for strategic decisions rather than for inventory
valuation in merchandising companies.
C) Service companies find great value from ABC because a vast majority of their cost
structure is composed of direct costs.
D) ABC systems is valuable for pricing decisions but not for understanding, managing,
and reducing costs in government institutions.
The Kenton Company processes unprocessed milk to produce two products, Butter
Cream and Condensed Milk. The following information was collected for the month of
June:
Direct Materials processed: 24,500 gallons (after shrinkage)
The cost of purchasing the of unprocessed milk and processing it up to the split-off point
to yield a total of 24,500 gallons of saleable product was $55,000.
The company uses constant gross-margin percentage NRV method to allocate the joint
costs of production. What is the constant gross-margin percent for Kenton?
A) 64.1%
B) 20.4%
C) 23.6%
D) 62.6%
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 $42.00. (Ignore changes in inventory.) The fixed costs for the
Compressor Division are assumed to be the same over the range of 12,000-17,000 units.
The fixed costs for the Fabrication Division are assumed to be $8.00 per unit at 17,000
units.
Compressor’s costs per compressor are:
Direct materials $20
Direct labor $24.00
Variable overhead $4.50
Division fixed costs $10.50
Fabrication‘s costs per completed air conditioner are:
Direct materials $170.00
Direct labor $66.00
Variable overhead $23.00
Division fixed costs $10.50
Assume the transfer price for a compressor is 145% of total costs of the Compressor
Division and 1500 of the compressors are produced and transferred to the Fabrication
Division. The Compressor Division’s operating income is ________.
A) $128,325
B) $39,825
C) $42,188
D) $29,400
Smith and Jones CPA firm employs 12 accountants and 10 paraprofessionals. Direct
and indirect costs are applied on a professional labor-hour basis that includes both
attorney and paraprofessional hours. Following is information for 2018:
What are the actual direct-cost rate and the actual indirect-cost rate, respectively, per
professional labor-hour?
A) $63.60; $11.60
B) $70.00; $14.50
C) $79.50; $12.40
D) $63.60; $12.40
Which of the following statements is true of strategic analysis of operating income?
A) Change in operating income from one period to any future period can be subdivided
into product differentiation, cost leadership, and growth components.
B) Subdividing the change in operating income to evaluate the success of a strategy has
no similarity to the variance analysis.
C) Management accountants compare actual and budgeted operating performance over
the same time periods.
D) It focuses on differences in individual categories of costs (direct materials, direct
manufacturing labor, and overheads).
In a costing system, ________.
A) cost tracing allocates indirect costs
B) cost allocation assigns direct costs
C) a cost-allocation base can be either financial or nonfinancial
D) a cost object should be a product and not a department or a geographic territory
In analyzing transfer prices, the ________.
A) buyer will not willingly purchase a product for less than the incremental costs
incurred to manufacture the product internally
B) seller will not willingly sell a product for less than the incremental costs incurred to
make the product
C) buyer will willingly pay more than the ceiling transfer price
D) buyer will not pay less than the ceiling transfer price
In the computation of the cost per equivalent unit, the weighted-average method of
process costing considers all the costs ________.
A) entering work in process from the units in beginning inventory plus the costs for the
work completed during the current accounting period
B) that have entered work in process from the units started or transferred in during the
current accounting period
C) that have entered work in process during the current accounting period from the
units started or transferred in minus the costs associated with ending inventory
D) that have entered work in process during the current accounting period from the
units started or transferred in plus the costs associated with ending inventory
Wallace Company provides the following data for next year:
The gross profit rate is 30% of sales. Inventory at the end of December is $30,600 and
target ending inventory levels are 10% of next month’s sales, stated at cost.
What is the amount of purchases budgeted for February?
A) $36,180
B) $77,700
C) $79,310
D) $97,580
W.T. Ginsburg Engine Company manufactures part ACT30107 used in several of its
engine models. Monthly production costs for 1,090 units are as follows:
Direct materials $46,000
Direct labor 10,500
Variable overhead costs 32,500
Fixed overhead costs 22,000
Total costs $111,000
It is estimated that 6% of the fixed overhead costs assigned to ACT30107 will no longer
be incurred if the company purchases ACT30107 from the outside supplier. W.T
Ginsburg Engine Company has the option of purchasing the part from an outside
supplier at $94.75 per unit.
If the company accepts the offer from the outside supplier, the monthly avoidable costs
(costs that will no longer be incurred) total ________.
A) $90,320
B) $89,000
C) $111,000
D) $112,320
What would be the expected monetary value for Avalia Corp using the probability
method?
Probability Cash Inflows
0.20 $260,000
0.30 $200,000
0.15 $160,000
0.35 $60,000
A) $680,000
B) $170,000
C) $157,000
D) $52,000
A system that comprises a single database that collects data and feeds it into software
applications supporting all of a company’s business activities is known as a(n)
________.
A) economic order quantity (EOQ) system
B) enterprise resource planning (ERP) system
C) just-in-time (JIT) system
D) material requirements planning (MRP) system
Which of the following is true of budgets when they are administered thoughtfully?
A) They eliminate subjectivity in performance evaluation.
B) They can eliminate the uncertainty faced by a company.
C) They promote coordination within the subunits of a company.
D) They are a substitute the planning and coordination functions of management.
Planet Design Services, Inc., is considering replacing a machine. The following data are
available:
Replacement
Old Machine Machine
Original cost $640,000 $520,000
Useful life in years 12 6
Current age in years 6 0
Book value $400,000 —
Disposal value now $162,000 —
Disposal value in 6 years 0 0
Annual cash operating costs $107,000 $61,000
For the decision to keep the old machine, the relevant costs of keeping the old machine
is ________.
A) $492,000
B) $642,000
C) $804,000
D) $107,000
Which of the following mathematical expression is used to calculate budgeted variable
overhead cost rate per output unit?
A) Budgeted output allowed per input unit × Budgeted variable overhead cost rate per
input unit
B) Budgeted input allowed per output unit Budgeted variable overhead cost rate per
input unit
C) Budgeted output allowed per input unit Budgeted variable overhead cost rate per
input unit
D) Budgeted input allowed per output unit × Budgeted variable overhead cost rate per
input unit
When using the dual-rate method, the fixed cost allocation is based on ________.
A) actual rate
B) budgeted usage
C) incremental cost allocation
D) prime cost allocation