A firm estimates that it will sell 100,000 units of its sole product in the coming period.
It projects the sales price at $40 per unit, the CM ratio at 60 percent, and profit at
$500,000. What is the firm budgeting for fixed costs in the coming period?
a. $1,600,000
b. $2,400,000
c. $1,100,000
d. $1,900,000
The costing system that classifies costs by both functional group and behavior is
a. process costing.
b. job order costing.
c. variable costing.
d. absorption costing.
Production quality is affected by
a. worker productivity.
b. the amount of failure costs incurred.
c. worker skill level.
d. just-in-time suppliers.
Which of the following indicates that the first cash flow is at the end of a period?
a. yes no
b. yes yes
c. no yes
d. no no
For one product that a firm produces, the manufacturing cycle efficiency is 25 percent.
If the total production time is 10 hours, what is the total manufacturing time?
a. 2.5 hours
b. 8.0 hours
c. 10.0 hours
d. 40.0 hours
Fulton Company
Fulton Company is placing an ad in the local paper to advertise its products. The ad will
run for one week at a total cost of $5,500. Fulton Company has four categories of
products as follows:
Refer to Fulton Company. What amount of advertising cost should be allocated to
hardware, assuming Fulton allocates based on percent of floor space occupied?
a. $1,375
b. $1,100
c. $2,475
d. $ 825
Each of the following is a method to allocate joint costs except
a. relative sales value.
b. relative net realizable value.
c. relative weight, volume, or linear measure.
d. average unit cost.
In analyzing manufacturing overhead variances, the volume variance is the difference
between the
a. amount shown in the flexible budget and the amount shown in the debit side of the
overhead control account.
b. predetermined overhead application rate and the flexible budget application rate
times actual hours worked.
c. budget allowance based on standard hours allowed for actual production for the
period and the amount budgeted to be applied during the period.
d. actual amount spent for overhead items during the period and the overhead amount
applied to production during the period.
If a company’s variable costs per unit were to increase but its unit selling price stays
constant, the effect on a profit-volume graph would be that the
a. contribution margin line would shift upward parallel to the present line.
b. contribution margin line would shift downward parallel to the present line.
c. slope of the contribution margin line would be pronounced (steeper).
d. slope of the contribution margin line would be less pronounced (flatter).
Graham Company has 15,000 units in inventory that had a production cost of $3 per
unit. These units cannotbe sold through normal channels due to a significant
technology change. These units could be reworked at a total cost of $23,000 and sold
for $28,000. Another alternative is to sell the units to a junk dealer for $8,500. The
relevant cost for Graham to consider in making its decision is
a. $45,000 of original product costs.
b. $23,000 for reworking the units.
c. $68,000 for reworking the units.
d. $28,000 for selling the units to the junk dealer.
Financial incentives are
a. different from monetary rewards
b. the same thing as a salary element
c. provided to all employee groups.
d. available to top management whose performance exceeds targeted objectives
The salvage value of an old lathe is zero. If instead, the salvage value of the old lathe
was $20,000, what would be the impact on the net present value of the proposal to
purchase a new lathe?
a. It would increase the net present value of the proposal.
b. It would decrease the net present value of the proposal.
c. It would not affect the net present value of the proposal.
d. Potentially it could increase or decrease the net present value of the new lathe.
In a multiple-product firm, the product that has the highest contribution margin per unit
will
a. generate more profit for each $1 of sales than the other products.
b. have the highest contribution margin ratio.
c. generate the most profit for each unit sold.
d. have the lowest variable costs per unit.
Pittsburg Company uses a standard cost accounting system. The following overhead
costs and production data are available for September:
The total applied manufacturing overhead for September should be
a. $195,000.
b. $197,000.
c. $197,500.
d. $199,500.
Mercy Medical Center has provided you with the following budget information for
April:
Mercy has a policy of maintaining a minimum cash balance of $20,000 and borrows
only in $1,000 increments. How much will Mercy borrow in April?
a. $80,000
b. $79,600
c. $99,000
d. $100,000
Detroit Manufacturing Company makes three products: A and B are considered main
products and C a by-product.
Production and sales for the year were:
220,000 lbs. of Product A, salable at $6.00
180,000 lbs. of Product B, salable at $3.00
50,000 lbs. of Product C, salable at $.90
Production costs for the year:
Required:Using the by-product revenue as a cost reduction and net realizable value
method of assigning joint costs, compute unit costs (a) if C is a by-product of the
process and (b) if C is a by-product of B.
Surfside Corporation
Surfside Corporation manufactures and sells two products: A and B. The operating
results of the company are as follows:
In addition, the company incurred total fixed costs in the amount of $9,000.
Refer to Surfside Corporation. How many total units would the company have needed
to sell to break even?
a. 3,750
b. 750
c. 3,600
d. 1,800
Most ____ are relevant to decisions to acquire capacity, but notto short-run decisions
involving the use of that capacity.
a. sunk costs
b. incremental costs
c. fixed costs
d. prime costs
With regard to a capital investment, net cash inflow is equal to the
a. cost savings resulting from the investment.
b. sum of all future revenues from the investment.
c. net increase in cash receipts over cash payments.
d. net increase in cash payments over cash receipts.
Wright Company
Wright Company adds material at the start of production. The following production
information is available for September:
Refer to Wright Company. How many units were started and completed in the period?
a. 111,800
b. 120,000
c. 121,800
d. 130,000
Glassman Company
Glassman Company produces two products: A and B. The company has three overhead
functions that are required for both products.
Below is production information for Products A and B:
The company produces 800 units of Product A and 8,000 units of Product B each
period.
The overhead functions have the following hourly costs:
Refer to Glassman Company If total overhead is assigned to A and B on the basis of
direct labor hours, Product B will have an overhead cost per unit of
a. $76.97
b. $87.75
c. $88.64
d. None of the responses are correct.
Which of the following is considered a “feeder” system to the cost management
system?
a. yes no yes
b. yes yes yes
c. no no no
d. yes yes no
The most visible embodiment of total quality management in the United States is
a. being awarded the Deming Prize.
b. achieving ISO 9000 certification.
c. meeting industry standards.
d. receiving the Baldrige Award.
Period costs
a. are expensed in the same period in which they are incurred.
b. are always variable costs.
c. remain unchanged over a given period of time.
d. are associated with the periodic inventory method.
Which of the following strategies is used to deal with uncertainty related to estimating
future costs?
a. Statistical analysis
b. Cost restructuring
c. Hedging
d. Insurance
A producer of ____ would not use a process costing system.
a. gasoline
b. potato chips
c. blank videotapes
d. stained glass windows
The following information pertains to Gemini Company’s cost-volume-profit
relationships:
How much will be contributed to profit before taxes by the 1,501st unit sold?
a. $850
b. $700
c. $150
d. $0
In conjunction with a cost management system, gap analysis refers to comparing
a. the information being received by competitors’ managers to the information being
received by in-house managers.
b. the information needed to what is available.
c. current cost information to projected cost information.
d. budget figures to actual spending.
The ____ provides management with a historical summation of total costs for a given
product.
a. job-order cost sheet
b. employee time sheet
c. material requisition form
d. bill of lading
Traditional standard costs are inappropriate measures for performance evaluation in
the “new era” of manufacturing because they
a. build in allowances for non-value-adding activities.
b. are based on historical information.
c. don’t reflect current costs.
d. are ideal goals.
Deluxe Jewelry Corporation produces quality jewelry items for various retailers. For
the coming year, it has estimated it will consume 500 ounces of gold. Its carrying costs
for a year are $2 per ounce. No safety stock is maintained. If the EOQ is 100 ounces,
what is the cost per order?
a. $40
b. $20
c. $5
d. $25
The net present value method provides the actual rate of return for a project.
Decentralization is a transfer of authority from the top to the lower level of an
organization.
Normal capacity considers present and future production levels and cyclical
fluctuations.
Cost minimization is the major focus of value engineering.
When indirect materials are added to a job, the
account is debited.
Variable cost per unit remains constant within the relevant range.
When multiple materials are used, the difference between the total quantity and the
standard quantity of output when a nonstandard mix of materials is used is known as the
_________________________ variance.
Two methods of allocating joint costs to products are physical measure allocation and
monetary allocation.
The total variance does not provide useful information about the source of cost
differences.
Ecology Solutions Corporation
The Green Division of Ecology Solutions Co. has developed a wind generator that
requires a special “S” ball bearing. The Ball Bearing Division of Ecology Solutions Co.
has the capability to produce such a ball bearing.
Unfortunately, the Ball Bearing Division is operating at capacity and will need to
reduce production of another existing product, the “T” bearing, by 1,000 units per
month to provide the 600 “S” bearings needed each month by the Green Division. The
“T” bearing currently sells for $50 per unit. Variable costs incurred to produce the “T”
bearing are $30 per unit; variable costs to produce the new “S” bearing would be $60
per unit.
The Green Division has found an external supplier that would furnish the needed “S”
bearings at $100 per unit. Assume that both the Green Division and Ball Bearing
Division are independent, autonomous investment centers.
Refer to Ecology Solutions Co. What is the minimum price that Ball Bearing Division
would consider to produce the “S” bearing?
The cash budget is constructed after all other budgets have been completed.
Balances for Accounts Receivable and Sales Discounts are projected after the cash
collections schedule is prepared.
Costs that result from defective units, product returns, and complaints are referred to as
____________________ costs.
Results benchmarking creates the risk for a company to become stagnant.