The most accurate method for allocating service department costs is the
a. step method.
b. direct method.
c. algebraic method.
d. none of the above.
Grant Corporation
The following information is available for Grant Corporation for the current month:
All materials are added at the start of production and the inspection point is at the end
of the process.
Refer to Grant Corporation. What is cost per equivalent unit for conversion costs using
weighted average?
a. $4.19
b. $4.41
c. $4.55
d. $4.35
As the economy becomes more and more depressed, a company’s management decides
to slash spending on research and development. What is the likely effect of this action
on net income? Net income will be
a. higher this period and lower in future periods.
b. higher this period and higher in future periods.
c. lower this period and higher in future periods.
d. lower this period and lower in future periods.
Fox Corporation
Fox Corporation. has the following information for August:
All material is added at the start of the process and all finished products are transferred
out.
Refer to Fox Corporation. How many units were transferred out in August?
a. 15,500
b. 18,000
c. 21,500
d. 24,000
Romano Company
The following information pertains to Romano Company for September:
Romano Company applies overhead for Job #323 at 140 percent of direct labor cost and
at 150 percent of direct labor cost for Jobs #325 and #401. The total cost of Jobs #323
and #325 is identical.
Refer to Romano Company. What is the amount of direct materials for Job #325?
a. $1,950
b. $1,500
c. $3,700
d. $7,500
Which of the following capital budgeting techniques does not routinely rely on the
assumption that all cash flows occur at the end of the period?
a. internal rate of return
b. net present value
c. profitability index
d. payback period
With JIT manufacturing, which of the following costs would be considered a direct
product cost?
a. insurance on the plant
b. utilities used for manufacturing
c. janitors’ salaries
d. salary of the plant supervisor
The costs of non-quality work do not include
a. the cost of handling complaints.
b. the cost of scrap.
c. warranty costs.
d. original design costs.
A basic concept of variable costing is that period costs should be currently expensed.
What is the rationale behind this procedure?
a. Period costs are uncontrollable and should not be charged to a specific product.
b. Period costs are generally immaterial in amount and the cost of assigning the
amounts to specific products would outweigh the benefits.
c. Allocation of period costs is arbitrary at best and could lead to erroneous decision by
management.
d. Because period costs will occur whether production occurs, it is improper to allocate
these costs to production and defer a current cost of doing business.
Refer to Pearce Company Using the four-variance approach, what is the variable
overhead efficiency variance?
a. $9,570 F
b. $9,570 U
c. $2,200 F
d. $2,200 U
At the end of a period, a significant material quantity variance should be
a. closed to Cost of Goods Sold.
b. allocated among Raw Material, Work in Process, Finished Goods, and Cost of Goods
Sold.
c. allocated among Work in Process, Finished Goods, and Cost of Goods Sold.
d. carried forward as a balance sheet account to the next period.
Chapman Company
Chapman Company uses a job-order costing system. At the beginning of March, the
company had two jobs in process with the following costs:
Chapman pays its workers $8.50 per hour and applies overhead on a direct labor hour
basis.
Refer to Chapman Company. How much overhead was included in the cost of Job #461
at the beginning of March?
a. $ 144.50
b. $ 153.00
c. $2,200.00
d. $2,456.50
Athmer Corporation
Athmer Corporation sells a product for $18 per unit, and the standard cost card for the
product shows the following costs:
Refer to Athmer Corporation. Assume that Athmer has sufficient idle capacity to
produce the 1,000 units. If Athmer wants to increase its operating profit by $5,600,
what would it charge as a per-unit selling price?
a. $18.00
b. $10.00
c. $11.00
d. $16.60
Andersen Corporation
Andersen Corporation has the following information for the current month:
All materials are added at the start of the production process. Andersen Corporation
inspects goods at 75 percent completion as to conversion.
Refer to Andersen Corporation. What are equivalent units of production for conversion
costs assuming weighted average is used?
a. 103,750
b. 104,500
c. 104,750
d. 105,500
Beasley Company
Beasley Company prepared a cash budget by quarters for the upcoming year. Missing
data amounts are indicated with question marks or lower case letters; these lower case
letters will be referred to in the questions that follow.
Beasley requires a minimum balance of $10,000 to start a quarter.
All data are in thousands.
Beasley Corporation
Cash Budget
Refer to Beasley Company. The cash balance at the beginning of the second quarter
(item e) is:
a. $10
b. $14
c. $ 0
d. $ 7
Ellis Retail
Ellis Retail is considering an investment in a delivery truck. Ellis has found a used truck
that he can purchase for $8,000. He estimates the truck would last six years and
increase his store’s net cash revenues by $2,000 per year. At the end of six years, the
truck would have no salvage value and would be discarded. Ellis will depreciate the
truck using the straight-line method.
Refer to Ellis Retail. What is the accounting rate of return on the truck investment
(based on average profit and average investment)?
a. 25.0%
b. 50.0%
c. 16.7%
d. 8.3%
In a JIT system, the quality of each product begins with
a. a company’s vendors.
b. employees.
c. inspection of finished goods inventory.
d. a good product warranty.
Placing quality inspection points ahead of bottlenecks will reduce
a. product flow.
b. the number of defective products.
c. the influence of constraints on production flow.
d. the critical path time.
The weighted average cost of capital that is used to evaluate a specific project should be
based on the
a. mix of capital components that was used to finance a project from last year.
b. overall capital structure of the corporation.
c. cost of capital for other corporations with similar investments.
d. mix of capital components for all capital acquired in the most recent fiscal year.
Refer to Truman Corporation. Based on absorption costing, Truman Corporation’s
income in its first year of operations will be
a. $21,000 higher than it would be under variable costing.
b. $70,000 higher than it would be under variable costing.
c. $30,000 higher than it would be under variable costing.
d. higher than it would be under variable costing, but the exact difference cannot be
determined from the information given.
If a firm is successful in meeting its output goal for a period, the firm has been
a. efficient.
b. effective.
c. profitable.
d. exercising cost containment measures.
Non-financial performance measures (NFPMs) are better than financial measures in
that NFPMs
a. provide a better indication of customer satisfaction.
b. may better predict the direction of future cash flows.
c. directly measure how well an organization does those things that create shareholder
value.
d. all of the above
An automotive company has three divisions. One division manufactures new
replacements parts for automobiles, another rebuilds engines, and the third does repair
and overhaul work on a line of trucks. All three divisions use the services of a central
payroll department. The best method of allocating the cost of the payroll department to
the various operating divisions is
a. total labor hours incurred in the divisions.
b. value of production in the divisions.
c. direct labor costs incurred in the divisions.
d. machine hours used in the divisions.
Wyman Enterprises
Refer to Wyman Enterprises. For March, Cost of Goods Manufactured was
a. $118,000.
b. $115,000.
c. $112,000.
d. $109,000.
Terrell Corporation
Terrell Corporation produces various products used in the construction industry. The
Plumbing Division produces and sells 100,000 copper fittings each month. Relevant
information for last month follows:
Top-level managers are trying to determine how a transfer price can be set on a transfer
of 10,000 of the copper fittings from the Plumbing Division to the Bathroom Products
Division.
Refer to Terrell Corporation. A transfer price based on variable cost will be set at ____
per unit.
a. $0.50
b. $0.65
c. $0.95
d. $1.10
Baker Company
Baker Company produces three products: A, B, and C from the same process. Joint
costs for this production run are $2,100.
If the products are processed further, Baker Company will incur the following disposal
costs upon sale: A, $3.00; B, $2.00; and C, $1.00.
Refer to Baker Company. Using a physical measurement method, what amount of joint
processing cost is allocated to Product B (round to the nearest dollar)?
a. $494
b. $679
c. $927
d. $700
When used for performance evaluation, periodic internal reports based on a
responsibility accounting system should not
a. be related to the organization chart.
b. include allocated fixed overhead.
c. include variances between actual and budgeted controllable costs.
d. distinguish between controllable and noncontrollable costs.
Ultimate Vision Corporation
Ultimate Vision Corporation has two product lines: LCD televisions and projection
televisions. The company has budgeted the following production and overhead costs for
the upcoming year:
Refer to Ultimate Vision Corporation. If the company uses total direct labor hours to
allocate factory overhead, the machine maintenance cost allocated to LCD TV’s would
be:
a. $51,923
b. $55,385
c. $69,231
d. $72,000
If a cost can be reduced to zero in the short run without significantly harming the
organization, the cost is a
a. variable cost.
b. committed cost.
c. discretionary cost.
d. product cost.
Which of the following might be appropriate for items in the “C” category of a Pareto
inventory analysis?
a. a red-line system
b. a two-bin system
c. a periodic inventory system
d. all of the above
StatPro Corporation
StatPro Corporation is a manufacturer of a versatile statistical calculator. The following
information is a summary of defective and returned units for the previous year.
Refer to StatPro Corporation. The profit lost by selling defective units to Pittman
Company totals $1,440. The total rework cost for 700 units is $28,000. The difference
between the profit earned on a good unit and a defective unit is $12. How many total
defective units did StatPro Corporation produce?
a. 120
b. 740
c. 736
d. 820
The primary distinction between by-products and scrap is the difference in volume
produced.
If a normal loss is anticipated on all jobs, the overhead application rate should include
an amount for the cost of defective units less disposal value.
ISO 9000 registration is required for regulated products sold in the European Union.
When multiple labor categories are used, the financial effect of using a different mix of
workers in a production process is referred to as a labor mix variance.
If sales exceed production, absorption costing net income is less than variable costing
net income.
Top management can reduce slack by using a bonus system to link performance to the
budget.
Management talent is increased in a diverse group of employees.
Cost control should be viewed as a short-term process.
Discuss process costing in a multi-department atmosphere.
In a pollution prevention system, managers produce the pollutant, and then clean it up.
Process benchmarking creates the risk for a company to become stagnant.
If production exceeds sales, absorption costing net income is less than variable costing
net income.
Variable costing is commonly used for external reporting.
An activity that is essential for business operations but does not add value to a product
is referred to as a ___________________________________ activity.
In a normal cost system, factory overhead is assigned directly to products and services.