Discontinuing an unprofitable customer should be solely done on the basis of
profitability.
If the production planners set the budgeted machine hours standards too loose, one
could anticipate there would be a favorable fixed overhead efficiency variance.
A standard price is the minimum price a company will have to pay for a unit of input.
An on-time delivery rate is considered a nonfinancial measure of customer satisfaction.
The weighted average method of process costing assigns the cost of equivalent units
worked on during the current period first to complete beginning inventory, next to start
and complete new units, and finally to units in ending work-in-process inventory.
Using master budget capacity as the denominator level sets the cost of capacity at the
cost of supplying the capacity, regardless of the demand for the capacity.
The design of products, services, and processes component of the supply chain refers to
the detailed planning, engineering, and testing of products and processes.
Increased global competition is placing pressure on companies to reduce costs.
A commitment to a new capital project will always result in an increase in net working
capital.
Indirect manufacturing costs should be allocated equally to each job.
A company’s inventory levels are dependent on a number of variables including the
demand for the product, supplier relationships, and supplier relationships with their
manufacturers.
When inventories are present, classifying spoilage as normal rather than abnormal
results in an decrease in current operating income.
Theoretical capacity is unattainable in the real world.
The balance sheet and income statement are primarily management accounting reports.
Using job costing would not be appropriate in the shipping industry.
In the net present value (NPV) method, pre-tax cash flows should be used instead of
after-tax cash flows.
Return on investment can be calculated by multiplying return on assets by investment
turnover.
The selling price per unit is $25, variable cost per unit $15, and fixed cost per unit is $4
when sales are 10,000 units. If one more unit is sold, operating income will increase by
$6.
Partial productivity and TFP measures work best together because the strengths of one
offset the weaknesses of the other.
A customer cost hierarchy may include customer-sustaining costs.
The chart used to express customer profitability is called the whale curve because it is
backward-bending at the point where customers start to become unprofitable and thus
resembles a humpback.
Management control systems should be designed to support the organizational
responsibilities of individual managers.
Tracking price discounts by customer and by salesperson helps improve customer
profitability.
The breakeven points are the same under both variable costing and absorption costing.
Management accounting information and reports do not have to follow set principles or
rules such as GAAP but should be useful to its audience and meet the cost/benefit test.
Kaizen budgeting does NOT make sense for cost centers.
For optimal planning success it is best if each business function within the value chain
is performed one at a time in sequence.
Computer-based systems, like ERP, help managers budget for all manufacturing costs
but lack the ability to help managers budget for non-manufacturing costs.
Total assets employed includes all assets, regardless of their intended purpose.
The cost-allocation base is a systematic way to link an indirect cost or group of indirect
costs to cost objects.
You can find the breakeven revenues using total revenues, total variable costs, and total
fixed costs; you don’t need unit prices and costs.
The tool crib at a large manufacturing company is responsible for providing tools to the
factory workers on demand. The tool crib has a variable demand. Historically, its
demand has ranged from 220 to 500 small tools per day with an average of 360. Diane,
the tool crib attendant, works eight hours a day, five days a week. Each order is for one
small tool and each small tool takes Diane 1 minute to retrieve from the bins.
Diane has been asked to consider plans to add the retrieval of larger tooling fixtures to
her duties. She anticipates that there would be an average of 10 tooling fixtures per day
requested. Each tooling fixture would take Diane 4 minutes to retrieve.
What is the average waiting time, in minutes, if Diane continues to be the only worker
that would retrieve the small tools as well as the larger tooling fixtures?
A) 0.50 minutes
B) 5.00 minutes
C) 3.25 minutes
D) 160.00 minutes
It is usually difficult to find good cost driver (cause-and-effect relationship) between
________ and a cost allocation base.
A) unit-level costs
B) batch-level costs
C) product-sustaining costs
D) facility-sustaining costs
Maxire Shoes manufactures shoes. All direct materials are included at the inception of
the production process. For March, there were 2,800 units in beginning inventory with a
direct material cost of $1,400. Direct materials totaled $35,000 for the month.
Work-in-process records revealed that 70,000 units were started in March and that
60,000 were finished. When March ended there were 12,800 units in work-in-process.
Normal spoilage of 2% of units finished was incurred. Ending work-in-process units are
complete in respect to direct materials costs. Spoilage is not detected until the process is
complete. Endicott uses the weighted-average method.
Required:
a. What are the direct materials costs assigned to completed good units?
b. What are the direct material amounts allocated to the work-in-process ending
inventory?
Woodruff Flowering Plants provides the following information for the month of May:
For May, Woodruff will report a(n) ________.
A) favorable sales-mix variance
B) unfavorable sales-mix variance
C) favorable market-share variance
D) unfavorable market-share variance
Which of the following statements about the direct/indirect cost classification is true?
A) Indirect costs are always traced.
B) Indirect costs are always allocated.
C) The design of sales target affects the direct/indirect classification.
D) The direct/indirect classification depends on the cost control measures.
Jalbert Incorporated planned to use materials of $11 per unit but actually used materials
of $13 per unit, and planned to make 1,590 units but actually made 1,780 units.
The flexible-budget variance for materials is ________.
A) $3,180 favorable
B) $3,560 unfavorable
C) $3,180 unfavorable
D) $3,560 favorable
Which of the following is an equation of a fixed cost function?
A) y = (a + b)X
B) y = a + bX
C) y = bX
D) y = a
Emerging Dock Company manufactures boat docks on an assembly line. Its standard
costing system uses two cost categories, direct materials and conversion costs. Each
product must pass through the Assembly Department and the Finishing Department.
Direct materials are added at the beginning of the production process. Conversion costs
are allocated evenly throughout production.
What is the balance in ending work-in-process inventory?
A) $514,855
B) $774,800
C) $288,490
D) $175,960
Which of the following is true of net income?
A) Net income is operating income divided by income tax rate.
B) Net income is operating income plus operating revenues minus operating costs
minus income taxes.
C) Net income is operating income plus nonoperating revenues minus nonoperating
costs minus income taxes.
D) Net income is operating income minus nonoperating revenues minus nonoperating
costs minus sales taxes.
The flexible-budget variance for direct cost inputs can be further subdivided into a
________.
A) static-budget variance and a sales-volume variance
B) sales-volume variance and an efficiency variance
C) price variance and an efficiency variance
D) static-budget variance and a price variance
In a company with low operating leverage, ________.
A) fixed costs are more than the contribution margin
B) contribution margin and operating income are inversely related
C) there is a higher possibility of net loss than a higher-leveraged firm
D) less risk is assumed than in a highly leveraged firm
That part of the value chain that includes ordering and shipping the product to retail
outlets is ________.
A) Customer service
B) Production
C) Marketing
D) Distribution
In a cost-benefit approach, managers should spend resources if the ________.
A) marginal costs to the company exceed the marginal benefits
B) expected benefits to the company exceed the expected costs
C) marginal costs to the company equal the marginal benefits
D) expected benefits to the company equal the expected costs
In a noncompetitive environment, the key factor affecting pricing decisions is the
________.
A) customer’s willingness to pay
B) price charged for alternative products
C) information on competitor’s cost structure
D) minimum price acceptable to the firm
The actual information pertains to the third quarter. As part of the budgeting process,
the Duck Decoy Department of Paralith Incorporated had developed the following static
budget for the third quarter. Duck Decoy is in the process of preparing the flexible
budget and understanding the results.
The flexible budget will report ________ for the fixed costs.
A) $73,923
B) $31,000 Favorable
C) $31,000
D) $10,000 Unfavorable
Timekeeper Corporation has two divisions, Distribution and Manufacturing. The
company’s primary product is high-end watches. Each division’s costs are provided
below:
Manufacturing: Variable costs per unit $1.36
Fixed costs per unit $5.77
Distribution: Variable costs per unit $1.30
Fixed costs per unit $0.50
The Distribution Division has been operating at a capacity of 4,009,000 units a week
and usually purchases 2,004,500 units from the Manufacturing Division and 2,004,500
units from other suppliers at $13.00 per unit.
Assume 110,000 units are transferred from the Manufacturing Division to the
Distribution Division for a transfer price of $8.00 per unit. The Distribution Division
sells the 110,000 units at a price of $18 each to customers. What is the operating
income of both divisions together?
A) $347,600
B) $392,150
C) $997,700
D) $634,700
Assuming previous year’s production capacity was adequate to produce current year
output, the cost effect of growth for fixed costs is calculated by multiplying the
difference between ________ by price per unit of capacity in the previous year.
A) actual units of capacity in current year and actual units of capacity in previous year
B) capacity units required to produce current year output in previous year and the
current year capacity units
C) actual units of capacity in previous year and actual units of capacity in previous year
D) capacity units required to produce previous year output in current year and the
previous year capacity units
The goal of a properly constructed ABC system is to ________.
A) have the most accurate cost system
B) identify more indirect costs
C) develop the best cost system that meets the cost/benefit test
D) have separate allocation rates for each department
Estate Corp., has the following information:
Purchases are paid for in the following manner:
10% of the purchase amount in the month of purchase
50% of the purchase amount in the month after purchase
40% of the purchase amount in the second month after purchase
What is the expected balance in Accounts Payable as of March 31?
A) $37,290
B) $14,250
C) $2,910
D) $25,650
Capital Investments has three divisions. Each division’s required rate of return is 15%.
Planned operating results for 2015 are as follows:
The company is planning an expansion, which will require each division to increase its
investments by $25,000,000 and its income by $4,500,000.
Required:
a. Compute the current ROI for each division.
b. Compute the current residual income for each division.
c. Rank the divisions according to their current ROIs and residual incomes.
d. Determine the effects after adding the new project to each division’s ROI and residual
income.
e. Assuming the managers are evaluated on either ROI or residual income, which divisions
are pleased with the expansion and which ones are unhappy?
Assembly department of Zahra Technologies had 100 units as work in process at the
beginning of the month. These units were 45% complete. It has 200 units which are
20% complete at the end of the month. During the month, it completed and transferred
500 units. Direct materials are added at the beginning of production. Conversion costs
are allocated evenly throughout production. Zahra uses weighted-average
process-costing method. What is the total equivalent units in ending inventory for
assignment of direct materials cost?
A) 100 units
B) 40 units
C) 160 units
D) 200 units
When analyzing the change in operating income, the strategy component of
price-recovery ________.
A) calculations are similar to the efficiency-variance calculations
B) compares the change in output price with the changes in input prices
C) will report a large positive amount when a company has successfully pursued the
cost leadership strategy
D) isolates the change attributed solely to an increase in production efficiencies
After conducting a market research study, Magnificent 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 $250. The annual target sales volume
for interior doors is 28,000. Magnificent has target operating income of 40% of sales.
What is the target operating income?
A) $2,800,000
B) $4,200,000
C) $7,000,000
D) $9,800,000
Transferred-in costs are treated as if they are ________.
A) conversion costs added at the beginning of the process
B) costs of beginning inventory added at the beginning of the process
C) direct labor costs added at the beginning of the process
D) a separate direct material added at the beginning of the process
Emerging Dock Company manufactures boat docks on an assembly line. Its standard
costing system uses two cost categories, direct materials and conversion costs. Each
product must pass through the Assembly Department and the Finishing Department.
Direct materials are added at the beginning of the production process. Conversion costs
are allocated evenly throughout production.
Which of the following journal entries records the standard costs of direct materials
assigned to units worked on and total direct materials variances assuming that the
Assembly Department used 15% less materials than expected?
A)
B)
C)
D)
Cost variances should be investigated ________.
A) when they are considered within the “in-control” range as determined by
management
B) when the variance is more than a certain percentage of budgeted costs, as determined
by management
C) even though the cost of investigation exceeds the benefit as determined by
management
D) when the variance is less than a certain percentage of budgeted costs, as determined
by management
The East Company manufactures several different products. Unit costs associated with
Product ORD105 are as follows:
What is the percentage of the total variable costs per unit associated with Product ORD105
with respect to total cost?
A) 81%
B) 68%
C) 84%
D) 71%
Sherry and John Enterprises are using the kaizen approach to budgeting for 2018. The
budgeted income statement for January 2018 is as follows:
Under the kaizen approach, cost of goods sold and variable operating expenses are
budgeted to decline by 1% per month.
What is budgeted cost of goods sold for March 2018?
A) $637,065
B) $656,500
C) $650,000
D) $643,500
Which of the following would be subtracted from sales while calculating contribution
margin in a variable costing format of an operating income statement?
A) Direct labor in factory
B) Rent on factory building
C) Rent on the headquarters building
D) Sales commission on incremental sales
Total manufacturing costs equal ________.
A) direct materials plus prime costs
B) direct materials plus conversion costs
C) direct manufacturing labor costs plus sunk costs
D) direct manufacturing labor costs plus conversion costs
Which component of strategy measures the reduction in costs attributable to a reduction
in the quantity of inputs used in Year 2 relative to the quantity of inputs that would have
been used in Year 1 to produce the Year 2 output?
A) the growth component
B) the price-recovery component
C) the productivity component
D) the cost leadership component
Sandra’s Sheet Metal Company has two divisions. The Raw Material Division prepares
sheet metal at its warehouse facility. The Finishing Division prepares the cut sheet
metal into finished products for the air conditioning industry. No inventories exist in
either division at the beginning of 20X8. During the year, the Raw Material Division
prepared 450,000 square feet of sheet metal at a cost of $1,800,000. All the sheet metal
was transferred to the Finishing Division, where additional operating costs of $1.50 per
square foot were incurred. The 450,000 square feet of finished fabricated sheet metal
products were sold for $3,875,000.
Required:
a. Determine the operating income for each division if the transfer price from Raw
Material to Finishing is at a cost of $4 per square foot.
b. Determine the operating income for each division if the transfer price is $6 per
square foot.
c. Since the Raw Materials Division sells all of its sheet metal internally to the
Finishing Division, does the Raw Materials manager care what price is selected? Why?
Should the Raw Materials Division be a cost center or a profit center under the
circumstances?
Explain capital budgeting and then briefly discuss each of the five stages of a capital
budgeting project?
When a unit has to be reworked, the rework may be classified in three ways. What are
those ways, and how does the accounting for each differ?
Describe the purpose of variance analysis.
What are control charts and how can inferences be drawn from them?
What are the factors that affect the classification of a cost as direct or indirect?
Discuss in brief how easy it is for companies to classify products as main products,
joint products, and byproducts.
List the capital budgeting methods used to analyze financial information.
An important element in designing accounting-based performance measures is choosing
the time horizon of the performance measures. Discuss.
Otylia Manufacturing Company assembles its product in several departments. It has
two departments that process all units. During February, the beginning work in process
in the cutting department was half completed as to conversion, and complete as to direct
materials. The beginning inventory included $12,000 for materials and $3,000 for
conversion costs. Ending work-in-process inventory in the cutting department was 40%
complete. Direct materials are added at the beginning of the process.
Beginning work in process in the finishing department was 75% complete as to
conversion. Beginning inventories included $16,000 for transferred-in costs and
$20,000 for conversion costs. Ending inventory was 25% complete. Additional
information about the two departments follows:
Required:
Prepare a production cost worksheet using weighted-average for the cutting department.
ABC Boat Company is interested in replacing a molding machine with a new improved
model. The old machine has a salvage value of $10,000 now and a predicted salvage
value of $4,000 in six years, if rebuilt. If the old machine is kept, it must be rebuilt in
one year at a predicted cost of $20,000.
The new machine costs $80,000 and has a predicted salvage value of $12,000 at the end
of six years. If purchased, the new machine will allow cash savings of $20,000 for each
of the first three years, and $10,000 for each year of its remaining six-year life.
Required:
What is the net present value of purchasing the new machine if the company has a
required rate of return of 14%?
Steve Corporation is using the kaizen approach to budgeting for 2018. The budgeted
income statement for January 2018 is as follows:
Under the kaizen approach, cost of goods sold and variable operating expenses are
budgeted to decline by 1% per month.
Required:
Prepare a kaizen-based budgeted income statement for March of 2018.
The Octova Corporation manufactures two types of vacuum cleaners: the ZENITH for
commercial building use and the House-Helper for residences. Budgeted and actual
operating data for the year 2017 are as follows:
Required:
Compute the sales-mix variance and the sales-quantity variance by type of vacuum
cleaner, and in total. (in terms of the contribution margin)
Define engineered and discretionary costs and give two examples of each.
Generally, companies follow one of two broad strategies: offering a quality product at a
low price, or offering a unique product or service priced higher than the competition. Is
it possible to follow a strategy that is “in the middle”?
When is a company said to be engaged in predatory pricing? What are the primary
conditions to be satisfied to prove predatory pricing?
Fairytale Weddings manufactures wedding dresses. The following information relates to
the manufacture of gowns in its Providence plant:
Required:
Prepare an analysis of change in annual costs from 2016 to 2017 including direct materials,
direct manufacturing labor, and total inputs.
What is the difference between a weighted-average method of process costing and a
first-in, first-out method of process costing?
Why would a manager perform customer-profitability analysis?