When developing cost functions, which of the following statements is FALSE?
A) The cost function must be believable.
B) The cost function should explain past cost behavior.
C) Personal observations of costs and activities provide the best evidence of a plausible
relationship between a cost and its cost driver.
D) The cost function does not have to be plausible.
Ideally, if a department has more than one cost-allocation base for overhead costs, it
should ________.
A) use only one cost-allocation base with the highest amount of overhead costs
B) use only two cost-allocation bases with the highest amount of overhead costs
C) accumulate a separate cost pool for each cost-allocation base and put the overhead
costs into the appropriate cost pool
D) determine the budgeted overhead rate using the budgeted overhead costs and the
budgeted amount of only one cost driver
Which of the following costs is NOT relevant to an equipment replacement decision?
A) cost of new equipment
B) operating cost of new equipment
C) operating cost of old equipment(several years left)
D) cost of old equipment
An alternative term for cycle time is ________ time.
A) productivity
B) manufacturing
C) throughput
D) production
When the actual volume is less than the expected volume, the fixed overhead costs are
________.
A) favorable
B) overapplied
C) overbudgeted
D) underapplied
How do managers obtain the target cost for a new product under consideration? Assume
the market price per unit is known and it cannot be influenced by management.
A) the sum of all production and nonproduction costs
B) the sum of all production costs
C) price per unit minus gross profit per unit
D) the sum of all variable costs
Which statement is TRUE regarding the high-low method to approximate a linear cost
function?
A) The second step in the high-low method is to plot the historical data points on a
graph.
B) Outliers should not be removed from the analysis.
C) Draw a line through all the data points using judgment to fit the line as close as
possible to all the plotted points.
D) The point at which the line intersects the Y-axis is the estimate of fixed costs.
Gomez Company has no beginning and ending inventories, and reports the following
data about its only product:
Direct materials used $470,000
Direct labor $180,000
Fixed indirect manufacturing $130,000
Fixed selling and administrative $150,000
Variable indirect manufacturing $120,000
Variable selling and administrative $60,000
Selling price(per unit) $100
Units produced and sold 30,000
Gomez Company uses the contribution approach to prepare the income statement. What
is the operating income?
A) $1,890,000
B) $2,100,000
C) $2,190,000
D) $2,250,000
The following information pertains to the Northern Division of Johnson Company:
Net Sales $21,000
Variable Costs:
Cost of merchandise sold 7,200
Operating expenses 2,700
Fixed costs:
Controllable by segment manager 2,400
Controllable by others 1,000
Unallocated costs 7,600
The contribution by segment is ________.
A) $7,100
B) $7,700
C) $8,700
D) $11,100
To increase and improve employees’ work efforts in organizations, organizations should
link ________ to ________ such as bonuses.
A) motivation; goal congruence
B) managerial effort; key success factors
C) managerial control; motivation
D) performance measures; personal rewards
Southern Chicken is expanding the menu items offered in order to increase profitability.
Management will evaluate the profitability of each new menu item after six months.
Menu items that are profitable will be retained and the others will be discontinued. On
the part of management, the evaluation and subsequent actions after six months is an
example of ________.
A) management auditing
B) internal auditing
C) planning
D) control
Leshan Company planned to produce 12,000 units. This level of production required 20
setups at a cost of $18,000 plus $500 per setup. Actual production was 10,000 units,
requiring 15 setups. Actual setup cost was $26,000. What is the flexible budget variance
for setup costs?
A) $500 Favorable
B) $500 Unfavorable
C) $2,000 Favorable
D) $2,000 Unfavorable
Managers trace ________ to service departments. Managers allocate ________ to
service departments.
A) producing department costs; service department costs
B) producing department costs; producing department costs
C) direct costs; indirect costs
D) direct costs; producing department costs
Jeff Company produces a part that is used in the manufacture of one of its products. The
annual costs associated with the production of 11,000 units of this part are as follows:
Direct materials $25,000
Direct labor 34,000
Variable indirect production costs 65,000
Fixed indirect production costs 40,000
Total costs $164,000
A supplier is willing to sell 11,000 units of the part to Jeff Company for $12.50 per unit.
When examining the fixed indirect production costs, Jeff Company determines $10,000
is avoidable.
Required:
A) If there are no alternative uses for the facilities, should Jeff Company take advantage
of the supplier’s offer?
B) If Jeff Company decides to buy the part from the supplier, Jeff Company can rent out
the idle facilities for $50,000 per year. Should Jeff Company take advantage of the
supplier’s offer?
The phases of capital budgeting do NOT include ________.
A) a post-audit of the investment
B) gathering data to aid investment decisions
C) the identification of potential investments
D) sensitivity analysis of investment models
Process costing can be used for ________ activities.
A) manufacturing
B) nonmanufacturing
C) manufacturing and nonmanufacturing
D) none of the above
A favorable production volume variance indicates ________.
A) an effective use of manufacturing capacity
B) an ineffective use of manufacturing capacity
C) that the use of manufacturing capacity is lower than expected
D) that the use of manufacturing capacity is higher than expected
The following information pertains to the Southern Division of Olson Company:
Net Sales $5,250
Variable Costs:
Cost of merchandise sold 1,200
Operating expenses 450
Fixed costs:
Controllable by segment manager 600
Controllable by others 1,250
Unallocated costs 1,150
The contribution controllable by a segment manager is ________.
A) $2,350
B) $2,500
C) $3,000
D) $3,350
Southridge Corporation has a joint process that produces two products: A and B. Each
product may be sold at the split-off point or processed further and then sold.
Joint-processing costs for a year are $20,000.
Product A can be sold at the split-off point for $32,000. Alternatively, Product A can be
processed further and sold for $40,000. Additional processing costs are $5,000.
When deciding whether to sell Product A at the split-off point or to process further, the
________ is NOT relevant.
A) joint processing cost of $20,000
B) sales value at split-off of $32,000
C) sales value at completion of $40,000
D) additional processing cost of $5,000
A company that has an activity-based costing system with multiple cost drivers will
prepare a(n) ________ budget.
A) financial planning
B) short-range planning
C) activity-based flexible
D) strategic
Adam Company has two service departments, Maintenance and Human Resources.
Adam Company also has two production departments, Mixing and Finishing.
Maintenance costs are allocated based on square footage while Human Resources costs
are allocated based on number of employees. The following information has been
gathered for the current year:
Human
Maintenance Resources Mixing Finishing
Direct costs $50,400 $33,600 $42,000 $70,000
Square footage 1,600 800 3,200 2,400
Number of employees 16 24 48 64
Assume the step-down method is used to allocate service department costs and the
Human Resources Department is allocated first. Then the amount of cost allocated from
the Maintenance Department to the Human Resources Department is ________.
A) $0
B) $5,040
C) $6,300
D) $6,825
The accounting convention of ________ means selecting the method of measurement
that provides the most pessimistic immediate results.
A) cost benefit
B) objectivity
C) materiality
D) conservatism
Which of the following is(are) characteristic(s) of joint products?
A) when two or more products can be identified before the split-off point.
B) when two or more products have significant sales value.
C) when two or more products are not separately identifiable as individual products
until the split-off point.
D) B and C
On January 1, Latinovich Company paid $16,000 for rent. The rent covers the period
January 1 through April 30. Latinovich Company recorded Prepaid Rent of $16,000.
What is the balance in the Prepaid Rent account on April 1?
A) 0
B) $4,000
C) $8,000
D) $12,000
What is the margin of safety in dollars?
A) planned net income minus actual net income
B) planned revenue minus actual expenses
C) actual revenue in dollars minus planned revenue in dollars
D) planned sales in dollars minus break-even sales in dollars
Assume sales are the cost driver for product costs. The difference between the static
budget amount for sales and the flexible budget amount for sales at the actual level of
sales is called the ________. The difference between the flexible budget amount for
sales at the actual level of sales and the actual amount for sales is called the ________.
A) static variance; flexible budget variance
B) master variance; flexible budget variance
C) quantity variance; static budget variance
D) sales activity variance; flexible budget variance
Dolhun Industries Inc. reported the following information about the production and sale
of its only product during the first month of operations:
Selling price per unit $65
Sales $78,000
Direct materials used $25,000
Direct labor $35,000
Variable factory overhead $15,000
Fixed factory overhead $10,000
Variable selling and administrative expenses $3,000
Fixed selling and administrative expenses $5,000
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 1,200 units
Under variable costing, the variable manufacturing cost of goods sold is ________.
A) $35,000
B) $37,500
C) $39,000
D) $42,500
The Vaclav Company reports the following information:
Sales for the year ended December 31, 2012 $106,950
Gross profit for the year ended December 31, 2012 $45,150
Net income for the year ended December 31, 2012 $7,300
Total Current Assets, December 31, 2012 $18,700
Total Current Liabilities, December 31, 2012 $7,600
Total Assets, December 31, 2012 $48,400
Total Liabilities, December 31, 2012 $20,850
Average common shares outstanding in 2012 1,000
Market price per share, December 31, 2012 $75.00
Dividends per share, for the year ended December 31, 2012 $5.00
What is the price-earnings ratio at December 31, 2012?
A) 0.7
B) 10.3
C) 19.3
D) 75.0
Gokey Company reports the following information:
Net operating profit after taxes $400,000
Adjusted net operating profit after taxes $570,000
Average invested capital $600,000
Adjusted average invested capital $700,000
After-tax cost of capital 10%
The adjusted figures reflect adjustments used by Stern Stewart & Company. What is the
EVA for Gokey Company?
A) $330,000
B) $340,000
C) $500,000
D) $510,000
When we use an annual overhead rate consistently throughout the year for product
costing, without altering it month to month, this is called a(n) ________.
A) direct costing system
B) absorption costing system
C) normal costing system
D) constant costing system
Danville Company is contemplating whether to use MACRS depreciation or
straight-line depreciation for a plant asset. The following information is available:
MACRS Straight-line Present Value of
Depreciation Depreciation One At 12%
Year 1 $13,333 $10,000 0.8929
Year 2 $17,780 $10,000 0.7972
Year 3 $5,924 $10,000 0.7118
Year 4 $2,964 $10,000 0.6355
Assume the tax rate is 40%. Over the four years examined, what is the present value of
the difference in tax savings between MACRS depreciation and straight-line
depreciation?
A) $722
B) $1,806
C) $2,976
D) $9,178
The cost of the Maintenance Department at Forest Manufacturing has always been
charged to the production departments based on the number of employees. Recently, an
activity analysis of possible cost drivers was performed which indicated that the square
feet of space may also be a predictor of costs to be assigned to each production
department. The Maintenance Department cost is $500,000. The following data is
available:
Production Departments
Dept. A Dept. B Dept. C
Number of Employees 300 25 50
Square Feet of Space 5,000 10,000 25,000
Required:
1. Determine the amount of the maintenance department cost that should be allocated to
Department A and Department B if the cost driver used is: (A) number of employees
and (B) square feet of space.
2. Does the choice of the cost driver affect the costs assigned to each department?
When the units sold are greater than the units produced, variable costing income is
________ absorption costing income. When the units sold are less than the units
produced, variable costing income is ________ absorption costing income.
A) equal to; equal to
B) less than; greater than
C) greater than; less than
D) cannot be determined; cannot be determined