1) Telfair & Company had 3,000 units in finished-goods inventory on December 31 .
The following data are available for the upcoming year:
The number of units the company expects to sell in January is:
A.6,900
B.8,900
C.9,400
D.9,900
E.11,900
2) A budget serves as a benchmark against which:
A.actual results can be compared
B.allocated results can be compared
C.actual results become inconsequential
D.allocated results become inconsequential
E.cash balances can be compared to expense totals
3) Allegiance, Inc. has $125,000 of inventory that suffered minor smoke damage from a
fire in the warehouse. The company can sell the goods “as is” for $45,000; alternatively,
the goods can be cleaned and shipped to the firm’s outlet center at a cost of $23,000.
There the goods could be sold for $80,000. What alternative is more desirable and what
is the relevant cost for that alternative?
A.Sell “as is,” $125,000
B.Clean and ship to outlet center, $23,000
C.Clean and ship to outlet center, $103,000
D.Clean and ship to outlet center, $148,000
E.Neither alternative is desirable, as both produce a loss for the firm
4) Seymore Company has two service departments (Cafeteria and Human Resources)
and two production departments (Machining and Assembly). The number of employees
in each department follows.
Seymore uses the step-down method of cost allocation and allocates cost on the basis of
employees. Human Resources cost amounts to $1,200,000, and the department provides
more service to the firm than Cafeteria. How much Human Resources cost would be
allocated to Cafeteria?
A.$88,888
B.$28,572
C.$44,444
D.$0
E.None of the other answers are correct
5) A recent income statement of Dragonwood Corporation reported the following data:
If the company desired to earn a target profit of $1,270,000, it would have to sell:
A.5,778 units
B.8,600 units
C.10,160 units
D.11,908 units
E.None of the other answers is correct
6) Managerial accounting:
A.is unregulated
B.produces information that is useful only for manufacturing organizations
C.is based exclusively on historical data
D.is regulated by the Securities and Exchange Commission (SEC)
E.generally focuses on reporting information about the enterprise in its entirety rather
than by subunits
7) Parrish’s Manufacturing had the following data for the period just ended:
Required:
A. Calculate Parrish’s cost of goods manufactured.
B. Calculate Parrish’s cost of goods sold.
8) Robert Company, which applies overhead to production on the basis of machine
hours, reported the following data for the period just ended:
Actual units produced: 12,000
Actual variable overhead incurred: $77,700
Actual machine hours worked: 18,800
Standard variable overhead cost per machine hour: $4.50
If Robert estimates 1.5 hours to manufacture a completed unit, the company’s
variable-overhead spending variance is:
A.$3,600 favorable
B.$3,600 unfavorable
C.$6,900 favorable
D.$6,900 unfavorable
E.None of the other answers are correct
9) Which of the following methods should be selected if a company terminates all
processing at the split-off point and desires to use a cost-allocation approach that
considers the “revenue-producing ability” of each product?
A.Gross margin at split-off method
B.Reciprocal-accounting method
C.Relative-sales-value method
D.Physical-units method
E.Net-realizable-value method
10) Which of the following is least likely to be classified as a batch-level activity in an
activity-based costing system?
A.Shipping
B.Receiving and inspection
C.Production setup
D.Property taxes
E.Quality assurance
11) Brooklyn sells a single product to wholesalers. The company’s budget for the
upcoming year revealed anticipated unit sales of 31,600, a selling price of $20, variable
cost per unit of $8, and total fixed costs of $360,000. Brooklyn’s safety margin in units
is:
A.(13,400)
B.0
C.1,600
D.13,600
E.None of the other answers is correct
12) The Houston Chamber Orchestra presents a series of concerts throughout the year.
Budgeted fixed costs total $300,000 for the concert season; variable costs are expected
to average $5 per patron. The orchestra uses flexible budgeting.
Required:
A. Prepare a flexible budget that shows the expected costs of 8,000, 8,500, and 9,000
patrons.
B. Construct the orchestra’s flexible budget formula.
C. Assume that 8,700 patrons attended concerts during the year just ended, and actual
costs were: variable, $42,000; fixed, $307,500. Evaluate the orchestra’s financial
performance by computing variances for variable costs and fixed costs.
13) ADF provides consulting services and uses a job-order system to accumulate the
cost of client projects. Traceable costs are charged directly to individual clients; in
contrast, other costs incurred by ADF, but not identifiable with specific clients, are
charged to jobs by using a predetermined overhead application rate. Clients are billed
for directly chargeable costs, overhead, and a markup.
ADF anticipates the following costs for the upcoming year:
ADF’s partners desire to make a $480,000 profit for the firm and plan to add a
percentage markup on total cost to achieve that figure.
On May 14, ADF completed work on a project for Lawrence Manufacturing. The
following costs were incurred: professional staff salaries, $68,000; administrative
support staff, $8,900; travel, $10,500; and other operating costs, $2,600.
Required:
A. Determine ADF’s total traceable costs for the upcoming year and the firm’s total
anticipated overhead.
B. Calculate the predetermined overhead rate. The rate is based on total costs traceable
to client jobs.
C. What percentage of total cost will ADF add to each job to achieve its profit target?
D. Determine the total cost of the Lawrence Manufacturing project. How much would
Lawrence be billed for services performed?
14) In order for a company to achieve a sustainable competitive advantage, it must
perform value chain activities:
A.at the same quality level as competitors, at the same cost
B.at the same quality level as competitors, but at a lower cost
C.at a higher quality level than competitors, at a higher cost
D.at a higher quality level than competitors, but at no greater cost
E.at the same quality level as competitors, but at a lower cost or at a higher quality level
than competitors, but at no greater cost
15) Unit costs in a process-costing system are derived by using:
A.in-process units
B.completed units
C.physical units
D.equivalent units
16) Consider the following statements:
I. Product diversity creates costing problems because diverse products tend to utilize
manufacturing activities in different ways.
II. Overhead costs that are not incurred at the unit level create costing problems because
such costs do not vary with traditional application bases such as direct labor hours or
machine hours.
III. Product diversity typically exists when a single product (e.g., a ballpoint pen) is
made in different colors.
Which of the above statements is (are) true?
A.I only
B.II only
C.I and II
D.I and III
E.II and III
17) Which of the following would not involve a capital-budgeting analysis?
A.The acquisition of new equipment
B.The addition of a new product line
C.The adoption of a new cost driver for overhead application
D.The construction of a new distribution facility
E.The decision of a pro football team to trade for and sign a star quarterback to a
long-term contract
18) If a company has an unfavorable direct-material quantity variance, then:
A.the direct-material price variance is favorable
B.the total direct-material variance is unfavorable
C.the total direct-material variance is favorable
D.the direct-labor efficiency variance is unfavorable
E.any of the other answers can occur
19) Orville Knitters manufactures sweaters and uses an operation-costing system. All
sweaters are processed through Department no. 1, with subsequent processing taking
place in Department no. 2 or Department no. 3 depending on the type of fabric used.
Twenty thousand sweaters were produced during the year; there was no beginning or
ending work in process. Sixty percent of the goods were sent to Department no. 2 for
manufacturing.
Conversion cost incurred in the three departments totaled $504,000, subdivided as
follows: Department no. 1, $360,000; Department no. 2, $60,000; and Department no.
3, $84,000.
Data pertaining to two representative orders, nos. 545 and 567, were:
Required:
A. Explain the nature of operation costing.
B. Determine the cost of order nos. 545 and 567 .
20) Huxtable charges manufacturing overhead to products by using a predetermined
application rate, computed on the basis of machine hours. The following data pertain to
the current year:
Budgeted manufacturing overhead: $480,000
Actual manufacturing overhead: $440,000
Budgeted machine hours: 20,000
Actual machine hours: 16,000
Overhead applied to production totaled:
A.$352,000
B.$384,000
C.$550,000
D.$600,000
E.some other amount
21) Stiles Enterprises reported the following cash collections in July and August from
credit sales:
The company sells a single product for $20, and all sales are collected over a
two-month period.
Required:
A. Determine the number of units that were sold in July.
B. Determine the percent of credit sales collected in the month of sale and the percent
of sales collected in the month following sale.
C. How many units were sold in August?
D. Determine the accounts receivable balance as of August 31 .
22) Which of the following is the correct mathematical expression for return on
investment?
A.Sales margin capital turnover
B.Sales margin + capital turnover
C.Sales margin – capital turnover
D.Sales margin capital turnover
E.Capital turnover sales margin
23) Which of the following choices correctly depicts activities that would be included
in a manufacturer’s value chain?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
24) Dodger Products uses a job-costing system for its units, which pass from the
Machining Department, to the Assembly Department, to finished-goods inventory. The
Machining Department is heavily automated; in contrast, the Assembly Department
performs a number of manual-assembly activities. The company uses machine hours to
apply manufacturing overhead to products in the Machining Department, and direct
labor cost to apply manufacturing overhead to products in the Assembly Department.
The following information relates to the Machining Department for the year just ended:
The Machining Department data that follow pertain to job no. 775, the only job in
production at year-end.
Required:
A. Assuming the use of normal costing, calculate the predetermined overhead rate that
is used in the Machining Department.
B. Compute the cost of the Machining Department’s year-end work-in-process
inventory.
C. Determine the amount that overhead was under- or overapplied during the year in the
Machining Department. Indicate whether it is overapplied or underapplied.
D. If Dodger disposes of the Machining Department’s under- or overapplied overhead
as an adjustment to Cost of Goods Sold, would the company’s Cost-of-Goods-Sold
account increase or decrease? Explain.
E. How much overhead would have been charged to the Machining Department’s
Work-in-Process account during the year?
F. Comment on the appropriateness of direct labor cost to apply manufacturing
overhead in the Assembly Department.
25) A company’s sales forecast would likely consider all of the following factors except:
A.political and legal events
B.advertising and pricing policies
C.general economic and industry trends
D.top management’s attitude toward decentralized operating structures
E.competition
26) The accounting records of Brownwood Company revealed the following
information:
Brownwood’s cost of goods sold is:
A.$721,000
B.$730,000
C.$778,000
D.$787,000
E.None of the other answers are correct
27) Howard Manufacturing’s overhead at year-end was underapplied by $5,800, a small
amount given the firm’s size. The year-end journal entry to record this amount would
include:
A.a debit to Cost of Goods Sold
B.a debit to Manufacturing Overhead
C.a debit to Work-in-Process Inventory
D.a credit to Cost of Goods Sold
E.a credit to Work-in-Process Inventory
28) Pink Corporation manufactures two types of transpondersno. 156 and no. 157and
applies manufacturing overhead to all units at the rate of $76.50 per machine hour.
Production information follows.
The controller, who is studying the use of activity-based costing, has determined that
the firm’s overhead can be identified with three activities: manufacturing setups,
machine processing, and product shipping. Data on the number of setups, machine
hours worked, and outgoing shipments, the activities’ three respective cost drivers,
follow.
The firm’s total overhead of $3,060,000 is subdivided as follows: manufacturing setups,
$260,000; machine processing, $2,400,000; and product shipping, $400,000.
Required:
A. Compute the pool rates that would be used for manufacturing setups, machine
processing, and product shipping in an activity-based costing system.
B. Assuming use of activity-based costing, compute the unit overhead costs of product
nos. 156 and 157 if the expected manufacturing volume is attained.
C. Assuming use of activity-based costing, compute the total cost per unit of product
no. 156.
D. If the company’s selling price is based heavily on cost, would a switch to
activity-based costing from the current traditional system result in a price increase or
decrease for product no. 156? Show computations.
29) The Asian Division of a multinational manufacturing organization would likely be
classified as a:
A.cost center
B.revenue center
C.profit center
D.investment center
E.contribution center
30) Haskins Textile Co. manufactures a variety of fabrics. All materials are introduced
at the beginning of production; conversion cost is incurred evenly through
manufacturing. The Weaving Department had 2,000 units of work in process on April 1
that were 30% complete as to conversion costs. During April, 9,000 units were
completed and on April 30, 4,000 units remained in production, 40% complete with
respect to conversion costs.
The equivalent units of direct materials for April total:
A.9,000
B.13,000
C.13,600
D.14,400
E.15,000
31) Narchie sells a single product for $50. Variable costs are 60% of the selling price,
and the company has fixed costs that amount to $400,000. Current sales total 16,000
units.
If Narchie sells 24,000 units, its safety margin will be:
A.$200,000
B.$400,000
C.$1,000,000
D.$1,200,000
E.None of the other answers is correct
32) Which of the following conditions would cause absorption-costing income to be
lower than variable-costing income?
A.Units sold exceeded units produced
B.Units sold equaled units produced
C.Units sold were less than units produced
D.Sales prices decreased
E.Selling expenses increased
33) The process of encouraging and authorizing workers to take appropriate initiatives
to improve the overall firm is commonly known as:
A.planning and control
B.employee empowerment
C.personnel aggressiveness
D.decision making
E.problem recognition and solution
34) The journal entry needed to record $5,000 of advertising for Westwood
Manufacturing would include:
A.a debit to Advertising Expense
B.a credit to Advertising Expense
C.a debit to Manufacturing Overhead
D.a credit to Manufacturing Overhead
E.a debit to Projects-in-Process
35) Cortez Enterprises is studying the addition of a new product that would have an
expected selling price of $180 and expected variable cost of $120. Anticipated demand
is 9,000 units.
A new salesperson must be hired because the company’s current sales force is working
at capacity. Two compensation plans are under consideration:
Plan 1: An annual salary of $38,000 plus 10% commission based on gross sales dollars
Plan 2: An annual salary of $180,000 and no commission
Required:
A. What is meant by the term “operating leverage”?
B. Calculate the contribution margin and income of the two plans at 9,000 units.
C. Compute the operating leverage factor of the two plans at 9,000 units. Which of the
two plans is more highly leveraged? Why?
D. Assume that a general economic downturn occurred during year no. 2, with product
demand falling from 9,000 to 7,200 units. By using the operating leverage factors,
determine and show which plan would produce a larger percentage decrease in income.
36) Consider the following statements:
I. The standard cost per unit of materials is used to calculate a materials price variance.
II. The standard cost per unit of materials is used to calculate a materials quantity
variance.
III. The standard cost per unit of materials cannot be determined until the end of the
period.
Which of the above statements is (are) true?
A.I only
B.II only
C.III only
D.I and II
E.I, II, and III
37) An employee accidentally overstated the year’s advertising expense by $50,000.
Which of the following correctly depicts the effect of this error?
A.Cost of goods manufactured will be overstated by $50,000
B.Cost of goods sold will be overstated by $50,000
C.Both cost of goods manufactured and cost of goods sold will be overstated by
$50,000
D.Cost of goods sold will be overstated by $50,000, and cost of goods manufactured
will be understated by $50,000
E.None of the other answers are correct