Repair and maintenance costs of vehicles used to deliver products to customers are
product costs.
Value engineering means reevaluating activities to reduce costs while still satisfying
customer needs.
Components of the master budget are the operating budget, the capital expenditures
budget, and the financial budget.
An opportunity cost is the benefit foregone by choosing an alternative course of action.
Total variable costs change in direct proportion to changes in the volume of production.
Under just-in-time costing, the purchase of raw materials is recorded by debiting the
Raw Materials Inventory account.
A master budget is a financial plan for a specific segment of an organization.
Distinguish the following costs as prevention, appraisal, internal failure, or external
failure:
a) Rework substandard products
b) Technical support provided to suppliers
c) Warranty repairs and replacements
d) Inspection of test equipment
e) Liability arising from defective products
f) Field testing and appraisal at customer site
g) Disposal of defective products
A company’s production department was experiencing a high defect rate on the
assembly line, which was slowing down production and causing wastage of valuable
direct materials. The production manager decided to recruit some highly skilled
production workers from another company to bring down the defect rate but was
worried that the higher wages of these workers might negatively affect operating
income. This would produce a(n) ________.
A) unfavorable direct materials cost variance
B) unfavorable direct labor cost variance
C) unfavorable direct labor efficiency variance
D) unfavorable direct materials efficiency variance
Nordic Avionics makes aircraft instrumentation. Its basic navigation radio requires $70
in variable costs and $3,000 per month in fixed costs. Further processing the radio, to
enhance its functionality, will require an additional $26 per unit of variable costs but no
change to the fixed costs. The marketing manager believes that the company would be
able to increase the sales price from $270 to $290. If Nordic decides to further process
the product, operating income would ________.
A) remain the same
B) increase by $26 per unit
C) increase by $96 per unit
D) decrease by $6 per unit
Pattern Manufacturing produces a chemical pesticide and uses process costing. There
are three processing departments-Mixing, Refining, and Packaging. On January 1, the
first department-Mixing-had no beginning inventory. During January, 48,000 fl. oz. of
chemicals were started in production. Of these, 40,000 fl. oz. were completed, and
8,000 fl. oz. remained in process. In the Mixing Department, all direct materials are
added at the beginning of the production process, and conversion costs are applied
evenly through the process.
At the end of January, the equivalent unit data for the Mixing Department were as
follows:
* Percent complete for conversion costs: 44%
In addition to the above, the costs per equivalent unit were $1.35 for direct materials
and $5.30 for conversion costs. Using this data, calculate the full cost of the ending
WIP balance in the Mixing Department. The weighted-average method is used.
A) $43,520
B) $10,800
C) $29,456
D) $64,800
A company is analyzing its month-end results by comparing it to both static and flexible
budgets. During the previous month, the actual sales price was higher than the expected
sales price as per the static budget. This difference results in a(n) ________.
A) favorable flexible budget variance for sales revenues
B) favorable sales volume variance for sales revenues
C) unfavorable flexible budget variance for sales revenues
D) unfavorable sales volume variance for sales revenues
The direct labor costs and manufacturing overhead costs required to produce finished
goods from raw materials are called ________.
A) transferred in costs
B) cost of sales
C) finished goods costs
D) conversion costs
Daryl Corporation reports costs for the year as follows:
How much is the total product costs for the year?
A) $800,000
B) $1,825,000
C) $1,858,000
D) $1,025,000
A company is considering an iron ore extraction project that requires an initial
investment of $512,000 and will yield annual cash inflows of $156,000 for four years.
The company’s discount rate is 9%. What is the NPV of the project?
Present value of an ordinary annuity of $1:
A) $6,560
B) $(102,400)
C) $102,400
D) $(6,560)
Which of the following situations suggests the acceptance of an investment proposal?
A) The present value of the net cash inflows exceeds the initial investment.
B) The IRR is lower than the hurdle rate.
C) The cash inflows are less than the initial investment.
D) The investment will have a residual value.
Which of the following would be considered a product cost for a manufacturing
company?
A) salary of the sales manager
B) salary of the CEO
C) salaries of the accounting staff
D) salary of the production manager
A company’s “climate for action” is a corporate culture ________.
A) that encourages communication, change, and growth
B) that is focused on strong, top-down command and control
C) that is aimed exclusively at period earnings
D) that discourages physical activity, sports, and recreation to improve employee health
and morale
Which of the following will most likely be considered an indirect material cost for a
bakery?
A) spices
B) flour
C) milk
D) eggs
Malibu Corporation provided the following information for the year:
What was the amount of the cost of goods manufactured for the year?
A) $1,363,000
B) $1,164,000
C) $1,135,000
D) $1,193,000
Perfect Clean, Inc. provides housekeeping services. The following financial data have
been provided.
Calculate the contribution margin and the contribution margin ratio. (Round your
contribution margin to the nearest dollar, and your contribution margin ratio to two
decimal places.)
A) $74,850; 93.56%
B) $60,650; 75.81%
C) $32,950; 41.19%
D) $38,650; 48.31%
Discounted cash flow methods, such as net present value and internal rate of return,
________.
A) use simple interest calculations
B) use net income amounts rather than cash flows
C) focus on the payback period
D) consider discounted cash flows
In a perpetual inventory system, when cash sales are recorded, ________.
A) merchandise inventory decreases and cost of goods sold decreases
B) sales revenue increases and cash decreases
C) sales revenue increases and cost of goods sold decreases
D) merchandise inventory decreases and cost of goods sold increases
Southwest Sugar, Inc. has six processing departments for refining sugar-Affination,
Carbonation, Decolorization, Boiling, Recovery, and Packaging. Conversion costs are
added evenly throughout each process. Data from the month of August for the Recovery
Department are as follows:
The ending Work-in-Process Inventory is 100% and 85% complete with respect to
direct materials and conversion costs, respectively. The weighted-average method is
used. How many metric tons of sugar were refined and transferred to the Packaging
Department in August?
A) 22,000 metric tons
B) 6,000 metric tons
C) 16,000 metric tons
D) 28,000 metric tons
Alpha Company manufactures breadboxes and uses an activity-based costing system.
The following information is provided for the month of May:
Each breadbox consists of four parts, and the direct materials cost per breadbox is
$7.80. There is no direct labor. What is the total manufacturing cost per breadbox?
(Round any intermediate calculations and your final answer to the nearest cent.)
A) $15.32
B) $23.12
C) $4.93
D) $18.73
Which of the following describes the time value of money?
A) The time value of money has no effect on the timing of capital investments.
B) Money loses its purchasing power over time through inflation.
C) The fact that invested cash may not earn interest over time is called the time value of
money.
D) A dollar received today is worth more than a dollar to be received in the future.
Custom Furniture manufactures a small table and a large table. The small table sells for
$900, has variable costs of $560 per table, and takes 10 direct labor hours to
manufacture. The large table sells for $1,500, has variable costs of $1,000, and takes
eight direct labor hours to manufacture. Calculate the contribution margin per direct
labor hour for the small table.
A) $340 per direct labor hour
B) $50 per direct labor hour
C) $34 per direct labor hour
D) $56 per direct labor hour
What is the formula used to determine the amount of merchandise inventory to be
purchased?
The following information relates to Leonard Manufacturing’s overhead costs for the
month:
Leonard allocates manufacturing overhead to production based on standard direct labor
hours.
Leonard reported the following actual results for last month: actual variable overhead,
$14,500; actual fixed overhead, $5,400; actual production of 4,700 units at 0.22 direct
labor hours per unit. The standard direct labor time is 0.20 direct labor hours per unit.
Compute the fixed overhead cost variance.
Define a process costing system and list two types of businesses that would use a
process costing system.
List the three kinds of inventory accounts that are used by manufacturing companies.
Briefly discuss what each account includes.
Daytona Manufacturer produces flooring material. The monthly fixed costs are $10,000
per month. The unit sales price is $75, and variable cost per unit is $35. Daytona wishes
to earn an operating income of $25,000. Using the contribution margin ratio, calculate
the total sales revenue that is needed. (Round intermediate calculations to five decimal
places.)