1) The budget variance arises from a comparison of:
A.budgeted fixed overhead expenditures with budgeted fixed overhead costs
B.actual fixed overhead costs with budgeted fixed overhead costs
C.actual variable overhead expenditures with budgeted variable overhead costs
D.variable overhead costs with budgeted fixed overhead costs
E.static-budget amounts with flexible-budget amounts
2) A staff assistant at Whitmere Corporation recently determined that the first four units
completed in a new manufacturing process took 800 hours to complete, or an average of
200 hours per unit. The assistant also found that when the cumulative output produced
doubles, the average labor time declines by 20%. On the basis of this information, how
many total hours would Washington use if it produces 16 units?
A.128
B.160
C.1,280
D.2,048
E.None of the other answers is correct
3) Standard costs are said to be useful in performance evaluation. Assume that the
standard direct materials cost per unit of finished product is $6 (three pounds at $2 per
pound).
Required:
A. Explain how such a standard can be used to evaluate performance.
B. Why is the degree of controllability important when utilizing standard costs to
evaluate performance?
4) Which of the following does not typically appear on a contribution income
statement?
A.Net income
B.Gross margin
C.Contribution margin
D.Total variable costs
E.Total fixed costs
5) Which of the following does not minimize ordering costs when using JIT
purchasing?
A.Reducing the number of vendors
B.Negotiating long-term supply agreements
C.Making less frequent payments
D.Maintaining a safety stock
E.Eliminating inspections
6) Quattro began operations in April of this year. It makes all sales on account, subject
to the following collection pattern: 30% are collected in the month of sale; 60% are
collected in the first month after sale; and 10% are collected in the second month after
sale. If sales for April, May, and June were $60,000, $80,000, and $70,000,
respectively, what were the firm’s budgeted collections for May?
A.$21,000
B.$60,000
C.$69,000
D.$75,000
E.None of the other answers are correct
7) If a company desires to increase its safety margin, it should:
A.increase fixed costs
B.decrease the contribution margin
C.decrease selling prices, assuming the price change will have no effect on demand
D.stimulate sales volume
E.attempt to raise the break-even point
8) Which of the following is a product cost?
A.Glass in an automobile
B.Advertising
C.The salary of the vice president-finance
D.Rent on a factory
E.Glass in an automobile and rent on a factory
9)
Refer to the figure above. The triangular area between the horizontal axis and Line A, to
the right of 4,000, represents:
A.fixed cost
B.variable cost
C.profit
D.loss
E.sales revenue
10) Serina Manufacturing recently sold goods that cost $35,000 for $45,000 cash. The
journal entries to record this transaction would include:
A.a credit to Work-in-Process Inventory for $35,000
B.a debit to Sales Revenue for $45,000
C.a credit to Profit on Sale for $10,000
D.a debit to Finished-Goods Inventory for $35,000
E.a credit to Sales Revenue for $45,000
11) 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.
12) Indiana Company incurred the following costs during the past year when planned
production and actual production each totaled 20,000 units:
If Indiana uses variable costing, the total inventoriable costs for the year would be:
A.$400,000
B.$460,000
C.$560,000
D.$620,000
E.$660,000
13) Vision, Inc. reported a return on investment of 12%, a capital turnover of 5, and
income of $180,000. On the basis of this information, the company’s invested capital
was:
A.$300,000
B.$900,000
C.$1,500,000
D.$7,500,000
E.None of the other answers are correct
14) Which of the following statements about environmental costs is false?
A.Remediation costs include offsite, but not onsite, remediation costs
B.Abatement costs include costs to reduce or eliminate pollution
C.Monitoring costs include the costs of monitoring the regulatory environment as well
as monitoring the production process to determine if pollution is being generated
D.Private environmental costs are those borne by a company or individual
E.Social environmental costs are those borne by the public at large
15) In comparison with a system that uses a single, volume-based cost driver, an
activity-based costing system is preferred when a company has:
A.a large proportion of nonunit-level activities
B.product-line diversity
C.minimal product-line diversity and a small proportion of nonunit-level activities
D.existing variances from budgeted amounts
E.product-line diversity and a large proportion of nonunit-level activities
16) Athena Corporation uses a job-cost system and applies manufacturing overhead to
products on the basis of machine hours. The company’s accountant estimated that
overhead and machine hours would total $800,000 and 50,000, respectively, for 20×1 .
Actual costs incurred follow.
The manufacturing overhead figure presented above excludes $27,000 of sales
commissions incurred by the firm. An examination of job-cost records revealed that 18
jobs were sold during the year at a total cost of $2,960,000. These goods were sold to
customers for $3,720,000. Actual machine hours worked totaled 51,500, and Athens
adjusts under- or overapplied overhead at year-end to Cost of Goods Sold.
Required:
A. Determine the company’s predetermined overhead application rate.
B. Determine the amount of under- or overapplied overhead at year-end. Be sure to
indicate whether overhead was under- or overapplied.
C. Compute the company’s adjusted cost of goods sold.
D. What alternative accounting treatment could the company have used at year-end to
adjust for under- or overapplied overhead? Is the alternative that you suggested
appropriate in this case? Why?
17) Baxter Company, which pays a 10% commission to its salespeople, reported sales
revenues of $210,000 for the period just ended. If fixed and variable sales expenses
totaled $56,000, what would these expenses total at sales of $168,000?
A.$16,800
B.$35,000
C.$44,800
D.$51,800
E.None of the other answers are correct
18) Shortly after being hired as an analyst with Harbor Rentals in upstate New York,
Raul Gomez was asked to prepare a report that focused on the company’s order
processing costsa cost driven largely by the number of rental invoices written. Raul
knew that he could use several different tools to analyze cost behavior, including scatter
diagrams, least-squares regression, and the high-low method. In addition, he knew that
he could present the results of his analysis in the form of algebraic equations. Those
equations follow.
Scatter diagram: OP = $56,000 + $6.80RI
Least-squares regression: OP = $59,000 + $6.75RI
High-low method: OP = $53,500 + $7.25RI
where OP = total order processing costs and RI = number of rental invoices written
Raul had analyzed data over the past 12 months and built equations based on these data,
purposely including the slowest month of the year and the busiest month so that things
would ” tend to even out.” He observed that February was especially slow because of a
paralyzing blizzard, one that forced the company to close for four days.
Required:
A. Will scatter diagrams, least-squares regression, and the high-low method normally
result in the same equation? Why?
B. Assuming the use of least-squares regression, explain what the $59,000 and $6.75
figures represent.
C. Assuming the use of a scatter diagram, predict the order processing cost of an
upcoming month when Harbor expects to write 2,500 rental invoices.
D. Did Raul err in constructing the equations on data of the past 12 months? Briefly
discuss. If “yes,” determine which of the three tools is likely to be affected the most and
explain why.
19) Herbster manufactures A, B, and C, all of which are joint products, and D, which is
classified as a by-product. If joint manufacturing costs amount to $450,000 and the
company is using a popular accounting method, the firm will:
A.allocate $450,000 among A, B, and C
B.allocate $450,000 among A, B, C, and D
C.increase $450,000 by the net realizable value of D and then allocate the total among
A, B, and C
D.decrease $450,000 by the net realizable value of D and then allocate the total among
A, B, and C
E.decrease $450,000 by the net realizable value of D and then allocate the total among
A, B, C, and D
20) Thomlinson Company is considering the development of two products: no. 65 or
no. 66 . Manufacturing cost information follows.
Regardless of which product is introduced, the anticipated selling price will be $50 and
the company will pay a 10% sales commission on gross dollar sales. Thomlinson will
not carry an inventory of these items.
Required:
A. What is the break-even sales volume (in dollars) on product no. 66?
B. Which of the two products will be more profitable at a sales level of 25,000 units?
C. At what unit-volume level will the profit/loss on product no. 65 equal the profit/loss
on product no. 66?
21) Rachelle Hamilton has a fast-food franchise and must pay a franchise fee of
$45,000 plus 4% of gross sales. In terms of cost behavior, the fee is known as a:
A.variable cost
B.fixed cost
C.step-fixedcost
D.semivariable cost
E.curvilinear cost
22) Masterson, Inc., which uses a process-cost accounting system, passes completed
production from Department A to Department B for further manufacturing. The journal
entry to record completed production in Department A requires:
A.a debit to Work-in-Process Inventory and a credit to Finished-Goods Inventory
B.a debit to Finished-Goods Inventory and a credit to Work-in-Process Inventory
C.a debit to Finished-Goods Inventory and a credit to Work-in-Process Inventory:
Department A
D.a debit to Work-in-Process Inventory: Department A and a credit to Work-in-Process
Inventory: Department B
E.a debit to Work-in-Process Inventory: Department B and a credit to Work-in-Process
Inventory: Department A
23) Taylor Enterprises purchased 56,000 pounds (cost = $420,000) of direct material to
be used in the manufacture of the company’s sole product. According the production
specifications, each completed unit requires five pounds of direct material at a standard
cost of $7.80 per pound. Direct materials consumed by the end of the period totaled
53,500 pounds in the manufacture of 10,900 finished units.
An examination of Taylor’s payroll records revealed that the company worked 22,000
labor hours (cost = $319,000) during the period, and specifications called for each
completed unit requiring two hours of labor at a standard cost of $14.80 per hour.
Assume that the company computes variances at the earliest point in time.
Taylor’s direct-labor rate variance was:
A.$6,600F
B.$6,600U
C.$2,960F
D.$2,960U
E.none of the other answers are correct
24) Under an activity-based costing system, what is the per-unit overhead cost of
Standard?
A.$164
B.$228
C.$272
D.$282
E.None of the other answers is correct
25) The contribution-margin ratio is:
A.the difference between the selling price and the variable cost per unit
B.fixed cost per unit divided by variable cost per unit
C.variable cost per unit divided by the selling price
D.unit contribution margin divided by the selling price
E.unit contribution margin divided by fixed cost per unit
26) The term “opportunity cost” is best defined as:
A.the amount of money paid for an item
B.the amount of money paid for an item, taking inflation into account
C.the amount of money paid for an item, taking possible discounts into account
D.the benefit associated with a rejected alternative when making a choice
E.an irrelevant decision factor
27) If a manager builds slack into a budget, how would that manager handle estimates
of revenues and expenses?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E