1) Draco, Inc. has the following overhead standards:
Variable overhead: 4 hours at $8 per hour
Fixed overhead: 4 hours at $10 per hour
The standards were based on a planned activity of 20,000 machine hours when 5,000
units were scheduled for production. Actual data follow.
Variable overhead incurred: $167,750
Fixed overhead incurred: $210,000
Machine hours worked: 19,800
Actual units produced: 5,100
Draco’s fixed-overhead budget variance is:
A.$6,000 unfavorable
B.$7,000 unfavorable
C.$10,000 unfavorable
D.$12,000 unfavorable
E.None of the other answers are correct
2) Cost management systems tend to focus on an organization’s:
A.machines
B.employees
C.activities
D.customers
E.rules and regulations
3) The accounting rate of return focuses on the:
A.total accounting income over a project’s life
B.average accounting income over a project’s life
C.average cash flows over a project’s life
D.cash inflows from a project
E.tax savings from a project
4) Which of the following is an example of a fixed cost?
A.Paper used in the manufacture of textbooks
B.Property taxes paid by a firm to the City of Los Angeles
C.The wages of part-time workers who are paid $8 per hour
D.Gasoline consumed by salespersons’ cars
E.Surgical supplies used in a hospital’s operating room
5) Tidewater plans to sell 85,000 units of product no. 794 in May, and each of these
units requires three units of raw material. Pertinent data follow.
On the basis of the information presented, how many units of raw material should
Tidewater purchase for use in May production?
A.228,000
B.246,000
C.264,000
D.282,000
E.None of the other answers are correct
6) Green Auto’s Northern Division is currently purchasing a part from an outside
supplier. The company’s Southern Division, which has no excess capacity, makes and
sells this part for external customers at a variable cost of $19 and a selling price of $31.
If Southern begins sales to Northern, it (1) will use the general transfer-pricing rule and
(2) will be able to reduce variable cost on internal transfers by $3. On the basis of this
information, Southern would establish a transfer price of:
A.$16
B.$19
C.$28
D.$31
E.None of the other answers are correct
7) Which of the following costs changes in direct proportion to a change in the activity
level?
A.Variable cost
B.Fixed cost
C.Semivariable cost
D.Step-variable cost
E.Step-fixed cost
8)
Refer to the figure above. Line C represents the level of:
A.fixed cost
B.variable cost
C.semivariable cost
D.total cost
E.mixed cost
9)
Assume that the company computes variances at the earliest point in time.
The direct-material price variance is:
A.$4,620F
B.$4,620U
C.$5,200F
D.$5,200U
E.none of the other answers are correct
10) Which of the following tasks is not normally associated with an activity-based
costing system?
A.Calculation of pool rates
B.Identification of cost pools
C.Preparation of allocation matrices
D.Identification of cost drivers
E.Assignment of cost to products
11) The estimates used to calculate the predetermined overhead rate will virtually
always:
A.prove to be correct
B.result in a year-end balance of zero in the Manufacturing Overhead account
C.result in overapplied overhead that is closed to Cost of Goods Sold if it is immaterial
in amount
D.result in underapplied overhead that is closed to Cost of Goods Sold if it is
immaterial in amount
E.result in either underapplied or overapplied overhead that is closed to Cost of Goods
Sold if it is immaterial in amount
12) To derive the raw material to purchase during an accounting period, an accountant
would calculate the raw material required for production and then:
A.add the beginning raw-material inventory and the desired ending raw-material
inventory
B.subtract the beginning raw-material inventory and the desired ending raw-material
inventory
C.add the beginning raw-material inventory and subtract the desired ending
raw-material inventory
D.add the desired ending raw-material inventory and subtract the beginning
raw-material inventory
E.add the desired ending raw-material inventory and subtract both the beginning
raw-material inventory and the expected units to be sold
13) The selected amounts that follow were taken from Kandace Corporation’s
accounting records:
Required:
Compute the following:
A. Manufacturing overhead.
B. Work-in-process inventory, 12/31 .
C. Finished-goods inventory, 1/1 .
D. Cost of goods sold.
E. Gross margin.
F. Net income.
14) Which of the following can have a negative impact on a particular sale’s
profitability?
A.Number of required sales contacts (phone calls, visits, etc.)
B.Special shipping instructions
C.Accounts receivable collection time
D.Purchase-order changes
E.All of the answers are correct
15) What type of cost exhibits the behavior shown below?
A.Variable cost
B.Fixed cost
C.Semivariable cost
D.Discretionary fixed cost
E.Step-fixed cost
16) Virginia State University (VSU) is preparing its master budget for the upcoming
academic year (an academic year consists of two semesters). Currently, 12,000 students
are enrolled on campus; however, the admissions office is forecasting a 5% growth in
the student body despite a tuition hike to $80 per credit hour. The following additional
information has been gathered from an examination of university records and
conversations with university officials:
VSU is planning to award 150 tuition-free scholarships.
The average class has 30 students, and the typical student takes 15 credit hours each
semester.
Each class is three credit hours.
Each faculty member teaches five classes during the academic year.
Required:
A. Compute the budgeted tuition revenue for the upcoming academic year.
B. Determine the number of faculty members needed to cover classes.
C. In preparing the university’s master budget, should the administration begin with a
forecast of students or a forecast of faculty members? Briefly explain.
17) Madrid has two service departments (General Factory and Human Resources) and
two production departments (Machining and Assembly). The company uses the direct
method of service-department cost allocation, allocating General Factory cost on the
basis of square feet and Human Resources cost on the basis of employees. Budgeted
allocation-base and operating data for the four departments follow.
Additional information:
Budgeted costs of General Factory and Human Resources respectively amount to
$1,560,000 and $950,000.
The anticipated overhead costs incurred directly in the Machining and Assembly
Departments respectively total $3,650,000 and $2,340,000.
The manufacturing overhead application bases used by Madrid’s production
departments are: Machining, machine hours; Assembly, labor hours.
Company policy holds that a department’s overhead application rate is based on a
department’s own overhead plus an allocated share of service-department cost.
Required:
A. Allocate the company’s service-department costs to the producing departments.
B. Compute the overhead application rates for Machining and Assembly.
18) Yang Manufacturing, which uses the high-low method, makes a product called Yin.
The company incurs three different cost types (A, B, and C) and has a relevant range of
operation between 2,500 units and 10,000 units per month. Per-unit costs at two
different activity levels for each cost type are presented below.
The cost formula that expresses the behavior of Yang’s total cost is:
A.Y = $0 + $17X
B.Y = $20,000 + $13X
C.Y = $40,000 + $9X
D.Y = $45,000 + $4X
E.Y = $60,000 + $5X
19) The following data relate to product no. 33 of La Quinta Corporation:
Direct labor standard: 5 hours at $14 per hour
Direct labor used in production: 45,000 hours at a cost of $639,000
Manufacturing activity: 8,900 units completed
The direct-labor rate variance is:
A.$8,900F
B.$8,900U
C.$9,000F
D.$9,000U
E.None of the other answers are correct
20) Professor Jones is concerned that her students do not understand the concept of
equivalent units. She has therefore prepared the following questions, to appear on an
upcoming examination:
Equivalent units are used in a process-costing accounting system.
A. Explain the need for equivalent units and why separate equivalent-unit totals are
calculated for direct materials and conversion cost.
B. If an examination of goods in production at the end of the period revealed 12,000
units that are, on average, 75% complete, would it be correct to say that 9,000 units
were finished during the period? Why?
Required:
Prepare a complete answer key that can be used in grading the examination questions.
21) The contribution income statement differs from the traditional income statement in
which of the following ways?
A.The traditional income statement separates costs into fixed and variable components
B.The traditional income statement subtracts all variable costs from sales to obtain the
contribution margin
C.Cost-volume-profit relationships can be analyzed more easily from the contribution
income statement
D.The effect of sales volume changes on profit is readily apparent on the traditional
income statement
E.The contribution income statement separates costs into product and period categories
22) Absorption and variable costing are two different methods of measuring income and
costing inventory.
Required:
A. Product costs are defined as costs associated with the manufacturing process. How
does the operational definition of product cost differ between absorption costing and
variable costing?
B. An absorption-costing income statement will report gross profit or gross margin
whereas a variable-costing income statement will report contribution margin. What is
the difference between these terms?
23) Aglow Company uses a process-cost system for its single product. Material A is
added at the beginning of the process; in contrast, material B is added when the units
are 50% complete. The firm’s ending work-in-process inventory consists of 4,000 units
that are 75% complete. Which of the following correctly expresses the equivalent units
of production with respect to materials A and B in the ending work-in-process
inventory?
A.A, 3,000; B, 0
B.A, 3,000; B, 3,000
C.A, 4,000; B, 0
D.A, 4,000; B, 4,000
E.A, 4,000; B, 3,000
24) Under variable costing, fixed manufacturing overhead is:
A.expensed immediately when incurred
B.never expensed
C.applied directly to Finished-Goods Inventory
D.applied directly to Work-in-Process Inventory
E.treated in the same manner as variable manufacturing overhead
25) The following events took place when Managers A, B, and C were preparing
budgets for the upcoming period:
I. Manager A increased property tax expenditures by 2% when she was informed of a
recent rate hike by local authorities.
II. Manager B reduced sales revenues by 4% when informed of recent aggressive
actions by a new competitor.
III. Manager C, who supervises employees with widely varying skill levels, used the
highest wage rate in the department when preparing the labor budget.
Assuming that the percentage amounts given are reasonable, which of the preceding
cases is (are) an example of building slack in budgets?
A.I only
B.II only
C.III only
D.I and II
E.II and III
26) Responsibility accounting systems strive to:
A.place blame on guilty individuals
B.provide information to managers
C.hold managers accountable for both controllable and noncontrollable costs
D.identify unfavorable variances
E.provide information so that managers can make decisions that are in the best interest
of their individual centers rather than in the best interests of the firm as a whole
27) The accounting records of Backspace, Inc., revealed an accounts receivable balance
of $195,000 on January 1, 20×6 . Forty percent of the company’s sales are for cash, and
the remaining 60% are on account. Of the credit sales, 30% are collected in the month
of sale and 70% are collected in the following month. Total sales in January and
February are expected to amount to $500,000 and $530,000, respectively.
Assume that in the latter half of 20×6, Backspace hired a new sales manager who
aggressively tried to maximize the company’s market share. She implemented a
compensation system for the sales force that was 100% commission based, with the
commission calculated on the basis of gross sales dollars. Sales volume increased
dramatically in a very short period of time, and the sales and collection patterns
changed, as follows:
Required:
A. Compute the company’s cash inflows for January and February, 20×6 .
B. Determine the outstanding receivables balance at the end of February.
C. Compare the sales and collection patterns before and after the arrival of the new
sales manager. Have things improved or deteriorated? Explain.
D. On the basis of the information presented, determine what likely caused the
improvement or deterioration in collection patterns.
28) When determining the cost of a manufactured good under an operation-costing
system, a company would:
A.trace direct-material cost and actual conversion cost to each product produced
B.trace direct-material cost to each product produced and use a predetermined
application rate for conversion cost
C.trace actual conversion cost to each product produced and use a predetermined
application rate for direct material
D.use a predetermined application rate for both direct-material cost and conversion cost
E.often switch to a job-costing system to simplify recordkeeping procedures
29) Operation costing:
A.tends to parallel job-order costing with respect to the treatment of conversion cost
B.tends to parallel process costing with respect to the treatment of conversion cost
C.tends to parallel process costing with respect to the treatment of direct materials
D.would likely be used by a manufacturing plant that produces one model of a single
product
E.is commonly known as a joint-costing system
30) Which of the following would be considered when preparing a company’s sales
forecast?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E