1) The point in a joint production process where each individual product becomes
separately identifiable is commonly called the:
A.decision point
B.separation point
C.individual product point
D.split-off point
E.joint product point
2) At the Nassau Advertising Agency, partner and staff compensation cost is a key
driver of agency overhead. In light of this fact, which of the following is the correct
expression to determine the amount of overhead applied to a particular client job?
A.(Budgeted overhead budgeted compensation) budgeted compensation cost on the job
B.(Budgeted overhead budgeted compensation) actual compensation cost on the job
C.(Budgeted compensation budgeted overhead) budgeted compensation cost on the job
D.(Budgeted compensation budgeted overhead) actual compensation cost on the job
E.None of these, because service providers do not apply overhead to jobs
3) Which of the following employees at Delta Airlines would not be considered as
holding a line position?
A.Pilot
B.Chief financial officer (CFO)
C.Flight attendant
D.Ticket agent
E.Baggage handler
4) Garcia’s inventory increased during the year. On the basis of this information, income
reported under absorption costing:
A.will be the same as that reported under variable costing
B.will be higher than that reported under variable costing
C.will be lower than that reported under variable costing
D.will differ from that reported under variable costing, the direction of which cannot be
determined from the information given
E.will be less than that reported in the previous period
5) Which of the following is not an example of a business-value-added activity?
A.Adopting bar-code technology in the receiving department
B.Installation of a computerized human resource management module
C.Shortening the customers’ billing cycle
D.Addition of an employee hotline for workplace complaints
E.Final painting and polishing of the product
6) Consider the following cost items:
1> Sales commissions earned by a company’s sales force.
2> Raw materials purchased during the period.
3> Current year’s depreciation on a firm’s manufacturing facilities.
4> Year-end completed production of a carpet manufacturer.
5> The cost of products sold to customers of an apparel store.
6> Wages earned by machine operators in a manufacturing plant.
7> Income taxes incurred by an airline.
8> Marketing costs of an electronics manufacturer.
9> Indirect labor costs incurred by a manufacturer of office equipment.
Required:
A. Evaluate the costs just cited and determine whether the associated dollar amounts
would appear on the firm’s balance sheet, income statement, or schedule of cost of
goods manufactured.
B. What major asset will normally be insignificant for service enterprises and relatively
substantial for retailers, wholesalers, and manufacturers? Briefly discuss.
C. Briefly explain the similarity and difference between the merchandise inventory of a
retailer and the finished-goods inventory of a manufacturer.
7) Job no. C12 was completed in November at a cost of $28,500, subdivided as follows:
direct material, $13,500; direct labor, $6,000; and manufacturing overhead, $9,000. The
journal entry to record the completion of the job is:
A.
B.
C.
D.
E.
8) A general calculation method for transfer prices that achieves goal congruence begins
with the additional outlay cost per unit incurred because goods are transformed and then
A.adds the opportunity cost per unit to the organization because of the transfer
B.subtracts the opportunity cost per unit to the organization because of the transfer
C.adds the sunk cost per unit to the organization because of the transfer
D.subtracts the sunk cost per unit to the organization because of the transfer
E.adds the sales revenue per unit to the organization because of the transfer
9) 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.
Each unit that Narchie sells will:
A.increase profit by $20
B.increase profit by $30
C.increase profit by $50
D.increase profit by some other amount
E.decrease profit by $5
10) Harrison Township is studying a 700-acre site for a new landfill. The new site will
save $70,000 in annual operating costs for 10 years, as Harrison currently uses the
landfill of a neighboring municipality. Other data are:
Purchase price per acre: $550
Site preparation costs: $110,000
Hurdle rate: 6%
Ignore income taxes.
Required:
A. Use the net-present-value method and determine whether the landfill should be
acquired.
B. Determine the landfill’s approximate internal rate of return.
11) A revenue center manager:
A.does not have the ability to produce revenue
B.may be involved with the sale of new marketing programs to clients
C.would normally be held accountable for producing an adequate return on invested
capital
D.often oversees divisional operations
E.may be the manager who oversees the operations of a retail store
12) Riverside Florists uses an activity-based costing system to compute the cost of
making floral bouquets and delivering the bouquets to its commercial customers.
Company personnel who earn $180,000 typically perform both tasks; other firm-wide
overhead is expected to total $70,000. These costs are allocated as follows:
Riverside anticipates making 20,000 bouquets and 4,000 deliveries in the upcoming
year.
The cost of wages and salaries and other overhead that would be charged to each
delivery is closest to:
A.$19.63
B.$20.31
C.$26.75
D.$40.63
E.None of the other answers is correct
13) Consider the following statements about the accounting rate of return:
I. The accounting rate of return focuses on a project’s income rather than its cash flows.
II. Companies can figure the accounting rate of return on either the initial investment
figure or an average investment figure.
III. The accounting rate of return considers the time value of money.
Which of the above statements is (are) correct?
A.I only
B.II only
C.III only
D.I and II
E.II and III
14) Webster, Inc. began operations at the start of the current year, having a production
target of 60,000 units. Actual production totaled 60,000 units, and the company sold
95% of its manufacturing output at $50 per unit. The following costs were incurred:
Required:
A. Assuming the use of variable costing, compute the cost of Webster’s ending
finished-goods inventory.
B. Compute the company’s contribution margin. Would Webster disclose the
contribution margin on a variable-costing income statement or an absorption-costing
income statement?
C. Assuming the use of absorption costing, how much fixed selling and administrative
cost would Webster include in the ending finished-goods inventory?
D. Compute the company’s gross margin.
15) Which of the following best defines the concept of a relevant cost?
A.A past cost that is the same among alternatives
B.A past cost that differs among alternatives
C.A future cost that is the same among alternatives
D.A future cost that differs among alternatives
E.A cost that is based on past experience
16) Consider the following statements about dual-cost allocation:
I. Dual-cost allocation prevents a change in the short-run activity of one department
from affecting the cost allocated to another department.
II. Dual-cost allocations create an incentive for user department managers to understate
their expected long-run service needs.
III. Dual-cost allocations are generally preferred over lump-sum allocations, or those
that combine variable and fixed costs together.
Which of the above statements is (are) true?
A.I only
B.III only
C.I and II
D.II and III
E.I, II, and III
17) Herman Company, which applies overhead to production on the basis of machine
hours, reported the following data for the period just ended:
Actual units produced: 13,000
Actual fixed overhead incurred: $742,000
Standard fixed overhead rate: $15 per hour
Budgeted fixed overhead: $720,000
Planned level of machine-hour activity: 48,000
If Herman estimates four hours to manufacture a completed unit, the company’s
fixed-overhead budget variance would be:
A.$22,000 favorable
B.$22,000 unfavorable
C.$60,000 favorable
D.$60,000 unfavorable
E.None of the other answers are correct
18) Consider the following comments about absorption- and variable-costing income
statements:
I. A variable-costing income statement discloses a firm’s gross margin.
II. Cost of goods sold on an absorption-costing income statement includes fixed costs.
III. The amount of variable selling and administrative cost is the same on absorption-
and variable-costing income statements.
Which of the above statements is (are) true?
A.I only
B.II only
C.I and II
D.II and III
E.I, II, and III
19) Division A transfers a profitable subassembly to Division B, where it is assembled
into a final product. A is located in a European country that has a high tax rate; B is
located in an Asian country that has a low tax rate. Ideally, (1) what type of before-tax
income should each division report from the transfer and (2) what type of transfer price
should Division A set for the subassembly?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
20) Giraldo Systems began business on January 1 of the current year, producing a
single product that is popular with home builders. Demand was very strong, allowing
the company to sell its entire manufacturing output of 80,000 units. The following unit
costs were incurred:
Giraldo anticipates an increase in productive output to 100,000 units and sales of
95,000 units in the next accounting period. The company uses appropriate drivers to
determine cost behavior and estimates.
Required:
A. Assuming that present cost behavior patterns continue, compute the total expected
costs in the upcoming accounting period.
B. Ben Levy is about to prepare a graph that shows the unit cost behavior for variable
selling and administrative cost. If the graph’s horizontal axis is volume and the vertical
axis is dollars, briefly describe what Levy’s graph should look like.
C. Determine whether the following costs are variable or fixed in terms of behavior:
1> Yearly lease payments for a state-of-the-art cutting machine.
2> A fee paid to a consultant who provided advice about quality issues. The fee was
based on the number of consulting hours provided.
3> Cost of an awards dinner for ‘star” salespeople.
21) The following data pertain to the Oliver Division of Kemper Company:
The company uses responsibility accounting concepts when evaluating performance;
Oliver’s division manager is contemplating the following three investments. He can
invest up to $400,000.
Required:
A. Calculate the ROIs of the three investments.
B. What is the division manager’s current ROI, computed by using responsibility
accounting concepts?
C. Which of the three investments would be selected if the manager’s focus is on
Oliver’s divisional performance, as judged by ROI? Why?
D. If Kemper has an imputed interest charge of 22%, compute the residual income of
investment no. 3 . If Oliver’s Division manager is evaluated by residual income, is this
investment attractive from Oliver’s perspective? From Kemper’s perspective? Why?
22) New England Corporation has two divisions, Providence and Buffalo, and evaluates
management on the basis of return on investment. Providence currently makes a part
that it sells to both Buffalo and outsiders. Selected data follow.
Providence is seeking an increase in its selling price to $28 per unit because of rising
costs. Buffalo can obtain comparable units from an outside supplier for $26; however, if
Buffalo uses the supplier, Providence will have idle capacity because of an inability to
increase sales to outsiders. From the perspective of New England Corporation:
A.Providence should continue to do business with Buffalo and charge $28 per unit
B.Providence should continue to do business with Buffalo and charge $25 per unit
C.Providence should continue to do business with Buffalo because Providence’s
variable cost per unit is only $18
D.Buffalo should do business with the outside supplier
E.Buffalo should split its business between Providence and the outside supplier
23) Ivory Corporation is reviewing an investment proposal that has an initial cost of
$52,500. An estimate of the investment’s end-of-year book value, the yearly after-tax
net cash inflows, and the yearly net income are presented in the schedule below. Yearly
after-tax net cash inflows include savings from the depreciation tax shield. The
investment’s salvage value at the end of each year is equal to book value, and there will
be no salvage value at the end of the investment’s life.
Ivory uses a 14% after-tax target rate of return for new investment proposals.
Required:
A. Calculate the project’s payback period.
B. Calculate the accounting rate of return on the initial investment.
C. Calculate the proposal’s net present value. Round to the nearest dollar.
24) At a volume of 20,000 units, Dries reported sales revenues of $1,000,000, variable
costs of $300,000, and fixed costs of $260,000. The company’s contribution margin per
unit is:
A.$22
B.$28
C.$35
D.$37
E.None of the other answers is correct
25) The accounting records of Dolphin Company revealed the following information:
Dolphin’s cost of goods sold is:
A.$508,000
B.$529,000
C.$531,000
D.$553,000
E.None of the other answers are correct