1) Manufacturing overhead is applied to production.
A. Describe several situations that may give rise to underapplied overhead.
B. Assume that underapplied manufacturing overhead is treated as an adjustment to
Cost of Goods Sold. Explain why an underapplication of overhead increases Cost of
Goods Sold.
2) Activity-based budgeting:
A.begins with a forecast of products and services to be produced, and customers served
B.ends with a forecast of products and services to be produced, and customers served
C.parallels the flow of analysis that is associated with activity-based costing
D.reverses the flow of analysis that is associated with activity-based costing
E.None of the other answers are correct
3) Indiana Corporation has $200,000 of joint processing costs and is studying whether
to process J and K beyond the split-off point. Information about J and K follows.
If Indiana desires to maximize total company income, what should the firm do with
regard to Products J and K?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
4) Normal Company pays a sales commission of 4% on each unit sold. If a graph is
prepared, with the vertical axis representing per-unit cost and the horizontal axis
representing units sold, how would a line that depicts sales commissions be drawn?
A.As a straight diagonal line, sloping upward to the right
B.As a straight diagonal line, sloping downward to the right
C.As a horizontal line
D.As a vertical line
E.As a curvilinear line
5) Coastal Corporation, which uses throughput costing, began operations at the start of
the current year. Planned and actual production equaled 20,000 units, and sales totaled
17,500 units at $95 per unit. Cost data for the year were as follows:
Required:
A. Compute the company’s total cost for the year.
B. How much of this cost would be held in year-end inventory under (1) absorption
costing and (2) variable costing?
C. How much of the company’s total cost for the year would appear on the period’s
income statement under (1) absorption costing and (2) variable costing?
6) The following selected data relate to the Idaho Division of Far West Enterprises
(FWE):
Required:
A. Compute the following for the Idaho Division:
1> Segment contribution margin.
2> Controllable profit margin.
3> Segment profit margin.
B. Which of the three preceding measures should be used when evaluating the Idaho
Division as an investment of FWE’s resources? Why?
C. Assume that management made the decision to prepare a segmented income
statement that reflected Idaho’s five operating departments. Would all $1,120,000 of the
controllable fixed costs be easily traced to the departments? Briefly explain.
D. Which of the five-dollar amounts presented in the body of the problem would be
used in computing the income before taxes of Far West Enterprises?
7) The upper limit on the production of goods and services if everything works
perfectly is known as:
A.practical capacity
B.theoretical capacity
C.utilized capacity
D.management capacity
E.capacity maximization
8) In a cost-plus approach to pricing:
A.there is an inverse relationship between the magnitude of the cost basis and the
markup percentage
B.there is a direct relationship between the magnitude of the cost basis and the markup
percentage
C.the cost basis used must include fixed manufacturing overhead
D.”plus” refers to the addition of allocated administrative overhead to the direct
manufacturing costs
E.”plus” refers to the addition of allocated fixed manufacturing overhead to the variable
manufacturing costs
9) Which of the following statements is true?
A.Service firms have little need for determining the cost of their services
B.The concept of product costing is relevant only for manufacturing firms
C.The cost of year-end inventory appears on the balance sheet as an expense
D.Service companies use cost information for planning and control purposes
E.Mining and petroleum companies have no inventoriable costs
10) Ribco Co. makes and sells only one product. The unit contribution margin is $6 and
the break-even point in unit sales is 24,000. The company’s fixed costs are:
A.$4,000
B.$14,400
C.$40,000
D.$144,000
E.None of the other answers is correct
11) Coleman, Inc. anticipates sales of 50,000 units, 48,000 units, and 51,000 units in
July, August, and September, respectively. Company policy is to maintain an ending
finished-goods inventory equal to 40% of the following month’s sales. On the basis of
this information, how many units would the company plan to produce in August?
A.48,000
B.49,200
C.49,800
D.50,600
E.None of the other answers are correct
12) Apex Metallurgy, Inc. has two service departments (Human Resources and Building
Maintenance) and two production departments (Machining and Assembly). The
company allocates Building Maintenance cost on the basis of square footage and
Human Resources cost on the basis of employees. It believes that Building Maintenance
provides more service than Human Resources. The square footage and employees in
each department follow.
Assuming use of the step-down method, which of the following choices correctly
denotes the number of square feet and employees over which the Building Maintenance
cost and Human Resources cost would be allocated (i.e., spread)?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
13) In a process-costing system, manufacturing costs are accumulated by:
A.batch
B.batch and time period
C.department
D.department and time period
E.department or process, and time period
14) A manufacturing firm produces goods in accordance with customer specifications,
commencing production upon receipt of a purchase order. To accumulate the cost of
each order, the company would use a:
A.job-cost record
B.cost allocation matrix
C.production log
D.overhead sheet
E.manufacturing cost record
15) Managerial accounting:
A.focuses only on historical data
B.is governed by GAAP
C.focuses primarily on the needs of personnel within the organization
D.provides information for parties external to the organization
E.focuses on financial statements and other financial reports
16) The Dollar Store has a Human Resources Department and a Janitorial Department
that provide service to three sales departments. The Human Resources Department cost
is allocated on the basis of employees, and the Janitorial Department cost is allocated
on the basis of space. The following information is available:
Using the direct method, the amount of Janitorial Department cost allocated to Sales
Department no. 2 is:
A.$8,571
B.$8,654
C.$9,000
D.$10,350
E.$14,210
17) Boyze Company manufactures and sells three products: Good, Better, and Best.
Annual fixed costs are $3,315,000, and data about the three products follow.
Required:
A. Determine the weighted-average unit contribution margin.
B. Determine the break-even volume in units for each product.
C. Determine the total number of units that must be sold to obtain a profit for the
company of $234,000.
D. Assume that the sales mix for Good, Better, and Best is changed to 50%, 30%, and
20%, respectively. Will the number of units required to break-even increase or
decrease? Explain. Hint: Detailed calculations are not needed to obtain the proper
solution.
18) HiTech Products manufactures three types of remote-control devices: Economy,
Standard, and Deluxe. The company, which uses activity-based costing, has identified
five activities (and related cost drivers). Each activity, its budgeted cost, and related cost
driver is identified below.
The following information pertains to the three product lines for next year:
What is HiTech’s pool rate for the material-handling activity?
A.$1.00 per part
B.$2.25 per part
C.$6.62 per labor hour
D.$13.23 per part
E.None of the other answers is correct
19) 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 conversion for April total:
A.9,000
B.10,600
C.11,200
D.12,000
E.12,600
20) When considering safety stock and its effect on EOQ, which of the following
statements is false?
A.Safety stock is equal to the potential excess usage of an input
B.The reorder point is affected by the existence of safety stock
C.Safety stock decreases inventory holding costs
D.Safety stock decreases the potential costs caused by inventory shortages
E.Fluctuations in monthly usage of a material indicate the desirability of a safety stock
21) To partially eliminate the problems that are associated with the short-term focus of
return on investment, residual income, and EVA, the performance of a division’s major
investments is commonly evaluated through:
A.postaudits
B.sensitivity analysis
C.performance operating plans
D.horizontal analysis
E.segmented reporting
22) The term “management by exception” is best defined as:
A.choosing exceptional managers
B.controlling actions of subordinates through acceptance of management techniques
C.investigating unfavorable variances
D.devoting management time to investigate significant variances
E.controlling costs so that non-zero variances are treated as “exceptional”
23) Ruiz Company purchased equipment for $30,000 in December 20×1 . The
equipment is expected to generate $10,000 per year of additional revenue and incur
$2,000 per year of additional cash expenses, beginning in 20×2 . Under MACRS,
depreciation in 20×2 will be $3,000. If the firm’s income tax rate is 40%, the after-tax
cash flow in 20×2 would be:
A.$3,200
B.$3,600
C.$4,800
D.$6,000
E.None of the other answers are correct
24) Tesla Corporation, which adds materials at the beginning of production, uses a
weighted-average process-costing system. Consider the data that follow.
The company’s cost per equivalent unit for materials is:
A.$1.24
B.$1.66
C.$1.67
D.$2.05
E.None of the answers is correct
25) When determining customer profitability, activity-based costing can be used to
analyze:
A.orders processed
B.sales visits
C.special packaging and handling
D.billing and collections
E.All of the answers are correct
26) 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 efficiency variance was:
A.$2,900F
B.$2,900U
C.$2,960F
D.$2,960U
E.none of the other answers are correct
27) Reynardo Company incurred $90,000 of depreciation for the year. Eighty percent
relates to the firm’s production facilities, and 20% relates to sales and administrative
offices. If all items are handled in the proper manner, a review of the company’s
accounting records should reveal a:
A.debit to Depreciation Expense for $90,000
B.debit to Manufacturing Overhead for $90,000
C.debit to Manufacturing Overhead for $72,000
D.debit to Work-in-Process Inventory for $18,000
E.credit to Cash for $90,000
28) Which of the following are needed under weighted-average process costing to
calculate the cost of goods completed during the period?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
29) The following selected costs were extracted from the accounting records of
Louisiana Machining (LAM):
1> Direct materials used in production
2> Wages of machine operators
3> Factory utilities
4> Sales commissions
5> Salary of LAM’s president
6> Factory depreciation
7> Wages of plant security guards
8> Uncollectible accounts expense
9> Machine lubricant used in production
A. 1, 2, 3, 6, 7, 9
B. 3, 6, 7, 9
C. 4, 5, 8
D. 2, 3, 6, 7, 9
E. 8
F. 1, 2, 3, 6, 7, 9
Required:
By the use of numbers, identify the costs that would be used to calculate:
30) Costs that result from a company’s ownership or use of facilities and its basic
organizational structure are known as:
A.discretionary fixed costs
B.committed fixed costs
C.discretionary variable costs
D.committed variable costs
E.engineered costs
31) The following data relate to the Lisle Company for May and August of the current
year:
May and August were the lowest and highest activity levels, and Lisle uses the high-low
method to analyze cost behavior. If maintenance hours are estimated to be 26,000 hours
in October, which of the following statements is true?
A.The variable maintenance cost is $18 per hour
B.The variable maintenance cost is $22 per hour
C.The variable maintenance cost is $24 per hour
D.The fixed maintenance cost is $72,000 per month
E.More than one of the other answers is true
32) Linear programming would be used by decision makers when there are:
A.limited resources for labor
B.scarce resources for machine hours
C.scarce resources for both labor and machine hours
D.multiple scarce resources
E.limited resources for material
33) Grist Enterprises is converting to an activity-based costing system It wishes to
depict the various activities in its manufacturing process along with the activities’
relationships. Which of the following is a tool that the company can use to accomplish
this task?
A.Storyboards
B.Activity relationship charts (ARCs)
C.Decision trees
D.Simulation games
E.Process organizers
34) Committed fixed costs would include:
A.advertising
B.research and development
C.depreciation on buildings and equipment
D.contributions to charitable organizations
E.expenditures for direct labor
35) Ai Corporation extracts ore for eight different companies in Colorado. The firm
anticipates variable costs of $65 per ton along with annual fixed overhead of $840,000,
which is incurred evenly throughout the year. These costs exclude the following
semivariable costs, which are expected to total the amounts shown for the high and low
points of ore extraction activity:
March (850 tons): $39,900
August (1,300 tons): $46,200
A-1 uses the high-low method to analyze cost behavior.
Required:
A. Calculate the semivariable cost for an upcoming month when 875 tons will be
extracted.
B. Calculate the total cost for that same month.
C. Ai uses Cortez Trucking to haul extracted ore. Cortez’s monthly charges are as
follows:
1> From a cost behavior perspective, what type of cost is this?
2> If Ai plans to extract 875 tons, is the company being very “cost effective” with
respect to Cortez’s billing rates? Briefly discuss.
