The most important part of a budgeting system is getting managers and employees to
accept the budget.
Variable costing considers direct materials, direct labor, variable manufacturing
overhead, and fixed manufacturing overhead as product costs.
In a standard costing system, each input of direct materials, direct labor, and
manufacturing overhead has a cost standard and an efficiency standard.
All transactions are recorded in either one of the special journals or in the general
journal, but not both.
The cost of indirect materials is transferred out of the Manufacturing Overhead account
and accumulated in the Raw Materials Inventory account.
A production cost report cannot be used for the pricing of products because it depicts
only the ways to control product costs.
A flexible budget summarizes revenues and costs for various levels of sales volume
within a relevant range.
Cost center responsibility reports typically focus on the flexible budget variance.
Communicating top management’s expectations to segment managers improves goal
congruence.
A production cost report provides inventory and cost of goods sold data that are needed
for the balance sheet.
Recreation Equipment Company has several divisions that are investment centers. Data
for the Boat Division and the Trailer Division are shown here:
With regard to the efficient use of assets, the Boat Division has a higher return on
investment (ROI) because it has the highest operating income.
The income statement for Eagle, Inc. is divided by its two product lines, blankets and
pillows, as follows:
If total fixed costs remain unchanged and Eagle, Inc. drops the pillows line, operating
income will decrease by $470,000.
When all the units produced are sold, the operating income calculated under absorption
costing is higher when compared to the operating income calculated under variable
costing. Assume that there is no beginning Finished Goods Inventory.
In the first step in developing an activity-based costing system for a manufacturing
company, the management team must determine the activities that incur the majority of
the manufacturing overhead costs.
Management decisions are based primarily on quantitative data because the qualitative
factors are usually not relevant to the decision-making process.
A company is analyzing its month-end results by comparing it to both static and flexible
budgets. During the previous month, the actual variable costs per unit were lower than
the expected variable costs per unit as per the static budget. This difference results in
a(n) ________.
A) favorable flexible budget variance for variable costs
B) favorable sales volume variance for variable costs
C) unfavorable flexible budget variance for variable costs
D) unfavorable sales volume variance for variable costs
The static budget, at the beginning of the month, for Steak Frites Company follows:
Static budget:
Sales volume: 1,100 units; Sales price: $70.00 per unit
Variable costs: $33.00 per unit; Fixed costs: $39,800 per month
Operating income: $900
Actual results, at the end of the month, follows:
Actual results:
Sales volume: 995 units; Sales price: $74.00 per unit
Variable costs: $35.00 per unit; Fixed costs: $35,000 per month
Operating income: $3,805
Calculate the sales volume variance for revenue.
A) $4,800 U
B) $7,350 U
C) $3,885 U
D) $3,980 F
Paragon Products sells a special type of navigation equipment for $1,400. Variable costs
are $800 per unit. When a special order arrived from a foreign contractor to buy 44
units at a reduced sales price of $1,000 per unit, there was a discussion among the
managers. The controller said that as long as the special price was greater than the
variable costs, the sale would contribute to the company’s profits and should be
accepted as offered. The vice president, however, decided to decline the order. Which of
the following statements supports the decision of the vice president?
A) The order is not likely to affect the regular sales.
B) The company is operating at 70% of its production capacity.
C) The variable costs of $800 includes variable costs of packing the product.
D) The company will need to hire additional staff to execute this order.
Which of the following best describes the internal rate of return?
A) interest rate that makes the net present value of the investment equal to zero
B) discount rate that is used to evaluate funds borrowed from a lender for profitability
C) the ratio of average annual income to average amount invested
D) the rate at which the profitability of an investment increases
Halo, Inc. is a consulting firm that offers optimal legal solutions. It allocates indirect
costs using a single predetermined overhead allocation rate with direct labor hours as
the allocation base. The estimated indirect costs for this year amount to $120,000. The
company is expected to work 6,000 direct labor hours during the year. The direct labor
rate is $200 per hour. Clients are billed at 120% of direct labor cost. Last month, Halo’s
consultants spent 180 hours on Bloomington, Inc. Calculate the total costs assigned to
Bloomington.
A) $39,600
B) $36,000
C) $144,000
D) $3,600
Fantabulous Products sells 2,200 kayaks per year at a price of $470 per unit.
Fantabulous sells in a highly competitive market and uses target pricing. The company
has $1,000,000 of assets, and the shareholders wish to make a profit of 18% on assets.
Assume all products produced are sold. What is the target full product cost?
A) $18,000,000
B) $854,000
C) $1,220,120
D) $1,034,000
The following information is provided by Glinda Systems:
What is the profitability index for Project B? (Round your answer to two decimal
places.)
A) 1.92
B) 1.36
C) 1.25
D) 1.87
Dakota, Inc. purchased raw materials worth $8,000 on account. The journal entry to
record the purchase of raw materials on account is ________.
A) debit Cash, $8,000; credit Raw Materials Inventory, $8,000
B) debit Accounts Payable, $8,000; credit Raw Materials Inventory, $8,000
C) debit Raw Materials Inventory, $8,000; credit Accounts Payable, $8,000
D) debit Raw Materials Inventory, $8,000; credit Cash, $8,000
Within the relevant range, which of the following costs remains the same irrespective of
the changes in production?
A) total mixed costs
B) total operating costs
C) total variable costs
D) total fixed costs
The accounts of Delphinia Dreams, Inc. showed the following balances at the beginning
of October:
During the month, direct materials amounting to $21,000 and indirect materials
amounting to $6,000 were issued to production. What is the ending balance in the
Work-in-Process Inventory account following these two transactions?
A) $44,000
B) $65,000
C) $10,000
D) $26,000
Which of the following is not an assumption of cost-volume-profit (CVP) analysis?
A) The only factor that affects total costs is a change in volume, which increases or
decreases variable and mixed costs.
B) The price per unit does not change as volume changes.
C) Fixed costs do not change.
D) The price per unit changes as volume changes.
Allen Boating Company manufactures special metallic materials and decorative fittings
for luxury yachts that require highly skilled labor. Allen uses standard costs to prepare
its flexible budget. For the first quarter of the year, direct materials and direct labor
standards for one of their popular products were as follows:
Direct materials: 1 pound per unit; $11 per pound
Direct labor: 4 hours per unit; $19 per hour
Allen produced 4,000 units during the quarter. At the end of the quarter, an examination
of the direct materials records showed that the company used 7,500 pounds of direct
materials and actual total materials costs were $99,300.
What is the direct materials efficiency variance?
A) $44,000 U
B) $38,500 U
C) $44,000 F
D) $38,500 F
Carbon, Inc. reports the following information for April:
What is the contribution margin of Alpha?
A) $124,000
B) $644,000
C) $400,000
D) $344,000
The Assembly Department of ZigZag, Inc., manufacturer of computers, incurred
$280,000 in direct material costs and $70,000 in conversion costs. The equivalent units
of production for direct materials and conversion costs are 1,000 and 900, respectively.
The cost per equivalent unit of production for direct materials is ________. (Round
your answer to the nearest cent.)
A) $77.78
B) $70.00
C) $311.11
D) $280.00
Define the terms Relevant Cost and Sunk Cost.
For each of the following variances, state which manager is most likely to be
responsible for the variance.
List two strengths and one weakness of the accounting rate of return capital budgeting
method.
Robinson Manufacturing uses a standard cost system. The direct labor cost standard is
$18.00 per direct labor hour. The direct labor efficiency standard is 0.5 direct labor hour
per unit. Actual direct labor for the month is 1,200 hours for a total cost of $24,000.
Production for the month is 3,000 units. Give the journal entry to record direct labor.
List the direct materials variances, and briefly describe each.
When recording direct materials usage, what does an unfavorable direct materials
efficiency variance represent? Will this variance have a debit or credit balance?
Caprice, Inc. has adopted a JIT management system and has the following transactions
in December:
Dec 3 Purchased raw materials on account, $80,000
Dec 8 Incurred labor and overhead costs, $105,000
Dec 15 Completed 750 units with standard costs of $106 for direct materials and $165
for conversion costs
Dec 23 Sold 650 units for $395 each
Record the journal entries for Caprice, Inc. for December.
What are conversion costs? In determining equivalent units of production, why are
conversion costs calculated separately from direct materials?