1) Variances are computed by taking the difference between the product cost and
standard cost.
2) When income taxes are considered in capital budgeting, the cash flows related to a
company’s advertising expense would be correctly figured by taking the cash paid for
advertising and subtracting the result of multiplying [advertising expense (1 – tax rate)].
3) In an activity-based costing system, direct materials used would typically be
classified as a unit-level cost.
4) The following equationBeginning finished goods + cost of goods manufactured –
ending finished goodsis used to calculate cost of goods sold during the period.
5) A suitable cost driver for the amount of direct materials used is the number of direct
labor hours worked.
6) Flowers Company is operating at capacity and wants to add a new service to its
expanding business. The new service should be added as long as service revenues
exceed the sum of variable costs and fixed costs.
7) The contribution-margin ratio is calculated as unit contribution margin divided by the
selling price per unit.
8) Manufacturing overhead is a pool of indirect production costs that must somehow be
attached to each unit manufactured.
9) The flow of costs through the manufacturing accounts is essentially the same in both
process costing and job-order costing.
10) The typical balanced scorecard is best described as containing both financial and
nonfinancial performance measures.
11) The direct method ignores the fact that some service departments provide service to
other service departments.
12) The final step in recognizing the completion of production requires a company to
debit Finished-Goods Inventory and credit Work-in-Process Inventory.
13) The budgeting technique that helps managers assess the company’s future and know
if they are reaching their performance goals is called life-cycle budgeting.
14) Eastside Hospital has two service departments (Patient Records and Accounting)
and two “production” departments (Internal Medicine and Surgery). It uses the
reciprocal-services method of cost allocation and should allocate Internal Medicine cost
to Surgery.
15) An example of a customer-value-added activity is final painting and polishing of the
product.
16) Normal defect rates in an assembly process would be considered if a company
desires to establish a series of practical manufacturing standards.
17) An allocation base for a cost pool should ideally be a cost object.
18) Which of the following product-costing systems is/are required for tax purposes?
A.Absorption costing
B.Variable costing
C.Throughput costing
D.Either absorption or variable costing
E.Either absorption, variable costing, or throughput costing
19) 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
20) The curve that shows the relationship between the total sales revenue and quantity
sold is called the:
A.marginal revenue curve
B.average cost curve
C.profit curve
D.demand curve
E.revenue curve
21) Electricity costs that were incurred by a company’s production processes should be
debited to:
A.Utilities Expense
B.Accounts Payable
C.Cash
D.Manufacturing Overhead
E.Work-in-Process Inventory
22) Which of the following expressions can be used to calculate break-even sales
revenue with the contribution-margin ratio (CMR)?
A.CMR fixed costs
B.CMR fixed costs
C.Fixed costs CMR
D.(Fixed costs + variable costs) CMR
E.(Sales revenue – variable costs) CMR
23) Zin, Inc. is planning its cash needs for an upcoming period when 85,000 machine
hours are expected to be worked. Activity may drop as low as 78,000 hours if some
overdue equipment maintenance procedures are performed; on the other hand, activity
could jump to 94,000 hours if one of Zin’s major competitors likely goes bankrupt. A
flexible cash budget to determine cash needs would best be based on:
A.78,000 hours
B.85,000 hours
C.94,000 hours
D.78,000 hours and 94,000 hours
E.78,000 hours, 85,000 hours, and 94,000 hours
24) A company, subject to a 40% tax rate, desires to earn $500,000 of after-tax income.
How much should the firm add to fixed costs when figuring the sales revenues
necessary to produce this income level?
A.$200,000
B.$300,000
C.$500,000
D.$833,333
E.$1,250,000
25) Which if the following would not be part of a value chain for a fast food restaurant?
A.All of the answers are a part of the value chain
B.Buying produce
C.Mopping the floor
D.Refilling the napkin dispensers
E.Hiring new cooks
26) Consider the following statements regarding traditional costing systems:
I. Overhead costs are applied to products on the basis of volume-related measures.
II. All manufacturing costs are easily traceable to the goods produced.
III. Traditional costing systems tend to distort unit manufacturing costs when numerous
goods are made that have widely varying production requirements.
Which of the above statements is (are) true?
A.I only
B.II only
C.III only
D.I and III
E.II and III
27) The sum of the discount factors applicable to individual cash flows in a series of
equal cash flows is called the:
A.single-sum, present-value factor
B.total discount factor
C.annuity discount factor
D.compound discount factor
E.internal rate discount factor
28) Guernsey Retail has three stores in Wisconsin. Which of the following costs would
likely be excluded when computing the profit margin controllable by store no. 3’s
manager?
A.Hourly labor costs incurred by personnel at store no. 3
B.Property taxes attributable to store no. 3
C.The salary of Guernsey’s president
D.The salary of store no. 3’s manager
E.All answers except hourly labor costs incurred by personnel at store no. 3 are correct
29) Papa Friedo’s Pizza store no. 16 has fallen on hard times and is about to be closed.
The following figures are available for the period just ended:
All employees except the store manager would be discharged. The manager, who earns
$27,000 annually, would be transferred to store no. 19 in a neighboring suburb.
Additionally, no. 16’s furnishings and equipment are fully depreciated and would be
removed and transported to Papa Friedo’s warehouse at a cost of $2,800.
Required:
A. What is store no. 16’s reported loss for the period just ended?
B. Should the store be closed? Why?
C. Would Papa Friedo’s likely lose all $205,000 of sales revenue if store no. 16 were
closed? Explain.
30) Which of the following statements is false concerning computerized accounting
systems?
A.Safeguards exist to make sure that controls are working properly
B.There is no need for controls over human operators of computerized systems
C.Computerized accounting systems are not 100% reliable
D.Limits should be placed on who can access a computerized system
E.Many internal control procedures are automated
31) The sales-volume variance equals:
A.(actual sales volume – budgeted sales volume) actual sales price
B.(actual sales volume – budgeted sales volume) actual contribution margin
C.(actual sales volume – budgeted sales volume) budgeted sales price
D.(actual sales price – budgeted sales price) budgeted sales volume
E.(actual sales price – budgeted sales price) fixed-overhead volume variance
32) Which of the following statements is false concerning computerized accounting
systems?
A.Safeguards exist to make sure that controls are working properly
B.There is no need for controls over human operators of computerized systems
C.Computerized accounting systems are not 100% reliable
D.Limits should be placed on who can access a computerized system
E.Many internal control procedures are automated
33) Norton Company has a 12% compound annual interest rate. If the firm invests
$60,000 today, how much will have accumulated by the end of eight years?
A.$117,600
B.$148,560
C.$298,080
D.$738,000
E.None of the other answers are correct
34) Which of the following choices correctly denotes managerial functions that are
commonly associated with budgeting?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
35) Vincente Corporation has a machining capacity of 200,000 hours per year.
Utilization of capacity is normally 75%; it has been as low as 40% and as high as 90%.
An analysis of the accounting records revealed the following selected costs:
Vincenteuses the high-low method to analyze cost behavior.
Required:
A. Classify each of the costs as being either variable, fixed, or semivariable.
B. Calculate amounts for the two unknowns in the preceding table.
C. Calculate the total amount that Viscount would expect at a 75% utilization rate for
Cost A, Cost B, and Cost C.
D. Develop an equation that Vincente can use to predict total cost for any level of hours
within its range of operation.
36) The salaries of a manufacturing plant’s management are said to arise from:
A.unit-level activities
B.batch-level activities
C.product-sustaining activities
D.facility-level activities
E.direct-cost activities
37) The following information relates to Dazie Company:
Dazie’s operating leverage factor is closest to:
A.0.067
B.0.167
C.0.400
D.2.500
E.6.000
38) FastTec sells electronics in retail outlets and on the Internet. It uses activity-based
budgeting in the preparation of its selling, general, and administrative expense budget.
Which of the following costs would the company likely classify as a unit-level expense
on its budget?
A.Media advertising
B.Retail outlet sales commissions
C.Salaries of web-site maintenance personnel
D.Administrative salaries
E.Salary of the sales manager employed at store no. 23
39) Which of the following is not an example of a committed fixed cost?
A.Property taxes
B.Depreciation on buildings
C.Salaries of management personnel
D.Outlays for advertising programs
E.Equipment rental costs
40) Southern Lake Chemical manufactures a product called Zubek. Direct materials are
added at the beginning of the process, and conversion activity occurs uniformly
throughout production. The beginning work-in-process inventory is 60% complete with
respect to conversion; the ending work-in-process inventory is 20% complete. The
following data pertain to May:
Using the weighted-average method of process costing, the cost per unit of direct
materials is:
A.$1.17
B.$1.18
C.$1.20
D.$1.28
E.None of the answers is correct
41) The Montrose Clinic has two service departments (Human Resources and
Information Resources) and two “production” departments (In-patient Treatment and
Out-patient Treatment). The service departments service the “production” departments
as well as each other, and studies have shown that Information Resources provides the
greater amount of service. Which of the following allocations would occur if Montrose
uses the direct method of cost allocation?
A.Information Resources cost would be allocated to In-patient Treatment
B.Information Resources cost would be allocated to Human Resources
C.Human Resources cost would be allocated to Information Resources
D.In-patient Treatment cost would be allocated to Out-patient Treatment
E.Out-patient Treatment cost would be allocated to Information Resources
42) Carolina Plating Company reported a cost of goods manufactured of $520,000, with
the firm’s year-end balance sheet revealing work in process and finished goods of
$70,000 and $134,000, respectively. If supplemental information disclosed raw
materials used in production of $80,000, direct labor of $140,000, and manufacturing
overhead of $240,000, the company’s beginning work in process must have been:
A.$130,000
B.$10,000
C.$66,000
D.$390,000
E.None of the other answers are correct
43) The income statements and balance sheets of service, retailing, and manufacturing
businesses tend to differ.
Required:
A. Which of these businesses will disclose a cost-of-goods-sold figure on the income
statement? Why?
B. Briefly describe the difference between a retailing firm and manufacturer’s disclosure
of inventories on the balance sheet.
44) Companies are free to use the direct, step-down, and reciprocal allocation methods
when dealing with service-department costs.
Required:
A. How does the direct method work? What is its chief limitation?
B. Is the step-down method an improvement over the direct method? Explain.
C. Which of the three methods is the most correct from a conceptual viewpoint? Why?
45) A cost that has both a fixed and variable component is known as a:
A.step-fixed cost
B.step-variable cost
C.semivariable cost
D.curvilinear cost
E.discretionary cost
46) Inventory holding costs would typically include all of the following except:
A.insurance
B.theft
C.transportation
D.obsolescence
E.warehouse rent
47) To be useful in decision making, information should possess which of the following
characteristics?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
48) Which of the following methods recognizes the fact that fixed and variable service
department costs should be allocated separately?
A.Direct method
B.Indirect method
C.Step-down method
D.Reciprocal method
E.Dual-cost allocation method
49) As activity increases, unit variable cost:
A.increases proportionately with activity
B.decreases proportionately with activity
C.remains constant
D.increases by a fixed amount
E.decreases by a fixed amount
50) Distinguish between least-squares regression and multiple regression as cost
estimation methods.
51) The allocation of costs gives rise to several unique terms. Briefly discuss the
following: cost object, cost allocation base, and cost allocation.
52) Harris, Inc., has just completed job nos. 78 and 79, which were similar in terms of
complexity, production processes, and units manufactured. Job no. 78 was
manufactured by Joe Barton who earns $14 per hour, whereas job no. 79 was completed
by Susan Franklin who earns $20 per hour. If Joe and Susan are equally efficient, would
the company be better off using direct labor cost or direct labor hours as the cost driver
in its predetermined overhead rate? Briefly explain.
53) Define the term “cost driver” and discuss the factors that are important in the
selection of appropriate cost drivers.
54) Chen Enterprises purchased 67,000 pounds (cost = $616,400) of direct material to
be used in the manufacture of the company’s only product. According the production
specifications, each completed unit requires four pounds of direct material at a standard
cost of $9 per pound. Direct materials consumed by the end of the period totaled 65,500
pounds in the manufacture of 16,050 finished units.
An examination of Chen’s payroll records revealed that the company worked 42,000
labor hours (cost = $621,600) during the period, and specifications called for each
completed unit requiring 2.6 hours of labor at a standard cost of $15 per hour.
Assume that the company computes variances at the earliest point in time.
Required:
Calculate the direct-material price and quantity variances, and the direct-labor rate and
efficiency variances. Indicate whether each variance is favorable or unfavorable.
55) Both the visual-fit and high-low methods of cost estimation have inherent
limitations. Briefly identify the major deficiency associated with each method.
56) Manhattan, Inc., uses a weighted-average process-costing system. All materials are
introduced at the beginning of production; conversion cost is incurred evenly
throughout manufacturing. The following information pertains to April:
The company’s accountant has already computed the cost per equivalent unit, as
follows: materials, $5; conversion, $14.
Required:
Calculate the cost of goods completed during April and the cost of the ending
work-in-process inventory.
57) James Corporation, headquartered in Chicago, has a manufacturing plant in Dallas.
Plant managers desire to participate in the company’s budget efforts, which, for the past
10 years, have been handled solely by top executives in Chicago. Dallas managers feel
that by becoming involved, they can make great strides in terms of improving operating
performance of their aging facility.
Required:
Briefly discuss this situation, focusing on the benefits and problems of letting Dallas
managers participate in the company’s budgetary efforts.
58) Briefly explain the nature of the fixed-overhead volume variance. Be sure to
address the issue of capacity utilization in your response.