1)
Assume that the company computes variances at the earliest point in time.
The standard hours allowed for the work performed are:
A.5
B.5.14
C.39,000
D.40,100
E.none of the other answers are correct
2) Ohio, Inc., which uses a process-cost accounting system, began operations on
January 1 of the current year. The company incurs conversion cost evenly throughout
manufacturing. If Ohio started work on 3,000 units during the period and these units
were 70% of the way through manufacturing, it would be correct to say that the
company has:
A.3,000 physical units in production
B.2,100 completed units
C.900 in-process units
D.900 equivalent units of production
E.3,000 equivalent units of production
3) Southbend Medical Clinic offers a number of specialized medical services. A review
of data for the year just ended revealed variable costs of $32 per patient day; annual
fixed costs of $480,000, which are incurred evenly throughout the year; and
semivariable costs that displayed the following behavior at the “peak” and “valley” of
activity:
January (2,400 patient days): $258,400
August (2,900 patient days): $278,900
Required:
A. Calculate the total cost for an upcoming month (2,800 patient days) if current cost
behavior patterns continue. Southbend uses the high-low method to analyze cost
behavior.
B. There is a high probability that Southbend’s volume will increase in forthcoming
months as patients take advantage of new scientific advances. Can the data and
methodology used in part (a) for predicting the costs of 2,800 patient days be employed
to estimate the costs for, say, 3,800 patient days? Why or why not?
4) Which of the following situations would cause variable-costing income to be lower
than absorption-costing income?
A.Units sold equaled 39,000 and units produced equaled 42,000
B.Units sold and units produced were both 42,000
C.Units sold equaled 55,000 and units produced equaled 49,000
D.Sales prices decreased by $7 per unit during the accounting period
E.Selling expenses increased by 10% during the accounting period
5) Strayer has a break-even point of 120,000 units. If the firm’s sole product sells for
$40 and fixed costs total $480,000, the variable cost per unit must be:
A.$4
B.$36
C.$44
D.an amount that cannot be derived based on the information presented
E.an amount other than $4, $36 or $44, but one that can be derived based on the
information presented
6) How much money must be invested today in order to have $25,000 at the end of four
years if the rate of return is 12% compounded annually?
A.$15,900
B.$17,100
C.$19,900
D.$22,300
E.None of the other answers are correct
7) Higgins Corporation is in the process of overhauling the performance evaluation
system for its Los Angeles manufacturing division, which produces and sells parts that
are popular in the aerospace industry. Which of the following is least likely to be chosen
to evaluate the overall operations of the Los Angeles division?
A.Cost center
B.Responsibility center
C.Profit center
D.Investment center
E.The profit center and investment center are equally unlikely to be chosen
8) Which of the following variances are most similar with respect to the manner in
which they are calculated?
A.Labor rate variance and labor efficiency variance
B.Material price variance and material quantity variance
C.Material price variance, material quantity variance, and total material variance
D.Material price variance and labor efficiency variance
E.Material quantity variance and labor efficiency variance
9) St. James, Inc., currently uses traditional costing procedures, applying $800,000 of
overhead to products Beta and Zeta on the basis of direct labor hours. The company is
considering a shift to activity-based costing and the creation of individual cost pools
that will use direct labor hours (DLH), production setups (SU), and number of parts
components (PC) as cost drivers. Data on the cost pools and respective driver volumes
follow.
The overhead cost allocated to Beta by using traditional costing procedures would be:
A.$240,000
B.$356,000
C.$444,000
D.$560,000
E.None of the other answers is correct
10) Variances are computed by taking the difference between which of the following?
A.Product cost and period cost
B.Actual cost and differential cost
C.Price factors and rate factors
D.Actual cost and standard cost
E.Product cost and standard cost
11) Which of the following is true concerning cost drivers for the predetermined
overhead rate in a process-costing system?
A.Predetermined overhead rates are not used in a process-costing system
B.If direct material cost is the cost driver, direct labor and direct materials may be
combined into the single element of prime cost
C.If direct labor hours is the cost driver, direct labor and manufacturing overhead may
be combined into the single element of conversion cost
D.If direct labor cost is the cost driver, direct labor and manufacturing overhead may be
combined into the single element of conversion cost
E.Cost drivers are irrelevant in process-costing systems
12) Heathrow Corporation sold 12,500 units of its single product during the year,
reporting a cost of good sold that totaled $250,000. A review of the company’s
accounting records disclosed the following information:
Heathrow is subject to a 30% income tax rate.
Required:
A. Determine the selling price per unit.
B. Management established a goal at the beginning of the year to reduce the company’s
investment in finished-goods inventory and work-in-process inventory.
1> Analyze cost of goods sold and determine if management’s goal was achieved with
respect to finished-goods inventory. Show computations.
2> Analyze the firm’s manufacturing costs and determine if management’s goal was
achieved with respect to work-in-process inventory. Show computations.
C. Is the company profitable? Show calculations.
13) On May 1, Dawdle Company had a work-in-process inventory of 10,000 units. The
units were 100% complete for material and 30% complete for conversion, with
respective costs of $30,000 and $1,850.
During the month, 150,000 units were completed and transferred to finished goods. The
May 31 ending work-in-process inventory consisted of 10,000 units that were 100%
complete with respect to materials and 80% complete with respect to conversion.
Costs added during the month were $330,000 for materials and $503,750 for
conversion.
Required:
Using the weighted-average method, calculate:
A. total equivalent units for material and conversion.
B. the cost per equivalent unit for material and conversion.
C. the cost transferred to finished goods.
D. the cost of ending work in process.
14) 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
15)
Refer to the figure above. The vertical distance between the total cost line and the total
revenue line represents:
A.fixed cost
B.variable cost
C.profit or loss at that volume
D.semivariable cost
E.the safety margin
16) Indirect costs:
A.can be traced to a cost object
B.cannot be traced to a particular cost object
C.are not important
D.are always variable costs
E.may be indirect with respect to Disney World but direct with respect to one of its
major components, Epcot Center
17) Hallen Division has been stagnant over the past five years, neither growing nor
contracting in size and profitability. Investments in new property, plant, and equipment
have been minimal. Would the division’s use of total assets (valued at net book value)
when measuring ROI result in (1) using numbers that are consistent with those on the
balance sheet and (2) a rising ROI over time?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
18) Mojave Corporation manufactures a single product that has a cost of $350. The
company uses a 70% markup on cost to arrive at a selling price of $595, which results
in a price that virtually always exceeds that of the market leaders. If Mojave changes to
the approach known as target costing, the company will first:
A.reduce its 70% markup rate
B.trim its $350 cost
C.attempt to re-engineer its product
D.undertake a thorough study of competitors’ prices
E.change the markup so that it is based on sales rather than based on cost
19) Swamp Fox has the following sales forecasts for its hip waders next year:
What is Swamp Fox’s estimated sales revenue for next year if each pair sells for an
average of $30?
A.$1,149,000
B.$1,200,000
C.$1,220,550
D.$1,244,550
E.None of the other answers are correct
20) The following data pertain to Lomax Enterprises:
What price will the company charge if the firm uses cost-plus pricing based on
absorption manufacturing cost and a markup percentage of 110%?
A.$84
B.$147
C.$210
D.$231
E.None of the other answers are correct
21) Digregory makes all purchases on account, subject to the following payment
pattern:
Paid in the month of purchase: 30%
Paid in the first month following purchase: 60%
Paid in the second month following purchase: 10%
If purchases for January, February, and March were $200,000, $180,000, and $230,000,
respectively, what were the firm’s budgeted payments in March?
A.$69,000
B.$138,000
C.$177,000
D.$197,000
E.None of the other answers are correct
22) An accounting information system should be designed to provide information that is
useful. To be useful the information must be:
A.qualitative rather than quantitative
B.unique and unavailable through other sources
C.historical in nature and not purport to predict the future
D.marginal between two alternatives
E.relevant, accurate, and timely
23) The following information relates to Hudston, Inc.:
If the company has a 10% weighted-average cost of capital, its economic value added
would be:
A.$(200,000)
B.$530,000
C.$680,000
D.$970,000
E.None of the other answers are correct
24) 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 rate variance was:
A.$6,600F
B.$6,600U
C.$2,960F
D.$2,960U
E.none of the other answers are correct
25) A company that uses activity-based budgeting performs the following:
1Plans activities for the budget period.
2Forecasts the demand for products and services as well as the customers to be served.
3Budgets the resources necessary to carry out activities.
Which of the following denotes the proper order of the preceding activities?
A.1-2-3
B.2-1-3
C.2-3-1
D.3-1-2
E.3-2-1
26) The following data pertain to Quincey Enterprises:
What price will the company charge if the firm uses cost-plus pricing based on total
cost and a markup percentage of 60%?
A.$63
B.$168
C.$175
D.$280
E.None of the other answers are correct
27) The Modified Accelerated Cost Recovery System (MACRS) assumes that, on
average, assets will be placed in service:
A.at the beginning of the tax year
B.three months into the tax year
C.halfway through the tax year
D.at the end of the tax year
E.in the next tax year
28) Under- or overapplied manufacturing overhead at year-end is most commonly:
A.charged or credited to Work-in-Process Inventory
B.charged or credited to Cost of Goods Sold
C.charged or credited to a special loss account
D.prorated among Work-in-Process Inventory, Finished-Goods Inventory, and Cost of
Goods Sold
E.ignored because there is no effect on the Cash account
29) A flexible budget is appropriate for a(n):
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
30) 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. Which of the following statements is true?
A.The variable maintenance cost is $43 per hour
B.The variable maintenance cost is $45 per hour
C.The variable maintenance cost is $47 per hour
D.The fixed maintenance cost is $725,000 per month
E.More than one of the other answers is true
31) Consider the following statements about residual income:
I. Residual income incorporates a firm’s cost of acquiring investment capital.
II. Residual income is a percentage measure, not a dollar measure.
III. If used correctly, residual income may result in division managers making decisions
that are in their own best interest and not in the best interest of the entire firm.
Which of the above statements is(are) true?
A.I only
B.II only
C.I and II
D.II and III
E.I and III
32) Cosby uses a weighted-average process-costing system. All materials are added at
the beginning of the process; conversion costs are incurred evenly throughout
production. The company finished 40,000 units during the period and had 15,000 units
in progress at year-end, the latter at the 40% stage of completion. Total material costs
amounted to $220,000; conversion costs were $414,000.
The cost of the ending work in process is:
A.$54,000
B.$78,000
C.$114,000
D.$195,000
E.None of the answers is correct
33) Hilton Corporation’s customers differ greatly with respect to number of required
sales contacts (e.g., phone calls and sales visits), account payment patterns, and
design/engineering change orders. Which of the following choices likely denotes an
ideal customer from Hilton’s perspective?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
34) The following tasks are associated with an activity-based costing system:
1 Assignment of cost to products
2 Calculation of pool rates
3 Identification of cost drivers
4 Identification of cost pools
Which of the following choices correctly expresses the proper order of the preceding
tasks?
A.1, 2, 3, 4
B.2, 4, 1, 3
C.3, 4, 2, 1
D.4, 2, 1, 3
E.4, 3, 2, 1
35) Which of the following is (are) example(s) of a mixed cost?
I. A building that is used for both manufacturing and sales activities.
II. An employee’s compensation, which consists of a flat salary plus a commission.
III. Depreciation that relates to five different machines.
IV. Maintenance cost that must be split between sales and administrative offices.
A.I only
B.II only
C.I and III
D.I, III, and IV
E.I, II, III, and IV
36) Midwestern University operates a motor pool for the convenience of its faculty and
staff. The following budget was prepared for an upcoming period:
The budget was based on the assumptions of 20 vehicles, with each vehicle being
driven 8,000 miles. Midwestern acquired two additional vehicles early in the period
under study. Actual miles driven during the period totaled 180,000 .
Discussions with the motor pool manager revealed that pool costs are variable and fixed
in nature. The manager believed that miles driven was the most appropriate cost driver
for studying gasoline and oil expense. In contrast, the number of vehicles in the pool
was the best base to use when studying minor repairs, insurance, and depreciation.
Office help is a fixed cost.
Required:
A. Contrast a static budget with a flexible budget.
B. Suppose that the university’s budget officer desired to prepare a report that compared
budgeted and actual costs. Should the report be based on a static budget or a flexible
budget? Why?
C. On the basis of the information presented, determine the budgeted amounts for the
five preceding costs that would be used in a flexible budget.
37) Many firms are moving toward flexible manufacturing systems and adopting the
just-in-time (JIT) philosophy.
Required:
A. How is cost behavior altered in the typical flexible manufacturing environment as
compared to a traditional manufacturing system? What is the impact on the break-even
point? Explain.
B. One of the assumptions underlying cost-volume profit analysis is that sales volume
and production volume are equal. Stated another way, inventories are assumed to
remain constant. Is this assumption likely to be violated under an ongoing JIT
philosophy? Explain.
38) Which of the following inventories would a company ordinarily hold for sale?
A.Raw materials
B.Work in process
C.Finished goods
D.Raw materials and finished goods
E.Work in process and finished goods
39) How much money must be invested today in order to have $25,000 at the end of
four years if the rate of return is 12% compounded annually?
A.$15,900
B.$17,100
C.$19,900
D.$22,300
E.None of the other answers are correct
40) A manufacturing company is expected to complete a task in 45 minutes. During a
recent accounting period, 3,200 completed units were produced, resulting in the
following labor variances:
Labor rate variance: $520 favorable
Labor efficiency variance: $2,800 unfavorable
The standard labor rate is $14 per hour.
Required:
Calculate (1) the standard hours allowed for the work performed, (2) the actual hours
worked, and (3) the actual wage rate.
41) Discuss the reason for (1) allocating overhead to the cost of production jobs, and (2)
applying overhead using a predetermined rate instead of an actual overhead rate.
42) The Perez Company recorded the following transactions for February 20×1:
Sales were $560,000, with sales prices determined by adding a 40% markup to the
firm’s manufacturing cost. The total cost of direct materials used, direct labor, and
manufacturing overhead during the month was $285,000.
Note: The materials account includes both direct materials and indirect materials.
Required:
Calculate the missing values.
43) 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.
44) Unused or excess capacity is a key component of contemporary management
accounting. Define the term “excess capacity” and explain how it would relate to a
coffee shop.
45) The value chain is a key component of contemporary management accounting.
Define the term “value chain” and explain how it would relate to an airline.