1) Which of the following statements about financial planning models (FPMs) is (are)
false?
A.FPMs express a company’s financial and operating relationships in mathematical
terms
B.FPMs allow a user to explore the impact of changes in variables
C.FPMs are commonly known as “what-if” models
D.FPMs have become less popular in recent years because of computers and
spreadsheets
E.Both FPMs are commonly known as “what-if” models and FPMs have become less
popular in recent years because of computers and spreadsheets
2) Tunley Corporation has excess capacity. If the firm desires to implement the general
transfer-pricing rule, opportunity cost would be equal to:
A.zero
B.the direct expenses incurred in producing the goods
C.the total difference in the cost of production between two divisions
D.the contribution margin forgone from the lost external sale
E.the summation of variable cost plus fixed cost
3) Under the time and material pricing method, a customer would be charged for:
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
4) Laredo manufactures Nuts and Bolts from a joint process (cost = $80,000). Five
thousand pounds of Nuts can be sold at split-off for $20 per pound; ten thousand
pounds of Bolts can be sold at split-off for $15 per pound. For product costing purposes
Laredo allocates joint costs using the relative sales value method.
The amount of joint cost allocated to Nuts would be:
A.$32,000
B.$40,000
C.$48,000
D.$60,000
E.$80,000
5) Assume that HiTech is using a volume-based costing system, and the preceding
overhead costs are applied to all products on the basis of direct labor hours. The
overhead cost that would be assigned to the Standard product line is closest to:
A.$456,471
B.$646,471
C.$961,176
D.$1,141,176
E.None of the other answers is correct
6) Willingham uses a process-costing system for its single product, which is
manufactured from Material X and Material Y. X and Y are introduced to the product as
follows:
Material X: Added at the beginning of manufacturing
Material Y: Added at the 75% stage of completion
The company started and completed 40,000 units during the period, and had an ending
work-in-process inventory amounting to 8,000 units, 20% complete. Which of the
following choices correctly expresses the total equivalent units of production for
Material X and Material Y?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
7) Forest Company, which uses a weighted-average process-costing system, had 7,000
units in production at the end of the current period that were 60% complete. Material A
is introduced at the beginning of the process; material B is introduced at the end of the
process; and conversion cost is introduced evenly throughout manufacturing.
Equivalent-unit production costs follow.
Material A: $12.50
Material B: $2.00
Conversion cost: $6.60
The cost of the company’s ending work-in-process inventory is:
A.$88,620
B.$115,220
C.$123,620
D.$147,700
E.None of the answers is correct
8) Consider the six costs that follow.
1> Advertising and promotion costs of a do-it-yourself retailer
2> Surgical supplies used in a hospital’s operating room
3> Aircraft depreciation charges of an airline
4> Utility charges that include a minimum-use fee, for a small business
5> Annual business licensing fee paid by a daycare center
6> Truck fuel consumed by a road construction company
Required:
A. Classify each of these costs as variable, committed fixed, discretionary fixed, or
semivariable.
B. Briefly describe the behavior of a per-unit variable cost as activity changes.
C. What elements are present in a semivariable cost that cause it to behave in a
semivariable manner?
D. Generally speaking, does management have more flexibility when dealing with
committed fixed costs or discretionary fixed costs?
9) Kelly and Logan, an accounting firm, provides consulting and tax planning services.
For many years, the firm’s total administrative cost (currently $250,000) has been
allocated to services on the basis of billable hours to clients. A recent analysis found
that 65% of the firm’s billable hours to clients resulted from tax planning services, while
35% resulted from consulting services.
The firm, contemplating a change to activity-based costing, has identified three
components of administrative cost, as follows:
A recent analysis of staff support found a strong correlation between the number of staff
personnel and the number of clients served (consulting, 20; tax planning, 60). In
contrast, in-house computing and miscellaneous office cost varied directly with the
number of computer hours logged and number of client transactions, respectively.
Consulting consumed 30% of the firm’s computer hours and had 20% of the total client
transactions.
If Kelly and Logan switched from its current accounting method to an activity-based
costing system, the amount of administrative cost chargeable to consulting services
would:
A.decrease by $23,500
B.increase by $23,500
C.decrease by $32,500
D.change by an amount other than those listed
E.change, but the amount cannot be determined based on the information presented
10) The Warren Machine Tool Company is considering the addition of a computerized
lathe to its equipment inventory. The initial cost of the equipment is $600,000, and the
lathe is expected to have a useful life of five years and no salvage value. The cost
savings and increased capacity attributable to the machine are estimated to generate
increases in the firm’s annual cash inflows (before considering depreciation) of
$180,000. The machine will be depreciated using MACRS for tax purposes. The 5-year
MACRS depreciation percentages as computed by the IRS are: Year 1 = 20.00%; Year 2
= 32.00%; Year 3 = 19.20%; Year 4 = 11.52%; Year 5 = 11.52%; Year 6 = 5.76%.
Warren is currently in the 40% income tax bracket. A 10% after-tax rate of return is
desired.
Required:
A. What is the net present value of the investment? Round to the nearest dollar.
B. Should the machine be acquired by the firm?
C. Assume that the equipment will be sold at the end of its useful life for $100,000. If
the depreciation amounts are not revised, calculate the dollar impact of this change on
the total net present value.
11) Masterson, Inc., which uses a process-cost accounting system, passes completed
production from Department A to Department B for further manufacturing. The journal
entry to record completed production in Department A requires:
A.a debit to Work-in-Process Inventory and a credit to Finished-Goods Inventory
B.a debit to Finished-Goods Inventory and a credit to Work-in-Process Inventory
C.a debit to Finished-Goods Inventory and a credit to Work-in-Process Inventory:
Department A
D.a debit to Work-in-Process Inventory: Department A and a credit to Work-in-Process
Inventory: Department B
E.a debit to Work-in-Process Inventory: Department B and a credit to Work-in-Process
Inventory: Department A
12) Weston Enterprises uses a traditional-costing system to estimate quality-control
costs for its DEX product line. Costs are estimated at 32% of direct-labor cost, and
direct labor totaled $860,000 for the quarter just ended. Management is contemplating a
change to activity-based costing, and has established three cost pools: incoming
material inspection, in-process inspection, and final product certification. Number of
parts, number of units, and number of orders have been selected as the respective cost
drivers.
The following data show the pool rates that have been calculated by the company along
with the quantity of driver units for the DEXs:
Required:
A. Calculate the quarterly quality-control cost that is allocated to the DEX product line
under Weston’s traditional-costing system.
B. Calculate the quarterly quality-control cost that is allocated to the DEXs if
activity-based costing is used.
C. Does the traditional approach under- or overcost the product line? By what amount?
13) Nevada, Inc. has two divisions, one located in Las Vegas and the other located in
Reno. Las Vegas sells selected goods to Reno for use in various end-products. Assume
that the transfer between the two divisions takes place regardless of the transfer price
set by Las Vegas. Which of the following correctly describes the impact of the transfer
prices on divisional profits and overall company profit?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
14) Indiana Company incurred the following costs during the past year when planned
production and actual production each totaled 20,000 units:
If Indiana uses absorption costing, the total inventoriable costs for the year would be:
A.$400,000
B.$460,000
C.$560,000
D.$620,000
E.$660,000
15) A static budget:
A.is based totally on prior year’s costs
B.is based on one anticipated activity level
C.is based on a range of activity
D.is preferred over a flexible budget in the evaluation of performance
E.presents a clear measure of performance when planned activity differs from actual
activity
16) Which of the following statements is(are) correct?
A.Overtime premiums should be treated as a component of manufacturing overhead
B.Overtime premiums should be treated as a component of direct labor
C.Idle time should be treated as a component of direct labor
D.Idle time should be accounted for as a special type of loss
E.Overtime premiums should be treated as a component of direct labor and idle time
should be treated as a component of direct labor
17) Chen Corporation, a new company, adds material at the beginning of its production
process; conversion cost, in contrast, is incurred evenly throughout manufacturing.
During May, the firm completed 15,000 units and had ending work in process of 2,000
units, 60% complete. Equivalent-unit costs were: materials, $15; conversion, $22.
The cost of Chen’s completed production is:
A.$225,000
B.$330,000
C.$333,000
D.$555,000
E.None of the answers is correct
18) A favorable labor efficiency variance is created when:
A.actual labor hours worked exceed standard hours allowed
B.actual hours worked are less than standard hours allowed
C.actual wages paid are less than amounts that should have been paid
D.actual units produced exceed budgeted production levels
E.actual units produced exceed standard hours allowed
19) Metro Corporation uses a predetermined overhead rate of $20 per machine hour. In
deriving this figure, the company’s accountant used:
A.a denominator of budgeted machine hours for the current accounting period
B.a denominator of actual machine hours for the current accounting period
C.a denominator of actual machine hours for the previous accounting period
D.a numerator of budgeted machine hours for the current accounting period
E.a numerator of actual machine hours for the current accounting period
20) The information that follows relates to Kravitz Corporation:
Sales margin: 7.5%
Capital turnover: 2
Invested capital: $20,000,000
On the basis of this information, the company’s sales revenue is:
A.$1,500,000
B.$3,000,000
C.$10,000,000
D.$40,000,000
E.None of the other answers are correct
21) Customer profitability analysis is tied closely to:
A.just-in-time systems
B.activity-based costing
C.job costing
D.process costing
E.operation costing
22) A manager who wants to determine the percentage impact on income of a given
percentage change in sales would multiply the percentage increase/decrease in sales
revenue by the:
A.contribution margin
B.gross margin
C.operating leverage factor
D.safety margin
E.contribution-margin ratio
23) Muhares, which uses a process-costing system, adds material at the beginning of
production and incurs conversion cost evenly throughout manufacturing. The following
selected information was taken from the company’s accounting records:
Total equivalent units of materials: 8,000
Total equivalent units of conversion: 7,400
Units started and completed during the period: 6,500
On the basis of this information, the ending work-in-process inventory’s stage of
completion is:
A.80%
B.70%
C.60%
D.40%
E.some other percentage
24) Swansong plans to sell 10,000 units of a particular product during July, and expects
sales to increase at the rate of 10% per month during the remainder of the year. The
June 30 and September 30 ending inventories are anticipated to be 1,100 units and 950
units, respectively. On the basis of this information, how many units should Swansong
purchase for the quarter ended September 30?
A.31,850
B.32,150
C.32,950
D.33,250
E.None of the other answers are correct
25) Ellington Corporation uses least-squares regression to analyze a variety of operating
costs. A staff assistant determined that monthly machine hours (MH) have a strong
cause-and-effect relationship with total maintenance costs, and generated the following
statistics:
Intercept: $170,000
b coefficient: $3.80
Total machine hours for the year: 36,500
Required:
A. Construct the company’s regression equation.
B. Based on your answer in part “A,” identify Ellington’s dependent variable and
independent variable.
C. What does the b coefficient really represent?
D. Predict the company’s maintenance cost in a month when 3,200 machine hours are
worked.
26) The Gingham Company’s budgeted income statement reflects the following
amounts:
Sales are collected 50% in the month of sale, 30% in the month following sale, and
19% in the second month following sale. One percent of sales is uncollectible and
expensed at the end of the year.
Gingham pays for all purchases in the month following purchase and takes advantage of
a 3% discount. The following balances are as of January 1:
*Of this balance, $35,000 will be collected in January and the remaining amount will be
collected in February.
The monthly expense figures include $5,000 of depreciation. The expenses are paid in
the month incurred.
Gingham’s expected cash balance at the end of February is:
A.$87,000
B.$89,160
C.$92,000
D.$94,160
E.$113,300
27) Operation costing is a hybrid type of accounting system that combines features of
job-order and process-cost accounting.
Required:
A. Briefly discuss the similarities and differences of an operation-costing system and a
job-order cost system.
B. Briefly discuss the similarities and differences of an operation-costing system and a
process-cost system.
28) Which of the following budgets is prepared at the end of the budget-construction
cycle?
A.Sales budget
B.Production budget
C.Budgeted financial statements
D.Cash budget
E.Overhead budget
29) Sammons Corporation had a favorable direct-labor efficiency variance of $6,000 for
the period just ended. The actual wage rate was $0.50 more than the standard rate of
$12.00. If the company’s standard hours allowed for actual production totaled 9,500,
how many hours did the firm actually work?
A.9,000
B.9,020
C.9,980
D.10,000
E.None of the other answers are correct
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. If maintenance hours are estimated to be 26,000 hours
in October, which of the following statements is true?
A.Total maintenance costs will be $1,175,000
B.Total maintenance costs will be $1,182,000
C.Total maintenance costs will be $1,193,000
D.Total maintenance costs will be $1,221,000
E.Total maintenance costs will be $1,247,000
31) A company that uses accelerated depreciation:
A.would write off a larger portion of an asset’s cost sooner than under the straight-line
method
B.would find that depreciation speeds up, with a small portion taken in early years and
larger amounts taken in later years
C.would find that more tax benefits occur earlier than under the straight-line method
D.would find itself out of compliance with generally accepted accounting principles
(GAAP)
E.would both write off a larger portion of an asset’s cost sooner than under the
straight-line method and find that more tax benefits occur earlier than under the
straight-line method
32) Yes! Co., had 3,000 units of work in process on April 1 that were 60% complete.
During April, 11,000 units were started and as of April 30, 4,000 units that were 40%
complete remained in production. How many units were completed during April?
A.10,000
B.9,800
C.11,000
D.12,200
E.None of the other answers are correct
33) 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 July?
A.46,800
B.49,200
C.49,800
D.52,200
E.None of the other answers are correct
34) Which of the following would likely be a suitable cost driver for the amount of
direct materials used?
A.The number of units sold
B.The number of direct labor hours worked
C.The number of machine hours worked
D.The number of units produced
E.The number of employees working in the factory
35) Consider the following comments about absorption- and variable-costing income
statements:
I. A variable-costing income statement discloses a firm’s contribution 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
36) The procedure used to compute the present value of a series of cash flows is known
as:
A.compounding
B.the annuity method
C.discounting
D.the present-cost approach
E.indexing
37) When graphed, a typical step-fixed cost appears as:
A.a horizontal line
B.a vertical line
C.a series of staggered horizontal lines
D.a diagonal line that slopes downward to the right
E.a diagonal line that slopes upward to the right