1) Bowman, Inc., has only variable costs and fixed costs. A review of the company’s
records disclosed that when 200,000 units were produced, fixed manufacturing costs
amounted to $800,000 and the cost per unit manufactured totaled $11. On the basis of
this information, how much cost would the firm anticipate at an activity level of
205,000 units?
A.$2,235,000
B.$2,222,000
C.$2,214,000
D.$2,200,000
E.None of the other answers is correct
2) For the year just ended, Cole Corporation’s manufacturing costs (raw materials used,
direct labor, and manufacturing overhead) totaled $1,500,000. Beginning and ending
work-in-process inventories were $60,000 and $90,000, respectively. Cole’s balance
sheet also revealed respective beginning and ending finished-goods inventories of
$250,000 and $180,000. On the basis of this information, how much would the
company report as cost of goods manufactured (CGM) and cost of goods sold (CGS)?
A.CGM, $1,430,000; CGS, $1,460,000
B.CGM, $1,470,000; CGS, $1,540,000
C.CGM, $1,530,000; CGS, $1,460,000
D.CGM, $1,570,000; CGS, $1,540,000
E.Some other amounts
3) Cornwall Corporation manufactures faucets. Several weeks ago, the company
received a special-order inquiry from Yates, Inc. Yates desires to market a faucet similar
to Cornwall’s model no. 55 and has offered to purchase 3,000 units. The following data
are available:
Cost data for Cornwall’s model no. 55 faucet: direct materials, $45; direct labor, $30 (2
hours at $15 per hour); and manufacturing overhead, $70 (2 hours at $35 per hour).
The normal selling price of model no. 55 is $180; however, Yates has offered Cornwall
only $115 because of the large quantity it is willing to purchase.
Yates requires a design modification that will allow a $4 reduction in direct-material
cost.
Cornwall’s production supervisor notes that the company will incur $8,700 in additional
set-up costs and will have to purchase a $3,300 special device to manufacture these
units. The device will be discarded once the special order is completed.
Total manufacturing overhead costs are applied to production at the rate of $35 per
labor hour. This figure is based, in part, on budgeted yearly fixed overhead of $624,000
and planned production activity of 24,000 labor hours.
Cornwall will allocate $5,000 of existing fixed administrative costs to the order as “part
of the cost of doing business.”
Required:
A. One of Cornwall’s staff accountants wants to reject the special order because
“financially, it’s a loser.” Do you agree with this conclusion if Cornwall currently has
excess capacity? Show calculations to support your answer.
B. If Cornwall currently has no excess capacity, should the order be rejected from a
financial perspective? Briefly explain.
C. Assume that Cornwall currently has no excess capacity. Would outsourcing be an
option that Cornwall could consider if management truly wanted to do business with
Yates? Briefly discuss, citing several key considerations for Cornwall in your answer.
4) A statistical control chart is best used for determining:
A.direct-material price variances
B.direct-labor variances
C.whether a variance is favorable or unfavorable
D.who should be held accountable for specific variances
E.whether a particular variance should be investigated
5) Which of the following is not a provision of (nor an outgrowth of) the
Sarbanes-Oxley Act?
A.A public company’s annual report must contain a separate disclosure that assesses the
company’s internal controls
B.Management is essentially responsible for establishing and maintaining internal
controls
C.A company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO) can
be held criminally responsible if their firm’s financial statements are fraudulent
D.A company must prepare a balance sheet, an income statement, a statement of
stockholders’ equity, and a statement of cash flows
E.A new body, the Public Company Accounting Oversight Board, oversees and
investigates the audits and auditors of public companies
6)
If the cost of goods sold for the year was $427,500, what was the cost of goods
manufactured for the year?
A.$402,100
B.$422,300
C.$417,100
D.$427,500
E.None of the other answers are correct
7) Taurus Company has set various goals, and management is now taking appropriate
action to ensure that the firm achieves these goals. One such action is to reduce outlays
for overhead, which have exceeded budgeted amounts. Which of the following
functions best describes this process?
A.Decision making
B.Planning
C.Coordinating
D.Controlling
E.Organizing
8) Consumption ratios are useful in determining:
A.the existence of product-line diversity
B.overhead that is incurred at the unit level
C.if overhead-producing activities are being utilized effectively
D.if overhead costs are being applied to products
E.if overhead-producing activities are being utilized efficiently
9) Astro’s customer service department follows up on customer complaints by telephone
inquiry. During a recent period, the department initiated 10,000 calls and incurred costs
of $312,000. Of these calls, 3,800 were for the company’s wholesale operation; the
remainder was for the retail division. Costs allocated to the retail division are:
A.$0
B.$31,200
C.$118,560
D.$193,440
E.$203,000
10) End-of-period figures for accounts receivable and payables to suppliers would be
found on the:
A.cash budget
B.budgeted schedule of cost of goods manufactured
C.budgeted income statement
D.budgeted balance sheet
E.budgeted statement of cash flows
11) DiAngelo Products uses a standard costing system to assist in the evaluation of
operations. The company has had considerable employee difficulties in recent months,
so much so that management has hired a new production supervisor (Joe Simms).
Simms has been on the job for six months and has seemingly brought order to an
otherwise chaotic situation.
The vice-president of manufacturing recently commented that ” Simms has really done
the trick. Joe’s team-building/morale-boosting exercises have truly brought things under
control.” The vice-president’s comments were based on both a plant tour, where he
observed a contented work force, and review of a performance report that showed a
total labor variance of $14,000F. This variance is truly outstanding, given that it is less
than 2% of the company’s budgeted labor cost. Additional data follow.
Total completed production amounted to 20,000 units.
A review of the firm’s standard cost records found that each completed unit requires
2.75 hours of labor at $14 per hour. DiAngelo’s production actually required 42,000
labor hours at a total cost of $756,000.
Required:
A. As judged by the information contained in the performance report, should the
vice-president be concerned about the company’s labor variances? Why?
B. Calculate DiAngelo’s direct-labor variances.
C. On the basis of your answers to requirement “B,” should DiAngelo be concerned
about its labor situation? Why?
D. Briefly analyze and explain the direct-labor variances.
12) Peach Company uses a weighted-average process-costing system. Company records
disclosed that the firm completed 40,000 units during the month and had 10,000 units in
process at month-end, 20% complete. Conversion costs associated with the beginning
work-in-process inventory amounted to $231,000, and amounts that relate to the current
month totaled $966,000. If conversion is incurred uniformly throughout manufacturing,
Peach’s equivalent-unit cost is:
A.$23.00
B.$23.94
C.$24.15
D.$28.50
E.None of the answers is correct
13) Boxworth and Associates designs relatively small sports stadiums and arenas at
various sites throughout the country. The firm’s accountant prepared the following
budget for the upcoming year:
Eighty percent of professional staff salaries are directly traceable to client projects, a
figure that falls to 60% for the administrative support staff and other operating costs.
Traceable costs are charged directly to client projects; nontraceable costs, on the other
hand, are treated as firm overhead and charged to projects by using a predetermined
overhead application rate.
Boxworth had one project in process at year-end: an arena that was being designed for
Charlotte County. Costs directly chargeable to this project were:
Required:
A. Determine Boxworth’s overhead for the year and the firm’s predetermined overhead
application rate. The rate is based on costs directly chargeable to firm projects.
B. Compute the cost of the Charlotte County arena project as of year-end.
C. Present three examples of “other operating costs” that might be directly traceable to
the Charlotte County project.
14) 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
15) Phanatix, Inc. produces a variety of products that carry the logos of teams in the
Southern Football League (SFL). The company recently paid the league $85,000 for the
rights to market a popular player jersey and immediately began production. The
following information is available:
Number of jerseys manufactured: 25,000
Cost of jerseys manufactured: $625,000
Amount of manufacturing costs paid to-date: $410,000
Number of jerseys sold to-date: 0
Estimated future marketing costs: $330,000
Anticipated selling price per jersey: $42
The SFL is about to file a lawsuit to stop jersey sales and is demanding another $50,000
from Phanatix for the manufacturing rights. Conversations with Phanatix’s attorneys
indicate that the league has a strong case and is likely to win the suit. If this situation
arises, Phanatix will be unable to recover any amounts paid to the SFL.
Required:
Phanatix’s sales department anticipates very strong demand and a sellout of all jerseys
manufactured.
A. Determine the overall profitability of the jersey product line if Phanatix settles the
disagreement with the SFL and the anticipated sellout occurs.
B. Should the company pay the additional $50,000 demanded by the league or should
the jersey program be dropped? Show computations to support your answer.
16) Alphabeta Corporation sells three products: J, K, and L. The following information
was taken from a recent budget:
Total fixed costs are anticipated to be $2,450,000.
Required:
A. Determine Alphabeta’s sales mix.
B. Determine the weighted-average contribution margin.
C. Calculate the number of units of J, K, and L that must be sold to break even.
D. If Alphabeta desires to increase company profitability, should it attempt to increase
or decrease the sales of product K relative to those of J and L? Briefly explain.
17) All other things being equal, a company that sells multiple products should attempt
to structure its sales mix so the greatest portion of the mix is composed of those
products with the highest:
A.selling price
B.variable cost
C.contribution margin
D.fixed cost
E.gross margin
18) The following events took place when Managers A, B, and C were preparing
budgets for the upcoming period:
I. Manager A increased property tax expenditures by 2% when she was informed of a
recent rate hike by local authorities.
II. Manager B reduced sales revenues by 4% when informed of recent aggressive
actions by a new competitor.
III. Manager C, who supervises employees with widely varying skill levels, used the
highest wage rate in the department when preparing the labor budget.
Assuming that the percentage amounts given are reasonable, which of the preceding
cases is (are) an example of building slack in budgets?
A.I only
B.II only
C.III only
D.I and II
E.II and III
19) Scott, Inc., manufactures two products, Regular and Deluxe, and applies overhead
on the basis of direct labor hours. Anticipated overhead and direct labor time for the
upcoming accounting period are $1,600,000 and 25,000 hours, respectively.
Information about the company’s products follows.
Regular
Estimated production volume: 3,000 units
Direct materials cost: $28 per unit
Direct labor per unit: 3 hours at $15 per hour
Deluxe
Estimated production volume: 4,000 units
Direct materials cost: $42 per unit
Direct labor per unit: 4 hours at $15 per hour
Scott’s overhead of $1,600,000 can be identified with three major activities: order
processing ($250,000), machine processing ($1,200,000), and product inspection
($150,000). These activities are driven by number of orders processed, machine hours
worked, and inspection hours, respectively. Data relevant to these activities follow.
Required:
A. Compute the pool rates that would be used for order processing, machine processing,
and product inspection in an activity-based costing system.
B. Assuming use of activity-based costing, compute the unit manufacturing costs of
Regular and Deluxe if the expected manufacturing volume is attained.
C. How much overhead would be applied to a unit of Regular and Deluxe if the
company used traditional costing and applied overhead solely on the basis of direct
labor hours? Which of the two products would be undercosted by this procedure?
Overcosted?
20) Consumption ratios are useful in determining:
A.the existence of product-line diversity
B.overhead that is incurred at the unit level
C.if overhead-producing activities are being utilized effectively
D.if overhead costs are being applied to products
E.if overhead-producing activities are being utilized efficiently
21) Package Express, Inc. operates a small package delivery service in the Jacksonville
suburbs. If the company uses a regression equation to forecast total operating costs, the
coefficient of the equation’s independent variable would correspond to the:
A.variable operating cost per delivery
B.fixed operating costs
C.number of deliveries
D.total variable operating costs
E.total operating costs
22) 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.
23) Northcutt’s production data for a new deluxe product were taken from the most
recent quarterly production budget:
In addition, Northcutt produces 5,000 units a month of its standard product. It takes two
direct labor hours to produce each standard unit and 2.25 direct labor hours to produce
each deluxe unit. Northwest’s cost per labor hour is $15. Direct labor cost for
September would be budgeted at:
A.$187,125
B.$183,075
C.$194,750
D.$197,075
E.None of the other answers are correct
24) Wesley Enterprises has determined that three variables play a key role in
determining company revenues. To arrive at an objective forecast of revenues for the
next accounting period, Wesley should use:
A.simple regression
B.multiple regression
C.a scatter diagram
D.complex regression
E.the high-low method
25) Many traditional costing systems:
A.trace manufacturing overhead to individual activities and require the development of
numerous activity-costing rates
B.write off manufacturing overhead as an expense of the current period
C.combine widely varying elements of overhead into a single cost pool
D.use a host of different cost drivers (e.g., number of production setups, inspection
hours, orders processed) to improve the accuracy of product costing
26) The accounting records of Diego Company revealed the following costs, among
others:
Costs that would be considered in the calculation of manufacturing overhead total:
A.$149,000
B.$171,000
C.$186,000
D.$442,000
E.None of the other answers are correct
27) A division’s return on investment may be improved by increasing:
A.cost of goods sold and expenses
B.sales margin and cost of capital
C.sales revenue and cost of capital
D.capital turnover or sales margin
E.capital turnover or cost of capital
28) On a graph where the horizontal axis represents quantity sold and the vertical axis
represents selling price, the basic demand curve in a competitive market can be
graphed:
A.as a horizontal line
B.as a vertical line
C.as a downward sloping line to the right
D.as an upward sloping line to the right
E.in the same manner as the total revenue curve
29) Courtney purchased and consumed 50,000 gallons of direct material that was used
in the production of 11,000 finished units of product. According to engineering
specifications, each finished unit had a manufacturing standard of five gallons. If a
review of Courtney’s accounting records at the end of the period disclosed a material
price variance of $5,000U and a material quantity variance of $3,000F, what is the
actual price paid for a gallon of direct material?
A.$0.50
B.$0.60
C.$0.70
D.None of the other answers are correct
E.Not enough information to judge
30) Which of the following statements about the visual-fit method is (are) true?
I. The method results in the creation of a scatter diagram.
II. The method is not totally objective because of the manner in which the cost line is
determined.
III. The method is especially helpful in the determination of outliers.
A.I only
B.II only
C.I and II
D.I and III
E.I, II, and III
31) When calculating unit costs under the weighted-average process-costing method,
the unit cost is based on:
A.only the current period’s manufacturing costs
B.only costs in the period’s beginning work-in-process inventory
C.a summation of the costs in the beginning work-in-process inventory plus costs
incurred in the current period
D.only costs incurred in previous accounting periods
E.a summation of the costs in the beginning work-in-process inventory plus costs to be
incurred in the upcoming period
32) An organization’s budgets will often be prepared to cover:
A.one month
B.one quarter
C.one year
D.periods longer than one year
E.all of the other answers are correct
33) For the period just ended, United Corporation’s Delta Division reported profit of
$31.9 million and invested capital of $220 million. Assuming an imputed interest rate of
12%, which of the following choices correctly denotes Delta’s return on investment
(ROI) and residual income?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
34) Consider the following statements about the payback period:
I. As shown in your text, the payback period considers the time value of money.
II. The payback period can only be used if net cash inflows are uniform throughout a
project’s life.
III. The payback period ignores cash inflows that occur after the payback period is
reached.
Which of the above statements is (are) correct?
A.I only
B.II only
C.III only
D.I and II
E.I, II, and III
35) Which of the following statements about the use of direct labor as a cost driver is
false?
A.Direct labor is the most commonly used cost driver when calculating a predetermined
overhead rate
B.Direct labor is gaining importance in many manufacturing applications with respect
to being a significant cost driver
C.Direct labor is an inappropriate cost driver to use if a company is highly automated
D.If direct labor is a good cost driver, increases in direct labor are matched with
increases in manufacturing overhead
E.Companies can use either direct labor cost or direct labor hours as a cost driver