1) The assumptions on which cost-volume-profit analysis is based appear to be most
valid for businesses:
A.over the short run
B.over the long run
C.over both the short run and the long run
D.in periods of sustained profits
E.in periods of increasing sales
2) Variable costing of inventory and absorption costing of inventory is relevant for
which of the following types of businesses?
A.Manufacturing firms
B.Not-for-profit companies
C.Governmental units
D.Service firms
E.All of the other answers are correct
3) Superior Company is involved in a competitive bidding situation. The following
costs are anticipated for a project to be bid with the City of Southlake:
Which of the following cost figures should be used in setting a minimum bid price if
Superior has excess capacity?
A.$530,000
B.$950,000
C.$1,370,000
D.$1,480,000
E.None of the other answers are correct
4) Shields carries a part that is popular in the manufacture of automatic sprayers.
Demand for this part is 4,000 units per year; order costs amount to $30 per order, and
holding costs total $1.50 per unit.
The company, which currently places four orders per year with its suppliers, is
considering the implementation of an economic order quantity (EOQ) model to better
manage its inventories. Preliminary EOQ calculations revealed an optimal order
quantity of 400 units and total annual inventory costs of $600.
Required:
A. In comparison with its current policy, how much will Shields save by adopting the
EOQ model?
B. Briefly explain the philosophical difference between the EOQ model and the
just-in-time model. Which of the two models will likely result in lower holding costs
for the firm? Why?
5) Which of the following is the correct method to calculate a predetermined overhead
rate?
A.Budgeted total manufacturing cost budgeted amount of cost driver
B.Budgeted overhead cost budgeted amount of cost driver
C.Budgeted amount of cost driver budgeted overhead cost
D.Actual overhead cost budgeted amount of cost driver
E.Actual overhead cost actual amount of cost driver
6) Consider the three firms that follow: (1) Southwest Airlines, (2) BMW, and (3)
Target. These firms, examples of service providers, manufacturers, and merchandisers,
tend to have different characteristics with respect to costs and financial-statement
disclosures.
Required:
Determine which of the preceding firms (1, 2, and/or 3) would likely:
A. Disclose operating expenses on the income statement.
B. Have product costs.
C. Have period costs.
D. Disclose cost of cost good sold on the income statement.
E. Have no meaningful investment in inventory.
F. Maintain raw-material, work-in-process, and finished-goods inventories.
G. Have variable and fixed costs.
7) Standard costs are said to be useful in performance evaluation. Assume that the
standard direct materials cost per unit of finished product is $6 (three pounds at $2 per
pound).
Required:
A. Explain how such a standard can be used to evaluate performance.
B. Why is the degree of controllability important when utilizing standard costs to
evaluate performance?
8) Financial accounting focuses primarily on reporting:
A.to parties outside of an organization
B.to parties within an organization
C.to an organization’s board of directors
D.to financial institutions
E.for financial institutions
9) The controller for Shutterbug Photographic Supply has established the following cost
pools and cost drivers:
An order for 1,200 boxes of film-development chemicals has the following production
requirements:
Shutterbug established a target price by adding a 40% markup to total manufacturing
cost.
Required:
A. Determine the order’s target price by using the activity-cost pools.
B. Assume that Halifax used a single, combined overhead rate based on weight of raw
materials.
1> Determine the predetermined overhead rate.
2> Determine the expected cost of the order.
3> Determine the target price.
C. Which approach above (“A” or “B”) seems to be a more reasonable method to
establish target prices? Explain.
10) What is the most common treatment of the fixed-overhead budget variance at the
end of the accounting period?
A.Reported as a deferred charge or credit
B.Allocated among Work-in-Process Inventory, Finished-Goods Inventory, and Cost of
Goods Sold
C.Charged or credited to Cost of Goods Sold
D.Allocated among Cost of Goods Manufactured, Finished-Goods Inventory, and Cost
of Goods Sold
E.Charged or credited to Income Summary
11) Brooklyn sells a single product to wholesalers. The company’s budget for the
upcoming year revealed anticipated unit sales of 31,600, a selling price of $20, variable
cost per unit of $8, and total fixed costs of $360,000. If Brooklyn’s unit sales are 300
units more than anticipated, its break-even point will:
A.increase by $12 per unit sold
B.decrease by $12 per unit sold
C.increase by $8 per unit sold
D.decrease by $8 per unit sold
E.not change
12) Pruitt Company has developed an integrated system that coordinates the flow of all
goods, services, and information into and out of the organization, working with raw
material vendors as well as customers to improve service and reduce costs. The firm is
said to be using:
A.participative management
B.top-down management
C.strategic cost management
D.supply chain management
E.management by objectives (MBO)
13) For a company that uses responsibility accounting, which of the following costs is
least likely to appear on a performance report of an assembly-line supervisor?
A.Direct materials used
B.Departmental supplies
C.Assembly-line labor
D.Repairs and maintenance
E.Assembly-line facilities depreciation
14) Which of the following statements is (are) true about non-value-added activities?
I. Non-value-added activities are often unnecessary and dispensable.
II. Non-value-added activities may be necessary but are being performed in an
inefficient and improvable manner.
III. Non-value-added activities can be eliminated without deterioration of product
quality, performance, or perceived value.
A.I only
B.II only
C.III only
D.I and II
E.I, II, and III
15) Flowers Company is operating at capacity and desires to add a new service to its
rapidly expanding business. The service should be added as long as service revenues
exceed:
A.variable costs
B.fixed costs
C.the sum of variable costs and fixed costs
D.the sum of variable costs and any related opportunity costs
E.the sum of variable costs, fixed costs, and any related opportunity costs
16) When determining the markup to be used in a cost-plus pricing formula, many
companies base the markup on a target:
A.return on investment
B.sales margin
C.capital turnover
D.earnings per share
E.debt-to-equity ratio
17)
A new asset is expected to provide service over the next four years. It will cost
$500,000, generates annual cash inflows of $150,000, and requires cash operating
expenses of $30,000 each year. In addition, a $10,000 overhaul will be needed in year 3
. If the company requires a 10% rate of return, the net present value of this machine
would be:
A.$(127,110), and the machine meets the company’s rate-of-return requirement
B.$(127,110), and the machine does not meet the company’s rate-of-return requirement
C.$(129,600), and the machine does not meet the company’s rate-of-return requirement
D.$(151,700), and the machine meets the company’s rate-of-return requirement
E.None of the other answers are correct
18) A review of the records of Pilgrim, Inc., a new company, disclosed the following
year-end information:
Manufacturing Overhead account: Contained debits of $872,000, which included
$20,000 of sales commissions.
Work-in-Process Inventory account: Contained charges for overhead of $875,000.
Cost-of-Goods-Sold account: Contained a year-end debit balance of $3,680,000. This
amount was computed prior to any year-end adjustment for under- or overapplied
overhead.
Pilgrim applies manufacturing overhead to production by using a predetermined rate of
$20 per machine hour. Budgeted overhead for the period was anticipated to be
$900,000.
Required:
A. Determine the actual manufacturing overhead for the year.
B. Determine the amount of manufacturing overhead applied to production.
C. Is overhead under- or overapplied? By how much?
D. Compute the adjusted cost-of-goods-sold figure that should be disclosed on the
company’s income statement.
E. How many machine hours did Pilgrim actually work during the year?
F. Compute budgeted machine hours for the year.
19) 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
20) High Point Corporation reported sales revenues of $1,850,000 for the period just
ended. Cost of goods sold, selling expenses, and administrative expenses totaled
$1,200,000, $280,000, and $170,000, respectively. A detailed analysis of the latter three
amounts revealed respective fixed cost components of $780,000, $60,000, and
$130,000.
Required:
A. Determine the amounts, if any, that High Point would report on a traditional income
statement for (1) gross margin, (2) contribution margin, and (3) income.
B. Determine the amounts, if any, that High Point would report on a contribution
income statement for (1) gross margin, (2) contribution margin, and (3) income.
C. Which of the two income statements (traditional or contribution) is more useful for
studying a company’s cost-volume-profit relationships?
21) Which of the following is not an example of a variable cost?
A.Straight-line depreciation on a machine that has a five-year service life
B.Wages of manufacturing workers whose pay is based on hours worked
C.Tires used in the production of tractors
D.Aluminum used to make patio furniture
E.Commissions paid to sales personnel
22) 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
23) Susan is contemplating a job offer with an advertising agency where she will make
$54,000 in her first year of employment. Alternatively, Susan can begin to work in her
father’s business where she will earn an annual salary of $38,000. If Susan decides to
work with her father, the opportunity cost would be:
A.$0
B.$38,000
C.$54,000
D.$92,000
E.irrelevant in deciding which job offer to accept
24) Jackson Corporation uses a standard cost system, applying manufacturing overhead
on the basis of machine hours. The company’s overhead standards per unit are shown
below.
Variable overhead: 4 hours at $9 per hour
Fixed overhead: 4 hours at $6* per hour
*Based on planned monthly activity of 120,000 machine hours
Actual data for May were:
Number of units produced: 29,000
Number of machine hours worked: 125,000
Variable overhead costs incurred: $1,085,000
Fixed overhead costs incurred: $755,000
Required:
A. Calculate the spending and efficiency variances for variable overhead.
B. Calculate the budget and volume variances for fixed overhead.
25) Consider the following statements about budget administration:
I. The budgeting process is a very formal process in all organizations regardless of an
organization’s size.
II. The budget manual is prepared to communicate budget procedures and deadlines to
employees throughout an organization.
III. Effective internal control procedures require that the budget director be an
individual other than the controller.
Which of the above statements is (are) true?
A.I only
B.II only
C.III only
D.I and II
E.I and III
26) Stiles Enterprises reported the following cash collections in July and August from
credit sales:
The company sells a single product for $20, and all sales are collected over a
two-month period.
Required:
A. Determine the number of units that were sold in July.
B. Determine the percent of credit sales collected in the month of sale and the percent
of sales collected in the month following sale.
C. How many units were sold in August?
D. Determine the accounts receivable balance as of August 31 .
27) Which of the following can influence a company’s pricing decisions?
A.Manufacturing costs
B.Competitors
C.Customer demand
D.Pricing laws
E.All of the other answers are correct
28) Douglas Company, a new firm, manufactures two products, J and K, in a common
process. The joint costs amount to $80,000 per batch of finished goods. Each batch
results in 20,000 liters of output, of which 80% are J and 20% are K.
The two products are processed beyond the split-off point, with Douglas incurring the
following separable costs: J, $2 per liter; K, $5 per liter. After the additional processing,
the selling price of J is $12 per liter, and the selling price of K is $15 per liter.
Required:
A. Determine the proper allocation of joint costs if the company uses the
net-realizable-value method.
B. Assume that Douglas sold all of its production of K during the current accounting
period. Compute K’s sales revenue, cost of goods sold, and gross margin.
C. Is the firm’s cost-of-goods-sold figure influenced by the choice of a joint-cost
allocation method? Briefly explain.
29) Process costing is used to account for:
A.large numbers of identical products that are produced in a continuous manufacturing
environment
B.small numbers of products that are produced in batches
C.raw materials that are converted directly to finished goods
D.finished goods that are refined and processed further
E.large numbers of products that are produced in a non-repetitive process
30) When determining customer profitability, activity-based costing can be used to
analyze:
A.orders processed
B.sales visits
C.special packaging and handling
D.billing and collections
E.All of the answers are correct
31) Kendra Corporation uses a process-cost accounting system. The company adds
direct materials and direct labor at the start of its production process; overhead cost is
incurred evenly throughout manufacturing. The firm has no beginning work-in-process
inventory; its ending work in process is 40% complete. Which of the following sets of
percentages would be used to calculate the correct number of equivalent units in the
ending work-in-process inventory?
A.Materials, 100%; labor, 100%; overhead cost, 40%
B.Materials, 100%; labor, 100%; overhead cost, 100%
C.Materials, 100%; labor 40%; overhead cost, 40%
D.Materials, 40%; labor, 40%; overhead cost, 60%
E.Materials, 40%; labor, 40%; overhead cost, 100%
32) Hamilton Company had the following inventory balances at the beginning and end
of the year:
During the year, the company purchased $100,000 of raw material and incurred
$340,000 of direct labor costs. Other data: manufacturing overhead incurred, $450,000;
sales, $1,560,000; selling and administrative expenses, $90,000; income tax rate, 30%.
Required:
A. Calculate cost of goods manufactured.
B. Calculate cost of goods sold.
C. Determine Hamilton’s net income.
33) Bird plans to sell 5,000 units each quarter next year. During the first two quarters
each unit will sell for $12; during the last two quarters the sales price will increase
$1.50 per unit. What is Bird’s estimated sales revenue for next year?
A.$240,000
B.$255,000
C.$270,000
D.$244,000
E.None of the other answers are correct
34) What type of cost exhibits the behavior shown below?
A.Variable cost
B.Fixed cost
C.Semivariable cost
D.Step-variable cost
E.Mixed cost
35) A segment contribution margin would reflect the impact of:
A.variable operating expenses
B.fixed expenses controllable by the segment manager
C.fixed expenses traceable to the segment but controllable by others
D.common fixed expenses
E.All answers except common fixed expenses are correct
36) All of the following actions are likely to increase ROI except:
A.an increase in sales revenues
B.a decrease in operating expenses
C.a decrease in a company’s invested capital
D.a decrease in the number of units sold
E.an improvement in manufacturing efficiency
37) Newbill Enterprises recently used 24,000 labor hours to produce 8,600 completed
units. According to manufacturing specifications, each unit is anticipated to take 2.75
hours to complete. The company’s actual payroll cost amounted to $456,000. If the
standard labor cost per hour is $19.20, Newhart’s labor rate variance is:
A.$1,920U
B.$1,920F
C.$4,800U
D.$4,800F
E.none of the other answers are correct
38) Narchie sells a single product for $50. Variable costs are 60% of the selling price,
and the company has fixed costs that amount to $400,000. Current sales total 16,000
units.
In order to produce a target profit of $22,000, Narchie’s dollar sales must total:
A.$8,440
B.$21,100
C.$1,000,000
D.$1,055,000
E.None of the other answers is correct
39) Neptune Pool Company is involved in a number of competitive bidding situations.
The following costs are anticipated for a project to be bid for Trimex Manufacturing:
Which of these costs would be treated differently if Neptune had either excess capacity
or no excess capacity?
A.Direct materials used, $680,000
B.Direct labor, $2,450,000
C.Allocated variable overhead, $570,000
D.Allocated fixed cost, $230,000
E.None of these, as all four costs are considered in both situations