Under process costing, the costs incurred by each department are reported in a separate
production cost report for each department.
Quality costs can be hard to measure.
A strategic budget will be as detailed as an operational budget.
The budgeted income statement shows operating income and net income.
Sensitivity analysis empowers managers with better information for decision making by
analyzing how various business strategies will affect profits earned by the company.
A static budget is a financial plan for only one level of sales volume.
When the total fixed costs increase, the breakeven point ________.
A) increases
B) decreases
C) decreases proportionately
D) remains the same
A subsidiary ledger is ________.
A) an accounting journal designed to record a specific type of transaction
B) a created list of accounts used by a business entity to define each class of items for
which cash is spent or received
C) a complete record of business transactions recorded in a ledger over the life of a
company
D) a record of accounts that provide supporting details on individual balances, the total
of which appears in a general ledger account
On January 1, Standard Manufacturing had a beginning balance in Work-in-Process
Inventory of $82,000 and a beginning balance in Finished Goods Inventory of $20,000.
During the year, Standard incurred manufacturing costs of $353,000.
During the year, the following transactions occurred:
Job A-12 was completed for a total cost of $121,000 and was sold for $125,000.
Job A-13 was completed for a total cost of $201,000 and was sold for $214,000.
Job A-15 was completed for a total cost $64,000 but was not sold as of year-end.
The Manufacturing Overhead account had an unadjusted credit balance of $13,000 and
was adjusted to zero at year-end.
What was the amount of gross profit reported by Standard at the end of the year?
A) $13,000
B) $30,000
C) $4,000
D) $17,000
Which of the following amounts of a flexible budget changes, within the specified
relevant range, with changes in sales volume?
A) sales price per unit
B) total fixed costs
C) variable cost per unit
D) total contribution margin
Which of the following is the correct formula to calculate the target cost?
A) Target Cost = Target Sales Price + Desired Profit
B) Target Cost = Target Sales Price – Desired Profit
C) Target Cost = Target Sales Price
D) Target Cost = Desired Profit + Research and Development Expenses
City Golf Center reported actual operating income for the current year as $65,000. The
flexible budget operating income for actual volume is $58,000, while the static budget
operating income is $59,000. What is the flexible budget variance for operating
income?
A) $7,000 favorable
B) $7,000 unfavorable
C) $1,000 unfavorable
D) $1,000 favorable
Identify the breakeven point in the graph given below.
A) O
B) B
C) E
D) D
Raphael, Inc. has a division that manufactures a component that sells for $190 and has a
variable cost of $35. Another division of the company wants to purchase the
component. Fixed cost per unit of the component is $22. What is the minimum transfer
price if the division is operating below its capacity?
A) $190
B) $35
C) $57
D) $22
The production manager of a company, in an effort to gain a promotion, negotiated a
new labor contract with the factory employees that required them to bear a greater
percentage of benefit costs than before, thus bringing down the cost of direct labor to
the company. Shortly afterward, several experienced and highly skilled workers
resigned and were replaced by new employees whose work was very slow during their
training period. At the end of the quarter, the company’s profits fell 10%. This would
produce a(n) ________.
A) favorable direct materials cost variance
B) unfavorable direct labor cost variance
C) unfavorable direct labor efficiency variance
D) favorable direct materials efficiency variance
Wainwright Computer Services provides services to corporate and individual
customers. During the month of June, the corporate business segment provided services
to 300 customers and earned $80,000 in revenue. The individual business segment
provided services to 400 customers and earned $45,000 in revenue. The variable costs
for the corporate and individual business segments amounted to $32,500 and $25,300,
respectively. In addition, the fixed costs of the company amounted to $7,500. Calculate
the contribution margin from each customer of the individual business segment. (Round
your answer to the nearest cent.)
A) $158.33
B) $49.25
C) $133.33
D) $30.50
Which of the following would be included as indirect manufacturing costs for a
manufacturing company?
A) sales commissions
B) fuel and maintenance for delivery vehicles
C) wages of the assembly line workers
D) wages of the factory manager
Lighthouse Sail Makers manufactures sails for sailboats. The company has the capacity
to produce 35,000 sails per year and is currently producing and selling 30,000 sails per
year. The following information relates to current production:
The fixed manufacturing costs increase by $100,000 for every 500 units produced
beyond the maximum capacity of the plant. If a special pricing order is accepted for
5,500 sails at a sales price of $160 per unit, and if the order requires no variable or fixed
selling and administrative costs, what is the effect on operating income?
A) Operating income increases by $450,000.
B) Operating income decreases by $450,000.
C) Operating income increases by $550,000.
D) Operating income decreases by $550,000.
Complete the following statements:
A traditional income statement classifies costs by ________; that is, costs are classified
as either ________ costs or ________ costs.
A contribution margin income statement classifies costs by ________; that is, costs are
classified as either ________ costs or ________ costs.
Isphase, Inc. has provided the following financial data for the year:
There are no beginning inventories. Prepare an income statement for the year using the
traditional format.
Metro Arcade sells tickets at $25 per person as a one-day entrance fee. Variable costs
are $11 per person, and fixed costs are $52,500 per month.
Assume that Metro increases variable costs from $11 to $14 per person. Compute the
new breakeven point in tickets and in sales dollars.
Star Moving Systems, Inc. has provided the following details for direct materials
purchased on account in different months.
Jan $35,000
Feb 28,000
March 34,000
April 39,000
May 32,000
June 29,000
The terms of payment offered by the suppliers are to pay 70% in the month of purchase
and 30% in the following month. Calculate the payments on account made during the
first six months.
Martin Production Co. is considering investing in specialized equipment costing
$975,000. The equipment has a useful life of five years and a residual value of $75,000.
Depreciation is calculated using the straight-line method. The expected net cash inflows
from the investment are given below:
Compute the accounting rate of return on the investment, Show your calculations and
round to two decimal places.
