1) The manufacturing overhead applied to Work-in-Process Inventory by a company
that uses standard costing would be computed as actual hours times a predetermined
(standard) overhead rate.
2) Companies that use a process-cost accounting system would establish a separate
Work-in-Process Inventory account for each manufacturing department.
3) The least-squares regression method of cost estimation relies on only two data points.
4) Companies that use a process-cost accounting system would establish a separate
Work-in-Process Inventory account for each manufacturing department.
5) The break-even point is that level of activity where total revenue equals total cost.
6) Sainte Claire Corporation has a highly automated production facility. Production
volume and management judgment are the two factors that would likely have the most
direct influence on the company’s manufacturing overhead budget.
7) Economic value added uses a firm’s weighted-average cost of capital.
8) Consumption ratios are useful in determining the existence of product-line diversity.
9) One of the most important conditions for the successful use of standard costing is a
stable production process.
10) Performance reports help managers use management by exception and effectively
control operations.
11) Cost-volume-profit analysis is based on certain general assumptions. One of these
assumptions is that product prices will remain constant as volume varies within the
relevant range.
12) A favorable labor efficiency variance is created when actual labor hours worked
exceed standard hours allowed.
13) Activity-based costing systems have a tendency to distort product costs.
14) In an activity-based costing system, direct materials used would typically be
classified as a unit-level cost.
15) Springer began business at the start of the current year. The company planned to
produce 40,000 units, and actual production conformed to expectations. Sales totaled
37,000 units at $42 each. Costs incurred were:
If there were no variances, the company’s variable-costing income would be:
A.$155,000
B.$212,000
C.$240,500
D.$592,000
E.None of the other answers are correct
16) Which type of production process is ideal for a low production volume and one of a
kind products?
A.Batch
B.Continuous Flow
C.Job Shop
D.Assembly
17) Which of the following costs can be ignored when making a decision?
A.Opportunity costs
B.Differential costs
C.Sunk costs
D.Relevant costs
E.All future costs
18) Normal Company pays a sales commission of 4% on each unit sold. If a graph is
prepared, with the vertical axis representing per-unit cost and the horizontal axis
representing units sold, how would a line that depicts sales commissions be drawn?
A.As a straight diagonal line, sloping upward to the right
B.As a straight diagonal line, sloping downward to the right
C.As a horizontal line
D.As a vertical line
E.As a curvilinear line
19) HiTech Products manufactures three types of remote-control devices: Economy,
Standard, and Deluxe. The company, which uses activity-based costing, has identified
five activities (and related cost drivers). Each activity, its budgeted cost, and related cost
driver is identified below.
The following information pertains to the three product lines for next year:
What is HiTech’s pool rate for the finishing activity?
A.$5.00 per labor hour
B.$5.00 per machine hour
C.$5.00 per unit
D.$7.50 per unit
E.None of the other answers is correct
20) An example of a customer-value-added activity is:
A.final painting and polishing of the product
B.installation of a computerized human resource management module
C.shortening the customers’ billing cycle
D.addition of an employee hotline for workplace complaints
E.maintenance of an adequate safety stock
21) Southern Lake Chemical manufactures a product called Zubek. Direct materials are
added at the beginning of the process, and conversion activity occurs uniformly
throughout production. The beginning work-in-process inventory is 60% complete with
respect to conversion; the ending work-in-process inventory is 20% complete. The
following data pertain to May:
Using the weighted-average method of process costing, the cost of goods completed
and transferred during May is:
A.$249,560
B.$250,240
C.$258,400
D.$263,840
E.None of the answers is correct
22) Deborah Lewis, general manager of the Northwest Division of Berkshire
Enterprises, has significant authority over pricing decisions as well as programs that
involve cost reduction/control. The data that follow relate to upcoming divisional
operations:
Average invested capital: $15,000,000
Annual fixed costs: $3,900,000
Variable cost per unit: $80
Number of units expected to be sold: 120,000
Required:
A. Top management will promote Lewis if she can earn a 14% return on investment for
the year. What unit selling price should she establish to get her promotion?
B. Independent of part “A,” assume the unit selling price is $132 and that Berkshire has
a 16% imputed interest charge. Top management will promote Lewis to corporate
headquarters if her division can generate $200,000 of residual income. If Lewis desires
to move to corporate, what must the division do to the amount of annual fixed costs
incurred? Show your calculations.
23) An examination of Shorter Corporation’s inventory accounts revealed the following
information:
Raw materials, June 1: 46,000 units
Raw materials, June 30: 51,000 units
Purchases of raw materials during June: 185,000 units
Shorter’s finished product requires four units of raw materials. On the basis of this
information, how many finished products were manufactured during June?
A.45,000
B.47,500
C.57,750
D.70,500
E.None of the other answers are correct
24) Patterson and Clay Companies both use cost-plus pricing formulas and arrived at a
selling price of $1,000 for the same product. Patterson uses absorption manufacturing
cost as the basis for computing its dollar markup whereas Clay uses total cost. Which of
the following choices correctly denotes the company that would have (1) the higher cost
basis for deriving its dollar markup and (2) the higher markup percentage?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
25) Which of the following organizations is not likely to use budgets?
A.Manufacturing firms
B.Merchandising firms
C.Firms in service industries
D.Nonprofit organizations
E.none of the other answers are correct, because all are likely to use budgets
26)
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
27) Consider the following statements about relevant costing and activity-based
costing:
I. The concept of relevant costs and benefits cannot be used in conjunction with an
activity-based costing system.
II. The concept of relevant costs and benefits must be modified for use with an
activity-based costing system.
III. Generally speaking, the decision maker can better associate relevant costs with the
activities that drive them under an activity-based costing system than under a
conventional product-costing system.
Which of the above statements is (are) true?
A.I only
B.II only
C.III only
D.I and II
E.II and III
28) Which type of fixed cost (1) tends to be more long-term in nature and (2) can be cut
back more easily in bad economic times without doing serious harm to organizational
goals and objectives?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
29) Fixed costs are costs that:
A.vary directly with changes in activity
B.vary inversely with changes in activity
C.remain constant on a per-unit basis
D.remain constant as activity changes
E.increase on a per-unit basis as activity increases
30) Which of the following is not an element of competency?
A.To develop appropriate knowledge about a particular subject
B.To perform duties in accordance with relevant laws
C.To perform duties in accordance with relevant technical standards
D.To refrain from engaging in an activity that would discredit the accounting profession
E.To prepare clear reports after an analysis of relevant and reliable information
31) The Dollar Store has a Human Resources Department and a Janitorial Department
that provide service to three sales departments. The Human Resources Department cost
is allocated on the basis of employees, and the Janitorial Department cost is allocated
on the basis of space. The following information is available:
Using the step-down method and assuming the Human Resources Department is
allocated first, the amount of Janitorial cost allocated to Sales Department no. 2 is:
A.$8,571
B.$9,000
C.$9,857
D.$10,247
E.$10,350
32) The following information relates to DFW Corporation:
All sales are on account and are budgeted as follows: February, $350,000; March,
$360,000; and April, $400,000. DFW collects 70% of its sales in the month of sale and
30% in the following month.
Cost of goods sold averages 60% of sales. Purchases total 65% of the following month’s
sales and are paid in the month following acquisition.
Cash operating expenses total $60,000 per month and are paid when incurred. Monthly
depreciation amounts to $18,000.
Selected amounts taken from the January 31 balance sheet were: accounts receivable,
$115,000; plant and equipment (net), $107,000; and retained earnings, $85,000.
Required: (NOTE: Ignore income taxes in answering these questions).
A. Prepare a budgeted income statement that summarizes activity for the two months
ended March 31, 20×1 .
B. Compute the amounts that would appear on the March 31 balance sheet for accounts
receivable, plant and equipment (net), and retained earnings.
33) The curve that shows the change in total cost that accompanies a change in quantity
produced and sold is called the:
A.marginal revenue curve
B.marginal cost curve
C.profit curve
D.average revenue curve
E.revenue curve
34) Which of the following statements about environmental costs is false?
A.Remediation costs include offsite, but not onsite, remediation costs
B.Abatement costs include costs to reduce or eliminate pollution
C.Monitoring costs include the costs of monitoring the regulatory environment as well
as monitoring the production process to determine if pollution is being generated
D.Private environmental costs are those borne by a company or individual
E.Social environmental costs are those borne by the public at large
35) Which of the following tasks is not normally associated with an activity-based
costing system?
A.Calculation of pool rates
B.Identification of cost pools
C.Preparation of allocation matrices
D.Identification of cost drivers
E.Assignment of cost to products
36) Both net present value (NPV) and the internal rate of return (IRR) have a
reinvestment assumption.
Required:
A. State the assumption for each method.
B. One of the advantages of the NPV method is that users can adjust for risk
considerations. Explain how this is done.
37) Gourmet Restaurants has the following flexible-budget formula:
Y = $13PH + $450,000 where PH is defined as process hours.
What is Gourmet’s budgeted total cost if its process hours equal 25,000?
A.$325,000
B.$450,000
C.$775,000
D.$1,225,000
E.Answer cannot be determined from the information provided
38) Chambliss Corporation has three costs: A, which is variable; B, which is fixed; and
C, which is semivariable. The company uses the high-low method and extracted the
following data from its accounting records:
At 180,000 hours of activity, Cost A totaled $2,610,000.
At 140,000 hours, the low point during the period, Cost C totaled $1,498,000; at
200,000 hours, the high point, Cost C’s fixed portion amounted to $1.75 per hour.
At 160,000 hours of activity, the sum of Costs A, B, and C amounted to $8,162,000.
Required:
A. Compute the variable portion (total) of Cost C at 140,000 hours of activity.
B. Compute Cost C (total) at 160,000 hours of activity.
C. Compute Cost B (total) at 160,000 hours of activity.
39) Agora Company uses a process-cost system for its single product. Material A is
added at the beginning of the process; in contrast, material B is added when the units
are 75% complete. The firm’s ending work-in-process inventory consists of 6,000 units
that are 80% complete. Which of the following correctly expresses the equivalent units
of production with respect to materials A and B in the ending work-in-process
inventory?
A.A, 4,800; B, 0
B.A, 4,800; B, 4,800
C.A, 6,000; B, 0
D.A, 6,000; B, 4,800
E.A, 6,000; B, 6,000
40) A company’s plan for the issuance of stock or incurrence of debt is commonly called
a:
A.pro-forma budget
B.master budget
C.financial budget
D.profit plan
E.capital budget
41) 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.
42) Consider the five items that follow, which are related to independent investment
opportunities.
Purchase price of a new machine: $850,000
Annual straight-line depreciation: $75,000
Annual savings in cash operating costs: $120,000
Advertising expenses related to a new marketing campaign in year 2: $35,000
Sale of an asset in year 6: Loss on sale, $60,000; proceeds received by seller, $23,000
Required:
Complete the following table, inserting the (pre-discounted) cash flow amounts that
would be used in a net-present-value analysis. Column A should be completed based on
the assumption of no income taxes; in contrast, Column B should be completed
assuming the relevant company is subject to a 30% income tax rate. Be sure to note
cash outflows in parentheses.
43) Return on investment (ROI) is a very popular tool to evaluate performance. The
measurement of ROI is dependent, in part, on whether fixed assets are valued at
acquisition cost or net book value.
List several advantages of acquisition cost and net book value as ways to value
long-lived assets.
44) Quicksilver Company has set the following standards for one unit of product:
Direct material
Quantity: 6.2 pounds per unit
Price per pound: $11 per pound
Direct labor
Quantity: 6 hours per unit
Rate per hour: $23 per hour
Actual costs incurred in the production of 2,800 units were as follows:
Direct material: $194,350 ($11.50 per pound)
Direct labor: $393,750 ($22.50 per hour)
All materials purchased were consumed during the period.
Required:
Calculate the direct-material price and quantity variances, and the direct-labor rate and
efficiency variances. Indicate whether each variance is favorable or unfavorable.
45) For the quarter just ended, Bojangles, Inc. reported the following variances in one
of its manufacturing departments:
Material price variance, U
Material quantity variance, F
Labor efficiency variance, F
Labor rate variance, negligible
Machine hours efficiency, F
The sum of the favorable variances exceeded the unfavorable materials price variance
by a considerable amount. The quality of the output from the department was the same
as usual. Bojangles operates very close to a JIT system for materials purchases, with
virtually all material acquired during the quarter being used in manufacturing activities.
Required:
Is there any connection among these variances? If so, explain.
46) The difference in income between absorption and variable costing can be explained
by the change in finished-goods inventory (in units) multiplied by the standard fixed
manufacturing overhead rate.
Required:
Explain why this calculation accounts for the difference noted.
47) Discuss the importance of budgeting and identify five purposes of budgeting
systems.