1) Consider the following statements about depreciation tax shields:
I. A depreciation tax shield provides distinct benefits to a business.
II. A depreciation tax shield should be ignored when doing a net-present-value analysis.
III. A depreciation tax shield can occur in more than one year.
Which of the above statements is (are) correct?
A.I only
B.II only
C.III only
D.I and II
E.I and III
2) Atlantis Corporation assembles bicycles by purchasing frames, wheels, and other
parts from various suppliers. Consider the following data:
The company plans to sell 25,000 bicycles during each month of the year’s first quarter.
A review of the accounting records disclosed a finished-goods inventory of 1,400
bicycles on January 1 and an expected finished-goods inventory of 1,850 bicycles on
January 31 .
Atlantis has 4,300 wheels in inventory on January 1, a level that is expected to drop by
5% at month-end.
Assembly time totals 30 minutes per bicycle, and workers are paid $14 per hour.
Atlantis accounts for employee benefits as a component of direct labor cost. Pension
and insurance costs average $2 per hour (total); additionally, the company pays Social
Security taxes that amount to 8% of gross wages earned.
Required:
A. How many bicycles does Atlantis expect to produce (i.e., assemble) in January?
B. How many wheels are budgeted to be purchased in January?
C. Compute Atlantis’s total direct labor cost for January.
D. Briefly explain how the company’s purchasing activity would affect the
end-of-period balance sheet.
3) Which of the following budgets is based on many other master-budget components?
A.Direct labor budget
B.Overhead budget
C.Sales budget
D.Cash budget
E.Selling and administrative expense budget
4) The following information relates to Paternus Company:
If a manager at Paternus desired to determine the percentage impact on income of a
given percentage change in sales, the manager would multiply the percentage
increase/decrease in sales revenue by:
A.0.25
B.0.40
C.2.50
D.4.00
E.10.00
5) Section 404 of the Sarbanes-Oxley Act, Management Assessment of Internal
Controls, includes all of the following except:
A.A statement of management’s responsibility for establishing the internal control
structure
B.A waiver of auditor responsibility for assessing management’s report on internal
controls
C.An assessment of the effectiveness of internal controls by management
D.An assessment of the effectiveness of procedures for financial reporting by
management
E.A requirement that management include in its annual report an internal control report
6) Underwood Company uses cost-based transfer pricing. Its Food Processing Division
has a standard variable cost of $8.50 per case and allocated fixed overhead of $2.25.
The Processing Division, which has excess capacity, sells its output to external
customers for $12.00 per case. If Underwood uses variable costs as its base, the transfer
price charged to its Retail Division should be:
A.$14.25
B.$12.00 plus a markup
C.$10.75 plus a markup
D.$8.50 plus a markup
E.negotiated between the managers of the Processing and Retail Divisions
7) The upper limit on the production of goods and services if everything works
perfectly is known as:
A.practical capacity
B.theoretical capacity
C.utilized capacity
D.management capacity
E.capacity maximization
8) Armada Company applies manufacturing overhead by using a predetermined rate of
150% of direct labor cost. The data that follow pertain to job no. 831:
If Armada adds a 30% markup on total cost to generate a profit, which of the following
choices depicts a portion of the accounting needed to record the credit sale of job no.
831?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
9) Homestead Corporation sells a line of power tools to home improvement chains,
generating a cost of goods sold equal to 70% of net sales. The selected data that follow
relate to the period just ended for the company’s three largest customers: Weekend
Project, Tool Mart, and Fix-It City.
Homestead’s management recently attended a seminar and learned that customers with
excessive requests and demands can have a significant, negative impact on corporate
profitability.
Required:
A. For each of the three chains, compute:
1> Total customer-related costs as a percentage of gross margin.
2> The average order size (ignoring sales returns).
3> The ratio of regular orders to rush orders.
4> The number of sales returns as a percentage of the number of total orders.
B. Prepare a brief summary of your findings. Should Homestead work with any of the
chains in an effort to improve results? Explain.
10) The division of activities into unit-level, batch-level, product-sustaining level, and
facility-level categories is commonly known as a cost:
A.object
B.application method
C.hierarchy
D.estimation method
E.classification scheme that is useful in traditional, volume-based systems
11) Which of the following is not a period cost?
A.Legal costs
B.Public relations costs
C.Sales commissions
D.Wages of assembly-line workers
E.The salary of a company’s chief financial officer (CFO)
12) Which of the following would not be characterized as a cost object?
A.An automobile manufactured by General Motors
B.The New York Fire Department
C.A Burger King restaurant located in Cleveland, Ohio
D.A Delta Airlines flight from Atlanta to Miami
E.All of these are examples of cost objects
13) Justin Company recently purchased materials from a new supplier at a very
attractive price. The materials were found to be of poor quality, and the company’s
laborers struggled significantly as they shaped the materials into finished product. In a
desperation move to make up for some of the time lost, the manufacturing supervisor
brought in more-senior employees from another part of the plant. Which of the
following variances would have a high probability of arising from this situation?
A.Material price variance, favorable
B.Material quantity variance, unfavorable
C.Labor rate variance, unfavorable
D.Labor efficiency variance, unfavorable
E.All of the other answers are correct
14) All of the following costs are inventoried under absorption costing except:
A.direct materials
B.direct labor
C.variable manufacturing overhead
D.fixed manufacturing overhead
E.fixed administrative salaries
15) A company’s plan for the acquisition of long-lived assets, such as buildings and
equipment, is commonly called a:
A.pro-forma budget
B.master budget
C.financial budget
D.profit plan
E.capital budget
16) Marcie Simone is the long-time catering director of Naples-on-the-Beach, a hotel
noted throughout the industry for quality, profitability, and cost control. The hotel
recently catered a steak dinner for a 2,000-person convention. Strict standards were in
place for the dinner: 0.75 pounds of beef per plate at $9 per pound. A review of the
accounting records shortly after the convention showed that 1,680 pounds of beef were
purchased and consumed, costing the hotel $13,440.
Required:
A. Calculate the cost of beef budgeted for the dinner and the total beef variance (i.e.,
the difference between budgeted and actual cost). Should this variance be of concern to
the hotel? Why?
B. Assess the job that Simone did in “managing” the beef purchase by performing a
variance analysis. Comment on your findings.
C. Assume that the hotel received a number of complaints shortly after the dinner
concluded.
Explain a possible reason behind the conventioneers’ unhappiness.
17) Rogillo, Inc. had an unfavorable labor efficiency variance and an unfavorable
materials quantity variance. Which department might be held accountable for these
variances?
A.Purchasing, because bad materials can harm labor efficiency
B.Production, because inefficient workers may use more materials than allowed
C.Marketing
D.Shipping
E.Both Purchasing, because bad materials can harm labor efficiency and Production,
because inefficient workers may use more materials than allowed
18) Which of the following employees of a commercial printer/publisher would be
classified as direct labor?
A.Book binder
B.Plant security guard
C.Sales representative
D.Plant supervisor
E.Payroll supervisor
19) All of the following are inventoried under absorption costing except:
A.direct labor
B.raw materials used in production
C.utilities cost consumed in manufacturing
D.sales commissions
E.machine lubricant used in production
20) Which of the following functions is best described as choosing among available
alternatives?
A.Decision making
B.Planning
C.Directing operational activities
D.Controlling
E.Budgeting
21) Consider the following statements about the direct method of service department
cost allocation:
I. Under the direct method, all service department costs are eventually allocated to
production departments.
II. The order in which service department costs are allocated to production departments
is important.
III. Once a service department’s costs have been allocated,no costs are re-circulated
back to that department.
Which of the above statements is (are) correct?
A.I only
B.II only
C.I and II
D.I and III
E.I, II, and III
22) The accounting records of Brownwood Company revealed the following
information:
Brownwood’s cost of goods sold is:
A.$721,000
B.$730,000
C.$778,000
D.$787,000
E.None of the other answers are correct
23) Sahara Corporation has no 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
24) The rule for project acceptance under the net-present-value method is that:
A.NPV should be greater than zero
B.NPV should be less than zero
C.NPV should equal zero
D.NPV should be less than the hurdle rate
E.NPV should equal the hurdle rate
25) 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
26) Halo Enterprises recently experienced a fire, forcing the company to use incomplete
information to analyze operations. Consider the following data and assume that all
materials purchased during the period were used in production:
Direct materials:
Standard price per pound: $9
Actual price per pound: $8
Price variance: $20,000F
Total of direct-material variances: $2,000F
Direct labor:
Actual hours worked: 40,000
Actual rate per hour: $15
Efficiency variance: $28,000F
Total of direct-labor variances: $12,000U
Halo completed 12,000 units.
Required:
Determine the following: (1) actual materials used, (2) direct-material quantity
variance, (3) direct-labor rate variance, (4) standard labor rate per hour, and (5) standard
labor time per finished unit.
27) The Perez Company recorded the following transactions for February 20×1:
Sales were $560,000, with sales prices determined by adding a 40% markup to the
firm’s manufacturing cost. The total cost of direct materials used, direct labor, and
manufacturing overhead during the month was $285,000.
Note: The materials account includes both direct materials and indirect materials.
Required:
Calculate the missing values.
28) Turbon Manufacturing plans to produce 20,000 units, 24,000 units, and 30,000
units, respectively, in October, November, and December. Each of these units requires
four units of part no. 879, which the company can purchase for $7 each. Turbon has
35,000 units of part no. 879 in stock on September 30 .
Required:
Prepare a direct-material purchases budget for October and November in units and
dollars. Management desires to maintain an ending raw-material inventory equal to
40% of the following month’s production usage.
29) Return on investment (ROI) and residual income (RI) are popular measures of
divisional performance. Like any measure, there are disadvantages or weaknesses that
are an inherent part of these tools. Briefly discuss a major weakness associated with
each tool.
30) Madi and Sohn Corporation has a single facility that it uses for manufacturing,
sales, and administrative activities. Should the company’s building depreciation charge
be expensed in its entirety or is a different accounting procedure appropriate? Explain.
31) The table that follows denotes selected characteristics of absorption costing and/or
variable costing.
Changes to grid above:
Lower income when inventories rise (NOT “net” income)
External financial statement USE (NOT “users”)
Required:
Evaluate each product-cost, period-cost, and income-statement/disclosure characteristic
and determine whether it relates to absorption costing, variable costing, or both
methods. Place an “X” in the proper column.
32) Describe the economic characteristics of sunk costs and opportunity costs, and
explain the impact that these costs may have on decisions.
33) Terry Pineno, new-accounts manager at East Bank of Clarion, has been asked to
project how many new accounts she will open during 20×2 . The local economy has
been growing, and the bank has experienced a 10% increase in the number of new
accounts over each of the past five years. In 20×1, the bank had 10,000 accounts.
Pineno is paid a salary, plus a bonus of $20 for every new account above the budgeted
amount. Thus, if the annual budget calls for 1,000 new accounts, and 1,080 new
accounts are obtained, her bonus will be $1,600 (80 $20).
Pineno believes that the local economy will continue to grow at the same rate in 20×2
as it has in recent years. She decided to submit a projection of 700 new accounts for
20×2 .
Required:
Your consulting firm has been hired by the bank president to make recommendations
for improving the bank’s operation. Write a memorandum to the president defining and
explaining the negative consequences of budgetary slack. Also discuss the bank’s bonus
system for the new-accounts manager and how the bonus program tends to encourage
budgetary slack.
34) Define the term “relevant range” and explain its importance in understanding cost
behavior.
35) The performance reports generated by a responsibility accounting system often
form a “hierarchy of performance reports.” Explain what is meant by this term.