1) That employees make little effort to achieve budgetary goals is an outcome
sometimes associated with participative budgeting.
2) CFF, Inc. overstated the percentage of work completed with respect to conversion
cost on the ending work-in-process inventory. This overstatement caused
conversion-cost equivalent units to be overstated.
3) A favorable labor efficiency variance is created when actual labor hours worked
exceed standard hours allowed.
4) Variable costs change in direct proportion to a change in the activity level.
5) Clark Corporation manufactures cooling system components. The company has
gathered the following information about two of its customers: Engle Equipment and
Midwest Refrigeration.
Cost-driver data used by the firm and traceable to Engle and Midwest are:
Required:
A. Perform a customer profitability analysis for Clark. Compute the gross margin and
operating income on transactions related to Engle Equipment and Midwest
Refrigeration.
B. Compute gross margin as a percentage of sales revenue. Then compute (1) general
selling and administrative costs as a percentage of gross margin and (2) total
customer-related costs (i.e., costs that arise from sales visits, order taking, and special
handling and shipping) as a percentage of gross margin.
C. On the basis of your calculations, which of the two customers is “more costly” to
deal with? Briefly explain.
6) St. Andrews School ranks investments by using the profitability index (PI). The
following data relate to Project X and Project Y:
Which project would be more attractive as judged by its ranking, and why?
A.Project X because the PI is 1.50
B.Project Y because the PI is 1.38
C.Project X because the PI is 0.67
D.Project Y because the PI is 0.72
E.Both projects would be equally attractive in terms of ranking, as indicated by a
positive PI
7) A standard cost:
A.is the “true” cost of a unit of production
B.is a budget for the production of one unit of a product or service
C.can be useful in calculating equivalent units
D.is normally the average cost within an industry
E.is almost always the actual cost from previous years
8) The profit margin controllable by the segment manager would not include:
A.variable operating expenses
B.fixed expenses controllable by the segment manager
C.a share of the company’s common fixed expenses
D.income tax expense
E.a share of the company’s common fixed expenses and income tax expense
9) Sting Corporation debited Cost of Goods Sold and credited Manufacturing Overhead
at year-end. On the basis of this information, one can conclude that:
A.budgeted overhead exceeded actual overhead
B.budgeted overhead exceeded applied overhead
C.budgeted overhead was less than applied overhead
D.actual overhead exceeded applied overhead
E.actual overhead was less than applied overhead
10) Ovation Corporation has two service departments (S1 and S2) and two production
departments (P1 and P2). S1 and S2 both use the number of employees as an allocation
base. The following data are available:
Required:
A. Assuming use of the direct method:
1> Over how many employees would S1’s budgeted cost be allocated?
2> How much of S2’s cost would be allocated to P1?
3> How much of P1’s cost would be allocated to S1?
B. Assuming use of the step-down method:
1> How much of S1’s cost would be allocated to S2? Ovation allocates S1’s costs prior
to allocating those of S2 .
2> How much of S2’s total cost would be allocated to P2?
3> How much of S2’s total cost would be allocated to S1?
11) Roma Corporation has computed the following unit costs for the year just ended:
Under absorption costing, each unit of the company’s inventory would be carried at:
A.$49
B.$54
C.$72
D.$104
E.None of the other answers are correct
12) Managerial accounting:
A.is unregulated
B.produces information that is useful only for manufacturing organizations
C.is based exclusively on historical data
D.is regulated by the Securities and Exchange Commission (SEC)
E.generally focuses on reporting information about the enterprise in its entirety rather
than by subunits
13) Decentralized firms can delegate authority by structuring an organization into
responsibility centers. Which of the following organizational segments is most like a
totally independent, standalone business where managers are expected to “make it on
their own”?
A.Cost center
B.Revenue center
C.Profit center
D.Investment center
E.Contribution center
14) Within the relevant range of activity, costs:
A.can be estimated with reasonable accuracy
B.can be expected to change radically
C.exhibit decreasing marginal cost patterns
D.exhibit increasing marginal cost patterns
E.cannot be estimated satisfactorily
15)
In 10 years, Helo Company plans to receive $9,000 cash from the sale of a machine that
has a $5,000 book value. If the firm is subject to a 30% income tax rate and has an 8%
after-tax hurdle rate, the correct discounted net cash flow would be:
A.$2,916.90
B.$3,611.40
C.$4,167.00
D.$4,722.60
E.None of the other answers are correct
16) A direct-labor efficiency variance cannot be caused by:
A.inexperienced employees
B.poor quality raw materials
C.employee inefficiency
D.an out-of-date labor time standard
E.producing fewer finished units than originally planned
17) Which of the following variances would be useful to help control overhead
spending?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
18) County Cable Services Inc. is organized in three segments: Metro, Suburban, and
Outlying. Data for the company and for these segments follow.
Variable costs as a percentage of service revenue are: Metro, 20%; Suburban, 18.75%;
and Outlying, 25%.
Required:
A. Complete the segmented income statement for County Cable.
B. Evaluate the three segment managers for consideration of a pay raise. Base the
managers’ performance on (1) absolute dollars of the appropriate profit measure, and (2)
the appropriate profit measure as a percentage of service revenue. What causes any
difference in rankings between the two approaches?
19) Hot’lanta, Inc., which uses the high-low method to analyze cost behavior, has
determined that machine hours best explain the company’s utilities cost. The company’s
relevant range of activity varies from a low of 600 machine hours to a high of 1,100
machine hours, with the following data being available for the first six months of the
year:
The variable utilities cost per machine hour is:
A.$0.18
B.$4.50
C.$5.00
D.$5.50
E.None of the other answers is correct
20) When 5,000 units are produced variable costs are $35 per unit and total costs are
$200,000. What are the total costs when 8,000 units are produced?
A.$200,000
B.$305,000
C.$240,000
D.None of the other answers are correct
E.Total costs cannot be calculated based on the information presented
21) Draco, Inc. has the following overhead standards:
Variable overhead: 4 hours at $8 per hour
Fixed overhead: 4 hours at $10 per hour
The standards were based on a planned activity of 20,000 machine hours when 5,000
units were scheduled for production. Actual data follow.
Variable overhead incurred: $167,750
Fixed overhead incurred: $210,000
Machine hours worked: 19,800
Actual units produced: 5,100
The amount of variable overhead that Draco applied to production is:
A.$158,400
B.$160,000
C.$163,200
D.$167,750
E.None of the other answers are correct
22) Which of the following manufacturers would most likely use job-order costing?
A.Chemical manufacturers
B.Microchip processors
C.Custom-furniture manufacturers
D.Gasoline refiners
E.Fertilizer manufacturers
23) The optimum level of product quality is where:
A.external failure costs are at a minimum
B.total quality costs are at a minimum
C.prevention costs are at a minimum
D.internal failure costs are at a minimum
E.All of the other answers are correct
24) Which of the following combinations of direct-material variances might prompt
management to undertake a detailed variance investigation?
A.Price, unfavorable; quantity, unfavorable
B.Price, unfavorable; quantity, favorable
C.Price, favorable; quantity, unfavorable
D.Price favorable; quantity, favorable
E.All of the other answers are correct
25) Which of the following statements about manufacturing cost flows is false?
A.Direct materials, direct labor, and manufacturing overhead are entered in the
Work-in-Process Inventory account
B.The Finished-Goods Inventory account will contain entries that reflect the cost of
goods sold during the period
C.The cost of units sold during the period will typically appear on the income statement
D.When a company sells goods that cost $54,000 for $60,000, the firm will enter
$6,000 in an account entitled Profit on Sale
E.Units are normally transferred from Work-in-Process Inventory to Finished-Goods
Inventory
26) A typical job-cost record would provide information about all of the following items
related to an order except:
A.the cost of direct materials used
B.administrative costs
C.direct labor costs incurred
D.applied manufacturing overhead
E.direct labor hours worked
27) All of the following are inventoried under variable costing except:
A.direct materials
B.direct labor
C.variablemanufacturing overhead
D.fixed manufacturing overhead
E.variable manufacturing overhead and fixed manufacturing overhead
28) When actual variable cost per unit equals standard variable cost per unit, the
difference between actual and budgeted contribution margin is explained by a
combination of which two variances?
A.The sales-volume variance and the fixed-overhead volume variance
B.The sales-volume variance and the fixed-overhead budget variance
C.The sales-price variance and the fixed-overhead volume variance
D.The sales-price variance and sales-volume variance
E.The sales-price variance and fixed-overhead budget variance
29) The typical balanced scorecard is best described as containing:
A.financial performance measures
B.nonfinancial performance measures
C.neither financial nor nonfinancial performance measures
D.both financial and nonfinancial performance measures
E.either financial or nonfinancial performance measures but not both
30) Consider the six costs that follow.
1> Advertising and promotion costs of a do-it-yourself retailer
2> Surgical supplies used in a hospital’s operating room
3> Aircraft depreciation charges of an airline
4> Utility charges that include a minimum-use fee, for a small business
5> Annual business licensing fee paid by a daycare center
6> Truck fuel consumed by a road construction company
Required:
A. Classify each of these costs as variable, committed fixed, discretionary fixed, or
semivariable.
B. Briefly describe the behavior of a per-unit variable cost as activity changes.
C. What elements are present in a semivariable cost that cause it to behave in a
semivariable manner?
D. Generally speaking, does management have more flexibility when dealing with
committed fixed costs or discretionary fixed costs?
31) Song, Inc., uses the high-low method to analyze cost behavior. The company
observed that at 22,000 machine hours of activity, total maintenance costs averaged
$33.40 per hour. When activity jumped to 25,000 machine hours, which was still within
the relevant range, the average total cost per machine hour was $30.40.
On the basis of this information, the variable cost per machine hour was:
A.$8.40
B.$22.00
C.$25.00
D.$30.40
E.$33.40
32) Denver Enterprises recently used 14,000 labor hours to produce 7,500 completed
units. According to manufacturing specifications, each unit is anticipated to take two
hours to complete. The company’s actual payroll cost amounted to $158,200. If the
standard labor cost per hour is $11, Denver’s labor efficiency variance is:
A.$11,000U
B.$11,000F
C.$11,300U
D.$11,300F
E.none of the other answers are correct
33) Which of the following is used in the computation of the fixed overhead budget
variance?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
34) DuChien Corporation recently produced and sold 100,000 units. Fixed costs at this
level of activity amounted to $50,000; variable costs were $100,000. How much cost
would the company anticipate if during the next period it produced and sold 102,000
units?
A.$150,000
B.$151,000
C.$152,000
D.$153,000
E.None of the other answers is correct
35) In comparison with a system that uses a single, volume-based cost driver, an
activity-based costing system is preferred when a company has:
A.a large proportion of nonunit-level activities
B.product-line diversity
C.minimal product-line diversity and a small proportion of nonunit-level activities
D.existing variances from budgeted amounts
E.product-line diversity and a large proportion of nonunit-level activities
36) Widely varying consumption ratios:
A.are reflective of product-line diversity
B.indicate an out-of-control production environment
C.dictate a need for traditional costing systems
D.work against the implementation of activity-based costing
E.create an unsolvable product-costing problem
37) Manufacturers have established a cost classification called product costs. Define the
term “product cost” and note where these costs appear in the financial statements. Be
specific.
38) Briefly describe the stages used in the two-stage allocation process for assigning
overhead costs.
39) Sophisticates’ Corner sells clothing, shoes, and accessories at a suburban location
near Boston. Information for the just concluded calendar year follows.
Management is considering closing the shoe operation because of the loss and
expanding the space that is currently devoted to accessories sales. A salaried
salesperson in the shoe department who earns $45,000 will be terminated; however, all
other departmental fixed costs will continue to be incurred. Sophisticates’ Corner will
spend $16,000 on remodeling costs and anticipates that accessories sales will increase
by $70,000. This additional sales revenue is expected to generate a 35% contribution
margin for the firm. Finally, because clothing customers often purchased shoes and feel
strongly about “one-stop shopping,” clothing sales are expected to fall by 15% if the
shoe department is closed.
Required:
Determine whether the shoe department should be closed.
40) Unused or excess capacity is a key component of contemporary management
accounting. Define the term “excess capacity” and explain how it would relate to a
coffee shop.
41) Quality Exteriors installs stucco on high-priced custom homes, using the
time-and-materials method to price jobs for individual builders. Quality anticipates
using $250,000 of materials during the year and will incur $15,000 for material
handling and storage. Other overhead costs, which are driven by the company’s 18,000
direct labor hours, will total $360,000. Quality pays construction crews $17 per labor
hour and adds a markup of $19 per hour on its time charges. There is no profit markup
on material cost.
During the first quarter of the year, Quality performed 24 jobs for Don Henderson
Builders, using 3,100 labor hours and $72,000 of materials.
Required:
Calculate the amount that Quality would bill Don Henderson Builders for work
performed.
42) Although the general rule for transfer prices is the outlay cost plus opportunity cost,
many companies instead use negotiated prices to price their goods and services. When
are negotiated transfer prices used? Are such prices consistent or inconsistent with
responsibility accounting? Explain.
43) The following data pertain to Corkscrew Corporation:
Required:
Calculate Corkscrew Corporation’s sales margin, capital turnover, and return on
investment.