1) Swanson and Associates presently leases a copy machine under an agreement that
calls for a fixed fee each month and a charge for each copy made. Swanson made 7,000
copies and paid a total of $360 in March; in May, the firm paid $280 for 5,000 copies.
The company uses the high-low method to analyze costs.
Swanson’s variable cost per copy is:
A.$0.040
B.$0.051
C.$0.053
D.$0.056
E.None of the other answers is correct
2) 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
3) Activity-based costing systems:
A.use a single, volume-based cost driver
B.assign overhead to products based on the products’ relative usage of direct labor
C.often reveal products that were under- or over-costed by traditional costing systems
D.typically use fewer cost drivers than more traditional costing systems
E.have a tendency to distort product costs
4) Temperance, Inc. is studying marketing cost and sales volume, and has generated the
following information by use of a scatter diagram and a least-squares regression
analysis:
Temperance is now preparing an estimate for monthly sales of 18,000 units. On the
basis of the data presented, compute the most accurate sales forecast possible.
A.$159,500
B.$162,000
C.$164,900
D.$167,400
E.None of the other answers is correct
5) The fixed costs per unit are $10 when a company produces 10,000 units of product.
What are the fixed costs per unit when 8,000 units are produced?
A.$12.50
B.$10.00
C.$8.00
D.$6.50
E.$5.50
6) If a company has excess capacity, which of the following is a sensible bidding
strategy?
A.Set a price to cover all costs
B.Base the bid on the incremental costs incurred because the job will contribute toward
the company’s profit
C.Base the bid solely on direct labor hours
D.Downplay the potential impact of competitors
E.Allocate common fixed costs to individual jobs before preparing the bid
7) Virginia State University (VSU) is preparing its master budget for the upcoming
academic year (an academic year consists of two semesters). Currently, 12,000 students
are enrolled on campus; however, the admissions office is forecasting a 5% growth in
the student body despite a tuition hike to $80 per credit hour. The following additional
information has been gathered from an examination of university records and
conversations with university officials:
VSU is planning to award 150 tuition-free scholarships.
The average class has 30 students, and the typical student takes 15 credit hours each
semester.
Each class is three credit hours.
Each faculty member teaches five classes during the academic year.
Required:
A. Compute the budgeted tuition revenue for the upcoming academic year.
B. Determine the number of faculty members needed to cover classes.
C. In preparing the university’s master budget, should the administration begin with a
forecast of students or a forecast of faculty members? Briefly explain.
8) Airstream builds recreational motor homes. All of the following activities add value
to the finished product except:
A.installation of carpet
B.assembly of the frame to the chassis
C.storage of the vehicle in the sales area
D.addition of exterior lights
E.final painting and polishing
9) The budgeted income statement, budgeted balance sheet, and budgeted statement of
cash flows comprise:
A.the final portion of the master budget
B.the depiction of an organization’s overall actual financial results
C.the first step of the master budget
D.the portion of the master budget prepared after the sales forecast and before the
remainder of the operational budgets
E.the second step of the master budget
10) Harvest Corporation has two service departments (S1 and S2) and two production
departments (P1 and P2), and uses the step-down method of cost allocation.
Management has determined that S1 provides more service to the firm than S2, and has
decided that the number of employees is the best allocation base to use for S1 . The
following data are available:
Which of the following statements is (are) true if S1 and S2 have respective operating
costs of $280,000 and $350,000?
A.S2 should allocate a portion of its $350,000 cost to S1
B.S1’s cost should be allocated (i.e., spread) over 140 employees
C.S1’s cost should be allocated (i.e., spread) over 150 employees
D.S2 should allocate a total of $390,000 to P1 and P2
E.Both S1’s cost should be allocated (i.e., spread) over 140 employees and S2 should
allocate a total of $390,000 to P1 and P2
11) Northcutt’s production data for a new deluxe product were taken from the most
recent quarterly production budget:
In addition, Northcutt produces 5,000 units a month of its standard product. It takes two
direct labor hours to produce each standard unit and 2.25 direct labor hours to produce
each deluxe unit. Northwest’s cost per labor hour is $15. Direct labor cost for the
quarter would be budgeted at:
A.$519,075
B.$533,125
C.$547,750
D.$553,950
E.None of the other answers are correct
12) Sainte Claire Corporation has a highly automated production facility. Which of the
following correctly shows the two factors that would likely have the most direct
influence on the company’s manufacturing overhead budget?
A.Sales volume and labor hours
B.Contribution margin and cash payments
C.Production volume and management judgment
D.Labor hours and management judgment
E.Management judgment and indirect labor cost
13) Pinero is considering a $600,000 investment in new equipment that is anticipated to
produce the following net cash inflows:
If cash flows occur evenly throughout a year, the equipment’s payback period is:
A.4 years, 2 months
B.4 years, 3 months
C.4 years, 4 months
D.5 years
E.some other period of time not noted
14) Del’s Diner anticipated that 84,000 process hours would be worked during an
upcoming accounting period when, in fact, 90,000 hours were actually worked. One of
the company’s cost functions is expressed as follows:
Y = $16PH + $640,000 where PH is defined as process hours
What is Del’s flexible budget (Y) for the preceding cost function?
A.$1,280,000
B.$2,080,000
C.$1,984,000
D.$1,221,000
E.$2,112,000
15) Serina Manufacturing recently sold goods that cost $35,000 for $45,000 cash. The
journal entries to record this transaction would include:
A.a credit to Work-in-Process Inventory for $35,000
B.a debit to Sales Revenue for $45,000
C.a credit to Profit on Sale for $10,000
D.a debit to Finished-Goods Inventory for $35,000
E.a credit to Sales Revenue for $45,000
16) Consider the following factors:
I. The degree of correlation between consumption of an activity and consumption of a
particular cost driver.
II. The likelihood that a particular cost driver will induce a desired behavioral effect.
III. The likelihood that a particular cost driver will cause an increase in the cost of
measurement.
Which of these factors should be considered in the selection of a cost driver?
A.I only
B.I and II
C.I and III
D.II and III
E.I, II, and III
17) Dragon makes all sales on account, subject to the following collection pattern: 30%
are collected in the month of sale; 60% are collected in the first month after sale; and
10% are collected in the second month after sale. If sales for June, July, and August
were $120,000, $160,000, and $220,000, respectively, what were the firm’s budgeted
collections for August and the company’s budgeted receivables balance on August 31?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
18) A staff assistant at Whitmere Corporation recently determined that the first four
units completed in a new manufacturing process took 800 hours to complete, or an
average of 200 hours per unit. The assistant also found that when the cumulative output
produced doubles, the average labor time declines by 20%. On the basis of this
information, how many total hours would Washington use if it produces 16 units?
A.128
B.160
C.1,280
D.2,048
E.None of the other answers is correct
19) 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
Draco’s variable-overhead efficiency variance is:
A.$550 favorable
B.$550 unfavorable
C.$4,800 favorable
D.$4,800 unfavorable
E.None of the other answers are correct
20) Lewisa Company needs to determine the variable utilities rate per machine hour in
order to estimate cost for August. Relevant information is as follows.
Lewisa anticipates producing 5,000 units in August, each unit requiring 1.5 hours of
machine time. The company uses the high-low method to analyze costs.
Required:
A. Calculate the variable and fixed components of the utilities cost.
B. Using the data calculated above, estimate the utilities cost for August.
C. Compare the high-low method versus the visual-fit method with respect to (1)
number of data observations used in the analysis and (2) objectivity of the results.
21) ROI is most appropriately used to evaluate the performance of:
A.cost center managers
B.revenue center managers
C.profit center managers
D.investment center managers
E.Both profit center managers and investment center managers
22) Bob’s Burgers and Such, a national fast-food chain, has experienced a number of
problems in the past few years, and management is considering the adoption of a
balanced scorecard as part of a turnaround effort.
Required:
A. Briefly explain the concept of a balanced scorecard. What general factors are
included in a typical balanced scorecard?
B. Independent of your answer in requirement “A,” assume that Bob’s is very concerned
about customer satisfaction. List four different (and specific) customer-satisfaction
measures that may be appropriate for the firm (and for other fast-food providers).
C. Independent of requirement “A,” assume that Bob’s wants to return to former levels
of profitability. List several financial measures that would allow management to assess
success or failure with respect to the following goals: (1) pay creditors on a timely
basis, (2) keep shareholders happy, and (3) improve profitability over time at stores that
have been open at least one year.
23) Jamal & Co. makes and sells two types of shoes, Plain and Fancy. Data concerning
these products are as follows:
Sixty percent of the unit sales are Plain, and annual fixed expenses are $45,000.
Assuming that the sales mix remains constant, the number of units of Plain that Jamal
must sell to break even is:
A.2,000
B.3,000
C.3,375
D.5,000
E.5,625
24) Yellow Dot, Inc. sells a single product for $10. Variable costs are $4 per unit and
fixed costs total $120,000 at a volume level of 10,000 units. What dollar sales level
would Yellow Dot have to achieve to earn a target profit of $240,000?
A.$400,000
B.$500,000
C.$600,000
D.$750,000
E.$900,000
25) Bunnie’s Bakery anticipated making 17,000 fancy cakes during a recent period,
requiring 14,000 hours of process time. Each hour of process time was expected to cost
the firm $ Actual activity for the period was higher than anticipated: 18,000 cakes and
15,200 hours. If each hour of process time actually cost Bunnie $12, what process-time
variance would be disclosed on a performance report that incorporated static budgets
and flexible budgets?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
26) Information taken from Giles Corporation’s May accounting records follows.
Required:
A. Assuming the use of variable costing, compute the inventoriable costs for the month.
B. Compute the month’s inventoriable costs by using absorption costing.
C. Assume that anticipated and actual production totaled 20,000 units, and that 18,000
units were sold during May. Determine the amount of fixed manufacturing overhead
and fixed selling and administrative costs that would be expensed for the month under
(1) variable costing and (2) absorption costing.
D. Assume the same data as in requirement “C.” Compute the contribution margin that
would be reported on a variable-costing income statement.
27) Simone uses a predetermined overhead application rate of $8 per direct labor hour.
A review of the company’s accounting records for the year just ended discovered the
following:
Underapplied manufacturing overhead: $7,200
Actual manufacturing overhead: $392,000
Budgeted labor hours: 50,000
Simone’s actual labor hours worked totaled:
A.48,100
B.49,100
C.49,900
D.50,900
E.cannot be determined based on the information presented
28) A responsibility center in which the manager is held accountable for the profitable
use of assets and capital is commonly known as a (n):
A.cost center
B.revenue center
C.profit center
D.investment center
E.contribution center
29) Which of the following choices correctly depicts the proper classification of direct
materials used and management salaries?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
30) Which of the following typically does not relate to the role of a controller?
A.A controller supervises the accounting department
B.A controller safeguards an organization’s assets
C.A controller oversees the preparation of reports required by governmental authorities
D.A controller normally assumes a narrow role within the organization, often
preventing the individual’s rise to top management ranks
E.A controller safeguards an organization’s assets and a controller normally assumes a
narrow role within the organization, often preventing the individual’s rise to top
management ranks
31) Baxley Products manufactures office furniture by using an assembly-line process.
All direct materials are introduced at the start of the process, and conversion cost is
incurred evenly throughout manufacturing. An examination of the company’s
Work-in-Process account for August revealed the following selected information:
Debit side
August 1 balance: 600 units, 40% complete; cost, $44,600*
Production started: 1,800 units
Direct materials used during August: $90,000
August conversion cost: $51,400
Credit side
Production completed: 1,400 units
*Supplementary records disclosed direct material cost of $30,000 and conversion cost
of $14,600.
Conversations with manufacturing personnel revealed that the ending work in process
was 80% complete.
Required:
A. Determine the number of units in the August 31 work-in-process inventory.
B. Calculate the cost of goods completed during August, and prepare the appropriate
journal entry to record completed production.
C. Determine the cost of the August 31 work-in-process inventory.
32) Norde Company is making plans for the introduction of a new product, which has a
target selling price of $7 per unit. The following estimates of manufacturing costs have
been derived for 6 million units, to be produced during the first year:
Direct material: $6,000,000
Direct labor: $2,100,000 (at $14 per hour)
Overhead costs have not yet been estimated, but monthly data on total production and
overhead for the past 12 months have been analyzed by using least-squares regression.
The major overhead cost driver is direct labor hours, with the following results:
Computed values:
Fixed overhead cost: $3,200,000
Coefficient of independent variable: $2.25
Required:
A. Prepare the company’s regression equation (Y = a + bX) to estimate overhead.
B. Calculate the predicted overhead cost at an activity level of 6,300,000 units.
C. What is Norde’s dependent variable in this case?
33) The true statement about cost behavior is that:
A.variable costs change on a per-unit basis and change in total as activity changes
B.fixed costs are constant on a per-unit basis and change in total as activity changes
C.fixed costs are constant on a per-unit basis and are constant in total as activity
changes
D.fixed costs change on a per-unit basis and are constant in total as activity changes
E.variable costs are constant on a per-unit basis and are constant in total as activity
changes