1) Barry Chemical Company manufactures X-111, X-112, and X-113 from a joint
process. The following information is available for the period just ended:
Required:
A. Does Barry allocate joint costs by using the physical-units method? Explain.
B. Assume that Barry does not use the physical-units method but instead allocates joint
costs by using the relative-sales-value method. Find the four unknowns in the preceding
table.
2) Which of the following is not an overhead variance?
A.Variable-overhead spending variance
B.Variable-overhead volume variance
C.Variable-overhead efficiency variance
D.Fixed-overhead budget variance
E.Fixed-overhead volume variance
3) Jackson manufactures products X and Y, applying overhead on the basis of labor
hours. X, a low-volume product, requires a variety of complex manufacturing
procedures. Y, on the other hand, is both a high-volume product and relatively
simplistic in nature. What would an activity-based costing system likely disclose about
products X and Y as a result of Jackson’s current accounting procedures?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
4) Straight-line depreciation is a typical example of a:
A.variable cost
B.step-variable cost
C.fixed cost
D.mixed cost
E.curvilinear cost
5) Consider the following costs that relate to a bank and a manufacturer of software:
Bank
1> Review costs of commercial loan applications
2> Operating costs of human resources department
3> Immediate processing costs of a specific customer’s cash deposit
4> Bank membership costs of joining local Chamber of Commerce
Software manufacturer
5> Label and packaging charges from a commercial printer for a new software release
6> Air conditioning/heating costs of the firm’s production plant
7> Transport costs of moving the finished products from production run no. 1 to the
company’s warehouse
8> Design and development costs of new spreadsheet software
Required:
A. Classify the eight costs listed as arising from either a unit-level, batch-level,
product-sustaining, or facility-level activity.
B. Would number of loan applications or number of customers be a more appropriate
cost-driver base for #1 above? Briefly explain.
6) Your Uncle Otto has struck it rich by investing in racehorses and desires to share
some of his newfound wealth with you. Assume that you must choose from among the
following three options:
Receive a lump sum of $400,000 in 20 years.
Receive $20,000 at the end of each year for the next 10 years.
Receive $90,000 now.
Required:
A. Why is it inappropriate to compare $400,000 (no. 1) vs. $200,000 (no. 2) vs. $90,000
(no. 3) and conclude that no. 1 is the best option? Explain.
B. What should you do to determine which option is the best? What does this process
do?
C. If Uncle Otto agreed to revise option no. 1 so that you could receive $200,000 in 10
years and the remaining $200,000 in another 10 years, would you likely prefer the
revision or the option as originally stated? Why?
D. What is an annuity? Do any of the options involve an annuity?
7) Depreciation is often described as a “tax shield.”
Required:
A. Explain how depreciation provides such a shield.
B. MACRS is an accelerated depreciation system. Explain how an accelerated system
can provide a more beneficial tax shield than, say, a straight-line depreciation system.
8) The Dopler Manufacturing Company has two production departments (Assembly and
Finishing) and two service departments (Human Resources and Janitorial). The
projected usage of the two service departments is as follows:
The budgeted costs in the service departments are: Human Resources, $90,000 and
Janitorial, $50,000.
Using the step-down method and assuming the Human Resources Department is
allocated first, the amount of Human Resources cost allocated to the Assembly
Department is:
A.$21,053
B.$28,947
C.$54,000
D.$60,000
E.$78,842
9) Company A uses a heavily participative budgeting approach whereas at Company B,
top management develops all budgets and imposes them on lower-level personnel.
Which of the following statements is false?
A.A’s employees will likely be more motivated to achieve budgetary goals than the
employees of Company B
B.B’s employees may be somewhat disenchanted because although they will be
evaluated against a budget, they really had little say in budget development
C.Budget padding will likely be a greater problem at Company B
D.Budget preparation time will likely be longer at Company A
E.Ethical issues are more likely to arise at Company A, especially when the budget is
used as a basis for performance appraisal
10) Economic Order Quantity, timing of orders and safety stock are three important
considerations in inventory management.
Required:
A. Explain each of these considerations.
B. How is EOQ affected by the timing of orders and safety stock?
11) Which of the following is the proper sequence of events in an activity-based costing
system?
A.Identification of cost drivers, identification of cost pools, calculation of pool rates,
assignment of cost to products
B.Identification of cost pools, identification of cost drivers, calculation of pool rates,
assignment of cost to products
C.Assignment of cost to products, identification of cost pools, identification of cost
drivers, calculation of pool rates
D.Calculation of pool rates, identification of cost drivers, identification of cost pools,
assignment of cost to products
E.None of the other answers is correct
12) HiTech manufactures two products: Regular and Super. The results of operations
for 20×1 follow.
Fixed manufacturing costs included in cost of goods sold amount to $3 per unit for
Regular and $20 per unit for Super. Variable selling expenses are $4 per unit for
Regular and $20 per unit for Super; remaining selling amounts are fixed.
HiTech wants to drop the Regular product line. If the line is dropped, company-wide
fixed manufacturing costs would fall by 10% because there is no alternative use of the
facilities. What would be the impact on operating income if Regular is discontinued?
A.$0
B.$10,400 increase
C.$20,000 increase
D.$39,600 decrease
E.None of the other answers are correct
13) Fogg Company, which uses labor hours to apply overhead to manufacturing, may
have increased amounts of underapplied overhead at month-end if:
A.suppliers of direct materials have an across-the-board price increase
B.an accountant failed to record the period’s charges for plant maintenance and security
C.employees are hit hard with a widespread outbreak of the flu
D.direct laborers are granted a wage increase
E.outlays for advertising expenditures are increased
14) An increasingly popular approach that integrates financial and customer
performance measures with measures in the areas of internal operations and learning
and growth is known as:
A.the integrated performance measurement tool (IPMT)
B.the balanced scorecard
C.gain sharing
D.cycle efficiency
E.overall quality assessment (OQA)
15) Which of the following is the proper sequence of events in an activity-based costing
system?
A.Identification of cost drivers, identification of cost pools, calculation of pool rates,
assignment of cost to products
B.Identification of cost pools, identification of cost drivers, calculation of pool rates,
assignment of cost to products
C.Assignment of cost to products, identification of cost pools, identification of cost
drivers, calculation of pool rates
D.Calculation of pool rates, identification of cost drivers, identification of cost pools,
assignment of cost to products
E.None of the other answers is correct
16) Danielle sells a single product at $20 per unit. The firm’s most recent income
statement revealed unit sales of 100,000, variable costs of $800,000, and fixed costs of
$400,000. If a $4 drop in selling price will boost unit sales volume by 20%, the
company will experience:
A.no change in profit because a 20% drop in sales price is balanced by a 20% increase
in volume
B.an $80,000 drop in profit
C.a $240,000 drop in profit
D.a $400,000 drop in profit
E.None of the other answers is correct
17) Each of Davisson’s production managers (annual salary cost, $45,000) can oversee
60,000 machine hours of manufacturing activity. Thus, if the company has 50,000 hours
of manufacturing activity, one manager is needed; for 75,000 hours, two managers are
needed; for 125,000 hours, three managers are needed; and so forth. Davisson’s salary
cost can best be described as a:
A.variable cost
B.semivariable cost
C.step-variable cost
D.fixed cost
E.step-fixed cost
18) Which of the following choices denotes the typical cost behavior of advertising and
sales commissions?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
19) The difference between the revenue or cost projection that a person provides, and a
realistic estimate of the revenue or cost, is called:
A.passing the buck
B.budgetary slack
C.false budgeting
D.participative budgeting
E.resource allocation processing
20) Which of the following is a product cost?
A.Glass in an automobile
B.Advertising
C.The salary of the vice president-finance
D.Rent on a factory
E.Glass in an automobile and rent on a factory
21) Northwest manufactures a product requiring 0.5 ounces of platinum per unit. The
cost of platinum is approximately $360 per ounce; the company maintains an ending
platinum inventory equal to 10% of the following month’s production usage. The
following data were taken from the most recent quarterly production budget:
The cost of platinum to be purchased to support August production is:
A.$195,840
B.$198,000
C.$200,160
D.$391,680
E.None of the other answers are correct
22) When graphing the EOQ, which of the following statements is false?
A.Holding costs are a downward sloping line to the right
B.The EOQ is represented by the minimum total cost
C.Ordering costs are a downward sloping line to the right
D.Average inventory on hand results in higher holding costs
E.As order size increases, so does average inventory on hand
23) Generally speaking, which of the following would not directly affect a company’s
income tax payments?
A.Advertising expense
B.Gain on sale of machinery
C.Sales revenue
D.Land owned by the firm
E.Loss on sale of building
24) A depreciation tax shield is a(n):
A.after-tax cash outflow
B.increase in income tax
C.factor that has no effect on cash flows
D.reduction in income tax
E.sporadic fluctuation in income tax
25) The process of encouraging and authorizing workers to take appropriate initiatives
to improve the overall firm is commonly known as:
A.planning and control
B.employee empowerment
C.personnel aggressiveness
D.decision making
E.problem recognition and solution
26) Indiana Company incurred the following costs during the past year when planned
production and actual production each totaled 20,000 units:
If Indiana uses absorption costing, the total inventoriable costs for the year would be:
A.$400,000
B.$460,000
C.$560,000
D.$620,000
E.$660,000
27) Margery, Inc., which uses a job-costing system, is a labor-intensive firm, with many
skilled craftspeople on the payroll. Job no. 789 was the only job in process on January
1, having costs of $22,500 as of that date. Direct materials used and direct labor
incurred during January were:
Job no. 791 was the only job in production as of January 31 .
Required:
A. Should Margery use direct labor or machine hours as a cost driver. Why?
B. Assume that the company decided to use direct labor as its cost driver. If the
budgeted amounts of direct labor and manufacturing overhead are anticipated to be
$200,000 and $300,000, respectively, what is the firm’s predetermined overhead rate?
C. Compute the cost of work-in-process inventory as of January 31 .
D. Compute the cost of jobs completed during January.
E. Suppose that the company sold all of its completed jobs, adding a 40% markup to
cost. How much would the firm report as sales revenue?
28) Lawson Company invests $60,000 today and has $148,560 by the end of eight
years. What is the firm’s compound annual interest rate?
A.10.00%
B.12.00%
C.18.45%
D.40.39%
E.None of the other answers are correct
29) O’Dale sells three products: R, S, and T. Budgeted information for the upcoming
accounting period follows.
The company’s weighted-average unit contribution margin is:
A.$3.00
B.$3.55
C.$4.00
D.$19.35
E.None of the other answers is correct
30) Consider the following comments about absorption- and variable-costing income
statements:
I. A variable-costing income statement discloses a firm’s gross margin.
II. Cost of goods sold on an absorption-costing income statement includes fixed costs.
III. The amount of variable selling and administrative cost is the same on absorption-
and variable-costing income statements.
Which of the above statements is (are) true?
A.I only
B.II only
C.I and II
D.II and III
E.I, II, and III
31) Maddock Corporation’s product no. H647 has a negative contribution margin. How
can such a situation arise? Should the company continue to stock and sell product no.
H647? Explain.
32) 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.
33) At a recent professional meeting, two controllers discussed product-costing
problems in their respective companies. Both controllers are familiar with ABC
systems, but neither of their firms utilizes such a system.
Controller D reported that part of the problem in his firm results from major differences
among product lines with respect to unit volume, utilization of activities, quality
assurance requirements established by customers, and product size. Controller M noted
that in her company, which manufactures consumer goods, all items undergo the same
basic production processes in the same sequence. Lately, however, there has been a
significant increase in the number of item colors.
Both controllers are worried about the potential distortion of product costs under their
traditional product-costing systems.
Required:
Which controller should be more concerned about the potential distortion? Explain.
34) The time value of money and present value are important business concepts.
Required:
Briefly explain these concepts to someone with a limited business background.
35) List several factors that an organization might consider when developing a sales
forecast.