1) Which of the following employees would not be classified as indirect labor?
A.Plant Custodian
B.Salesperson
C.Assembler of wooden furniture
D.Plant security guard
E.Salesperson and assembler of wooden furniture
2) Sullivan Enterprises had a sales margin of 5%, sales of $4,000,000, and invested
capital of $5,000,000. The company’s ROI was:
A.4.00%
B.6.25%
C.16.00%
D.25.00%
E.None of the other answers are correct
3) When introducing new products, some companies use price skimming whereas
others use penetration pricing.
Required:
A. Distinguish between price skimming and penetration pricing.
B. Is price skimming a viable alternative for most new products? Explain.
4) Verna’s makes all sales on account, subject to the following collection pattern: 20%
are collected in the month of sale; 70% are collected in the first month after sale; and
10% are collected in the second month after sale. If sales for October, November, and
December were $70,000, $60,000, and $50,000, respectively, what was the budgeted
receivables balance on December 31?
A.$40,000
B.$46,000
C.$49,000
D.$59,000
E.None of the other answers are correct
5) The provisions of sections 302 and 404 of the Sarbanes-Oxley Act (as originally
enacted) have proved especially troublesome for:
A.Small businesses
B.Private universities
C.Cities and municipalities
D.Healthcare providers
E.Individual taxpayers
6) Which of the following would not typically be classified as a discretionary fixed
cost?
A.Equipment depreciation
B.Employee development (education) programs
C.Advertising
D.Outlays for research and development
E.Charitable contributions
7) 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.
How much would Swanson’s pay if it made 5,500 copies?
A.$382.50
B.$322
C.$300
D.$292.50
E.None of the other answers is correct.
8) Martina, Inc. has two service departments (Human Resources and Building
Maintenance) and two production departments (Machining and Assembly). The
company allocates Building Maintenance cost on the basis of square footage and
believes that Building Maintenance provides more service than Human Resources. The
square footage occupied by each department follows.
Assuming use of the step-down method, over how many square feet would the Building
Maintenance cost be allocated (i.e., spread)?
A.19,000
B.44,000
C.50,000
D.63,000
E.More information is needed to judge
9) Booster, Inc. recently conducted a least-squares regression analysis to predict selling
expenses. The company has constructed the following regression equation: Y = 329,000
+ 7.80X. Which of the following statements is false if the primary cost driver is number
of units sold?
A.The company anticipates $329,000 of fixed selling expenses
B.”Y” represents total selling expenses
C.The company expects both variable and fixed selling expenses
D.For each unit sold, total selling expenses will increase by $7.80
E.”X” represents the number of hours worked during the period
10) Throughout the accounting period, the credit side of the Manufacturing Overhead
account is used to accumulate:
A.actual manufacturing overhead costs
B.overhead applied to Work-in-Process Inventory
C.overapplied overhead
D.underapplied overhead
E.predetermined overhead
11) Tiffany charges manufacturing overhead to products by using a predetermined
application rate, computed on the basis of labor hours. The following data pertain to the
current year:
Which of the following choices is the correct status of manufacturing overhead at
year-end?
A.Overapplied by $10,000
B.Underapplied by $10,000
C.Overapplied by $35,000
D.Underapplied by $35,000
E.Overapplied by $45,000
12) 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
13) The final step in recognizing the completion of production requires a company to:
A.debit Finished-Goods Inventory and credit Work-in-Process Inventory
B.debit Work-in-Process Inventory and credit Finished-Goods Inventory
C.add direct labor to Work-in-Process Inventory
D.add direct materials, direct labor, and manufacturing overhead to Work-in-Process
Inventory
E.add direct materials to Finished-Goods Inventory
14) DiAngelo Products uses a standard costing system to assist in the evaluation of
operations. The company has had considerable employee difficulties in recent months,
so much so that management has hired a new production supervisor (Joe Simms).
Simms has been on the job for six months and has seemingly brought order to an
otherwise chaotic situation.
The vice-president of manufacturing recently commented that ” Simms has really done
the trick. Joe’s team-building/morale-boosting exercises have truly brought things under
control.” The vice-president’s comments were based on both a plant tour, where he
observed a contented work force, and review of a performance report that showed a
total labor variance of $14,000F. This variance is truly outstanding, given that it is less
than 2% of the company’s budgeted labor cost. Additional data follow.
Total completed production amounted to 20,000 units.
A review of the firm’s standard cost records found that each completed unit requires
2.75 hours of labor at $14 per hour. DiAngelo’s production actually required 42,000
labor hours at a total cost of $756,000.
Required:
A. As judged by the information contained in the performance report, should the
vice-president be concerned about the company’s labor variances? Why?
B. Calculate DiAngelo’s direct-labor variances.
C. On the basis of your answers to requirement “B,” should DiAngelo be concerned
about its labor situation? Why?
D. Briefly analyze and explain the direct-labor variances.
15) The following data relate to the Lisle Company for May and August of the current
year:
May and August were the lowest and highest activity levels, and Lisle uses the high-low
method to analyze cost behavior. If maintenance hours are estimated to be 26,000 hours
in October, which of the following statements is true?
A.The variable maintenance cost is $18 per hour
B.The variable maintenance cost is $22 per hour
C.The variable maintenance cost is $24 per hour
D.The fixed maintenance cost is $72,000 per month
E.More than one of the other answers is true
16) Consider the following statements about the total-cost and the incremental-cost
approaches of investment evaluation:
I. Both approaches will yield the same conclusions.
II. Choosing between these approaches is a matter of personal preference.
III. The incremental approach focuses on cost differences between alternatives.
Which of the above statements is (are) true?
A.I only
B.II only
C.III only
D.II and III
E.I, II, and III
17) Total costs are $180,000 when 10,000 units are produced; of this amount, variable
costs are $64,000. What are the total costs when 13,000 units are produced?
A.$199,200
B.$214,800
C.$234,000
D.None of the other answers are correct
E.Total costs cannot be calculated based on the information presented
18) A computer manufacturer recently shipped several laptops to a customer (cost:
$25,000) and billed the customer $30,000. Which of the following options correctly
expresses the accounts that are debited and credited to record this transaction?
A.Debits: Accounts Receivable, Finished-Goods Inventory; credits: Sales Revenue,
Cost of Goods Sold
B.Debits: Accounts Receivable, Cost of Goods Sold; credits: Sales Revenue,
Finished-Goods Inventory
C.Debits: Sales Revenue, Cost of Goods Sold; credits: Accounts Receivable,
Finished-Goods Inventory
D.Debits: Sales Revenue, Finished-Goods Inventory; credits: Accounts Receivable,
Cost of Goods Sold
E.Debits: Accounts Receivable; credits: Finished-Goods Inventory, Profit on Sale
19) Calamari Manufacturing produces small electric engines. Identify the following
costs as direct materials (DM), direct labor (DL), manufacturing overhead (MOH), or a
period cost (PC). Also indicate whether the cost is variable (V) or fixed (F) with respect
to behavior.
A. Commissions paid to salespeople
B. Straight-line depreciation on the factory building
C. Salary of the plant supervisor
D. Wages of the assembly-line workers
E. Machine lubricant used in production activities
F. Engine casings used in production activities
G. Advertising placed in trade journals
H. Lease payments for the president’s automobile
I. Property taxes paid on the factory facilities
20) The cost of resources supplied but unused is known as:
A.practical capacity costs
B.the cost of theoretical capacity
C.the cost of unused capacity
D.the cost of resources supplied
E.capacity cost
21) Under- or overapplied manufacturing overhead at year-end is most commonly:
A.charged or credited to Work-in-Process Inventory
B.charged or credited to Cost of Goods Sold
C.charged or credited to a special loss account
D.prorated among Work-in-Process Inventory, Finished-Goods Inventory, and Cost of
Goods Sold
E.ignored because there is no effect on the Cash account
22) Indiana Company incurred the following costs during the past year when planned
production and actual production each totaled 20,000 units:
Indiana’s per-unit inventoriable cost under absorption costing is:
A.$9.50
B.$25.00
C.$28.00
D.$33.00
E.$40.50
23) Equivalent-unit calculations are necessary to allocate manufacturing costs between:
A.units completed and ending work in process
B.beginning work in process and units completed
C.units sold and ending work in process
D.cost of goods manufactured and beginning work in process
E.cost of goods manufactured and cost of goods sold
24) Tiffany charges manufacturing overhead to products by using a predetermined
application rate, computed on the basis of labor hours. The following data pertain to the
current year:
Which of the following choices is the correct status of manufacturing overhead at
year-end?
A.Overapplied by $10,000
B.Underapplied by $10,000
C.Overapplied by $35,000
D.Underapplied by $35,000
E.Overapplied by $45,000
25) If the volume sold reacts strongly to changes in price, demand:
A.has no elasticity
B.has negative elasticity
C.is inelastic
D.is elastic
E.is unrealistic
26) Feinstein, Inc., an appliance manufacturer, is developing a new line of ovens that
uses controlled-laser technology. The research and testing costs associated with the new
ovens is said to arise from a:
A.unit-level activity
B.batch-level activity
C.product-sustaining activity
D.facility-level activity
E.competitive-level activity
27) The relationship between cost and activity is known as:
A.cost estimation
B.cost prediction
C.cost behavior
D.cost analysis
E.cost approximation
28) Bronze Life Corporation (BLC) manufactures decorative, sculpted accessories that
are sold by interior decorators and home furnishing stores. The following situation
concerns two BLC employees: Deborah Philbun, head of the company’s Billing
Department, and Gary Bitner, the firm’s general manager.
Philbun’s Billing Department makes heavy use of hourly employees and is evaluated as
a cost center. Understanding the need for prompt collection of receivables, Philbun
strives to run a first-class operation. Philbun also understands the need to contribute in a
big way to BLC’s financial performance so she continually strives to minimize Billing
Department expenses.
Unfortunately, Philbun experienced a heated discussion with Bitner several weeks ago,
the subject being the shoddy operation that she is running. Bitner complained loudly
about the lack of timely billings to customers and the general lack of attention to detail,
as many complaints have surfaced about erroneous invoices and customer statements.
Required:
A. What is meant by the term “responsibility accounting?”
B. What measure(s) of performance would companies normally use to evaluate a
cost-center manager?
C. Does Bitner have a valid reason to be upset with Philbun? Given the nature of the
Billing Department, did Philbun err in her quest to minimize expenses? Explain.
D. Is it likely that the Billing Department could be evaluated as a profit center? Why?