1) The revenue curve shows the relationship between the sales price and quantity sold.
2) Absorption costing is required for tax purposes.
3) Under- or overapplied manufacturing overhead at year-end is most commonly
charged or credited to Work-in-Process Inventory.
4) The difference between budgeted sales revenue and break-even sales revenue is the
operating leverage.
5) Electricity costs that were incurred by a company’s production processes should be
debited to Utilities Expense.
6) The budget variance arises from a comparison of actual variable overhead
expenditures with budgeted variable overhead costs.
7) Electricity costs that were incurred by a company’s production processes should be
debited to Utilities Expense.
8) The Gross Margin at Split-Off method should be selected if a company terminates all
processing at the split-off point and desires to use a cost-allocation approach that
considers the “revenue-producing ability” of each product.
9) Operation costing tends to parallel job-order costing with respect to the treatment of
conversion cost.
10) Indirect labor is not a component of manufacturing overhead.
11) If a proposal’s profitability index is greater than one then the net present value is
positive.
12) Variances are computed by taking the difference between which of the following?
A.Product cost and period cost
B.Actual cost and differential cost
C.Price factors and rate factors
D.Actual cost and standard cost
E.Product cost and standard cost
13) For external-reporting purposes, generally accepted accounting principles require
that net income be based on:
A.absorption costing
B.variable costing
C.direct costing
D.semivariable costing
E.activity-based costing
14) The activity measure selected for use in a variable- and fixed-overhead flexible
budget:
A.should be stated in sales dollars
B.should be approved by the company’s president
C.should vary in a similar behavior pattern to the way that variable overhead varies
D.should remain fixed
E.should produce the most attractive results for the individual who will use the budget
in managerial applications
15) What practice best describes when divisional managers throughout an organization
work together to achieve the organization’s goals?
A.Participatory management
B.Goal attainment
C.Goal congruence
D.Centralization of objectives
E.Negotiation by subordinates
16) The underlying difference between absorption costing and variable costing lies in
the treatment of:
A.direct labor
B.variable manufacturing overhead
C.fixed manufacturing overhead
D.variable selling and administrative expenses
E.fixed selling and administrative expenses
17) Kenyon Company produces two products (F56 and F57), applying manufacturing
overhead on the basis of direct labor hours. Anticipated unit production costs (material,
labor, and overhead) and manufacturing volumes are:
F56: 2,000 units, $234
F57: 3,500 units, $271
Kenyon’s overhead arises because of various activities, one of which is purchase-order
processing. Budgeted cost for this activity is expected to be $70,000. The firm believes
that the number of purchase orders processed is a key cost driver and expects the
following activity for its products: F56, 10 purchase orders; F57, 40 purchase orders.
Kenyon’s selling prices are based heavily on cost.
Required:
A. Activity-based costing (ABC) is said to result in improved costing accuracy when
compared with traditional costing procedures. Briefly explain how this improved
accuracy is attained.
B. Compute:
1> the pool rate for purchase-order processing.
2> the purchase-order processing cost to be charged to one unit of F56 .
C. Assume that Kenyon switched to activity-based costing and calculated total unit
production costs as follows: F56, $285; F57, $220.
1> Which of the two products, F56 or F57, was overcosted prior to the change to ABC?
No explanation is necessary.
2> Which of the two products, F56 or F57, may have been less competitive in the
marketplace prior to the change to ABC? Briefly explain.
18) Benson Company, which uses a standard cost system, budgeted $600,000 of fixed
overhead when 40,000 machine hours were anticipated. Other data for the period were:
Actual units produced: 10,000
Standard production time per unit: 3.9 machine hours
Fixed overhead incurred: $620,000
Actual machine hours worked: 42,000
Benson’s fixed-overhead volume variance is:
A.$10,000 favorable
B.$15,000 favorable
C.$15,000 unfavorable
D.$20,000 favorable
E.$20,000 unfavorable
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:
Using the high-low method, the utilities cost associated with 980 machine hours would
be:
A.$9,510
B.$9,660
C.$9,700
D.$9,790
E.None of the other answers is correct
20) 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. 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
21) Dana, Inc. recently completed 56,000 units of a product that was expected to
consume four pounds of direct material per finished unit. The standard price of the
direct material was $8.50 per pound. If the firm purchased and consumed 228,000
pounds in manufacturing (cost = $1,881,000), the direct-material quantity variance
would be figured as:
A.$34,000U
B.$34,000F
C.$57,000U
D.$57,000F
E.none of the other answers are correct
22) Job no. C12 was completed in November at a cost of $28,500, subdivided as
follows: direct material, $13,500; direct labor, $6,000; and manufacturing overhead,
$9,000. The journal entry to record the completion of the job is:
A.
B.
C.
D.
E.
23) Jaycee Manufacturing, which produces electrical components, is contemplating
submitting a bid for 30,000 units of item no. 54 . The bid’s cost will be follows:
The special device will be purchased for this job and once the job is completed, the
device will be discarded.
Jaycee applies total manufacturing overhead of $5 to each unit (0.5 machine hours at
$10 per hour). This figure is based, in part, on budgeted yearly fixed overhead of
$1,440,000 and an anticipated volume of 480,000 machine hours (40,000 per month).
Jaycee is presently working at 85% of capacity, and the client needs the order in two
months.
Required:
A. Is Jaycee’s current operating environment one of excess capacity or no excess
capacity? Briefly explain.
B. If Jaycee had excess capacity, what would be the lowest cost total that the company
should use when figuring its bid for the order?
C. Can Jaycee produce this order in the required time frame of two months? Explain.
D. Suppose that Jaycee is in marginal financial health. Explain the benefits and
problems of approaching the bidding procedure with (1) a low bid or (2) a high bid.
24) The underlying difference between absorption costing and variable costing lies in
the treatment of:
A.direct labor
B.variable manufacturing overhead
C.fixed manufacturing overhead
D.variable selling and administrative expenses
E.fixed selling and administrative expenses
25) Laredo manufactures Nuts and Bolts from a joint process (cost = $80,000). Five
thousand pounds of Nuts can be sold at split-off for $20 per pound; ten thousand
pounds of Bolts can be sold at split-off for $15 per pound. For product costing purposes
Laredo allocates joint costs using the relative sales value method.
The amount of joint cost allocated to Nuts and Bolts, respectively, would be:
A.$32,000 and $40,000
B.$32,000 and $48,000
C.$48,000 and $32,000
D.$40,000 and $32,000
E.$40,000 and $40,000
26) Jaergin manufactures two products: A and B. The company predicts a sales volume
of 10,000 units for product A and ending finished-goods inventory of 2,000 units. These
numbers for product B are 12,000 and 3,000, respectively. Jaergin currently has 7,000
units of A in inventory and 9,000 units of B.
The following raw materials are required to manufacture these products:
Product A requires three hours of cutting time and two hours of finishing time; B
requires one hour and three hours, respectively. The direct labor rate for cutting is $10
per hour and $18 per hour for finishing.
Required:
A. Prepare a production budget in units for products A and B.
B. Prepare a materials usage budget in pounds and dollars for materials X, Y, and Z.
C. Prepare a direct labor budget in hours and dollars for product A.
27) A review of the records of Pilgrim, Inc., a new company, disclosed the following
year-end information:
Manufacturing Overhead account: Contained debits of $872,000, which included
$20,000 of sales commissions.
Work-in-Process Inventory account: Contained charges for overhead of $875,000.
Cost-of-Goods-Sold account: Contained a year-end debit balance of $3,680,000. This
amount was computed prior to any year-end adjustment for under- or overapplied
overhead.
Pilgrim applies manufacturing overhead to production by using a predetermined rate of
$20 per machine hour. Budgeted overhead for the period was anticipated to be
$900,000.
Required:
A. Determine the actual manufacturing overhead for the year.
B. Determine the amount of manufacturing overhead applied to production.
C. Is overhead under- or overapplied? By how much?
D. Compute the adjusted cost-of-goods-sold figure that should be disclosed on the
company’s income statement.
E. How many machine hours did Pilgrim actually work during the year?
F. Compute budgeted machine hours for the year.
28) If the total cost of alternative A is $50,000 and the total cost of alternative B is
$34,000, then $16,000 is termed the:
A.opportunity cost
B.average cost
C.sunk cost
D.out-of-pocket cost
E.differential cost
29) Most of the Sarbanes-Oxley Act relates primarily to:
A.Corporate governance
B.Financial accounting
C.Auditing
D.Court-invoked penalties for violating the law
E.All of the other answers are correct
30) Hazeldine Company plans to incur $230,000 of additional cash operating expenses
and produce $410,000 of additional sales revenue if a capital project is implemented.
Assuming a 30% tax rate, these two items collectively should appear in a capital
budgeting analysis as:
A.a $57,000 inflow
B.a $57,000 outflow
C.a $126,000 outflow
D.a $126,000 inflow
E.a $161,000 outflow
31) Pederson Company has two service departments (Cafeteria and Human Resources)
and two production departments (Machining and Assembly). The number of employees
in each department follows.
Pederson uses the direct method of cost allocation and allocates cost on the basis of
employees. If Human Resources cost amounts to $1,800,000, how much of the
department’s cost would be allocated to Machining?
A.$600,000
B.$720,000
C.$900,000
D.$1,200,000
E.None of the other answers are correct
32) Tesla Corporation, which adds materials at the beginning of production, uses a
weighted-average process-costing system. Consider the data that follow.
The company’s cost per equivalent unit for materials is:
A.$1.24
B.$1.66
C.$1.67
D.$2.05
E.None of the answers is correct
33) Hamilton, which uses a process-costing system, had a balance in its
Work-in-Process account of $68,000 on January 1 . The account was charged with
direct materials, direct labor, and manufacturing overhead of $450,000 throughout the
year. If a review of the accounting records determined that $86,000 of goods were still
in production at year-end, Hamilton should make a journal entry on December 31 that
includes:
A.a debit to Cost of Goods Sold for $432,000
B.a credit to Finished-Goods Inventory for $432,000
C.a credit to Work-in-Process Inventory for $432,000
D.a debit to Finished-Goods Inventory for $86,000
E.a credit to Work-in-Process Inventory for $86,000
34) Kendra Corporation uses a process-cost accounting system. The company adds
direct materials and direct labor at the start of its production process; overhead cost is
incurred evenly throughout manufacturing. The firm has no beginning work-in-process
inventory; its ending work in process is 40% complete. Which of the following sets of
percentages would be used to calculate the correct number of equivalent units in the
ending work-in-process inventory?
A.Materials, 100%; labor, 100%; overhead cost, 40%
B.Materials, 100%; labor, 100%; overhead cost, 100%
C.Materials, 100%; labor 40%; overhead cost, 40%
D.Materials, 40%; labor, 40%; overhead cost, 60%
E.Materials, 40%; labor, 40%; overhead cost, 100%
35) Smythe Manufacturing has 27,000 labor hours available for producing X and Y.
Consider the following information:
If Smythe follows proper managerial accounting practices, how many units of Product
X should it produce?
A.5,000
B.1,500
C.8,000
D.4,500
E.6,000
36) When deciding whether to sell a product at the split-off point or process it further,
joint costs are not usually relevant because:
A.such amounts do not help to increase sales revenue
B.such amounts only slightly increase a company’s sales margin
C.such amounts are sunk and do not change with the decision
D.the sales revenue does not decrease to the extent that it should, if compared with
separable processing
E.such amounts reflect opportunity costs
37) Division A transfers item no. 78 to Division B. Consider the following situations:
1A is located in Texas and B is located in California.
2A is located in Texas and B is located in Mexico.
Assuming that item no. 78 is unavailable in the open market, which of the following
choices correctly depicts the probable importance of federal income taxes when
determining the transfer price that is established for item no. 78?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
38) Cohlsen Corporation has a favorable materials quantity variance. Which department
would likely be asked to explain the cause of this variance?
A.Engineering
B.Purchasing
C.Production
D.Marketing
E.None, because the variance is favorable
39) Grime-X is studying the profitability of a change in operation and has gathered the
following information:
Should Grime-X make the change?
A.Yes, the company will be better off by $6,000
B.No, because sales will drop by 3,000 units
C.No, because the company will be worse off by $4,000
D.No, because the company will be worse off by $22,000
E.It is impossible to judge because additional information is needed
40) James Corporation, headquartered in Chicago, has a manufacturing plant in Dallas.
Plant managers desire to participate in the company’s budget efforts, which, for the past
10 years, have been handled solely by top executives in Chicago. Dallas managers feel
that by becoming involved, they can make great strides in terms of improving operating
performance of their aging facility.
Required:
Briefly discuss this situation, focusing on the benefits and problems of letting Dallas
managers participate in the company’s budgetary efforts.
41) Define the term “cost driver” and discuss the factors that are important in the
selection of appropriate cost drivers.
42) Differentiate between committed costs and discretionary costs. Be sure to present
two examples of each and explain which of the two cost types would likely be cut
should a company encounter financial difficulties.
43) Upstart, Inc. manufactures a product that has the following standard costs:
The following information pertains to July:
Direct material purchased: 42,500 yards at $2.78 per yard, or $118,150
Direct material used: 36,000 yards
Direct labor: 7,500 hours at $18.30 per hour, or $137,250
Actual completed production: 1,050 units
Assume that the company computes variances at the earliest point in time.
Required:
Calculate the direct-material price and quantity variances, and the direct-labor rate and
efficiency variances. Indicate whether each variance is favorable or unfavorable.
44) Consider the nine activities that follow.
1> Microsoft: Developing computer coding for a new spreadsheet package.
2> General Mills: Painting the office of a maintenance supervisor at a plant that
produces cereal.
3> Mayo Clinic: Examining a new patient.
4> American Airlines: The 90 minutes that a Boeing 757 sits idle on the ground
between flights.
5> Office Depot: Moving cases of paper from one location to another in the same
warehouse.
6> Rolex: Attaching a watch band to the watch’s face.
7> United States Postal Service: Reprocessing mail that had been sorted incorrectly on
a malfunctioning sorting machine.
8> Fidelity Investments: Correcting errors made by company personnel in customer
accounts.
9> Marriott: Upgrading the quality of bedding used at hotels in very competitive
marketplaces.
Required:
Categorize each of the activities as either value-added or non-value-added for the
companies noted.
45) 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.
46) 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.
47) Briefly describe the procedures that are used to apply manufacturing overhead to
production for companies that use (1) normal costing systems and (2) those that use
standard costing systems.
48) Goldstone Company is studying the impact of the following:
1> An increase in sales price on the break-even point.
2> A decrease in fixed costs on the contribution margin.
3> An increase in the contribution margin on the break-even point.
4> A decrease in the variable cost per unit on the sales volume needed to achieve
Goldstone’s $68,000 target profit.
5> An increase in sales commissions on the contribution margin and the break-even
point.
6> A decrease in anticipated advertising outlays on fixed cost and the break-even point.
Required:
Determine the impact of these operating changes (increase, decrease, no effect) on the
item(s) noted.