1) Delicious Treats (DT) anticipated that 84,000 process hours would be worked during
an upcoming accounting period when, in fact, 92,000 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 budgeted dollar amount would appear in DT’s static budget and flexible budget
for the preceding cost function?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
2) Which of the following does not typically appear on an income statement prepared
by using a traditional format?
A.Cost of goods sold
B.Contribution margin
C.Gross margin
D.Selling expenses
E.Administrative expenses
3) At a volume of 20,000 units, Dries reported sales revenues of $1,000,000, variable
costs of $300,000, and fixed costs of $260,000. The company’s break-even point in
units is:
A.7,027 (rounded)
B.8,667 (rounded)
C.9,286 (rounded)
D.7,429 (rounded)
E.None of the other answers is correct
4) 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 August
would be budgeted at:
A.$187,125
B.$194,750
C.$197,107
D.$183,250
E.None of the other answers are correct
5) What type of cost exhibits the behavior shown below?
A.Variable cost
B.Fixed cost
C.Semivariable cost
D.Discretionary fixed cost
E.Step-fixed cost
6) When an organization involves its many employees in the budgeting process in a
meaningful way, the organization is said to be using an approach most commonly
known as:
A.budgetary slack
B.participative budgeting
C.budget padding
D.imposed budgeting
E.employee-based budgeting
7) Koski manufactures products J and K, applying overhead on the basis of labor hours.
J, a low-volume product, requires a variety of complex manufacturing procedures. K,
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 J and K as
a result of Koski’s current accounting procedures?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
8) Mercury Corporation allocates joint costs by using the net-realizable-value method.
In the company’s Michigan plant, products D and E emerge from a joint process that
costs $250,000. E is then processed at a cost of $220,000 into products F and G. Data
pertaining to D, F, and G follow.
Required:
A. Allocate the $220,000 processing cost between products F and G.
B. From a profitability perspective, should product E be processed into products F and
G? Show your calculations.
C. Assume that the net realizable value associated with E is zero. How would you
allocate the joint cost of $250,000?
9) Haskins Textile Co. manufactures a variety of fabrics. All materials are introduced at
the beginning of production; conversion cost is incurred evenly through manufacturing.
The Weaving Department had 2,000 units of work in process on April 1 that were 30%
complete as to conversion costs. During April, 9,000 units were completed and on April
30, 4,000 units remained in production, 40% complete with respect to conversion costs.
The equivalent units of direct materials for April total:
A.9,000
B.13,000
C.13,600
D.14,400
E.15,000
10) San Remo has a $4,000,000 asset investment and is subject to a 30% income tax
rate. Cash inflows are expected to average $600,000 before tax over the next few years;
in contrast, average income before tax is anticipated to be $500,000. The company’s
after-tax accounting rate of return is:
A.8.75%
B.10.50%
C.12.50%
D.15.00%
E.None of the other answers are correct
11) Mastel Company has a variable selling cost. If sales volume increases, how will the
total variable cost and the variable cost per unit behave?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
12) Madison produces bicycles in a highly competitive market. During the past year, the
company has added a 30% markup on the $250 manufacturing cost for one of its most
popular models. A new competitor manufactures a similar model, has established a
$300 selling price, and is seriously eroding Madison’s market share. Management now
desires to use a target-costing approach to remain competitive and is willing to accept a
20% return on sales. If target costing is used, which of the following choices correctly
denotes (1) the price that Madison will charge and (2) company’s target cost?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
13) Orville Knitters manufactures sweaters and uses an operation-costing system. All
sweaters are processed through Department no. 1, with subsequent processing taking
place in Department no. 2 or Department no. 3 depending on the type of fabric used.
Twenty thousand sweaters were produced during the year; there was no beginning or
ending work in process. Sixty percent of the goods were sent to Department no. 2 for
manufacturing.
Conversion cost incurred in the three departments totaled $504,000, subdivided as
follows: Department no. 1, $360,000; Department no. 2, $60,000; and Department no.
3, $84,000.
Data pertaining to two representative orders, nos. 545 and 567, were:
Required:
A. Explain the nature of operation costing.
B. Determine the cost of order nos. 545 and 567 .
14) Star Manufacturing, contemplating the adoption of an activity-based costing
system, has established three activity-cost pools: machine setup, quality assurance, and
engineering. These cost pools, the appropriate cost driver, and the percentage of each
cost driver consumed by the company’s products (H15, H16, and H17) follow.
Estimated costs for these three activities, which account for 80% of the firm’s total
overhead, are $400,000, $500,000, and $120,000, respectively. Star currently applies
manufacturing overhead to products on the basis of machine hours.
Required:
A. Will activity-based costing systems require more or fewer cost pools than traditional
costing systems? No explanation is necessary.
B. Calculate the cost of machine setup, quality assurance, and engineering to be charged
to product H17 .
C. Consider the company’s current overhead application procedure.
1> Is Star emphasizing unit-level activities, batch-level activities, product-sustaining
activities, or facility-level activities? Explain.
2> How accurate will the current costing procedure be given the nature of most of the
company’s activities? Briefly discuss.
3> How accurate will the current costing procedure be given the consumption ratios of
the firm? Briefly discuss.
15) 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 Fancy that Jamal
must sell to break even is:
A.2,000
B.3,000
C.3,375
D.5,000
E.5,625
16) Carter reported $106,000 of income for the year by using variable costing. The
company had no beginning inventory, planned and actual production of 50,000 units,
and sales of 47,000 units. Standard variable manufacturing costs were $15 per unit, and
total budgeted fixed manufacturing overhead was $150,000. If there were no variances,
income under absorption costing would be:
A.$52,000
B.$97,000
C.$106,000
D.$115,000
E.$160,000
17) A constraint function in a linear-programming problem might focus on:
A.sales dollars
B.labor hours
C.variable costs
D.fixed costs
E.qualitative factors
18) 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
19) Manufacturing overhead:
A.includes direct materials, indirect materials, indirect labor, and factory depreciation
B.is easily traced to jobs
C.includes all selling costs
D.should not be assigned to individual jobs because it bears no obvious relationship to
them
E.is a pool of indirect production costs that must somehow be attached to each unit
manufactured
20) When managers of subunits throughout an organization strive to achieve the goals
set by top management, the result is:
A.goal congruence
B.planning and control
C.responsibility accounting
D.delegation of decision making
E.strategic control
21) Activity-based budgeting:
A.begins with a forecast of products and services to be produced, and customers served
B.ends with a forecast of products and services to be produced, and customers served
C.parallels the flow of analysis that is associated with activity-based costing
D.reverses the flow of analysis that is associated with activity-based costing
E.None of the other answers are correct
22) 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
23) Which of the following inventories would a company ordinarily hold for sale?
A.Raw materials
B.Work in process
C.Finished goods
D.Raw materials and finished goods
E.Work in process and finished goods
24) Cosby uses a weighted-average process-costing system. All materials are added at
the beginning of the process; conversion costs are incurred evenly throughout
production. The company finished 40,000 units during the period and had 15,000 units
in progress at year-end, the latter at the 40% stage of completion. Total material costs
amounted to $220,000; conversion costs were $414,000.
The cost of goods completed is:
A.$312,000
B.$414,000
C.$520,000
D.$634,000
E.None of the answers is correct
25) Alexis Company recently completed 10,600 units of its single product, consuming
32,000 labor hours that cost the firm $480,000. According to manufacturing
specifications, each unit should have required 3 hours of labor time at $15.40 per hour.
On the basis of this information, determine Alexis’s labor rate variance and labor
efficiency variance.
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
26) Drake Manufacturing sells a number of goods whose selling price is heavily
influenced by cost. A recent study of product no. 520 revealed a traditionally-derived
total cost of $1,623 and a selling price of $1,850 based on that figure. A newly
computed activity-based total cost is $1,215. Which of the following statements is true?
A.All other things being equal, Drake should consider increasing its sales price
B.Drake should increase the product’s selling price to maintain the same markup
percentage
C.Product no. 520 could be labeled as being overcosted by Drake’s traditional costing
procedures
D.If product no. 520 is undercosted by traditional accounting procedures, then all of
Drake’s other products must be undercosted as well
E.Generally speaking, the activity-based cost figure is “less accurate” than the
traditionally-derived cost figure
27) Yorkley Corporation plans to sell 41,000 units of its single product in March. The
company has 2,800 units in its March 1 finished-goods inventory and anticipates having
2,400 completed units in inventory on March 31 . On the basis of this information, how
many units does Yorkley plan to produce during March?
A.40,600
B.41,400
C.43,800
D.46,200
E.None of the other answers are correct
28) Edmonco Company produced and sold 45,000 units of a single product last year,
with the following results:
If Edmonco’s sales revenues increase 15%, what will be the percentage increase in
income before income taxes?
A.15%
B.45%
C.60%
D.75%
E.None of the other answers is correct
29) When graphed, a typical variable cost appears as:
A.a horizontal line
B.a vertical line
C.a u-shaped line
D.a diagonal line that slopes downward to the right
E.a diagonal line that slopes upward to the right
30) Abbott has a standard variable overhead rate of $4.50 per machine hour, and each
unit produced has a standard time allowed of three hours. The company’s static budget
was based on 46,000 units. Actual results for the year follow.
Actual units produced: 42,000
Actual machine hours worked: 120,000
Actual variable overhead incurred: $520,000
Abbott’s variable-overhead efficiency variance is:
A.$20,000 favorable
B.$20,000 unfavorable
C.$27,000 favorable
D.$27,000 unfavorable
E.None of the other answers are correct
31) The break-even point is that level of activity where:
A.variable cost equals fixed cost
B.contribution margin equals fixed cost
C.total contribution margin equals the sum of variable cost plus fixed cost
D.sales revenue equals total variable cost
E.sales revenue equals fixed cost
32) Vanderhaus Corporation manufactures a variety of liquid lawn fertilizers, including
a very popular product called Lush ‘N Green. Data about Lush ‘N Green and Proctol, a
major ingredient, follow.
Expected operations:
Proctol is purchased in 55-gallon drums at a cost of $65 per drum. A 2% cash discount
is offered by Proctol’s manufacturer for prompt payment of invoices, and Vanderhaus
takes advantage of all discounts offered.
Vanderhaus normally purchases 200 drums of Proctol at a time, paying shipping fees of
$2,660 per shipment.
Each gallon of Lush ‘N Green requires three quarts of Proctol; however, because of
evaporation and spills, Vanderhaus loses 4% of all Proctol that enters production.
(Recall that there are four quarts in a gallon.)
Actual operations:
For the period just ended, Vanderhaus purchased 1,500 drums of Proctol at a total cost
of $118,100, which reflects discounts and shipping. There was no beginning inventory,
but an end-of-period inventory revealed that 30 drums were still on hand.
Manufacturing activity output totaled 104,000 gallons of Lush ‘N Green.
Assume that the company computes variances at the earliest point in time.
Required:
A. Compute the standard purchase price for one gallon of Proctol.
B. Compute the standard quantity of Proctol to be used in producing one gallon of Lush
‘N Green. Express your answer in quarts.
C. Compute the direct-material price variance for Proctol.
D. How much Proctol was used in manufacturing activity and how much should have
been used? Express your answer in quarts.
33) Capital budgeting tends to focus primarily on:
A.revenues
B.costs
C.cost centers
D.programs and projects
E.allocation tools
34)
Assume that the company computes variances at the earliest point in time.
The direct-material quantity variance is:
A.$750F
B.$750U
C.$6,500U
D.$7,250U
E.none of the other answers are correct
35) Atlanta Enterprises incurred $828,000 of fixed overhead during the period. During
that same period, the company applied $845,000 of fixed overhead to production and
reported an unfavorable budget variance of $41,000. How much was Atlanta’s budgeted
fixed overhead?
A.$787,000
B.$804,000
C.$869,000
D.$886,000
E.Not enough information to judge