1) Pumpkin Enterprises began operations on January 1, 20×1, with all of its activities
conducted from a single facility. The company’s accountant concluded that the year’s
building depreciation should be allocated as follows: selling activities, 20%;
administrative activities, 35%; and manufacturing activities, 45%. If Pumpkin sold 60%
of 20×1 production during that year, what percentage of the depreciation would appear
(either directly or indirectly) on the 20×1 income statement?
A.27%
B.45%
C.55%
D.82%
E.100%
2) Raymon Company received $7,000 cash from the sale of a machine that had an
$11,000 book value. If the company is subject to a 30% income tax rate, the net cash
flow to use in a discounted-cash-flow analysis would be:
A.$2,100
B.$4,900
C.$5,800
D.$7,000
E.$8,200
3) Franz began business at the start of this year and had the following costs: variable
manufacturing cost per unit, $9; fixed manufacturing costs, $60,000; variable selling
and administrative costs per unit, $2; and fixed selling and administrative costs,
$220,000. The company sells its units for $45 each. Additional data follow.
There were no variances.
Income reported under absorption costing and variable costing is:
A.always the same
B.typically different
C.always higher under absorption costing
D.always higher under variable costing
E.always the same or higher under absorption costing
4) Haggins Corporation manufactures two chemicals (Flextra and Hydro) in a joint
process. Data from a recent month follow.
Direct materials used: $360,000
Direct labor: $150,000
Manufacturing overhead: $690,000
Manufacturing output:
Flextra: 40,000 gallons
Hydro: 120,000 gallons
Flextra sells for $15 per gallon and Hydro sells for $20 per gallon.
Required:
A. Compute the total joint costs to be allocated to Flextra and Hydro.
B. Compute the joint costs that would be allocated to Flextra by using the physical-units
method.
C. Compute the joint costs that would be allocated to Hydro by using the
relative-sales-value method.
D. Assume that Hydro can be converted into a more refined product, Hydro-R, in a
totally separable process at an additional cost of $4 per gallon. If the refined product
can be sold in the marketplace for $26 per gallon, compute the net realizable value of
Hydro-R.
5) When income taxes are considered in capital budgeting, the cash flows related to a
company’s advertising expense would be correctly figured by taking the cash paid for
advertising and:
A.adding the result of multiplying (advertising expense tax rate)
B.adding the tax rate
C.adding the result of multiplying [advertising expense (1 – tax rate)]
D.subtracting the result of multiplying (advertising expense tax rate)
E.subtracting the result of multiplying [advertising expense (1 – tax rate)]
6) Ribco Co. makes and sells only one product. The unit contribution margin is $6 and
the break-even point in unit sales is 24,000. The company’s fixed costs are:
A.$4,000
B.$14,400
C.$40,000
D.$144,000
E.None of the other answers is correct
7) Universal Manufacturing uses a weighted-average process-costing system. All
materials are introduced at the start of manufacturing, and conversion costs are incurred
evenly throughout the process. The company’s beginning and ending work-in-process
inventories totaled 10,000 units and 15,000 units, respectively, with the latter units
being 2/3 complete at the end of the period. Universal started 30,000 units into
production and completed 25,000 units. Manufacturing costs follow.
Beginning work in process: Materials, $60,000; conversion cost, $150,000
Current costs: Materials, $180,000; conversion cost, $480,000
Universal’s equivalent-unit cost for materials is:
A.$4.50
B.$6.00
C.$8.00
D.$9.60
E.None of the answers is correct
8) St. Joseph Hospital has been hit with a number of complaints about its food service
from patients, employees, and cafeteria customers. These complaints, coupled with a
very tight local labor market, have prompted the organization to contact Nationwide
Institutional Food Service (NIFS) about the possibility of an outsourcing arrangement.
The hospital’s business office has provided the following information for food service
for the year just ended: food costs, $890,000; labor, $85,000; variable overhead,
$35,000; allocated fixed overhead, $60,000; and cafeteria net income, $80,000.
Conversations with NIFS personnel revealed the following information:
NIFS will charge St. Joseph Hospital $14 per day for each patient served. Note: This
figure has been “marked up” by NIFS to reflect the firm’s cost of operating the hospital
cafeteria.
St. Joseph’s 250-bed facility operates throughout the year and typically has an average
occupancy rate of 70%.
Labor is the primary driver for variable overhead. If an outsourcing agreement is
reached, hospital labor costs will drop by 90%. NIFS plans to use St. Joseph facilities
for meal preparation.
Cafeteria net income is expected to increase by 15% because NIFS will offer an
improved menu selection.
Required:
A. What is meant by the term “outsourcing”?
B. Should St. Joseph outsource its food-service operation to NIFS?
C. What factors, other than dollars, should St. Joseph consider before making the final
decision?
9) Paul’s Auto Repair uses time and material pricing. The body shop, which anticipates
10,000 direct labor hours of activity, has the following data:
The time charge per hour is:
A.$19.50
B.$27.00
C.$29.00
D.$36.50
E.none of the other answers are correct
10) The following information relates to the Cliff Division of Mountain Enterprises:
Income for the period just ended: $1,500,000
Invested capital: $12,000,000
If the company has an imputed interest rate of 11%, Cliff’s residual income would be:
A.$165,000
B.$180,000
C.$187,500
D.some other dollar amount other than the ones given
E.a percentage greater than 11%
11) Wirefree, Inc. provides a variety of telecommunications services to residential and
commercial customers from its massive campus-like headquarters in suburban Orlando.
For a number of years the firm’s maintenance group has been organized as a cost center,
rendering services free of charge to the company’s user departments (sales, billing,
accounting, marketing, research, and so forth).
Requests for maintenance have grown considerably, and demand is approaching the
point where quality and timeliness of services provided are becoming an issue. As a
result, management is studying whether the maintenance operation should be converted
from a cost center to a profit center, with users to be billed for services performed.
Required:
A. Differentiate between a cost center and a profit center. How is each of these centers
evaluated?
B. What will likely happen to the number of user service requests if the company makes
the switch to a profit-center form of organization? Why?
C. Assume that a user department has requested a particular service, one that is time
consuming and costly to perform. The maintenance group’s actual cost incurred in
providing this service is $17,800, and the user has agreed to pay $20,800 if the switch
to a profit center is made. If this case is fairly typical within the firm, which of the two
forms of organization (cost center or profit center) will result in a more responsive,
service-oriented maintenance group for Wirefree? Why?
12) Which of the following choices correctly indicates the use of the standard price per
unit of direct material when calculating the materials price variance and the material
quantity variance?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
13) All of the following are inventoried under variable costing except:
A.direct materials
B.direct labor
C.variablemanufacturing overhead
D.fixed manufacturing overhead
E.variable manufacturing overhead and fixed manufacturing overhead
14) Cartwright Graphics uses a special purpose paper on 80% of its jobs. The paper is
purchased in 100-sheet packages at a cost of $100 per package. Management estimates
that the cost of placing and receiving a typical order is $15, and the annual cost of
carrying a package in inventory is $1.50. Cartwright uses 2,600 packages each year.
Production is constant, and the lead time to receive an order is 1 week.
The reorder point is:
A.25 packages
B.50 packages
C.100 packages
D.203 packages
E.225 packages
15) In order for a company to achieve a sustainable competitive advantage, it must
perform value chain activities:
A.at the same quality level as competitors, at the same cost
B.at the same quality level as competitors, but at a lower cost
C.at a higher quality level than competitors, at a higher cost
D.at a higher quality level than competitors, but at no greater cost
E.at the same quality level as competitors, but at a lower cost or at a higher quality level
than competitors, but at no greater cost
16) The rule for project acceptance under the internal rate of return method is that:
A.IRR should be greater than zero
B.IRR should be less than zero
C.IRR should be greater than the hurdle rate
D.IRR should be less than the hurdle rate
E.IRR should equal the hurdle rate
17) Which of the following would not be characterized as a cost object?
A.An automobile manufactured by General Motors
B.The New York Fire Department
C.A Burger King restaurant located in Cleveland, Ohio
D.A Delta Airlines flight from Atlanta to Miami
E.All of these are examples of cost objects
18) Which of the following entities would most likely have raw materials, work in
process, and finished goods?
A.Exxon Corporation
B.Macy’s Department Store
C.Wendy’s
D.Southwest Airlines
E.Columbia University
19) Which of the following methods accounts for 100% of the services that occur
between service departments?
A.Direct method
B.Indirect method
C.Reciprocal method
D.Step-down method
E.Dual-cost allocation method
20) Which of the following choices correctly states the rules for project acceptance
under the net-present-value method and the internal-rate-of-return method?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
21) Which of the following statements concerning the budget director is false?
A.The budget director is often an organization’s controller
B.The budget director has the responsibility of specifying the process by which budget
data will be gathered
C.The budget director collects information and participates in preparing the master
budget
D.The budget director communicates budget procedures and deadlines to employees
throughout an organization
E.The budget director usually has the authority to give final approval to the master
budget
22) 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
23) The tuition that will be paid next semester by a college student who pursues a
degree is a(n):
A.sunk cost
B.out-of-pocket cost
C.indirect cost
D.average cost
E.marginal cost
24) The City of Miami is about to replace an old fire truck with a new vehicle in an
effort to save maintenance and other operating costs. Which of the following items, all
related to the transaction, would not be considered in the decision?
A.Purchase price of the new vehicle
B.Purchase price of the old vehicle
C.Savings in operating costs as a result of the new vehicle
D.Proceeds from disposal of the old vehicle
E.Future depreciation on the new vehicle
25) Dancer Corporation, which uses a job-costing system, had two jobs in process at the
start of 20×1: job no. 59 ($95,000) and job no. 60 ($39,500). The following information
is available:
The company applies manufacturing overhead on the basis of machine hours. Budgeted
overhead and machine activity for the year were anticipated to be $720,000 and 20,000
hours, respectively.
The company worked on three jobs during the first quarter. Direct materials used, direct
labor incurred, and machine hours consumed were:
Manufacturing overhead during the first quarter included charges for depreciation
($20,000), indirect labor ($50,000), indirect materials used ($4,000), and other factory
costs ($108,700).
Dancer completed job no. 59 and job no. 60. Job no. 59 was sold for cash, producing a
gross profit of $24,600 for the firm.
Required:
A. Determine the company’s predetermined overhead application rate.
B. Prepare journal entries as of March 31 to record the following. (Note: Use summary
entries where appropriate by combining individual job data.)
1> The issuance of direct material to production, and the direct labor incurred.
2> The manufacturing overhead incurred during the quarter.
3> The application of manufacturing overhead to production.
4> The completion of job no. 59 and no. 60 .
5> The sale of job no. 59 .
