1) Which of the following is not an issue in the collection of data for cost estimation?
A.Outliers
B.Missing data
C.Mismatched time periods
D.Inflation
E.All of the other answers are issues in data collection
2) Around Town, Inc. operates a small package delivery service in the Columbus
suburbs. If the company uses a regression equation to forecast total operating costs, the
equation’s intercept would correspond to the:
A.variable operating cost per delivery
B.fixed operating costs
C.number of deliveries
D.total variable operating costs
E.total operating costs
3) In order for a company to achieve a sustainable competitive advantage, it must:
A.perform one or more activities in the value chain at the same quality level as its
competitors
B.perform all activities in the value chain at the same quality level as its competitors
C.perform its value chain activities at a higher quality level than one of its competitors
D.two of the answers are correct
4) The Gingham Company’s budgeted income statement reflects the following amounts:
Sales are collected 50% in the month of sale, 30% in the month following sale, and
19% in the second month following sale. One percent of sales is uncollectible and
expensed at the end of the year.
Gingham pays for all purchases in the month following purchase and takes advantage of
a 3% discount. The following balances are as of January 1:
*Of this balance, $35,000 will be collected in January and the remaining amount will be
collected in February.
The monthly expense figures include $5,000 of depreciation. The expenses are paid in
the month incurred.
Gingham’s expected cash balance at the end of January is:
A.$87,000
B.$89,160
C.$92,000
D.$94,160
E.$113,160
5) Swamp Fox has the following sales forecasts for its hip waders next year:
What is Swamp Fox’s estimated sales revenue for next year if each pair sells for an
average of $30?
A.$1,149,000
B.$1,200,000
C.$1,220,550
D.$1,244,550
E.None of the other answers are correct
6) Southern Lake Chemical manufactures a product called Zubek. Direct materials are
added at the beginning of the process, and conversion activity occurs uniformly
throughout production. The beginning work-in-process inventory is 60% complete with
respect to conversion; the ending work-in-process inventory is 20% complete. The
following data pertain to May:
Using the weighted-average method of process costing, the equivalent units of direct
materials total:
A.68,000
B.69,400
C.74,000
D.75,000
E.None of the answers is correct
7) The Hearts and Hands Clinic has two service departments (Human Resources and
Information Systems) and two “production” departments (In-patient Treatment and
Out-patient Treatment). The service departments service the “production” departments
as well as each other, and studies have shown that Information Systems provides the
greater amount of service. Which of the following allocations would not occur if Hearts
uses the step-down method of cost allocation?
A.Information Systems cost would be allocated to Human Resources
B.Human Resources cost would be allocated to Information Systems
C.Human Resources cost would be allocated to In-patient Treatment
D.In-patient Treatment cost would be allocated to Out-patient Treatment
E.Both Human Resources cost would be allocated to Information Systems and
In-patient Treatment cost would be allocated to Out-patient Treatment
8) Wel-care Corporation operates a small medical lab in Nebraska that conducts minor
medical procedures (including blood tests and x-rays) for a number of doctors. The lab
consumes various medical supplies and is staffed by two technicians, both of whom are
paid a monthly salary. In addition, there is an on-site office manager who is also paid by
the month.
Required:
A. If the lab’s patient count increases by 15%, will the lab’s total operating costs
increase by 15%? Explain.
B. Wel-care is considering opening an additional lab in a new suburban medical
building. What will likely happen to the lab’s level of fixed cost incurrence? Why?
C. What analysis methods would be available to the office manager and/or Wel-care
management if a close look at the lab’s cost behavior is desired?
9) The accounting records of Bronco Company revealed the following information:
Bronco’s cost of goods manufactured is:
A.$519,000
B.$522,000
C.$568,000
D.$571,000
E.None of the other answers are correct
10) Hot Stuff operates a delivery service for local restaurants, delivering call-in, to-go
meals for restaurant customers. Variable overhead costs are applied at the budgeted rate
of $3 per driving hour. The typical roundtrip takes a driver 45 minutes to complete.
Actual results for March follow.
Number of roundtrips run: 1,560
Hours of delivery time: 1,250
Variable overhead cost incurred: $3,450
Hot Stuff uses flexible budgets and variance analysis to monitor performance.
Required:
A. Prepare a flexible-budget performance report that shows (1) actual variable
overhead, (2) the amount of variable overhead that should have been incurred for the
number of roundtrips taken, and (3) the variance between these amounts.
B. Compute the company’s variable-overhead spending and efficiency variances.
C. Compare the variances that you computed in requirements “A” and “B,” and
comment on your findings.
11) Renato, Inc. has centralized much of its specialized data processing operation, with
the Computer Department performing services for Departments A and B. Service hours
consumed during quarter no. 1 and quarter no. 2 follow.
Computer Department operating costs were:
Company policy currently requires that total variable and fixed costs be combined and
allocated as a lump-sum to users based on service hours.
Renato has been financially healthy for a number of years but began to experience
problems toward the end of quarter no. 1 . In response to these problems, management
issued a directive to closely monitor costs and computer usage, effective with the start
of quarter no. 2 .
Required:
A. Compute quarter no. 1’s total computer cost and determine the allocation to
Department A and Department B.
B. How much cost would be allocated to Departments A and B during quarter no. 2, and
how would the heads of these departments likely react to the allocations in light of
management’s directive?
C. Assume that at the beginning of quarter no. 2, the company switched to dual-cost
allocations, with variable costs allocated based on current usage and fixed costs
allocated based on long-run average utilization. An analysis of projected usage found
that work for Department A was expected to consume 55% of the Computer
Department’s time over the forthcoming year. How much cost would be allocated to A
and B in quarter no. 2?
D. Given the use of dual allocations, how, if at all, would a short-term increase or
decrease in A’s current usage affect the quarterly cost allocation that is charged to
Department B?
12) Which of the following entities would not likely be a user of job-costing systems?
A.Custom-furniture manufacturers
B.Repair shops
C.Hospitals
D.Accounting firms
E.None of these, because all are likely users
13) Mohammed Products has determined that the number of machine hours worked
(MH) drives the amount of manufacturing overhead incurred (MOH). On the basis of
this relationship, a staff analyst has constructed the following regression equation:
MOH = 240,000 + 8MH
Which of the choices correctly depicts the nature of Mohammed’s variables?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
14) McArthur Corp., which began business at the start of the current year, had the
following data:
Planned and actual production: 40,000 units
Sales: 38,000 units at $15 per unit
Production costs:
Variable: $5 per unit
Fixed: $260,000
Selling and administrative costs:
Variable: $1 per unit
Fixed: $32,000
The contribution margin that the company would disclose on a variable-costing income
statement is:
A.$0
B.$120,000
C.$166,500
D.$342,000
E.None of the other answers are correct
15) In a manufacturing company, the cost of goods completed during the period would
include which of the following elements?
A.Raw materials used
B.Beginning finished goods inventory
C.Marketing costs
D.Depreciation of delivery trucks
E.All of the other answers are correct
16) Which of the following characteristics would best explain the use of probabilities
and expected values in a decision analysis?
A.Limited resources
B.Uncertainty
C.Inflation
D.Multiple products and services
E.Production bottlenecks
17) Taylor Enterprises purchased 56,000 pounds (cost = $420,000) of direct material to
be used in the manufacture of the company’s sole product. According the production
specifications, each completed unit requires five pounds of direct material at a standard
cost of $7.80 per pound. Direct materials consumed by the end of the period totaled
53,500 pounds in the manufacture of 10,900 finished units.
An examination of Taylor’s payroll records revealed that the company worked 22,000
labor hours (cost = $319,000) during the period, and specifications called for each
completed unit requiring two hours of labor at a standard cost of $14.80 per hour.
Assume that the company computes variances at the earliest point in time.
Taylor’s direct-material price variance was:
A.$16,050F
B.$16,050U
C.$16,800F
D.$16,800U
E.none of the other answers are correct
18) The following information was taken from the segmented income statement of
Restin, Inc., and the company’s three divisions:
In addition, the company incurred common fixed costs of $18,000.
Which of the following amounts should be used to evaluate whether Restin, Inc., should
continue to invest company resources in the Los Angeles division?
A.$4,000
B.$8,000
C.$10,000
D.$25,000
E.$90,000
19) Lester Corporation had 8,200 units of work in process on November 1 . During
November, 26,800 units were started and as of November 30, 7,900 units remained in
production. How many units were completed during November?
A.16,100
B.26,500
C.27,100
D.42,800
E.None of the other answers are correct
20) The salaries of a manufacturing plant’s management are said to arise from:
A.unit-level activities
B.batch-level activities
C.product-sustaining activities
D.facility-level activities
E.direct-cost activities
21) Consider the following statements about absorption- and variable-costing income:
I. Yearly income reported under absorption costing will differ from income reported
under variable costing if production and sales volumes differ.
II. In the long-run, total income reported under absorption costing will often be close to
that reported under variable costing.
III. Differences in income under absorption and variable costing can often be reconciled
by multiplying the change in inventory (in units) by the variable manufacturing
overhead cost per unit.
Which of the above statements is (are) true?
A.I only
B.II only
C.III only
D.I and II
E.II and III
22) Which of the following is least likely to be classified as a facility-level activity in an
activity-based costing system?
A.Plant maintenance
B.Property taxes
C.Machine processing cost
D.Plant depreciation
E.Plant management salaries
23) Maddox, a division of Stanley Enterprises, currently performs computer services for
various departments of the firm. One of the services has created a number of operating
problems, and management is exploring whether to outsource the service to a
consultant. Traceable variable and fixed operating costs total $80,000 and $25,000,
respectively, in addition to $18,000 of corporate administrative overhead allocated from
Stanley. If Maddox were to use the outside consultant, fixed operating costs would be
reduced by 70%. The irrelevant costs in Maddox’s outsourcing decision total:
A.$17,500
B.$18,000
C.$25,000
D.$25,500
E.None of the other answers are correct
24) Tidewater plans to sell 85,000 units of product no. 794 in May, and each of these
units requires three units of raw material. Pertinent data follow.
On the basis of the information presented, how many units of raw material should
Tidewater purchase for use in May production?
A.228,000
B.246,000
C.264,000
D.282,000
E.None of the other answers are correct
25) Kentucky Corporation uses a process-cost accounting system. The company adds
direct materials at the start of its production process; conversion cost, on the other hand,
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, 40%; conversion cost, 40%
B.Materials, 40%; conversion cost, 100%
C.Materials, 100%; conversion cost, 40%
D.Materials, 100%; conversion cost, 60%
E.Materials, 100%; conversion cost, 100%
26) Future value and present value are two key business tools.
Required:
Ignoring income taxes, answer the following independent questions:
A. Your best friend won the state lottery and has offered to give you $15,000 at the end
of eight years (after he has made his first million). You figure that if you had the money
now, you could invest it at a rate of 10% compound annually. What is the value today of
your friend’s future gift?
B. Suppose that you invest $11,000 today in an account that bears interest at the rate of
6% compounded annually. What will your investment grow to at the end of seven
years?
C. Suppose that your best friend won the state lottery and promised to give you $9,000
per year for five years. The first payment will be made at the end of 20×1. Using a 12%
annual compound discount rate, what is the value of these payments at the beginning of
20×1?
D. Suppose that you invest $2,000 at the end of each year for nine years in an
investment that provides a return of 8% compounded annually. What will be the value
of your investment at the end of nine years?
27) All other things being equal, which of the following would be most attractive to an
investor?
A.A cash outflow of $60,000 in six years
B.A cash outflow of $10,000 each year for the next six years
C.A cash outflow of $30,000 in year 1 and $30,000 in year 6
D.A cash outflow of $60,000 today
E.All of these would be equally attractive to an investor
28) Kei Products uses a predetermined overhead application rate of $18 per labor hour.
A review of the company’s accounting records revealed budgeted manufacturing
overhead for the period of $621,000, applied manufacturing overhead of $590,400, and
overapplied overhead of $11,900.
Required:
A. Determine Kei’s actual labor hours, budgeted labor hours, and actual manufacturing
overhead.
B. Present the necessary year-end journal entry to handle the overapplied overhead,
assuming that the firm allocates over- or underapplied overhead to Cost of Goods Sold.
29) Which of the following management tools is a key component of target costing?
A.Management simulation
B.Linear programming
C.Value engineering
D.Goal programming
E.Performance reporting systems