1) Wooster has the following budgeted costs at its anticipated production level
(expressed in hours): variable overhead, $165,000; fixed overhead, $250,000. If
Wooster now revises its anticipated production slightly upward, it would expect:
A.total fixed overhead of $250,000 and a lower hourly rate for variable overhead
B.total fixed overhead of $250,000 and the same hourly rate for variable overhead
C.total fixed overhead of $250,000 and a higher hourly rate for variable overhead
D.total variable overhead of less than $165,000 and a lower hourly rate for variable
overhead
E.total variable overhead of less than $165,000 and a higher hourly rate for variable
overhead
2) Sonoma Corporation is a multi-divisional company whose managers have been
delegated full profit responsibility and complete autonomy to accept or reject transfers
from other divisions. Division X produces 2,000 units of a subassembly that has a ready
market. One of these subassemblies is currently used by Division Y for each final
product manufactured, the latter of which is sold to outsiders for $1,600. Y’s sales
during the current period amounted to 2,000 completed units. Division X charges
Division Y the $1,100 market price for the subassembly; Division Y has additional
variable costs of $600 per unit. Variable costs for Division X are $850 per unit.
The manager of Division Y feels that X should transfer the subassembly at a lower price
because Y is currently unable to make a profit.
Required:
A. Calculate the contribution margins (total dollars and per unit) of Divisions X and Y,
as well as the company as a whole, if transfers are made at market price.
B. Assume that conditions have changed and X can sell only 1,000 units in the market
at $900 per unit. From the company’s perspective, should X transfer all 2,000 units to Y
or sell 1,000 in the market and transfer the remainder? Note: Y’s sales would decrease
to 1,000 units if the latter alternative is pursued.
3) The following data relate to Ventura Company, a new corporation, during a period
when the firm produced and sold 100,000 units and 90,000 units, respectively:
The company met its original planned production target of 100,000 units. There were
no variances during the period, and the firm’s selling price is $15 per unit.
Required:
A. What is the cost of Ventura’s end-of-period finished-goods inventory under the
variable-costing method?
B. Calculate the company’s variable-costing income.
C. Calculate the company’s absorption-costing income.
4) Which of the following is a predetermined estimated cost that can be used in the
calculation of a variance?
A.Product cost
B.Actual cost
C.Standard cost
D.Differential cost
E.Marginal cost
5) If a company has an unfavorable direct-material quantity variance, then:
A.the direct-material price variance is favorable
B.the total direct-material variance is unfavorable
C.the total direct-material variance is favorable
D.the direct-labor efficiency variance is unfavorable
E.any of the other answers can occur
6) A technique that is useful in exploring what would happen if a key decision
prediction or assumption proved wrong is termed:
A.sensitivity analysis
B.uncertainty analysis
C.project analysis
D.linear programming
E.the theory of constraints
7) 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
8) Wrikeman evaluates future projects by using the profitability index. The company is
currently reviewing five similar projects and must choose one of the following:
Which project should Wrikeman select if the decision is based entirely on the
profitability index?
A.Project 1
B.Project 2
C.Project 3
D.Project 4
E.Project 5
9) 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 economic order quantity is approximately:
A.203 packages
B.225 packages
C.228 packages
D.565 packages
E.631 packages
10) St. James, Inc., currently uses traditional costing procedures, applying $800,000 of
overhead to products Beta and Zeta on the basis of direct labor hours. The company is
considering a shift to activity-based costing and the creation of individual cost pools
that will use direct labor hours (DLH), production setups (SU), and number of parts
components (PC) as cost drivers. Data on the cost pools and respective driver volumes
follow.
The overhead cost allocated to Zeta by using activity-based costing procedures would
be:
A.$240,000
B.$356,000
C.$444,000
D.$560,000
E.None of the other answers is correct
11) Inventory holding costs would typically include all of the following except:
A.insurance
B.theft
C.transportation
D.obsolescence
E.warehouse rent
12) Suppose that one hog yields 250 pounds of ham, 200 pounds of chops, and 50
pounds of miscellaneous items. The sales value of ham is $1.80 per pound; chops, $2.50
per pound; and miscellaneous items, $1.00 per pound. The hog costs $670, and
processing costs are $30.
Required:
A. Determine the proper allocation of joint costs to the three products by using the
physical-units method.
B. Repeat part “B” by using the relative-sales-value method.
13) Homestead Corporation sells a line of power tools to home improvement chains,
generating a cost of goods sold equal to 70% of net sales. The selected data that follow
relate to the period just ended for the company’s three largest customers: Weekend
Project, Tool Mart, and Fix-It City.
Homestead’s management recently attended a seminar and learned that customers with
excessive requests and demands can have a significant, negative impact on corporate
profitability.
Required:
A. For each of the three chains, compute:
1> Total customer-related costs as a percentage of gross margin.
2> The average order size (ignoring sales returns).
3> The ratio of regular orders to rush orders.
4> The number of sales returns as a percentage of the number of total orders.
B. Prepare a brief summary of your findings. Should Homestead work with any of the
chains in an effort to improve results? Explain.
14) Depreciation of factory equipment would be classified as:
A.operating cost
B.”other” cost
C.manufacturing overhead
D.period cost
E.administrative cost
15) Burgoon uses an economic order quantity model and has determined an optimal
order size of 500 units. Annual demand is 10,000 units, ordering costs are $50 per order,
and holding costs are $4 per unit. The company’s annual ordering and holding costs
total:
A.$2,000
B.$3,000
C.$21,000
D.$41,000
E.none of the other answers are correct
16) Factory Oak produces various wooden bookcases, tables, storage units, and chairs.
Which of the following would be included in a listing of the company’s
non-value-added activities?
A.Assembly of tables
B.Staining of storage units
C.Transfer of chairs from the assembly line to the staining facility
D.Storage of completed bookcases in inventory
E.Transfer of chairs from the assembly line to the staining facility and storage of
completed bookcases in inventory
17) A manufacturing firm would begin preparation of its master budget by constructing
a:
A.sales budget
B.production budget
C.cash budget
D.capital budget
E.set of pro-forma financial statements
18) Song, a division of Carolina Enterprises, currently makes 100,000 units of a product
that has created a number of manufacturing problems. Song’s costs follow.
If Song were to discontinue production, fixed manufacturing costs would be reduced by
70%. The relevant cost of deciding whether the division should purchase the product
from an outside supplier is:
A.$540,000
B.$594,000
C.$666,000
D.$720,000
E.$726,000
19) 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
20) Norton Company has a 12% compound annual interest rate. If the firm invests
$60,000 today, how much will have accumulated by the end of eight years?
A.$117,600
B.$148,560
C.$298,080
D.$738,000
E.None of the other answers are correct
21) Two months ago, Victory Corporation purchased 4,500 pounds of Hydrol, paying
$15,300. The demand for this product has been very strong since the acquisition, with
the market price jumping to $4.05 per pound. (Victory can buy or sell Hydrol at this
price.) The company recently received a special-order inquiry, one that would require
the use of 4,200 pounds of Hydrol. Which of the following is (are) relevant in deciding
whether to accept the special order?
A.The 300-pound remaining inventory of Hydrol
B.The $4.05 market price
C.The $3.40 purchase price
D.4,500 pounds of Hydrol
E.Two or more of the other factors are relevant
22) Reynardo Company incurred $90,000 of depreciation for the year. Eighty percent
relates to the firm’s production facilities, and 20% relates to sales and administrative
offices. If all items are handled in the proper manner, a review of the company’s
accounting records should reveal a:
A.debit to Depreciation Expense for $90,000
B.debit to Manufacturing Overhead for $90,000
C.debit to Manufacturing Overhead for $72,000
D.debit to Work-in-Process Inventory for $18,000
E.credit to Cash for $90,000
23) A production supervisor generally has little influence over the:
A.direct-material quantity variance
B.direct-labor efficiency variance
C.direct-material price variance
D.number of units produced
E.All of the others answers are correct
24) You received a $5,000 loan at the end of each of your four years of college. Your
grandparents agreed to pay off your loans at the end of your fourth year of school.
Assume a 4% annual compound interest rate on student loans. How much will they
have to deposit when you start school so that they will have enough money to pay off
your loans after four years? Their interest rate is 6% compounded annually.
A.$20,000
B.$21,235
C.$16,818
D.$15,000
E.None of the other answers are correct
25) Under variable costing, fixed manufacturing overhead is:
A.expensed immediately when incurred
B.never expensed
C.applied directly to Finished-Goods Inventory
D.applied directly to Work-in-Process Inventory
E.treated in the same manner as variable manufacturing overhead
26) Trenton worked on four jobs during its first year of operation: nos. 401, 402, 403,
and 404 . A review of job no. 403’s cost record revealed direct material charges of
$40,000 and total manufacturing costs of $50,000. If Trenton applies overhead at 150%
of direct labor cost, the overhead applied to job no. 403 must have been:
A.$0
B.$6,000
C.$4,000
D.$3,333
E.$5,000
27) The choices below depict five costs of Benton Corporation and a possible driver for
each cost. Which of these choices likely contains an inappropriate cost driver?
A.Gasoline consumed; number of miles driven
B.Manufacturing overhead incurred in a heavily automated facility; direct labor hours
C.Sales commissions; gross sales revenue
D.Building maintenance cost; building square footage
E.Human resources department cost; number of employees
28) Hempstead Corporation plans to manufacture 8,000 units over the next month at the
following costs: direct materials, $480,000; direct labor, $60,000; variable
manufacturing overhead, $150,000; straight-line depreciation, $24,000, and other fixed
manufacturing overhead, $272,000. The result is total budgeted cost of $990,000.
Shortly after the conclusion of the month, Hempstead reported the following costs:
Howard Krueger and his crews turned out 7,200 unitsa remarkable feat given that the
company’s manufacturing plant was closed for several days because of blizzards and
impassable roads. Krueger was especially pleased with the fact that total actual costs
were less than budget. He was thus very surprised when Hempstead’s general manager
expressed unhappiness about the plant’s financial performance.
Required:
A. Prepare a performance report that fairly compares budgeted and actual costs for the
period just endednamely, the report that the general manager likely used when assessing
performance.
B. Should Krueger be praised for “having met the budget” or is the general manager’s
unhappiness justified? Explain, citing any apparent problems for the firm.
29) Prudence Corporation manufactures two products: X and Y. The company has 4,000
hours of machine time available and can sell no more than 800 units of product X.
Other pertinent data follow.
Which of the following is Prudence’s objective function?
A.Maximize Z = 2X + 3Y
B.Maximize Z = 8X + 19Y
C.Maximize Z = 5X + 14Y
D.Maximize Z = 1.50X + 7.75Y
E.Minimize Z = 6.50X + 11.25Y
30) Which of the following variances cannot occur together during the same accounting
period?
A.Unfavorable labor rate variance and favorable labor efficiency variance
B.Unfavorable labor efficiency variance and favorable material quantity variance
C.Favorable labor rate variance and unfavorable total labor variance
D.Favorable labor efficiency variance and favorable material quantity variance
E.None of the other answers are correct, because all of these variance combinations are
possible
31) In early July, Mike Gottfried purchased a $70 ticket to the December 15 game of
the Chicago Titans. (The Titans belong to the Midwest Football League and play their
games outdoors on the shore of Lake Michigan.) Parking for the game was expected to
cost approximately $22, and Gottfried would probably spend another $15 for a souvenir
program and food. It is now December 14 . The Titans were having a miserable season
and the temperature was expected to peak at 5 degrees on game day. Mike therefore
decided to skip the game and took his wife to the movies, with tickets and dinner
costing $50. The sunk cost associated with this decision situation is:
A.$20
B.$50
C.$70
D.$107
E.None of the other answers are correct