1) As production takes place, all manufacturing costs are added to the:
A.Work-in-Process Inventory account
B.Manufacturing-Overhead Inventory account
C.Cost-of-Goods-Sold account
D.Finished-Goods Inventory account
E.Production Labor account
2) Which of the following elements is not used in the calculation of economic value
added for an investment center?
A.An investment center’s after-tax operating income
B.An investment center’s total assets
C.An investment center’s return on investment
D.An investment center’s current liabilities
E.A company’s weighted-average cost of capital
3) The following information relates to October:
Production supervisor’s salary: $3,500
Factory maintenance wages: 250 hours at $10 per hour
The journal entry to record the preceding information is:
A.
B.
C.
D.
E.
4) Sherman Company provides services in the retail flooring industry. The following
information is available for 20×5:
Twenty percent of the firm’s services are for cash and the remaining 80% are on
account. Of the credit services, 40% are collected in the month that the service is
provided, with the remaining 60% collected in the following month.
Services provided in January are expected to total $250,000 and grow at the rate of 5%
per month thereafter.
January’s cash collections are expected to be $240,400, and month-end receivables are
forecast at $120,000.
Monthly cash operating costs and depreciation during the first quarter of the year are
approximated at $250,000 and $15,000, respectively.
Sherman’s December 31, 20×4 balance sheet revealed accounts payable balances of
$28,000. This amount is related to the company’s operating costs and is expected to
grow to $36,000 by the end of 20×5’s first quarter. All operating costs are paid within 30
days of incurrence.
Company policy requires that a $20,000 minimum cash balance be maintained, and
Sherman’s 20×4 year-end balance sheet showed that the firm was in compliance with
policy by having cash of $23,000.
Required:
A. Determine the sales revenue earned that will appear on the income statement for the
quarter ended March 31, 20×5.
B. Compute the company’s first-quarter cash collections.
C. Compute the cash balance that would appear on the March 31, 20×5 balance sheet.
D. What are some possible actions the company could pursue if, at any time during the
quarter, it finds that the cash balance has fallen below the stated minimum?
5) Enberg Company, which applies overhead to production on the basis of machine
hours, reported the following data for the period just ended:
Actual units produced: 14,800
Actual fixed overhead incurred: $791,000
Standard fixed overhead rate: $13 per hour
Budgeted fixed overhead: $780,000
Planned level of machine-hour activity: 60,000
If Enberg estimates four hours to manufacture a completed unit, the company’s
fixed-overhead volume variance would be:
A.$10,400 favorable
B.$10,400 unfavorable
C.$11,000 favorable
D.$11,000 unfavorable
E.None of the other answers are correct
6) The following terms are used to describe various economic characteristics of costs:
Required:
Choose one of the preceding terms to characterize each of the amounts described below.
Each term may be used only once.
A. The cost of including one extra child in a day-care center.
B. The cost of merchandise inventory purchased five years ago. The goods are now
obsolete.
C. The cost of feeding 300 children in a public school cafeteria is $450 per day, or
$1.50 per child per day. What economic term describes this $1.50 cost?
D. The management of a high-rise office building uses 3,000 square feet of space in the
building for its own administrative functions. This space could be rented for $30,000.
What economic term describes this $30,000 of lost rental revenue?
E. The cost of building an automated assembly line in a factory is $700,000; a manually
operated assembly line would cost $250,000. What economic term is used to describe
the $450,000 variation between these two amounts?
F. Refer to the preceding question and assume that the firm is currently building the
assembly line for $700,000. What economic term is used to describe the $700,000
construction cost?
7) The following information pertains to Bishop Concrete:
The company’s imputed interest rate is 8%.
The capital turnover is:
A.3.33
B.5.00
C.16.67
D.20.00
E.30.00
8) Which of the following describes the goal that should be pursued when setting
transfer prices?
A.Maximize profits of the buying division
B.Maximize profits of the selling division
C.Allow top management to become actively involved when calculating the proper
dollar amounts
D.Establish incentives for autonomous division managers to make decisions that are in
the overall organization’s best interests (i.e., goal congruence)
E. Minimize opportunity costs
9) Moneka reported $65,000 of income for the year by using absorption costing. The
company had no beginning inventory, planned and actual production of 20,000 units,
and sales of 18,000 units. Standard variable manufacturing costs were $20 per unit, and
total budgeted fixed manufacturing overhead was $100,000. If there were no variances,
income under variable costing would be:
A.$15,000
B.$55,000
C.$65,000
D.$75,000
E.$115,000
10) Cortez Enterprises is studying the addition of a new product that would have an
expected selling price of $180 and expected variable cost of $120. Anticipated demand
is 9,000 units.
A new salesperson must be hired because the company’s current sales force is working
at capacity. Two compensation plans are under consideration:
Plan 1: An annual salary of $38,000 plus 10% commission based on gross sales dollars
Plan 2: An annual salary of $180,000 and no commission
Required:
A. What is meant by the term “operating leverage”?
B. Calculate the contribution margin and income of the two plans at 9,000 units.
C. Compute the operating leverage factor of the two plans at 9,000 units. Which of the
two plans is more highly leveraged? Why?
D. Assume that a general economic downturn occurred during year no. 2, with product
demand falling from 9,000 to 7,200 units. By using the operating leverage factors,
determine and show which plan would produce a larger percentage decrease in income.
11) 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 the ending work in process is:
A.$54,000
B.$78,000
C.$114,000
D.$195,000
E.None of the answers is correct
12) Operation costing is a popular type of accounting system, one that combines
selected features of job-order and process-cost accounting.
Required:
A. Briefly discuss the basic features that are associated with an operation-costing
system.
B. Explain why a sweater manufacturer may have a need for an operation-costing
system.
13) Consider the following costs and decision-making situations:
I. The cost of existing inventory, in a keep vs. disposal decision.
II. The cost of special electrical wiring, in an equipment acquisition decision.
III. The salary of a supervisor who will be transferred elsewhere in the organization, in
a department-closure decision.
Which of the above costs is (are) relevant to the decision situation noted?
A.I only
B.II only
C.III only
D.I and II
E.II and III
14) Hirsch Company has per-unit fixed and variable manufacturing costs of $40 and
$15, respectively. Variable selling and administrative costs are $9 per unit. Consider the
two independent cases that follow for the firm.
Case A: Variable-costing income, $110,000; sales, 6,000 units; production, 6,000 units
Case B: Variable-costing income, $178,000; sales, 7,500 units; production, 7,100 units
Required:
A. From a product-costing perspective, what is the basic difference between absorption
costing and variable costing?
B. Compute Hirsch’s absorption-costing income in Case A.
C. Compute Hirsch’s absorption-costing income in Case B.
15) A company that desires to lower its break-even point should strive to:
A.decrease selling prices
B.reduce variable costs
C.increase fixed costs
D.sell more units
E.achieve more than one of the other answers listed
16) Company A uses a pricing approach where the initial price for a product is set high
and then lowered, and Company B uses an approach where initial prices are set low in
an effort to gain market share. What terms best describe these practices?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
17) Assume that machine hours is the cost driver for overhead. The difference between
the actual variable overhead incurred and the applied variable overhead is the:
A.volume variance
B.production variance
C.efficiency variance
D.sum of the spending and efficiency variances
E.spending variance
18) Cloverleaf, Inc. produces glass shelves that are used in furniture. Each shelf
requires 3.6 pounds of raw material at a cost of $2 per pound. Unfortunately, given the
nature of the manufacturing process, one out of every five shelves is chipped, scratched,
or broken at the beginning of production and has to be scrapped.
On average, 20 good shelves are completed during each hour. Laborers who work on
these units are paid $15 per hour.
Required:
A. Distinguish between perfection standards and practical standards.
B. Who within an organization would be in the best position to assist in setting the:
1> direct-material price standard?
2> direct-material quantity standard?
3> direct-labor efficiency standard?
C. Calculate a practical direct-material and direct-labor standard for each good shelf
produced.
19) With the time and material pricing method, the hourly time charge is typically set
equal to:
A.the hourly labor cost
B.the hourly labor cost + annual overhead
C.the hourly labor cost + an hourly overhead charge + an hourly charge to cover the
profit margin
D.annual overhead + an hourly charge to cover the profit margin
E.the hourly labor cost + an hourly charge to cover the profit margin
20) Wee Care is a nursery school for pre-kindergarten children. The school has
determined that the following biweekly revenues and costs occur at different levels of
enrollment:
The marginal cost when the twenty-first student enrolls in the school is:
A.$55
B.$155
C.$300
D.$3,045
E.$3,255
21) Which of the following budgets is prepared at the end of the budget-construction
cycle?
A.Sales budget
B.Production budget
C.Budgeted financial statements
D.Cash budget
E.Overhead budget
22) Which of the following choices denotes the typical cost behavior of advertising and
sales commissions?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
23) Which of the following employees would be considered as holding a line position?
A.Exxon Corporation’s vice-president for government relations
B.The controller of General Motors
C.A secretary employed by Verizon Communications
D.The manager of food and beverage services at Disney’s Magic Kingdom
E.None of the other answers are correct
24) Smithville uses labor hours to apply variable overhead to production. If the
company’s workers were very inefficient during the period, which of the following
statements would be true about the variable-overhead efficiency variance?
A.The variance would be favorable
B.The variance would be unfavorable
C.The nature of the variance (favorable or unfavorable) would be unknown based on
the facts presented
D.The variance would be the same amount as the labor efficiency variance
E.None of the other answers are correct
25) The true economic yield produced by an asset is summarized by the asset’s:
A.non-discounted cash flows
B.net present value
C.future value
D.annuity discount factor
E.internal rate of return
26) Bravo Manufacturing is a relatively new customer of Haxton Enterprises. In the
short period that the two companies have done business with each other, Haxton has
found Bravo to be, in management’s words, “an expensive proposition.” Numerous
sales visits are typically required to “close a deal,” with selling prices and discounts
offered being among the most attractive in the industry. Complicating matters, Bravo is
slow to settle its account, orders in small quantities, and often has numerous specialized
shipping and handling needs.
A recent customer profitability analysis has painted a very negative picture of Bravo
Manufacturing, and Haxton’s managers are questioning whether an on-going
relationship with the firm is warranted.
Required:
A. Briefly explain why the customer profitability analysis painted a negative picture of
Bravo Manufacturing.
B. What actions are available to Haxton Enterprises to improve Bravo profitability?
27) Which of the following statements about materials is false?
A.Acquisitions of materials are normally charged to the Purchases account
B.The use of direct materials gives rise to a debit to Work-in-Process Inventory
C.The use of indirect materials gives rise to a debit to Manufacturing Overhead
D.The use of indirect materials gives rise to a credit to Manufacturing Supplies
Inventory
E.Direct materials are accounted for in a different manner than indirect materials
28) Under an activity-based costing system, what is the per-unit overhead cost of
Standard?
A.$164
B.$228
C.$272
D.$282
E.None of the other answers is correct