1) Which of the following would have a low likelihood of being organized as a profit
center?
A.A movie theater of a company that operates a chain of theaters
B.A maintenance department that charges users for its services
C.The billing department of an Internet Services Provider (ISP)
D.The mayor’s office in a large city
E.Both the billing department of an Internet Services Provider (ISP) and the mayor’s
office in a large city
2) Amounts spent for charitable contributions are an example of a (n):
A.committed fixed cost
B.committed variable cost
C.discretionary fixed cost
D.discretionary variable cost
E.engineered cost
3) Which of the following techniques is not used to analyze cost behavior?
A.Least-squares regression
B.High-low method
C.Visual-fit method
D.Linear programming
E.Multiple regression
4) Quattro began operations in April of this year. It makes all sales on account, subject
to the following collection pattern: 30% are collected in the month of sale; 60% are
collected in the first month after sale; and 10% are collected in the second month after
sale. If sales for April, May, and June were $60,000, $80,000, and $70,000,
respectively, what were the firm’s budgeted collections for June?
A.$21,000
B.$60,000
C.$69,000
D.$75,000
E.None of the other answers are correct
5) The curve that shows the relationship between the sales price and quantity sold is
called the:
A.marginal revenue curve
B.average cost curve
C.profit curve
D.demand curve
E.revenue curve
6) Ai Corporation extracts ore for eight different companies in Colorado. The firm
anticipates variable costs of $65 per ton along with annual fixed overhead of $840,000,
which is incurred evenly throughout the year. These costs exclude the following
semivariable costs, which are expected to total the amounts shown for the high and low
points of ore extraction activity:
March (850 tons): $39,900
August (1,300 tons): $46,200
A-1 uses the high-low method to analyze cost behavior.
Required:
A. Calculate the semivariable cost for an upcoming month when 875 tons will be
extracted.
B. Calculate the total cost for that same month.
C. Ai uses Cortez Trucking to haul extracted ore. Cortez’s monthly charges are as
follows:
1> From a cost behavior perspective, what type of cost is this?
2> If Ai plans to extract 875 tons, is the company being very “cost effective” with
respect to Cortez’s billing rates? Briefly discuss.
7) A company that uses activity-based costing would likely allocate costs from:
A.service departments to production departments
B.service departments to products and services
C.service departments to production departments and then to products and services
D.activity-cost pools to production departments
E.activity-cost pools to products and services
8) Gandolf Corporation allocates administrative costs on the basis of staff hours.
Short-run monthly usage and anticipated long-run monthly usage of staff hours for
Operating Departments 1 and 2 follow.
If Gandolf uses dual-cost accounting procedures and variable administrative costs total
$200,000, the amount of variable administrative cost to allocate to Department 1 would
be:
A.$80,000
B.$85,000
C.$90,000
D.$100,000
E.None of the other answers are correct
9) Which of the following choices correctly shows how costs are accumulated in a
process-costing system?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
10) Professor Jones is concerned that her students do not understand the concept of
equivalent units. She has therefore prepared the following questions, to appear on an
upcoming examination:
Equivalent units are used in a process-costing accounting system.
A. Explain the need for equivalent units and why separate equivalent-unit totals are
calculated for direct materials and conversion cost.
B. If an examination of goods in production at the end of the period revealed 12,000
units that are, on average, 75% complete, would it be correct to say that 9,000 units
were finished during the period? Why?
Required:
Prepare a complete answer key that can be used in grading the examination questions.
11) Cost-volume-profit analysis is based on certain general assumptions. Which of the
following is not one of these assumptions?
A.Product prices will remain constant as volume varies within the relevant range
B.Costs can be categorized as fixed, variable, or semivariable
C.The efficiency and productivity of the production process and workers will change to
reflect manufacturing advances
D.Total fixed costs remain constant as activity changes
E.Unit variable cost remains constant as activity changes
12) Which of the following is not an example of a variable cost?
A.Straight-line depreciation on a machine that has a five-year service life
B.Wages of manufacturing workers whose pay is based on hours worked
C.Tires used in the production of tractors
D.Aluminum used to make patio furniture
E.Commissions paid to sales personnel
13) Shields carries a part that is popular in the manufacture of automatic sprayers.
Demand for this part is 4,000 units per year; order costs amount to $30 per order, and
holding costs total $1.50 per unit. The company is considering the implementation of an
economic order quantity model in an effort to better manage its inventories.
Required:
A. Compute the economic order quantity.
B. Compute total annual inventory costs if Shields follows the EOQ policy.
14) Spiers Corporation is considering the acquisition of a new machine that costs
$149,040. The machine is expected to have a four-year service life and will produce
annual savings in cash operating costs of $45,000. Gotham evaluates investments by
using the internal rate of return and ignores income taxes.
Required:
A. Briefly define the internal rate of return.
B. What relationship holds true at the internal rate of return with respect to discounted
cash inflows and discounted cash outflows? With respect to net present value?
C. Compute the machine’s internal rate of return.
15) Dixie Company, which applies overhead at the rate of 190% of direct material cost,
began work on job no. 101 during June. The job was completed in July and sold during
August, having accumulated direct material and labor charges of $27,000 and $15,000,
respectively. On the basis of this information, the total overhead applied to job no. 101
amounted to:
A.$0
B.$28,500
C.$51,300
D.$70,500
E.$79,800
16) Which if the following would not be part of a value chain for a fast food restaurant?
A.All of the answers are a part of the value chain
B.Buying produce
C.Mopping the floor
D.Refilling the napkin dispensers
E.Hiring new cooks
17) Quattro began operations in April of this year. It makes all sales on account, subject
to the following collection pattern: 30% are collected in the month of sale; 60% are
collected in the first month after sale; and 10% are collected in the second month after
sale. If sales for April, May, and June were $60,000, $80,000, and $70,000,
respectively, what were the firm’s budgeted collections for the quarter?
A.$121,000
B.$140,000
C.$153,000
D.$175,000
E.None of the other answers are correct
18) Maxine’s budget for the upcoming year revealed the following figures:
If the company’s break-even sales total $750,000, Maxine’s safety margin would be:
A.$(90,000)
B.$90,000
C.$246,000
D.$336,000
E.$696,000
19) Nguyen plans to sell 40,000 units of product no. 75 in June, and each of these units
requires five square feet of raw material. Pertinent data follow.
If the company purchases 201,000 square feet of raw material during the month, the
estimated raw-material inventory on June 30 would be:
A.11,000 square feet
B.13,000 square feet
C.23,000 square feet
D.25,000 square feet
E.None of the other answers are correct
20) 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
21) If a company uses a cost-plus approach to pricing, it will find:
A.there are several different definitions of cost and the higher the cost, the higher the
markup percentage
B.there are several different definitions of cost and the higher the cost, the lower the
markup percentage
C.there is one definition of cost, and there is no relationship between cost and the
markup percentage used
D.there is one definition of cost, and there is no markup percentage with the cost-plus
approach
E.it is in violation of generally accepted accounting principles (GAAP)
22) The following data pertain to Darrell Industries:
Interest rate on debt capital: 9%
Cost of equity capital: 12%
Before-tax operating income: $35 million
Market value of debt capital: $60 million
Market value of equity capital: $120 million
Total assets: $150 million
Income tax rate: 30%
Total current liabilities: $15 million
Required:
A. Compute Darrell’s weighted-average cost of capital.
B. Compute Darrell’s economic value added.
C. Briefly explain the meaning of economic value added.
23) Which of the following costs changes in direct proportion to a change in the activity
level?
A.Variable cost
B.Fixed cost
C.Semivariable cost
D.Step-variable cost
E.Step-fixed cost
24) Wellcom Corporation has the following sales mix for its three products: A, 20%; B,
35%; and C, 45%. Fixed costs total $400,000 and the weighted-average contribution
margin is $100. How many units of product A must be sold to break-even?
A.800
B.4,000
C.20,000
D.None of the other answers is correct
E.Cannot be determined based on the information presented
25) Lucie Corporation’s purchasing manager obtained a special price on an aluminum
alloy from a new supplier, resulting in a direct-material price variance of $9,500F. The
alloy produced more waste than normal, as evidenced by a direct-material quantity
variance of $2,000U, and was also difficult to use. This slowed worker efficiency,
generating a $2,500U labor efficiency variance. To help remedy the situation, the
production manager used senior line employees, which gave rise to a $900U labor rate
variance. If overall product quality did not suffer, what variance amount is best used in
judging the appropriateness of the purchasing manager’s decision to acquire
substandard material?
A.$4,100F
B.$5,000F
C.$7,000F
D.$7,500F
E.$9,500F