1) What type of cost exhibits the behavior shown below?
A.Variable cost
B.Fixed cost
C.Semivariable cost
D.Step-variable cost
E.Mixed cost
2) Lido manufactures A and B from a joint process (cost = $80,000). Five thousand
pounds of A can be sold at split-off for $20 per pound or processed further at an
additional cost of $20,000 and then sold for $25 per pound. If Lido decides to process A
beyond the split-off point, operating income will:
A.increase by $10,000
B.increase by $20,000
C.decrease by $10,000
D.decrease by $20,000
E.increase by $5,000
3) A review of Parrish Corporation’s accounting records found that at a volume of
90,000 units, the variable and fixed cost per unit amounted to $8 and $4, respectively.
On the basis of this information, what amount of total cost would Parrish anticipate at a
volume of 85,000 units?
A.$1,020,000
B.$1,040,000
C.$1,060,000
D.$1,080,000
E.None of the other answers is correct
4) Dover Enterprises recently used 14,000 labor hours to produce 7,500 completed
units. According to manufacturing specifications, each unit is anticipated to take two
hours to complete. The company’s actual payroll cost amounted to $158,200. If the
standard labor cost per hour is $11, Dover’s labor rate variance is:
A.$4,200U
B.$4,000F
C.$4,300U
D.$4,300F
E.none of the other answers are correct
5) A review of a company’s Work-in-Process Inventory account found a debit for
materials of $67,000. If all procedures were performed in the correct manner, this
means that the firm:
A.also recorded a credit to Raw-Material Inventory
B.also recorded a credit to Manufacturing Supplies Inventory
C.was accounting for the usage of direct materials
D.was accounting for the usage of indirect materials
E.also recorded a credit to Raw-Material Inventory and was accounting for the usage of
direct materials
6) Which of the following functions is best described as choosing among available
alternatives?
A.Decision making
B.Planning
C.Directing operational activities
D.Controlling
E.Budgeting
7) 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
8) Lee-Vie Company has met all production requirements for the current month and has
an opportunity to manufacture additional units with its excess capacity. Unit selling
prices and unit costs for three product lines follow.
Variable overhead is applied on the basis of direct labor dollars, whereas fixed overhead
is applied on the basis of machine hours. There is sufficient demand for the additional
manufacture of all products.
Required:
A. If Lee-Vie has excess machine capacity and can add more labor as needed (i.e.,
neither machine capacity nor labor is a constraint), which product is the most attractive
to produce?
B. If Lee-Vie has excess machine capacity but a limited amount of labor time available,
which product or products should be manufactured in the excess capacity?
9) You estimate that it will take five years to complete your college education. Your
parents want to invest enough money today at an interest rate of 8% compounded
annually to allow you to withdraw $10,000 at the end of each year for the next five
years, with nothing left at the end. The amount of money to invest today is:
A.$14,690
B.$34,050
C.$39,930
D.$50,000
E.None of the other answers are correct
10) Xi Manufacturing, which began operations on January 1 of the current year,
produces an industrial scraper that sells for $325 per unit. Information related to the
current year’s activities follows.
Xi carries its finished-goods inventory at the average unit cost of production. There was
no work in process at year-end.
Required:
A. Compute the company’s average unit cost of production.
B. Determine the cost of the December 31 finished-goods inventory.
C. Compute the company’s cost of goods sold.
D. If next year’s production increases to 23,000 units and general cost behavior patterns
do not change, what is the likely effect on:
1> The direct-labor cost of $35 per unit? Why?
2> The fixed manufacturing overhead cost of $400,000? Why?
11) A flexible budget:
A.parallels a static budget with respect to format and advantages of use
B.is preferred over a static budget in the evaluation of performance
C.gives management flexibility in terms of meeting budget goals
D.can be used to compare actual and budgeted costs at various levels of activity
E.is both preferred over a static budget in the evaluation of performance and can be
used to compare actual and budgeted costs at various levels of activity
12) Consider the following statements regarding traditional costing systems:
I. Overhead costs are applied to products on the basis of volume-related measures.
II. All manufacturing costs are easily traceable to the goods produced.
III. Traditional costing systems tend to distort unit manufacturing costs when numerous
goods are made that have widely varying production requirements.
Which of the above statements is (are) true?
A.I only
B.II only
C.III only
D.I and III
E.II and III
13) Ortega Interiors provides design services to residential and commercial clients. The
residential services produce a contribution margin of $450,000 and have traceable fixed
operating costs of $480,000. Management is studying whether to drop the residential
operation. If closed, the fixed operating costs will fall by $370,000 and Ortega’s income
will:
A.increase by $30,000
B.increase by $80,000
C.increase by $340,000
D.decrease by $80,000
E.decrease by $340,000
14) Employee empowerment involves encouraging and authorizing workers to take
initiatives to:
A.improve operations
B.reduce costs
C.improve product quality
D.improve customer service
E.All of the other answers are correct
15) Assume that HiTech is using a volume-based costing system, and the preceding
overhead costs are applied to all products on the basis of direct labor hours. The
overhead cost that would be assigned to the Deluxe product line is closest to:
A.$456,471
B.$646,471
C.$961,176
D.$1,141,176
E.None of the other answers is correct
16) An unfavorable labor efficiency variance is created when:
A.actual labor hours worked exceed standard hours allowed
B.actual hours worked are less than standard hours allowed
C.actual wages paid are less than amounts that should have been paid
D.actual units produced exceed budgeted production levels
E.actual units produced exceed standard hours allowed
17) The value chain of a manufacturer would tend to include activities related to:
A.manufacturing
B.research and development
C.product design
D.marketing
E.All of the other answers are correct
18) Springer began business at the start of the current year. The company planned to
produce 40,000 units, and actual production conformed to expectations. Sales totaled
37,000 units at $42 each. Costs incurred were:
If there were no variances, the company’s absorption-costing income would be:
A.$155,000
B.$230,000
C.$240,500
D.$592,000
E.None of the other answers are correct
19) Straight-line depreciation is a typical example of a:
A.variable cost
B.step-variable cost
C.fixed cost
D.mixed cost
E.curvilinear cost
20) A cost center manager:
A.does not have the ability to produce revenue
B.may be involved with the sale of new marketing programs to clients
C.would normally be held accountable for producing an adequate return on invested
capital
D.often oversees divisional operations
E.may be the manager who oversees the operations of a retail store
21) Which of the following costs would be treated differently under absorption costing
and variable costing?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
22) The following information pertains to Bishop Concrete:
The company’s imputed interest rate is 8%.
The residual income is:
A.$30,000
B.$36,000
C.$42,000
D.$54,000
E.$82,800
23) Consider the following statements about budgetary slack:
I. Managers build slack into a budget so that they stand a greater chance of receiving
favorable performance evaluations.
II. Budgetary slack is used by managers to guard against uncertainty and unforeseen
events.
III. Budgetary slack is used by managers to guard against dollar cuts by top
management in the resource allocation process.
Which of the above statements is (are) true?
A.I only
B.II only
C.I and II
D.II and III
E.I, II, and III
24) Fiero Corporation adds all materials at the beginning of production and incurs
conversion cost evenly throughout manufacturing. The company completed 70,000
units during the year and had 12,000 units in process at year end, 20% complete with
respect to conversion cost. Equivalent units for the year total:
A.materials, 70,000; conversion, 70,000
B.materials, 70,000; conversion, 2,400
C.materials, 72,400; conversion, 72,400
D.materials, 82,000; conversion, 72,400
E.materials, 82,000; conversion, 82,000
25) Standard cost systems can have motivational effects; some are desirable, some are
not. Consider the following situation:
The materials purchasing manager is paid a salary plus a bonus based on the net
favorable materials price variance. Generally, this bonus amounts to 30 – 40% of the
manager’s total compensation. Due to the bankruptcy of a company in a related field,
there is an opportunity to buy a key raw material. The standards for this material call for
grade 2A, usually purchased for $56 per ton. Because of the bankruptcy, the company
can obtain a higher grade, 4A, for $62 per ton. While the quality of the final product
will be the same regardless of the grade of material used, there will be substantial
savings in material yield and labor productivity if 4A is used. These savings are
expected to be two-to-three times the additional cost of $6 per ton.
Required:
A. How would an unfavorable price variance on a particular purchase affect the overall
price variance for the year and the manager’s bonus?
B. Would the use of the materials price variance as a basis for the manager’s bonus lead
to a desirable or undesirable behavioral outcome? Explain, being sure to note whether
the manager would likely pursue acquisition of the grade 4A material.
26) 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.
The weighted-average unit contribution margin is:
A.$4.80
B.$9.00
C.$9.25
D.$17.00
E.None of the other answers is correct