1) 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
2) In an activity-based costing system, materials receiving would typically be classified
as a:
A.unit-level activity
B.batch-level activity
C.product-sustaining activity
D.facility-level activity
E.period-level activity
3) Santa Fe Corporation has computed the following unit costs for the year just ended:
Which of the following choices correctly depicts the per-unit cost of inventory under
variable costing and absorption costing?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
4) Which of the following formulas represents the markup percentage on total cost?
A.Target profit annual volume
B.Target profit (annual volume total cost per unit)
C.(Annual volume total cost per unit) target profit
D.Target profit variable cost
E.(Target profit total cost per unit) annual volume
5) When advanced manufacturing systems are installed, what effect does such
installation usually have on fixed costs and the break-even point?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
6) Consider the following statements:
I. The standard cost per unit of materials is used to calculate a materials price variance.
II. The standard cost per unit of materials is used to calculate a materials quantity
variance.
III. The standard cost per unit of materials cannot be determined until the end of the
period.
Which of the above statements is (are) true?
A.I only
B.II only
C.III only
D.I and II
E.I, II, and III
7) Consider the following statements about the step-down method of service department
cost allocation:
I. Under the step-down method, all service department costs are eventually allocated to
production departments.
II. The order in which service department costs are allocated is important.
III. After a service department’s costs have been allocated to other departments, no costs
are re-circulated back to that service department.
Which of the above statements is (are) correct?
A.I only
B.II only
C.I and II
D.I and III
E.I, II, and III
8) Company A uses a heavily participative budgeting approach whereas at Company B,
top management develops all budgets and imposes them on lower-level personnel.
Which of the following statements is false?
A.A’s employees will likely be more motivated to achieve budgetary goals than the
employees of Company B
B.B’s employees may be somewhat disenchanted because although they will be
evaluated against a budget, they really had little say in budget development
C.Budget padding will likely be a greater problem at Company B
D.Budget preparation time will likely be longer at Company A
E.Ethical issues are more likely to arise at Company A, especially when the budget is
used as a basis for performance appraisal
9) Listed below are five variances (and possible causes) that are under review by
management of Knox Company. Which of the following is least likely to cause the
variance indicated?
A.The need to ship goods acquired from a distant supplier via FedEx rather than via
truck; material price variance
B.The need to complete goods on a timely basis during a period of high absenteeism;
labor rate variance
C.A work-team that is very unhappy with its supervisor; labor efficiency variance
D.The need to close a plant for two days because of blizzard conditions; material
quantity variance, part no. 542
E.A malfunctioning piece of manufacturing equipment; labor efficiency variance
10) Bavaria’s budget for variable overhead and fixed overhead revealed the following
information for an anticipated 40,000 hours of activity: variable overhead, $348,000;
fixed overhead, $600,000.
The company actually worked 43,000 hours, and actual overhead incurred was:
variable, $365,500; fixed, $608,000.
Required:
A. Compute the company’s total cost variance for variable overhead and fixed overhead
if the firm uses a static budget to help assess performance.
B. Repeat part “A” assuming the use of a flexible budget.
C. Which of the two budgets (static or flexible) is preferred for performance
evaluations? Why?
11) Davis Corporation is in the process of evaluating allocation bases so that selected
costs can be charged to responsibility centers. Would the number of employees likely be
a good base for allocating the costs of Human Resources, Building and Grounds, and
Repairs and Maintenance to user centers?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
12) 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.
Assuming that the sales mix remains constant, the number of units of Plain that Jamal
must sell to break even is:
A.2,000
B.3,000
C.3,375
D.5,000
E.5,625
13) Consider the graphs that follow (the horizontal axis represents activity; the vertical
axis represents total dollars).
Required:
For items A-I that follow, choose the graph that best represents the cost behavior pattern
described. Note: Graphs can be used more than once.
A. Straight-line depreciation on machinery.
B. The cost of chartering a private airplane. The cost is $800 per hour for the first 6
hours of a flight; it then drops to $600 per hour.
C. The wages of table service personnel in a restaurant. The employees are part-time
workers who can be called upon for as little as 4 hours at a time.
D. Weekly wages of store clerks who work 40 hours each week. One clerk is hired for
every 125 sales made during the month.
E. The cost of tires used in the production of trucks.
F. Outbound shipping charges that increase at a decreasing rate as sales rise because the
firm can use more efficient modes of transportation (e.g., full trailer loads, full rail cars,
etc.). Gradually, however, at high levels of sales, freight costs start to increase at an
increasing rate, which reflects more transactions made to customers in far-away
locations.
G. Equipment leasing costs that are computed at $2 per machine hour worked. The
company pays a maximum of $120,000 per month.
H. The monthly cost of a franchise fee for a fast-food restaurant. The franchisee must
pay $20,000 plus 5% of gross dollar sales.
I. The cost of electricity during peak demand periods, which is based on the following
schedule:
Up to 20,000 kilowatt hours (KWH): $4,000
Above 20,000 kilowatt hours: $4,000 + $0.02 per KWH
14) The left side of the Manufacturing Overhead account is used to accumulate:
A.actual manufacturing overhead costs incurred throughout the accounting period
B.overhead applied to Work-in-Process Inventory
C.underapplied overhead
D.predetermined overhead
E.overapplied overhead
15) Howard Company has established the following standards:
Direct materials: 2.0 pounds at $4.10
Direct labor: 1.5 hours at $7 per hour
Additional information was extracted from the accounting records:
Actual production: 32,000 completed units
Direct materials purchased: 70,000 pounds at $3.82, or $267,400
Direct materials consumed: 65,000 pounds
Actual labor incurred: 51,000 hours at $6.30, or $321,300
Direct-labor rate variance: $35,700 favorable
Direct-labor efficiency variance: $21,000 unfavorable
Assume that the company computes variances at the earliest point in time.
Required:
Prepare journal entries to record the:
A. Purchase of direct materials.
B. Usage of direct materials.
C. Incurrence of direct labor costs.
16) Parrish’s Manufacturing had the following data for the period just ended:
Required:
A. Calculate Parrish’s cost of goods manufactured.
B. Calculate Parrish’s cost of goods sold.
17) The extent to which an organization uses fixed costs in its cost structure is measured
by:
A.financial leverage
B.operating leverage
C.fixed cost leverage
D.contribution leverage
E.efficiency leverage
18) Strategic cost management is:
A.the process of determining cost drivers
B.the recognition of the importance of cost relationships among the activities in the
value chain
C.the process of managing cost relationships to the firm’s advantage
D.two of the other answers are correct
19) Wolverine, Inc. began operations on January 1 of the current year with a $12,000
cash balance. Forty percent of sales are collected in the month of sale; 60% are
collected in the month following sale. Similarly, 20% of purchases are paid in the
month of purchase, and 80% are paid in the month following purchase. The following
data apply to January and February:
If operating expenses are paid in the month incurred and include monthly depreciation
charges of $2,500, determine the change in Wolverine’s cash balance during February.
A.$2,000 increase
B.$4,500 increase
C.$5,000 increase
D.$7,500 increase
E.None of the other answers are correct
20) The cost of inventory currently owned by a company is an example of a (n):
A.opportunity cost
B.sunk cost
C.relevant cost
D.differential cost
E.future cost
21) When using normal costing, the total production cost of a job is composed of:
A.direct material and direct labor
B.direct material, direct labor, manufacturing overhead, and outlays for selling costs
C.direct material, direct labor, manufacturing overhead, and outlays for both selling and
administrative costs
D.direct material, direct labor, and applied manufacturing overhead
E.direct material, direct labor, and actual manufacturing overhead
22) Franz began business at the start of this year and had the following costs: variable
manufacturing cost per unit, $9; fixed manufacturing costs, $60,000; variable selling
and administrative costs per unit, $2; and fixed selling and administrative costs,
$220,000. The company sells its units for $45 each. Additional data follow.
There were no variances.
Income reported under absorption costing and variable costing is:
A.always the same
B.typically different
C.always higher under absorption costing
D.always higher under variable costing
E.always the same or higher under absorption costing
23) Which of the following statements about managerial accountants is false?
A.Managerial accountants more and more are considered “business partners”
B.Managerial accountants often are part of cross-functional teams
C.An increasing number of organizations are segregating managerial accountants in
separate managerial-accounting departments
D.In a number of companies, managerial accountants make significant business
decisions and resolve operating problems
E.The role of managerial accountants has changed considerably over the past decade
24) Which of the following data are needed to calculate total equivalent units under the
weighted-average method?
A.Work-to-date on ending work in process, units started during the period
B.Units completed during the period, work-to-date on ending work in process
C.Work to complete beginning work in process, work-to-date on ending work in
process
D.Work to complete beginning work in process, units completed, and work done on
ending work in process
E.Units completed, work to complete beginning work in process
25) The day-to-day work of management teams will typically comprise all of the
following activities except:
A.decision making
B.planning
C.costminimizing
D.directing operational activities
E.controlling
26) If the amount of effort and attention to products varies substantially throughout a
company’s various manufacturing operations, the company might consider the use of:
A.a plant wide overhead rate
B.departmental overhead rates
C.actual overhead rates instead of predetermined overhead rates
D.direct labor hours to determine the overhead rate
E.machine hours to determine the overhead rate
27)
Refer to the figure above. Assume that the company whose cost structure is depicted in
the figure expects to produce a loss for the upcoming period. The loss would be shown
on the graph:
A.by the area immediately above the break-even point
B.by the area immediately below the total cost line
C.by the area diagonally to the right of the break-even point
D.by the area diagonally to the left of the break-even point
E.None of the other answers is correct
28)
Refer to the figure above. At a given sales volume, the vertical distance between the
fixed cost line and the total cost line represents:
A.fixed cost
B.variable cost
C.profit or loss at that volume
D.semivariable cost
E.the safety margin
29) What will cause the variable-overhead efficiency variance?
A. Efficient or inefficient use of a specific component of variable overhead (e.g.,
electricity)
B. Full or partial utilization of major equipment resources
C. Production of units in excess of the number of units sold
D. Efficient or inefficient use of the cost driver (e.g., machine hours) for variable
overhead
E. Changes in the salary cost of manufacturing supervisors
30) An example of a customer-value-added activity is:
A.final painting and polishing of the product
B.installation of a computerized human resource management module
C.shortening the customers’ billing cycle
D.addition of an employee hotline for workplace complaints
E.maintenance of an adequate safety stock
31) The term “management by exception” is best defined as:
A.choosing exceptional managers
B.controlling actions of subordinates through acceptance of management techniques
C.investigating unfavorable variances
D.devoting management time to investigate significant variances
E.controlling costs so that non-zero variances are treated as “exceptional”
32) 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?
33) Under dual-cost allocation, fixed costs are allocated on the basis of a user
department’s:
A.long-run usage of a service department’s output
B.short-run usage of a service department’s output
C.long-run usage and short-run usage of a service department’s output
D.neither long-run usage nor short-run usage of a service department’s output
E.either long-run usage or short-run usage of a service department’s output
34) Which of the following statements about material requisitions is false?
A.Material requisitions are often computerized
B.Material requisitions are a common example of source documents
C.Material requisitions contain information that is useful to the cost accounting
department
D.Material requisitions authorize the transfer of materials from the production floor to
the raw materials warehouse
E.Material requisitions are routinely linked to a bill of materials that lists all of the
materials needed to complete a job
35) Dreyson Manufacturing sells a number of goods whose selling price is heavily
influenced by cost. A recent study of product no. 519 revealed a traditionally-derived
total cost of $1,019, a selling price of $1,850 based on that figure, and a newly
computed activity-based total cost of $1,215. Which of the following statements is true?
A.All other things being equal, the company should consider a drop in its sales price
B.The company may have been extremely competitive in the marketplace from a price
perspective
C.Product no. 519 could be labeled as being overcosted by the firm’s traditional costing
procedures
D.If product no. 519 is undercosted by traditional accounting procedures, then all of the
company’s other products must be undercosted as well
E.Generally speaking, the activity-based cost figure is “less accurate” than the
traditionally-derived cost figure
36) In discussing the operation of her automobile, a doctor once observed that gasoline
is a fixed cost because the cost per gallon is relatively stable. Insurance, on the other
hand, is a variable cost because the cost per mile varies inversely with the number of
miles driven. Comment on the doctor’s observation.
37) For the quarter just ended, Bojangles, Inc. reported the following variances in one
of its manufacturing departments:
Material price variance, U
Material quantity variance, F
Labor efficiency variance, F
Labor rate variance, negligible
Machine hours efficiency, F
The sum of the favorable variances exceeded the unfavorable materials price variance
by a considerable amount. The quality of the output from the department was the same
as usual. Bojangles operates very close to a JIT system for materials purchases, with
virtually all material acquired during the quarter being used in manufacturing activities.
Required:
Is there any connection among these variances? If so, explain.
38) EnviroSmart Chemical Company refines a variety of petrochemical products. The
following data pertain to the firm’s Baton Rouge plant:
Required:
Compute the equivalent units of direct materials and conversion for August.
39) Upstart, Inc. manufactures a product that has the following standard costs:
The following information pertains to July:
Direct material purchased: 42,500 yards at $2.78 per yard, or $118,150
Direct material used: 36,000 yards
Direct labor: 7,500 hours at $18.30 per hour, or $137,250
Actual completed production: 1,050 units
Assume that the company computes variances at the earliest point in time.
Required:
Calculate the direct-material price and quantity variances, and the direct-labor rate and
efficiency variances. Indicate whether each variance is favorable or unfavorable.
40) Quicksilver Company has set the following standards for one unit of product:
Direct material
Quantity: 6.2 pounds per unit
Price per pound: $11 per pound
Direct labor
Quantity: 6 hours per unit
Rate per hour: $23 per hour
Actual costs incurred in the production of 2,800 units were as follows:
Direct material: $194,350 ($11.50 per pound)
Direct labor: $393,750 ($22.50 per hour)
All materials purchased were consumed during the period.
Required:
Calculate the direct-material price and quantity variances, and the direct-labor rate and
efficiency variances. Indicate whether each variance is favorable or unfavorable.
41) Wornell Industries is currently purchasing part no. 456 from an outside supplier for
$90 per unit. Because of supplier reliability problems, the company is considering
producing the part internally in a currently idle manufacturing plant. Annual volume
over the next five years is expected to total 400,000 units at variable manufacturing
costs of $88 per unit.
Wornell must acquire $200,000 of new equipment if it reopens the plant. The equipment
has a five-year service life, a $20,000 salvage value, and will be depreciated by the
straight-line method. Normal equipment maintenance is expected to total $12,000 in
year 4, and the equipment will be sold at the end of its life for $20,000, which
represents $20,000 gain.
Required:
Rounding to the nearest dollar, use the net-present-value method (total-cost approach)
and a 12% after-tax hurdle rate to determine whether Wornell should make or buy part
no. 456 . The company is subject to a 30% income tax rate.
Wornell is better off to make part no. 456 .
42) Compare and contrast the following types of costs: (1) variable and step-variable
and (2) fixed and step-fixed.
43) Manhattan, Inc., uses a weighted-average process-costing system. All materials are
introduced at the beginning of production; conversion cost is incurred evenly
throughout manufacturing. The following information pertains to April:
The company’s accountant has already computed the cost per equivalent unit, as
follows: materials, $5; conversion, $14.
Required:
Calculate the cost of goods completed during April and the cost of the ending
work-in-process inventory.