1) The amounts charged for goods and services exchanged between two divisions are
known as:
A.opportunity costs
B.transfer prices
C.standard variable costs
D.residual prices
E.target prices
2) The internal rate of return:
A.ignores the time value of money
B.equates a project’s cash inflows with its cash outflows
C.equates a project’s cash outflows with its expenses
D.equates the present value of a project’s cash inflows with the present value of the cash
outflows
E.equates the present value of a project’s cash flows with the future value of the
project’s cash flows
3) The salary that is sacrificed by a college student who pursues a degree full time is
a(n):
A.sunk cost
B.out-of-pocket cost
C.opportunity cost
D.differential cost
E.marginal cost
4) 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
5) Consider the following statements regarding product-sustaining activities:
I. They must be performed for each batch of product that is made.
II. They must be performed for each unit of product that is made.
III. They are needed to support an entire product line.
Which of the above statements is (are) true?
A.I only
B.II only
C.III only
D.I and II
E.II and III
6) A forecast of a cost at a particular level of activity is known as:
A.cost estimation
B.cost prediction
C.cost behavior
D.cost analysis
E.cost approximation
7) Kei Products uses a predetermined overhead application rate of $18 per labor hour. A
review of the company’s accounting records revealed budgeted manufacturing overhead
for the period of $621,000, applied manufacturing overhead of $590,400, and
overapplied overhead of $11,900.
Required:
A. Determine Kei’s actual labor hours, budgeted labor hours, and actual manufacturing
overhead.
B. Present the necessary year-end journal entry to handle the overapplied overhead,
assuming that the firm allocates over- or underapplied overhead to Cost of Goods Sold.
8) Which of the following calculations can be used to measure a company’s degree of
operating leverage?
A.Contribution margin sales
B.Contribution margin income
C.Sales contribution margin
D.Sales income
E.Sales fixed costs
9) Brooklyn sells a single product to wholesalers. The company’s budget for the
upcoming year revealed anticipated unit sales of 31,600, a selling price of $20, variable
cost per unit of $8, and total fixed costs of $360,000. Brooklyn’s safety margin in units
is:
A.(13,400)
B.0
C.1,600
D.13,600
E.None of the other answers is correct
10)
Burkette Company can acquire a $900,000 machine now that will benefit the firm over
the next 6 years. Annual savings in cash operating costs are expected to total $190,000.
If the hurdle rate is 8%, the investment’s net present value is:
A.$(181,800)
B.$(21,630)
C.$44,970
D.$184,920
E.None of the other answers are correct
11) Green Park Recreation is exploring a competitive bidding situation. The firm, which
currently has no excess capacity, estimates the following costs for a project to be
performed for the Morningside School District:
Which of the following cost figures would be used in determining a minimum price if
Green Park decides to bid on the Morningside project?
A.$131,000
B.$350,000
C.$441,000
D.$481,000
E.None of the other answers are correct
12) Visions, Inc. has two service departments (Human Resources and Building
Maintenance) and two production departments (Machining and Assembly). The
company allocates Building Maintenance cost on the basis of square footage and
believes that Building Maintenance provides more service than Human Resources. The
square footage occupied by each department follows.
Over how many square feet would the Building Maintenance cost be allocated (i.e.,
spread) with the direct method and the step-down method?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
13) Which of the following occurs if a company experiences an increase in its fixed
costs?
A.Net income would increase
B.The break-even point would increase
C.The contribution margin would increase
D.The contribution margin would decrease
E.More than one of the other answers would occur
14) Colonial Products employs a process-costing system for its manufacturing
operations. All materials are added at the beginning of the process, and conversion costs
are incurred uniformly throughout production. The information that follows relates to
September.
Required:
A. Calculate equivalent units of direct material for September.
B. Calculate equivalent units of conversion activity for September.
15) Nelson Company owes money to Nash Company for the purchase of equipment.
Nash Company has given Nelson the following payment options:
I. Immediate payment in full of $38,000.
II. Annual payments of $15,000 made at the end of each of the next three years.
III. A single payment of $48,000 made at the end of three years.
Assume that both Nelson and Nash use a 10% interest rate compounded annually. What
option would Nash prefer, and what is the present value of that option?
A.Option I, $34,542
B.Option I, $38,000
C.Option II, $37,305
D.Option III, $34,164
E.Option III, $36,048
16) Clark Corporation manufactures cooling system components. The company has
gathered the following information about two of its customers: Engle Equipment and
Midwest Refrigeration.
Cost-driver data used by the firm and traceable to Engle and Midwest are:
Required:
A. Perform a customer profitability analysis for Clark. Compute the gross margin and
operating income on transactions related to Engle Equipment and Midwest
Refrigeration.
B. Compute gross margin as a percentage of sales revenue. Then compute (1) general
selling and administrative costs as a percentage of gross margin and (2) total
customer-related costs (i.e., costs that arise from sales visits, order taking, and special
handling and shipping) as a percentage of gross margin.
C. On the basis of your calculations, which of the two customers is “more costly” to
deal with? Briefly explain.
17) Taffy Corporation sells a number of products to groups that provide educational
workshops and seminars. One of the products involves a combination leather case and
note pad. The company purchases the case and pad combination from a supplier and
encloses a $3 pen that contains the educational groups’ name and logo.
Taffy began to carry this product at the start of 20×3, acquiring 12,500 cases from
Executive Supply for $87,500 along with an identical number of pens from Accent
Goods. During 20×3, 9,500 of the cases and pens were issued to Taffy’s assembly
operation where the pen is added. Eighty percent of these cases were completed as of
December 31, and a review of the December 31 finished-goods inventory found 2,600
completed cases in the warehouse. Conversations with salespeople revealed that 70
finished sets were used in various company marketing activities throughout the year.
Required:
A. Determine the cost of the cases and pens that would appear in Taffy’s raw materials,
work in process, and finished-goods inventory as of December 31 .
B. Determine the cost of the cases and pens that would appear in the company’s cost of
goods sold for 20×3 .
18) Managerial accountants:
A.often work on cross-functional teams
B.are located throughout an organization
C.are found primarily at lower levels of the organizational hierarchy
D.are found primarily at higher levels of the organizational hierarchy
E.often work on cross-functional teams and are located throughout an organization
19) Which of the following is not a broad, cost classification category typically used in
activity-based costing?
A.Unit-level
B.Batch-level
C.Product-sustaining level
D.Facility-level
E.Management-level
20) Corruption, Inc. overstated the percentage of work completed with respect to
conversion cost on the ending work-in-process inventory. What is the effect of this
overstatement on conversion-cost equivalent units and physical units manufactured,
respectively?
A.Overstated, overstated
B.Overstated, understated
C.Overstated, none
D.None, overstated
E.None, none
21) Which of the following pricing practices is illegal?
A.Penetration pricing
B.Price skimming
C.Predatory pricing
D.Cost-based pricing
E.Market-share pricing
22) TroisElles Corporation recently prepared a manufacturing cost budget for an output
of 50,000 units, as follows:
Actual units produced amounted to 60,000. Actual costs incurred were: direct materials,
$110,000; direct labor, $60,000; variable overhead, $100,000; and fixed overhead,
$97,000. If TroisElles evaluated performance by the use of a flexible budget, a
performance report would reveal a total variance of:
A.$3,000 favorable
B.$23,000 favorable
C.$27,000 unfavorable
D.$42,000 unfavorable
E.None of the other answers are correct
23) Which of the following is a criticism of standard costing, as applied to today’s
manufacturing environment?
A.Standards tend to be relevant for only a short period of time because of shorter
product life cycles
B.Variance information is usually aggregated (i.e., combined) rather than associated
with a particular batch of goods or a specific product line
C.Traditional standard costing has a fairly narrow orientation, failing to focus on
broader issues such as the overall costs of ownership
D.Standard costing pays considerable attention to labor cost and labor efficiency, which
are becoming a relatively unimportant factor of production
E.All of the other answers are correct
24) Yang Manufacturing, which uses the high-low method, makes a product called Yin.
The company incurs three different cost types (A, B, and C) and has a relevant range of
operation between 2,500 units and 10,000 units per month. Per-unit costs at two
different activity levels for each cost type are presented below.
If Yang produces 10,000 units, the total cost would be:
A.$90,000
B.$100,000
C.$110,000
D.$125,000
E.None of the other answers is correct
25) Which of the following would produce the largest increase in the contribution
margin per unit?
A.A 7% increase in selling price
B.A 15% decrease in selling price
C.A 14% increase in variable cost
D.A 17% decrease in fixed cost
E.A 23% increase in the number of units sold
26) Buckman Corporation, which began operations on January 1 of the current year,
reported the following information:
Buckman uses a normal cost system and applies manufacturing overhead to jobs on the
basis of direct labor cost. A 60% markup is added to the cost of completed production
when finished goods are sold. On December 31, job no. 18 was the only job that
remained in production. That job had direct-material and direct-labor charges of
$16,500 and $36,000, respectively.
Required:
A. Determine the company’s predetermined overhead rate.
B. Determine the amount of under- or overapplied overhead. Be sure to label your
answer.
C. Compute the amount of direct materials used in production.
D. Calculate the balance the company would report as ending work-in-process
inventory.
E. Prepare the journal entry (ies) needed to record Buckman’s sales, which are all made
on account.
27) Postaudits are an important part of capital budgeting.
Required:
A. What is a postaudit of a capital investment project?
B. What are the benefits of a postaudit?
C. A manager prepared an unsuccessful proposal for a capital project, as her firm
decided not to fund and pursue the project. The manager observed, “The company’s
postaudit process will show that this project should have been funded.” Comment on
the manager’s understanding of the postaudit process.
28) Detroit Electronics, Inc. manufactures gauges for automobile dashboards. The
company has two production departments, Molding and Assembly. There are three
service departments: Human Resources, Maintenance, and Engineering. Usage of
services by the various departments follows.
The budgeted costs in Detroit’s service departments are: Human Resources, $180,000;
Maintenance, $270,000; and Engineering, $200,000. The company rounds all
calculations to the nearest dollar.
Required:
A. Use the direct method to allocate Detroit’s service department costs to the production
departments.
B. Determine the proper departmental sequence to use in allocating the company’s
service costs by the step-down method.
C. Ignoring your answer in part “B,” assume that Human Resources costs are allocated
first, Maintenance costs second, and Engineering costs third. Use the step-down method
to allocate Detroit’s service department costs.
29) Fedora, Inc., uses a weighted-average process-costing system and has one
production department. All materials are introduced at the start of manufacturing; in
contrast, conversion cost is incurred uniformly throughout production. The company
had respective work-in-process inventories on May 1 and May 31 of 62,000 units and
70,000 units, the latter of which was 40% complete. The production supervisor noted
that Federal completed 100,000 units during the month.
Costs in the May 1 work-in-process inventory were subdivided as follows: materials,
$40,000; conversion, $90,000. During May, Fedora charged production with $300,000
of material and $710,000 of conversion, resulting in a material cost per equivalent unit
of $2.
Required:
A. Determine the number of units that Fedora started during May.
B. Compute the number of equivalent units with respect to conversion cost.
C. Determine the conversion cost per equivalent unit.
D. Compute the cost of the May 31 work-in-process inventory.
E. What account would have been credited to record Fedora’s completed production?
30) If the total cost of alternative A is $50,000 and the total cost of alternative B is
$34,000, then $16,000 is termed the:
A.opportunity cost
B.average cost
C.sunk cost
D.out-of-pocket cost
E.differential cost
31) Which of the following is not an example of a business-value-added activity?
A.Adopting bar-code technology in the receiving department
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.Final painting and polishing of the product
32) The relevant range is that range of activity:
A.where a company achieves its maximum efficiency
B.where units produced equal units sold
C.where management expects the firm to operate
D.where the firm will earn a profit
E.where expected results are abnormally high