1) The accounting records of Reynolds Corporation revealed the following selected
costs: Sales commissions, $65,000; plant supervision, $190,000; and administrative
expenses, $185,000. Reynolds’s period costs total:
A.$250,000
B.$440,000
C.$375,000
D.$255,000
E.$185,000
2)
If direct materials used during the year were $135,000, what was cost of goods
manufactured?
A.$140,500
B.$539,000
C.$409,500
D.$544,500
E.None of the other answers are correct
3) Cleason sells a single product at $14 per unit. The firm’s most recent income
statement revealed unit sales of 80,000, variable costs of $800,000, and fixed costs of
$560,000. Management believes that a $3 drop in selling price will boost unit sales
volume by 20%. Which of the following correctly depicts how these two changes will
affect the company’s break-even point?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
4) Gourmet Restaurants has the following flexible-budget formula:
Y = $13PH + $450,000 where PH is defined as process hours.
Which of the following statements is (are) true?
A.Gourmet has $450,000 of fixed costs
B.Each additional hour of process time is expected to cost Gourmet $13
C.Y would equal the amount shown as “total cost” in the company’s flexible budget
D.Both Gourmet has $450,000 of fixed costs and each additional hour of process time
is expected to cost Gourmet $13
E.All of the other answers are correct
5) Consider the statements that follow.
1> Variable selling costs are expensed when incurred.
2> The income statement discloses a company’s contribution margin.
3> Fixed manufacturing overhead is attached to each unit produced.
4> Direct labor becomes part of a unit’s cost.
5> Sales revenue minus cost of goods sold equals contribution margin.
6> This method must be used for external financial reporting.
7> Fixed selling and administrative expenses are treated in the same manner as fixed
manufacturing overhead.
8> This method is sometimes called full costing.
9> This method requires the calculation of a fixed manufacturing cost per unit.
Required:
Determine which of the nine statements:
A. Relate only to absorption costing.
B. Relate only to variable costing.
C. Relate to both absorption costing and variable costing.
D. Relate to neither absorption costing nor variable costing.
6) Equivalent-unit calculations are necessary to allocate manufacturing costs between:
A.units completed and ending work in process
B.beginning work in process and units completed
C.units sold and ending work in process
D.cost of goods manufactured and beginning work in process
E.cost of goods manufactured and cost of goods sold
7) Alexander Corporation produces flat-screen computer monitors. Consider the
following selected costs that arose during the current year:
1> Direct materials used: $3,640,000
2> Plant rent, utilities, and taxes: $1,229,000
3> New technology design engineering: $2,040,000
4> Materials receiving: $318,000
5> Manufacturing-run/set-up charges: $115,000
6> Equipment depreciation: $92,000
7> General management salaries: $1,564,000
Required:
A. Briefly distinguish between batch-level and facility-level activities.
B. Determine the cost of the firm’s unit-level, batch-level, product-sustaining, and
facility-level activities.
8) You want to buy a new car in five years. You want to have saved $25,000 by then.
You can invest $4,000 at the end of each of the next five years at an interest rate of 6%
compounded annually. Will you have enough money at the end of the fifth year?
A.No. You are short $2,452
B.Yes. You have $1,532 more than you need
C.No. You are short $1,532
D.Yes. You have $2,452 more than you need
E.None of the other answers are correct
9) If the target profit is $60,000 for a volume of 480 units, fixed costs are $168,000, and
the variable cost per unit is $450, then the markup percentage on variable cost would
be:
A.104.56%
B.105.56%
C.106.00%
D.106.45%
E.none of the other answers are correct
10) When using a balanced scorecard, a company’s market share is typically classified
as an element of the firm’s:
A.financial performance measures
B.customer performance measures
C.learning and growth performance measures
D.internal-operations performance measures
E.interdisciplinary performance measures
11) Which of the following can have a negative impact on a particular sale’s
profitability?
A.Number of required sales contacts (phone calls, visits, etc.)
B.Special shipping instructions
C.Accounts receivable collection time
D.Purchase-order changes
E.All of the answers are correct
12) Courtney purchased and consumed 50,000 gallons of direct material that was used
in the production of 11,000 finished units of product. According to engineering
specifications, each finished unit had a manufacturing standard of five gallons. If a
review of Courtney’s accounting records at the end of the period disclosed a material
price variance of $5,000U and a material quantity variance of $3,000F, what is the
actual price paid for a gallon of direct material?
A.$0.50
B.$0.60
C.$0.70
D.None of the other answers are correct
E.Not enough information to judge
13) Dancer Corporation, which uses a job-costing system, had two jobs in process at the
start of 20×1: job no. 59 ($95,000) and job no. 60 ($39,500). The following information
is available:
The company applies manufacturing overhead on the basis of machine hours. Budgeted
overhead and machine activity for the year were anticipated to be $720,000 and 20,000
hours, respectively.
The company worked on three jobs during the first quarter. Direct materials used, direct
labor incurred, and machine hours consumed were:
Manufacturing overhead during the first quarter included charges for depreciation
($20,000), indirect labor ($50,000), indirect materials used ($4,000), and other factory
costs ($108,700).
Dancer completed job no. 59 and job no. 60. Job no. 59 was sold for cash, producing a
gross profit of $24,600 for the firm.
Required:
A. Determine the company’s predetermined overhead application rate.
B. Prepare journal entries as of March 31 to record the following. (Note: Use summary
entries where appropriate by combining individual job data.)
1> The issuance of direct material to production, and the direct labor incurred.
2> The manufacturing overhead incurred during the quarter.
3> The application of manufacturing overhead to production.
4> The completion of job no. 59 and no. 60 .
5> The sale of job no. 59 .
14) A company used the net-present-value method to analyze an investment and found
the investment to be very attractive. If the firm used straight-line depreciation and
changes to the Modified Accelerated Cost Recovery System (MACRS), the
investment’s net present value will:
A.increase
B.remain the same
C.decrease
D.change, but the direction cannot be determined based on the data presented
E.fluctuate in an erratic manner
15) Which of the following is not an objective of managerial accounting?
A.Providing information for decision making and planning
B.Assisting in directing and controlling operations
C.Maximizing profits and minimizing costs
D.Measuring the performance of managers and subunits
E.Motivating managers toward the organization’s goals
16) In the two-stage cost allocation process, costs are assigned:
A.from jobs, to service departments, to production departments
B.from service departments, to jobs, to production departments
C.from service departments, to production departments, to jobs
D.from production departments, to jobs, to service departments
E.from the balance sheet (when goods are produced), to the income statement (when
goods are sold)
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 April?
A.$18,000
B.$21,000
C.$60,000
D.$65,000
E.None of the other answers are correct
18) General Auto’s Northern Division is currently purchasing a part from an outside
supplier. The company’s Southern Division, which has excess capacity, makes and sells
this part for external customers at a variable cost of $19 and a selling price of $31. If
Southern begins sales to Northern, it (1) will use the general transfer-pricing rule and
(2) will be able to reduce variable cost on internal transfers by $3. On the basis of this
information, Southern would establish a transfer price of:
A.$16
B.$19
C.$28
D.$31
E.None of the other answers are correct
19) 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
20) Which of the following tools is not associated with cost estimation?
A.Least-squares regression
B.Multiple regression
C.Inversion equations
D.Time and motion (engineering) studies
E.Learning curves
21) Most companies base the calculation of the material price variance on the:
A.quantity of direct materials purchased
B.quantity of direct materials spoiled
C.quantity of direct materials that should have been used in achieving actual production
D.quantity of direct materials actually used
E.quantity of direct materials to be purchased during the next accounting period
22) Cones & Moore sells frozen custard and sandwiches. It is considering a new site
that will require a $2 million investment for land acquisition and construction costs. The
following operating results are expected:
Disregard income taxes.
Required:
A. If management requires a payback period of four years or less, should the new site
be opened? Why?
B. Compute the accounting rate of return on the initial investment.
C. What significant limitation of payback and the accounting rate of return is overcome
by the net-present-value method?
23) Which of the following would not be considered a direct cost with respect to the
service department of a new car dealership?
A.Wages of repair technicians
B.Property taxes paid by the dealership
C.Repair parts consumed
D.Salary of the department manager
E.Depreciation on new equipment used to analyze engine problems
24) Operating leverage is an important concept for many companies.
Required:
A. Define operating leverage.
B. Assume that a firm pays no income taxes and is planning to increase its selling price.
If sales volume in units does not change, what will be the effect on the operating
leverage factor? Explain.
C. Assume that another firm that pays no income taxes is planning to increase total
fixed manufacturing costs and decrease variable manufacturing costs per unit. At the
present volume of production, the total manufacturing costs will be unchanged. What
will this change do to the operating leverage factor? Explain.
25) Uncle Roscoe, a wealthy relative, has given you a choice of receiving $10,000
today or $3,000 at the end of each year for the next four years. Which table factor(s)
should be used to most efficiently determine the “value” of the $3,000 cash-flow
stream?
A.Future value of $1
B.Future value of a $1 annuity
C.Present value of $1
D.Present value of a $1 annuity
E.Both Present value of $1 and Present value of a $1 annuity
26) A special order generally should be accepted if:
A.its revenue exceeds allocated fixed costs, regardless of the variable costs associated
with the order
B.excess capacity exists and the revenue exceeds all variable costs associated with the
order
C.excess capacity exists and the revenue exceeds allocated fixed costs
D.the revenue exceeds total costs, regardless of available capacity
E.the revenue exceeds variable costs, regardless of available capacity
27)
Refer to the figure above. Line A is the:
A.total revenue line
B.fixed cost line
C.variable cost line
D.total cost line
E.profit line
28) Which of the preceding activities would likely not be considered part of The Gap
clothing company’s value chain?
A.Designing a new product line
B.Locating and then negotiating terms with a clothing manufacturer
C.Marketing an existing product line
D.Distributing goods from regional warehouses to local stores
E.All of these activities would be an element in the company’s value chain
29) Kentucky Corporation uses a process-cost accounting system. The company adds
direct materials at the start of its production process; conversion cost, on the other hand,
is incurred evenly throughout manufacturing. The firm has no beginning
work-in-process inventory; its ending work in process is 40% complete. Which of the
following sets of percentages would be used to calculate the correct number of
equivalent units in the ending work-in-process inventory?
A.Materials, 40%; conversion cost, 40%
B.Materials, 40%; conversion cost, 100%
C.Materials, 100%; conversion cost, 40%
D.Materials, 100%; conversion cost, 60%
E.Materials, 100%; conversion cost, 100%
30) Sunshine Valley Meat Company produces one of the best sausage products in
Pennsylvania. The company’s controller compiled the following information by
analyzing the accounting records:
1> Meat costs the company $3.25 per pound of sausage produced.
2> Compensation of production employees is $2.25 per pound of sausage produced.
3> Supervisory salaries total $23,000 per month.
4> The company incurs utility costs of $9,000 per month plus $0.35 per pound of
sausage produced.
5> Insurance and property taxes average $6,400 per month.
Required:
A. Classify each cost as variable, fixed, or semivariable.
B. Write a formula to express the behavior of the firm’s production costs. (Use the form
Y = a + bX, where X denotes the quantity of sausage produced.)
31) Consider the following information:
Direct material purchased and used, 80,000 gallons
Standard quantity of direct material allowed for May production, 76,000 gallons
Actual cost of direct materials purchased and used, $176,000
Unfavorable direct-material quantity variance, $9,400
The direct-material price variance is:
A.$11,400F
B.$11,400U
C.$12,000F
D.$12,000U
E.none of the other answers are correct
32) Northlake, Inc., uses the high-low method to analyze cost behavior. The company
observed that at 20,000 machine hours of activity, total maintenance costs averaged
$10.50 per hour. When activity jumped to 24,000 machine hours, which was still within
the relevant range, the average total cost per machine hour was $9.75. On the basis of
this information, the company’s fixed maintenance costs were:
A.$24,000
B.$90,000
C.$210,000
D.$234,000
E.None of the other answers is correct
33) George Jettson builds custom homes in Cincinnati. Jettson was approached not too
long ago by a client about a potential project, and he submitted a bid of $590,000,
derived as follows:
Jettson adds a 25% profit margin to all jobs, computed on the basis of total cost. In this
client’s case the profit margin amounted to $118,000 ($472,000 25%), producing a bid
price of $590,000. Assume that 60% of construction overhead is fixed.
Required:
A. Suppose that business is presently very slow, and the client countered with an offer
on this home of $455,000. Should Jettson accept the client’s offer? Why?
B. If Jettson has more business than he can handle, how much should he be willing to
accept for the home? Why?
