1) Operation costing tends to parallel job-order costing with respect to the treatment of
conversion cost.
2) Activity-based costing systems have a tendency to distort product costs.
3) The income calculation for a division manager’s ROI should be based on profit
margin traceable to the division.
4) When allocating service department costs, companies should use actual costs rather
than budgeted costs, and separate rates for variable and fixed costs.
5) Middle-level managers would likely be considered internal users of accounting
information rather than external users.
6) Common costs are charged to a company’s operating segments when preparing a
segmented income statement.
7) Variances are computed by taking the difference between the product cost and
standard cost.
8) Cost-volume-profit analysis is based on certain general assumptions. One of these
assumptions is that product prices will remain constant as volume varies within the
relevant range.
9) For external-reporting purposes, generally accepted accounting principles require
that net income be based on variable costing.
10) In regression analysis, the variable that is being predicted is known as the
independent variable.
11) A suitable cost driver for the amount of direct materials used is the number of direct
labor hours worked.
12) Sainte Claire Corporation has a highly automated production facility. Production
volume and management judgment are the two factors that would likely have the most
direct influence on the company’s manufacturing overhead budget.
13) The flow of costs through the manufacturing accounts is essentially the same in
both process costing and job-order costing.
14) An example of a customer-value-added activity is final painting and polishing of the
product.
15) The external market price transfer-pricing method can lead to dysfunctional
decision-making behavior by managers.
16) The following equationBeginning finished goods + cost of goods manufactured –
ending finished goodsis used to calculate cost of goods sold during the period.
17) The following costs relate to Southside Company: Variable manufacturing cost,
$30; variable selling and administrative cost, $8; applied fixed manufacturing overhead,
$15; and allocated fixed selling and administrative cost, $4. If Southside uses
absorption manufacturing-cost pricing formulas, the company’s markup percentage
would be computed on the basis of:
A.$30
B.$38
C.$45
D.$57
E.none of the other answers are correct
18) The relationship between cost and activity is known as:
A.cost estimation
B.cost prediction
C.cost behavior
D.cost analysis
E.cost approximation
19) Inventory holding costs typically include:
A.clerical costs of purchase-order preparation
B.costs of deterioration, theft, or spoilage
C.costs associated with lost sales to customers
D.forgone interest on money tied up in inventory
E.both costs of deterioration, theft, or spoilage and forgone interest on money tied up in
inventory
20) Which of the following variances are most similar with respect to the manner in
which they are calculated?
A.Labor rate variance and labor efficiency variance
B.Material price variance and material quantity variance
C.Material price variance, material quantity variance, and total material variance
D.Material price variance and labor rate variance
E.Material price variance and labor efficiency variance
21) Danielle sells a single product at $20 per unit. The firm’s most recent income
statement revealed unit sales of 100,000, variable costs of $800,000, and fixed costs of
$400,000. If a $4 drop in selling price will boost unit sales volume by 20%, the
company will experience:
A.no change in profit because a 20% drop in sales price is balanced by a 20% increase
in volume
B.an $80,000 drop in profit
C.a $240,000 drop in profit
D.a $400,000 drop in profit
E.None of the other answers is correct
22) Consider the following statements about variance investigation:
I. Variance investigation involves a look at only unfavorable variances.
II. Variance investigation is typically based on a cost-benefit analysis.
III. Variance investigation is often performed by establishing guidelines similar to the
following: Investigate variances that are greater than $X or greater than Y% of standard
cost.
Which of the above statements is (are) true?
A.I only
B.II only
C.III only
D.II and III
E.I, II, and III
23) Vanguilder combines all manufacturing overhead into a single cost pool and
allocates this overhead to products by using machine hours. Activity-based costing
would likely show that with Vanguard’s current procedures that:
A.all of the company’s products are undercosted
B.the company’s high-volume products are undercosted
C.all of the company’s products are overcosted
D.the company’s high-volume products are overcosted
E.the company’s low-volume products are overcosted
24) Factory Oak produces various wooden bookcases, tables, storage units, and chairs.
Which of the following would be included in a listing of the company’s
non-value-added activities?
A.Assembly of tables
B.Staining of storage units
C.Transfer of chairs from the assembly line to the staining facility
D.Storage of completed bookcases in inventory
E.Transfer of chairs from the assembly line to the staining facility and storage of
completed bookcases in inventory
25) Wooster has the following budgeted costs at its anticipated production level
(expressed in hours): variable overhead, $165,000; fixed overhead, $250,000. If
Wooster now revises its anticipated production slightly upward, it would expect:
A.total fixed overhead of $250,000 and a lower hourly rate for variable overhead
B.total fixed overhead of $250,000 and the same hourly rate for variable overhead
C.total fixed overhead of $250,000 and a higher hourly rate for variable overhead
D.total variable overhead of less than $165,000 and a lower hourly rate for variable
overhead
E.total variable overhead of less than $165,000 and a higher hourly rate for variable
overhead
26) Alaina’s customer service department follows up on customer complaints by
telephone inquiry. During a recent period, the department initiated 10,000 calls and
incurred costs of $312,000. Of these calls, 3,800 were for the company’s wholesale
operation; the remainder was for the retail division. Costs allocated to the wholesale
operation are:
A.$0
B.$31,200
C.$118,560
D.$193,440
E.$203,000
27) Justin Company recently purchased materials from a new supplier at a very
attractive price. The materials were found to be of poor quality, and the company’s
laborers struggled significantly as they shaped the materials into finished product. In a
desperation move to make up for some of the time lost, the manufacturing supervisor
brought in more-senior employees from another part of the plant. Which of the
following variances would have a high probability of arising from this situation?
A.Material price variance, favorable
B.Material quantity variance, unfavorable
C.Labor rate variance, unfavorable
D.Labor efficiency variance, unfavorable
E.All of the other answers are correct
28) Generally speaking, budgets are not used to:
A.identify a company’s most profitable products
B.evaluate performance
C.create a plan of action
D.assist in the control of profit and operations
E.facilitate communication and coordinate activities
29) The role of managerial accounting information in assisting management is a(n):
A.financial-directingrole
B.attention-directing role
C.planning and controlling role
D.organizational role
E.problem-solving role
30) The following data relate to Department no. 2 of Eva Corporation:
On the basis of this information, fixed costs traceable to Department no. 2 but
controllable by others are:
A.$160,000
B.$220,000
C.$260,000
D.$480,000
E.not determinable
31) Dexter, Inc. manufactures various lines of computer equipment and is planning to
introduce a new line of laptops. Current plans call for the production and sale of 1,000
units, with estimated costs as follows:
The average amount of capital invested in the laptop product line is $900,000 and
Dexter’s target return on investment is 18%.
What price must Dexter charge if the company uses cost-plus pricing based on total
cost?
A.$868
B.$900
C.$1,000
D.$1,192
E.None of the other answers are correct
32) Standard costs:
A.allow a manager to assess the efficiency of operations
B.allow a company to practice management by exception
C.provide management with a basis for performance evaluations
D.if set correctly, can provide a motivational tool for employees
E.all of the other answers are correct
33) Which of the following correctly lists all the information needed to calculate a labor
rate variance?
A.Standard labor rate and actual hours worked
B.Actual hours worked and actual units produced
C.Standard labor rate, actual labor rate, and actual units produced
D.Actual labor rate and actual hours worked
E.Actual labor rate, standard labor rate, and actual hours worked
34) Consider the following statements about absorption-cost pricing formulas:
I. Absorption-cost formulas consider a company’s fixed manufacturing costs when
establishing a selling price.
II. Absorption-cost formulas are often justified on the grounds that a company must
cover all of its costs in the long run.
III. Absorption-cost data are the type that managers need when facing certain pricing
decisions, such as whether or not to accept a special order.
Which of the above statements is (are) true?
A.II only
B.I and II
C.I and III
D.II and III
E.I, II, and III
35) Millage Manufacturing has a cash balance of $8,000 on August 1 of the current
year. The company’s controller forecast the following cash receipts and cash
disbursements for the upcoming two months of activity:
Management desires to maintain a minimum cash balance of $8,000 at all times. If
necessary, additional financing can be obtained in $1,000 multiples at a 12% interest
rate. All borrowings are made at the beginning of the month; debt retirement, on the
other hand, occurs at the end of the month. Interest is paid at the time of repaying loan
principal and is computed on the portion of debt repaid.
Required:
A. Determine the ending cash balance in August both before and after any necessary
financing or debt retirement.
B. Repeat part “A” for September.
36) Package Express, Inc. operates a small package delivery service in the Jacksonville
suburbs. If the company uses a regression equation to forecast total operating costs, the
coefficient of the equation’s independent variable 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
37) Customer profitability analysis is tied closely to:
A.just-in-time systems
B.activity-based costing
C.job costing
D.process costing
E.operation costing
38) Tae Franklin is the sales manager of Darius Enterprises, a very profitable distributor
of office furniture to local businesses. A recent economic downturn has created an
extremely tight cash position, and the company has been hurt by the bankruptcy of two
key customers.
In late October, anticipating an economic recovery, Franklin began an extensive
remodeling of the company’s sales floor. Construction costs, decorating, and equipment
purchases are projected to cost $250,000.
Darius has a policy that individual expenditures in excess of $200,000 must be
approved by the firm’s board of directors. Franklin, unfortunately, missed the deadline
to have the board consider this project at its regular September meeting. Not wanting to
wait until the next meeting in December, he subdivided the project in two
partsconstruction and decorating ($190,000) and equipment purchases ($60,000)neither
of which needed board approval because of the dollar amounts involved.
The project was recently completed and sales have begun to recover. Customers have
raved about the new sales area, noting that it is far superior to those of Darius’s
competitors.
Required:
A. Would Franklin’s approach of subdividing the project in two parts have any effect on
the company’s financial statements? Briefly explain.
B. Briefly discuss whether Franklin behaved in an ethical manner.
C. Which, if any, of the following standards of conduct would have applicability to
Franklin’s conduct: competence, confidentiality, integrity, or credibility? Briefly
explain.
39) Elmton recently sold 70,000 units, generating sales revenue of $4,900,000. The
company’s variable cost per unit and total fixed cost amounted to $20 and $2,800,000,
respectively. Management is in the process of studying the dollar impact of various
transactions and events, and desires answers to the following independent cases:
Case no. 1: Management wants to lower the firm’s break-even point to 52,000 units. If
all other costs remain constant, what must happen to fixed costs to achieve this
objective?
Case no. 2: The company anticipates a $2 hike in the variable cost per unit. If all other
costs remain constant and management desires to maintain the firm’s current break-even
point, what must happen to Elmton’s selling price? If selling price remains constant,
what must happen to the firm’s total fixed costs?
Required:
A. Answer the two cases raised by management.
B. Determine the impact (increase, decrease, or no effect) of the following operating
changes on the items cited:
1> An increase in variable selling costs on income.
2> A decrease in direct material cost on the unit contribution margin.
3> A decrease in the number of units sold on the break-even point.
40) If a company sells goods that cost $80,000 for $92,000, the firm will:
A.reduce Finished-Goods Inventory by $80,000
B.reduce Finished-Goods Inventory by $92,000
C.report sales revenue on the balance sheet of $92,000
D.reduce Cost of Goods Sold by $80,000
E.follow more than one of the other procedures
41) The variable costs per unit are $6 when a company produces 12,000 units of
product. What are the variable costs per unit when 14,000 units are produced?
A.$4.50
B.$5.00
C.$5.50
D.$6.00
E.None of the other answers are correct
42) Which of the following features is typically absent in target costing?
A.An approach that begins with the determination of a product or service’s target cost
B.An approach that begins with the determination of a product or service’s target selling
price
C.A focus on the customer
D.A focus on product design
E.A focus on process design
43) Rock Star, Inc., which uses a job-costing system, began business on January 1,
20×3 and applies manufacturing overhead on the basis of direct-labor cost. The
following information relates to 20×3:
Budgeted direct labor and manufacturing overhead were anticipated to be $200,000 and
$250,000, respectively.
Job nos. 1, 2, and 3 were begun during the year and had the following charges for direct
material and direct labor:
Job nos. 1 and 2 were completed and sold on account to customers at a profit of 60% of
cost. Job no. 3 remained in production.
Actual manufacturing overhead by year-end totaled $233,000. Rock Star adjusts all
under- and overapplied overhead to cost of goods sold.
Required:
A. Compute the company’s predetermined overhead application rate.
B. Compute Rock Star’s ending work-in-process inventory.
C. Determine Rock Star’s sales revenue.
D. Was manufacturing overhead under- or overapplied during 20×3? By how much?
E. Present the necessary journal entry to handle under- or overapplied manufacturing
overhead at year-end.
F. Does the presence of under- or overapplied overhead at year-end indicate that Rock
Star’s accountants made a serious error? Briefly explain.
44) The fixed cost per unit:
A.will increase as activity increases
B.will increase as activity decreases
C.will decrease as activity increases
D.will remain constant
E.will increase as activity decreases and will decrease as activity increases
45) Indiana Company incurred the following costs during the past year when planned
production and actual production each totaled 20,000 units:
Indiana’s per-unit inventoriable cost under absorption costing is:
A.$9.50
B.$25.00
C.$28.00
D.$33.00
E.$40.50
46) The following terms are used to describe various economic characteristics of costs:
Required:
Choose one of the preceding terms to characterize each of the amounts described below.
Each term may be used only once.
A. The cost of including one extra child in a day-care center.
B. The cost of merchandise inventory purchased five years ago. The goods are now
obsolete.
C. The cost of feeding 300 children in a public school cafeteria is $450 per day, or
$1.50 per child per day. What economic term describes this $1.50 cost?
D. The management of a high-rise office building uses 3,000 square feet of space in the
building for its own administrative functions. This space could be rented for $30,000.
What economic term describes this $30,000 of lost rental revenue?
E. The cost of building an automated assembly line in a factory is $700,000; a manually
operated assembly line would cost $250,000. What economic term is used to describe
the $450,000 variation between these two amounts?
F. Refer to the preceding question and assume that the firm is currently building the
assembly line for $700,000. What economic term is used to describe the $700,000
construction cost?
47) Paige Company is contemplating the acquisition of a machine that costs $50,000
and promises to reduce annual cash operating costs by $11,000 over each of the next six
years. Which of the following is a proper way to evaluate this investment if the
company desires a 12% return on all investments?
A.$50,000 versus -$11,000 6
B.$50,000 versus -$66,000 0.507
C.$50,000 versus -$66,000 4.111
D.$50,000 versus -$11,000 4.111
E.$50,000 0.893 versus -$11,000 4.111
48) The term “normal costing” refers to the use of:
A.job-costing systems
B.computerized accounting systems
C.targeted overhead rates
D.predetermined overhead rates
E.actual overhead rates
49) Which of the following variances cannot occur together during the same accounting
period?
A.Unfavorable labor rate variance and favorable labor efficiency variance
B.Unfavorable labor efficiency variance and favorable material quantity variance
C.Favorable labor rate variance and unfavorable total labor variance
D.Favorable labor efficiency variance and favorable material quantity variance
E.None of the other answers are correct, because all of these variance combinations are
possible
50) Chambliss Corporation has three costs: A, which is variable; B, which is fixed; and
C, which is semivariable. The company uses the high-low method and extracted the
following data from its accounting records:
At 180,000 hours of activity, Cost A totaled $2,610,000.
At 140,000 hours, the low point during the period, Cost C totaled $1,498,000; at
200,000 hours, the high point, Cost C’s fixed portion amounted to $1.75 per hour.
At 160,000 hours of activity, the sum of Costs A, B, and C amounted to $8,162,000.
Required:
A. Compute the variable portion (total) of Cost C at 140,000 hours of activity.
B. Compute Cost C (total) at 160,000 hours of activity.
C. Compute Cost B (total) at 160,000 hours of activity.
51) McKenna’s Florida Division is currently purchasing a part from an outside supplier.
The company’s Alabama Division, which has excess capacity, makes and sells this part
for external customers at a variable cost of $22 and a selling price of $34. If Alabama
begins sales to Florida, it (1) will use the general transfer-pricing rule and (2) will be
able to reduce variable cost on internal transfers by $4. If sales to outsiders will not be
affected, Alabama would establish a transfer price of:
A.$18
B.$22
C.$30
D.$34
E.None of the other answers are correct
52) Differentiate between committed costs and discretionary costs. Be sure to present
two examples of each and explain which of the two cost types would likely be cut
should a company encounter financial difficulties.
53) Balanced scorecards contain a number of factors that are important to the success of
a business. These factors are often divided into four categories: financial, internal
operations, customer, and learning and growth?
54) Consider the nine activities that follow.
1> Microsoft: Developing computer coding for a new spreadsheet package.
2> General Mills: Painting the office of a maintenance supervisor at a plant that
produces cereal.
3> Mayo Clinic: Examining a new patient.
4> American Airlines: The 90 minutes that a Boeing 757 sits idle on the ground
between flights.
5> Office Depot: Moving cases of paper from one location to another in the same
warehouse.
6> Rolex: Attaching a watch band to the watch’s face.
7> United States Postal Service: Reprocessing mail that had been sorted incorrectly on
a malfunctioning sorting machine.
8> Fidelity Investments: Correcting errors made by company personnel in customer
accounts.
9> Marriott: Upgrading the quality of bedding used at hotels in very competitive
marketplaces.
Required:
Categorize each of the activities as either value-added or non-value-added for the
companies noted.
55) The selected data that follow relate to the Bargeron Furniture Company.
During the year, products costing $310,000 were completed, and products costing
$316,000 were sold on account for $455,000.
Required:
Prepare journal entries to record the preceding transactions and events.
56) Briefly distinguish between managerial accounting and financial accounting. Be
sure to comment on the general focus, users, and regulation related to the two fields.
57) Hitchcock Company is studying the impact of the following:
1> An increase in sales price.
2> An increase in the variable cost per unit.
3> An increase in the number of units sold (note: each unit produces a $6 contribution
margin).
4> A decrease in fixed costs.
5> A proposed change in the method of compensation for salespeople, away from
commissions based on gross sales dollars and toward higher monthly salaries.
Required:
Determine the impact of each of these operating changes on Hitchcock’s per-unit
contribution margin and break-even point by completing the chart that follows. Your
responses should be Increase (INC), Decrease (DEC), No Effect (NE), or Insufficient
Information to Judge (II).