Traditional costing systems employ multiple allocation rates for manufacturing
overhead costs, but an activity-based costing system uses only one rate for allocating
manufacturing overhead costs.
Manufacturing companies produce their own products, but merchandising companies
do not.
Traditional costing provides more detailed information on costs of activities and the
drivers of these costs than activity-based costing.
The transfer price should be an amount between the market price and the variable cost.
If the volume of activity doubles in the relevant range, total variable costs will also
double.
The following information is provided by Horowitz Systems:
What is the profitability index for Project C? (Round your answer to two decimal
places.)
A) 1.48
B) 1.38
C) 1.26
D) 1.23
Davis Naturals manufactures bulk quantities of cleaning fluids. It currently sells 1,000
containers a month at a sales price of $18 per unit. If a new fragrance is added, $20 per
unit could be charged for the improved product. It would cost a total of $900 per month
to make that alteration. Operating income would ________.
A) decline by $2,000
B) increase by $2,000
C) increase by $1,100
D) decline by $900
The Assembly Department of Smart, Inc., a manufacturer of computers, had a
beginning inventory of 5,000 units. During November, it assembled 2,000 units and
transferred them to the Packaging Department. It incurred $250,000 in direct materials
and $75,000 in conversion costs. The ending inventory in November was 6,000 units,
which were 100% and 60% complete with respect to materials and conversion costs,
respectively. Calculate the total equivalent units of production for conversion costs for
November.
A) 2,000 units
B) 8,000 units
C) 5,600 units
D) 3,600 units
Which of the following formulas represents cost of goods sold for a merchandising
business?
A) Beginning Merchandise Inventory – Ending Merchandise Inventory = Cost of Goods
Sold
B) Purchases and Freight In – Ending Merchandise Inventory = Cost of Goods Sold
C) Ending Merchandise Inventory + Purchases and Freight In – Beginning Merchandise
Inventory = Cost of Goods Sold
D) Beginning Merchandise Inventory + Purchases and Freight In – Ending Merchandise
Inventory = Cost of Goods Sold
In a cash receipts journal, ________.
A) cash sales are recorded in the Accounts Receivable CR column and the Cash DR
column
B) collections on account are recorded in the Accounts Receivable DR column and the
Cash DR column
C) the miscellaneous cash receipt transactions are ignored
D) the cash sales are recorded in the Sales Revenue CR column
Felix Time Company manufactures and sells watches for $40 each. Times Products
Company has offered Felix Time $25 per watch for a one-time order of 5,000 watches.
The total manufacturing cost per watch is $28 per unit and consists of variable costs of
$20 per watch and fixed overhead costs of $8 per watch. Assume that Felix Time has
excess capacity and that the special pricing order would not adversely affect regular
sales. What is the change in operating income that would result from accepting the
special sales order?
A) increase of $25,000
B) decrease of $25,000
C) increase of $125,000
D) decrease of $125,000
Voltice Services provides event management services. The company has three
employees, each assigned to specific customers. The company considers each
employee’s territory as a business segment. The following data relate to its three
segments for the month of June:
The business segments had the following number of customers: Barney, 24; Margaret,
28; and Owen, 33. The total fixed costs for the month amounts to $3,400. What is the
operating income of Voltice Services for the month of June?
A) $7,250
B) $3,850
C) $32,150
D) $2,300
St. Petersburg Corporation makes a $1,200 purchase of merchandise inventory for cash.
This transaction will be recorded in the ________.
A) cash payments journal
B) general journal
C) cash receipts journal
D) purchase journal
The balanced scorecard system requires management to consider ________.
A) both financial and operational performance measures
B) only performance measures
C) only leading indicators
D) only financial and customer perspectives
Roberts Produce Company has fixed costs of $14,000. The company’s contribution
margin ratio is 46%, and the ratio of selling revenue to sales is 20%. What is the
breakeven point in sales dollars? (Round your answer to the nearest dollar.)
A) $70,000
B) $30,435
C) $6,440
D) $2,800
The manager of which of the following centers has the authority to open new stores or
close existing ones?
A) cost center
B) profit center
C) investment center
D) revenue center
Which of the following is the correct formula for measuring the efficiency variance?
A) Efficiency Variance = (Actual Quantity + Standard Quantity) – Standard Cost
B) Efficiency Variance = (Actual Quantity × Standard Quantity) / Standard Cost
C) Efficiency Variance = (Actual Quantity / Standard Quantity) × Standard Cost
D) Efficiency Variance = (Actual Quantity – Standard Quantity) × Standard Cost
Home Industries is considering replacing a machine that is presently used in its
production process. Which of the following amounts represents a sunk cost?
A) $55,000
B) $33,000
C) $9,000
D) $45,000
Bernaise, Inc. sells cosmetic products in the United States. Which one of the following
is most likely to be a revenue center for Bernaise?
A) a Bernaise retail store in Dallas
B) the Bernaise human resource department
C) a Bernaise kiosk at a mall for selling its products
D) the Bernaise product lines
One of the primary activities of Rex, Inc. is to purchase hats from Viva, Inc. in Texas
and sell them to its customers in Washington for a profit. It is likely that Rex is a
________.
A) manufacturing company
B) hybrid company
C) service company
D) merchandising company
Which of the following will result in an unfavorable direct labor cost variance?
A) when actual direct labor hours exceed standard direct labor hours
B) when actual direct labor hours are less than standard direct labor hours
C) when the actual direct labor cost per hour exceeds the standard direct labor cost per
hour
D) when the actual direct labor cost per hour is less than the standard direct labor cost
per hour
The budgeting process ________.
A) usually begins about one month before the beginning of the budget period to allow
for more current information to be considered
B) does not need input from all levels because it is the role of management to control
costs and meet revenue goals
C) requires significant coordination among the company’s various business segments
D) is standard among all types of companies
List three cash inflows and three cash outflows for capital investments.
Mathews Construction Materials Company has a sales office that sells concrete culvert
pipes to property developers. The sales office is a revenue center and prepares a
monthly responsibility report. The following information is provided. Complete the
responsibility report.
Mathews Construction Materials Company
Revenue Center Responsibility Report
Andres Napkin Company sells a product for $80 per unit. Variable costs are $25 per
unit, and fixed costs are $4,000 per month. Andres sold 2,000 units in October. Prepare
an income statement for October using the contribution margin format.
At the end of the year, Martin, Inc. has an unadjusted credit balance in the
Manufacturing Overhead account of $95. Provide the year-end adjusting entry needed
to adjust the account.
In process costing, production costs are accumulated by process. At the end of the
period, the total production costs incurred must be split into two components. What are
these two components?
A company is evaluating an investment. The company uses the straight-line method of
depreciation. Use the following information to compute the accounting rate of return.
Show your calculations and round to one decimal place.
Ivade, Inc. uses a predetermined overhead allocation rate of $75 per direct labor hour.
In January, Ivade completed Job B23, which utilized 20 direct labor hours. Provide the
journal entry to allocate overhead to the job.
Journalize the above transactions that should be recorded in the general journal. If a
transaction should not be recorded in the general journal, identify the special journal
that should be used. Assume the company uses the perpetual inventory system.
