1) The break-even point is that level of activity where total revenue equals total cost.
2) The City of Columbus should not consider the purchase price of its old vehicle when
making the decision to replace it with a more cost effective new vehicle.
3) Measuring the performance of managers and subunits is not an objective of
managerial accounting.
4) The term “normal costing” refers to the use of job-costing systems.
5) Inventoriable costs are expensed when incurred.
6) Generally speaking, companies prefer doing business with customers who order
small quantities rather than large quantities.
7) A company’s sales forecast would likely not consider general economic and industry
trends.
8) Consider the seven statements that follow.
1> An analysis of fixed overhead will typically result in the computation of the
fixed-overhead spending variance and the fixed-overhead volume variance.
2> The standard rate for fixed overhead is computed by dividing a company’s budgeted
fixed overhead for the period by the planned manufacturing activity.
3> A company uses direct labor hours to apply manufacturing overhead to units of
production. If the company reports an unfavorable labor efficiency variance, that same
firm might report a favorable variable-overhead efficiency variance in the same
accounting period.
4> The amount of actual fixed overhead for an accounting period is used to compute the
fixed-overhead volume variance.
5> If a company’s standard hours allowed for the manufacturing activity attained
exceeds the planned manufacturing activity, the firm will report a favorable
fixed-overhead volume variance.
6> The amount of fixed overhead that a company has budgeted for an accounting
period will increase or decrease with the actual number of units produced.
7> The fixed-overhead volume variance indicates whether the level of production
activity attained is higher or lower than the level originally anticipated.
Required:
Determine whether the preceding statements are true or false. If a statement is false,
briefly explain why it is false.
9) The Purchasing Department would normally begin an investigation regarding an
unfavorable materials quantity variance.
10) Variable manufacturing overhead becomes part of a unit’s cost when variable
costing is used.
11) The maximization of profits of the buying division is one of the goals that should be
pursued when setting transfer prices.
12) Fixed manufacturing overhead is not inventoried under absorption costing.
13) Generally speaking, companies prefer doing business with customers who order
small quantities rather than large quantities.
14) Finished goods inventory is ordinarily held for sale by a manufacturing company.
15) The upper limit on the production of goods and services if everything works
perfectly is known as practical capacity.
16) Which of the following journal entries definitely contains an error?
A.
B.
C.
D.
E.
17) Springer began business at the start of the current year. The company planned to
produce 40,000 units, and actual production conformed to expectations. Sales totaled
37,000 units at $42 each. Costs incurred were:
If there were no variances, the company’s variable-costing income would be:
A.$155,000
B.$212,000
C.$240,500
D.$592,000
E.None of the other answers are correct
18) Which of the four items listed below is not a type of production process?
A.Batch
B.Job Shop
C.Continuous Flow
D.Job Flow
19)
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
20) Which of the following occurs if a company experiences a decrease in its fixed
costs?
A.Income would decrease
B.The break-even point would decrease
C.The contribution margin would increase
D.The contribution margin would decrease
E.More than one of the other answers would occur
21) Process costing is used to account for:
A.large numbers of identical products that are produced in a continuous manufacturing
environment
B.small numbers of products that are produced in batches
C.raw materials that are converted directly to finished goods
D.finished goods that are refined and processed further
E.large numbers of products that are produced in a non-repetitive process
22) Conversion costs are:
A.direct material, direct labor, and manufacturing overhead
B.direct material and direct labor
C.direct labor and manufacturing overhead
D.prime costs
E.period costs
23) Lake Appliance produces washers and dryers in an assembly-line process. Labor
costs incurred during a recent period were: corporate executives, $500,000;
assembly-line workers, $180,000; security guards, $45,000; and plant supervisor,
$110,000. The total of Lake’s direct labor cost was:
A.$110,000
B.$180,000
C.$155,000
D.$235,000
E.$735,000
24) Argosy, Inc. uses target costing and will soon enter a very competitive marketplace
in which it will have limited influence over the prices that are charged. Management
and consultants are working to fine-tune the company’s sole service, which hopefully
will generate a 12% return (profit) on the firm’s $24,000,000 asset investment. The
following information is available:
Hours of service to be provided: 34,000
Anticipated variable cost per service hour: $30
Anticipated fixed cost: $2,560,000 per year
Required:
A. How much profit must Argosy produce to achieve a 12% return?
B. Calculate the revenue per hour that Argosy must generate to achieve a 12% return.
C. Assume that prior to entering the marketplace, management conducted a planning
exercise to determine whether a 14% return could be attained in year no. 2 . Can the
company achieve this return if (a) competitive pressures dictate a maximum selling
price of $195 per hour and (b) service hours, variable cost per service hour, and fixed
costs are the same as the amounts anticipated in year no. 1? Show calculations.
D. If your answer to part “C” is “no,” suggest and briefly describe a procedure that
Argosy might use to achieve desired results.
25) The nonstatistical method of cost estimation that calls for the creation of a scatter
diagram is the:
A.least-squares regression method
B.high-low method
C.visual-fit method
D.account analysis method
E.multiple regression method
26) The difference between budgeted sales revenue and break-even sales revenue is the:
A.contribution margin
B.contribution-margin ratio
C.safety margin
D.target net profit
E.operating leverage
27) 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. If Brooklyn’s unit sales are 200
units less than anticipated, its breakeven point will:
A.increase by $12 per unit sold
B.decrease by $12 per unit sold
C.increase by $8 per unit sold
D.decrease by $8 per unit sold
E.not change
28) A cost pool is:
A.a collection of homogeneous costs to be assigned
B.almost always the combined result of decisions made by different responsibility
center managers
C.the primary function of a responsibility accounting system
D.the amount of cost that has been allocated, say, 10%, to a user department
E.the tool used to allocate cost dollars to user departments
29) When using a balanced scorecard, which of the following is typically classified as
an internal-operations performance measure?
A.Cash flow
B.Number of customer complaints
C.Employee training hours
D.Number of employee suggestions
E.Number of suppliers used
30) Common costs:
A.are not easily related to a segment’s activities
B.are easily related to a segment’s activities
C.are charged to a company’s operating segments when preparing a segmented income
statement
D.are not charged to a company’s operating segments when preparing a segmented
income statement
E.are not easily related to a segment’s activities and also are not charged to a company’s
operating segments when preparing a segmented income statement
31)
The mayor of Statesville is considering the purchase of a new computer system for the
city’s tax department. The system costs $75,000 and has an expected life of five years.
The mayor estimates the following savings will result if the system is purchased:
Statesville uses a 10% discount rate for capital-budgeting decisions.
A salesperson from a different computer company claims that his machine, which costs
$85,000 and has an estimated service life of four years, will generate annual savings for
the city of $32,000. If the discount rate is 10%, the net present value of this system
would be:
A.$16,440
B.$23,175
C.$63,512
D.$101,440
E.None of the other answers are correct
32) An accountant recently debited Work-in-Process Inventory and credited
Manufacturing Overhead at a company that uses normal costing. The accountant was:
A.applying a predetermined overhead amount to production
B.recognizing receipt of the factory utilities bill
C.recording a year-end adjustment for an insignificant amount of underapplied
overhead
D.recognizing actual overhead incurred during the period
E.recognizing the completion of production
33) Taurus Company has set various goals, and management is now taking appropriate
action to ensure that the firm achieves these goals. One such action is to reduce outlays
for overhead, which have exceeded budgeted amounts. Which of the following
functions best describes this process?
A.Decision making
B.Planning
C.Coordinating
D.Controlling
E.Organizing
34) The following data relate to product no. 33 of La Quinta Corporation:
Direct labor standard: 5 hours at $14 per hour
Direct labor used in production: 45,000 hours at a cost of $639,000
Manufacturing activity: 8,900 units completed
The direct-labor rate variance is:
A.$8,900F
B.$8,900U
C.$9,000F
D.$9,000U
E.None of the other answers are correct
35) Moneka reported $65,000 of income for the year by using absorption costing. The
company had no beginning inventory, planned and actual production of 20,000 units,
and sales of 18,000 units. Standard variable manufacturing costs were $20 per unit, and
total budgeted fixed manufacturing overhead was $100,000. If there were no variances,
income under variable costing would be:
A.$15,000
B.$55,000
C.$65,000
D.$75,000
E.$115,000
36) The difference between the profit margin controllable by a segment manager and
the segment profit margin is caused by:
A.variable operating expenses
B.allocated common expenses
C.fixed expenses controllable by the segment manager
D.fixed expenses traceable to the segment but controllable by others
E.sales revenue
37) Xi Manufacturing, which began operations on January 1 of the current year,
produces an industrial scraper that sells for $325 per unit. Information related to the
current year’s activities follows.
Xi carries its finished-goods inventory at the average unit cost of production. There was
no work in process at year-end.
Required:
A. Compute the company’s average unit cost of production.
B. Determine the cost of the December 31 finished-goods inventory.
C. Compute the company’s cost of goods sold.
D. If next year’s production increases to 23,000 units and general cost behavior patterns
do not change, what is the likely effect on:
1> The direct-labor cost of $35 per unit? Why?
2> The fixed manufacturing overhead cost of $400,000? Why?
38) Under section 404 of the Sarbanes-Oxley Act, auditors are required to:
A.Attest to and report on management’s assessment of internal controls
B.Establish and maintain internal controls for audited companies
C.Advise management on its preparation of the Report on Internal Controls
D.Evaluate the company’s internal control system periodically throughout the year
E.All of the other answers are correct
39) The accounting records of Bronco Company revealed the following information:
Bronco’s cost of goods manufactured is:
A.$519,000
B.$522,000
C.$568,000
D.$571,000
E.None of the other answers are correct
40) Which of the following activity cost pools and activity measures likely has the
lowest degree of correlation?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
41) On May 1, Dawdle Company had a work-in-process inventory of 10,000 units. The
units were 100% complete for material and 30% complete for conversion, with
respective costs of $30,000 and $1,850.
During the month, 150,000 units were completed and transferred to finished goods. The
May 31 ending work-in-process inventory consisted of 10,000 units that were 100%
complete with respect to materials and 80% complete with respect to conversion.
Costs added during the month were $330,000 for materials and $503,750 for
conversion.
Required:
Using the weighted-average method, calculate:
A. total equivalent units for material and conversion.
B. the cost per equivalent unit for material and conversion.
C. the cost transferred to finished goods.
D. the cost of ending work in process.
42) The unit contribution margin is calculated as the difference between:
A.selling price and fixed cost per unit
B.selling price and variable cost per unit
C.selling price and product cost per unit
D.fixed cost per unit and variable cost per unit
E.fixed cost per unit and product cost per unit
43) Each of Davisson’s production managers (annual salary cost, $45,000) can oversee
60,000 machine hours of manufacturing activity. Thus, if the company has 50,000 hours
of manufacturing activity, one manager is needed; for 75,000 hours, two managers are
needed; for 125,000 hours, three managers are needed; and so forth. Davisson’s salary
cost can best be described as a:
A.variable cost
B.semivariable cost
C.step-variable cost
D.fixed cost
E.step-fixed cost
44) The capacity concept that allows for normal occurrences such as machine downtime
and employee fatigue is known as:
A.practical capacity
B.theoretical capacity
C.utilized capacity
D.management capacity
E.capacity maximization
45) Financial accounting focuses primarily on reporting:
A.to parties outside of an organization
B.to parties within an organization
C.to an organization’s board of directors
D.to financial institutions
E.for financial institutions
46) Roberto Ventura operates a commercial painting business in Sacramento, which has
a very tight labor market. Much of his work focuses on newly constructed apartments
and townhouses.
The following data relate to crew no. 5 for a recently concluded period when 85
apartment units were painted:
Three new employees were assigned to crew no. 5 . Wages averaged $18.80 per hour
for each employee; the crew took 2,550 hours to complete the work.
Based on his knowledge of the operation, articles in trade journals, and conversations
with other painters, Ventura established the following standards:
Typical hourly wage rate of crew personnel: $15
Anticipated crew time for each unit: 34 hours
The paint quantity variance was $6,070F.
The operation did not go as smoothly as planned, with customer complaints and
problems being much higher than expected.
Required:
A. Compute Ventura’s direct-labor variances.
B. Is the direct-labor rate variance consistent with what you might expect in a tight
labor market? Explain.
C. Analyze the information given and that you calculated, and determine what likely
happened that would give rise to customer complaints.
47) Halo Enterprises recently experienced a fire, forcing the company to use incomplete
information to analyze operations. Consider the following data and assume that all
materials purchased during the period were used in production:
Direct materials:
Standard price per pound: $9
Actual price per pound: $8
Price variance: $20,000F
Total of direct-material variances: $2,000F
Direct labor:
Actual hours worked: 40,000
Actual rate per hour: $15
Efficiency variance: $28,000F
Total of direct-labor variances: $12,000U
Halo completed 12,000 units.
Required:
Determine the following: (1) actual materials used, (2) direct-material quantity
variance, (3) direct-labor rate variance, (4) standard labor rate per hour, and (5) standard
labor time per finished unit.
48) Templeton Industries currently assigns overhead to products by using a
predetermined rate based on direct labor hours. The company is considering the
adoption of an activity-based costing (ABC) system, and management desires a brief
overview of this system before it makes a final decision.
Compare ABC with the company’s current system, focusing on the number of cost
pools and cost drivers, costing accuracy, and cost distortion.
49) Consider the descriptors that follow.
1> Is heavily involved with the recordkeeping and reporting of assets, liabilities, and
stockholders’ equity.
2> Focuses on planning, decision making, directing, and control.
3> Is heavily regulated.
4> A field that is becoming more “cross-functional” in nature.
5> Much of the field is based on costs and benefits.
6> Is involved almost exclusively with past transactions and events.
7> Much of the information provided is directed toward stockholders, financial
analysts, creditors, and other external parties.
8> Tends to focus more on subunits within an entity rather than the organization as a
whole.
9> May become involved with measures of customer satisfaction, and the amount of
actual cost incurred vs. budgeted targets.
Required:
Determine whether the descriptors are most closely associated with financial
accounting or managerial accounting.
50) Santorini Corporation has experienced a number of out-of-stock situations with
respect to its finished-goods inventories. Inventory at the end of May, for example, was
only 50 unitsan all-time low.
Management desires to implement a policy whereby finished-goods inventory is 70% of
the following month’s sales. Budgeted sales for June, July, and August are expected to
be 5,000 units, 5,600 units, and 5,500 units, respectively.
Required:
Determine the number of units that Santorini must produce in June and July.
51) Manufacturers have established a cost classification called product costs. Define the
term “product cost” and note where these costs appear in the financial statements. Be
specific.
52) 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.
53) Fog City Retail operates a retail store in Phoenix, Las Vegas, and Portland. The
following information relates to the Phoenix facility:
The store sold 65,000 units at $18.00 each, after having purchased the units from
various suppliers for $12.50. Phoenix salespeople are paid a 5% commission based on
gross sales dollars.
Phoenix’s sales manager oversees the placement of local advertising contracts, which
totaled $54,000 for the year. Local property taxes amounted to $14,500.
The sales manager’s $65,000 salary is set by Phoenix’s store manager. In contrast, the
store manager’s $134,000 salary is determined by Fog City’s vice president.
Phoenix incurred $6,800 of other noncontrollable costs.
Nontraceable (common) corporate overhead totaled $68,000.
Fog City’s corporate headquarters is located in Portland, and the company uses
responsibility accounting to evaluate performance.
Required:
Prepare a segmented income statement for the Phoenix store, being sure to disclose the
segment contribution margin, the segment controllable profit margin, and segment
profit margin.
54) Define the term “relevant range” and explain its importance in understanding cost
behavior.
55) Consider the following independent cases that relate to service department cost
allocations:
Case A: Strickland Company has two service departments [Human Resources (H/R)
and Information Systems] and two production departments (Machining and Assembly).
Human Resource cost is allocated by using the direct method based on the number of
personnel in each department. For the period just ended, there were 189 employees in
Machining, and Machining received $90,000 of H/R’s overhead of $200,000. How
many employees are in the Assembly Department?
Case B: Walter Burke, controller of Alexander Enterprises, wants service department
managers to be aware that their use of other service departments costs the firm a
substantial amount of money. Would Burke prefer the direct method or the step-down
method of cost allocation? Why?
Case C: Lockwood Company has four service departments (S1, S2, S3, and S4) and two
production departments (P1 and P2). The costs of S1 are allocated first, followed in
order by the costs of S2, S3, and S4. Lockwood uses the step-down method, and the
costs of S2 are allocated based on the number of computer hours used. Computer hours
logged during the period were as follows: S1, 4,600; S2, 7,100; S3, 10,400; S4, 17,600;
P1, 37,000; and P2, 48,600 . Over how many hours would S2’s cost be allocated?
Case D: A recently hired staff accountant noted that given the nature of the allocations,
the total cost allocated to production departments is typically less under the step-down
method than under the direct method. Do you agree with the accountant? Why?
Required:
Answer the questions that are raised in Cases A, B, C, and D.
56) The time value of money and present value are important business concepts.
Required:
Differentiate between the concepts discounting and compounding.