1) Which of the following statements about materials is false?
A.Acquisitions of materials are normally charged to the Purchases account
B.The use of direct materials gives rise to a debit to Work-in-Process Inventory
C.The use of indirect materials gives rise to a debit to Manufacturing Overhead
D.The use of indirect materials gives rise to a credit to Manufacturing Supplies
Inventory
E.Direct materials are accounted for in a different manner than indirect materials
2) Shields carries a part that is popular in the manufacture of automatic sprayers.
Demand for this part is 4,000 units per year; order costs amount to $30 per order, and
holding costs total $1.50 per unit.
The company, which currently places four orders per year with its suppliers, is
considering the implementation of an economic order quantity (EOQ) model to better
manage its inventories. Preliminary EOQ calculations revealed an optimal order
quantity of 400 units and total annual inventory costs of $600.
Required:
A. In comparison with its current policy, how much will Shields save by adopting the
EOQ model?
B. Briefly explain the philosophical difference between the EOQ model and the
just-in-time model. Which of the two models will likely result in lower holding costs
for the firm? Why?
3) 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 .
4) A company observed a decrease in the cost per unit. All other things being equal,
which of the following is most likely true?
A.The company is studying a variable cost, and total volume has increased
B.The company is studying a variable cost, and total volume has decreased
C.The company is studying a fixed cost, and total volume has increased
D.The company is studying a fixed cost, and total volume has decreased
E.The company is studying a fixed cost, and total volume has remained constant
5) A company has fixed costs of $900 and a per-unit contribution margin of $3. Which
of the following statements is true?
A.Each unit “contributes” $3 toward covering the fixed costs of $900
B.The situation described is not possible and there must be an error
C.Once the break-even point is reached; the company will increase income at the rate of
$3 per unit
D.The firm will definitely lose money in this situation
E.Each unit “contributes” $3 toward covering the fixed costs of $900 and once the
break-even point is reached, the company will increase income at the rate of $3 per unit
6) Sammons Corporation had a favorable direct-labor efficiency variance of $6,000 for
the period just ended. The actual wage rate was $0.50 more than the standard rate of
$12.00. If the company’s standard hours allowed for actual production totaled 9,500,
how many hours did the firm actually work?
A.9,000
B.9,020
C.9,980
D.10,000
E.None of the other answers are correct
7) 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
8) Jamal & Co. makes and sells two types of shoes, Plain and Fancy. Data concerning
these products are as follows:
Sixty percent of the unit sales are Plain, and annual fixed expenses are $45,000.
Assuming that the sales mix remains constant, the total number of units that Jamal must
sell to break even is:
A.2,432
B.2,647
C.4,737
D.5,000
E.None of the other answers is correct
9) A fixed-overhead volume variance would normally arise when:
A.actual hours of activity coincide with actual units of production
B.budgeted fixed overhead is less than (or greater than) applied fixed overhead
C.there is a fixed-overhead budget variance
D.actual fixed overhead exceeds budgeted fixed overhead
E.there is a variable-overhead efficiency variance
10) Roma Corporation has computed the following unit costs for the year just ended:
Under absorption costing, each unit of the company’s inventory would be carried at:
A.$49
B.$54
C.$72
D.$104
E.None of the other answers are correct
11) Which of the following statements is true?
A.The word “cost” has the same meaning in all situations in which it is used
B.Cost data, once classified and recorded for a specific application, are appropriate for
use in any application
C.Different cost concepts and classifications are used for different purposes
D.All organizations incur the same types of costs
E.Costs incurred in one year are always meaningful in the following year
12) Consider the following statements:
I. Product diversity creates costing problems because diverse products tend to utilize
manufacturing activities in different ways.
II. Overhead costs that are not incurred at the unit level create costing problems because
such costs do not vary with traditional application bases such as direct labor hours or
machine hours.
III. Product diversity typically exists when a single product (e.g., a ballpoint pen) is
made in different colors.
Which of the above statements is (are) true?
A.I only
B.II only
C.I and II
D.I and III
E.II and III
13) Which of the following would be the best measure on which to base a segment
manager’s performance evaluation for purposes of granting a bonus?
A.Segment sales revenue
B.Segment contribution margin
C.Profit margin controllable by the segment manager
D.Segment profit margin
E.Segment net income
14) The individual generally responsible for the direct-material price variance is the:
A.sales manager
B.production supervisor
C.purchasing manager
D.finance manager
E.head of the human resources department
15) A flexible budget for 15,000 hours revealed variable manufacturing overhead of
$90,000 and fixed manufacturing overhead of $120,000. The budget for 20,000 hours
would reveal total overhead costs of:
A.$240,000
B.$270,000
C.$290,000
D.$350,000
E.$210,000
16) Which of the following statements regarding work in process is not correct?
A.Work in process is partially completed inventory
B.Work in process consists of direct labor, direct material, and manufacturing overhead
C.Work-in-Process Inventory is debited to record direct material used and direct labor
incurred
D.Work-in-Process Inventory appears on the year-end balance sheet
E.Work-in-Process Inventory is credited when goods are sold
17)
A machine is expected to produce increases in cash operating costs of $200,000 for the
next six years. If the company has a 14% after-tax hurdle rate and is subject to a 30%
income tax rate, the correct discounted net cash flow would be:
A.$(233,340)
B.$(544,460)
C.$(777,800)
D.$(1,011,140)
E.None of the other answers are correct
18) FastTec sells electronics in retail outlets and on the Internet. It uses activity-based
budgeting in the preparation of its selling, general, and administrative expense budget.
Which of the following costs would the company likely classify as a unit-level expense
on its budget?
A.Media advertising
B.Retail outlet sales commissions
C.Salaries of web-site maintenance personnel
D.Administrative salaries
E.Salary of the sales manager employed at store no. 23
19) Which of the following companies would likely use a process-costing system?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
20) Which of the following costs should be used when choosing between two decision
alternatives?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
21) The Gingham Company’s budgeted income statement reflects the following
amounts:
Sales are collected 50% in the month of sale, 30% in the month following sale, and
19% in the second month following sale. One percent of sales is uncollectible and
expensed at the end of the year.
Gingham pays for all purchases in the month following purchase and takes advantage of
a 3% discount. The following balances are as of January 1:
*Of this balance, $35,000 will be collected in January and the remaining amount will be
collected in February.
The monthly expense figures include $5,000 of depreciation. The expenses are paid in
the month incurred.
Gingham’s budgeted cash payments in February are:
A.$75,660
B.$94,860
C.$97,200
D.$99,860
E.$102,200
22) Agora Company uses a process-cost system for its single product. Material A is
added at the beginning of the process; in contrast, material B is added when the units
are 75% complete. The firm’s ending work-in-process inventory consists of 6,000 units
that are 80% complete. Which of the following correctly expresses the equivalent units
of production with respect to materials A and B in the ending work-in-process
inventory?
A.A, 4,800; B, 0
B.A, 4,800; B, 4,800
C.A, 6,000; B, 0
D.A, 6,000; B, 4,800
E.A, 6,000; B, 6,000
23) Riskless Insurance uses budgets to forecast and monitor overhead throughout the
organization. The following budget formula relates to the processing of applications for
automobile policies in any given month:
Total overhead = $6.80APH + $13,500
where APH = application processing hours
The typical automobile insurance policy has an estimated processing time of 1.5 hours.
During June, management originally anticipated that 320 applications would be
processed. Activity was lower than expected, with only 280 applications completed by
month-end, and the following costs were incurred: variable overhead, $2,950; fixed
overhead, $13,700.
Required:
A. What volume level of applications and processing hours would have been used if
Sitka had constructed a static budget?
B. Construct a flexible budget that shows the expected monthly variable and fixed
overhead costs of processing 270, 300, and 330 applications.
C. From a cost perspective, did the company perform better or worse than anticipated in
June? Show calculations to support your answer.
24) You estimate that it will take five years to complete your college education. Your
parents want to invest enough money today at an interest rate of 8% compounded
annually to allow you to withdraw $10,000 at the end of each year for the next five
years, with nothing left at the end. The amount of money to invest today is:
A.$14,690
B.$34,050
C.$39,930
D.$50,000
E.None of the other answers are correct
25) The following information relates to the Atlas Division of Global Enterprises:
On the basis of this information, Atlas’s weighted-average cost of capital is closest to:
A.7.3%
B.8.3%
C.9.5%
D.10.8%
E.None of the other answers are correct
26) The term “outsourcing” is most closely associated with:
A.special-order decisions
B.make-or-buy decisions
C.equipment replacement decisions
D.decisions to process joint products beyond the split-off point
E.decisions that involve limited resources
27)
Refer to the figure above. Line C represents the level of:
A.fixed cost
B.variable cost
C.semivariable cost
D.total cost
E.mixed cost
28) High’s Roofing performs roofing services for commercial clients. The company
recently submitted a bid of $371,000 to the Shawnee School System, computed as
follows:
High adds a 20% profit margin to all jobs, computed on the basis of total direct cost. In
Shawnee’s case the profit margin amounted to $50,000 ($250,000 20%), producing a
bid price of $371,000. Assume that 60% of construction overhead is fixed.
Required:
A. If High had excess capacity, what would be the lowest cost total that the company
should use when figuring its bid for the district? How can High justify this amount?
B. If High had no excess capacity, what would be the lowest price that the company
should charge?
C. What is the primary benefit and problem of approaching a competitive bid situation
with a low-bid philosophy?
29) A company’s plan for the issuance of stock or incurrence of debt is commonly called
a:
A.pro-forma budget
B.master budget
C.financial budget
D.profit plan
E.capital budget
30) Sting Corporation debited Cost of Goods Sold and credited Manufacturing
Overhead at year-end. On the basis of this information, one can conclude that:
A.budgeted overhead exceeded actual overhead
B.budgeted overhead exceeded applied overhead
C.budgeted overhead was less than applied overhead
D.actual overhead exceeded applied overhead
E.actual overhead was less than applied overhead
31) Capital-budgeting decisions primarily involve:
A.emergency situations
B.long-term decisions
C.short-term planning situations
D.cash inflows and outflows in the current year
E.planning for the acquisition of capital
32) Rich Company, which uses a standard cost system, budgeted $800,000 of fixed
overhead when 50,000 machine hours were anticipated. Other data for the period were:
Actual units produced: 10,600
Actual machine hours worked: 51,800
Actual variable overhead incurred: $475,000
Actual fixed overhead incurred: $790,100
Standard variable overhead rate per machine hour: $8.50
Standard production time per unit: 5 hours
Rich’s variable-overhead efficiency variance is:
A.$10,200U
B.$10,200F
C.$15,300U
D.$15,300F
E.None of the other answers are correct
33) Jasper Corporation is organized in three separate divisions. The three divisional
managers are evaluated at year-end, and bonuses are awarded based on ROI. Last year,
the overall company produced a 12% return on its investment.
Managers of Jasper’s Iowa Division recently studied an investment opportunity that
would assist in the division’s future growth. Relevant data follow.
Required:
A. Compute the current ROI of the Iowa Division and the division’s ROI if the
investment opportunity is pursued.
B. What is the likely reaction of divisional management toward the acquisition? Why?
C. What is the likely reaction of Jasper’s corporate management toward the investment?
Why?
D. Assume that Jasper uses residual income to evaluate performance and desires an
11% minimum return on invested capital. Compute the current residual income of the
Iowa Division and the division’s residual income if the investment is made. Will
divisional management likely change its attitude toward the acquisition? Why?
34)
Assume that the company computes variances at the earliest point in time.
The direct-labor efficiency variance is:
A.$8,000F
B.$8,000U
C.$8,250F
D.$8,250U
E.none of the other answers are correct
35) Burgoon uses an economic order quantity model and has determined an optimal
order size of 500 units. Annual demand is 10,000 units, ordering costs are $50 per order,
and holding costs are $4 per unit. The company’s annual ordering and holding costs
total:
A.$2,000
B.$3,000
C.$21,000
D.$41,000
E.none of the other answers are correct
36) Mayze Production Company, which uses activity-based budgeting, is in the process
of preparing a manufacturing overhead budget. Which of the following would likely
appear on that budget?
A.Batch-level costs: Production setup
B.Unit-level costs: Depreciation
C.Unit-level costs: Maintenance
D.Product-level costs: Insurance and property taxes
E.Facility and general operations-level costs: Indirect material
37) Which of the following characteristic(s) relate(s) more to managerial accounting
than to financial accounting?
A.A focus on reporting to personnel within an organization
B.A focus on reporting to external parties
C.An area of accounting that is heavily regulated
D.A focus on providing information that is relevant for planning, decision making,
directing, and control
E.A focus on reporting to personnel within an organization and a focus on providing
information that is relevant for planning, decision making, directing, and control