1) A budget is a qualitative expression of the cash inflows and outflows that show
whether the current operating plan will meet the firm’s organizational objectives.
2) (Appendix) The direct allocation method recognizes possible interactions between
service departments when allocating service department’s costs to production
departments.
3) In general, managers are motivated to influence generated revenues when those
revenues are included in their performance measures.
4) For one-time-only special orders, variable costs may be relevant but not fixed costs.
5) In linear programming, total fixed costs will remain unchanged regardless of the
production plan.
6) Community Manufacturing Inc. developed the following standard costs for direct
material and direct labor for one of their major products, the 30-gallon heavy-duty
plastic container.
During May, Community produced and sold 10,000 containers using 2,200 pounds of
direct materials at an average cost per pound of $24 and 1,050 direct labor hours at an
average wage of $14.75 per hour.
May’s direct labor cost variance was:
A) $750.00 unfavorable
B) $262.50 favorable
C) $487.50 unfavorable
D) indeterminable using the above information
7) The best cost estimate for resources required to handle production runs is developed
by using ________ as the denominator for activity cost driver calculations.
A) actual driver quantities of actual production runs
B) estimated driver quantities of estimated production runs
C) available capacity
D) practical capacity
8) The Crandon Mill has two divisions. The Cutting Division prepares timber at its
sawmills. The Assembly Division prepares the cut lumber into finished wood for the
furniture industry. During the year, the Cutting Division prepared 60,000 cords of wood
at a cost of $660,000. All the lumber was transferred to the Assembly Division where
additional operating costs of $6 per cord were incurred. The 600,000 boardfeet of
finished wood were sold for $2,500,000.
Required:
a. Determine the operating income for each division if the transfer price from Cutting to
Assembly is at cost, $11 a cord.
b. Determine the operating income for each division if the transfer price is $9 per cord.
c. Since the Cutting Division sells all of its wood internally to the Assembly Division,
does the manager care what price is selected? Why? Should the Cutting Division be a
cost center or a profit center under the circumstances?
9) Traditional costing begins with:
A) the research development and engineering cycle
B) marketing research
C) target costing
D) product specification
10) For each of the following, identify whether it BEST relates to (M)arket-based,
(C)ost-based, (N)egotiated, (A)dministered, or (All) types of transfer pricing.
(M / C / N / A / All) a. Bargaining between selling and buying units
(M / C / N / A / All) b. Objective and provides the proper economic incentives
(M / C / N / A / All) c. 145% of full costs
(M / C / N / A / All) d. Avoids confrontation and generally used when a transaction
occurs frequently
(M / C / N / A / All) e. Internal product transfers are required
(M / C / N / A / All) f. Prices listed in a trade journal
(M / C / N / A / All) g. Prices do not reflect pure economic considerations nor
accountability considerations
(M / C / N / A / All) h. Goal is to motivate decision makers to act in the organization’s
best interest
(M / C / N / A / All) i. Provide no incentive to the supplying division
(M / C / N / A / All) j. Reflects support of the controllability principle
11) Which of the following statements is true?
A) Vision and mission statements set the general direction for the organization
B) Strategy is a concise, internally-focused statement of how the organization expects
to compete and deliver value to customers
C) Mission is a concise, externally-focused statement that expresses how the
organization wants to be perceived by the external world
D) Vision is about selecting the set of activities to create a sustainable difference in the
marketplace
12) High cost to serve customers:
A) have high order quantities
B) have large amounts of post sales support
C) order standard products
D) have little to no pre-sales support
13) Segment margin is calculated as follows:
A) Revenues less flexible costs
B) Revenues less expenses
C) Revenues less direct costs
D) Revenues less variable costs
14) Wood Manufacturing is a small textile manufacturer using machine-hours as the
single, plant-wide predetermined cost driver rate to allocate manufacturing overhead
costs to the various jobs contracted during the year. The following estimates are
provided for the coming year for the company and for the Winfield High School band
jacket job:
What is the bid price for the Winfield High School Job if the company uses a 40%
markup of total manufacturing costs?
A) $2,310
B) $588
C) $1,680
D) $2,058
15) Managers of profit centers are responsible for:
A) costs and investments
B) revenues and costs
C) costs, revenues, and investments
D) costs
16) For the activity cost driver rate, overhead costs ________ should be used in the
calculation.
A) actually consumed
B) made available
C) based on a seasonal average
D) None of the above is correct
17) ________ mean(s) that the organization will attempt to reach much higher goals
with the current budget.
A) Authoritative budgeting
B) Stretch targets
C) Consultative budgeting
D) Budget slack
18) The number of customer complaints about a product is an example of a Balanced
Scorecard’s measure of the:
A) process perspective
B) customer perspective
C) learning and growth perspective
D) financial perspective
19) Problems of using investment centers include all of the problems associated with
profit centers plus all of the following EXCEPT:
A) how to identify the assets used by each investment center
B) how to assign the responsibility for jointly-used assets such as buildings
C) how to determine the value of the assets used by each investment center
D) what method to use to depreciate the assets
20) Donnelly Company has three products, R2, R4, and R2D2. The following
information is available:
Donnelly Company is thinking of dropping Product R2D2 because it is reporting a loss.
Assuming Donnelly drops Product R2D2 and does not replace it, operating income will:
A) increase by $1,200
B) increase by $1,500
C) decrease by $1,500
D) decrease by $2,700
21) The Jordan Company manufacturers only one type of shoe and has two divisions,
the Sole Division and the Assembly Division. The Sole Division manufactures soles
and then ‘sells” them to the Assembly Division, which completes the shoes and sells
them to retailers. The market price for the Assembly Division to purchase a pair of soles
is $40. Fixed costs are per pair at 100,000 units.
Assume the transfer price for a pair of soles is 180% of full costs of the Sole Division
and 100,000 of soles are produced and transferred to the Assembly Division. The Sole
Division’s operating income is:
A) $1,600,000
B) $1,800,000
C) $2,560,000
D) $3,600,000
22) Noble Printers has contracts to complete weekly supplements required by forty-six
customers. For the year 2011, overhead cost estimates total $420,000 for an annual
production capacity of 12 million pages.
For 2011 Noble Printers has decided to evaluate the use of additional cost pools. After
analyzing overhead costs, it was determined that the number of design changes, setups,
and inspections are the primary overhead cost drivers. The following information was
gathered during the analysis.
Cost poolOverhead costsActivity level
Design Changes$ 60,000300 design changes
Setups$320,0005,000 setups
Inspections$ 40,0008,000 inspections
Total overhead costs$420,000
During 2011, two customers, Wealth Managers and Health Systems, are expected to use
the following printing services.
ActivityWealth ManagersHealth Systems
Pages60,00076,000
Design changes100
Setups2010
Inspections3038
Required:
a. Calculate the cost driver rate if overhead costs are considered one large cost pool and
are assigned based on 12 million pages of production capacity.
b. Using the cost driver rate determined in (a), calculate the overhead cost estimate for
Wealth Managers during 2011 .
c. Assuming cost pools for design changes, setups, and inspections are used, calculate
the cost driver rates for each of the three cost pools.
d. Using the cost driver rates determined in (c), calculate the overhead cost estimate for
Wealth Managers during 2011 .
e. Review the overhead costs estimates computed in (b) and (d). Discuss what
conclusions can be drawn from this exercise in regard to the use of cost pools.
23) Which of the following costs are NEVER relevant in the decision-making process?
A) fixed costs
B) historical costs
C) relevant costs
D) variable costs
24) Webster Company provides the following ABC costing information:
The above activities are used by Departments A and B as follows:
How much of account verification costs will be assigned to Department A?
A) $10,000
B) $25,000
C) $40,000
D) $50,000
25) LCR Company manufactures paint and applies manufacturing overhead costs to
production at a predetermined rate of $20 per direct labor hour. The following data are
obtained from the accounting records for October 2011:
The actual amount of manufacturing overhead costs incurred in October 2011 total:
A) $2,180,000
B) $ 480,000
C) $ 420,000
D) $ 160,000
26) Updates to a time-driven ABC system might be triggered by:
A) significant shifts in cost estimates
B) change in top management
C) new fiscal year
D) interviews and surveys
27) When evaluating a make-or-buy decision, which of the following does NOT need to
be considered?
A) alternative uses of the production capacity used to make the product or part
B) the original cost of the production equipment
C) the quality of the supplier’s product
D) the reliability of the supplier’s delivery schedule
28) All of the following are true regarding a control system for a MACS EXCEPT:
A) a control system includes developing organizational objectives and executing a plan
for implementation
B) a control system includes monitoring the current level of performance and
comparing it to the planned level of performance
C) the same performance measures apply to all organizations
D) the basic control process applies to all organizations
29) Behavioral considerations of a well-designed management accounting and control
system include all of the following except:
A) short-term qualitative and quantitative measures
B) incentive compensation
C) information accuracy
D) the organization’s ethical code of conduct
30) All of the following are true regarding productivity EXCEPT:
A) that an example of raw material productivity is the weight of the final product to the
weight of the raw materials
B) that the most widely accepted definition of productivity is the ratio of operating
income over sales
C) that an example of machine productivity is a machine’s output per hour
D) machine productivity is an effective method of relating process results with financial
results
31) Sports Fanatic Corporation manufactures college football banners. It plans to grow
by producing high-quality college football banners at a low cost that are delivered in a
timely manner. There are a number of other manufacturers who produce similar college
football banners. Sports Fanatic believes that continuously improving its manufacturing
processes and having satisfied employees are critical to implementing its strategy.
Required:
a. Is Sports Fanatic’s strategy one of product innovation and leadership, lowest total
cost, or complete customer solutions? Briefly explain.
Identify at least one key element that you would expect to see included in the Balanced
Scorecard:
b. for the financial perspective;
c. for the customer perspective;
d. for the process perspective; and
e. for the learning and growth perspective.
32) The following information pertains to the October operating budget for Flockhart
Corporation.
Budgeted sales for October $100,000 and November $200,000.
Collections for sales are 60% in the month of sale and 40% the next month.
Gross margin is 30% of sales.
Administrative costs are $10,000 each month.
Beginning accounts receivable (October 1) $20,000.
Beginning inventory (October 1) $14,000.
Beginning accounts payable (October 1) $60,000. (All from inventory purchases.)
Purchases are paid in full the following month.
Desired ending inventory is 20% of next month’s cost of goods sold (COGS).
No loans are outstanding on October 1
At the end of October, budgeted ending inventory is:
A) $20,000
B) $28,000
C) $40,000
D) None of the above is correct
33) The actual information pertains to the month of June. As part of the budgeting
process, Petrified Products Company developed the following master budget for June.
The manager, Pete, is in the process of preparing the flexible budget and understanding
the results.
The PRIMARY reason for low operating profits in June was:
A) the flexible budget variance for flexible (variable) costs
B) increased capacity-related (fixed) costs
C) a poor management accounting system
D) lower sales volume than planned
34) Lance Allot, vice-president of Arthur Industries, a computer manufacturer in
England, has been trying to figure out whether one of his branch managers, Ms. Gwen,
has been achieving the company-wide return on sales target of 20 percent. Mr. Allot has
just been given data from his new target costing system regarding Ms. Gwen’s
operations. Ms. Gwen’s estimated target sales volume is 30,000 computers with a
target-selling price of $1,000. The data also show that Ms. Gwen’s unit target cost is
$750 per unit.
Required:
a. Help Mr. Allot determine whether Ms. Gwen’s return on sales target has been met.
b. Has Ms. Gwen done a good or a poor job? Explain.
35) In job order costing, the optimum number of cost pools is ________.
A) one
B) more than one
C) 1,000
D) none
36) Omega Company has the following two customers:
If the company pays a 2% sales commission based on revenue, this will encourage a
salespersons’ efforts to sell to:
A) Woodruff, an unprofitable customer
B) Woodruff, a profitable customer
C) Ensley, an unprofitable customer
D) Ensley, a profitable customer
37) Activity-based management (ABM) includes decisions about all of the following
EXCEPT:
A) pricing and product mix
B) smoothing costs
C) reducing costs
D) improving efficiency of activities
38) Identify the BEST description of the Balanced Scorecard’s customer perspective. To
achieve our firm’s vision and strategy:
A) How do we lower costs?
B) How do we motivate employees?
C) How can we obtain greater profits?
D) How does the company intend to attract, retain, and deepen relationships with
targeted customers by differentiating itself from competitors?
39) By some estimates, 80% to 85% of a product’s total life costs are committed by
decisions made during the ________ cycle.
A) research, development, and engineering
B) manufacturing
C) post-sale service and disposal
D) operating
40) The following annual information is for Bressler Corporation:
Total fixed costs: $100,000
What is the operating income for a year, assuming actual sales total 150,000 units, and
the sales mix is two units of Product X and one unit of Product Y?
A) $1,200,000
B) $1,250,000
C) $1,750,000
D) None of the above is correct