1) The best-designed strategies are valuable whether or not they are effectively
implemented.
2) The high-low method involves choosing the period of highest cost driver activity and
the period of lowest cost driver activity.
3) Historical-cost-based accounting measures are usually inadequate for evaluating
economic returns on new investments and, in some cases, create disincentives for
expansion.
4) Managers prefer projects with higher IRRs to projects with lower IRRs, if all other
things are equal.
5) It is relatively easy to identify unused capacity for discretionary costs.
6) To implement ABC systems, managers must identify a cost driver for each activity.
7) Decisions regarding sources of long-term financing are best made at subunit level as
the subunit has local knowledge and can leverage it in negotiations.
8) Competitive information serves as a benchmark that managers use to continuously
improve their operations.
9) Variances are used for evaluating performance and for motivating managers.
10) The three methods used to study CVP analysis are graphical method, contribution
method, and equation method.
11) Direct labor is a part of prime cost, but not conversion cost.
12) Most costs can be easily controlled because they are under the sole influence of one
manager.
13) When actual cost-allocation rates are used, user-division managers face uncertainty
about the allocation rates for that budget period.
14) The top management at Amore Corp, a manufacturer of computer games, is
attempting to recover from a flood that destroyed some of their accounting records. The
main computer system was also severely damaged. The following information was
salvaged:
Alpha Division Beta Division Gamma Division
Sales $5,500,000 (a) $2,500,000
Net operating income $3,500,000 $1,100,000 $1,200,000
Operating assets (b) (c) $1,600,000
Return on investment 0.25 0.15 (d)
Return on sales (e) 0.1 0.5
Investment turnover (f) (g) 1.5
What is the value of the operating assets belonging to the Beta Division (c)?
A) $7,333,333
B) $11,904,760
C) $8,333,333
D) $14,303,600
15) Unit-level cost drivers are most appropriate as an overhead assignment base when
________.
A) several complex products are manufactured
B) only one product is manufactured
C) direct material costs are low
D) prime costs are low
16) How much of account verification costs will be assigned to Department A?
A) $15,000
B) $18,750
C) $75,000
D) $5,000
17) Direct materials inventory would normally include ________.
A) direct materials in stock and awaiting use in the manufacturing process
B) goods partially worked on but not yet fully completed
C) goods fully completed but not yet sold
D) products in their original form intended to be sold without changing their basic form
18) “Levers of control,” in addition to a diagnostic control system, are needed in an
organization because ________.
A) diagnostic controls have been found to lead to poor financial performance
B) diagnostic controls have no place in a balanced scorecard system
C) pressure to perform on diagnostic controls may lead to unethical behavior
D) they are mandated by the Financial Accounting Standards Board
19) How much of the total costs will be assigned to Department A?
A) $90,250
B) $90,650
C) $90,350
D) $90,750
20) Bauer Manufacturing uses departmental cost driver rates to allocate manufacturing
overhead costs to products. Manufacturing overhead costs are allocated on the basis of
machine-hours in the Machining Department and on the basis of direct labor-hours in
the Assembly Department. At the beginning of 20X3, the following estimates were
provided for the coming year:
The accounting records of the company show the following data for Job #316:
What amount of manufacturing overhead costs will be allocated to Job #316?
A) $439
B) $502
C) $595
D) $532
21) Which of the following items is debited to the Work-in-Process account?
A) allocated manufacturing overhead
B) completed goods transferred out of the plant
C) accumulated depreciation on fixed assets
D) accounts receivable
22) Engineered costs ________.
A) possess a high level of uncertainty
B) are nonrepetitive
C) are from physically observable activities
D) have processes that are sketchy or unavailable
23) A business which enters into a contract to purchase a product which compensates
the manufacturer under a cost reimbursement agreement should take an active part in
the determination of how joint costs are allocated because ________.
A) the manufacturer may allocate a large portion of its other costs to these products
B) the business need those information for its tax reporting purposes
C) the FASB requires the business to participate in the cost allocation process
D) it is an opportunity for the business to enhance its market knowledge
24) ________ is an example of an output unit-level cost in the cost hierarchy.
A) Factory rent expense
B) Building security costs
C) Top management compensation costs
D) Machine depreciation
25) Action Toys has a new video game cassette for the upcoming holiday season. It is
trying to determine the target cost for the game if the selling price per unit will be set at
$60, the going price for video games, and the firm wants to earn a target operating
income of 15% of sales. What will be the target cost per unit for the new game?
A) $60
B) $51
C) $27
D) $9
26) The above interest costs would be considered a(n) ________.
A) output unit-level cost
B) facility-sustaining cost
C) product-sustaining cost
D) batch-level cost
27) Explain two concerns when interpreting the production-volume variance as a
measure of the economic cost of unused capacity.
28) Galliart Company has two identical divisions, East and West. Their sales,
production volume, and fixed manufacturing costs have been the same for the last five
years. The amounts for each division were as follows:
East Division uses absorption costing and West Division uses variable costing.
Both use FIFO inventory methods.
Variable manufacturing costs are $5 per unit.
Selling and administrative expenses were identical for each division.
There were no inventories at the beginning of 20X1.
Which division reports the highest income each year? Explain.
29) List the reasons that the sales value at splitoff method of joint cost allocation should
be used.
30) What targets should companies use, and when should they give feedback to
managers regarding their performance relative to the targets?
31) There is uncertainty in defense contracts about the final cost to produce a new
weapon or equipment. Explain.
32) Prescher Company sells three products with the following seasonal sales pattern:
The annual sales budget shows forecasts for the different products and their expected
selling price per unit to be as follows:
Required:
Prepare a sales budget, in units and dollars, by quarters for the company for the coming
year.
33) Distinguish between the two principal methods of accounting for byproducts, the
production byproduct method and the sale byproduct method. Briefly discuss the
relative merits (or lack thereof) of each.
34) Marv and Vicki own and operate a vegetable canning plant. In recent years, their
business has grown tremendously and, at any point in time, they may have 30 to 35
different vegetables being processed. Also, during the peak summer months there are
several thousand bushels of vegetables in some stage of processing at any one time.
With the company’s growth during the past few years, the owners decided to employ an
accountant to provide cost estimations on each vegetable category and prepare monthly
financial statements. Although the accountant is doing exactly as instructed, Marv and
Vicki are confused about the monthly operating costs. Although they process an average
of 50,000 canned units a month, the monthly production report fluctuates wildly.
Required:
Explain how the production report can fluctuate wildly if they process a constant
amount of vegetables each month.
35) What is the difference between nominal approach and real approach to
incorporating inflation into the net present value method?