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1) In making the decision to buy the model 260 machine rather than the model 330
machine, the sunk cost was:
A) $418,000
B) $456,000
C) $474,000
D) $496,000
2) Sandra's Sheet Metal Company has two divisions. The Raw Material Division
prepares sheet metal at its warehouse facility. The Finishing Division prepares the cut
sheet metal into finished products for the air conditioning industry. No inventories exist
in either division at the beginning of 20X8. During the year, the Raw Material Division
prepared 450,000 square feet of sheet metal at a cost of $1,800,000. All the sheet metal
was transferred to the Finishing Division, where additional operating costs of $1.50 per
square foot were incurred. The 450,000 square feet of finished fabricated sheet metal
products were sold for $3,875,000.
Required:
a.Determine the operating income for each division if the transfer price from Raw
Material to Finishing is at a cost of $4 per square foot.
b.Determine the operating income for each division if the transfer price is $6 per square
foot.
c.Since the Raw Materials Division sells all of its sheet metal internally to the Finishing
Division, does the Raw Materials manager care what price is selected? Why? Should
the Raw Materials Division be a cost center or a profit center under the circumstances?
3) Picture Pretty manufactures picture frames. Sales for August are expected to be
10,000 units of various sizes. Historically, the average frame requires four feet of
framing, one square foot of glass, and two square feet of backing. Beginning inventory
includes 1,500 feet of framing, 500 square feet of glass, and 500 square feet of backing.
Current prices are $0.90 per foot of framing, $8.00 per square foot of glass, and $4 per
square foot of backing. Ending inventory of materials should be 150% of beginning
inventory. Purchases are paid for in the month acquired.
Required:
a.Determine the quantity of framing, glass, and backing that is to be purchased during
August.
b.Determine the total costs of direct materials for August purchases.
4) Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product
profitability is analyzed as follows:
What is the projected decline in operating income if the direct materials costs of
T-Shirts increase to $3.50 per unit and direct labor costs of Sweatshirts increase to
$13.00 per unit?
A) $293,000
B) $90,000
C) $203,000
D) $473,000
5) The ________ is a component of financial budgets.
A) cost of goods sold budget
B) marketing costs budget
C) distribution costs budget
D) cash budget
6) Wilde Corporation budgeted the following costs for the production of its one and
only product for the next fiscal year:
Wilde has an annual target operating income of $900,000.
The markup percentage for setting prices as a percentage of the variable cost of the
product is ________.
A) 328.9%
B) 36.6%
C) 228.5%
D) 65.3%
7) Flify Manufacturing Inc., incurred total indirect manufacturing labor costs of
$500,000. The company is labor intensive. Total labor hours during the period were
5,000. Using qualitative analysis, the manager and the management accountant
determine that over the period the indirect manufacturing labor costs are mixed costs
with only one cost driverlabor-hours. They separated the total indirect manufacturing
labor costs into costs that are fixed ($110,000 based on 8,000 hours of labor) and costs
that are variable ($390,000) based on the number of labor-hours used. The company has
estimated 7,000 labor hours during the next period.
What will be the total cost for the estimated 7,000 hours?
A) $451,250
B) $547,500
C) $700,000
D) $656,000
8) Product cost for reimbursement under government contracts includes ________.
A) marketing costs
B) design costs
C) production costs
D) research and development costs
9) Costs incurred to handle each unit sold would most likely be classified as a
________.
A) customer output unit-level cost
B) customer batch-level cost
C) customer-sustaining cost
D) corporate-sustaining cost
10) Sport-in Corporation manufactured 10,000 golf bags during April. The following
fixed overhead data pertain to March:
What is the amount of fixed overhead spending variance?
A) $8,300 unfavorable
B) $2,000 favorable
C) $2,000 unfavorable
D) $8,300 favorable
11) Assume the following cost information for Fernandez Company:
What is the number of units that must be sold to earn an after-tax net income of
$42,000?
A) 3,750 units
B) 4,625 units
C) 3,050 units
D) 1,875 units
12) What is cost of goods sold per unit using variable costing?
A) $22.10
B) $26
C) $39
D) $58.50
13) Which of the following is an advantage of COQ measures?
A) They help managers aggregate costs to evaluate the tradeoffs of incurring prevention
costs and appraisal costs to eliminate internal and external failure costs.
B) They detect and provide immediate short-run feedback on whether
quality-improvement efforts are succeeding.
C) They forecast customer satisfaction and employee satisfaction, which are useful
indicators of long-run performance.
D) They direct attention to financial processes that help managers identify the precise
problem areas that need improvement.
14) Recognizing ABC information is not always perfect because ________.
A) it mostly uses far too many indirect cost pools than what is actually required
B) it balances the need for better information against the costs of creating a complex
system
C) it lacks the simplicity that traditional systems used to have to allocate overhead costs
D) it never measures how the resources of an organization are used
15) Branded Shoe Company manufactures only one type of shoe and has two divisions,
the Stitching Division and the Polishing Division. The Stitching Division manufactures
shoes for the Polishing Division, which completes the shoe and sells it to retailers. The
Stitching Division 'sells'shoes to the Polishing Division. The market price for the
Polishing Division to purchase a pair of shoes is $42. (Ignore changes in inventory.)
The fixed costs for the Stitching Division are assumed to be the same over the range of
40,000-100,000 units. The fixed costs for the Polishing Division are assumed to be $14
per pair at 100,000 units.
Stitching's costs per pair of soles are:
Polishing's costs per completed pair of shoes are:
What is the transfer price per pair of shoes from the Stitching Division to the Polishing
Division if the method used to place a value on each pair of shoes is 180% of variable
costs?
A) $18.00
B) $32.40
C) $43.20
D) $57.60
16) Economic value added is equal to ________.
A) After-tax operating income - [Weighted-average cost of capital + (Total assets -
Current liabilities)]
B) Pre-tax operating income - [Weighted-average cost of capital + (Total assets -
Current liabilities)]
C) After-tax operating income - [Weighted-average cost of capital x(Total assets -
Current liabilities)]
D) Pre-tax operating income - [Weighted-average cost of capital x(Total assets - Current
liabilities)]
17) At the Verill Company, the cost of the library and information center has always
been charged to the various departments based upon number of employees. Recently,
opinions gathered from the department managers indicate that the number of engineers
within a department might be a better predictor of library and information center costs.
Total library and information center costs are $200,000.
If the number of employees is considered the cost driver, what amount of library and
information center costs will be allocated to Department A?
A) $30,000
B) $33,750
C) $0
D) $66,667
