Under the cause and effect criterion, reasonableness is a matter of judgment rather than
an operational
criterion.
If the sales mix shifts toward the lower-contribution-margin product, the breakeven
quantity will decrease.
Multiple regression analysis uses only independent variables and not dependent
variables.
Direct materials and direct manufacturing labor become a part of work-in-process
inventory on the balance sheet because the direct manufacturing labor transforms the
direct materials to another asset, work-in-process inventory.
In joint costing, the sales value at split-off method allocates joint costs entirely to joint
products sold during the accounting period on the basis of the relative total sales value
at the split-off point.
Customer response time is the time it takes from the time a customer places an order for
a product or service to the time the product or service is delivered to the customer.
Machine-hours is a more economically plausible cost driver of machine maintenance
than number of direct manufacturing labor-hours.
Scrap is usually divided between normal and abnormal scrap.
NPV methods can be used to estimate the present value of a customer to a business so
that strategic decisions can be made to retain customers and lower churn rates.
Management wants to prepare a profitability analysis of the company’s customers and
therefore the most accurate choice of disposing of underallocated or overallocated
manufacturing overhead at year-end is the proration based on final balances of
work-in-process, finished goods, and cost of goods sold.
Conversion costs include all direct manufacturing costs and some of the period costs
including research and development costs and customer service.
To prove predatory pricing, one of conditions established by the U.S. Supreme Court is
that the company should be charging a price below 60% of its total costs.
Management accountants must work well in cross-functional teams and as a business
partner.
A value-added cost is a cost that, if eliminated,would increase the actual or perceived
value or utility (usefulness) customers experience from using the product or service.
The best-designed strategies and the best-developed capabilities are useless unless they
are effectively executed.
Cost of goods sold refers to the products brought to completion, whether they were
started before or during the current accounting period.
All contracts with U.S. government agencies must comply with the cost accounting
standards issued by the SEC.
Operating income plus total fixed costs equals the contribution margin.
The constant gross-margin percentage NRV method is the only method whereby
products can receive negative allocations.
When assigning costs, job-costing systems generally distinguish normal spoilage
attributable to a specific job from normal spoilage common to all jobs.
A particular cost item could be variable for one cost object and fixed for another cost
object.
Stockout costs arise when an organization experiences an ability to deliver its goods to
its customers.
A company with sales of $50,000, a contribution margin ratio of 30%, and fixed costs
of $25,000 will earn a net income of $10,000.
Managers can gain more insight about the static-budget variance by subdividing it into
the flexible-budget variance and the sales-volume variance.
Qualitative factors, as well as relevant revenues and relevant costs need to be
considered when selecting among alternatives.
Service-sector companies have no use of variance analysis as only few costs can be
traced to their outputs in a cost effective way.
When allocating the revenues between a bundled product offering, management
judgement can be used in issuing revenue-allocation weights.
Reworked goods are unacceptable units of production usually NOT capable of being
repaired or converted into a salable product.
The basis of the difference between variable costing and absorption costing is how
fixed manufacturing costs are accounted for.
Managers should use past data to create a cost function and then use the exact
information provided by that cost function to create the budgetary forecast for the next
year.
For one-time-only special orders, fixed costs may be relevant but NOT variable costs.
It is relatively easy to identify unused capacity for discretionary costs.
In an EVA calculation, the corporate charge for a division’s investment is based on a
weighted average of the after-tax interest rate on the firm’s debt and the cost of the
firm’s equity.
When manufacturing overhead is allocated to jobs, the Manufacturing Overhead
Allocated account is debited.
A price discount is the reduction in selling price below list selling price to encourage
customers to
purchase more quantities.
The downward demand spiral happens when a company cannot meet competitors prices
are not met as because of underutilzied capacity, higher and higher unit costs result is a
greater reluctance to meet competitors’ prices.
Classify each cost item of Ripon Printers given below into one of the business functions
of the value chain, either (1) R&D, (2) design of products and processes, (3)
production, (4) marketing (including sales), (5) distribution, or (6) customer service.
Item:
a. cost of customer order forms
b. cost of paper used in manufacture of books
c. cost of paper used in packing cartons to ship books
d. cost of paper used in display at national trade show
e. depreciation of trucks used to transport books to college bookstores
f. cost of the wood used to manufacture paper
g. salary of the scientists attempting to find another source of printing ink
h. cost of designing the book size so that a standard-sized box is filled to capacity
The challenge of a production facility that is producing several products from is how to
allocate the joint costs that are incurred ________.
A) before the split-off point
B) after the split-off point
C) at the split-off point
D) at the end of production
Activity-based budgeting would separately estimate ________.
A) the cost of overhead for a department
B) a plant-wide cost-driver rate
C) the cost of a setup activity
D) All of these answers are correct.
The basic source document for direct manufacturing labor is the ________.
A) job-cost record
B) materials-requisition record
C) labor-time record
D) labor-requisition record
A $5,000 unfavorable flexible-budget variance indicates that ________.
A) the flexible-budget amount exceeded actual variable manufacturing overhead by
$5,000
B) the actual variable manufacturing overhead exceeded the flexible-budget amount by
$5,000
C) the flexible-budget amount exceeded standard variable manufacturing overhead by
$5,000
D) the standard variable manufacturing overhead exceeded the flexible-budget amount
by $5,000
South by Southwest Company used least squares regression analysis to obtain the
following output:
Payroll Department Cost
Explained by Number of Employees
Constant $7,540
Standard error of Y estimate 819
r2 0.8924
Number of observations 20
X coefficient(s) $2.473
Standard error of coefficient(s) 0.0966
Required:
a. What is the total fixed cost?
b. What is the variable cost per employee?
c. Prepare the linear cost function.
d. What is the coefficient of determination? Comment on the goodness of fit.
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 shoes and sells them 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 $46. (Ignore changes in inventory.)
The fixed costs for the Stitching Division are assumed to be the same over the range of
40,000-101,000 units. The fixed costs for the Polishing Division are assumed to be $14
per pair at 101,000 units.
Stitching‘s costs per pair of shoes are:
Direct materials $12
Direct labor $10
Variable overhead $8
Division fixed costs $6
Polishing‘s costs per completed pair of shoes are:
Direct materials $15
Direct labor $6
Variable overhead $6
Division fixed costs $18
What is the transfer price per pair of shoes from the Stitching Division to the Polishing
Division if the transfer price per pair of shoes is 125% of full costs?
A) $15.00
B) $27.50
C) $37.50
D) $45.00
Relative performance evaluation ________.
A) determines the effective intensity of incentives placed on each measure of
performance
B) filters out the effect of common uncontrollable factors
C) results in managers helping each other who run similar operations
D) leads to goal congruence
The Alfarm Corporation processes raw milk up to the split-off point where two
products, cream and liquid skim, are produced and sold. There was no beginning
inventory. The following material was collected for the month of February:
The cost of purchasing 800,000 gallons of direct materials and processing it up to the
split-off point to yield a total of 778,500 gallons of good product was $2,350,000. Which
of the following statements about Alfarm’s joint production costs is true?
A) The gross-margin percentage per gallon of Cream and Liquid skim are equal because
joint costs are allocated based on the number of gallons.
B) The gross-margin percentage per gallon of Cream is higher than gross margin
percentage per gallon of Liquid skim because of Cream’s higher production volume.
C) The joint production cost per gallon of Cream and Liquid skim are equal because joint
costs are allocated based on the number of gallons.
D) The joint production cost per gallon of Cream is higher than joint production cost per
gallon of Liquid skim because of Cream’s higher production volume.
Antique Corp uses the investment center concept for the museums that it manages.
Selected operating data for three of its museums for 2015 are as follows:
Required:
a. Compute the return on investment for each division.
b. Which museum manager is doing best based only on ROI? Why?
c. What other factors should be included when evaluating the managers?
Which item is an indication of competence under the Standards of Ethical Conduct?
A) Maintain an appropriate level of professional expertise by continually developing
knowledge and skills.
B) Keep information confidential except when disclosure is authorized or legally
required.
C) Abstain from engaging in or supporting any activity that might discredit the
profession.
D) Refrain from engaging in any conduct that would prejudice carrying out duties
ethically.
Woodruff Flowering Plants provides the following information for the month of May:
What is the budgeted contribution margin per composite unit for the budgeted mix?
(Round any intermediary calculations two decimal places.)
A) $22.79
B) $22.21
C) $21.96
D) $22.04
Dessa Cabinetry, Inc., manufactures standard sized modular cabinet units for kitchens
and other applications within the home. Its costing system utilizes two cost categories,
direct materials and conversion costs. Each product must pass through the rough cut
department and the finish department. Direct materials are added at the beginning of
production. Conversion costs are allocated evenly throughout production.
How many units were completed and transferred out of the Finishing Department during
March?
A) 1000 units
B) 1800 units
C) 2300 units
D) 2660 units
Jack’s Back Porch manufactures rustic furniture. The cost accounting system estimates
manufacturing costs to be $270 per table, consisting of 80% variable costs and 20%
fixed costs. The company has surplus capacity available. It is Jack’s Back Porch’s policy
to add a 60% markup to full costs.
A large hotel chain is currently expanding and has decided to decorate all new hotels
using the rustic style. Jack’s Back Porch is invited to submit a bid to the hotel chain.
What per unit price will Jack’s Back Porch most likely bid on this long-term order?
A) $86.40 per unit
B) $162.00 per unit
C) $345.60 per unit
D) $432.00 per unit
Which of the following is true about the assumptions underlying basic CVP analysis?
A) Selling price varies with demand and supply of the product.
B) Only selling price and variable cost per unit are known and constant.
C) Only selling price, variable cost per unit, and total fixed costs are known and
constant.
D) Selling price, variable cost per unit, fixed cost per unit, and total fixed costs are
known and constant.
Clothes, Inc., has an average annual demand for red, medium polo shirts of 25,000
units. The cost of placing an order is $80 and the cost of carrying one unit in inventory
for one year is $25.
Required:
a. Use the economic-order-quantity model to determine the optimal order size.
b. Determine the reorder point assuming a lead time of 10 days and a work year of 250
days.
c. Determine the safety stock required to prevent stockouts assuming the maximum lead
time is 20 days and the maximum daily demand is 125 units.
Management accounting information typically includes ________.
A) tabulated results of customer satisfaction surveys
B) the cost of producing a product
C) the percentage of units produced that are defective
D) All of these answers are correct.
Foley Products Company makes a household appliance with model number X500. The
goal for 2018 is to reduce direct materials usage per unit. No defective units are
currently produced. Manufacturing conversion costs depend on production capacity
defined in terms of X500 units that can be produced. The industry market size for
appliances increased 10% from 2017 to 2018. The following additional data are
available for 2017 and 2018:
What is operating income for 2018?
A) $1,716,000
B) $1,127,200
C) $889,900
D) $875,200
One of the problems in using one set of accounting records for tax reporting and
another set of records for internal management reporting is that ________.
A) it is illegal as well as unethical to do so
B) the tax authorities may suspect manipulation of records
C) it is almost impossible to keep the records straight and hard to reconcile the books
D) the shareholders do not approve of such methods and the market prices will decline
At the end of the accounting period, Armstrong Corporation reports operating income
of $30,000. Which of the following statements is true, if Armstrong’s inventory levels
decrease during the accounting period?
A) Variable costing will report less operating income than absorption costing.
B) Absorption costing will report less operating income than variable costing.
C) Variable costing and absorption costing will report the same operating income since
the cost of goods sold is the same.
D) Variable costing and absorption costing will report the same operating income since
the total costs are the same.
The amount of time from when a customer places an order for a product to when the
product or service is delivered to the customer is referred to as ________.
A) manufacturing lead time
B) delivery time
C) customer-response time
D) a time driver
Fixed overhead costs include ________.
A) the cost of sales commissions
B) Leasing of machinery used in a factory
C) energy costs
D) indirect materials
Under the dual-rate cost-allocation method, when fixed costs are allocated based on
actual usage then ________.
A) user-division managers are motivated to make accurate long-run usage forecasts
B) user-division managers can better plan for the short-run and for the long-run
C) the costs of unused capacity are highlighted
D) variations in one division’s usage affect another division’s allocation
Which of the following is the correct mathematical expression to calculate partial
productivity?
A) Sales value of output produced Quantity of all inputs used
B) Quantity of output produced Quantity of input used
C) Quantity of output produced Costs of all inputs used
D) Sales value of output produced Cost of inputs required to produce current year
production in previous year
Jalbert Incorporated planned to use materials of $11 per unit but actually used materials
of $15 per unit, and planned to make 1,560 units but actually made 1,730 units.
The flexible-budget amount for materials is ________.
A) $17,160
B) $23,400
C) $19,030
D) $25,950
When a product is the result of a joint process, the decision to process the product past
the split-off point further should be influenced by which of the following measures?
A) the product’s proportion of the total costs
B) the portion of the joint costs allocated to the individual products
C) the extra revenue earned past the split-off point
D) the incremental operating income earned past the split-off point
Financing decisions primarily deal with ________.
A) the use of scarce resources
B) how to obtain funds to acquire resources
C) acquiring equipment and buildings
D) preparing financial statements for stockholders
Answer the following questions using the information below:
Eagle Eye Company produces two types of lenses–L7 and L9.
What is the total indirect costs (a) under ABC system?
A) $43,000
B) $58,000
C) $55,500
D) $46,000
For Heavy Manufacturing Company, labor-hours are 40,000 and wages $184,000 at the
high point of the relevant range, and labor-hours are 24,000 and wages $120,000 at the
low point of the relevant range.
What is the constant?
A) $24,000
B) $64,000
C) $120,000
D) $184,000
Place the following steps from the five-step decision process in order:
A = Obtain information including historical costs
B = Evaluate performance to provide feedback
C = Make decisions choosing among alternatives
D = Make predictions about the future
E = Identify the problem and uncertainties
A) A, E, D, B, C
B) E, A, D, B, C
C) E, A, D, C, B
D) D, C, B, A, E
Which of the tools shown below would be the most effective planning tool?
A) performance evaluation report
B) fishbone diagram
C) control chart
D) budget
Jack Williams has just purchased the film studio of a movie company that specializes in
comedies. He found that the company did not try to estimate the cost of making a
movie. Instead, it just gave the producer a budget and told him/her to make a movie
within budget. Mr. Williams does not like the former movie-budget concept and desires
to establish a formal cost estimation system.
Required:
What are some of the potential problems that may be encountered in changing from a
budget to a cost estimation movie making system?
Explain how fixed manufacturing overhead costs are treated under Generally Accepted
Accounting Principles?
In determining product cost, what concerns does a manufacturing firm have when
contracting with a government agency?
What is re-engineering. Can you contrast a re-engineering approach to change with a
kaizen approach to change?
List the reasons that the sales value at split-off method of joint cost allocation should be
used.
New Image Sports uses a process-costing system. For March, the company had the
following activities:
Direct materials are placed into production at the beginning of the process. All spoilage is
normal and is detected at the end of the process. Ending WIP is 60% completed as to
conversion.
Required:
Prepare a production cost worksheet using the FIFO method.
Explain how a top-selling product may actually result in losses for the company.
Explain the difference between the gross margin format and the contribution margin
format for the income statement. What information is highlighted with each?
What are the reasons for allocating joint costs to individual products or services?
What revenue or expense amounts are necessary to make a sell-or-process-further
decision and why? What items are irrelevant to the decision and why?
Dulcet Foods, Inc., has the option to sell either of the variant. Which one is a better
alternative?
Silver Spoon Incorporated is a manufacturer of kitchen utensils. It produces all of its
products in one department. The information for the current month is as follows:
Beginning work in process was 25% complete as to conversion. Direct materials are added
at the beginning of the process. Factory overhead is applied at a rate equal to 40% of direct
manufacturing labor. Ending work in process was 60% complete. All spoilage is normal
and is detected at the end of the process.
Required:
Prepare a production cost worksheet if spoilage is recognized and the weighted-average
method is used.
Discuss the issues and complications that may arise when multinational corporations
conduct performance measurement and comparisons among divisions located in
different countries.
