An organization’s values statement identifies fundamental beliefs about what is
important to the organization.
Machine setup is normally considered a batch-level cost
The manager of a revenue center has the authority to establish selling prices of
product.
A mixed cost will be an effective cost driver.
Ideal standards do not allow for normal operating delays or human limitations.
In a normal job-order costing system, actual factory overhead is applied at the end of
the period.
Fixed factory overhead is typically the production cost least likely to be minimized in
the short run.
A standard cost card is prepared before developing manufacturing standards for direct
materials, direct labor, and factory overhead.
When using CVP analysis to determine sales level for a desired amount of profit, the
profit is treated as an additional cost to be covered.
The journal entry to record normal spoilage specifically identified with a particular job
includes a credit to Work in Process.
A coefficient of determination has a value between 0 and +1.
A standard cost card is prepared after manufacturing standards have been developed for
direct materials, direct labor, and factory overhead.
Baker Company
Baker Company produces three products: A, B, and C from the same process. Joint
costs for this production run are $2,100.
If the products are processed further, Baker Company will incur the following disposal
costs upon sale: A, $3.00; B, $2.00; and C, $1.00.
Refer to Baker Company. Using sales value at split-off, what amount of joint processing
cost is allocated to Product C (round to the nearest dollar)?
A. $959
B. $725
C. $700
D. $416
Texas Metal Company
Texas Metal Company has developed standard overhead costs based on a monthly
capacity of 180,000 machine hours as follows:
During November, 90,000 units were scheduled for production, but only 80,000 units
were actually produced. The following data relate to November:
Actual machine hours used were 165,000.
Actual overhead incurred totaled $1,378,000 ($518,000 variable plus $860,000 fixed).
All inventories are carried at standard cost.
Refer to Texas Metal Company. The fixed overhead volume variance for November
was
A. $60,000 U.
B. $60,000 F.
C. $100,000 F.
D. $100,000 U.
The budgeted cost of products to be sold in a future period would be found in the
A. production budget.
B. sales budget.
C. purchases budget.
D. pro forma income statement.
To compute the break-even point in units, which of the following formulas is used?
A. FC/CM per unit
B. FC/CM ratio
C. CM/CM ratio
D. (FC+VC)/CM ratio
To compute equivalent units of production using the FIFO method of process costing,
work for the current period must be stated in units
A. completed during the period and units in ending inventory.
B. completed from beginning inventory, units started and completed during the period,
and units partially completed in ending inventory.
C. started during the period and units transferred out during the period.
D. processed during the period and units completed during the period.
Variable costing has an advantage over absorption costing for which of the following
purposes?
A. analysis of profitability of products, territories, and other segments of a business
B. determining the CVP relationship among the major factors of selling price, sales
mix, and sales volume
C. minimizing the effects of inventory changes on net income
D. all of the above
Colorful Creations Corporation
The Colorful Creations Corporation makes wreaths in two departments: Forming and
Decorating. Forming began the month with 500 wreaths in process that were 100
percent complete as to material and 40 percent complete as to conversion. During the
month, 6,500 wreaths were started. At month end, Forming had 2,100 wreaths that were
still in process that were 100 percent complete as to material and 50 percent complete
as to conversion. Assume Forming uses the weighted average method of process
costing. Costs in the Forming Department are as follows:
The Decorating Department had 600 wreaths in process at the beginning of the month
that were 80 percent complete as to material and 90 percent complete as to conversion.
The department had 300 units in ending Work in Process that were 50 percent complete
as to material and 75 percent complete as to conversion. Decorating uses the FIFO
method of process costing, and costs associated with Decorating are:
Refer to Colorful Creations Corporation. How many units were transferred to
Decorating during the month?
A. 600
B. 4,900
C. 5,950
D. 7,000
For a project such as plant investment, the return that should leave the market price of
the firm’s stock unchanged is known as the
A. cost of capital.
B. net present value.
C. payback rate.
D. internal rate of return.
Which of the following should be able to provide the financial information needed for
budget preparation?
A. no yes yes
B. no yes no
C. yes no yes
D. yes yes yes
If a new project generates a positive residual income, the
A. project’s return on investment is less than the target rate.
B. project’s return on investment is greater than the target rate.
C. project’s return on investment is equal to the target rate.
D. relationship between the project’s return on investment and the target rate cannot
necessarily be determined.
Carter Corporation has a target return of 15%. If a prospective investment has an
estimated return on investment of 20%, and a residual income of $10,000, what is the
estimated cost of the investment?
A. $200,000
B. $ 66,667
C. $ 50,000
D. The answer can’t be determined from this information.
A cost driver
A. causes fixed costs to rise because of production changes.
B. has a direct cause-effect relationship to a cost.
C. can predict the cost behavior of a variable, but not a fixed, cost.
D. is an overhead cost that causes distribution costs to change in distinct increments
with changes in production volume.
Consider the equation X = Sales – [(CM/Sales) x (Sales)]. What is X?
A. net income
B. fixed costs
C. contribution margin
D. variable costs
In a just-in-time inventory system,
A. practical standards become ideal standards.
B. ideal standards become expected standards.
C. variances will not occur because of the zero-defects basis of JIT.
D. standard costing cannot be used.
Which of the following affects the order point?
A. daily usage
B. lead time
C. safety stock
D. all of the above
A pay plan that does not encourage the overall company good is
A. profit sharing.
B. an employee stock option plan.
C. contingent pay.
D. monthly salary.
A company will not achieve world-class status unless a quality focus
A. allows that company to achieve one or more major quality awards.
B. becomes an integral part of the organization’s culture.
C. emphasizes the elimination of all quality costs for compliance and noncompliance.
D. has been mandated by management for workers to pursue.
Ellis Company
Ellis Company uses activity-based costing. The company produces two products: IPods
and MP3 players. The annual production and sales volume of IPods is 8,000 units and
of MP3 players is 6,000 units. There are three activity cost pools with the following
expected activities and estimated total costs:
Refer to Ellis Company. Using ABC, the cost per unit of IPods is approximately:
A. $ 2.40
B. $ 3.90
C. $ 6.60
D. $10.59
Buxton Office Supply Company has the following information available regarding
costs and revenues for two recent months. Selling price is $20.
Required:
a. Identify each of the company’s expenses (including cost of goods sold) as being
either variable, fixed, or mixed.
b. By use of the high-low method, separate each mixed expense into variable and fixed
elements. State the cost formula for each mixed expense.
c. What is the total cost equation?
d. Estimate total cost if sales = $75,000.
Which of the following is likely to be a discretionary cost in most organizations?
A. managerial training programs
B. managerial labor costs
C. factory utilities
D. factory rent
Why might it be necessary to make adjustments to the accounting system in a firm that
adopts JIT?
Castle Homes Corporation
The Carpet Division of Castle Homes Corporation manufactures a single grade of
residential grade carpeting. The division has the capacity to produce 500,000 square
yards of carpet each year. Its current costs and revenues are shown here:
The Housing Division currently purchases 40,000 yards of carpeting (of the grade
produced by the Carpet Division) each year at a cost of $6.50 per square yard from an
outside vendor.
Refer to Castle Homes Corporation. If the autonomous Housing and Carpet Divisions
enter negotiations on the internal transfer of 40,000 square yards of carpeting, what is
the maximum price that will be considered?
The document that contains all information about the costs of a specific job is a
________________________________________.
Three types of products that result from a joint process are
_________________________, ____________________, and
____________________.
Performance measures that provide a focus on the efficiency and effectiveness of
production processes are referred to as ____________________ measures.
Texoma Corporation
Texoma Corporation is comprised of two divisions: X and Y. X currently produces and
sells a gear assembly used by the automotive industry in electric window assemblies. X
is currently selling all of the units it can produce (25,000 per year) to external
customers for $25 per unit. At this level of activity, X’s per unit costs are:
Y Division wants to purchase 5,000 gear assemblies per year from X Division. Y
Division currently purchases these units from an outside vendor at $22 each.
Refer to Texoma Corporation. What will be the effect on overall corporate profits if the
two divisions agree to an internal transfer of 5,000 units?
Why are fixed costs generally more relevant in long-run decisions than short-run
decisions?
Briefly discuss the six steps in the allocation process.
Riley Industries is considering an investment that will require an initial cash outlay of
$200,000 to purchase non-depreciable assets. The project promises to return $60,000
per year (after-tax) for eight years with no salvage value. The company’s cost of capital
is 11 percent.
The company is uncertain about its estimate of the life expectancy of the project. How
many years must the project generate the $60,000 per year return for the company to at
least be indifferent about its acceptance? (Do not consider the possibility of partial year
returns.)
Present value tables or a financial calculator are required.