Which of the following statements best describes costs that increase in steps?
A.curvilinear variable.
B.curvilinear fixed.
C.semi-variable.
D.semi-fixed.
What management technique focuses on increasing quality as perceived and defined by
the customer?
A.Theory of constraints.
B.Benchmarking.
C.Total quality management.
D.Web hosting.
Krista’s Bakery produced and sold 2,000 pies last month and had fixed costs of $6,000.
If production and sales are expected to increase by 10% next month, which of the
following statements is true?
A.Fixed cost per unit will decrease.
B.Fixed cost per unit will increase.
C.Total fixed costs will decrease.
D.Total fixed costs will increase.
What is the income statement portion of the master budget known as?
A.profit plan.
B.tactical short-range profit plan.
C.static budget.
D.all of the above.
Sun Devil, Inc.
Sun Devil, Inc. is considering the introduction of a new product with the following
price and cost characteristics
It expects to sell 70,000 units for the year.
Refer to Sun Devil, Inc; how many units must be sold to break even?
A.4,000
B.6,000
C.12,000
D.3,000
In traditional costing systems overhead costs are allocated on volume of production or
sales,. This methodology fails to take into consideration that the demand for overhead
activities is also driven by which of the following?
A.Outside contracting activities.
B.Indirect labor activities.
C.Short-term labor activities.
D.Batch-related and product-sustaining activities.
Which statement is true concerning prevention costs?
A.Prevention costs are incurred to prevent defects in the products or services being
produced.
B.Prevention costs are incurred to detect individual units of products that do not
conform to specifications.
C.Prevention costs are incurred when the firm discovers nonconforming products and
services before delivery to customers.
D.Prevention costs are incurred when the customers discover nonconforming products
and services at delivery.
The total cost (TC) of an item is calculated as TC = F + VX. Which is the cost driver
rate?
A.TC
B.F
C.V
D.X
In a normal costing system, how is the predetermined variable manufacturing overhead
rate calculated?
A.Divide actual variable manufacturing overhead by the normal (or estimated) activity
level.
B.Divide estimated variable manufacturing overhead by the actual activity level.
C.Divide estimated variable manufacturing overhead by the normal (or estimated)
activity level.
D.Divide actual variable manufacturing overhead by the actual activity level.
Management tools that depict variations in a process and its behavior over time, help
management distinguish between random or routine variations in quality, and direct
attention to variations that management should investigate are called
A.control charts.
B.cause-and-effect analyses.
C.Pareto charts.
D.All of the answers are correct.
What production methodology strives to eliminate inventory and increase efficiency
and quality?
A.Total quality management.
B.Theory of constraints.
C.Benchmarking.
D.Just-in-time.
J-Mobile provides cellular phone and Internet services with a plan that provides up to
1,000 minutes of airtime usage for a flat rate of $99.99 per month plus a charge for any
minutes used over this amount at the rate of $0.10 per minute in excess of the minimum
1,000 airtime minutes. Which of the following describes the cost of the J-Mobile
service?
A.fixed cost, only.
B.variable cost, only.
C.mixed cost.
D.semi-fixed cost.
Felix Company sells a single product at a price of $57 per unit. Variable costs per unit
are $35 and total fixed costs are $719,400. Felix is considering the purchase of a new
piece of equipment that would increase the fixed costs to $1,023,700, but decrease the
variable costs per unit to $28.
Required:
a. If Felix Company expects to sell 40,000 units next year, should they purchase this
new equipment?
b.What would Felix’s volume have to be to change your recommendation in A above?
Which of the following statements is true concerning how companies benefit from
using an activity-based accounting system?
A.They have had few changes in activities over time and few corresponding changes
have been made in the accounting system.
B.They have low overhead costs.
C.They have a narrow range of products.
D.They have wide variations in the volume of individual production runs and setups are
costly (i.e., complex production methods).
Which of the following statements is true?
A.The higher the firm’s leverage, the higher the degree of sensitivity of profits to cost
changes.
B.The higher the firm’s leverage, the lower the degree of sensitivity of profits to cost
changes.
C.The higher the firm’s leverage, the higher the degree of sensitivity of profits to
volume changes.
D.The higher the firm’s leverage, the lower the degree of sensitivity of profits to volume
changes.
Activity-based costing in a nonmanufacturing environment. Crystal Clear, Inc., is a
pool service. The company originally specialized in serving residential clients but has
recently started contracting for work with larger commercial clients, like hotels. Dudley
Waters, the owner, is considering reducing residential services and increasing
commercial pool service. Five field employees worked a total of 15,000 hours last
year-10,000 on residential jobs and 5,000 on commercial jobs. Wages were $8 per hour
for all work done. Direct materials used were minimal and are included in overhead. All
overhead is allocated on the basis of labor hours worked, which is also the basis for
customer charges. Because of greater competition for commercial accounts, Mr. Waters
can charge $20 per hour for residential work, but only $17 per hour for commercial
work.
Required:
a. If overhead for the year was $75,000, what were the profits of commercial and
residential service using labor hours as the allocation base?
b. Overhead consists of office supplies, garden supplies, and depreciation and
maintenance on equipment. These costs can be traced to the following activities:
What is the final component of a comprehensive master budget?
A.budgeted balance sheet.
B.budgeted income statement.
C.budgeted statement of cash flows.
D.budgeted retained earnings statement.
Assume a normal costing system. Calculate the predetermined overhead rate based on
the following assumptions:
A.$9.00 per machine hour
B.$10.00 per machine hour
C.$9.375 per machine hour
D.$10.42 per machine hour
A company currently breaks even at 1,000 units. Its fixed costs are $40,000 and its
variable costs are $10 per unit. What is the product’s selling price per unit?
A.$100
B.$ 50
C.$ 35
D.$ 25
The appropriate discount rate that analysts use in computing the present value of future
cash flows is comprised of which of the following?
A.an increase reflecting the inflation expected to occur over the life of the project.
B.a risk factor reflecting the riskiness of the project
C.a pure rate of interest reflecting the productive capability of capital assets
D.all of the above.
Explain why businesses apply differential analysis to product choice decisions.
Feed the Hungry Foundation
Feed the Hungry Foundation is a non-profit organization that has a cost of capital of 10
percent. The foundation is considering the replacement of a piece of equipment. The old
machine has a book value of $3,000 and a remaining estimated life of 5 years with no
salvage value at that time. The salvage value of the old machine is currently $1,500.
The new equipment will cost $10,000. It has an estimated life of 5 years with no
salvage value then. Annual cash operating costs are $4,000 for the old machine and
$2,000 for the new machine.
Refer to Feed the Hungry Foundation. Would you advise the organization to replace the
machine?
Rainer Company is considering a project that will require an initial investment of
$750,000 and will return $200,000 each year for five years. If taxes are ignored and the
required rate of return is 9%, what is the project’s net present value? Based on this
analysis, should the company proceed with the project?
Alma Mater College
The Admissions Department of Alma Mater College plans to hold several “open house”
parties during the year. All the refreshment costs will be charged to the department.
However, the party creates extra work for the Maintenance Department. The
maintenance crew must work overtime and the maintenance supervisor is complaining
about cost overruns in the Maintenance Department.
Refer to the Alma Mater College. Who should be responsible for the overtime costs of
the maintenance workers?
How do the value chain and product life cycle influence long-run pricing decisions?
Incentive compatible compensation schemes often create many opportunities as well as
problems. Identify two negative outcomes of incentive compensation systems, and
suggest how companies can overcome them.
Describe the steps of the net present value method for making long-term decisions
using discounted cash flows. Analyze the effect of income taxes on cash flows.