1) A flexible-budget variance pertaining to revenues is often called a sales-volume
variance.
2) Time taken to replace or repair defective products is a measure of the financial
perspective of the balanced scorecard.
3) Cost allocation is not required to cost inventories for reporting to external parties.
4) Using only the variable cost as a base may tempt managers to cut prices as long as
prices are above variable cost.
5) Technological innovation has led to shorter product-life cycles and increased the
need to bring new products to market more rapidly.
6) Internal rate of return is a method of calculating the expected net monetary gain or
loss from a project by discounting all expected future cash inflows and outflows to the
present point in time.
7) Under absorption costing, managers can increase operating income by holding less
inventories at the end of the period.
8) A budgeted indirect-cost rate is computed for each cost pool using budgeted indirect
costs and the budgeted quantity of the cost-allocation base.
9) ABC systems attempt to trace more costs as indirect costs.
10) The broader the cost object definition, higher the proportion of direct costs are of
total costs.
11) The only allowable method of joint cost allocation is specified by FASB.
12) A company with a higher degree of operating leverage is at greater risk during
economic downturns because of its higher fixed costs.
13) If a company’s breakeven revenue is $1,000 and its budgeted revenue is $1,250,
then its margin of safety percentage is 20%.
14) The higher the denominator level the higher the budgeted fixed manufacturing cost
rate per unit.
15) Classify each cost item into one of the business functions of the value chain, either
(1) R&D, (2) design, (3) production, (4) marketing, (5) distribution, or (6) customer
service.
Item:
a.cost of samples mailed to promote sales of a new product
b.labor cost of workers in the manufacturing plant
c.bonus paid to a person with a 90% satisfaction rating in handling customers with
complaints
d.transportation costs for shipping products to retail outlets
16) Rolling budgets help management to ________.
A) better review the past calendar year
B) deal with a 5-year time frame
C) focus on the upcoming budget period
D) rigidly administer the budget
17) An unfavorable price variance for direct materials might indicate ________.
A) that the purchasing manager purchased in smaller quantities due to a change to
just-in-time inventory methods
B) congestion due to scheduling problems
C) that the purchasing manager skillfully negotiated a better purchase price
D) that the market had an unexpected oversupply of those materials
18) Elton, Inc., expects to sell 6,000 ceramic vases for $20 each. Direct materials costs
are $2, direct manufacturing labor is $10, and manufacturing overhead is $3 per vase.
The following inventory levels apply to 2016:
On the 2016 budgeted income statement, what amount will be reported for sales?
A) $122,000
B) $118,000
C) $140,000
D) $120,000
19) Stark Corporation has two departments, Car Rental and Truck Rental. Central costs
may be allocated to the two departments in various ways.
If administrative expense of $62,500 is allocated on the basis of number of employees,
the cost per cost driver rate would be ________.
A) $500.00
B) $312.50
C) $833.33
D) $572.50
20) This question refers to flexible-budget variance formulas with the following
descriptions for the variables: A = Actual; B = Budgeted; P = Price; Q = Quantity.
The best label for the formula (AQ – BQ) BP is the ________.
A) efficiency variance
B) price variance
C) total flexible-budget variance
D) spending variance
21) Roberson Corporation manufactured 30,000 ice chests during September. The
variable overhead cost-allocation base is $11.25 per machine-hour. The following
variable overhead data pertain to September:
What is the actual variable overhead cost?
A) $121,500
B) $151,875
C) $165,000
D) $168,750
22) Degen Company used least squares regression analysis to obtain the following
output:
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.
23) Ply Corp manufactures doors. Classify each of the following quality costs as
prevention costs, appraisal costs, internal failure costs, or external failure costs.
a.Retesting of reworked products
b.Downtime due to quality problems
c.Analysis of the cause of defects in production
d.Depreciation of test equipment
e.Warranty repairs
f.Lost sales arising from a reputation for poor quality
g.Quality circles
h.Rework direct manufacturing labor and overhead
i.Net cost of spoilage
j.Technical support provided to suppliers
k.Audits of the effectiveness of the quality system
l.Plant utilities in the inspection area
m.Reentering data because of keypunch errors
________Prevention costs
________Appraisal costs
________Internal failure costs
________External failure costs
24) The flexible budget enables to highlight the differences ________.
A) between actual costs and actual quantities versus budgeted costs and budgeted
quantities for the actual output level
B) between budgeted costs and budgeted quantities versus actual costs and budgeted
quantities for the budgeted output level
C) between budgeted costs and actual quantities versus budgeted costs and budgeted
quantities for the actual output level
D) between actual costs and actual quantities versus budgeted costs and budgeted
quantities for the budgeted output level
25) Relevant costs for target pricing are ________.
A) variable manufacturing costs
B) variable manufacturing and variable nonmanufacturing costs
C) all fixed costs
D) all future costs, both variable and fixed
26) The markup percentage is most likely to be the lowest while using ________ as the
cost base.
A) variable manufacturing cost
B) variable cost of the product
C) manufacturing cost
D) full cost of the product
27) Smaller cost distortions occur when the traditional systems’ single indirect-cost rate
and the activity-cost-driver rates ________.
A) use the same total costs for computations
B) are similar in proportion to each other
C) are more different than alike
D) use the same cost driver units
28) Which of the following statements is true of costs associated with goods for sale?
A) Appraisal costs is a subcategory of shrinkage costs.
B) Special processing costs are always part of purchasing costs.
C) All inventory costs are not available in financial accounting systems.
D) Stockout costs are costs that arise when a company runs out of a particular item for
which there is no customer demand.
29) An inventory item of Avizone Corp. has an average daily demand of 25 units with a
maximum daily demand of 30 units. The economic order quantity is 500 units. Without
safety stocks, the reorder point is 125 units. Safety stocks are set at 235 units.
Required:
a.Determine the reorder point with safety stocks.
b.Determine the maximum inventory level.
c.Determine the average lead time.
30) Tessmer Manufacturing Company produces inventory in a highly automated
assembly plant in Olathe, Kansas. The automated system is in its first year of operation
and management is still unsure of the best way to estimate the overhead costs of
operations for budgetary purposes. For the first six months of operations, the following
data were collected:
Required:
a.Use the high-low method to determine the estimating cost function with
machine-hours as the cost driver.
b.Use the high-low method to determine the estimating cost function with
kilowatt-hours as the cost driver.
c.For July, the company ran the machines for 4,000 hours and used 4,550,000
kilowatt-hours of power. The overhead costs totaled $365,000. Which cost driver was
the best predictor for July?
31) If the Tudor Retailing Company uses the high-low method of analysis, the total
selling and administrative expense if Tudor Retailing Company sells 6,500 units during
a month would be estimated to be:
A) $37,000
B) $44,850
C) $38,250
D) $36,679
32) Olive branch Company recently acquired an olive oil processing company that has
an annual capacity of 2,000,000 liters and that processed and sold 1,400,000 liters last
year at a market price of $4 per liter. The purpose of the acquisition was to furnish oil
for the Cooking Division. The Cooking Division needs 800,000 liters of oil per year. It
has been purchasing oil from suppliers at the market price. Production costs at capacity
of the olive oil company, now a division, are as follows:
Management is trying to decide what transfer price to use for sales from the newly
acquired company to the Cooking Division. The manager of the Olive Oil Division
argues that $4, the market price, is appropriate. The manager of the Cooking Division
argues that the cost of $2.14 should be used, or perhaps a lower price, since fixed
overhead cost should be recomputed with the larger volume. Any output of the Olive
Oil Division not sold to the Cooking Division can be sold to outsiders for $4 per liter.
Required:
a.Compute the operating income for the Olive Oil Division using a transfer price of $4.
b.Compute the operating income for the Olive Oil Division using a transfer price of
$2.14.
c.What transfer price(s) do you recommend? Compute the operating income for the
Olive Oil Division using your recommendation.
33) What are the two components of sales-volume variance? Explain why sales-volume
variance could be helpful to managers.
34) Marshall University offers only high-tech graduate-level programs. Marshall has
two principal operating departments, Commerce and Social Sciences, and two support
departments, Facility and Technology Maintenance and Enrollment Services. The base
used to allocate facility and technology maintenance is budgeted total maintenance
hours. The base used to allocate enrollment services is number of credit hours for a
department. The Facility and Technology Maintenance budget is $500,000, while the
Enrollment Services budget is $900,000. The following chart summarizes budgeted
amounts and allocation-base amounts used by each department:
Required:
Prepare a schedule which allocates service department costs using the step-down
method with the sequence of allocation based on the highest-percentage support
concept. Compute the total amount of support costs allocated to each of the two
principal operating departments, Commerce and Social Sciences.
35) Vision Enterprises manufactures converter boxes for high definition TVs. All
processing is initiated when an order is received. For March there were no beginning
inventories. Conversion Costs and Direct Materials are the only manufacturing cost
accounts. Direct Materials are purchased under a just-in-time system. Backflush costing
is used with a finished goods trigger point. Additional information is as follows:
Required:
Record all journal entries for the monthly activities related to the above transactions if
backflush costing is used.
36) Why do conflicts arise between the EOQ model’s optimal order quantity and the
order quantity that managers regard as optimal?
37) Skytalk Company manufactures weathervanes. The 2015 operating budget is based
on the production of 5,300 weathervanes with 1.25 machine-hour allowed per
weathervane. Variable manufacturing overhead is anticipated to be $145,750.
Actual production for 2015 was 5,250 weathervanes using 6,050 machine-hours. Actual
variable costs were $21.75 per machine-hour.
Required:
Calculate the variable overhead spending and the efficiency variances.
38) A quality improvement program is very costly to implement across a large
corporation. Why do they do it? Explain.
39) Fairytale Weddings manufactures wedding dresses. The following information
relates to the manufacture of gowns in its Perth plant:
Required:
Prepare an analysis of change in annual costs from 20X1 to 20X2 including direct
materials, direct manufacturing labor, and total inputs.
