1) Sensitivity analysis is a useful tool that helps managers evaluate risks.
2) Discretionary costs arise from periodic (usually annual) decisions regarding the
maximum amount to be incurred.
3) Commissions paid to salespersons are a variable selling expense.
4) The supply chain describes the flow of goods, services, and information from the
initial sources of materials and services to the delivery of products to consumers,
regardless of whether those activities occur in the same company or in other companies.
5) The constant gross-margin percentage method differs from market-based joint-cost
allocation method (sales value at splitoff and estimated net realizable value) since no
account is taken of profits earned before or after the splitoff point when allocating joint
costs.
6) If the production planners set the budgeted machine hours standards too loose, one
could anticipate there would be a favorable fixed overhead efficiency variance.
7) The possibility of exchange rate fluctuations does NOT influence the budgeting
procedures in a multinational corporation.
8) When estimating a cost function, cost behavior can be approximated by a linear cost
function within the relevant range.
9) An Enterprise Resource Planning (ERP) System is a single database that collects data
and feeds into applications that support each of the company’s business activities, such
as purchases, production, distribution, and sales.
10) In the estimation of a cost function using quantitative analysis, the independent
variable ________.
A) is the cost to be predicted
B) is the product of fixed costs and slope coefficient
C) is the factor used to predict the dependent variable
D) is the product of total costs and slope coefficient
11) Jake’s Copy Center hires a new employee. Jake knows he has to be patient with the
employee until the employee gains enough experience to meet production standards.
Jake is unsure of the learning curve in his operation, but he knows the first job by a new
employee averages 50 minutes and the second job averages 40 minutes. Assume all jobs
to be equal in size.
Required:
a.What is the learning-curve percentage, assuming the cumulative average-time
method?
b.What is the time for a new employee to do 32 jobs with this learning curve using the
cumulative average-time method? You may use an index of -0.1520.
12) Goldfarb’s Book and Music Store has two service departments, Warehouse and Data
Center. Warehouse Department costs of $350,000 are allocated on the basis of budgeted
warehouse-hours. Data Center Department costs of $150,000 are allocated based on the
number of computer log-on hours. The costs of operating departments Music and Books
are $250,000 and $300,000, respectively. Data on budgeted warehouse-hours and
number of computer log-on hours are as follows:
What is the complete reciprocated cost of the Plant Maintenance Department?
A) $393,750
B) $369,459
C) $365,000
D) $375,773
13) Saul and Solomon are starting a new business venture and are in the process of
evaluating their product lines. Information for one new product, hand-made lamps, is as
follows:
Every six months a new lamp pattern will be put into production. Each new pattern will
require $11,200 in setup costs.
The lamp product line incurred $40,000 in development costs and is expected to be
produced over the next six years.
Direct costs of producing the lamps average $144 each. Each lamp requires 12
labor-hours and 2 machine-hours.
Indirect manufacturing costs are estimated at $168,000 per year.
Customer service expenses average $16 per lamp.
Current sales are expected to be 2,000 units of each lamp pattern. Each lamp sells for
$250.
Sales units equal production units each year.
Required:
a.What are the estimated life-cycle revenues?
b.What is the estimated life-cycle operating income for the first year?
14) Quantitative analysis methods estimate cost functions ________.
A) using the time-and-motion studies
B) based on analysis and opinions gathered from various departments
C) using a formal mathematical method to fit cost functions to past data observations
D) using the pooling of knowledge from each value chain function
15) The following information is for Alex Corp:
If the sales mix shifts to one unit of Product X and two units of Product Y, then the
breakeven point will ________.
A) increase
B) stay the same
C) decrease
D) will be greater than the original breakeven point
16) The top management at Groundsource Company, a manufacturer of lawn and
garden equipment, is attempting to recover from a fire that destroyed some of their
accounting records. The main computer system was also severely damaged. The
following information was salvaged:
Tractor Division Tiller Division Digger Division
Sales $10,000,000 (a) $2,400,000
Net operating income $1,000,000 $1,440,000 $600,000
Operating assets (b) (c) $2,000,000
Return on investment 0.2 0.1 (d)
Return on sales (e) 0.12 0.25
Investment turnover (f) (g) 1.2
What were the sales for the Tiller Division?
A) $9,600,000
B) $12,000,000
C) $15,000,000
D) $15,500,000
17) Which of the following is a stage of the capital budgeting process that indicates
potential capital investments that agree with an organization’s strategy?
A) identify projects stage
B) make predictions stage
C) obtain information stage
D) implement the decision, evaluate performance, and learn stage
18) Marblex manufactures marble statues. In March, the two production departments
had budgeted allocation bases of 4,000 machine-hours in Department X and 8,000
direct manufacturing labor-hours in Department Y. The budgeted manufacturing
overheads for the month were $60,000 and $64,000, respectively. For Job A, the actual
costs incurred in the two departments were as follows:
Job A incurred 800 machine-hours in Department X and 300 manufacturing labor-hours
in Department Y. The company uses a budgeted overhead rate for applying overhead to
production.
Required:
a.Determine the budgeted manufacturing overhead rate for each department.
b.Prepare the necessary journal entries to summarize the March transactions for
Department X.
c.What is the total cost of Job A?
19) Velshi Printers has contracts to complete weekly supplements required by forty-six
customers. For the year 2015, manufacturing overhead cost estimates total $840,000 for
an annual production capacity of 12 million pages.
For 2015 Velshi Printers has decided to evaluate the use of additional cost pools. After
analyzing manufacturing overhead costs, it was determined that number of design
changes, setups, and inspections are the primary manufacturing overhead cost drivers.
The following information was gathered during the analysis:
During 2015, two customers, Money Managers and Hospital Systems, are expected to
use the following printing services:
What is the cost driver rate if manufacturing overhead costs are considered one large
cost pool and are assigned based on 12 million pages of production capacity?
A) $0.10 per page
B) $0.07 per page
C) $0.70 per page
D) $0.05 per page
20) Given a constant contribution margin per unit and constant fixed costs, the
period-to-period change in operating income under variable costing is driven solely by
________.
A) changes in the quantity of units actually sold
B) changes in the quantity of units produced
C) changes in ending inventory
D) changes in sales price per unit