1) Product lines that produce different variations (models, styles, or colors) often
require specialized activities that translate into lower overhead costs for each product
line.
2) Activity based costing can be used to trace revenue deductions such as discounts to
individual orders and customers.
3) Return on investment is the ratio of income to investment, with varying definitions of
income and investment.
4) Companies base salespeople’s compensation on net income because it is simple to
measure.
5) Labor hours are always an appropriate cost driver in a manufacturing environment.
6) During the history of management accounting, innovations were developed to
address the decision-making needs of managers.
7) Duration of the relationship is a critical parameter for calculating customer lifetime
value.
8) The Balance Scorecard measures organizational performance across five different
but linked perspectives.
9) An important financial metric in the Balanced Scorecard is return on investment.
10) Companies can use time-driven ABC costing systems to create customer-specific
profit and loss statements.
11) Information about customer satisfaction is an example of financial information.
12) A favorable variance indicates management’s attention is not needed.
13) When deciding to purchase a new cutting machine or continue using the old
machine, the following costs are all relevant EXCEPT the:
A) $100,000 cost of the old machine
B) $40,000 cost of the new machine
C) $20,000 disposal value of the old machine
D) $6,000 annual savings in operating costs if the new machine is purchased
14) Managers for the learning and growth perspective of the Balanced Scorecard must
invest in all of the following EXCEPT:
A) improve asset utilization
B) improving the skills of their employees
C) enhancing information technology and systems
D) aligning employees to the company’s objectives
15) The following annual information is for Bressler Corporation:
Total fixed costs: $100,000
If the sales mix shifts to one unit of Product X and two units of Product Y, then the
break-even point in units for a year will:
A) increase
B) stay the same
C) decrease
D) be undeterminable
16) Planning activities include all of the following except:
A) estimate the cost and profit consequences from a course of action
B) evaluating the quality of the service provided
C) projecting labor requirements
D) budgeting
17) Transaction drivers, duration drivers, and intensity drivers.
a. For machine maintenance, identify a transaction driver, a duration driver, and an
intensity driver
b. Explain when the intensity driver should be used
c. Explain the conditions that are assumed when the duration driver is used.
18) Nanny McPhee, the owner and manager of Nanny’s Roasted Chicken Company,
replaced the company’s convection ovens just six months ago. Today, Green Valley
Oven Manufacturing announced the availability of a new convection oven that cooks
much more quickly with lower operating expenses. Nanny is considering the purchase
of this faster, lower-operating cost, convection oven to replace the existing one they
recently purchased. Selected information about the two ovens is given below:
Required:
a. What costs are sunk?
b. What costs are relevant?
c. What are the net cash flows over the next 10 years assuming that Nanny purchases
the new convection oven?
d. What other factors should Nanny consider when making this decision?
19) ________ refers to the amount of time that an employee will stay with a job or
specific task.
A) Persistence
B) Intensity
C) Duration
D) Motivation
20) The expected cash flow statement does NOT include:
A) cash inflows from the collection of receivables
B) cash outflows paid toward committed resources
C) all sales revenues
D) interest paid and collected
21) The following information pertains to three divisions of Marine Industrial Coatings,
Inc. (amounts in millions):
What is the return on investment for the Chemical Division?
A) 1.25%
B) 2.25%
C) 25.0%
D) 50.00%
22) Which of the following would be considered management accounting information?
A) Budgeted production for the year 2011
B) Budgeted Balance Sheet
C) Analysis of trend in stock prices
D) Both budgeted production for the year of 2011, and the budgeted balance sheet
23) A national company manufactures a line of modern furniture. Information MOST
useful to the top executive includes:
A) individual job summaries of materials used
B) monthly financial reports on the company’s profitability by product line
C) time reports submitted by each employee
D) scheduled downtime for routine maintenance on machines
24) ________ starts with the estimated product costs and next adds the expected profit
margin.
A) Cost-plus pricing
B) Target costing
C) Kaizen costing
D) Standard costing
25) In a decentralized organization:
A) local-division managers have less control over their business segments
B) there are few deviations from the standardized way of doing things
C) front-line employees are not trained to respond to changes in the business
environment
D) decisions are made by the managers most familiar with the problems and
opportunities
26) Feedback systems that force a dialogue among all organizational participants about
the data that are coming out of the system and what to do about the data are called:
A) diagnostic control systems
B) monitoring
C) preventative controls
D) interactive control systems
27) The greatest threat to successful Balanced Scorecard implementation is:
A) poor scorecard design
B) a poor organizational process for development and implementation
C) too few scorecard measures
D) too many financial perspective measures
28) MTM Manufacturing produces two types of pre-fabricated exterior walls: deluxe
and standard. The assignment basis for overhead costs has been direct labor hours. For
2011, MTM compiled the following data for the two products:
DeluxeStandard
Sales in units5,00040,000
Sales price per unit$13,000.00$9,500.00
Direct material and direct labor costs per unit$3,600.00$2,600.00
Manufacturing overhead costs per unit$ 1,800,.00$2,400.00
Last year, MTM purchased an expensive robotics system to allow for more complex
products in the deluxe line. The CFO suggested that an ABC analysis could be valuable
to help evaluate a product mix and promotion strategy for the next sales campaign. She
obtained the following ABC information for 2011:
ActivityCost DriverCostTotalDeluxe Standard
Setups# setups$ 1,300,000500400100
Machine-related# of machine hours$61,200,000600,000300,000300,000
Packing# shipments$ 105,000,000250,00050,000200,000
a.Using the current cost system, what is the estimated:
1.total cost of manufacturing one unit for each type of wall; and
2.profit per unit for each type of wall?
b.Using the current cost system, estimated manufacturing overhead costs per unit are
less for the deluxe wall ($1,800 per unit) than the standard wall ($2,400 per unit). What
is a likely explanation for this?
c.Review the machine-related costs above. What is a likely explanation for
machine-related costs being so high? What might explain why total machining hours for
the deluxe walls (300,000 hours) are the same as for the standard walls (300,000
hours)?
d.Using the activity-based costing data presented above,
1.compute the cost driver rate for each overhead activity.
2.compute the revised manufacturing overhead cost per unit for the deluxe wall.
3.compute the revised total cost to manufacture one unit of the deluxe wall.
e.Is the deluxe wall as profitable as the original data estimated? Why or why not?
f.What considerations need to be examined when determining a sales mix strategy?
29) Wood Manufacturing is a small textile manufacturer using machine-hours as the
single, plant-wide predetermined cost driver rate to allocate manufacturing overhead
costs to the various jobs contracted during the year. The following estimates are
provided for the coming year for the company and for the Winfield High School band
jacket job:
What amount of manufacturing overhead costs will be allocated to the Winfield job?
A) $270
B) $720
C) $450
D) $30,000
30) Dakota Corporation plans to grow by offering a hand held application, the Pocket
Analyst 2, which is superior and unique from the competition. Dakota believes that
putting additional resources into R&D and staying ahead of the competition with
technological innovations is critical to implementing its strategy.
Dakota’s value proposition is:
A) product innovation and leadership
B) lowest total cost
C) complete customer solutions
D) employees recognizing customer needs
31) Schiff Company produces seven products. PQ-6 costs $240.00 per unit under their
traditional cost system using one cost driver. An analysis of the activities and their costs
revealed that three cost drivers would be used under the new ABC system. The new cost
of PQ-6 was determined to be $190.00 per unit.
Given this change in the cost:
A) PQ-6 costing results under the new system depend on the adequacy and quality of
the estimated sales and sales revenue used by the system
B) PQ-6 will now command a higher sales price
C) PQ-6 will now command a lower sales price
D) Schiff’s other products will be assigned a smaller share of overhead costs
32) Skate Magic manufactures three different product lines, Model TS, Model AY, and
Model GG. Considerable market demand exists for all models. The following per unit
data apply:
Which model has the greatest contribution margin per machine-hour?
A) Model TS
B) Model AY
C) Model GG
D) both Models YA and GG
33) Marine Industrial Coatings, Inc. is considering replacing its existing computer
system with a new computer system. The new system can offer considerable savings in
computer processing and inventory management costs. Information about the existing
system and the new system follow:
Relevant costs for this decision include:
A) the original cost of the existing system
B) accumulated depreciation
C) the current salvage value of the existing system
D) the remaining life of 5 years
34) Which of the following statements is FALSE regarding financial and nonfinancial
measures of performance?
A) Nonfinancial measures may help to anticipate and explain financial results
B) Financial measures include aggregate measures
C) Nonfinancial measures may help to identify the causes of financial results
D) Financial measures are lead indicators of future success
35) ________ translate(s) an organization’s mission, vision, and strategy into a
comprehensive set of performance measures that provide the framework for
implementing its strategy.
A) Critical success factors
B) The value proposition
C) Objectives
D) The Balanced Scorecard
36) Service companies:
A) focus more on customer costs and profitability than manufacturing companies
B) are less customer driven than manufacturing companies
C) have less variation in demand for organizational resources
D) None of the above
37) ________ are the basic, day-to-day processes that produce products and services
and deliver them to customers.
A) Measures
B) The value proposition
C) Operations management processes
D) The balanced scorecard
38) A demand forecast is:
A) an estimate of sales demand at a specified selling price for each product
B) developed primarily to prepare next year’s marketing campaign
C) an estimate of market demand based on the amount sold in the previous year
D) a summary of product costs that influence pricing decisions
39) Vander Belt Manufacturing, Inc., is considering reorganizing its plant into
manufacturing cells. The following estimates have been prepared to evaluate the
benefits from the reorganization:
Inventory carrying costs are estimated to be 11% per year.
As a result of the layout reorganization, incremental manufacturing costs are projected
to:
A) decrease by $11,400 annually
B) decrease by $12,500 annually
C) increase by $12,500 annually
D) increase by $20,000 annually
40) Lean manufacturing:
A) has a central philosophy that resource spending that does not add value must be
eliminated
B) defines value as any action or process for which the customer is willing to pay
C) is derived from the Toyota Production System
D) All of the above are correct
41) Design of an activity-based cost system requires that:
A) the job bid process be redesigned
B) resource costs be linked to the activities performed
C) the cost of activities be linked to cost objects
D) resource costs be linked to the activities performed and the cost of activities be
linked to cost objects
42) Greater manufacturing overhead costs are associated with:
A) specialized engineering drawings of new products
B) quality specifications for products and quality control testing
C) inventoried materials and material control systems
D) All of the above are correct
43) Scanlon plan Knox Company manufactures consumer products such as cleansers,
air fresheners, and detergents. During a recent quarter, the value of the products made
was $100 million, and the labor costs were $6 million. The company has decided to use
a Scanlon plan with this quarter being used to establish the base ratio for the plan. The
formula is to be applied quarterly with differences, positive or negative, added to the
bonus pool. The pool is to be distributed on a 35%/65% basis between the employees
and the company at the end of the fourth quarter. The following production and cost
levels were recorded during the first year of the plan’s operation:
QUARTER PRODUCTION VALUE PAYROLL COSTS
1 $90,000,000 $4,950,000
2 $120,000,000 $6,960,000
3$110,000,000 $7,150,000
4 $96,000,000 $5,664,000
Required:
How much would be distributed to the employees at the end of the year?
44) Explain what each of the following variances indicates, and discuss what conditions
might have caused each variance.
Direct material price variance: $1,000 U
Direct material quantity variance: $1,500 F
Direct labor rate variance: $800 F
Direct labor efficiency variance: $300 U
45) Why are transfer prices used? What is a market-based transfer price?
46) On a job bid sheet, four items are added together to arrive at a bid price. List each
of these items and explain why each is necessary to arrive at the bid price.
47) In job order costing, explain how comparing actuals to the estimates for direct
material and direct labor costs can be helpful to management.