1) When a company has no opening or ending inventory during the month, the cost per
unit is calculated by dividing the total costs incurred in the period by the total units
produced during the period.
2) Activity-based budgeting provides better decision-making information than
budgeting based solely on output-based cost drivers (units produced, units sold, or
revenues).
3) In a traditional format income statement for a merchandising company, the selling
and administrative expenses report all period costs that have been expensed as incurred.
4) A distinctive feature of the FIFO process costing method is that the work done on
beginning inventory before the current period is kept separate from work done in the
current period.
5) Revenue allocation is required to determine the profitability of individual items
within a bundled product.
6) The juncture in a joint production process when two products become separable is
the byproduct point.
7) COQ reports provide more insight about quality improvements and allow managers
to compare
trends over time.
8) Allocating joint costs to individual products can be helpful for litigation settlement
purposes in which the costs of joint products or services are key inputs.
9) Goods are ready to be sold when their respective costs are debited to work-in-process
inventory.
10) In the “Identify projects” stage of capital budgeting, companies gather information
from all parts of the value chain to evaluate alternative projects.
11) One reason for using longer time periods to calculate indirect-cost rates is seasonal
cost fluctuations.
12) As per IMA statement of ethical professional practice, integrity refers to disclosing
all relevant information that could reasonably be expected to influence an intended
user’s understanding of the reports, analyses, or recommendations is a responsibility.
13) An increase in the tax rate will increase the breakeven point.
14) The ending balance in Work-in-Process Control represents the total costs of all jobs
that have NOT yet been completed.
15) In a process-costing system, there is always a separate Work-in-Process account for
each different process.
16) Uninder Company uses the high-low method to estimate the cost function. The
information for 2015 is provided below:
What is the slope coefficient?
A) $52.00
B) $43.75
C) $30.00
D) $40.00
17) To complete the first setup on a new machine took an employee 100 minutes. Using
an 80% incremental unit-time learning model indicates that the second setup on the new
machine is expected to take ________.
A) 80 minutes
B) 120 minutes
C) 70 minutes
D) 60 minutes
18) Buzz’s Educational Software Outlet sells two or more of the video games as a single
package. Managers are keenly interested in individual product-profitability figures.
Information pertaining to three bundled products and the stand-alone prices is as
follows:
Using the incremental method for revenue allocation, what amount of revenue will be
allocated to Reading Fun in the first package (Reading Fun & Math Fun)? Assume
Reading Fun is the primary product, followed by Math Fun, and then Analysis.
A) $20
B) $22
C) $19
D) $25
19) Estate Corp., has the following information:
Purchases are paid for in the following manner:
10% of the purchase amount in the month of purchase
50% of the purchase amount in the month after purchase
40% of the purchase amount in the second month after purchase
What is the expected Accounts Payable balance as of May 31?
A) $41,792
B) $37,932
C) $35,804
D) $2,948
20) Throughput contribution equals ________.
A) variable costs minus fixed costs
B) revenues minus all direct labor costs
C) revenues minus all direct material cost of goods sold
D) revenues minus manufacturing overhead
21) Jane Industries manufactures plastic toys. During October, Jane’s Fabrication
Department started work on 10,000 models. During the month, the company completed
11,000 models, and transferred them to the Distribution Department. The company
ended the month with 1,500 models in ending inventory. There were 2,500 models in
beginning inventory. All direct materials costs are added at the beginning of the
production cycle and conversion costs are added uniformly throughout the production
process. The FIFO method of process costing is being followed. Beginning work in
process was 25% complete as to conversion costs, while ending work in process was
50% complete as to conversion costs.
What is the amount of direct materials cost assigned to ending work-in-process
inventory at the end of October?
A) $22,727
B) $17,202
C) $7,720
D) $10,500
22) Southwestern College is planning to hold a fund raising banquet at one of the local
country clubs. It has two options for the banquet:
OPTION one:Crestview Country Club
a. Fixed rental cost of $1,000
b. $12 per person for food
OPTION two:Tallgrass Country Club
a. Fixed rental cost of $3,000
b. A caterer who charges $8.00 per person for food
Southwestern College has budgeted $1,800 for administrative and marketing expenses.
It plans to hire a band which will cost another $800. Tickets are expected to be $30 per
person. Local business supporters will donate any other items required for the event.
Which option provides the greatest operating income if 600 people attend?
A) Option one
B) Option two
C) Operating incomes are identical.
D) Both the options have 0 operating income as they are operating at breakeven point.
23) Which of the following scenarios is an example of predatory pricing?
A) Ceramic Corp sells its products below average total costs during off-peak seasons.
B) Almeda flowers has arrived at an informal agreement with other sellers in the area to
charge a very high selling price.
C) Anton Inc., sells its products for $25 in the U.S, however it can sell the same product
for double the price in its home country.
D) Duyen Inc., is launching a new product and has decided to sell its product below its
average variable costs until it drives competitors out of market.
24) Which of the following statements is true of joint production process and its
components?
A) Distribution costs incurred beyond the splitoff point assignable to each of the
specific products identified at the splitoff point are considered as joint costs.
B) Decisions relating to the sale or further processing of each identifiable product can
be made independently of decisions about the other products beyond the splitoff point.
C) When a joint production process yields two or more products with low total sales
values relative to the total sales values of other products, those products are called joint
products.
D) The primary purpose of joint costing is to allocate the separable costs to the
individual products that are eventually sold.
25) Glass House Manufacturing currently produces 1,000 glasses per month. The
following per unit data for thousand apply for sales to regular customers:
The plant has capacity for 2,000 glasses. Plant supervisor’s salary is $15,000.
Required:
a.What is the total cost of producing 1,000 glasses?
b.What is the total cost of producing 1,500 glasses?
c.What is the per unit cost when producing 1,500 glasses?
26) Northern Star sells several products. Information of average revenue and costs is as
follows:
The company sells 12,000 units at the end of the year.
If direct labor and direct material costs increase by $1 each, contribution margin
________.
A) increases by $20,000
B) increases by $14,000
C) decreases by $24,000
D) decreases by $14,000
27) How much of the account inquiry cost will be assigned to Department A?
A) $50,000
B) $200,000
C) $60,000
D) $80,000
28) The Zeron Corporation wants to purchase a new machine for its factory operations
at a cost of $380,000. The investment is expected to generate $125,000 in annual cash
flows for a period of four years. The required rate of return is 12%. The old machine
can be sold for $20,000. The machine is expected to have zero value at the end of the
four-year period. What is the net present value of the investment? Would the company
want to purchase the new machine? Income taxes are not considered.
A) $19,750; yes
B) $35,775; no
C) $360,000; yes
D) $163,005; no
29) Hanung Corp has two service departments, Maintenance and Personnel.
Maintenance Department costs of $300,000 are allocated on the basis of budgeted
maintenance-hours. Personnel Department costs of $100,000 are allocated based on the
number of employees. The costs of operating departments A and B are $160,000 and
$240,000, respectively. Data on budgeted maintenance-hours and number of employees
are as follows:
Using the step-down method, what amount of Maintenance Department cost will be
allocated to Department B if the service department with the highest percentage of
interdepartmental support service is allocated first? (Round up)
A) $84,143
B) $69,231
C) $66,734
D) $71,443
30) Which of the following approaches spreads underallocated or overallocated
overhead among ending balances in Work-in-Process Control, Finished Goods Control,
and Cost of Goods Sold?
A) the adjusted allocation-rate approach
B) the proration approach
C) the write-off variances to cost of goods sold approach
D) the reinstatement approach
31) When machine-hours are used as a cost-allocation base, the item most likely to
contribute to a favorable variable overhead efficiency variance is ________.
A) excessive machine breakdowns
B) skillful workforce
C) additional machinery
D) strengthened demand for the product
32) ________ refers to an organization’s ability to achieve lower costs relative to
competitors through productivity and efficiency improvements, elimination of waste,
and tight cost control.
A) Marketing strategy
B) Product differentiation
C) Cost leadership
D) Competitor differentiation
33) Which of the following statements is true?
A) There is a cause-and-effect relationship between the cost driver and the amount of
cost.
B) Fixed costs have cost drivers over the short run.
C) Over the short run all costs have cost drivers.
D) Volume of production is a cost driver of distribution costs.
34) Managers use cost-volume-profit (CVP) analysis to ________.
A) forecast the cost of capital for a given period of time
B) to study the behavior of and relationship among the elements such as total revenues,
total costs, and income
C) estimate the risks associated with a given job
D) analyse a firm’s profitability and help to decide wealth distribution among its
stakeholders
35) Plish Company manufactures only one type of washing machine and has two
divisions, the Compressor Division, and the Fabrication Division. The Compressor
Division manufactures compressors for the Fabrication Division, which completes the
washing machine and sells it to retailers. The Compressor Division ‘sells” compressors
to the Fabrication Division. The market price for the Fabrication Division to purchase a
compressor is $40.00. (Ignore changes in inventory.) The fixed costs for the
Compressor Division are assumed to be the same over the range of 5,000-10,000 units.
The fixed costs for the Fabrication Division are assumed to be $7.50 per unit at 10,000
units.
Compressor’s costs per compressor are:
Fabrication’s costs per completed air conditioner are:
If the Fabrication Division sells 1,000 air conditioners at a price of $375.00 per washing
machine to customers, what is the operating income of both divisions together?
A) $105,500
B) $102,250
C) $97,000
D) $82,875
36) The manager of the manufacturing division of Iowa Windows does not understand
why income went down when sales went up. Some of the information he has selected
for evaluation include:
The division operated at normal capacity during January.
Variable manufacturing cost per unit was $5, and the fixed costs were $400,000.
Selling and administrative expenses were all fixed.
Required:
Explain the profit differences. How would variable costing income statements help the
manager understand the division’s operating income?
37) Perform value engineering to achieve target cost.
38) What are the factors that affect the classification of a cost as direct or indirect?
39) Lexington Company produces baseball bats and cricket paddles. It has two
departments that process all products. During July, the beginning work in process in the
cutting department was half completed as to conversion, and complete as to direct
materials. The beginning inventory included $40,000 for materials and $60,000 for
conversion costs. Ending work-in-process inventory in the cutting department was 40%
complete. Direct materials are added at the beginning of the process.
Beginning work in process in the finishing department was 80% complete as to
conversion. Direct materials for finishing the units are added near the end of the
process. Beginning inventories included $24,000 for transferred-in costs and $28,000
for conversion costs. Ending inventory was 30% complete. Additional information
about the two departments follows:
Required:
Prepare a production cost worksheet, using FIFO for the finishing department.
40) Dawn and Kim just bought a bed and breakfast inn at a very attractive price. The
business had been doing poorly. Before they reopened the inn for business, they
attended a seminar on operating a high quality business. Now that they are ready to
open the inn, they need some advice on quality costs and management.
Required:
Identify four categories of quality costs. In addition, identify three items that would be
classified in each of the categories.
41) Explain the importance of customer-profitability analysis.
42) Perry Company has provided the following information:
In addition, the gross profit rate is 40% and the desired inventory level is 30% of next
month’s cost of sales.
Required:
Prepare a purchases budget for April through June.
43) The president of the Gulf Coast Refining Corporation wants to know why his
golfing partner, who is the chief financial officer of a large construction company,
calculates his costs by the job, but his own corporation calculates costs by large units
rather than by individual barrel of oil.
44) What factors may influence the level of markups?