In a make-or-buy decision for a part for a product, which of the following qualitative
factors play a role?
A) quality of purchased part
B) credit terms offered by supplier of part
C) timeliness of delivery of purchased part by supplier
D) all of the above
On January 1, 2012, Preview Company acquired all of the stock of a subsidiary. The
following data is available:
Preview Company Subsidiary
Total assets $650 $400
Total liabilities $200 $190
Total stockholders’ equity $450 $210
The acquisition by the Preview Company represents a 100 percent interest in the
subsidiary. On January 1, 2012, the fair value of the subsidiary’s assets and liabilities
are equal to the book value. Preview Company paid $250 for the 100 percent interest in
the subsidiary. On January 1, 2012, what are the total assets on the consolidated balance
sheet? (Assume elimination entries are completed.)
A) $650
B) $800
C) $840
D) $1,050
LIFO uses the ________ costs to measure the ending inventory.
A) latest
B) earliest
C) average
D) weighted-average
________ is the logical integration of techniques to gather and use data for planning
and control decisions and to evaluate performance.
A) An internal control system
B) A quality control system
C) A financial reporting system
D) A management control system
Sealing Company manufactures only one product that is available in both a Deluxe
model and a Regular model. The company has manufactured the Regular model for
years and the Deluxe model was recently introduced. The company is concerned about
the accuracy of its costing system because profits are declining since the Deluxe model
was introduced.
Indirect production costs are assigned to the products using direct labor hours. For the
current year, the company estimates $2,000,000 of indirect production costs and 40,000
direct labor hours. They expect to produce 5,000 units of the Deluxe model and 40,000
units of the Regular model. The Deluxe model requires 1.6 hours of direct labor time
per unit and the Regular model requires 0.8 hours. Other costs are as follows:
Costs Deluxe Model Regular Model
Direct materials $150 $112
Direct labor $16 $8
Assume the company’s indirect production costs can be traced to four activities with the
following cost drivers:
Activity (Cost Driver) Costs
Purchase orders (number of purchase orders) $84,000
Rework orders (number of rework orders) $216,000
Product testing (number of tests) $450,000
Machining (number of machine hours) $1,250,000
Deluxe Regular
Cost Drivers Model Model
Number of purchase orders 400 600
Number of rework orders 200 600
Number of tests 4,000 6,000
Number of machine hours 20,000 30,000
Required:
A) Assume direct labor hours are the only cost-allocation base. What is the cost to
manufacture one unit of each model?
B) Assume the activity-based costing method is used. What is the cost to manufacture
one unit of each model?
C) Based on the results obtained from the activity-based costing method, what are the
implications for pricing policy for the two models?
The following data are for Sandy Corporation:
Flexible Budget for
Actual Static Budget Actual Sales Activity
Units 18,000 16,000 18,000
Sales $360,000 $320,000 $360,000
Variable costs 234,000 192,000 216,000
Contribution margin $126,000 $128,000 $144,000
Fixed costs 76,000 80,000 80,000
Operating income $50,000 $48,000 $64,000
The static budget variance for operating income is ________.
A) $2,000 Favorable
B) $2,000 Unfavorable
C) $16,000 Favorable
D) $16,000 Unfavorable
The contribution approach to the income statement emphasizes the distinction between
________.
A) value chain functions
B) different functional areas in a firm
C) different business segments
D) variable and fixed costs
Information is relevant if it has ________ and ________.
A) verifiability; comparability
B) timeliness; materiality
C) predictive value; confirmatory value
D) reliability; feedback value
The following information pertains to the East Division of Saturn Company:
Net sales $21,000
Variable costs:
Cost of merchandise sold 10,300
Operating expenses 3,700
Fixed costs:
Controllable by segment manager 2,400
Controllable by others 1,000
Unallocated costs 600
The contribution margin of the East Division is ________.
A) $7,000
B) $7,700
C) $8,000
D) $10,700
In a small construction firm, a crew supervisor is added for every ten workers
employed. The salaries of the crew supervisors are a ________.
A) variable cost
B) mixed cost
C) step cost
D) fixed cost
Lower cycle times often lead to ________ quality products and ________ defect rates.
A) lower; lower
B) lower; higher
C) higher; higher
D) higher; lower
In special order situations, unit costs are useful for predicting total ________. In special
order situations, unit costs are not useful for predicting total ________.
A) mixed costs; step costs
B) step costs; mixed costs
C) variable costs; fixed costs
D) fixed costs; variable costs
Operating leverage is the sensitivity of a firm’s ________ to changes in ________.
A) sales volume; the cost structure
B) margin of safety; ratio of fixed costs to variable costs
C) sales volume; the cost driver levels
D) net income; sales volume
The schedule of cash collections from customers has ________.
A) cash sales only
B) collections on credit sales only
C) A and B
D) budgeted purchases
Under variable costing, ________ is NOT an inventoriable cost.
A) direct materials
B) variable manufacturing overhead
C) variable selling and administrative expenses
D) direct labor
Gurnee Company is considering the replacement of a machine that is presently used in
production. The following data are available:
Old Machine New Machine
Original cost $200,000 $160,000
Useful life in years 10 5
Current age in years 5 0
Book value $100,000 –
Disposal value now $32,000 –
Disposal value in 5 years 0 0
Annual cash operating costs $20,000 $14,000
Adding all five years together, what is the difference in total relevant costs between the
old and new machines?
A) $12,000
B) $30,000
C) $98,000
D) $130,000
When allocating fixed costs from service departments to production departments,
managers should use ________ instead of ________.
A) capacity used; capacity available
B) capacity available; budgeted capacity
C) capacity used; budgeted capacity
D) capacity available; capacity used
Sebring Company has the following data:
Month Budgeted Sales
April $40,000
May 44,000
June 50,000
July 52,000
August 48,000
The cost of goods sold percentage is 70% of sales and the desired ending inventory
level is 25% of next month’s sales at cost. ________ was the beginning inventory on
May 1.
A) $3,300
B) $7,700
C) $8,750
D) $11,000
Danworth Company is contemplating whether to use MACRS depreciation or
straight-line depreciation for a plant asset. The following information is available:
MACRS Straight-line Present Value of
Depreciation Depreciation One At 12%
Year 1 $13,333 $10,000 0.8929
Year 2 $17,780 $10,000 0.7972
Year 3 $5,924 $10,000 0.7118
Year 4 $2,964 $10,000 0.6355
Over the four years examined, how much did Danworth Company gain by using
MACRS depreciation instead of straight-line depreciation for the plant asset? The tax
rate is 40%. (Find the present value.)
A) $722
B) $1,806
C) $2,976
D) $9,178
The allocation of fixed costs in service departments to user departments is based on
________.
A) actual capacity used in last period
B) budgeted capacity available to user
C) actual usage by user department
D) actual usage by service department
In return on investment calculations, we should measure invested capital ________
because ________.
A) at the end of the period; it is easiest
B) at the end of the period; income is measured at the end of the period
C) at the beginning of the period; it is a lead indicator
D) as an average for the period under review; income is measured over a period of time
A product such as Sure-Fine Graham Crackers, and a customer such as an Internet
customer, are both examples of ________.
A) cost accounting
B) cost management system
C) cost assignment
D) cost objects
In accordance with Generally Accepted Accounting Principles in the United States, the
________ must be reported on the financial statements.
A) price-earnings ratio
B) dividend payout ratio
C) earnings per share
D) dividend yield ratio
Sanchez Company planned to produce 12,000 units. This level of activity required 20
setups at a cost of $22,000 plus $500 per setup. Actual production was 10,000 units,
requiring 15 setups. Actual setup cost was $26,000. At 10,000 units, what is the flexible
budget amount for total setup costs?
A) $7,500
B) $22,000
C) $26,000
D) $29,500
When finished goods inventories decrease over an operating period, net income under
variable costing ________ net income under absorption costing.
A) exceeds
B) is less than
C) equals
D) not enough information to determine
Suppose a hotel has annual fixed costs applicable to its rooms of $2.0 million for its
300-room hotel. Average daily room rents are $50 per room and average variable costs
are $10 for each room rented. It operates 365 days per year. If the hotel is completely
full throughout the year, what is net income for one year?
A) $1,280,000
B) $2,380,000
C) $3,180,000
D) $4,380,000
The following information is available for Ohlson Consulting Company and its two
offices:
Greenfield Greendale
Office Office
Net sales $100,000 $200,000
Fixed costs:
Controllable by division manager 78,000 48,000
Controllable by others 4,000 8,000
Variable costs:
Cost of merchandise sold 30,000 120,000
Operating expenses 15,000 60,000
Unallocated costs were $152,000.
Required:
A) Compute the contribution margin for the Greenfield office.
B) Compute the contribution (or loss) controllable by the manager of the Greendale
Office.
C) Compute the contribution (or loss) by segment for the Greenfield office.
D) Compute the income (or loss) before taxes for the company as a whole.
The following data are for Sandy Corporation:
Flexible Budget for
Actual Static Budget Actual Sales Activity
Units 18,000 16,000 18,000
Sales $360,000 $320,000 $360,000
Variable costs 234,000 192,000 216,000
Contribution margin $126,000 $128,000 $144,000
Fixed costs 76,000 80,000 80,000
Operating income $50,000 $48,000 $64,000
The static budget variance for operating income is ________.
A) $2,000 Favorable
B) $2,000 Unfavorable
C) $16,000 Favorable
D) $16,000 Unfavorable
Beth Company reported sales on account of $250,000, an increase in inventory of
$70,000, and a decrease in accounts receivable of $20,000. How much cash was
collected from customers?
A) $180,000
B) $230,000
C) $270,000
D) $320,000
Under the equity method of accounting for investments, the acquisition cost of an
investment is adjusted for ________.
A) dividends received only
B) investor’s share of earnings or losses of investee after investment date only
C) changes in market value of investment
D) dividends received and investor’s share of earnings or losses of investee after
investment date
