Which statement about TQM is FALSE?
A) TQM focuses on product quality.
B) TQM minimizes costs by maximizing quality.
C) TQM focuses on the prevention of defects and on customer satisfaction
D) Management accountants have no role in the application of TQM.
Monthly indirect production costs are $400,000. The cost-allocation base for indirect
costs is machine hours. The budgeted capacity for the month is 40,000 machine hours.
Product X used 5,000 machine hours, Product Y used 15,000 machine hours and
Product Z used 20,000 machine hours. How much of the indirect costs are allocated to
Products X and Y?
Product X Product Y
A) $2,500 $7,500
B) $5,000 $15,000
C) $50,000 $150,000
D) none of the above
The following data has been assembled for Arnold Company. Use the high-low method.
Month Cost Hours
January $24,000 2,000
February $39,000 2,200
March $35,280 2,750
April $36,400 3,500
May $40,000 4,000
The total fixed cost is ________.
A) $3,600
B) $8,000
C) $21,360
D) $26,672
Which of the following is a component of the financial budget?
A) budgeted balance sheet
B) budgeted income statement
C) sales budget
D) purchases budget
When using a two stage activity-based costing system, which of the following is NOT a
legitimate step?
A) Identify a cost pool for each significant activity.
B) Assign the indirect resource cost to the appropriate cost pool.
C) Allocate the costs in each pool to products or services using multiple cost drivers.
D) Select an allocation base for each cost pool.
Service department costs can be assigned to ________.
A) customers only
B) producing departments only
C) customers and producing departments
D) none of the above
In activity-based costing systems, the budgeted overhead rate for products is developed
after considering indirect costs for ________.
A) production only
B) production and distribution only
C) all value chain functions
D) production and customer service only
Which of the following items does NOT affect the present value of the tax deduction for
depreciation expense used in the net present value calculation of an investment?
A) recovery period
B) tax rates
C) discount rate
D) gain on disposal of investment
Conner Company has the following information:
Actual operating loss at 5,000 units $(11,000)
Budgeted operating income at 5,000 units $5,000
Budgeted operating income at 10,000 units $12,000
Planned level of operations 10,000 units
Actual level of operations 5,000 units
Assume units of output are the cost driver for product costs. What is the static budget
variance for operating income?
A) $11,000 Unfavorable
B) $12,000 Unfavorable
C) $23,000 Unfavorable
D) $23,000 Favorable
Today, in most manufacturing companies, workers oversee automated production
processes that produce many different products. With respect to the products
manufactured, the labor costs are considered to be ________.
A) direct labor costs
B) indirect production costs
C) direct production costs
D) period costs
Taco Bell wants to increase profitability of stores in the Midwest by adding new menu
items and increasing advertising. This is an experiment and the company is unsure if
these actions will be fruitful. On the part of management, this is an example of
________.
A) control
B) scorekeeping
C) feedback
D) planning
Jeffrey Company wants to double production of Product X from 1,000 units to 2,000
units. The variable manufacturing cost per unit is $10. The variable nonmanufacturing
cost per unit is $20. There are no fixed costs. The selling price per unit is $50. What is
the incremental revenue of the proposed change?
A) $10,000
B) $20,000
C) $30,000
D) $50,000
The following information was compiled by Gidget Incorporated:
Expected volume of production 50,000 units
Actual volume of production 47,000 units
Budgeted fixed overhead costs(for 50,000 budgeted units) $200,000
Actual fixed overhead costs $220,000
Actual variable overhead costs $790,000
Budgeted variable overhead costs(for 50,000 budgeted units) $855,000
Assume the cost-allocation base for overhead costs is units of production. What is the
production volume variance?
A) $6,000 Unfavorable
B) $12,000 Unfavorable
C) $20,000 Favorable
D) $20,000 Unfavorable
The total amount of cash collections from customers by month appears on the
________.
A) sales budget
B) operating expense budget
C) cash budget
D) budgeted balance sheet
Gonzalez Company has no beginning and ending inventories, and reports the following
data about its only product:
Direct materials used $300,000
Direct labor $80,000
Fixed indirect manufacturing $100,000
Fixed selling and administrative $190,000
Variable indirect manufacturing $20,000
Variable selling and administrative $90,000
Selling price(per unit) $50
Units produced and sold 10,000
Gonzalez Company uses the absorption approach to prepare the income statement.
What is the gross margin?
A) $0
B) $20,000
C) $100,000
D) $120,000
Ideally, if a department has more than one cost-allocation base for overhead costs, it
should ________.
A) use only one cost-allocation base with the highest amount of overhead costs
B) use only two cost-allocation bases with the highest amount of overhead costs
C) accumulate a separate cost pool for each cost-allocation base and put the overhead
costs into the appropriate cost pool
D) determine the budgeted overhead rate using the budgeted overhead costs and the
budgeted amount of only one cost driver
If the flexible budget variance was $6,000 Favorable and the sales activity variance was
$3,000 Favorable, then the static budget variance was ________.
A) $3,000 Favorable
B) $3,000 Unfavorable
C) $9,000 Favorable
D) $9,000 Unfavorable
Hybrid-costing systems use a combination of ________.
A) job-order costing and process costing ideas
B) activity-based costing and absorption costing
C) job-order costing and activity-based costing
D) job-order costing and costing for service organizations
Fixed selling expenses affect the calculation of ________ on the contribution income
statement.
Fixed selling expenses do NOT affect the calculation of ________ on the absorption
income statement.
A) contribution margin; gross margin
B) gross margin; contribution margin
C) operating income; gross margin
D) operating income; contribution margin
The production volume variance is the difference between ________.
A) expected fixed overhead costs and actual fixed overhead costs
B) expected fixed overhead costs and budgeted fixed overhead costs
C) budgeted fixed overhead costs and actual fixed overhead costs
D) budgeted fixed overhead costs and applied fixed overhead costs
Which schedule gives the expected sales under a given set of conditions?
A) sales goal
B) sales budget
C) sales forecast
D) master budget
Sanchez Company has two service departments, Maintenance and Human Resources.
Sanchez Company also has two production departments, Mixing and Finishing.
Maintenance costs are allocated based on square footage while Human Resources costs
are allocated based on number of employees. The following information has been
gathered for the current year:
Human
Maintenance Resources Mixing Finishing
Direct costs $126,000 $84,000 $105,000 $175,000
Square footage 800 400 1,600 1,200
Number of employees 8 12 24 32
Assume the step-down method is used to allocate service department costs and the
Maintenance Department is allocated first. What are the total costs of the Mixing
Department after the allocation of service department costs?
A) $210,750
B) $275,500
C) $277,000
D) $279,250
Fandry Company has obtained the following data concerning a new product:
Production Costs, Using traditional costing method $3.00 per unit
Production Costs, Using activity-based costing method $5.00 per unit
Nonproduction Costs, Using activity-based costing method $2.50 per unit
Fandry Company wants the price of the new product to cover all costs plus a 100%
markup. The production process used for the low volume product is very complicated
and it has a higher proportion of indirect costs than direct costs.
What price per unit should Fandry Company charge for the new product?
A) $6.00
B) $10.00
C) $11.00
D) $15.00
________ is a name for a system that first accumulates indirect resource costs for each
of the activities of an organization and then assigns the cost of each activity to the cost
objects that require that activity.
A) Activity-based management
B) Activity-based costing
C) Cost accounting
D) Activity-based cost allocation
________ would appear on an income statement of both a retailer and a manufacturer.
A) Direct materials used
B) Ending balance in Finished Goods Inventory
C) Selling expenses
D) Ending balance in Merchandise Inventory
Job-order costing is used. Which of the following accounts is debited when direct labor
costs are incurred?
A) Work-In-Process Inventory
B) Finished Goods Inventory
C) Cost of Goods Sold
D) Accrued Payroll
Bernard Bassuluchi Company uses a job-order costing system and has the following
data available:
Beginning Direct Materials Inventory $26,000
Beginning Work-In-Process Inventory $64,000
Beginning Finished Goods Inventory $58,000
Direct materials purchased on account $148,000
Direct materials requisitioned $82,000
Direct labor cost incurred $130,000
Factory overhead incurred $146,000
Cost of goods completed $292,000
Cost of Goods Sold $256,000
Overhead application rate (based on direct labor cost) 125%
The journal entry to record the purchase of direct materials would include a ________.
A) Debit to Work-In-Process Inventory for $82,000
B) Debit to Direct Materials Inventory for $148,000
C) Credit to Direct Materials Inventory for $148,000
D) Credit to Work-In-Process Inventory for $148,000
The manufacturing division of an electronics company uses activity-based costing. The
company has identified three activities and the related cost drivers for indirect
production costs.
Activity Cost Driver
Activity 1 Direct materials cost
Activity 2 Direct labor cost
Activity 3 Kilowatt hours
Three types of products are produced. Direct costs and cost-driver activity for each
product for a month are as follows:
Product A Product B Product C
Direct materials cost $75,000 $50,000 $125,000
Direct labor cost $6,000 $1,000 $3,000
Direct labor hours 2,000 1,000 2,000
Kilowatt hours 150,000 200,000 150,000
Indirect production costs for the month are as follows:
Activity 1 $30,000
Activity 2 20,000
Activity 3 16,000
Total $66,000
Required:
A) Compute the indirect production costs allocated to each product using the ABC
system.
B) Compute the indirect production costs allocated to each product using a traditional
costing system. Assume indirect production costs are allocated to each product using
the cost driver: direct labor hours.
The manufacturing costs of the Assembly Department for the month of July are as
follows:
Direct materials added $220,000
Direct labor costs added $190,000
Factory overhead costs applied $140,000
The company uses a process costing system. At July 31, the cost of the goods
completed and transferred to the Finishing Department was $563,000.
Required:
A) Prepare summary journal entries for the use of direct materials, direct labor and
factory overhead.
B) Prepare a journal entry for the transfer of completed goods.
As the cost-driver level increases in the relevant range, variable costs per unit of cost
driver ________ but total variable costs ________.
A) do not change; increase in direct proportion to the cost-driver activity level
B) do not change; decrease in direct proportion to the cost-driver activity level
C) increase; do not change
D) decrease; do not change
In process costing, the journal entry to record direct labor costs incurred associated with
units in a department would include a ________.
A) Debit to Accrued Payroll
B) Credit to Factory Overhead
C) Debit to Work-in-Process Inventory—Department Name
D) Credit to Finished Goods Inventory
Economic resources that a company owns and expects to provide future benefits are
called ________.
A) stockholders’ equity
B) assets
C) liabilities
D) retained earnings
Wendell Division has operating income of $40,000 for the year ending December 31,
2011. Average invested capital is $800,000 and the weighted-average cost of capital is
10%. The division is considering a new investment that would cost $800,000 and earn
7% annually. If economic profit is the performance metric, should the manager of the
Wendell Division accept the new investment?
A) No, because the return on investment of the division decreases with the new
investment.
B) No, because the economic profit for the investment is negative.
C) Yes, because the economic profit for the investment is positive.
D) Yes, because the return on investment of the division increases with the new
investment.
The accounting convention of ________ permits a company to immediately expense
assets with long useful lives and small dollar costs.
A) objectivity
B) materiality
C) continuity
D) conservatism