1) Companies operating in markets that are not competitive favor cost-based
approaches.
2) Target cost per unit is arrived at by adding the target operating income to the target
price of the product.
3) The larger the vertical difference between actual costs and predicted costs the better
the goodness of fit.
4) The contribution margin is the amount remaining from sales revenues after variable
expenses have been deducted.
5) A cost is a resource sacrificed or forgone to achieve a specific objective.
6) Companies operating in competitive markets generally use the market-based
approach.
7) Which of the following terms could be used to correctly describe the cost of the
thread used to sew the jeans together?
Manufacturing Overhead Cost Fixed Cost
A) Yes Yes
B) Yes No
C) No Yes
D) No No
8) A distinct feature of the FIFO process-costing method is that the ________.
A) work done on beginning inventory before the current period is blended with the
work done during the current period in the calculation of equivalent units
B) work done on beginning inventory before the current period is kept separate from
the work done during the current period in the calculation of equivalent units
C) work done on ending inventory is kept separate from the work done during the
current period in the calculation of equivalent units and is usually not included in the
calculation
D) FIFO process-costing method is only minimally different from the weighted-average
process-costing method
9) Which of the following statements about Alfarm’s joint production costs is true?
A) The gross-margin percentage per gallon of Cream and Liquid skim are equal because
joint costs are allocated based on the number of gallons.
B) The gross-margin percentage per gallon of Cream is higher than gross margin
percentage per gallon of Liquid skim because of Cream’s higher production volume.
C) The joint production cost per gallon of Cream and Liquid skim are equal because
joint costs are allocated based on the number of gallons.
D) The joint production cost per gallon of Cream is higher than joint production cost
per gallon of Liquid skim because of Cream’s higher production volume.
10) If the contribution margin ratio is 0.40, targeted operating income is $50,000, and
fixed costs are $75,000, then sales volume in dollars is ________.
A) $250,000
B) $312,500
C) $275,000
D) $350,000
11) Zenich Corp manufactures laptops. The waiting time is 60 minutes before the start
of production and the manufacturing lead time is 150 minutes per laptop. What is its
manufacturing cycle efficiency?
A) 40%
B) 70%
C) 60%
D) 66.67%
12) Benchmarking is a process ________.
A) in which overhead costs are absorbed into units of output, or ‘jobs’
B) in which a firm’s performance levels are compared against the best levels of
performance in competing companies or in companies having similar processes
C) which is based on calculating the breakeven point and analyzing the consequences of
changes in various factors calculating the breakeven point
D) in which the underlying processes of an organization is optimized using a systematic
approach to achieve more efficient goals
13) Given the cost formula, Y = $7,000 + $1.80X, total cost for an activity level of
4,000 units would be:
A) $7,000
B) $200
C) $7,200
D) $14,200
14) The costs of all six value-chain functions should be included when determining
________.
A) the prime cost of a product
B) the selling price of a product
C) the contribution margin per unit
D) the cost of capital
15) For externally reported inventory costs, the Work-in-Process Control account is
increased (debited) by ________.
A) marketing costs
B) allocated plant utility costs
C) the purchase costs of direct and indirect materials
D) customer-service costs
16) ________ is the generation of, and experimentation with, ideas related to new
products, services, or processes.
A) Research and development
B) Design of products, services, or processes
C) Production
D) Marketing
17) TrueValue Company makes all types of office desks. The General Desk Division is
currently producing 10,000 desks per year with a capacity of 15,000. The variable costs
assigned to each desk are $300 and annual fixed costs of the division are $900,000. The
General desk sells for $400.
The Executive Division wants to buy 5,000 desks at $270 for its custom office design
business. The General Desk manager refused the order because the price is below
variable cost. The executive manager argues that the order should be accepted because
it will lower the fixed cost per desk from $90 to $60 and will take the division to its
capacity, thereby causing operations to be at their most efficient level.
Required:
a.Should the order from the Executive Division be accepted by the General Desk
Division? Why?
b.From the perspective of the General Desk Division and the company, should the order
be accepted if the Executive Division plans on selling the desks in the outside market
for $420 after incurring additional costs of $100 per desk?
c.What action should the company president take?
18) Alex Furniture sells a table for $850. His fixed costs are $25,000, while his variable
costs are $500 per table. He currently plans to sell 175 tables this month.
What is the budgeted operating income for the month assuming that Alex sells 175
tables?
A) $45,250
B) $37,000
C) $36,250
D) $36,750
19) Variable costs ________.
A) are always indirect costs
B) increase in total when the actual level of activity increases
C) include most personnel costs and depreciation on machinery
D) are never considered a part of prime cost
20) Cysco Corp has a budget of $1,200,000 in 2015 for prevention costs. If it decides to
automate a portion of its prevention activities, it will save $100,000 in variable costs.
The new method will require $50,000 in training costs and $140,000 in annual
equipment costs. Management is willing to adjust the budget for an amount up to the
cost of the new equipment. The budgeted production level is 200,000 units.
Appraisal costs for the year are budgeted at $500,000. The new prevention procedures
will save appraisal costs of $50,000. Internal failure costs average $30 per failed unit of
finished goods. The internal failure rate is expected to be 5% of all completed items.
The proposed changes will cut the internal failure rate by one-half. Internal failure units
are destroyed. External failure costs average $50 per failed unit. The company’s average
external failures average 2.5% of units sold. The new proposal will reduce this rate to
1%. Assume all units produced are sold and there are no ending inventories.
What is the net change in the budget of prevention costs if the procedures are automated
in 2015? Will management agree with the changes?
A) $100,000 decrease, yes
B) $90,000 decrease, yes
C) $100,000 increase, no
D) $90,000 increase, yes