Crosby Corporation
Crosby Corporation has two service departments: Data Processing and
Administration/Personnel. The company also has three divisions: X, Y, and Z. Data
Processing costs are allocated based on hours of use and Administration/Personnel costs
are allocated based on number of employees.
Assume that Data Processing provides more service than Administration/Personnel.
Refer to Crosby Corporation. Assume that Data Processing costs have been allocated
and the balance in Administration is $600,000. Using the step method, what amount is
allocated to Z?
a. $200,000
b. $112,500
c. $214,286
d. $225,000
Reed Company
Reed Company produces 50,000 units of Product Q and 6,000 units of Product Z during
a period. In that period, four set-ups were required for color changes. All units of
Product Q are black, which is the color in the process at the beginning of the period. A
set-up was made for 1,000 blue units of Product Z; a set-up was made for 4,500 red
units of Product Z; a set-up was made for 500 green units of Product Z. A set-up was
then made to return the process to its standard black coloration and the units of Product
Q were run. Each set-up costs $500.
Refer to Reed Company. If set-up cost is assigned on a volume basis for the department,
what is the approximate per-unit set-up cost for Product Z?
a. $.010.
b. $.036.
c. $.040.
d. None of the responses are correct.
Athmer Corporation
Athmer Corporation sells a product for $18 per unit, and the standard cost card for the
product shows the following costs:
Refer to Athmer Corporation. Athmer received a special order for 1,000 units of the
product. The only additional cost to Athmer would be foreign import taxes of $1 per
unit. If Athmer is able to sell all of the current production domestically, what would be
the minimum sales price that Athmer would consider for this special order?
a. $18.00
b. $11.00
c. $5.40
d. $19.00
Griffith Corporation
Griffith Corporation is considering an investment in a labor-saving machine.
Information on this machine follows:
Refer to Griffith Corporation. What is the payback period on this investment?
a. 4 years
b. 2.14 years
c. 3.75 years
d. 5 years
Target costing
a. can be applied to services if they are sufficiently uniform.
b. can be applied to services only if they are automated.
c. can be applied to services that are performed in a manufacturing environment.
d. cannot be applied to services.
Which of the following items would not be found in the financing section of the cash
budget?
a. cash payments for debt retirement
b. cash payments for interest
c. cash payments for sales of investments
d. payment of accounts payable
The Logan Publishing Corporation is contemplating the acquisition of a state of the art
printing press. The following information is relevant:
Ignore income taxes.
Required:
Standard costs may be used for
a. product costing.
b. planning.
c. controlling.
d. all of the above.
Variable costing considers which of the following to be product costs?
a. yes no yes
no
b. yes no yes
yes
c. no no yes
yes
d. no no yes
no
If activity-based costing is implemented in an organization without any other changes
being implemented, total overhead manufacturing costs will
a. be reduced because of the elimination of non-value-added activities.
b. be reduced because organizational costs will not be assigned to products or services.
c. be increased because of the need for additional people to gather information on cost
drivers and cost pools.
d. remain constant and simply be spread over products using different cost drivers.
In a normal cost system, which of the following is used?
a. yes no yes
b. yes yes yes
c. yes yes no
d. no yes no
Registration under ISO 9000 is
a. required for all companies doing business internationally.
b. required for all European companies doing business in Europe.
c. not required for U.S. companies unless they use European suppliers.
d. required for all companies producing regulated products to be sold in the European
Union.
Which of the following methods of assigning indirect service department costs
recognizes on a partial basis the reciprocal relationships among the departments?
a. step method
b. direct method
c. indirect method
d. algebraic method
The primary reason that managers impose a minimum cash balance in the cash budget
is
a. because management needs discretionary cash for unforeseen business opportunities.
b. managers lack discipline to control their spending.
c. that it protects the organization from the uncertainty of the budgeting process.
d. that it makes the financial statements look more appealing to creditors.
In capital budgeting, a firm’s cost of capital is frequently used as the
a. internal rate of return.
b. accounting rate of return.
c. discount rate.
d. profitability index.
Which of the following factors is involved in studying cost-volume-profit relationships?
a. product mix
b. variable costs
c. fixed costs
d. all of the above
Which of the following fluctuate over the product life cycle?
a. sales price per unit
b. the types of costs that are incurred
c. product profitability
d. all of the above
Relevant costs are
a. all fixed and variable costs.
b. all costs that would be incurred within the relevant range of production.
c. past costs that are expected to be different in the future.
d. anticipated future costs that will differ among various alternatives.
Southern Digital, Inc.
The Southern Digital, Inc. produces a high-quality computer chip. Unit production costs
(based on capacity production of 100,000 units per year) follow:
Refer to Southern Digital, Inc. Assume, for this question only, that the Memory
Division is presently operating at a level of 80,000 chips per year. Accepting a “special
order” on 2,000 chips at $88 will
a. increase total corporate profits by $4,000.
b. increase total corporate profits by $20,000.
c. decrease total corporate profits by $14,000.
d. decrease total corporate profits by $24,000.
Pearce Company
Pearce Company uses a standard cost system for its production process. Pearce
Company applies overhead based on direct labor hours. The following information is
available for July:
Refer to Pearce Company Using the three-variance approach, what is the volume
variance?
a. $13,260 U
b. $2,640 F
c. $6,930 U
d. $0
Glassman Company
Glassman Company produces two products: A and B. The company has three overhead
functions that are required for both products.
Below is production information for Products A and B:
The company produces 800 units of Product A and 8,000 units of Product B each
period.
The overhead functions have the following hourly costs:
Refer to Glassman Company If total overhead is assigned to A and B on the basis of
direct labor hours, Product B will have an overhead cost per unit of
a. $51.32
b. $76.97
c. $510.32
d. None of the responses are correct.
The value chain
a. reflects the production of goods within an organizational context.
b. is concerned with upstream suppliers, but not downstream customers.
c. results when all non-value-added activities are eliminated from a production process.
d. is the foundation of strategic resource management.
Money spent on employee training is a
a. prevention cost.
b. appraisal cost.
c. empowerment cost.
d. Pareto cost.
Which of the following is nota drawback of mass customization?
a. The choices are too numerous.
b. The potential for errors is great.
c. Only a small percentage of available choices is normally selected.
d. All of the above are drawbacks.
Carson Company produces and sells two products: A and B in the ratio of 3A to 5B.
Selling prices for A and B are, respectively, $1,200 and $240; respective variable costs
are $480 and $160. The company’s fixed costs are $1,800,000 per year.
Compute the volume of sales in units of each product needed to:
Required:
Spending levels in prior years are often the basis of
a. traditional budgets.
b. zero-base budgets.
c. variance targets.
d. engineered cost analyses.
An outside firm selected to provide services to an organization is called a
a. contract vendor.
b. lessee.
c. network organization.
d. centralized insourcer.
Which of the following statements is true for a firm that uses variable costing?
a. The cost of a unit of product changes because of changes in the number of units
manufactured.
b. Profits fluctuate with sales.
c. An idle facility variation is calculated.
d. None of the above.
Which of the following statements is true about the values statement of an
organization?
a. It is used to formulate the mission statement.
b. It reflects the organization’s culture by identifying beliefs about what is important to
the organization.
c. It focuses on long-range plans for the organization.
d. The values contained in the statement must be quantifiable.
Savannah Motors
Savannah Motors is trying to decide whether it should keep its existing car washing
machine or purchase a new one that has technological advantages (which translate into
cost savings) over the existing machine. Information on each machine follows:
Refer to Savannah Motors. The incremental cost to purchase the new machine is
a. $11,000
b. $13,000.
c. $18,000.
d. $20,000.
Provide the correct term for each of the following definitions:
a. a cost that fluctuates with large changes in level of activity
b. a range of activity over which costs behave as predicted
c. the capacity level at which a firm believes it will operate at during the coming
production cycle
d. the difference between actual variable overhead and budgeted variable overhead
based on inputs
e. the difference between total actual overhead and total applied overhead
f. the difference between total budgeted overhead based on inputs and applied overhead
g. the difference between actual variable overhead and budgeted variable overhead
based on output
h. the difference between actual fixed overhead and budgeted fixed overhead
Buxton Office Supply Company has the following information available regarding costs
and revenues for two recent months. Selling price is $20.
Required:
a. Identify each of the company’s expenses (including cost of goods sold) as being
either variable, fixed, or mixed.
b. By use of the high-low method, separate each mixed expense into variable and fixed
elements. State the cost formula for each mixed expense.
c. What is the total cost equation?
d. Estimate total cost if sales = $75,000.
Deluxe Jewelry Corporation produces quality jewelry items for various retailers. For
the coming year, it has estimated it will consume 500 ounces of gold. Its carrying costs
for a year are $2 per ounce. No safety stock is maintained. If the EOQ is 100 ounces,
what would be the estimate for Deluxe Jewelry” total carrying costs for the coming
year?
a. $200
b. $250
c. $100
d. $1,000
Setting organizational goals and objectives and preparing a budget are aspects of
control
a. during an event.
b. before an event.
c. after an event.
d. before, during, and after an event.
Welch Corporation uses a predetermined overhead application rate of $.30 per direct
labor hour. During the year it incurred $345,000 dollars of actual overhead, but it
planned to incur $360,000 of overhead. The company applied $363,000 of overhead
during the year. How many direct labor hours did the company plan to incur?
a. 1,150,000
b. 1,190,000
c. 1,200,000
d. 1,210,000
An organization’s bond rating may cause the organization to hold larger levels of cash
than are necessary for operations.
If a project’s internal rate of return is greater than or equal to an organization’s hurdle
rate, the project is considered to be an acceptable investment.
What are five ways that an organization could reduce product costs? Provide an
example of how each method would cause cost reduction.
The sum of value-added processing time plus non-value added time equals
__________________________.
Western Division
The Western Division of Lansing Chemical Co. produced the following operating
results for the previous year:
The Western Division is considering a $1,000,000 investment in a new project. The
Western Division estimates that its return on investment (for all of its operations) would
be at 22% with the new investment.
Refer to Western Division. If the manager of the Western Division is evaluated on
return on investment alone, will the manager invest in the new project? Explain.
Wholesome Wheat Corporation
Wholesome Wheat Corporation grows grain in rural areas of the South. The
corporation’s costs per bushel of grain (based on an average yield of 130 bushels per
acre) follow:
Wholesome Wheat Corporation defines direct material costs as seed, fertilizer, water,
and other chemicals. The variable overhead costs represent maintenance and repair
costs of machinery. The fixed overhead costs are completely comprised of depreciation
expense on machinery and real estate taxes.
Refer to Wholesome Wheat Corporation. Assume that the current date is March 15. On
this date, the corporation must make a decision as to whether it is financially better off
to plant a certain farm with grain or leave the land idle (no income is derived from idle
land). Grain prices have been severely depressed in recent years and Wholesome
Wheat’s best guess is that grain prices will be around $2.00 per bushel at the time the
crop is ready for harvest. Should the company plant grain or leave the land idle?
Explain.
Discuss why units are lost during production.
Manipulation of segment expenses may result in the segment margin not being an
accurate performance measure.
Temporary profits that result when absorption costing is used and production exceeds
sales are referred to as ___________________.
Why is variable costing notused extensively in external reporting?
In a manufacturing organization, the budgets that are prepared after the production
budget are the ______________________________,
_________________________,and ____________________ budgets.
Postinvestment audits can provide feedback of the accuracy of original cash flow
estimates.
Seminole Wire Corporation
The Wire Products Division of Seminole Wire Corporation produces “bales” of steel
wire that are used in various commercial applications. The bales sell for an average of
$20 each and The Wire Products Division has the capacity to produce 10,000 bales per
month. The Consumer Products Division of Seminole Wire Corporation uses
approximately 2,000 bales of steel wire each month in its production of various
appliances. The operating information for the Wire Products Division at its present level
of operations (8,000 bales per month) follows:
The Consumer Products Division currently pays $15 per bale for wire obtained from its
external supplier.
Refer to Seminole Wire Corporation. If the Consumer Products Division agrees to pay
the Wire Products Division $16 per bale for 2,000 bales this month, what would be
Consumer’s change in total profits?
Lowering existing costs of producing a good or service is referred to as
___________________.
If overapplied factory overhead is material, the account is closed by a credit to Cost of
Goods Sold.