Additional insight can be gained by dividing the sales-volume variance into the
sales-mix variance and the sales-quantity variance.
Higher selling prices, rather than unique products or services, provide a competitive
advantage for the cost leader companies.
The production-volume variance is a component of the sales-volume variance.
Costs of Quality (COQ) are classified into four categories: prevention costs, appraisal
costs, opportunity costs, and sales costs.
Unskilled work force can lead to unfavorable efficiency variance.
Stock options give executives the right to buy company stock at a specified price, called
the exercise price, within a specified period.
Partial productivity and total factor productivity measures work best together because
both measures have the same kind of strengths and weaknesses.
Warranty costs is an example of external failure costs.
Modern manufacturing practices have helped reduce overhead costs relative to direct
costs as the reliance on support resources such as scheduling, design, and engineering
has diminished.
One of the reasons to allocate joint costs to individual products is to have costs
reimbursed under a federal cost=plus contract.
Companies operating in competitive markets should ideally use cost-plus approach to
pricing.
Market research can be an effective tool in understanding the features customers value.
Sales mix is the quantities or proportion of various products or services that constitute a
company’s total unit sales.
To reduce the undesirable incentives to build up inventories that absorption costing can
create, a number of companies use variable costing for internal reporting.
Freight in charges forms part of purchasing costs of inventory.
All cost functions are linear.
A responsibility center is a part, segment, or subunit of an organization, whose manager
is accountable for a specified set of activities that impact revenues, costs, or profits and
in the case of an investment center, profits.
From an accounting standpoint, favorable cost variances are debit entries, while
unfavorable ones are credits.
To calculate the value of fixed assets for an overseas branch, the historical rate of
exchange is used for its conversion.
Companies calculate the units of abnormal spoilage and record the cost in the Loss
from Abnormal Spoilage account, which appears as a separate line item in an income
statement.
JIT purchasing and production systems can be used in service industries as supplies and
the labor to manage those supplies can be a significant cost element in some service
organizations.
A favorable production-volume variance arises when manufacturing capacity planned
for is NOT used.
If a cost item is fixed for one cost object, it will be fixed for all cost objects for which it
is associated.
A percentage of products started and completed without requiring any rework is an
example of nonfinancial performance measure.
When actual revenues exceed budgeted revenues, a favorable variance arises.
Activity-based costing systems use the quantitative analysis method exclusively for cost
estimation because of its accuracy.
Manufacturing sector firms normally hold three types of inventory: direct materials
inventory, work-in-process inventory, and finished goods inventory.
A hybrid-costing system is a variant of process-costing that allows it to incorporate
benefits of standard costing and activity-based costing.
Multicollinearity exists in multiple regression when two or more independent variables
are highly correlated with each other.
A favorable variance can be automatically interpreted as “good news.”
Indirect manufacturing costs are credited to Manufacturing Overhead Control.
Russo Corporation manufactured 21,000 air conditioners during November. The
overhead cost-allocation base is $34.50 per machine-hour. The following variable
overhead data pertain to November:
What is the total variable overhead variance?
A) $2,900.00 unfavorable
B) $3,450.00 unfavorable
C) $2,900.00 favorable
D) $3,450.00 favorable
Which option has the lowest breakeven point?
A) Option one
B) Option two
C) Both options have the same breakeven point.
D) The lowest breakeven point cannot be determined.
Companies must always examine their pricing ________.
A) based on the supply of the product
B) based on the full cost of producing the product and price to make a profit
C) through the eyes of their customers and then manage costs to produce a profit
D) based on the GAAP cost of producing the product and then add a mark-up
Branded Shoe Company manufactures only one type of shoe and has two divisions, the
Stitching Division and the Polishing Division. The Stitching Division manufactures
shoes for the Polishing Division, which completes the shoes and sells them to retailers.
The Stitching Division “sells” shoes to the Polishing Division. The market price for the
Polishing Division to purchase a pair of shoes is $51. (Ignore changes in inventory.)
The fixed costs for the Stitching Division are assumed to be the same over the range of
40,000-110,000 units. The fixed costs for the Polishing Division are assumed to be $20
per pair at 110,000 units.
Stitching‘s costs per pair of shoes are:
Direct materials $15
Direct labor $13
Variable overhead $11
Division fixed costs $9
Polishing‘s costs per completed pair of shoes are:
Direct materials $14
Direct labor $9
Variable overhead $8
Division fixed costs $21
Assume the transfer price for a pair of shoes is 185% of total costs of the Stitching
Division and 40,000 of shoes are produced and transferred to the Polishing Division.
The Stitching Division’s operating income is ________.
A) $1,632,000
B) $1,120,000
C) $1,400,000
D) $1,320,000
When deciding to accept a one-time-only special order from a wholesaler, management
should ________.
A) consider the sunk costs and opportunity costs
B) not consider the special order’s impact on future prices of their products
C) determine whether excess capacity is available
D) verify past design costs for the product
Jupiter Corporation incurred fixed manufacturing costs of $19,000 during 2017. Other
information for 2017 includes:
The budgeted denominator level is 2,300 units.
Units produced total 2,600 units.
Units sold total 1,700 units.
Variable cost per unit is $6
Beginning inventory is zero.
The fixed manufacturing cost rate is based on the budgeted denominator level.
Under absorption costing, the production-volume variance is ________. (Round any
intermediary calculations to the nearest cent and your final answer to the nearest dollar.)
A) $4,278
B) $2,300
C) $2,478
D) 0
A product cost is composed of the following:
Direct materials $11
Direct labor $3
Manufacturing overhead $8
The product sells for $40 and a 15% commission is paid to a salesperson for every unit
sold. Management accountants also estimate that storage cost per unit averages $0.75
per unit. What is the full cost of the product?
A) $14
B) $22
C) $28.75
D) $28.00
The static-budget variance is the difference between ________.
A) an actual result and the corresponding budgeted amount in the static budget
B) the budget amount in the static budget and the amount in the flexible budget
C) an actual result and the flexible budget amount
D) the static budget amount and the sales-volume variance
To give more weight to the product that most likely drives the sales of the bundled
product, the revenue allocation should be weighted using ________.
A) selling prices
B) unit costs
C) physical units
D) stand-alone product revenues
Which of the following is not true with regards to relevant costs and relevant revenues?
A) They are sunk costs and historical revenues
B) They are expected costs and expected revenues
C) They occur in the future
D) The differ among alternative courses of action
Golden Generator Supply is approached by Mr. Stephen, a new customer, to fulfill a
large one-time-only special order for a product similar to one offered to regular
customers. Golden Generator Supply has excess capacity. The following per unit data
apply for sales to regular customers:
If Mr. Stephen wanted a long-term commitment, and not a one-time-only special order, for
supplying this product, calculate the most likely price to be quoted assuming the markup
remains the same?
A) $650
B) $790
C) $869
D) $370
The Charmatz Corporation has a central copying facility. The copying facility has only
two users, the Marketing Department and the Operations Department. The following
data apply to the coming budget year:
Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 120,000 copies and by the
Operations Department was 360,000 copies. If a dual-rate cost-allocation method is used,
what amount of copying facility costs will be allocated to the Operations Department?
Assume budgeted usage is used to allocate fixed copying costs and actual usage is used to
allocate variable copying costs.
A) $69,000
B) $117,000
C) $70,980
D) $69,480
Special cost-allocation problems arise when ________.
A) support department costs exceed budgetary estimates
B) practical capacity is used as the allocation base
C) support departments provide reciprocal services to each other and operating
departments
D) the same cost-allocation base is used among various support departments
Based on the following information from a company’s process costing system that is
reporting on the month of May’s activity in one of its departments, which journal entries
would be correct?
A)
B)
C)
D)
Which of the following statements is a possible pitfall while implementing a balanced
scorecard?
A) Managers using cost-benefit considerations while designing a balanced scorecard.
B) Managers ignoring objective measures as market share, manufacturing yield.
C) Managers using subjective measures in the balanced scorecard.
D) Top management ignoring nonfinancial measures when evaluating employee
performance.
Vision Company sells optical equipment. Blitz Company manufactures special glass
lenses. Vision orders 11,400 lenses per year, 220 per week, at $40 per lens. Blitz covers
all shipping costs. Vision earns 22% on its cash investments. The purchase-order lead
time is 3.0 weeks. Vision sells 315 lenses per week. The following data are available:
What is the reorder point?
A) 660 lenses
B) 945.0 lenses
C) 1318 lenses
D) 1605.0 lenses
Craylon Corp has two service departments, S1 and S2, and two production departments,
P1 and P2.
The data for April were as follows:
Required:
a. Set up algebraic equations in linear form for each activity.
b. Determine total costs for each department by solving the equations from part (a) using
the reciprocal method.
Which method of accounting recognizes byproducts in the financial statements at the
time their production is completed?
A) gross margin method
B) sales method
C) production method
D) market value method
An efficiency variance reflects the difference between ________.
A) actual input quantities used last period and current period
B) an actual input quantity and a budgeted input quantity
C) an actual input quantity used in a company and its main competitors
D) a standard input quantity in a company and its main competitors
All Rite Manufacturing reported the following:
What is Leslie’s cost of goods sold?
A) $390,000
B) $240,000
C) $239,000
D) $389,000
Schulz Corporation applies overhead based upon machine-hours. Budgeted factory
overhead was $266,400 and budgeted machine-hours were 18,500. Actual factory
overhead was $287,920 and actual machine-hours were 19,050. Before disposition of
under/overapplied overhead, the cost of goods sold was $560,000 and ending
inventories were as follows:
Direct materials $ 60,000
WIP 190,000
Finished goods 250,000
Total $500,000
Required:
a. Determine the budgeted factory overhead rate per machine-hour.
b. Compute the over/underapplied overhead.
c. Prepare the journal entry to dispose of the variance using the write-off to cost of
goods sold approach.
d. Prepare the journal entry to dispose of the variance using the proration approach.
Granfield Corporation manufactures two products, Product A and Product B. The
following information was available:
Product A Product B
Selling price per unit $41 $29
Variable cost per unit 32 19
Total fixed costs $23,000
If Granfield Corporation could produce and sell either 10,400 units of Product A or
5,900 units of Product B at full capacity, it should produce and sell ________.
A) 10,400 units of A and none of B
B) 2,556 units of B and 2,300 units of A
C) 5,900 units of B and none of A
D) 6,556 units of A and 5,900 units of b
Write a linear cost function equation for each of the following conditions. Use y for
estimated costs and X for activity of the cost driver.
a. Direct manufacturing labor is $15 per hour.
b. Direct materials cost $25.60 per cubic yard.
c. Utilities have a minimum charge of $500, plus a charge of $0.25 per kilowatt-hour.
d. Machine operating costs include $250,000 of machine depreciation per year, plus
$100 of utility costs for each day the machinery is in operation.
Candle Corp. applies manufacturing overhead costs to products at a budgeted
indirect-cost rate of $80 per direct manufacturing labor-hour. A retail outlet has
requested a bid on a special order of a necklace. Estimates for this order include: Direct
materials of $44,000; 300 direct manufacturing labor-hours at $25 per hour; and a 20%
markup rate on total manufacturing costs.
The bid price for this special order is ________.
A) $60,500
B) $90,600
C) $81,600
D) $61,800
Bismite Corporation purchases trees from Cheney lumber and processes them up to the
split-off point where two products (paper and pencil casings) are obtained. The products
are then sold to an independent company that markets and distributes them to retail
outlets. The following information was collected for the month of October:
The cost of purchasing 310 trees and processing them up to the split-off point to yield
180,000 sheets of paper and 180,000 pencil casings is $12,500.
Bismite’s accounting department reported no beginning inventory.
What is the total sales value at the split-off point for paper?
A) $42,600
B) $34,000
C) $36,000
D) $43,200
Kennywood Inc., a manufacturing firm, is able to produce 1,000 pairs of pants per hour,
at maximum efficiency. There are three eight-hour shifts each day. Due to unavoidable
operating interruptions, production averages 800 units per hour. The plant actually
operates only 28 days per month. Based on the current budget, Kennywood estimates
that it will be able to sell only 501,000 units due to the entry of a competitor with
aggressive marketing capabilities. But the demand is unlikely to be affected in future
and will be around 519,000. Assume the month has 30 days.
What is the practical capacity for the month?
A) 216,000 units
B) 720,000 units
C) 537,600 units
D) 672,000 units
A product costs $100 to manufacture and $40 to market and $20 to distribute (ship to
customers.) R&D costs are allocated at $30 per unit. Based on a targeted rate of return,
manager uses a mark-up of 60%. What is the markup component based on a Cost-Plus
pricing approach?
A) $60
B) $84
C) $96
D) $114
What is the term that describes an organization’s ability to offer products or services
that are perceived by its customers as being superior and unique relative to those of its
competitors?
A) Strategy
B) Product differentiation
C) Cost leadership
D) The balanced scorecard
Which of the following transfer-pricing methods always achieves goal congruence?
A) a market-based transfer price
B) a cost-based transfer price
C) a negotiated transfer price
D) full-cost plus a standard profit margin
Ms. Sophia Jones, the company president, has heard that there are multiple breakeven
points for every product. She does not believe this and has asked you to provide the
evidence of such a possibility. Some information about the company for 2017 is as
follows:
What are breakeven sales in units using variable costing? (Round any intermediary
calculations to the nearest cent and your final answer up to the next whole unit.)
A) 12,404 units
B) 6,383 units
C) 11,287 units
D) 10,223 units
Which of the following is a relevant cost to be included in a make-or-buy decision?
A) fixed salaries that will not be incurred if the part is outsourced
B) pension costs to the current employees
C) increase in the cost of repairing of all equipment of the firm
D) material-handling costs that cannot be eliminated even if the product is outsourced
The following information pertains to the January operating budget for Casey
Corporation.
∙ Budgeted sales for January $203,000 and February $101,000.
∙ Collections for sales are 60% in the month of sale and 40% the next month.
∙ Gross margin is 25% of sales.
∙ Administrative costs are $20,000 each month.
∙ Beginning accounts receivable is $28,000.
∙ Beginning inventory is $19,000.
∙ Beginning accounts payable is $75,000. (All from inventory purchases.)
∙ Purchases are paid in full the following month.
∙ Desired ending inventory is 20% of next month’s cost of goods sold (COGS).
For January, budgeted net income is ________.
A) $50,750
B) $30,750
C) $101,800
D) $61,200
Bell Company sells several products. Information of average revenue and costs is as
follows:
Selling price per unit $29
Variable costs per unit:
Direct material $6
Direct manufacturing labor $1.75
Manufacturing overhead $0.25
Selling costs $2
Annual fixed costs $111,000
The company sells 13,000 units.
What is the proportion of variable costs to total costs?
A) 43.15%
B) 41.27%
C) 77.25%
D) 53.94%
All else being equal, a reduction in selling price will ________.
A) increase contribution margin
B) reduce fixed costs
C) increase variable costs
D) reduce operating income
Max’s Movie Store encounters revenue-allocation decisions with its bundled product
sales. Here, two or more of the movie videos are sold as a single package. Managers at
Max’s are keenly interested in individual product-profitability figures. Information
pertaining to its three bundled products and the stand-alone selling prices of its
individual products is as follows:
Required:
a. With selling prices as the weights, allocate the $25 packaged price of “All Three” to the
three videos using the stand-alone revenue-allocation method.
b. Allocate the $25 packaged price of “All Three” to the three types of videos using the
incremental revenue-allocation method. Assume New Releases is the primary product,
followed by Older Releases, and then Classics.
Maria makes tortillas and sells them from her house. She is concerned about purchasing
too many ingredients and having to throw away unsold tortillas at the end of the day. It
costs her $5.00 to make 100 tortillas and she sells them for $20.00 per 100. She has
kept track of sales and discovered that she can sell 1,500 tortillas about 25% of the
time, 1,000 tortillas about 50% of the time and only 500 tortillas the rest of the time.
What is the minimum number of tortillas should she make daily to maximize profit?
Round to the nearest 100 tortillas.
New York Liberty Corporation makes miniature statues of the Empire State Building
from cast iron. Sales total 50,000 units a year. The statues are finished either rough or
polished, with an average demand of 60% rough and 40% polished. Iron ingots, the
direct material, costs $5 per pound. Processing costs are $300 to convert 30 pounds into
60 statues. Rough statues are sold for $17 each, and polished statues can be sold for $19
or engraved for an additional cost of $5. Polished statues can then be sold for $32.
Required:
Determine whether New York Liberty Company should sell the engraved statutes.
Why?
What is planning in decision making? Explain how a budget helps in planning.
Listed below are elements of the master budget. Determine whether each budget is an
operating budget or a financial budget. Place an O for operating budget or F for a
financial budget.
1. Capital expenditures budget
2. Cost of goods sold budget
3. Revenues budget
4. Budgeted statement of cash flows
5. Distribution costs budget
6. Marketing costs budget
7. Cash budget
8. Direct materials cost budget
9. Budgeted balance sheet
10. Budgeted income statement
Berkel Company processes sugar cane into three products. During May, the joint costs
of processing were $600,000. Production and sales value information for the month
were as follows:
Required:
Determine the amount of joint cost allocated to each product if the sales value at split-off
method is used.
Christy Enterprises reports the year-end information from 2018 as follows:
Christy is developing the 2019 budget. In 2019 the company would like to increase selling
prices by 10%, and as a result expects a decrease in sales volume of 5%. Cost of goods
sold as a percentage of sales is expected to increase to 62%. Other than depreciation, all
operating costs are variable.
Required:
Prepare a budgeted income statement for 2019.
How are cost drivers selected in activity-based costing systems?
List the four steps to develop budgeted variable overhead cost-allocation.
Springfield Sign Shop manufactures only specific orders. It uses a standard cost system.
During one large order for the airport authority, an unusual number of signs were
spoiled. The normal spoilage rate is 10% of units started. The point of first inspection is
half way through the process, the second is three-fourths through the process, and the
final inspection is at the end of the process. Other information about the job is as
follows:
Required:
Make necessary journal entries to record all spoilage.
Discuss a range of factors that managers may have to consider when making capital
budgeting decisions that are strategic in nature.
Explain why some companies carry their inventories at NRV minus an estimated
operating income margin instead of the NRV itself.
The president of Silicon Company has just returned from a week of professional
development courses and is very excited that she will not have to change the
organization from a centralized structure to a decentralized structure just to have
responsibility centers. However, she is somewhat confused about how responsibility
centers relate to centralized organizations where a few managers have most of the
authority.
Required:
Explain how a centralized organization might allow for responsibility centers.
Paragon University operates an extensive and an expensive registration, testing, and
counseling center, through which all students are required to pass through when they
enter the university. The registration effort’s costs (for the most part) are almost
impossible to allocate based upon which students require time, effort, etc. The cost of
this center is approximately 15% of the total costs of Paragon. This department engages
in no other activities than the registration of students. Paragon is interested in
determining the profitability of the three technical departments it operates. Paragon has
the perception that some departments are more profitable than others, and it would like
to determine an appropriate method of allocating the costs of this registration center.
Required:
Recommend to Paragon University a method (or methods) of allocating the costs of
registration to the three departments.
Should a company allocate its corporate costs to divisions?
Consider revenues from three of Megafy’s 10 wholesale customers in 2015:
What conclusions can be drawn from the above data? What steps can the manager of the
company take?
The quality system, which provides information about yields, defective products, and
late deliveries to customers.
Favata Company has the following information:
In addition, the cost of goods sold rate is 70% and the desired inventory level is 30% of
next month’s cost of sales.
Required:
Prepare a purchases budget for July through September.
John Peters is drafting the provisions of a cost-plus contract and is concerned with
ironing out any possible misunderstandings during the life of the contract. What advice
can you provide to reduce contract disputes over reimbursement amounts based on
costs?
Explain how a budget can help management implement strategy.