Greentree Incorporated manufactures rustic furniture. The cost accounting system
estimates manufacturing costs to be $120 per table, consisting of 60% variable costs
and 40% fixed costs. The company has surplus capacity available. It is Greentree’s
policy to add a 30% markup to full costs.
a. Greentree Incorporated is invited to bid on an order to supply 100 rustic tables. What
is the lowest price Greentree should bid on this one-time-only special order?
b. A large hotel chain is currently expanding and has decided to decorate all new hotels
using the rustic style. Greentree Incorporated is invited to submit a bid to the hotel
chain. What is the lowest price per unit Greentree should bid on this long-term order?
Soft Cushion Company is highly decentralized. Each division is empowered to make its
own sales decisions. The Assembly Division can purchase stuffing, a key component,
from the Production Division or from external suppliers. The Production Division has
been the major supplier of stuffing in recent years. The Assembly Division has
announced that two external suppliers will be used to purchase the stuffing at $40 per
pound for the next year. The Production Division recently increased its unit price to
$58. The manager of the Production Division presented the following information —
variable cost $40 and fixed cost $8 —to top management in order to attempt to force
the Assembly Division to purchase the stuffing internally. The Assembly Division
purchases 20,600 pounds of stuffing per month.
What would be the monthly operating advantage (disadvantage) of purchasing the
goods internally, assuming the external supplier increased its price to $82 per pound and
the Production Division is able to utilize the facilities for other operations, resulting in a
monthly cash-operating savings of $34 per pound?
A) $1,689,200
B) $865,200
C) $(164,800)
D) $(206,000)
Under GAAP, for the purposes of calculating inventory costs, product costs include
________.
A) all costs incurred along the value chain
B) design costs
C) only inventoriable costs
D) only research and development costs
A company is using a standard cost system and receives its electricity bill. Electricity is
considered a variable cost of operations for this company. The bill is for $15,000 and
will be paid next month. Which of the following entries would be the correct recording
of the electricity bill?
Raposa, Inc., produces a special line of plastic toy racing cars. Raposa, Inc., produces
the cars in batches. To manufacture a batch of the cars, Raposa, Inc., must set up the
machines and molds. Setup costs are batch-level costs because they are associated with
batches rather than individual units of products. A separate Setup Department is
responsible for setting up machines and molds for different styles of car.
Setup overhead costs consist of some costs that are variable and some costs that are
fixed with respect to the number of setup-hours. The following information pertains to
June 2015:
Calculate the spending variance for variable overhead setup costs. (Round all intermediary
calculations two decimal places and your final answer to the nearest whole number.)
A) $2,313 unfavorable
B) $2,313 favorable
C) $682 unfavorable
D) $682 favorable
Buildz Manufacturing currently produces 2,000 tables per month. The following per
unit data for 2,000 tables apply for sales to regular customers:
What is the per unit cost when producing 4,000 tables?
A) $125.00
B) $195.00
C) $135.00
D) $155.00
Which of the following is not true about one-time-only special orders?
A) special orders would be accepted if they result in an increase in the contribution
margin regardless of capacity and long-term implications
B) along with other criteria, there must be excess capacity to accept an order
C) along with other criteria, there must not be significant long-term negative
implications of accepting a special order
D) the impact on operating income of the acceptance of a special-order must be
analyzed by management before making a final decision
Computer Products produces two keyboards, Regular and Special. Regular keyboards
have a unit contribution margin of $128, and Special keyboards have a unit contribution
margin of $720. The demand for Regulars exceeds Computer Product’s production
capacity, which is limited by available machine-hours and direct manufacturing
labor-hours. The maximum demand for Special keyboards is 80 per month.
Management desires a product mix that will maximize the contribution toward fixed
costs and profits.
Direct manufacturing labor is limited to 1,600 hours a month and machine-hours are
limited to 1,200 a month. The Regular keyboards require 20 hours of labor and 8
machine-hours. Special keyboards require 34 labor-hours and 20 machine-hours.
Let R represent Regular keyboards and S represent Special keyboards. The correct set
of equations for the keyboard production process is ________.
A) Maximize: $128R + $720S
Constraints:
Labor-hours: 20R + 34S ≤ 1,600
Machine-hours: 8R + 20S ≤ 1,200
Special: S ≤ 80
S ≥ 0
Regular: R ≥ 0
B) Maximize: $128R + $720S
Constraints:
Labor-hours: 20R + 34S ≥ 1,600
Machine-hours: 8R + 20S ≥≤ 1,200
Special: S ≥ 80
S ≥ 0
Regular: R ≥ 0
C) Maximize: $720S + $128R
Constraints:
Labor-hours: 20R + 8S ≤ 1,600
Machine-hours: 34R + 20S ≤ 1,200
Special: S ≤ 80
S ≥ 0
Regular: R ≥ 0
D) Maximize: $128R + $720S
Constraints:
Labor-hours: 20R + 34S ≤ 1,600
Machine-hours: 8R + 20S ≤ 1,200
Special: S ≥ 80
S ≤ 0
Regular: R ≤ 0
The Green Company processes unprocessed goat milk up to the split-off point where
two products, condensed goat milk and skim goat milk result. The following
information was collected for the month of October:
The costs of purchasing the of unprocessed goat milk and processing it up to the split-off
point to yield a total of 103,000 gallons of saleable product was $186,480. There were no
inventory balances of either product. Condensed goat milk may be processed further to
yield 44,500 gallons (the remainder is shrinkage) of a medicinal milk product, Xyla, for an
additional processing cost of $7 per usable gallon. Xyla can be sold for $25 per gallon.
Skim goat milk can be processed further to yield 56,700 gallons of skim goat ice cream,
for an additional processing cost per usable gallon of $7. The product can be sold for $12
per gallon.
There are no beginning and ending inventory balances.
How much (if any) extra income would Green earn if it produced and sold skim milk ice
cream from goats rather than goat skim milk? Allocate joint processing costs based upon
the relative sales value at the split-off point. (Round intermediary percentages to the
nearest hundredth.)
A) $138,500
B) $711,090
C) $666,000
D) $186,930
Blue States Coffee, Inc., sells two types of coffee, Colombian and Blue Mountain. The
monthly budget for U.S. coffee sales is based on a combination of last year’s
performance, a forecast of industry sales, and the company’s expected share of the U.S.
market. The following information is provided for March:
Budgeted and actual fixed corporate-sustaining costs are $60,000 and $72,000,
respectively.
Required:
a. Calculate the actual contribution margin for the month.
b. Calculate the contribution margin for the static budget.
c. Calculate the contribution margin for the flexible budget.
d. Determine the total static-budget variance, the total flexible-budget variance, and the
total sales-volume variance in terms of the contribution margin.
Velshi Printers has contracts to complete weekly supplements required by forty-six
customers. For the year 2018, manufacturing overhead cost estimates total $1,500,000
for an annual production capacity of 10 million pages.
For 2018 Velshi Printers has decided to evaluate the use of additional cost pools. After
analyzing manufacturing overhead costs, it was determined that number of design
changes, setups, and inspections are the primary manufacturing overhead cost drivers.
The following information was gathered during the analysis:
During 2018, two customers, Money Managers and Hospital Systems, are expected to use
the following printing services:
What is the cost driver rate if manufacturing overhead costs are considered one large cost
pool and are assigned based on 10 million pages of production capacity?
A) $0.01 per page
B) $0.15 per page
C) $0.14 per page
D) $0.13 per page
The breakeven point decreases if ________.
A) the variable cost per unit increases
B) the total fixed costs decrease
C) the contribution margin per unit decreases
D) the selling price per unit decreases
Conversion costs are an example of ________.
A) direct engineered costs
B) indirect engineered costs
C) discretionary costs
D) unused capacity costs
Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is
analyzed as follows:
T-SHIRTS SWEATSHIRTS
Production and sales volume 72,000 units 26,250 units
Selling price $15.00 $29.00
Direct material $1.50 $ 5.00
Direct labor $4.20 $ 7.20
Manufacturing overhead $1.80 $ 3.00
Gross profit $ 7.50 $13.80
Selling and administrative $3.60 $ 7.00
Operating profit $3.90 $ 6.80
Tiger Pride’s managers have decided to revise their current assignment of overhead
costs to reflect the following ABC cost information:
Under the revised ABC system, total overhead costs allocated to Sweatshirts will be
________.
A) $47,460
B) $68,460
C) $201,480
D) None of these answers are correct.
Crandle Manufacturers Inc. is approached by a potential customer to fulfill a
one-time-only special order for a product similar to one offered to domestic customers.
The company has excess capacity. The following per unit data apply for sales to regular
customers:
Variable costs:
Direct materials $130
Direct labor 110
Manufacturing support 125
Marketing costs 65
Fixed costs:
Manufacturing support 175
Marketing costs 85
Total costs 690
Markup (50%) 345
Targeted selling price $1,035
What is the full cost of the product per unit?
A) $430
B) $1,035
C) $690
D) $345
One possible item that some companies include as direct manufacturing labor include
________.
A) fringe benefits
B) overtime
C) idle time
D) plant supervisor’s salary
Wonderful Products Manufacturing Corp. provided the following information for last
month:
If sales reduce to half of the amount in the next month, what is the projected operating
income?
A) $2,000
B) $9,000
C) $18,000
D) $3,500
The cost effect of productivity for variable costs is calculated by multiplying the
difference in actual input units used to produce current year output and units of input
required to produce current year output in previous year by the ________.
A) price per input unit of previous year
B) price per unit of capacity in the previous year
C) price per unit of capacity in the current year
D) price per input unit of current year
The sales forecast should be primarily based on ________.
A) statistical analysis
B) input from sales managers and sales representatives
C) production capacity
D) input from the board of directors
Three Bears Manufacturing produces an auto-quartz watch movement called OM362.
Three Bears expects to sell 20,000 units of OM362 and to have an ending finished
inventory of 7,000 units. Currently, it has a beginning finished inventory of 1,200 units.
Each unit of OM362 requires two labor operations, three labor hour(s) of assembling
and three labor hour(s) of polishing. The direct labor rate for assembling is $14 per
assembling hour and the direct labor rate for polishing is $17.50 per polishing hour.
The expected cost of direct labor for OM362 is ________.
A) $1,890,000
B) $2,003,400
C) $2,438,100
D) $2,551,500
Which of the following is true of the physical-measure approach of allocating joint
costs?
A) Costs cannot be allocated if the measurement basis for each product are different.
B) Physical measures usually result in less costs being allocated to the product that
weighs the most.
C) The physical measure reflects a product’s ability to generate revenues.
D) Obtaining comparable physical measures for all products is always straightforward.
Assume the sales mix consists of three units of Product A and one unit of Product B. If
the sales mix shifts to four units of Product A and one unit of Product B, then the
breakeven point will ________.
A) increase
B) stay the same
C) decrease
D) cannot be determined from this information
Top management compensation cost is an example of ________ in the cost hierarchy.
A) unit-level costs
B) batch-level costs
C) product-sustaining costs
D) facility-sustaining costs
Ventaz Corp. purchased assets for its overseas branch for $15,000 The rate of
conversion at the time of purchase of asset was $1.400 / Euro. If the company evaluates
a project’s ROI based on its initial costs and its operating income and does that in the
foreign currency, what value of assets in Euros to be used to calculate the ROI if the
rate current conversion rate is $1.511 / Euro and the average rate being $1.410 / Euro?
A) 10,714 Euros
B) 9927 Euros
C) 10,638 Euros
D) 21,000 Euros
Better Products Inc. planned to use $36 of material per unit but actually used $34 of
material per unit, and planned to make 1,520 units but actually made 1,310 units.
The flexible-budget variance for materials is ________.
A) $3,040 favorable
B) $3,040 unfavorable
C) $2,620 unfavorable
D) $2,620 favorable
When performing a sensitivity analysis, if the selling price per unit is increased, then
the ________.
A) per unit fixed administrative costs will increase
B) per unit direct materials purchase price will increase
C) total volume of sales will increase
D) total costs for sales commissions and other nonmanufacturing variable costs will
increase
Place the five steps in the decision-making process in the correct order:
A = Obtain information
B = Make decisions by choosing among alternatives
C = Identify the problem and uncertainties
D = Implement the decision, evaluate performance, and learn
E = Make predictions about the future
A) C D B E A
B) E D A B C
C) C A E B D
D) A E B D C
Which of the following statements is true of choosing cost drivers under activity-based
costing?
A) All the cost drivers should be unit-level cost drivers.
B) There should be a clear cause-and-effect relationship between cost drivers and cost
pools.
C) Cost drivers are independent variables.
D) A single cost driver should be identified for all the activities.
A regional manager of a restaurant chain in charge of finding additional locations for
expansion is most likely responsible for a(n) ________.
A) revenue center
B) investment center
C) cost center
D) profit center
Which of the following companies is part of the manufacturing sector of our economy?
A) Nike
B) Barnes & Noble
C) Corvette Law Firm
D) Sears, Roebuck, and Company
Among different types of costs associated with inventory, four categories of quality
costs are ________.
A) control costs, inspection costs, internal failure costs, and external failure costs
B) prevention costs, inspection costs, internal failure costs, and external failure costs
C) prevention costs, appraisal costs, internal failure costs, and external failure costs
D) prevention costs, control costs, internal failure costs, and external failure costs
Emerging Dock Company manufactures boat docks on an assembly line. Its standard
costing system uses two cost categories, direct materials and conversion costs. Each
product must pass through the Assembly Department and the Finishing Department.
Direct materials are added at the beginning of the production process. Conversion costs
are allocated evenly throughout production.
Which of the following journal entries records the Assembly Department’s conversion
costs at actual costs for the month, assuming conversion costs are 15% higher than
expected?
A)
B)
C)
D)
Which account would be credited if the following labor wages were incurred in a
furniture manufacturing company?
Assembly workers $20,000
Janitors $11,000
A) Work-in-Process Control, 31,000
B) Manufacturing Overhead Control, 31,000
C) Wages Payable Control, 31,000
D) Accounts Payable Control, 31,000
Which of the following is the required rate of return used in the economic value added
(EVA) calculation?
A) The ROI of the division or company being evaluated
B) After-tax weighted-average cost of capital
C) The residual income/total assets
D) The after-tax operating income/(Total assets – current liabilities)
