Shiny Floors Company
Shiny Floors Company produces four floor cleaners from the same process: C, D, E,
and G. Joint product costs are $9,000. (Round all answers to the nearest dollar.)
If Shiny Floors sells the products after further processing, the following disposal costs
will be incurred: C, $2.50; D, $1.00; E, $3.50; G, $6.00.
Refer to Shiny Floors Company. Using net realizable value at split-off, what amount of
joint processing cost is allocated to Product C?
a. $1,550
b. $1,017
c. $4,263
d. $2,170
Lincoln Corporation
Lincoln Corporation distributes its service department overhead costs directly to
producing departments without allocation to the other service departments. Information
for January is presented here.
Refer to Lincoln Corporation. Assume instead Lincoln Corporation distributes the
service department’s overhead costs based on the step method. Maintenance provides
more service than does Utilities. Which of the following is true?
a. Allocate maintenance expense to Departments A and B.
b. Allocate maintenance expense to Departments A and B and the Utilities Department.
c. Allocate utilities expense to the Maintenance Department and Departments A and B.
d. None of the above.
Wyman Enterprises
Refer to Wyman Enterprises. For March, conversion cost incurred was
a. $30,000.
b. $40,000.
c. $70,000.
d. $72,000.
A short-run measure of activity that represents a firm’s anticipated activity level for an
upcoming period based upon expected demand is referred to as:
a. theoretical capacity
b. practical capacity
c. normal capacity
d. expected capacity
Waste created by a production process is
a. accounted for in the same manner as defective units.
b. accounted for as an abnormal loss.
c. material that can be sold as an irregular product.
d. discarded rather than sold.
The budgeted cost of products to be sold in a future period would be found in the
a. production budget.
b. sales budget.
c. purchases budget.
d. pro forma income statement.
Why is variable costing not in accordance with generally accepted accounting
principles?
a. Fixed manufacturing costs are treated as period costs under variable costing.
b. Variable costing procedures are not well known in industry.
c. Net earnings are always overstated when using variable costing procedures.
d. Variable costing ignores the concept of lower of cost or market when valuing
inventory.
Break-even analysis assumes over the relevant range that
a. total variable costs are linear.
b. fixed costs per unit are constant.
c. total variable costs are nonlinear.
d. total revenue is nonlinear.
Engaging in product design for manufacturability reduces
a. yes yes yes
b. no yes yes
c. yes no yes
d. no no no
If a firm uses variable costing, fixed manufacturing overhead will be included
a. only on the balance sheet.
b. only on the income statement.
c. on both the balance sheet and income statement.
d. on neither the balance sheet nor income statement.
The following information is available from the Ryan Company:
Assuming that Ryan uses a three-way analysis of overhead variances, what is the
overhead spending variance?
a. $ 750 F
b. $ 750 U
c. $ 950 F
d. $1,500 U
A variance represents the difference between a budgeted and an actual cost. Thus, the
variance measures
a. only controllable cost differences.
b. only uncontrollable cost differences.
c. both uncontrollable and controllable cost differences.
d. the effectiveness of management.
Birmingham Corporation manufactures batons. Birmingham can manufacture 300,000
batons a year at a variable cost of $750,000 and a fixed cost of $450,000. Based on
Birmingham’s predictions, 240,000 batons will be sold at the regular price of $5.00
each. In addition, a special order was placed for 60,000 batons to be sold at a 40 percent
discount off the regular price. The unit relevant cost per unit for Birmingham’s decision
is
a. $1.50.
b. $2.50.
c. $3.00.
d. $4.00.
The management of Freeman Industries has been evaluating whether the company
should continue manufacturing a component or buy it from an outside supplier. A $100
cost per component was determined as follows:
Freeman Industries uses 4,000 components per year. After Noel Corporation submitted
a bid of $80 per component, some members of management felt they could reduce costs
by buying from outside and discontinuing production of the component. If the
component is obtained from Noel Corporation, Freeman Industries’ unused production
facilities could be leased to another company for $50,000 per year.
Required:
Stayton Enterprises
Refer to Stayton Enterprises. For April, conversion cost incurred was
a. $36,000
b. $45,000.
c. $81,000.
d. $84,000.
Most studies have indicated that what percent of a product’s total life-cycle costs are
determined in the development/design stage?
a. 60%-70%
b. 70%-80%
c. 80%-90%
d. 90%-95%
The term “prime cost” refers to
a. all manufacturing costs incurred to produce units of output.
b. all manufacturing costs other than direct labor and raw material costs.
c. raw material purchased and direct labor costs.
d. the raw material used and direct labor costs.
All attempts to reduce variability and defects in products reflect the implementation of
a. activity analysis.
b. statistical process control.
c. quality control.
d. control charts.
Process productivity is calculated as
a. total units divided by non-value-added processing time.
b. total units divided by value-added processing time.
c. value-added processing time divided by total units.
d. value-added processing divided by total time.
Chronologically, the first part of the master budget to be prepared would be the
a. sales budget.
b. production budget.
c. cash budget.
d. pro forma financial statements.
Beasley Company
Beasley Company prepared a cash budget by quarters for the upcoming year. Missing
data amounts are indicated with question marks or lower case letters; these lower case
letters will be referred to in the questions that follow.
Beasley requires a minimum balance of $10,000 to start a quarter.
All data are in thousands.
Beasley Corporation
Cash Budget
Refer to Beasley Company. The cash disbursed for purchases during the second quarter
(item c) is:
a. $13
b. $55
c. $ 9
d. $21
For game playing to work, motivation must come from
a. individual employees.
b. lower management.
c. the board of directors.
d. upper management.
Texas Metal Company
Texas Metal Company has developed standard overhead costs based on a monthly
capacity of 180,000 machine hours as follows:
During November, 90,000 units were scheduled for production, but only 80,000 units
were actually produced. The following data relate to November:
Actual machine hours used were 165,000.
Actual overhead incurred totaled $1,378,000 ($518,000 variable plus $860,000 fixed).
All inventories are carried at standard cost.
Refer to Texas Metal Company. The fixed overhead volume variance for November was
a. $60,000 U.
b. $60,000 F.
c. $100,000 F.
d. $100,000 U.
Terrell Corporation
Terrell Corporation produces various products used in the construction industry. The
Plumbing Division produces and sells 100,000 copper fittings each month. Relevant
information for last month follows:
Top-level managers are trying to determine how a transfer price can be set on a transfer
of 10,000 of the copper fittings from the Plumbing Division to the Bathroom Products
Division.
Refer to Terrell Corporation. A transfer price based on full production cost would be set
at ____ per unit.
a. $0.75
b. $1.45
c. $1.60
d. $2.10
Which of the following is a reason for allocating service department costs and thereby
motivating management?
a. provides for cost recovery
b. provides relevant information in determining corporate-wide profits generated by
alternative actions
c. meets regulations in some pricing instances
d. reflects usage of services on a fair and equitable basis
Bridges Corporation
The following information has been taken from the cost records of Bridges Corporation
for the past year:
Refer to Bridges Company. Cost of Goods Manufactured was
a. $651
b. $736
c. $771
d. $796
Which of the following describes the effect on direct labor when management adopts
the JIT philosophy?
a. Each direct labor person performs a single task, thereby allowing that person to reach
his or her theoretical potential.
b. Because each person runs a single machine in a JIT environment, there are more
employees classified as direct labor.
c. The environment becomes more labor-intensive.
d. Machine operators are expected to run several different types of machines, help set
up for production runs, and identify and repair machinery needing maintenance.
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 efficiency
variance?
a. $11,770 F
b. $2,200 F
c. $7,975 U
d. $5,775 U
A ratio of outputs to inputs is a(n)
a. effectiveness measure.
b. efficiency measure.
c. qualitative measure.
d. cost reduction measure.
Measuring the firm’s performance against established objectives is part of which of the
following functions?
a. Planning
b. Controlling
c. Organizing
d. Staffing
The value of discretionary costs is often measured using non-monetary measures.
Bridges Corporation
Bridges Corporation manufactures and sells two products: A and B. The projected
information on these two products for the coming year is presented below:
Total fixed costs for the company are projected at $10,000.
Refer to Bridges Corporation. Compute Bridges Corporation’s projected break-even
point in total units.
Discuss some of the factors that could motivate an organization to implement activity
based costing.
Purchases of inventory create a continuous cash outflow each period.
Abnormal spoilage is considered a period cost.
Fancy Food Corporation manufactures a special blend of beef marinade. The company
buys one of the spices used in the marinade in 10-pound bags that cost $5 each. The
company uses 50,000 of the bags per year, and usage occurs evenly throughout the year.
The average cost to carry a 10-pound bag in inventory per year is $1. The cost to place
an order is $12.
1. Determine the economic order quantity for the spice in terms of 10 pound bags.
2. If the company works 250 days per year, on average how many bags of spice are
used per working day?
3. If the lead time for an order is normally five working days, determine the reorder
point.
4. If the company normally carries 50 bags as safety stock, determine the reorder point
for the spice.
A company should strive to reduce all non-value added activities to a minimum.
What are the risks and dangers of downsizing?
Mobile Corporation
Mobile Corporation is a manufacturer of electronic blood pressure monitors for home
use. The following is a summary of quality costs for the first year of operations.
Refer to Mobile Corporation. Compute the profit lost by selling defective units not
reworked.
If underapplied or overapplied factory overhead is material, it is prorated among
________________________________________,
________________________________________, and
___________________________________.
An indirect cost can be easily traced to a cost object.
How do control charts mesh with the concept of total quality control (TQC)?
When raw materials are placed into production, the
account is debited
What are some of the major problems associated with accrual-based accounting
performance measures?
In a normal job-order costing system, factory overhead is applied using predetermined
rates times actual input.
A decision that must be made at split-off is to sell a product or process it further.
A company that manufactures small quantities of identifiable products will normally
use a costing system.
In an actual cost system, overhead is assigned to Work in Process Inventory with a debit
entry to the account.