In implementing an activity-based costing system, after all the activities have been
identified and the appropriate level of detail selected, the activities are combined into
activity cost pools based on their
a. Behavior
b. Function
c. Cost drivers
d. Cost levels
Assume you are a sales manager responsible for analyzing the profitability of the
customers in your territory. You have gathered the following information on one of your
customers:
Required:
a. Calculate the customer net profit.
b. Calculate the customer profit margin.
Before a company makes the decision to change the degree of decentralization, top
management must consider the advantages and disadvantages of such a move.
Required: a. List three advantages of decentralization. b. List three disadvantages of
decentralization.
Mounts CPA firm prepares approximately 1,200 individual tax returns each year. Since
a majority of the cost of preparing tax returns results from the salary of the tax
preparers and reviewers, Mounts charges customers a markup on labor rates. The
highest paid preparers earn $30 per hour and are CPAs with several years’ experience.
Mounts charges its customers $45 per hour. If Mounts charges the same markup
percentage to all clients, what price will Mounts charge for a less-experienced preparer
who earns only $20 per hour?
a. $25
b. $30
c. $35
d. $45
Julie Finn is preparing the materials purchases budget for the second quarter. The
production manager has provided the following production budget information: January
– 60,000 units, February – 55,000 units, March – 50,000 units. Each unit requires 5
gallons of direct materials, and Julie wants to maintain an ending inventory equal to
15% of the next month ‘s production needs. How many gallons will Julie budget to
purchase in February?
a. 271,250
b. 275,000
c. 282,500
d. 312,500
Net operating profit after taxes is referred to as
a. Segment net income.
b. NOPAT.
c. Both Segment net income and NOPAT.
d. Neither Segment net income nor NOPAT.
Mountain Spring Inc. wants to produce and sell a new brand of bottled water. In order
to penetrate the market, the product will have to sell at $2.00 per 12 oz. bottle. The
following data has been collected:
The target cost per bottle is
a. $0.44.
b. $0.60.
c. $0.16.
d. $0.40.
The difference between actual sales volume and budgeted sales volume has an effect on
a. Price variance.
b. Quantity variance.
c. Both the price and the quantity variance.
d. None of these answer choices are correct.
Inspection would be classified as value-added in which of the following scenarios?
a. Production of motorcycles
b. Manufacture of baseball jerseys
c. Processing meat for compliance with FDA regulations
d. None of these answer choices are correct.
The algebraic equation for the direct materials quantity variance is
a. Direct materials quantity variance = AQused x (AP – SP)
b. Direct materials quantity variance = SQused x (AP – SP)
c. Direct materials quantity variance = SP x (AQused – SQ)
d. Direct materials quantity variance = AP x (AQused – SQ)
Assume the actual sales volume is 69,000 units and the budgeted sales volume is
70,000 units. If the actual sales price is $6 and the budgeted sales price is $6.50, what is
the sales volume variance?
a. $6,500 unfavorable
b. $6,500 favorable
c. $6,000 unfavorable
d. $6,000 favorable
The calculation of working capital is
a. Current assets plus current liabilities.
b. Current assets less current liabilities.
c. Current assets times current liabilities.
d. Current assets divided by current liabilities.
The return on investment measures
a. Actual costs against budgeted costs.
b. The rate of return generated by an investment in assets.
c. The dollar amount of segment margin over operating income.
d. None of these answer choices are correct.
The 2013 and 2014 balance sheets for Ottoman Manufacturing Company appear below:
What is the debt ratio for 2014?
a. 39.2%
b. 61.4%
c. 68.6%
d. 100%
Sanderson ‘s Woodworking Company is considering the addition of a new line of quilt
frames to its current product lines. If the new quilt frames are added to Sanderson ‘s
production, contribution margin of the other products is expected to drop by $2,000.
Sanderson has summarized the projected revenue and cost for the new line of frames.
Required:
a. If Sanderson adds the new quilt frame to its line of products, what will be the
increase in operating income?
b. What are three issues that Sanderson should consider before adding the new line?
When a company approaches market share growth under a hold strategy,
a.The company aims to hold its market share in the industry, even at the expense of
short-term earnings and cash flow.
b.The company seeks to maintain its current market share and generate a reasonable
return on investment.
c.The company seeks market share growth by purchasing companies exiting the market.
d.The company focuses on short-term profits and cash.
Evaluate an operating segment or project using residual income and economic value
added.
Calculate a project’s accounting rate of return.
Morgan’s, Inc. has provided you with the following financial information:
Required:
Prepare a flexible budget.
What is the meaning of margin of safety and how do managers use the information?
Martin Company sells two products, Standard and Deluxe. Data for activity during
January are as follows:
Required:
Prepare a Segment Margin income statement. Common fixed costs of $25,000 are
allocated one-half to Standard and one-half to Deluxe.
Classify the following costs incurred by Freestone Manufacturing Company by both
behavior and function by placing an “X” in the appropriate columns.
What does operating leverage mean? What is the formula for calculating degree of
operating leverage? How can a company manage its degree of operating leverage?
M & M Manufacturing has provided the following comparative income statements for
2013 and 2014.
Required: Prepare a common-size analysis of M & M’s income statement for 2014.
Explain how to use a balanced scorecard to improve an organization’s performance.