Putnam Company
Below is an income statement for Putnam Company:
Refer to Putnam Company. What is Putnam’s degree of operating leverage?
a. 1.33
b. 2.00
c. 3.00
d. 4.00
An important focus in product life cycle costing is
a. the activity base.
b. the target cost.
c. the cost driver.
d. variable costs.
Grant Corporation
The following information is available for Grant Corporation for the current month:
All materials are added at the start of production and the inspection point is at the end
of the process.
Refer to Grant Corporation. What is cost per equivalent unit for material using weighted
average?
a. $1.49
b. $1.63
c. $1.56
d. $1.44
Continental Publishing Company
The Magazine Division of Continental Publishing Company had the following financial
data for the year:
Refer to Continental Publishing Company. If expenses increased by $20,000 in the
Magazine Division,
a. return on investment would decrease.
b. residual income would increase.
c. the target rate of return would decrease.
d. asset turnover would decrease.
If normal spoilage is detected at an inspection point within the process (rather than at
the end), the cost of that spoilage should be
a. included with the cost of the units sold during the period.
b. included with the cost of the units completed in that department during the period.
c. allocated to ending work in process units and units transferred out based on their
relative values.
d. allocated to the good units that have passed the inspection point.
Which type of financial measure better predicts the direction of future cash flows?
a. yes yes
b. yes no
c. no no
d. no yes
Which of the following is most likely to make the implementation of ABC/ABM slow
and difficult?
a. The development of new cost drivers that measure costs more effectively.
b. A lack of involvement by or support from upper management.
c. The need for dual costing systems.
d. An inability to eliminate all business-value-added activities.
In the introduction stage of a product’s life-cycle, which of the following type of costs
typically may create losses rather than profits?
a. advertising
b. assembly
c. design
d. overhead
In a decentralized organization,
a. all functions are delegated to subunit managers who are closest to the information.
b. subunits under the control of a single manager are normally grouped by
organizational structure.
c. it would be difficult to group geographically related subunits pursuing different
missions under the same manager.
d. functions such as financing and product/service pricing are typically retained by top
management.
When a profitable corporation sells an asset at a loss, the after-tax cash flow on the sale
will
a. exceed the pre-tax cash flow on the sale.
b. be less than the pre-tax cash flow on the sale.
c. be the same as the pre-tax cash flow on the sale.
d. increase the corporation’s overall tax liability.
Riley Company
Riley Company produces two products from a joint process: A and C. Joint processing
costs for this production cycle are $9,000.
Refer to Riley Company. Using net realizable value at split-off, what amount of joint
processing cost is allocated to Product A (round to the nearest dollar)?
a. $2,718
b. $4,500
c. $6,062
d. $6,282
Brennan Company
The following information is for Brennan Company’s September production:
(Round all answers to the nearest dollar.)
Refer to Brennan Company. What is the labor rate variance?
a. $1,040 U
b. $1,040 F
c. $1,420 U
d. $1,420 F
Which of the following indicates the mission being pursued by a subunit that is
a. save harvest
b. build save
c. harvest build
d. build harvest
Which performance plan best promotes quality of the product or service?
a. piece rate
b. health insurance
c. pensions
d. profit sharing
Phelps Corporation
Phelps Corporation’s EOQ for Material A is 500 units. This EOQ is based on:
Refer to Phelps Corporation. What is the annual carrying cost per unit for Material A?
a. $0.50
b. $2.00
c. $2.50
d. $5.00
Which of the following tells management “when” to order?
a. safety stock level
b. order point
c. the economic order quantity
d. the Pareto inventory analysis
The term “discretionary costs” refers to
a. costs that management decides to incur in the current period to enable the company
to achieve objectives other than the filling of orders placed by customers.
b. costs that are likely to respond to the amount of attention devoted to them by a
specified manager.
c. costs that are governed mainly by past decisions that established the present levels of
operating and organizational capacity and that only change slowly in response to small
changes in capacity.
d. amortization of costs that were capitalized in previous periods.
Thunder Sports Enterprises
The Basketball Division of Thunder Sports Enterprises reported the following financial
data for the year:
Refer to Thunder Sports Enterprises. If expenses increased by $15,000 in the Basketball
Division,
a. return on investment would decrease.
b. residual income would increase.
c. the target rate of return would decrease.
d. asset turnover would decrease.
job-order costing and process costing have which of the following characteristics?
Variable costing has an advantage over absorption costing for which of the following
purposes?
a. analysis of profitability of products, territories, and other segments of a business
b. determining the CVP relationship among the major factors of selling price, sales mix,
and sales volume
c. minimizing the effects of inventory changes on net income
d. all of the above
Refer to Jenkins Manufacturing Company. What is the labor efficiency variance?
a. $731 F
b. $731 U
c. $750 F
d. none of the answers are correct
Stone Corporation is interested in purchasing a state-of-the-art widget machine for its
manufacturing plant. The new machine has been designed to basically eliminate all
errors and defects in the widget-making production process. The new machine will cost
$150,000, and have a salvage value of $70,000 at the end of its seven-year useful life.
Stone has determined that cash inflows for years 1 through 7 will be as follows:
$32,000; $57,000; $15,000; $28,000; $16,000; $10,000, and $15,000, respectively.
Maintenance will be required in years 3 and 6 at $10,000 and $7,000 respectively. Stone
uses a discount rate of 11 percent and wants projects to have a payback period of no
longer than five years.
Present value tables or a financial calculator are required.
Duval Corporation
The Duval Corporation has recently evaluated a proposal to invest in cost-reducing
production technology. According to the evaluation, the project would require an initial
investment of $17,166 and would provide equal annual cost savings for five years.
Based on a 10 percent discount rate, the project generates a net present value of $1,788.
The project is not expected to have any salvage value at the end of its five-year life.
Refer to Duval Corporation. What is the project’s expected internal rate of return?
Present value tables or a financial calculator are required.
a. 10%
b. 11%
c. 13%
d. 14%
Total quality management is inseparable from the concept of
a. ISO certification.
b. centralized organizational structure.
c. continuous improvement.
d. the product life cycle.
If sales and expenses both rise by $100,000, profit margin will
a. decrease and asset turnover will decrease.
b. increase and asset turnover will decrease.
c. decrease and asset turnover will increase.
d. increase and asset turnover will increase.
Contingent pay
a. is always paid in stock options.
b. is the sole source of pay an employee receives from his/her employer.
c. is received in addition to the basic wage and is dependent upon performance
exceeding some performance objective.
d. can only apply to individual performance.
Assume a company produces three products: A, B, and C. It can only sell up to 3,000
units of each product. Production capacity is unlimited. The company should produce
the product (or products) that has (have) the highest
a. contribution margin per hour of machine time.
b. gross margin per unit.
c. contribution margin per unit.
d. sales price per unit.
The budgeted payment for labor cost each period would be found in the
a. labor budget.
b. pro forma income statement.
c. selling, general, and administrative expense budget.
d. cash budget.
The measure of production that considers historical and estimated future production
levels and cyclical fluctuations is referred to as:
a. theoretical capacity
b. practical capacity
c. normal capacity
d. expected capacity
Stillwater Corporation
The following information is available for Stillwater Corporation for the current year:
All materials are added at the start of production.
Refer to Stillwater Corporation. Using weighted average, what are equivalent units for
material?
a. 82,000
b. 89,500
c. 84,500
d. 70,000
Fulton Company
Fulton Company is placing an ad in the local paper to advertise its products. The ad will
run for one week at a total cost of $5,500. Fulton Company has four categories of
products as follows:
Refer to Fulton Company. Assume that Fulton decides to allocate based on expected
sales value. What amount of advertising cost should be allocated to light fixtures (round
to the nearest dollar)?
a. $1,375
b. $589
c. $1,002
d. $2,534
Stillwater Corporation
The following information is available for Stillwater Corporation for the current year:
All materials are added at the start of production.
Refer to Stillwater Corporation. What is the cost assigned to normal spoilage using
weighted average?
a. $31,000
b. $15,500
c. $30,850
d. None of the responses are correct
The “Rule of One” underlies the premise that all costs are
a. variable.
b. fixed.
c. unit-based.
d. short-term.
An investment project is expected to yield $10,000 in annual revenues, has $2,000 in
fixed costs per year, and requires an initial investment of $5,000. Given a cost of goods
sold of 60 percent of sales, what is the payback period in years?
a. 2.50
b. 5.00
c. 2.00
d. 1.25
The greatest degree of control for committed fixed costs is exerted
a. in the post-investment audit.
b. during the life of the investment.
c. prior to acquisition.
d. by equipment operators.
Tri-Cities Savings and Loan
Tri-Cities Savings and Loan has three departments that generate revenue: loans,
checking accounts, and savings accounts. Tri-Cities Savings and Loan has two service
departments: Administration/Personnel and Maintenance. The service departments
provide service in the order of their listing. The following information is available for
direct costs. Administration/ Personnel costs are best allocated based on number of
employees while Maintenance costs are best allocated based on square footage
occupied.
Refer to Tri-Cities Savings and Loan. Using the step method, compute the amount
allocated to each department from Maintenance.
Why does a “push” based inventory control system generate larger inventory levels than
a “pull” system?
Short-term planning designed to address a specific set of circumstances is referred to as
______________________________.
When making a decision to discontinue an operating segment, avoidable fixed costs are
notconsidered.
Lamar Company
Lamar Company produces only two products and incurs joint processing costs that total
$3,750. Products Alpha and Beta are produced in the following quantities during each
month: 4,500 and 6,000 gallons, respectively. Lamar Company also runs one ad each
month that advertises both products at a cost of $1,500. The selling price per gallon for
the two products are $20 and $17.50, respectively.
Refer to Lamar Company. What amount of advertising cost is allocated to each product
based on sales value?
The outsourcing decision is also referred to as a “make-or-buy” decision.
Wisteria Corporation produces a product using the following standard proportions and
costs of material:
A recent production run yielding 100 output pounds required an input of:
Required:Material price, mix, and yield variances.
A system that accounts for both environmental costs and the impact of environmental
issues is referred to as a(n)
__________________________________________________.
Garfield Company
Garfield Company applies overhead based on direct labor hours and has the following
available for the current month:
Refer to Garfield Company. Compute all the appropriate variances using the
four-variance approach.
Deferred compensation techniques are currently used in the American work place. What
are they and how do they benefit the employer and the employee?
The slope of a regression line is determined by dividing the change in activity level by
the change in total cost.
Define and discuss outsourcing.
Motivational elements may be quantitative or non-quantitative in nature.
Pests Away Company manufactures a product effective in controlling beetles. The
company uses a standard cost system and a flexible budget. Standard cost of a gallon is
as follows:
The flexible budget system provides for $50,000 of fixed overhead at normal capacity
of 10,000 direct labor hours. Variable overhead is projected at $1 per direct labor hour.
Actual results for the period indicated the following:
Required:
