A cost is a resource sacrificed or forgone to achieve a specific objective.
Continuous improvement through the use of standard costs is the process of repeatedly
identifying the causes of variances, taking corrective actions, and evaluating results.
The tariffs and customs duties governments levy on imports of products into a country
also affect the transfer pricing practices of multinationals.
The amount of fixed manufacturing costs inventoried depends on two factors: the
number of units in ending inventory and the rate at which fixed manufacturing overhead
costs are allocated to each unit.
Hybrid transfer prices take into account both cost and market information.
Variances between actual and budgeted amounts inform management about
performance relative to the budget.
Management accounting report time spans can vary from one hour to many years, while
financial accounting report time periods usually span a quarter or a year.
The labels profit center and cost center are dependent on the degree of centralization or
decentralization in a company.
In the “make predictions” stage of the capital budgeting process, a company forecasts
all potential net income additions those are attributable to the alternative projects.
An unfavorable variance is conclusive evidence of poor performance.
If a worker is paid for 40 hours, but is idle for 5 of those 40 hours, the 5 hour of idle
time would be considered a component of direct labor.
Life-cycle budgeting estimates the costs and revenues attributed to a product from its
initial R&D through production of a prototype product.
Budgeting based on cost for specific activities is a key building block of the master
budget for companies that use the Kaizen approach.
It can be inferred that when there is a high correlation between two variables, one is the
cause of the other.
Under efficient operating conditions, all spoilage is considered to be abnormal spoilage.
Both direct and the step-down method can provide relevant information for outsourcing
decisions.
Tightly budgeted machine time standards can lead to unfavorable variable overhead
efficiency variance.
The coefficient of determination (r2) measures the percentage of variation in X (the
independent variable) explained by Y (the dependent variable).
Companies that want to calculate the full cost of products must allocate all corporate
costs to divisions.
Joint processing costs are relevant in deciding whether to process the product further.
When estimating the cost function for each cost pool, the manager must pay careful
attention to the cost hierarchy because the cost pool may have more than one cost driver
from different levels of the cost hierarchy.
When calculating the costs to be transferred using the FIFO method, we should not
include costs assigned in the previous period to units that were in process at the
beginning of the current period but are now included in the units transferred.
The cost-allocation method that allocates each support-department’s costs to operating
departments only is the direct method.
When production is greater than sales, operating income under variable costing will be
less than what it would be under absorption costing.
Management accountants help managers identify what information is relevant and what
information is
irrelevant that help in decision making.
The adjusted-allocation rate approach offers the benefit of a costing system that
provides overhead cost data during the year so that pricing, budgeting, and interim
reporting can occur and a year-end adjustment to manufacturing overhead allocations to
individual jobs that are better aligned with actual manufacturing overhead costs that are
known at year-end.
The first-in, first-out process-costing method assumes that the earliest equivalent units
in work in process are completed first.
Fixed costs are sometimes allocated to individual products as part of the standard
costing system. When this is the case, they should be treated as variable costs for
purposes of future cost estimation.
After a budget is agreed upon and finalized by the management team, the amounts
should NOT be changed for any reason.
The margin of safety refers to how many more sales are needed in order to breakeven,
One purpose of cost allocations is to justify costs to establish a “fair” price, often
required by law and government contracts.
When production quantity exceeds sales, throughput costing results in reporting lower
operating income than variable costing.
An incremental cost is the difference in total irrelevant costs between two alternatives.
A company’s CFO oversees banking and short- and long-term financing, investments,
and cash management.
Total factor productivity will increase if ________.
A) technical productivity occurs
B) the company uses more total inputs per output
C) the company incurs fewer costs per input
D) current technology becomes obsolete
Samantha’s Office Supplies manufactures desk organizers in its Processing Department.
Direct materials are included at the inception of the production cycle and must be
bundled in single kits for each unit. Conversion costs are incurred evenly throughout
the production cycle. Inspection takes place as units are placed into production. After
inspection, some units are spoiled due to undetectable material defects. Spoiled units
generally constitute 4% of the good units. Data provided for February 2017 are as
follows:
Which of the following journal entries correctly represents the transfer of completed goods
begun during February using the FIFO method of process costing? (Round any cost per
unit calculations to the nearest cent.)
A)
B
C) Finished Goods 929,858
Work in Process 929,858
D)
The approaches and activities of managers in short-run and long-run planning and
control decisions that increase value for customers and lower costs of products and
services are known as ________.
A) value chain management
B) enterprise resource planning
C) cost management
D) customer value management
The top management at Groundsource Company, a manufacturer of lawn and garden
equipment, is attempting to recover from a fire that destroyed some of their accounting
records. The main computer system was also severely damaged. The following
information was salvaged:
What is the Tiller Division’s investment turnover?
A) 1.27
B) 0.79
C) 0.02
D) 0.25
Smith Office Equipment Company’s budgeted manufacturing overhead is $5,400,000.
Overhead is allocated on the basis of direct labor hours. The budgeted direct labor hours
for the period are 30,000. What is the manufacturing overhead rate?
A) $15.00
B) $54.00
C) $195.00
D) $180.00
High Traffic Products Corporation has two departments, Small and Large. Central costs
could be allocated to the two departments in various ways.
If total payroll processing costs of $64,680 are allocated on the basis of number of
employees, the amount allocated to the Large Department would be ________. (Do not
round interim calculations. Round the final answer to the nearest whole dollar.)
A) $32,026
B) $21,420
C) $32,340
D) $43,260
The revenue effect of price recovery is calculated by multiplying the difference in
selling price (current year minus the previous year) by ________.
A) actual units sold in the current year
B) budgeted units sold in the previous year
C) budgeted units sold in the current year
D) actual units sold in the previous year
Diamond Manufacturing Company provides glassware machines for major department
store retailers. The company has been investigating a new piece of machinery for its
production department. The old equipment has a remaining life of eight years and the
new equipment will cost $141,969 with a eight-year life. The expected additional cash
inflows are $37,000 per year. What is the internal rate of return?
A) 13%
B) 15%
C) 20%
D) 23%
The only type of inventory that Macy’s, a major U.S. department store chain would
report on its balance sheet is:
A) merchandise inventory
B) finished goods inventory
C) direct materials inventory, work-in-process inventory, and finished goods inventory
accounts
D) no inventory accounts as Macy’s is a service-sector company
Which of the following identifies an estimated price customers are willing to pay and
then computes the cost to be achieved to earn the desired profit.
A) Cost-plus pricing
B) Target costing
C) Kaizen costing
D) Peak-load costing
Answer the following questions using the information below:
Eagle Eye Company produces two types of lenses–L7 and L9.
What is the total costs assigned to L9 (b) under single indirect-cost pool system?
A) $46,000
B) $64,000
C) $32,500
D) $45,500
Which of the following is a challenge to using cost-benefit criteria for allocating costs?
A) the costs of designing and implementing complex cost allocations are not readily
apparent
B) the benefits of making better-informed pricing decisions are difficult to measure
C) cost systems are being simplified and fewer multiple cost-allocation bases are being
used
D) the costs of collecting and processing information keep spiraling upward
Patota Manufacturing incurred the following expenses during 2017:
What is the breakeven point in units using absorption costing if the units produced are
actually 2,220? (Round your final answer up to the next whole unit.)
A) 997 units
B) 725 units
C) 544 units
D) 318 units
The Connors Company has assembled the following data pertaining to certain costs that
cannot be easily identified as either fixed or variable. Connors Company has heard
about a method of measuring cost functions called the high-low method and has
decided to use it in this situation.
Cost Hours
$24,000 5,000
$26,100 6,300
$34,700 7,900
$48,000 11,000
$38,300 9,250
What is the cost function?
A) y = $48,000 + $4.80X
B) y = $24,000 + $4.36X
C) y = $34,700 + $4.80X
D) y = $4,000 + $4.00X
Pacific Company sells only one product for $12 per unit, variable production costs are
$3 per unit, and selling and administrative costs are $1.70 per unit. Fixed costs for
11,000 units are $6,000. The operating income is ________ when 11,000 units are sold.
A) $8.45 per unit
B) $6.75 per unit
C) $7.30 per unit
D) $4.70 per unit
The adjusted allocation approach yields the benefits of ________.
A) timeliness and convenience of normal costing
B) allocating budgeted manufacturing overhead costs at the end of the year
C) write-off to the cost of goods sold approach
D) the proration approach
As per control charts, random variations would most likely occur when ________.
A) there is a sudden increase in production
B) chance fluctuations in the speed of equipment cause defective products to be
produced
C) defective products are produced as a result of a systematic problem
D) chance fluctuations in the speed of the equipment cause defective products to be
produced
Which of the following statements about net income (NI) is true?
A) NI = operating income plus nonoperating revenue.
B) NI = operating income plus operating costs.
C) NI = operating income less income taxes.
D) NI = operating income less cost of goods sold.
Which of the following is a manufacturing overhead cost?
A) the use of direct materials in the making of a finished good
B) labor cost of plant workers that can be traced accurately and easily to a particular
product
C) cost of materials that can be traced to individual products in an economically
feasible manner
D) overtime premiums paid to plant workers
Which of the following statements is true of joint costing?
A) The costs of a production process that yields multiple products simultaneously are
called joint costs.
B) Distribution costs incurred beyond the split-off point that are assignable to each of
the specific products identified at the split-off point are considered as joint costs.
C) The primary purpose of joint costing is to allocate the separable costs to the
individual products that are eventually sold.
D) Joint costing is less useful for companies which manufacture multiple products
simultaneously from the same production process.
Goldfarb’s Book and Music Store has two service departments, Warehouse and Data
Center. Warehouse Department costs of $310,000 are allocated on the basis of budgeted
warehouse-hours. Data Center Department costs of $100,000 are allocated based on the
number of computer log-on hours. The costs of operating departments Music and Books
are $102,500 and $123,000, respectively. Data on budgeted warehouse-hours and
number of computer log-on hours are as follows:
Production
Support Departments Departments
Using the step-down method, what amount of Warehouse Department cost will be
allocated to Department Music if the service department with the highest percentage of
interdepartmental support service is allocated first? (Do not round any intermediary
calculations.)
A) $33,856
B) $104,953
C) $125,393
D) $34,702
Which of the following is true of cost-volume-profit analysis?
A) The theory assumes that all costs are variable.
B) The theory assumes that units manufactured equal units sold.
C) The theory states that total variable costs remain the same over a relevant range.
D) The theory states that total costs remain the same over the relevant range.
The weighted-average cost of capital (WACC) equals ________.
A) the after-tax average cost of all the long-term and short-term sources of funds
B) the after-tax average cost of all the long-term source of funds
C) the pre-tax average cost of all the short-term sources of funds
D) the pre-tax average cost of all the long-term and short-term sources of funds
The internal rate of return method assumes that project cash flows can be reinvested at
the project’s ________.
A) internal rate of return
B) required rate of return
C) growth rate
D) accounting rate of return
The Corata Appliance Manufacturing Corporation manufactures two vacuum cleaners,
the Standard and the Super. The following information was gathered about the two
products:
What is the total sales-volume variance in terms of the contribution margin?
A) $674,000 unfavorable
B) $502,000 favorable
C) $588,000 unfavorable
D) $674,000 favorable
Which of the following would be the case under the stand-alone method of allocating
common costs?
A) the individual users of a cost object are ranked in the order of users least responsible
for the common cost and then uses this ranking to allocate cost among those users
B) disputes can arise over who is the primary user
C) each party bears a proportionate share of the total costs in relation to their individual
stand-alone costs
D) the individual users of a cost object are ranked in the order of users most responsible
for the common cost and then uses this ranking to allocate cost among those users
First Class, Inc., expects to sell 29,000 pool cues for $13 each. Direct materials costs
are $3, direct manufacturing labor is $5, and manufacturing overhead is $0.83 per pool
cue. The following inventory levels apply to 2019:
What are the 2019 budgeted costs for direct materials, direct manufacturing labor, and
manufacturing overhead, respectively?
A) $72,000; $120,000; $19,920
B) $90,600; $151,000; $25,066
C) $91,800; $153,000; $25,398
D) $87,000; $145,000; $24,070
At the Wild Cat Group Company, the cost of the library and information center has
always been charged to the various departments based upon number of employees.
Recently, opinions gathered from the department managers indicate that the number of
engineers within a department might be a better predictor of library and information
center costs.
Total library and information center costs are $215,000.
Department A B C
Number of employees 175 505 150
Number of engineers 5 85 35
If the number of engineers is considered the cost driver, what amount of library and
information center costs will be allocated to Department A? (Round any intermediary
calculations two decimal places and your final answer to the nearest dollar.)
A) $40,524
B) $45,331
C) $8,600
D) $130,813
Goldfarb’s Book and Music Store has two service departments, Warehouse and Data
Center. Warehouse Department costs of $370,000 are allocated on the basis of budgeted
warehouse-hours. Data Center Department costs of $180,000 are allocated based on the
number of computer log-on hours. The costs of operating departments Music and Books
are $137,500 and $165,000, respectively. Data on budgeted warehouse-hours and
number of computer log-on hours are as follows:
Production
Support Departments Departments
Using the direct method, what amount of Data Center Department costs will be allocated
to Department Music? (Do not round any intermediary calculations.)
A) $180,000
B) $83,505
C) $96,495
D) $75,349
The order to follow when preparing the operating budget is ________.
A) revenues budget, production budget, direct manufacturing labor costs budget , and
cost of goods sold
B) revenues costs of goods sold budget, production budget, and cash budget
C) revenues budget, manufacturing overhead costs budget, and production budget
D) cash expenditures budget, revenues budget, and production budget
An inventory item of Avizone Corp. has an average daily demand of 25 units with a
maximum daily demand of 30 units. The economic order quantity is 500 units. Without
safety stocks, the reorder point is 125 units. Safety stocks are set at 235 units.
Required:
a. Determine the reorder point with safety stocks.
b. Determine the maximum inventory level.
c. Determine the average lead time.
For each type of report listed below, identify one planning decision and one controlling
decision for which the information would be helpful. Assume you are a Walgreen
Company store.
Item:
a. annual financial statements for the past three years
b. report detailing sales by department by each hour of the day for the past week
c. special study regarding increased road traffic due to the construction of a new
shopping mall at a near-by intersection
Short Grass Incorporated is a distributor of golf balls. Martin’s Golf Supplies is a local
retail outlet which sells golf balls. Martin’s purchases the golf balls from Short Grass
Incorporated at $0.85 per ball; the golf balls are shipped in cartons of 42. Short Grass
Incorporated pays all incoming freight, and Martin’s Golf Supplies does not inspect the
balls due to Short Grass’ reputation for high quality. Annual demand is 158,520 golf
balls at a rate of 3191 balls per week. Martin’s Golf Supplies earns 7% on its cash
investments. The purchase-order lead time is one week. The following cost data are
available:
If Martin’s makes an order (1 / 12 of annual demand) once per month, what are the relevant
total costs? (Round costs to the nearest cent and quantities to the nearest whole number.)
A) $1560.00
B) $514.09
C) $2075.03
D) $3120.00
Global Manufacturing Inc. uses normal costing during the year to allocate
manufacturing overhead to jobs in a job costing system. At year end, it uses the adjusted
allocation rate approach to account for underallocated or overallocated overhead.
During 2018, Global’s manufacturing overhead was underallocated by 10%. Job 117
had the following costs:
Direct materials $1,600
Direct labor $3,400
Manufacturing overhead allocated $2,000
Which of the following would be the after adjustment cost of Job 117?
A) $7,340
B) $7,200
C) $7,700
D) $6,300
The Jarvis Corporation produces bucket loader assemblies for the tractor industry. The
product has a long term life expectancy. Jarvis has a traditional manufacturing and
inventory system. Jarvis is considering the installation of a just-in-time inventory
system to improve its cost structure. In doing a full study using its manufacturing
engineering team as well as consulting with industry JIT experts and the main vendors
and suppliers of the components Jarvis uses to manufacture the bucket loader
assemblies, the following incremental cost-benefit relevant information is available for
analysis:
The Jarvis cost of investment capital hurdle rate is 15%.
One time cost to rearrange the shop floor to create the manufacturing cell workstations
is $275,000.
One time cost to retrain the existing workforce for the JIT required skills is $60,000.
Anticipated defect reduction is 40%. Currently there is a cost of quality defect
assessment listed as $150,000 per year.
The setup time for each of the existing functions will be reduced by 67%. Currently the
forecast for setup costs are $225,000 per year.
Jarvis will expect to save $200,000 per year in carrying costs as a result of having a
lower inventory.
The suppliers will require a 15% premium over the current level of prices in order to
position themselves to supply the material on a smaller and more frequent schedule.
Currently the materials purchases are $1,500,000 per year.
Required:
Determine whether it is in the best interest of Jarvis Corporation to install a JIT system.
Busy Hands Craft Company is a small manufacturing company that specializes in arts
and crafts items. It recently bought an old textile mill that it has refurbished to
manufacture and dye special cloth to be sold in its craft shops. However, it discovered
something new for its accounting system. The company never before had finished
goods that did not meet standard, leftover materials from processing runs, or
unacceptable outputs.
Required:
As the business consultant for the company, explain how it can handle the items
mentioned. Include any potential problems with the accounting procedures.
Describe the benefits of preparing an operating budget to an organization.
When cost-based transfer pricing is used between subunits of a large organization,
describe how to avoid making suboptimal decisions.
What competitive advantage could a company obtain from having a successful cost
management program?
Explain how service-sector companies can benefit from variance analysis.
Ski Valet provides materials that let people teach themselves how to snow ski. It has six
different skill-level programs. Each one includes visual and audio learning aids along
with a workbook that can be submitted to the company for grading and evaluation
purposes, if the person so desires.
The accounting system of Ski Valet is very traditional in its reporting functions with the
calendar year being the company’s fiscal year. It includes an abundance of information
that can be used for various reporting purposes.
The company has found that any new idea soon runs its course with an effective life of
about three years. Therefore, the company is always in the development stage of some
new program. Program development requires experts in the area to provide the
know-how of the item being developed and a development team that puts together the
video, audio, and workbook materials. The actual costs of reproducing the packages are
relatively inexpensive when compared to the development costs.
Required:
How might product life-cycle budgeting aid the company in improving its overall
operations?
Heliem Corp. uses the balanced scorecard technique to achieve its long term objectives.
Managers of Heliem came to know that all the balanced scorecards objectives were
achieved other than financial perspective measures for the previous period. While the
learning and growth and internal business processes perspective measures were
achieved with relative ease, Heliem had to strive extremely hard to achieve customer
oriented measures. The company had failed miserably in achieving its financial
measures.
Using the given information, evaluate the strategy of Heliem and its implementation.
What are the factors that are causing many companies to refine their costing systems to
obtain more accurate measures of the costs of their products?
Explain what net income and what taxes can have on a manager’s decision?
Bock Construction Company is considering four proposals for the construction of new
loading facilities that will include the latest in ship loading/unloading equipment. After
careful analysis, the company’s accountant has developed the following information
about the four proposals:
Required:
How can this information be used in the decision-making process for the new loading
facilities? Does it cause any confusion?
Marv and Vicki own and operate a vegetable canning plant. In recent years, their
business has grown tremendously and, at any point in time, they may have 30 to 35
different vegetables being processed. Also, during the peak summer months there are
several thousand bushels of vegetables in some stage of processing at any one time.
With the company’s growth during the past few years, the owners decided to employ an
accountant to provide cost estimations on each vegetable category and prepare monthly
financial statements. Although the accountant is doing exactly as instructed, Marv and
Vicki are confused about the monthly operating costs. Although they process an average
of 50,000 canned units a month, the monthly production report fluctuates wildly.
Required:
Explain how the production report can fluctuate wildly if they process a constant
amount of vegetables each month.
What are the four parts of the cost hierarchy. Briefly explain each part, and contrast this
cost hierarchy to the fixed-variable dichotomy?
Describe methods which may be used to allocate support costs within organizations
containing multiple support departments. Discuss advantages and disadvantages of the
various methods.
Total factor productivity (TFP) is easy to compute for a single-product company. When
dealing with a multiproduct company, one of two adjustments must be made. What are
these potential adjustments?