1) A positive aspect of backflush costing is the presence of the visible audit trail.
2) The credit rating agencies require detailed disclosures of the compensation
arrangements of top-level executives.
3) Minimum transfer price can be arrived at by adding incremental cost per unit
incurred up to the point of transfer with the markup required.
4) The smaller the amount of a cost the more likely it is economically feasible to trace it
to a particular cost object.
5) Performing professional duties in accordance with relevant laws, regulations, and
technical standards is a competent responsibility.
6) The accounting procedures in a backflush-costing system strictly adhere to Generally
Accepted Accounting Principles (GAAP).
7) Cost-based transfer prices are helpful when markets are not perfectly competitive.
8) Multiple regression analysis uses only independent variables and not dependent
variables.
9) A standard is attainable through efficient operations but allows for normal disruptions
such as machine breakdowns and defective production.
10) Budgets are not remedies for weak management talent, faulty organization, or a
poor accounting system.
11) Hybrid transfer prices take into account both cost and market information.
12) Committed fixed costs represent organizational investments with a multi-year
planning horizon that cant be significantly reduced even for short periods.
13) In the manufacturing plant, Alex is paid $40 an hour for straight-time and $60 an
hour for overtime. One week she worked 54 hours, which included 8 hours of overtime,
and 6 hours of idle time caused by material shortages.
Required:
a.What is Alex’s total compensation for the week?
b.What amount of compensation would be reported as direct manufacturing labor?
c.What amount of compensation would be reported as manufacturing overhead?
14) Zitrik Corporation manufactured 90,000 buckets during February. The variable
overhead cost-allocation base is $5.05 per machine-hour. The following variable
overhead data pertain to February:
What is the variable overhead spending variance?
A) $980 favorable
B) $900 unfavorable
C) $980 unfavorable
D) $900 favorable
15) Long-run pricing decisions ________.
A) have a time horizon of less than one year
B) include adjusting product mix in a competitive environment
C) and short-run pricing decisions generally have the same relevant costs
D) use prices that include a reasonable return on investment
16) Daniel Rubber Company produces a specialty item. Management has provided the
following information:
What is the total throughput contribution?
A) $2,640,000
B) $3,190,000
C) $3,520,000
D) $4,070,000
17) A company would use multiple cost-allocation bases ________.
A) if managers believed the benefits exceeded the additional costs of that costing
system
B) because there is more than one way to allocate overhead
C) because this is a simpler approach than using one cost allocation base
D) if managers believe that using multiple cost-allocation bases is the only acceptable
method
18) Munoz, Inc., produces a special line of plastic toy racing cars. Munoz, Inc.,
produces the cars in batches. To manufacture a batch of the cars, Munoz, 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 production-volume variance for fixed overhead setup costs.
A) $3,325 unfavorable
B) $400 unfavorable
C) $3,325 favorable
D) $400 favorable
19) ________ is a method of inventory costing in which all variable manufacturing
costs (direct and indirect) are included as inventoriable costs and all fixed
manufacturing costs are excluded.
A) Variable costing
B) Mixed costing
C) Absorption costing
D) Standard costing
20) Neocomfort Corporation manufactured 3,000 chairs during June. The following
variable overhead data relates to June:
What is the variable overhead spending variance?
A) $1,380 favorable
B) $2,820 favorable
C) $2,820 unfavorable
D) $1,380 unfavorable
21) Cost-based prices ________.
A) are one way of setting prices in a competitive market
B) provide an inherit incentive for the producer to control costs
C) pass the majority of risk to the buyer
D) are required in all government contracts
22) The Internal Revenue Service requires the use of ________ for calculating fixed
manufacturing costs per unit.
A) practical capacity
B) theoretical capacity
C) master-budget capacity utilization
D) normal capacity utilization
23) Cysco Corp has a budget of $1,200,000 in 2015 for prevention costs. If it decides to
automate a portion of its prevention activities, it will save $100,000 in variable costs.
The new method will require $50,000 in training costs and $140,000 in annual
equipment costs. Management is willing to adjust the budget for an amount up to the
cost of the new equipment. The budgeted production level is 200,000 units.
Appraisal costs for the year are budgeted at $500,000. The new prevention procedures
will save appraisal costs of $50,000. Internal failure costs average $30 per failed unit of
finished goods. The internal failure rate is expected to be 5% of all completed items.
The proposed changes will cut the internal failure rate by one-half. Internal failure units
are destroyed. External failure costs average $50 per failed unit. The company’s average
external failures average 2.5% of units sold. The new proposal will reduce this rate to
1%. Assume all units produced are sold and there are no ending inventories.
How much do external failure costs change if all the changes are as the new prevention
procedures anticipated? Assume all units produced are sold and there are no ending
inventories.
A) $126,000 decrease
B) $150,000 decrease
C) $100,000 decrease
D) $122,400 decrease
24) When variances are immaterial, which of the following statements is true of the
journal entry to write-off the variable overhead variance accounts?
A) Cost of Goods Sold account will always be debited.
B) Unfavorable efficiency variance will be credited.
C) Favorable efficiency variance will be credited.
D) Cost of Goods Sold account will always be credited.
25) List and briefly describe the six steps in estimating a cost function under
quantitative analysis.
26) Describe the differences between process costing and job costing. Discuss some
typical products which would be more likely to use process costing as compared to
some which would be more likely to use job costing.
27) What conflicts can arise between using discounted cash flow methods for capital
budgeting decisions and accrual accounting for performance evaluation? How can these
conflicts be reduced?
28) Why do organizations use budgeted rates instead of actual rates to allocate the costs
of support departments to each other and to user departments and divisions? Explain.
29) The textbook discusses three levels of variances,
30) Listed below are elements of the master budget. Determine whether each budget is
an operating budget or a financial budget. Place an O for operating budget or F for a
financial budget.
1.Capital expenditures budget
2.Cost of goods sold budget
3.Revenues budget
4.Budgeted statement of cash flows
5.Distribution costs budget
6.Marketing costs budget
7.Cash budget
8.Direct materials cost budget
9.Budgeted balance sheet
10.Budgeted income statement
31) Explain the difference between the gross margin format and the contribution margin
format for the income statement. What information is highlighted with each?
32) Patrick Ross, the president of Corise’s Wild Game Company, has asked for
information about the cost behavior of manufacturing overhead costs. Specifically, he
wants to know how much overhead cost is fixed and how much is variable. The
following data are the only records available:
Required:
Using the high-low method, determine the overhead cost equation. Use machine-hours
as your cost driver.