Prorated allocation of production-volume variance has the effect of approximating the
allocation of fixed costs based on actual costs and actual output.
In calculating the net initial investment cash flows, any increase in working capital
required for the project should be included.
Computing standard costs at the start of the budget period results in a complex record
keeping system.
There is a difference between a good decision and a good outcome and one can exist
without the other.
Dual pricing uses two separate transfer-pricing methods to price each transfer from one
subunit to another.
Linking rewards to performance helps motivate managers and leads to good
management performance.
A composite unit is a hypothetical unit with weights based on the mix of individual
units.
Financial accounting information focuses on internal reporting.
Cost-based transfer prices are often used when markets for the product are not
competitive or when the quality of the internal product is different from the externally
available products.
Management accounting information helps managers calculate a target cost for a
product by subtracting from the target price the net income per unit of product that the
company wants to earn.
Treasury includes banking and short- and long-term financing, investments, and cash
management.
A firm operating at breakeven point will pay an income tax of 10%.
The discount rate used to calculate the NPV should be the interest rate that the company
could borrow at to finance the proposed capital project.
Joint costing allocates the joint costs to the individual products that are eventually sold.
ABC systems and department costing systems use totally different approaches towards
indirect cost allocation and can never be used together.
Bonuses given to employees based on performance is an example of extrinsic reward.
Assigning indirect costs is easier than assigning direct costs.
Contribution margin per unit equals contribution margin divided by number of units
sold.
The opportunity cost of the stockout is the lost revenue on the sale not made plus any
lost revenue on future sales due to customer ill will.
The stand-alone method of allocating determines the weights for cost allocation by
considering each user of the cost as a separate entity.
Costs of abnormal spoilage are considered inventoriable and are written off as a period
expense.
To analyze customer profitability, corporate-sustaining costs should be allocated to
customers.
For decision making, differential costs assist in choosing between alternatives.
Companies often use multiple cost-allocation bases to allocate indirect costs because
different indirect costs have different cost drivers.
A major advantage of using actual costs for transfer prices is that often inefficiencies
are NOT passed along to the receiving division.
Grounds-maintenance costs incurred during the summer months will distort
indirect-cost rates that are computed monthly.
Decentralization in multinational companies may lead to lack of control.
Operating income is sales revenue minus operating expenses.
The contribution-margin format of the income statement is used with absorption
costing.
Distribution refers to promoting and selling products or services to customers or
prospective customers.
Wood used to manufacture chairs is considered a direct variable cost when the cost
object is the chair.
When materials and supplies are used in a production facility to assemble and finish a
product that will be sold to customers, the usage of the materials and supplies is
described as:
A) Cost incurrence
B) Locked-in cost
C) Opportunity cost
D) Designed-in cost
In performance evaluations ________.
A) managers should use the swap exchange rate prevailing at the end of a financial
period
B) managers should use the average exchange rate prevailing at the end of a financial
period
C) managers should use the exchange rate prevailing on the date the assets were
acquired
D) managers should use the exchange rate prevailing at the end of a financial period
Using department indirect-cost rates to allocate costs will result in results similar to
ABC if:
A) a single activity accounts for a sizable portion of the costs of the department
B) several activities cause a sizable portion of the costs of the department
C) a single activity accounts for a small portion of the costs of the department
D) several activities cause a small portion of the costs of the department
ABC Manufacturing Inc. ends the month with two jobs still in progress. Job 5 has
$10,000 of materials, $2,000 of direct labor and $8,000 of manufacturing overhead
allocated. Job 6 was $30,000 of materials, $2,000 of direct labor and $10,000 of
manufacturing overhead allocated. The cost of goods sold for the month was $40,000
and of that 30% was overhead. There were no finished goods in stock as the month
ends. If the manufacturing overhead is underallocated by $10,000, which of the
following choices would be the correct way to prorate it, assuming the proration is
based on the allocated overhead in the ending balances of work-in-process, finished
goods, and cost of goods sold?
A) Job 5 would be allocated another $2,500 of cost
B) Job 6 would be allocated another $4,000 of cost
C) Cost of goods sold would be reduced by $3,300
D) Cost of goods sold would be increase by $10,000
Frazer Corp sells several products. Information of average revenue and costs is as
follows:
If the company decides to lower its selling price by 14.25%, but continues to sell 16,000
units, the operating income is reduced by ________.
A) $64,960
B) $135,000
C) $13,200
D) $16,000
Which option provides the least amount of risk?
A) Option one
B) Option two
C) Both options provide the same amount of risk.
D) It depends on how many donations it receives.
When manufacturing cycle increases, ________.
A) sunk costs will decrease
B) opportunity costs will increase
C) opportunity costs will decrease
D) inventory carrying costs will increase
Midend’s Camera Shop has prepared the following flexible budget for September and is
in the process of interpreting the variances. F denotes a favorable variance and U
denotes an unfavorable variance.
The explanation that lower-quality materials were purchased is most likely for ________.
A) Material A
B) Material B
C) Material C
D) both Material A and C
Nile Corp. has identified three cost pools to allocate overhead costs. The following
estimates are provided for the coming year:
The accounting records show the Mossman Job consumed the following resources:
Cost driver Actual level
Direct labor-hours 260
Machine-hours 1,500
Square feet of area 70
Using the three cost pools to allocate overhead costs, what is the total amount of overhead
costs to be allocated to the Mossman Job?
A) $442.00
B) $449.00
C) $10,071.67
D) $428.60
Firebird Ltd. sells packaged birdseed for $6.00 per package. Variable product costs are
$3.00 per package. Fixed costs are $12,000 per period. How many packages must
Firebird sell to earn a target operating income of $7,900?
A) 4,000 packages
B) 2,633 packages
C) 6,633 packages
D) 3,317 packages
If a company set a standard of zero rework ________.
A) all rework is treated as abnormal and is written off as a cost of the current period
B) all rework is treated as normal and is written off as a cost of the current period
C) all rework is treated as abnormal and is shown as a liability of the current period
D) all rework is treated as normal and is shown as a liability of the current period
Which of the following actions should a management accountant take first in
confronting a potential ethical conflict concerning your direct supervisor?
A) Inform the Board of Directors of the existence of a potential conflict.
B) Clarify relevant ethical issues by initiating a confidential discussion with an IMA
Ethics Counselor.
C) Consult the attorney as to legal obligations and rights concerning the ethical conflict.
D) Follow the organization’s procedures concerning resolution of such a conflict.
Which of the following statements is true of costs associated with goods for sale?
A) Information-gathering technology increases the reliability and timeliness of
inventory information and increases the costs related to inventory.
B) Opportunity costs are not recorded in financial accounting systems because they are
not a significant component in several cost categories.
C) Purchasing costs include incoming freight costs and are reduced by discounts
D) Opportunity costs are recorded in financial accounting systems but are a not
significant component in several cost categories.
A revenue driver is defined as ________.
A) any factor that affects costs and revenues
B) any factor that affects revenues
C) the only factor that can influence a change in selling price
D) the only factor that can influence a change in demand
Which of the following is the correct formula for the materials price variance?
A) (Actual price of input – Budgeted price of input) x Budgeted quantity of input
B) (Actual quantity of input used – Budgeted quantity of input allowed for actual
output) x Budgeted price of input
C) (Actual price of input – Budgeted price of input) x Actual quantity of input
D) (Actual quantity of input used – Budgeted quantity of input allowed for actual
output) x Actual price of input
The following information pertains to Amigo Corporation:
∙ Cash is collected from customers in the following manner:
Month of sale (2% cash discount) 30%
Month following sale 50%
Two months following sale 15%
Amount uncollectible 5%
∙ 40% of purchases are paid for in cash in the month of purchase, and the balance is paid
the following month.
Required:
a. Prepare a summary of cash collections for the 4th quarter.
b. Prepare a summary of cash disbursements for the 4th quarter.
The process by which a company’s products or services are measured relative to the
best possible levels of performance is known as ________.
A) efficiency
B) benchmarking
C) a standard costing system
D) variance analysis
Springer Products manufactures three different product lines, Model X, Model Y, and
Model Z. Considerable market demand exists for all models. The following per unit
data apply:
Model X Model Y Model Z
Selling price $52 $60 $74
Direct materials 8 8 8
Direct labor ($16 per hour) 16 16 32
Variable support costs ($5 per machine-hour) 5 10 10
Fixed support costs 12 12 12
If there is excess capacity, which model is the most profitable to produce?
A) Model X
B) Model Y
C) Model Z
D) Both Model X and Model Y have same and highest profitability
The reduction in cost per unit of wooden chess pieces under ABC system is due to
difference in allocation of ________.
A) labor costs
B) prime costs
C) indirect costs
D) material costs
Which of the following entries is used to record direct materials purchased and used in
production during a month in the Assembly department, before transferring the goods to
Testing department?
A) Debit: Work in Process—Assembly
Credit: Wages Payable Control
B) Debit: Accounts Payable Control
Credit: Work in Process—Assembly
C) Debit: Work in Process—Assembly
Credit: Accounts Payable Control
D) Debit: Accounts Payable Control
Credit: Cash
Picture Pretty manufactures picture frames. Sales for August are expected to be 10,000
units of various sizes. Historically, the average frame requires four feet of framing, one
square foot of glass, and two square feet of backing. Beginning inventory includes
1,500 feet of framing, 500 square feet of glass, and 500 square feet of backing. Current
prices are $0.90 per foot of framing, $8.00 per square foot of glass, and $4 per square
foot of backing. Ending inventory of materials should be 150% of beginning inventory.
Purchases are paid for in the month acquired.
Required:
a. Determine the quantity of framing, glass, and backing that is to be purchased during
August.
b. Determine the total costs of direct materials for August purchases.
Different management levels in Bates, Inc., require varying degrees of managerial
accounting information. Because of the need to comply with the managers’ requests,
four different variances for manufacturing overhead are computed each month. The
information for the September overhead expenditures is as follows:
Required:
a. Compute a 4-variance analysis for the plant controller.
b. Compute a 3-variance analysis for the plant manager.
c. Compute a 2-variance analysis for the corporate controller.
d. Compute the flexible-budget variance for the manufacturing vice president.
The following information is for the Jeffries Corporation:
What is the operating income of Jeffries Corporation, assuming actual sales total 35,600
units, and the sales mix is three units of Product A and one unit of Product B?
A) $35,000
B) $178,000
C) $667,500
D) $321,000
Product costs for financial statements are:
A) inventoriable costs for external reporting purposes
B) exchange costs incurred during transportation
C) only the costs incurred along the supply chain
D) opportunity costs incurred for the decisions forgone
Mid City Products Inc. (MCP), developed standard costs for direct material and direct
labor. In 2017, MCP estimated the following standard costs for one of their most
popular products.
During September, MCP produced and sold 2,000 units using 14,400 pounds of direct
materials at an average cost per pound of $7.00 and 950 direct labor hours at an average
wage of $10.40 per hour.
The direct labor flexible-budget variance during September is ________.
A) $120.00 favorable
B) $120.00 unfavorable
C) $520.00 favorable
D) $520.00 unfavorable
Vision Company manufactures digital cameras. For May, there were no beginning
inventories of direct materials and no beginning or ending work-in -process.
Conversion costs is the only indirect manufacturing cost category currently used.
Journal entries are recorded when materials are purchased and when units are sold.
Which of the following journal entries would be recorded when units are sold for the
month under backflush costing? Please round intermediate calculations to two decimal
places (i.e., unit costs)
A)
B)
C)
D)
Care Inc., has two divisions that operate independently of one another. The financial
data for the year 2015 reported the following results:
North South
Sales $6,000,000 $5,000,000
Operating income 1,900,000 1,800,000
Taxable income 1,500,000 800,000
Investment 14,000,000 11,000,000
The company’s desired rate of return is 10%. Income is defined as operating income.
What are the respective residual incomes for the North and South Divisions?
A) $60,000 and $100,000
B) $300,000 and $60,000
C) $300,000 and $100,000
D) $500,000 and $700,000
Which of the following is true in a decision to keep or replace existing equipment?
A) The book value of the old equipment is relevant.
B) The disposal value of the old equipment is relevant.
C) Property taxes is relevant.
D) Depreciation on the new equipment is relevant.
The amount of time from when an order is ready to start on the production line to when
it becomes a finished good is referred to as ________.
A) manufacturing time
B) time driver
C) customer-response time
D) delivery time
Which of the following is an example of an intrinsic reward?
A) bonuses paid to employees
B) recognition of job well done
C) promotions based on performance
D) salaries paid to employees
Which of the following increases (are debited to) the Work-in-Process Control account?
A) actual plant insurance costs
B) customer services costs
C) marketing expenses
D) direct manufacturing labor costs
Suppose a company decided to automate a production line. Explain what effects this
would have on a company’s cost structure using CVP terminology. Could these changes
have any possible negative effect on the firm?
How can a company account for scrap? Include in your explanation a discussion of the
two aspects of accounting for scrap.
List three reasons why we allocate joint costs to individual products or services. Give
an example of when the particular cost allocation reason would come into use.
Flilane Tire Company needs to overhaul its auto lift system or buy a new one. The facts
have been gathered, and they are as follows:
Required:
Which alternative is the most desirable with a current required rate of return of 15%?
Show computations, and assume no taxes.
Briefly explain each of the four levels of control. Why does a company need to
implement more than a diagnostic control system?