The weighted-average method merges unit costs from different accounting periods,
obscuring period-to-period comparisons.
When the dollar amount of scrap is immaterial, the simplest accounting is to record the
physical quantity of scrap returned to the storeroom and to regard scrap sales as a
separate line item in the income statement.
For an ABC system to be useful, it must allocated costs from all “links “of the value
chain.
Discounted cash flow methods do not consider the present value of the cash flows after
the recovery of the initial investment.
An experience curve is a function that measures the decline in cost per unit in various
business functions of the value chain as the amount of these activities increases.
In general, it is presumed that normal spoilage occurs halfway between the beginning of
the production process and the inspection point in the production cycle. This is because
there is no easy way to determine where the spoilage has happened until the inspection
has occurred.
The net realizable value (NRV) method method allocates joint costs to joint products
produced during the accounting period in such a way that each individual product
achieves an identical gross-margin percentage.
As cash flows and time value of money are central to capital budgeting decisions, the
AARR method is regarded as better than the IRR method.
Favorable overhead variances are always recorded with credits in a standard cost
system.
In a series of interdepartmental transfers, each department is regarded as separate and
distinct for accounting purposes.
If scrap is returned to the company’s storeroom and inventoried, it should NOT have
any value in the accounting records.
There is a direct cause-and effect relationship between division-sustaining costs and
customer or sales manager’s actions.
In a multinational company, budgeting is primarily done to evaluate the firm’s
performance relative to its budgets.
In absorption costing, fixed manufacturing overhead is treated as a period cost.
The cost used in cost-based transfer prices can be actual cost or budgeted cost.
If the variable manufacturing overhead is $50 per unit for a company, the lowest
budgeted manufacturing cost per unit can be obtained by using normal capacity
utilization as the denominator level capacity.
If companies increase market share in a given product line because their reported costs
are less than their actual costs, they will become more profitable in the long run.
The only real challenge in planning and controlling capacity costs is with the
denominator as the numerator of a budgeted fixed manufacturing cost allocation rate is
rarely the issue.
The financial perspective of the balanced scorecard identifies targeted customers and
market segments and measures the company’s success in these segments.
One advantage of prorating the difference between a maximum and minimum transfer
price of a product to be moved between divisions is that it saves the cost of objective
audits of transfer pricing.
In the weighted-average costing method, the costs of direct materials in beginning
inventory are NOT included in the cost per unit calculation since direct materials are
almost always added at the start of the production process.
A major weakness of comparing two companies using only operating incomes as the
basis of comparison is that it ignores the differences in the size of the investment and
therefore any concept of yield or return on investment.
Conversion costs include direct materials and direct labor but excludes all other
manufacturing and non-manufacturing costs.
Manufacturing overhead cost is an example of indirect engineered costs.
Identification of a cost-allocation base is not a critical element when using a strategy
that will refine a costing system.
All separable costs in joint-cost allocations are always incremental costs.
The sales-quantity variance occurs in a multi-product company from a change in the
sales mix.
Throughput costing provides less incentive to produce for inventory than either variable
costing or, especially, absorption costing.
The credit rating agencies require detailed disclosures of the compensation
arrangements of top-level executives.
Identifying a company’s most important customers helps to formulate a strategy.
The trend in large corporations is a movement away from quantitative analysis of cost
drivers to the conference method.
When new products are introduced, learning-curve effects can have a major influence
on production scheduling.
The target rate of return on investment the percentage used to markup the cost to an
acceptable selling price.
As part of his job as cost analyst, John Kelly collected the following information
concerning the operations of the Machining Department:
Observation Machine-hours Total Operating Costs
January 4,700 $43,000
February 5,060 45,395
March 4,180 42,535
April 4,500 43,600
May 4,250 42,890
Required:
a. Use the high-low method to determine the estimating cost function with
machine-hours as the cost driver.
b. If June’s estimated machine-hours are 4,300, calculate the total estimated costs of the
Machining Department?
Comfort chair company manufacturers a standard recliner. During February, the firm’s
Assembly Department started production of 73,900 chairs. During the month, the firm
completed 78,400 chairs, and transferred them to the Finishing Department. The firm
ended the month with 11,200 chairs in ending inventory. There were 15,700 chairs in
beginning inventory. All direct materials costs are added at the beginning of the
production cycle and conversion costs are added uniformly throughout the production
process. The FIFO method of process costing is used by Comfort. Beginning work in
process was 25% complete as to conversion costs, while ending work in process was
70% complete as to conversion costs.
How many of the units that were started and completed during February?
A) 85,100
B) 78,400
C) 73,900
D) 62,700
Which of the following describes a situation in which an employee prefers to exert less
effort than the effort the owner desires because the employee’s effort cannot be
accurately monitored and enforced?
A) Goal incongruence
B) Moral hazard
C) Performance report variance
D) Incentive report variance
Rolling budgets help management to ________.
A) better review the past calendar year
B) deal with a 5-year time frame
C) focus on the upcoming budget period
D) rigidly administer the budget
An example of a denominator reason for calculating annual indirect-cost rates includes
________.
A) Budgeted annual indirect costs divided by actual quantity of cost-allocation base
B) semi-annual insurance payments in March and September
C) higher levels of output demanded during the fall months
D) prepaid rent in January for the months January through June
Normal spoilage is computed on the basis of the number of ________.
A) good units that pass inspection during the current period
B) units that pass the inspection point during the current period
C) units that are in ending work in process
D) units that started during the particular period
Which of the following statements is true of the financial and nonfinancial measures in
just-in-time production systems?
A) The inventory turnover ratio is expected to decrease.
B) Units produced per hour are expected to increase.
C) Manufacturing cycle time is expected to increase.
D) Total setup time for machines with respect to total manufacturing time is expected to
increase.
The partial productivity of overhead resources can be measured by considering the cost
driver as ________.
A) budgeted input
B) the denominator
C) the fixed input
D) the numerator
In 2017, Craylon Company has sales of $1,000,000, variable costs of $250,000, and
fixed costs of $200,000. In 2018, the company expects annual property taxes to
decrease by $15,000.
Required:
a. Calculate operating income and the breakeven point for 2017.
b. Calculate the breakeven point for 2018.
The employee turnover rates is an example of the ________ measure of a
balanced-scorecard.
A) internal business process perspective
B) customer perspective
C) learning and growth perspective
D) financial perspective
The top management at Amore Corp, a manufacturer of computer games, is attempting
to recover from a flood that destroyed some of their accounting records. The main
computer system was also severely damaged. The following information was salvaged:
What is the Gamma Division’s return on investment (d)?
A) 5.71
B) 2.15
C) 0.46
D) 0.08
Cold Products Corporation manufactured 32,000 ice chests during September. The
variable overhead cost-allocation base is $13.45 per machine-hour. The following
variable overhead data pertain to September:
What is the variable overhead spending variance?
A) $3,040 favorable
B) $25,658 unfavorable
C) $22,618 unfavorable
D) $59,180 unfavorable
For each report listed below, identify whether the major purpose of the report is for (1)
routine internal reporting, (2) nonroutine internal reporting, or for (3) external reporting
to investors and other outside parties.
Item:
a. study detailing sale information of the top-ten selling products
b. weekly report of total sales generated by each store in the metropolitan area
c. annual Report sent to shareholders
d. monthly report comparing budgeted sales by store to actual sales
Which of the following statements best defines manufacturing cells?
A) They are manufacturing areas that use a “push-through” approach whereby finished
goods are manufactured on the basis of demand forecasts.
B) They are manufacturing centers which focuses on production of a single product and
in which workers focus on master one skill so as to be efficient and effective in their
work
C) They are work areas with different types of equipment grouped together to make
related products and to minimize handling costs
D) They are production centers positioned in various areas throughout a production
facility, close to the associated talent (direct laborers) in which goods are manufactured
only after receiving customer orders.
M & G TV and Appliance Store is a small company that has hired you to perform some
management advisory services. The following information pertains to 2017 operations.
Sales (1,400 televisions) $1,400,000
Cost of goods sold 602,000
Store manager’s salary per year 209,000
Operating costs per year 230,000
Advertising and promotion per year 30,000
Commissions (3.5% of sales) 49,000
Which cost estimation method is being used by M & G TV and Appliance Store?
A) the operating costing method
B) the marginal costing method
C) the account analysis method
D) the cost-volume-profit analysis method
Strategic Analysis of Profitability of King Philip Company:
What is the revenue amount for 2018 (e)?
A) $1200
B) $40,000
C) $50,600
D) $24,700
Factors used to decide whether to outsource a part include ________.
A) the supplier’s cost of direct materials
B) if the supplier is reliable
C) the original cost of equipment currently used for production of that part
D) past design costs used to develop the current composition of the part
Manufacturing overhead costs are also referred to as ________.
A) indirect manufacturing costs
B) prime costs
C) direct manufacturing costs
D) direct material
Craylon Corp. is planning the 2018 operating budget. Average operating assets of
$1,800,000 will be used during the year and unit selling prices are expected to average
$100 each. Variable costs of the division are budgeted at $500,000, while fixed costs are
set at $300,000. The company’s required rate of return is 18%.
Required:
a. Compute the sales volume necessary to achieve a 20% ROI.
b. The division manager receives a bonus of 50% of residual income. What is his
anticipated bonus for 2015, assuming he achieves the 20% ROI from part (a)?
Radon Corporation manufactured 38,100 units during March. The following fixed
overhead data pertain to March:
What is the fixed overhead spending variance?
A) $24,800.00 favorable
B) $9,100.00 favorable
C) $9,100.00 unfavorable
D) $24,800.00 unfavorable
Activity-based costing (ABC) can eliminate cost distortions because ABC systems
________.
A) establish a cause-and-effect relationship with the activities performed
B) use single cost pool for all overhead costs, thereby enabling simplicity
C) use a broad average to allocate all overhead costs
D) never consider interactions between different departments in assigning support costs
Which of the following is a disadvantage of an enterprise resource planning (ERP)
system?
A) The use of standard costing systems is not allowed in an ERP system.
B) Shifting manufacturing and distribution plans rapidly in response to changes in
supply and demand is not possible in an ERP system.
C) The ERP systems must often be customized to fit the strategic needs of the user.
D) The ERP system increases lead times when purchasing material from a different
supplier.
The cost function y = 300 + 2X ________.
A) has a slope coefficient of 300
B) has an intercept of 300
C) is a nonlinear
D) represents a fixed cost
Which of the following steps in designing an accounting-based performance measure
includes decisions of selecting net income as a measure of financial performance?
A) choosing performance measures that align with the firm’s financial goals
B) choosing the time horizon of each performance measure
C) choosing the details for each performance measure
D) choosing a target level of performance
At a plant where a union agreement sets annual salaries and conditions, annual labor
costs usually ________.
A) are considered a variable cost
B) are considered a fixed cost
C) depend on the scheduling of floor workers
D) depend on the scheduling of production runs
Bismite Corporation purchases trees from Cheney lumber and processes them up to the
split-off point where two products (paper and pencil casings) emerge from the process.
The products are then sold to an independent company that markets and distributes
them to retail outlets. The following information was collected for the month of
October:
The cost of purchasing 270 trees and processing them up to the split-off point to yield
150,000 sheets of paper and 150,000 pencil casings is $14,500.
Bismite’s accounting department reported no beginning inventory.
What is the total sales value at the split-off point of the pencil casings?
A) $15,000
B) $21,000
C) $20,860
D) $13,700
Cold Products Corporation manufactured 27,000 ice chests during September. The
variable overhead cost-allocation base is $11.75 per machine-hour. The following
variable overhead data pertain to September:
What is the variable overhead efficiency variance?
A) $6,750 favorable
B) $63,450 unfavorable
C) $56,700 unfavorable
D) $66,975 unfavorable
Which of the following is true of performance measurement?
A) Preferred performance measures do not change much with changes in factors that
are beyond manager’s control.
B) Sensitive performance measures increases the cost of providing incentives.
C) Less-sensitive performance measures induce managers to improve.
D) Managers’ performances should be evaluated based on the financial measures such
as residual income and economic value added.
An unfavorable sales-mix variance would most likely be caused by which of the
following?
A) a new competitor providing better service in the high-margin product sector
B) a competitor having distribution problems with high-margin products
C) the company offering low-margin products at a higher price
D) the company experiencing quality-control problems that get negative media
coverage of low-margin products
Which of the following differentiates marketing from customer service?
A) Marketing is the process of promoting and selling products or services to customers
or prospective customers, whereas customer service is the process of providing
after-sales service to customers.
B) Marketing is the process of processing orders and shipping products or services to
customers, whereas customer service is the process of providing additional information
to customers about the product.
C) Marketing is the process of detailed planning, engineering, and testing of products
and processes, whereas customer service concentrates on existing customers.
D) Marketing is the process of processing orders and shipping products or services to
customers, whereas customer service is concerned with choosing the right customer for
the product.