Accy 309 Final Study Guide
C11 1. Which of the following should not be considered for every option in the decision process? a. Relevant revenues b. Relevant costs c. Historical costs d. Opportunity costs
C
C2 1. Galway Co. management desires cost information regarding its Celtic brand. The Celtic brand is a(n) a. cost object. b. cost driver. c. cost assignment. d. actual cost.
A
C2 10. The primary focus of cost management is to a. help managers make different decisions. b. calculate product costs. c. aid managers in budgeting. d. distinguish between relevant and irrelevant information.
A
C2 8. Period costs are a. all costs in the income statement other than cost of goods sold. b. defined as manufacturing costs incurred this period on the schedule of cost of goods manufactured. c. always recorded as assets when first incurred. d. those costs that benefit future periods.
A
C1 5. The five-step decision process a. includes planning and control activities. b. is performed exclusively by management accountants. c. is not often used, as the costs exceed the benefits. d. must be performed following GAAP guidelines.
A
C1 9. Which of the following is not one of the ethical responsibilities of a management accountant? a. Compliance b. Confidentiality c. Integrity d. Objectivity
A
C10 10. Which of the following is not a common problem encountered in collecting data for cost estimation? a. Lack of observing extreme values b. Missing data c. Changes in technology d. Distortions resulting from inflation
A
C10 8. With the cumulative average-time learning model a. the cumulative time per unit declines by a constant percentage when production doubles. b. the time needed to produce the last unit declines by a constant percentage when production doubles. c. costs increase in total by a constant percentage as production increases. d. the total cumulative time increases in proportion to production increases.
A
C3 2. Which of the following is not an assumption of cost-volume-profit analysis? a. The time value of money is incorporated in the analysis. b. Costs can be classified into variable and fixed components. c. The behavior of revenues and expenses is accurately portrayed as linear over the relevant range. d. The number of output units is the only driver.
A
C4 6. Which of the following accounts is not classified as an asset? a. Manufacturing Overhead Control b. Materials Control c. Work-in-Process Control d. Finished Goods Control
A
C5 3. The average cost data are for In-Sync Fixtures Company's (a retailer) only two product lines, Marblette and Italian Marble. Marblette Italian Marble Purchase volume 20,000 1,000 Purchase cost per unit $50 $50 Shipments received 12 12 Hours used per shipment* 5 3 *These data were accumulated after a careful activity analysis. Currently, In-Sync Fixtures uses a traditional costing system with indirect costs allocated using purchased cost of goods as a basis. In-Sync Fixtures is considering refining the allocation of their receiving costs of $40,000. They realize that the Italian Marble is heavier and requires more care than the Marblette but that the Marblette comes in larger volume. 3. Which statement can be made using the results of the activity analysis performed by In-Sync Fixtures? a. The use of this refined activity-based costing system will increase the accuracy of the resulting product costs because a more appropriate cost driver will be used as the allocation base. b. The traditional allocation method currently being used is causing product-cost cross-subsidization with the product line Marblette being undercosted. c. The cost allocated to the Italian Marble product line under the current traditional system is more than the activity-based costing allocated cost. d. The use of this refined activity-based costing system will increase the accuracy of the resulting product costs because it probably will cost less to trace the costs to the product lines.
A
C5 5. The allocation of indirect costs in an activity-based costing system a. may require other costs to be allocated to activities before the costs of the activities can be allocated to the products. b. is simplified because more costs are identified as direct costs. c. requires the use of heterogeneous cost pools. d. is simplified because a limited number of activities are identified as cost objects.
A
C7 7. Performance evaluation using variance analysis should guard against a. emphasis on a single performance measure. b. emphasis on total company objectives. c. basing effect of a manager's action on total costs of the company as a whole. d. highlighting individual aspects of performance.
A
C7 8. The basic principles and concepts of variance analysis can be applied to activity-based costing a. by application as to the levels of cost hierarchy. b. through careful classification of costs as direct and indirect as applied to the product or job. c. with use of standard costing systems only. d. only through those activities related to individual units of product or service.
A
C9 5. Absorption costing enables managers to increase operating income in the short run by changing production schedules. Which statement is true regarding such action? a. The reason for increased operating income is the deferral of fixed manufacturing overhead contained in unsold inventory. b. A desirable effect of these changes in production is "cherry picking" the production line. c. This is done through decreases in the production schedule as customer demand for product falls. d. None of the above statements are true regarding the manager's action to increase operating income through changes in the production schedule.
A
C9 8. Use of capacity levels based on demand a. hides the amount of unused capacity. b. highlights the cost of capacity acquired but not used. c. yields a cost rate that does not include a charge for unused capacity. d. results in a price that covers the cost of capacity customers expect to pay.
A
C8 8. What amount should be credited to the Allocated Manufacturing Overhead Control account for the month of December? a. $6,210,000 b. $5,800,000 c. $5,760,000 d. $5,700,000
A 230,000 × (15 + 12) = $6,210,000
C7 3. [CMA Adapted] Bartholomew Corporation's master budget calls for the production of 6,000 units of product monthly. The master budget includes indirect labor of $396,000 annually Bartholomew considers indirect labor to be a variable cost. During the month of September, 5,600 units of product were produced, and indirect labor costs of $30,970 were incurred. A performance report utilizing flexible budgeting would report a flexible-budget variance for indirect labor of a. $170 unfavorable. b. $170 favorable. c. $2,030 unfavorable. d. $2,030 favorable.
A Actual DL $30,970 Flexible budget 5,600 × $5.50 30,800 Flexible budget variance 170 U
C8 7. The fixed overhead production-volume variance for December was a. $450,000 F. b. $400,000 F. c. $50,000 U. d. $775,000 F.
A Budgeted DLH 200,000 Allocated 46,000 × 5 230,000 30,000 × 15 = 450,000 F
C11 3. [CPA Adapted] Mikaelabelle Products sells product A at a selling price of $40 per unit. Mikaelabelle's cost per unit based on the full capacity of 500,000 units is as follows: Direct materials $ 6 Direct labor 3 Indirect manufacturing (60% of which is fixed) 10 =$19 A one-time-only special order offering to buy 50,000 units was received from an overseas distributor. The only other costs that would be incurred on this order would be $4 per unit for shipping. Mikaelabelle has sufficient existing capacity to manufacture the additional units. In negotiating a price for the special order, Mikaelabelle should consider that the minimum selling price per unit should be a. $17 b. $19 c. $21 d. $23
A DM $ 6 DL 3 Variable OH 4 Fixed OH 4 ($10 × 40%) $17
C8 3. [CMA Adapted] The variable overhead spending variance for December was a. $50,000 U. b. $350,000 U. c. $10,000 F. d. $60,000 F.
A Standard 225,000 DLH × $12 = $2,700,000 Actual 2,750,000 VOH Spending variance $ 50,000 U
C3 5. Tee Times, Inc. produces and sells the finest quality golf clubs in all of Clay County. The company expects the following revenues and costs in 2004 for its Elite Quality golf club sets: Revenues (400 sets sold @ $600 per set) $240,000 Variable costs 160,000 Fixed costs 50,000 5. How many sets of clubs must be sold to earn a target operating income of $90,000? a. 700 b. 500 c. 400 d. 300
A TOI = $50,000 + $90,000/$200 = 700 units
C10 1. A mixed cost function has a constant component of $20,000. If the total cost is $60,000 and the independent variable has the value 200, what is the value of the slope coefficient? a. $200 b. $400 c. $600 d. $40,000
A Total cost $60,000 40,000 Fixed cost 20,000 200 units = $200/unit (variable cost) Variable cost 40,000
C8 5. The total variable manufacturing overhead variance was a. $10,000 F. b. $10,000 U. c. $110,000 U. d. $110,000 F.
A Total variable overhead variance = $50,000 U + $60,000 F = $10,000 F
C4 8. The Precision Widget Company had the following balances in their accounts at the end of the accounting period: Work-in-Process $ 5,000 Finished Goods 20,000 Cost of Goods Sold 200,000 If their manufacturing overhead was overallocated by $8,000 and Precision Widget adjusts their accounts using a proration based on total ending balances, the revised ending balance for Cost of Goods Sold would be a. $192,880. b. $200,00. c. $207,120. d. $208,000.
A Work-in-Process $5,000 / 225,000 2.2% × $8,000 = 176 Finished Goods $20,000 /225,000 8.9% × $8,000 = 712 Cost of Goods Sold $200,000 / 225,000 88.9% × $8,000 = 7,120 200,000 - 7,120 = $192,880
C3 3. What is the total fixed cost of the shipping department of Elaine Co. if it has the following information for 2011? Salaries $800,000 75 percent of employees on guaranteed contracts Packaging $400,000 depending on size of item(s) shipped Postage $500,000 depending on weight of item(s) shipped Rent of warehouse space $250,000 annual lease a. $850,000 b. $900,000 c. $1,050,000 d. $1,950,000
A Fixed costs = (800,000) × 75% + 250,000 = $850,000
C1 2. Which of the following is not true about strategy? a. It involves matching its capabilities with the opportunities in the marketplace to accomplish its objective. b. It has a short-term focus. c. It can be implemented through price competition or product differentiation. d. It involves the use of strategic cost management.
B
C1 3. The value chain a. involves external companies as well as internal activities. b. is the sequence of business functions in which customer usefulness is added to products or services. c. applies only to manufacturing companies. d. is not relevant in today's cost accounting environment.
B
C1 6. In supporting managers, management accountants have three guidelines. These guidelines are: a. Cost-benefit analysis, performance reporting, behavioral considerations, and technical considerations. b. Cost-benefit analysis, behavioral considerations and technical considerations, and different costs for different purposes. c. Financial statement preparation, technical considerations, strategic direction, and budgeting. d. Following functional lines of authority, cost-benefit analysis, behavioral considerations, and use of the value chain.
B
C1 8. The Treasurer a. is the executive responsible for overseeing the financial operations of an organization. b. undertakes banking, financing, investments, and cash management duties. c. provides financial information to managers and shareholders and oversees the overall operations of the accounting system. d. is a different title for the Controller.
B
C10 9. When using the incremental unit-time learning model a. the cumulative time per unit declines by a constant percentage when production doubles. b. the time needed to produce the last unit declines by a constant percentage when production doubles. c. the time to produce one additional unit decreases by a constant percentage. d. costs increase incrementally in an undetermined pattern.
B
C11 10. Which of the following is not a reason for the performance evaluation model to differ from the decision model? a. The use of different time frames: one being an annual basis, the other a period of several years. b. The accounting systems enable each decision to be tracked separately. c. The accrual accounting method incorporates irrelevant costs. d. Top management is rarely aware of particular desirable alternatives that were not chosen by subordinate managers.
B
C11 2. What is always the question to ask to determine if revenues or costs are relevant? a. What is the time frame for achieving results? b. What difference will an action make? c. Who will be responsible? d. How much will it cost?
B
C2 4. Rosland Graphics successfully bid on a job printing standard notebook covers during the year using last year's price of $0.27 per cover. This amount was calculated from prior year costs, noting that no changes in any costs had occurred from the past year to the current year. At the end of the year, the company manager was shocked to discover that the company had suffered a loss. "How could this be?" she exclaimed. "We had no increases in cost and our price was the same as last year. Last year we had a healthy income." What could explain the company's loss in income this current year? a. Their costs were all variable costs and the amount produced and sold increased. b. Their costs were mostly fixed costs and the amount produced this year was less than last year. c. They used a different cost object this year than the previous year. d. Their costs last year were actual costs but they used budgeted costs to make their bids.
B
C2 9. The cost of a product can be measured as any of the following except as one a. gathered from all areas of the value chain. b. identified as period cost. c. designated as manufacturing cost only. d. explicitly defined by contract.
B
C4 1. A cost-allocation base may be any of the following except a a. cost driver. b. cost pool. c. way to link indirect costs to a cost object. d. nonfinancial quantity.
B
C5 10. Which of the following statements is more representative of activity-based costing in comparison to a department costing system? a. The use of multiple cost-allocation bases b. The use of indirect-cost rates for significant resource use c. The use of activities having a cause-and-effect relationship d. The use of multiple cost pools
B
C7 1. [CMA Adapted] Flexible budgets a. accommodate changes in the inflation rate. b. accommodate changes in activity levels. c. are used to evaluate capacity utilization. d. are static budgets that have been revised for changes in price(s).
B
C7 4. Which of the following is not an advantage for using standard costs for variance analysis? a. Standards simplify product costing. b. Standards are developed using past costs and are available at a relatively low cost. c. Standards are usually expressed on a per-unit basis. d. Standards can take into account expected changes planned to occur in the budgeted period.
B
C8 2. In selecting a cost-allocation base for variable overhead, what criteria for the base is preferred? a. Ease of acquiring reliable information for accurate allocations b. A cause-and-effect relationship between the cost and the activity level c. A single base that will simplify the allocation process d. One that has been used in the past
B
C9 4. [CPA Adapted] Operating income using variable costing as compared to absorption costing would be higher a. when the quantity of beginning inventory equals the quantity of ending inventory. b. when the quantity of beginning inventory is more than the quantity of ending inventory. c. when the quantity of beginning inventory is less than the quantity of ending inventory. d. under no circumstances.
B
C9 9. A company may experience the downward demand spiral when a. the use of theoretical capacity as a denominator level has contributed to budgets that project sales to be higher than actually attainable. b. spreading capacity costs over a small number of units and setting selling prices even higher to recover those costs. c. engaged in a cyclical business and after experiencing an upturn. d. the production-volume variance is unfavorable each time period during a year.
B
C3 10. LSB Company has the following income statement: Revenues $100,000 Variable Costs 40,000 Contribution Margin 60,000 Fixed Costs 30,000 Operating Income 30,000 10. If LSB's sales increase by $20,000, what will be the company's operating profit? a. $42,000 b. $12,000 c. $50,000 d. $30,000
B $20,000 / $100,000 = 20% 20% × 2 = 40% 40% × $30,000 = $12,000 increase
C5 6. Jackson Enterprises manufactures two products—a basic gizmo and an advanced model gizmo. The company is using an activity-based costing system. They have identified three activities for allocation of indirect costs. Activity Cost Driver Cost-Allocation Rate Materials receiving Number of parts $2.00 per part Production setup Number of setups $500.00 per setup Quality inspection Inspection time $90 per hour A production run for the basic model is 250 units, for the advanced model, 100 units. Each unit of product consumes the following activities: Number of Parts Number of Setups Inspection Time Basic Gizmo 10 1 setup 10 minutes per production run Advanced Gizmo 15 1 setup 20 minutes per production run Direct costs for the two products are as follows: Direct Materials Direct Labor Basic Gizmo $50.00 $ 75.00 Advanced Gizmo $95.00 $125.00 6. The amount of overhead allocated to one unit of the basic model would be a. $592. b. $37. c. $162. d. $65.
B (2 × 10) + ($500/250) + ($90/60 × 10) = $37
C8 9. Under the 2-variance method, the flexible-budget variance for December was a. $10,000 F. b. $40,000 U. c. $50,000 U. d. $100,000 U.
B 50,000 U - 60,000 F + 50,000 U = 40,000 U
C3 8. The Beta Mu Omega Chi (BMOC) fraternity is looking to contract with a local band to perform at its annual mixer. If BMOC expects to sell 250 tickets to the mixer at $10 each, which of the following arrangements with the band will be in the best interest of the fraternity? a. $2500 fixed fee b. $1000 fixed fee plus $5 per person attending c. $10 per person attending d. $25 per couple attending
B Cost of option a: $2,500 Profit = 0 Cost of option b: $1,000 + 5(250) = $2,250 Profit = $250 Cost of option c: $10 (250) = $2,500 Profit = 0 Cost of option d: $25 (125) = $3,125 Loss ($625)
C3 9. LSB Company has the following income statement: Revenues $100,000 Variable Costs 40,000 Contribution Margin 60,000 Fixed Costs 30,000 Operating Income 30,000 9. What is LSB's DOL? a. 3.33 b. 2.00 c. 0.50 d. 1.00
B DOL = $60,000/$30,000 = 2.0
C3 4.Tee Times, Inc. produces and sells the finest quality golf clubs in all of Clay County. The company expects the following revenues and costs in 2004 for its Elite Quality golf club sets: Revenues (400 sets sold @ $600 per set) $240,000 Variable costs 160,000 Fixed costs 50,000 4. How many sets of clubs must be sold for Tee Times, Inc. to reach their breakeven point? a. 400 b. 250 c. 200 d. 150
B Variable costs per unit = $160,000/400 units sold = $400 Contribution Margin = $600 - 400 = $200 per unit Breakeven point = $50,000/$200 = 250 units
C10 4.Tory Company derived the following cost relationship from a regression analysis of its monthly manufacturing overhead cost. y = $80,000 + $12X where: y = monthly manufacturing overhead cost X = machine-hours The standard error of estimate of the regression is $6,000. The standard time required to manufacture one six-unit case of Tory's single product is four machine-hours. Tory applies manufacturing overhead to production on the basis of machine-hours, and its normal annual production is 50,000 cases. 4. [CMA Adapted] Tory's estimated variable manufacturing overhead cost for a month in which scheduled production is 10,000 cases would be a. $80,000. b. $480,000. c. $160,000. d. $320,000.
B y = 80,000 + 12X Variable cost = (10,000 cases × 4 machine hours/case × $12/machine hour) Variable cost = $480,000
C1 7. _____ management exists to provide advice and assistance to those responsible for attaining the objectives of the organization. a. Line b. Functional c. Staff d. Risk
C
C10 2. [CMA Adapted] Of the following methods, the one that would not be appropriate for analyzing how a specific cost behaves is a. the scattergraph method. b. the industrial engineering approach. c. linear programming. d. statistical regression analysis
C
C10 6. Three criteria to use in identifying cost drivers from the potentially large set of independent variables that can be included in a regression model are a. goodness of fit, size of the intercept term, and specification analysis. b. independence between independent variables, economic plausibility, and specification analysis. c. economic plausibility, goodness of fit, and significance of independent variable. d. spurious correlation, expense of gathering data, and multicollinearity.
C
C10 7. Companies that take advantage of quantity discounts in purchasing their materials have a. decreasing cost functions. b. linear cost functions. c. nonlinear cost functions. d. stationary cost functions.
C
C11 9. [CPA Adapted] On December 31, 2005, Brown Co. had a machine with an original cost of $90,000, accumulated depreciation of $75,000, and an estimated salvage value of zero. On December 31, 2005, Brown was considering the purchase of a new machine having a five-year life, costing $150,000, and having an estimated salvage value of $30,000 at the end of five years. In its decision concerning the possible purchase of the machine, how much should Brown consider as sunk cost at December 31, 2005? a. $150,000 b. $120,000 c. $90,000 d. $15,000
C
C2 6. The three categories of inventories commonly found in many manufacturing companies are: a. direct materials, direct labor, and indirect manufacturing costs. b. purchased goods, period costs, and cost of goods sold. c. direct materials, work-in-process, and finished goods. d. LIFO, FIFO, and weighted average.
C
C3 1. Which of the following is not a factor in cost-volume-profit analysis? a. Units sold b. Selling price c. Total variable costs d. Fixed costs of a product
C
C3 3. Contribution margin is calculated as a. total revenue - total fixed costs. b. total revenue - total manufacturing costs (CGS). c. total revenue - total variable costs. d. operating income + total variable costs.
C
C4 3. The first step in the seven-step approach to job costing is to a. select the cost-allocation base to use in assigning indirect costs to the job. b. identify the direct costs of the job. c. identify the job that is the chosen cost object. d. identify the indirect-cost pools associated with the job.
C
C4 4. Using normal costing rather than actual costing requires that the allocating of indirect manufacturing costs to work-in-process be a. done on a more timely basis, such as every two weeks rather than every month. b. journalized only at year end when adjusting entries are normally made. c. calculated by using the budgeted rate times actual quantity of allocation base. d. calculated by using the budgeted rate times the budgeted quantity of allocation base.
C
C5 2. In refining a cost system a. total direct costs are unchanged because they can be traced in an economically feasible way to the product and traced costs are more accurate. b. the costs are grouped in homogeneous pools of the same or similar amounts. c. the criterion of cause-and-effect is used to relate indirect costs to a factor that systematically links to a cost object. d. the organization looks for cost-allocation bases that will provide a uniform spreading of indirect costs to each product.
C
C5 4. Advertising of a specific product is an example of a. unit-level costs. b. batch-level costs. c. product-sustaining costs. d. facility-sustaining costs.
C
C5 8. A significant limitation of activity-based costing is the a. attention given to indirect cost allocation. b. many necessary calculations. c. operations staff's attitude toward the accounting staff. d. use it makes of technology.
C
C5 9. Evaluating customer reaction of the trade-off of giving up some features of a product for a lower price would best fit which category of management decisions under activity-based management? a. Pricing and product-mix decisions b. Cost reduction decisions c. Design decisions d. Discretionary decisions
C
C8 #3-10 Sebastian Company, which manufactures electrical switches, uses a standard cost system and carries all inventories at standard. The standard manufacturing overhead costs per switch are based on direct labor hours and are shown below: Variable overhead (5 hours @ $12 per direct manufacturing labor hour) $ 60 Fixed overhead (5 hours @ $15* per direct manufacturing labor hour) 75 Total overhead per switch $135 *Based on capacity of 200,000 direct manufacturing labor hours per month. The following information is available for the month of December: • 46,000 switches were produced although 40,000 switches were scheduled to be produced. • 225,000 direct manufacturing labor hours were worked at a total cost of $5,625,000. • Variable manufacturing overhead costs were $2,750,000. • Fixed manufacturing overhead costs were $3,050,000. C9 1. The main difference between variable costing and absorption costing is a. the treatment of nonmanufacturing costs. b. the accounting for variable manufacturing costs. c. the accounting for fixed manufacturing costs. d. their value for decision makers.
C
C8 11. Which of the following statements is true about overhead cost variance analysis using activity-based costing? a. Overhead cost variances are calculated only for output-unit level costs. b. Overhead cost variances are calculated only for variable manufacturing overhead costs. c. A 4-variance analysis can be conducted. d. Activity-based costing uses input measures for all activities, resulting in the inability to do flexible budgets needed for variance analysis.
C
C9 7. The absolute minimum absorption-inventory cost that would be reported under the best conceivable operating conditions is a description of which type of denominator-level concept cost? a. Master-budget utilization b. Practical capacity c. Theoretical capacity d. Normal utilization
C
C7 2. [CMA Adapted] The following information is available for the Gabriel Products Company for the month of July: Static Budget Actual Units 5,000 5,100 Sales revenue $60,000 $58,650 Variable manufacturing costs $15,000 $16,320 Fixed manufacturing costs $18,000 $17,000 Variable marketing and administrative expense $10,000 $10,500 Fixed marketing and administrative expense $12,000 $11,000 The total sales-volume variance for the month of July would be a. $2,550 unfavorable. b. $1,350 unfavorable. c. $700 favorable. d. $100 favorable.
C 5,100 - 5,000 = 100 units × $7* = $700F Unit CM = 60,000 - 15,000 - 10,000/35,000 = $7
C4 9. Liberty Box Company calculated an indirect-cost rate of $12.50 per labor hour for fringe benefits for use in their normal costing system. At the end of the year, the actual cost of fringe benefits was $980,000. The total of labor hours worked for the year was the same amount as budgeted, 70,000 hours. If Job #640 required the use of 15 labor hours and the company used the adjusted allocation rate approach, by what amount would the cost of Job #640 change? a. $560.00 b. $281.25 c. $22.50 d. $20.50
C 980.000/70,000 = $14.00 (actual rate) $14,000 - $12.50 = $1.50 excess of actual over budget 1.50 × 15 hours - $22.50 additional cost
C75. Information on Pruitt Company's direct-material costs for the month of July 2005 was as follows: Actual quantity purchased 30,000 units Actual unit purchase price $2.75 Materials purchase-price variance —unfavorable (based on purchases) $1,500 Standard quantity allowed for actual production 24,000 units Actual quantity used 22,000 units [CPA Adapted] For July 2005 there was a favorable direct-materials efficiency variance of a. $7,950. b. $5,500. c. $5,400. d. $5,600.
C Actual price 30,000 × 2.75 82,500 Minus unfavorable price variance 1,500 Materials at standard 81,000 81,000/30,000 = $2.70 standard price per unit Actual quantity 22,000 units Standard quantity 24,000 units Efficiency variance 2,000 × 1.70 = $5,400
C8 6. [CMA Adapted] The fixed manufacturing overhead spending variance for December was a. $450,000 F. b. $400,000 F. c. $50,000 U. d. $775,000 F.
C Budgeted fixed OH 200,000 DLH × $15/DLH = $3,000,000 Actual fixed OH 3,050,000 FOH Spending variance 50,000 U
C9 3. Alvin Inc. planned and actually manufactured 200,000 units of its single product in 2008, its first year of operations. Variable manufacturing costs were $30 per unit of product. Planned and actual fixed manufacturing costs were $600,000, and marketing and administrative costs totaled $400,000 in 2004. Alvin sold 120,000 units of product in 2008 at a selling price of $40 per unit. 3. [CMA Adapted] Alvin's 2008 operating income using absorption costing is a. $840,000. b. $800,000. c. $440,000. d. $200,000.
C Sales 120,000 × $40 $4,800,000 COGS Variable 3,600,000 Fixed 360,000* 3,960,000 Gross profit 840,000 Fixed costs 400,000 Operating income 440,000 ======= Fixed manufacturing cost $600,000 / 200,000 units = $3 unit $3/unit × 120,000 units sold = $360,000
C11 7. Nicholas, Inc. has provided the following unit data for review: Simple Product Advanced Product Selling price $22.75 $55.00 Variable cost 10.00 34.50 Pounds of scarce raw material per unit 3 5 Which product, Simple or Advanced, is most profitable for Nicholas, Inc. to manufacture? a. Both in ratio of 3:5 b Both in ratio of 5:8 c. Simple d. Advanced
C Selling price 22.75 55.00 Variable cost 10.00 34.50 CM 12.75 20.50 Pounds of material per unit 3 5 Contribution margin per 4.25 4.11 pound of material Simple provides a higher contribution margin per pound of scarce raw material.
C3 6.Tee Times, Inc. produces and sells the finest quality golf clubs in all of Clay County. The company expects the following revenues and costs in 2004 for its Elite Quality golf club sets: Revenues (400 sets sold @ $600 per set) $240,000 Variable costs 160,000 Fixed costs 50,000 6. What amount of sales must Tee Times, Inc. have to earn a target net income of $63,000 if they have a tax rate of 30 percent? a. $489,000 b. $429,000 c. $420,000 d. $300,000
C TNI = $50,000 + $63,000/(1 - 0.30)/$200 = 700 units × $600 = $420,000
C1 1. Why do most companies adhere to GAAP for their basic internal financial statements? a. GAAP is required by law for publicly held companies. b. To use GAAP and another system of reporting would be too costly for most companies. c. Accountants are required by their code of ethics to use GAAP accounting. d. Accrual accounting provides a uniform method to measure an organization's financial performance.
D
C1 10. The Institute of Management Accountants issues which certification? a. CPA b. CIA c. CFE d. CMA
D
C1 4. Which of the following is not a key success factor in a company's effort to deliver increased levels of performance to the customer? a. Time b. Innovation c. Quality d. Price reduction
D
C10 3. When the high-low method is used to estimate a cost function, the variable cost per unit is found by a. performing regression analysis on the associated cost and cost driver database. b. subtracting the fixed cost per unit from the total cost per unit based on either the highest or lowest observation of the cost driver. c. dividing the difference between the highest and lowest observations of the cost driver by the difference between costs associated with the highest and lowest observations of the cost driver. d. dividing the difference between costs associated with the highest and lowest observations of the cost driver by the difference between the highest and lowest observations of the cost driver.
D
C11 4. The concept of outsourcing services to countries with lower labor costs is known as a. opportunity cost. b. offshoring. c. insourcing. d. international outsourcing.
D
C11 8. RCG Services is investigating its profitability relationship with each of its customers. What is the key question RCG should ask in deciding whether to keep or drop a particular customer? a. Will the customer meet a specific designated gross margin percentage? b. Will the customer be willing to pay a higher price to insure RCG's profitability? c. Will enough customers be found to replace any customers dropped for lack of profitability? d. Will expected total corporate office costs decrease if decision is made to drop the customer?
D
C2 2. The cost of printer paper on a college campus would be a direct cost to the college but would need to be allocated as an indirect cost to a. departments. b. buildings. c. schools. d. individual student instruction.
D
C2 5. Which type of company converts raw materials into finished products? a. Not-for-profit b. Service c. Merchandising d. Manufacturing
D
C2 7. Inventoriable costs are a. only purchased goods for resale. b. a category of costs used only for manufacturing companies. c. recorded as expenses when incurred and later reclassified as assets. d. recorded as assets when incurred.
D
C3 7. One way for managers to cope with uncertainty in profit planning is to a. use CVP analysis because it assumes certainty. b. recommend management hire a futurist whose work is to predict business trends. c. wait to see what does happen and prepare a report based on actual amounts. d. use sensitivity analysis to explore various what-if scenarios in order to analyze changes in revenues or costs or quantities.
D
C4 10. If each professional in a service company is paid on an annual salary basis, why might the firm want to use a predetermined or budgeted rate for direct or professional labor? a. A predetermined or budgeted rate is easier to justify to a client who might question a billing rate. b. Professional staff persons do not keep accurate records of the jobs on which they work. c. Professional staff incurs more client costs, such as travel, lodging, and out-of-town meals, while working on a job. d. Year-end bonuses paid to the professional staff are difficult to trace to individual jobs.
D
C4 2. A company that manufactures dentures for use by local dentists would use a. process costing. b. personal costing. c. operations costing. d. job costing.
D
C4 5. Manufacturing Overhead Control a. represents actual overhead costs incurred. b. has a normal debit balance. c. is a control account with a subsidiary ledger detailing the components of manufacturing overhead. d. All of the above
D
C4 7. The costs incurred on jobs that are currently in production but are not yet complete would appear in the a. Materials Control account. b. Finished Goods Control account. c. Manufacturing Overhead Control account. d. Work-in-Process Control account.
D
C5 1. Production-cost cross-subsidization results from a. allocating indirect costs to multiple products. b. assigning traced costs to each product. c. assigning costs to different products using varied costing systems within the same organization. d. assigning broadly averaged costs across multiple products without recognizing amounts of resources used by which products.
D
C7 9. Benchmarking is a. relatively easy to do with the amount of available financial information about companies. b. best done with the best in their field regardless of type of company. c. simply reporting the magnitude of differences in costs or revenues across companies. d. making comparisons to direct attention to why differences in costs exist across companies.
D
C8 1. Which of the following pertains primarily to the planning of fixed overhead costs? a. A standard rate per output unit is developed. b. Only essential activities are to be undertaken. c. Activities are to be undertaken in the most efficient method. d. Key decisions are made at the start of the budget period determining the level of costs.
D
C9 10. The manner in which a company deals with end-of-period variances will determine the effect production-volume variances have on the company's end-of-period operating income. When the chosen capacity level exceeds the actual production level, which approach to end-of-period variances results in an unfavorable production-volume variance affect on that period's operating income? a. Proration approach b. Adjusted allocation-rate approach c. Theoretical approach d. Write-off to cost-of-goods-sold approach
D
C9 6. The proponents of throughput costing a. maintain that variable costing undervalues inventories. b. maintain that it provides more incentive to produce for inventory than do either variable or absorption costing. c. argue that only direct materials and direct labor are "truly variable" and all indirect manufacturing costs be written off in the period in which they are incurred. d. treat all costs except those related to variable direct materials as costs of the period in which they are incurred.
D
C5 7.Jackson Enterprises manufactures two products—a basic gizmo and an advanced model gizmo. The company is using an activity-based costing system. They have identified three activities for allocation of indirect costs. Activity Cost Driver Cost-Allocation Rate Materials receiving Number of parts $2.00 per part Production setup Number of setups $500.00 per setup Quality inspection Inspection time $90 per hour A production run for the basic model is 250 units, for the advanced model, 100 units. Each unit of product consumes the following activities: Number of Parts Number of Setups Inspection Time Basic Gizmo 10 1 setup 10 minutes per production run Advanced Gizmo 15 1 setup 20 minutes per production run Direct costs for the two products are as follows: Direct Materials Direct Labor Basic Gizmo $50.00 $ 75.00 Advanced Gizmo $95.00 $125.00 7. The total cost of an advanced model would be a. $162. b. $65. c. $200. d. $285.
D $95 + $125 + ($2 × 15) + ($500/100) + ($90/60 × 20)
C8 10. Under the 3-variance method, the spending variance for December was a. $10,000 F. b. $40,000 U. c. $50,000 U. d. $100,000 U.
D 50,000 U + 50,000 U = 100,000 U
C7 6. Information for Garner Company's direct-labor costs for the month of September 2005 was as follows: Actual direct-labor hours 34,500 hours Standard direct-labor hours 35,000 hours Total direct-labor payroll $241,500 Direct-labor efficiency variance—favorable $ 3,200 [CPA Adapted] What is Garner's direct-labor price (or rate) variance? a. $21,000 favorable b. $21,000 unfavorable c. $17,250 unfavorable d. $20,700 unfavorable
D Actual direct labor cost $241,500 Standard 34,500 × 6.40 $220,800 Price variance 20.700 U Standard rate = 3,200/(35,000 - 34,500) = $6.40
C11 5. [CMA Adapted] Troy Instruments uses ten units of Part Number S1798 each month in the production of scientific equipment. The unit cost to manufacturing one unit of S1798 is presented below. Direct materials $ 4,000 Materials handling (10% of direct materials cost) 400 Direct manufacturing labor 6,000 Indirect manufacturing (200% of direct labor) 12,000 Total manufacturing cost $22,400 Materials handling represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. This is a separate charge in addition to indirect manufacturing cost. Troy's annual indirect manufacturing cost budget is one-fourth variable and three-fourths fixed. Duncan Supply, one of Troy's reliable vendors, has offered to supply Part Number S1798 at a unit price of $17,000. If Troy purchases the S1798 units from Duncan, the capacity Troy used to manufacture these parts would be idle. Should Troy decide to purchase the parts from Duncan, the unit cost of S1798 would a. decrease by $3,700. b. decrease by $5,600. c. increase by $3,600. d. increase by $5,300.
D Direct materials $4,000 Purchase of part $17,000 Material handling 400 1,700 Direct labor 6,000 Indirect manufacturing3,000* *$12,000 × 25% Total $13,400 $18,700 Difference in favor of making $5,300
C10 5Tory Company derived the following cost relationship from a regression analysis of its monthly manufacturing overhead cost. y = $80,000 + $12X where: y = monthly manufacturing overhead cost X = machine-hours The standard error of estimate of the regression is $6,000. The standard time required to manufacture one six-unit case of Tory's single product is four machine-hours. Tory applies manufacturing overhead to production on the basis of machine-hours, and its normal annual production is 50,000 cases. 5. [CMA Adapted] Tory's predetermined fixed manufacturing overhead rate would be a. $4.80/MH. b. $4.00/MH. c. $3.20/MH. d. $1.60/MH.
D Fixed costs/Machine Hours = $80,000/50,000 x 4 = $.40/machine hour $0.40/ machine hour × 4mh/unit = $1.60
C3 11.Valley Company sells two products. Product M sells for $12 and has variable costs per unit of $7. Product Q's selling price and variable costs are $15 and $10, respectively. If fixed costs are $60,000 and Valley sells twice as many units of Product M as Product Q, what is the BEP in units for Product M? a. 4,000 b. 6,000 c. 12,000 d. 8,000
D Product M contribution margin (12-7) = 5 x sales mix of 2 = 10 Product Q contribution margin (10-5) = 5 x sales mix of 1 = 5 Total contribution margin of both products = 12 FC/CM = BEP - package $60,000/14 = 4,000 packages BEP - units of Product M = BEP - packages x sales mix of 2 = 8,000 units
C9 2. Alvin Inc. planned and actually manufactured 200,000 units of its single product in 2008, its first year of operations. Variable manufacturing costs were $30 per unit of product. Planned and actual fixed manufacturing costs were $600,000, and marketing and administrative costs totaled $400,000 in 2004. Alvin sold 120,000 units of product in 2008 at a selling price of $40 per unit. 2. [CMA Adapted] Alvin's 2008 operating income using variable costing is a. $800,000. b. $600,000. c. $440,000. d. $200,000.
D Sales 120,000 × $40/unit $4,800,000 VC 120,000 × $30/unit 3,600,000 Contribution margin $1,200,000 Fixed costs ($600,000 + $400,000) 1,000,000 Operating income 200,000
C8 4. [CMA Adapted] The variable manufacturing overhead efficiency variance for December was a. $50,000 U. b. $350,000 U. c. $10,000 F. d. $60,000 F.
D Standard 46,000 switches × 5 DLH/switch = 230,000 Actual DLH 225,000 VOH Efficiency variance 5,000 × $12 = $60,000 F
