Cost Accounting Exam 1

Final sales price reduced by cost to complete after split-off

For purposes of allocating joint costs to joint products, the estimated net realizable value at split-off is equal to:

Net realizable value at split-off

For the purposes of allocating joint costs to joint products, the sales price at the point of sale, reduced by the cost to complete after split-off, is assumed to be equal to the: (CPA adapted)

subordinates

Decentralization refers to the delegation of decision-making authority to:

Period cost

A company which manufactures custom-made machinery routinely incurs sizable telephone costs in the process of taking sales orders from customers. Which of the following is a proper classification of this cost?

Decrease in average operating assets

All other things constant, which of the following would increase residual income?

rent on a headquarters building

An example of a period cost is:

only for costs

An operating unit of an organization is called a cost center if it is responsible:

for selling a product

An operating unit of an organization is called a revenue center if it is responsible:

profit center

An operating unit that is responsible for revenues and costs is commonly referred to as a(n):

Option A

How will increases in the following items affect return on investment (ROI)? Increase in Expenses Increase in Inventory A. Decrease ROI Decrease ROI B. Decrease ROI Increase ROI C. Increase ROI Decrease ROI D. Increase ROI Increase ROI

There is no difference in the overall gross margin of the company

If by-product revenue is treated as other revenue instead of deducted from the net-realizable-value of the main products:

The revenue from by-products may be recognized at the time of production

Joint products and by-products are produced simultaneously by a single process or series of processes and:

BDCA

Place the four components in the order they appear along the value chain: A = Customer service; B = Design; C = Distribution; and D = Production.

direct labor

Prime cost consists of direct materials combined with:

residual income concentrates on maximizing absolute dollars of income rather than a percentage return, as with ROI

Residual income is a performance evaluation that is used in conjunction with, or instead of, return on investment (ROI). In many cases, residual income is preferred to ROI because: (CIA adapted)

profit margin ratio

Return on investment (ROI) can be decomposed into the asset turnover and the:

cost of goods available for sale for the period

The beginning Finished Goods Inventory plus the cost of goods manufactured equals

administrative cost

The corporate controller's salary would be considered a(n):

financial accounting

The field of accounting that reports according to generally accepted accounting principles (GAAP) is called:

responsibility center

The specific unit of an organization that is assigned to a manager who is held accountable for that unit's operations and resources is known as a:

All fixed and variable manufacturing costs

Under full absorption costing, which of the following are included in product costs?

The relationship between a superior and a subordinate.

Which of the following correctly defines a principal-agent relationship?

Freight-out

Which of the following cost items is not allocable as joint costs when a single manufacturing process produces several main products and several by-products?

Administration

Which of the following is not normally considered part of the value chain?

The U.S. military is a good example of an organization that is highly decentralized

Which of the following statements is false?

$280 ($100 + $80 + ($200,000/2,000) = $280)

Grover Company has the following data for the production and sale of 2,000 units. Sales price per unit $800 per unit Fixed costs: Marketing and administrative $400,000 per period Manufacturing overhead $200,000 per period Variable costs: Marketing and administrative $50 per unit Manufacturing overhead $80 per unit Direct labor $100 per unit Direct Materials $200 per unit What is the conversion cost per unit?

Variable, product cost

How would miscellaneous supplies used in assembling a product be classified for a manufacturing company?

Period cost

Doran Technical Company has set up a toll-free telephone line for customer inquiries regarding computer hardware produced by the company. The cost of this toll-free line would be classified as which of the following?

$60,000

During 2020, the Beach Restaurant had sales revenues and food costs of $800,000 and $600,000, respectively. During 2021, Beach plans to introduce a new menu item that is expected to increase sales revenues by $100,000 and food costs by $40,000. Assuming no changes are expected for the other food items, operating profits for 2021 are expected to increase by:

$35,000

Geno's Body Shop had sales revenues and operating costs in 2020 of $650,000 and $525,000, respectively. In 2021, Geno plans to expand the services it provides to customers to include detailing services. Revenues are expected to increase by $85,000 and operating costs by $50,000 as a result of this expansion. Assuming that there are no changes to the existing body shop business, operating profits would be expected to increase during 2021 by:

$3,000,000 (RI: $300,000 = $750,000 − (0.15 × Invested capital); Invested capital = $3,000,000.)

In 2020, Evans Corporation had an operating profit of $750,000 and a residual income of $300,000. If Evans' cost of capital is 15%, what is the amount of the invested capital?

$150,000

In 2020, the Allen Company had consulting revenues of $1,000,000 while operating costs were $750,000. In 2021, Allen will be introducing a new service that will generate $150,000 in sales revenues and $60,000 in operating costs. Assuming no changes are expected for the other services, the differential revenue for 2021 will be:

West (South: $380,000/$200,000 = 1.90. West: $1,700,000/$625,000 = 2.72. East: $2,000,000/$800,000 = 2.50.)

Item 49 Item 49 The Maxim Corporation reported the following operating results for its three divisions: South, West, and East. South Division West Division East Division Sales $380,000 $1,700,000 $2,000,000 After-tax income $20,000 $50,000 $100,000 Divisional assets $200,000 $625,000 $800,000 Which division has the largest asset turnover?

$5,000 ($20,000 - [$30(500)] = $5,000)

Macon Publishing reports the following information about resources. At the beginning of the year, Macon estimated it would spend $42,000 for setups and $21,000 for clerical. Resources used: Setups $250 175 runs Clerical $30 500 pages typed Resources supplied: Setups $45,000 Clerical 20,000 The unused resource capacity for clerical for Macon Publishing is:

appropriate goal congruence behavior is more likely to occur when using residual income

Managerial performance can be measured in many different ways including return on investment (ROI) and residual income. A good reason for using residual income instead of ROI is that:

Legal and accounting fees

Marketing costs include all of the following except:

Customer Service

A firm's reply to customer questions via email would be an example of which component of the value chain?

$168,000 (($300,000/$450,000) × ($262,000 - $10,000) = $168,000)

Bonanza Co. manufactures products X and Y from a joint process that also yields a by-product, Z. Revenue from sales of Z is treated as a reduction of joint costs. Additional information is as follows: PRODUCTS XYZ TOTAL Units produced 20,000 20,000 10,000 50,000 Joint costs ? ? ? $262,000 Sales value at split-off$300,000 $150,000 $10,000 $460,000 Joint costs were allocated using the net realizable value method at the split-off point. The joint costs allocated to product X were

Both Sweet Meats and Chocolate Delight. (Sweet Meats: ($10 - $8) = $2 × 50,000 pounds = $100,000 - costs of $75,000 = $25,000 profit. Chocolate Delight ($10.50 - $10.00) = $0.50 × 100,000 pounds = $50,000 - costs of $30,000 = $20,000 profit. Minty Wonders ($5.50 - $5.00) = $0.50 × 25,000 pounds = $12,500 - costs of $20,000 = $7,500 loss.)

Delite Confectionary Company produces various types of candies. Several candies could be sold at the split-off point or processed further and sold in a different form after further processing. The candies are produced in a joint processing operation with $500,000 of joint processing costs monthly, which are allocated based on pounds produced. Information concerning this process for a recent month appears below: Candy type Number of pounds Price per pound at split-off Further processing costs Price after processing further Sweet Meats 50,000 $8 $75,000 $10.00 Chocolate Delight 100,000 $10 $30,000 $10.50 Minty Wonders 25,000 $5 $20,000 $5.50 Based on the information presented, which of the products should be processed further?

a $25,000 advantage to process further (Sweet Meats: ($10 - $8) = $2 × 50,000 pounds = $100,000 - costs of $75,000 = $25,000 profit.)

Delite Confectionary Company produces various types of candies. Several candies could be sold at the split-off point or processed further and sold in a different form after further processing. The candies are produced in a joint processing operation with $500,000 of joint processing costs monthly, which are allocated based on pounds produced. Information concerning this process for a recent month appears below: Candy type Number of pounds Price per pound at split-off Further processing costs Price after processing further Sweet Meats 50,000$8 $75,000 $10.00 Chocolate Delight 100,000$10 $30,000 $10.50 Minty Wonders 25,000$5 $20,000 $5.50 The net advantage (disadvantage) of processing Sweet Meats further is:

$4,000 ($40,000 - [$40(900)] = $4,000)

Denim Products reports the following information about resources. At the beginning of the year, Denim estimated it would spend $84,000 for setups and $41,000 for quality testing. Resources used: Setups $250/run 350 runs Quality testing 40/test 900 tests Resources supplied: Setups $90,000 Quality testing 40,000 The unused resource capacity for quality testing for Denim Products is:

$2,500 ($90,000 - [$250(350)] = $2,500.)

Denim Products reports the following information about resources. At the beginning of the year, Denim estimated it would spend $84,000 for setups and $41,000 for quality testing. Resources used: Setups $250/run 350runs Quality testing $40/test 900 tests Resources supplied: Setups $90,000 Quality testing $40,000 The unused resource capacity for setups for Denim Products is:

$1,420 ($10,500 - [$0.80(11,350)] = $1,420.)

Scallon Products reports the following information about resources. At the beginning of the year, Scallon estimated it would spend $8,000 for energy and $12,000 for repairs. Resources used: Energy $0.80/MH 11,350 MH Repairs $24/job 600 jobs Resources supplied: Energy $10,500 Repairs $18,000 The unused resource capacity for energy for Scallon Products is:

$3,600 ($18,000 − [$24(600)] = $3,600)

Scallon Products reports the following information about resources. At the beginning of the year, Scallon estimated it would spend $8,000 for energy and $12,000 for repairs. Resources used: Energy $0.80/MH 11,350 MH Repairs $24/job 600 jobs Resources supplied: Energy $10,500 Repairs $18,000 The unused resource capacity for repairs for Scallon Products is:

$4,300 ($44,300 - [$250(160)] = $4,300)

South Beach Industries reports the following information about resources. At the beginning of the year, South Beach estimated it would spend $180,000 for materials, $42,000 for purchasing, $35,000 for setups, and $36,000 for repairs. Resources used: Materials $10/lb 18,350 lbs Purchasing $250/purchase order 160purchase orders Setups $450/setup 80 setups Repairs $36/job 700 jobs Resources supplied: Materials $192,700 Purchasing $44,300 Setups $37,500 Repairs $30,000 The unused resource capacity for purchasing for South Beach is:

$8,200 ($201,700 - [$10(19,350)] = $8,200)

South Beach Industries reports the following information about resources. At the beginning of the year, South Beach estimated it would spend $188,200 for materials, $62,000 for purchasing, $55,000 for setups, and $56,000 for repairs. Resources used: Materials $10/lb 19,350 lbs Purchasing $260/purchase order 160 purchase orders Setups $420/setup 85 setups Repairs$38/Job 800 jobs Resources supplied: Materials $201,700 Purchasing $46,950 Setups $37,200 Repairs $50,800 The unused resource capacity for materials for South Beach is:

direct materials and direct labor

Tallon Company manufactures a single product. The product's prime costs consist of

$300 ($3,000-($15,000*18%))

The Country Garden Company's current net operating income is $16,800 and its average operating assets are $80,000. The Country Garden's required rate of return is 18%. A new project being considered would require an investment of $15,000 and would generate annual net operating income of $3,000. What is the residual income of the new project?

West (South: $20,000/$200,000 = 10.0%. West: $50,000/$625,000 = 8.0%. East: $100,000/$800,000 = 12.5%.)

The Maxim Corporation reported the following operating results for its three divisions: South, West, and East. South Division West Division East Division Sales $380,000 $1,700,000 $2,000,000 After-tax income $20,000 $50,000 $100,000 Divisional assets $200,000 $625,000 $800,000 Which division has the smallest return on investment (ROI)?

total work-in-process during the period

The beginning Work-in-Process Inventory plus the total of the manufacturing costs equals

products are sold

The cost of direct labor will be treated as an expense on the income statement when the resulting:

Economics

The design and use of management control systems uses concepts from which of the following disciplines?

Unit variable costs are fixed over the relevant range and unit fixed costs are variable

The difference between variable costs and fixed costs is (CMA adapted)

company shareholder

The individual who would most likely use only financial accounting information in making decisions is a:

gross margin ratio

The measure (ratio) that reflects the performance of a manager regarding sales and cost of goods sold, but not other operating costs and income taxes, is called the:

Local managers making decisions in their interests, which can differ from those of the organization

What does dysfunctional decision-making refer to?

Dollars of labor

Which of the following is not a physical measure that can be used for allocating joint costs using the physical quantities method?

The estimated net realizable value for a product is its estimated selling price after processing the product beyond the split-off point.

Which of the following statements is false?

The wages of the workers on the shipping docks who load completed products onto outgoing trucks.

Which one of the following costs is classified as a period cost? (CIA adapted)

Decentralization

____________ is the delegation of decision-making authority to lower management levels within the organization.