Cost practice exam

A company has three products possible products that it can produce in a machine intensive production process. capacity is constrained by the number of hours the machines can run during a period and the products are so popular that all units produced will be sold. Here is additional​ information: Product A Product B Product C Contribution per unit ​$20 ​$30 ​$40 Machine hours per unit 2.5 3.25 4.5 Which of the following would be an accurate conclusion based on these​ facts? A. Product B should be emphasized if the goal is to maximize contribution margin. B. Since Product C has the greatest contribution margin per unit and therefore emphasizing its production and sales will lead to the highest operating income in the short−run C. Since A takes less time to​ produce, maximization of operating income will occur by emphasizing production and sales of A. D. A balanced mix of​ 1/3 A,​ 1/3 B, and​ 1/3 C should be the goal when maximizing operating income in the short−run.

A

A plot of data that results in one extreme observation most likely indicates that​ ________. A. an unusual event such as a plant shutdown occurred during that month B. the​ cost-allocation base has been incorrectly identified C. individual cost items do not have the same cost driver D. more than one cost pool should be used

A

If machine maintenance is scheduled at a time when production is at a low​ level, then​ ________. A. an understanding of operations is needed to determine an appropriate cost driver B. low production is the cost driver of high repair costs C. machine maintenance cannot be accurately predicted D. low production should be avoided since it is the cause of machine maintenance

A

Pearl Manufacturing Company provides glassware machines for major department store retailers. The company has been investigating a new piece of machinery for its production department. The old equipment has a remaining life of six years and the new equipment has a value of​ $319,400 with a six−year life. The expected additional cash inflows are​ $113,000 per year. What is the payback period for this​ investment? A. 2.8 years B. 6 years C. 1.8 years D. 3.8 years

A

Which of the following best describes a step​ variable-cost function? A. a step cost function in which cost remains the same over narrow ranges of the level of activity in each relevant range B. a step cost function where the cost remains the same over wide ranges of the activity in each relevant range C. a step cost function in which cost remains the same over narrow ranges of the level of activity outside the relevant range D. a step cost function where the cost remains the same over wide ranges of the activity outside the relevant range

A

Which of the following is a sign that an ABC system will provide​ benefits? A. All or most indirect costs are treated as output−unit level costs. B. All the products produced are similar and sell in equal proportions​ (sales mix) C. There are relatively few indirect cost pools associated with the product and the indirect costs are a small percentage of total product cost D. Operations staff has no substantial disagreements with the reported costs of manufacturing and marketing products and services.

A

Which of the following is a stage of the capital budgeting process in which a firm obtains funding for the​ project? A. implement the​ decision, evaluate​ performance, and learn stage B. obtain information stage C. identify projects stage D. make decisions by choosing among alternatives stage

A

Which of the following is a stage of the capital budgeting process that determines which investment yields the greatest benefit and the least cost to an​ organization? A. make decisions by choosing among alternatives stage B. identify projects stage C. make predictions stage D. implement the​ decision, evaluate​ performance, and learn stage

A

​Hartley's Meat Pies is considering replacing its existing delivery van with a new one. The new van can offer considerable savings in operating costs. Information about the existing van and the new van​ follow: Existing van New van Original cost ​$50,000 ​$93,000 Annual operating cost ​$17,500 ​$11,000 Accumulated depreciation ​$32,000 long dash— Current salvage value of the existing van ​$23,500 long dash— Remaining life 10 years 10 years Salvage value in 10 years ​$ 0 ​$ 0 Annual depreciation ​$1,800 ​$9,300 Relevant costs for this decision include​ ________. A. the annual operating cost B. accumulated depreciation C. the book value of the existing van D. the original cost of the existing van

A

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 ​$54 ​$62 ​$73 Direct materials 7 7 7 Direct labor​ ($17 per​ hour) 17 17 34 Variable support costs​ ($7 per machine−​hour) 7 14 14 Fixed support costs 13 13 13 Which model has the greatest contribution margin per machine−​hour? A. Model X B. Model Y C. Model Z D. Both Model X and Model Y have the highest and same contribution margin per machine−hour

A Model X Model X $54 - $7 - $17 - $7 = $23 / 1 = $23 highest Model Y $62 - $7 - $17 - $14 = $24 / 2 = $12 Model Z $73 - $7 - $34 - $14 = $18 / 2 = $9

A single indirect−cost rate distorts product costs because​ ________. A. it recognizes specific activities that are required to produce a product B. there is an assumption that all support activities affect all products in a uniform way C. it assumes all costs are product costs D. competitive pricing is ignored

B

Activity-based costing​ (ABC) can eliminate cost distortions because ABC systems​ ________. A. use single cost pool for all overhead​ costs, thereby enabling simplicity B. establish a cause−and−effect relationship with the activities performed C. use a broad average to allocate all overhead costs D. never consider interactions between different departments in assigning support costs

B

Advanced Technology Products produces 10 different fastners. Each time a type of fastener is​ produced, the equipment must be stopped and items such as filters and drill bits must be​ changed, oil must be added to the equipment and some parts need lubrication. This work must be done before the products can be​ produced, the costs related to this activity would be part of which cost​ pool? A. Product−sustaining costs B. Batch−level costs C. Output−level costs D. Service−sustaining costs

B

Difend Cleaners has been considering the purchase of an industrial dryminus−cleaning machine. The existing machine is operable for three more years and will have a zero disposal price. If the machine is disposed​ now, it may be sold for​ $170,000. The new machine will cost​ $360,000 and an additional cash investment in working capital of​ $170,000 will be required. The new machine will reduce the average amount of time required to wash clothing and will decrease labor costs. The investment is expected to net​ $130,000 in additional cash inflows during the first year of acquisition and​ $290,000 each additional year of use. The new machine has a threeminus−year ​life, and zero disposal value. These cash flows will generally occur throughout the year and are recognized at the end of each year. Income taxes are not considered in this problem. The working capital investment will not be recovered at the end of the​ asset's life. What is the net present value of the​ investment, assuming the required rate of return is​ 6%? Would the company want to purchase the new​ machine? A. ​$($243,489.592); no B. ​$264,290; yes C. ​$243,489.592; yes D. ​$($264,290); no

B

Product−cost cross−subsidization means​ that: A. when a company undercosts more than one of its​ products, it will overcost more than one of its other products B. when a company undercosts one of its​ products, it will overcost at least one of its other products C. when one product is​ overcosted, it results in more than one other product being overcosted D. when one product is overcosted it results in all other products being overcosted

B

Sunk costs are​ ________. A. costs that is the sum of all costs in a particular business function of the value chain B. costs that are unavoidable and cannot be changed no matter what action is taken C. the contributions to operating income that is forgone by not using a limited resource in its next−best alternative use D. costs incurred as a result of an investment position

B

The Venoid Corporation has an annual cash inflow from operations from its investment in a capital asset of​ $23,000 (excluding​ depreciation) each year for five years. The​ corporation's income tax rate is​ 30%. Calculate the total afterminus−tax cash inflow from operations for five years. A. ​$34,500 B. ​$80,500 C. ​$23,000 D. ​$115,000

B

The cost components of a heater include​ $35 for the​ compressor, $11 for the sheet molded compound​ frame, and​ $74 per unit for assembly. The factory machines and tools cost is​ $55,000. The company expects to produce​ 1,300 heaters in the coming year. What cost function best represents these​ costs? A. y​ = 1,300​ + 55,000X B. y​ = 55,000​ + 120X C. y​ = 1,300​ + 120X D. y​ = 55,000​ + 1,300X

B

A company decided to replace an old machine with a new machine. Which of the following is considered a relevant​ cost? A. the book value of the old equipment B. the loss on the disposal of the old equipment C. the setup cost of the new equipment D. the depreciation expense on the old equipment

C

Colonial North​ Manufacturing, Inc. is considering eliminating one of its product lines. The fixed costs currently allocated to the product line will be allocated to other product lines upon discontinuance. What financial effects occur if the product line is​ discontinued? A. net income will decrease by the amount of the product​ line's fixed costs B. the​ company's total fixed costs will decrease by the amount of the product​ line's fixed costs C. net income will decrease by the amount of the contribution margin of the product line being discontinued D. the​ company's total fixed costs will increase by the amount of the contribution margin of the product line being discontinued

C

Flash City Inc. manufactures small flash drives and is considering raising the price by 75 cents a unit for the coming year. With a 75−cent price​ increase, demand is expected to fall by​ 7,000 units. Current Projected Demand​ 79,000 units​ 72,000 units Selling price​ $8.50 $9.25 Incremental cost per unit​ $5.80 $5.80 If the price increase is​ implemented, operating profit is projected to​ ________. A. decrease by​ $7,000 B. decrease by​ $5,250 C. increase by​ $35,100 D. increase by​ $5,250

C

For a business that offers customers a store where product can be purchased and picked up or a delivery service that can ship the product directly to the​ customer, which of the following would most likely be the best cost allocation base for distribution​ costs? A. Electricity costs for the period B. number of customer service phone calls and emails per period C. number of pounds of product shipped or delivered D. Number of products sold

C

It is usually difficult to find good cost driver ​(cause−and−effect ​relationship) between​ ________ and a cost allocation base. A. product−sustaining costs B. batch−level costs C. facility−sustaining costs D. unit−level costs

C

State Road Fabricators Inc. is considering eliminating Model A02777 because of losses over the past quarter. The past three months of information for Model A02777 are summarized​ below: Sales​ (1,100 units) ​$370,000 Manufacturing​ costs: Direct materials ​160,000 Direct labor​ ($15 per​ hour) ​80,000 Overhead ​150,000 Operating loss ​($20,000) Overhead costs are​ 75% variable and the remaining​ 25% is depreciation of special equipment for model A02777 that has no resale value. If Model A02777 is dropped from the product​ line, operating income will​ ________. A. increase by​ $20,000 B. increase by​ $37,500 C. decrease by​ $17,500 D. decrease by​ $20,000

C

When evaluating a make−or−buy ​decision, which of the following needs to be​ considered? A. material−handling costs that cannot be eliminated B. the original cost of the production equipment C. alternative uses of the production capacity D. pension costs to the current employees

C

When using the five−step decision​ process, which one of the following steps should be done​ first? A. choose an alternative B. implementing the decision C. obtain information D. evaluation and feedback

C

Which of the following is a problem related to cost​ analysis? A. extreme observations are adjusted or removed B. inflationary effects are removed C. fixed costs are allocated as if they are variable costs D. a company keeps accounting records on the accrual basis

C

Which of the following is an example of​ time-series data: A. loan processing times in each of 26 similar branch offices over the last 12 months B. store sales for each U.S. based​ Wal-Mart for each the last 10 years. C. indirect labor costs and​ machine-hours in a​ manufacturer's assembly department each month for the last 12 months D. direct labor hours in the​ Boston, Massachusetts and the New York City facility for each of the last 12 months

C

Which of the following statements is true of accrual accounting rate of return​ (AARR) method and internal rate of return​ (IRR) method? A. The AARR method calculates the return considering the time value of​ money, whereas the IRR method calculates the return ignoring the time value of money. B. AARR method calculates the return in absolute​ terms, whereas IRR method calculates the result in terms of percentage. C. The AARR method calculates the return using operating−income numbers after considering accruals and​ taxes, whereas the IRR method calculates the return using after−tax cash flows and the time value of money. D. The AARR method considers cash​ flows, whereas the IRR method considers operating income.

C

A learning curve is a function​ ________. A. that is linear B. where unit costs increase as productivity increases C. that increases at a greater rate as workers become more familiar with their tasks D. that measures the decline in​ labor-hours per unit due to workers becoming better at a job

D

An example of a sunk cost in a capital budgeting decision for new equipment is​ ________. A. the initial investment in a new equipment B. the initial investment in working capital C. the necessary transportation costs on a new equipment D. the original price of an old equipment

D

If the total cost function is y​ = 6,500​ + 9X, calculate the variable cost for​ 4,400 units. A. ​$58,500 B. ​$6,500 C. ​$46,100 D. ​$39,600

D

Which of following is a​ firm's risk of outsourcing the production of a​ part? A. increased need of skilled workers B. fluctuation in the manufacturing costs C. scarcity of indirect labor D. leakage of intellectual property

D

At the Spring Valley​ Company, the cost of the personnel department has always been charged to production departments based upon number of employees.​ Recently, opinions gathered from the department managers indicate that the number of new hires might be a better predictor of personnel costs. Total personnel department costs are​ $299,000. Department A B C Number of employees 80 280 225 Number of new hires 15 17 16 If the number of employees is considered the cost​ driver, what amount of personnel costs will be allocated to Department​ A? (Round any intermediary calculations to two decimal places and your final answer to the nearest​ dollar.) A. ​$143,111 B. ​$7,085 C. ​$44,874 D. ​$41,860

D 80+280+225=585 80/585=.14 .14*299000= 41860

High Traffic Products Corporation has two​ departments, Small and Large. Central costs could be allocated to the two departments in various ways. Small Department Large Department Square footage ​6,550 ​17,300 Number of employees ​1,080 470 Sales ​$330,000 ​$1,700,000 If total rent expense of​ $71,550 is allocated on the basis of square​ footage, the amount allocated to the Small Department would be​ ________. (Do not round interim calculations. Round the final answer to the nearest whole​ dollar.) A. ​$27,090 B. ​$35,775 C. ​$51,900 D. ​$19,650

D = $71,550 × (6,550 ÷ (6,550 + 17,300)) = $19,650

If there are non−uniform cash flows​ (cash flows that differ from year−to−​year), payback period is calculated by dividing net initial investment by uniform increase in annual future cash flows. True False

False

Indirect labor and distribution costs would most likely be in the same activity−cost pool. True False

False

As a discounted cash flow method does not report good operating income results in the​ project's early​ years, managers are tempted to not use discounted cash flow methods even though the decisions based on them would be in the best interests of the company as a whole over the long run. True False

True

Accrual accounting rate of return is calculated by dividing increase in expected average annual after−tax operating income by the net initial investment. True False

true

Inflation can distort data that are compared over time so purely inflationary effects should be removed. True False

true