daf

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

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

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

3. Homogeneity is used to a. develop cost pools in which the costs have the same or similar cost-allocation base. b. develop cost pools of similar amounts for allocation purposes. c. develop cost pools based upon similarity of origination of costs to be allocated. d. develop cost pools only for activity-based costing.

a

Brant Corporation manufactures two products out of a joint process—Scout and Andro. The joint (common) costs incurred are $400,000 for a standard production run that generates 70,000 pounds of Scout and 30,000 pounds of Andro. Scout sells for $9.00 per pound whereas Andro sells for $7.00 per pound. 4. [CMA Adapted] If additional processing costs beyond the splitoff point are $1.00 per pound for Scout and $2.333 per pound for Andro, the amount of joint cost of each production run allocated to Andro on an estimated net-realizable value basis is a. $80,000. b. $147,350. c. $175,000. d. $320,000.

a

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

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

4. Information about price discounting can be useful in analyzing revenues of customers if a. sales people are properly trained in sales forecasting. b. records in the information system are kept of reductions in selling price below list price. c. a strictly enforced company policy is in place regarding volume-based price discounts. d. sales people are on an incentive plan that is based on revenues.

b

6. [CPA Adapted] For purposes of allocating joint costs to joint products, the sales-value at splitoff method could be used in which of the following situations? No costs Cost beyond beyond splitoff splitoff a. Yes No b. Yes Yes c. No Yes d. No No

b

7. Products G and H are joint products developed from the same process with each being processed further. Joint costs are incurred until splitoff, the separable costs are incurred in further refining each product. Sales values of G and H at splitoff are used to allocate joint costs. If the sales value of G at splitoff increases and all other costs and selling prices remain unchanged, joint costs allocated to: G H a. increases increases b. increases decreases c. decreases decreases d. decreases increases

b

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

9. [CPA Adapted] In accounting for byproducts, the value of the byproduct may be recognized at the time of Production Sale a. Yes No b. Yes Yes c. No No d. No Yes

b

Brant Corporation manufactures two products out of a joint process—Scout and Andro. The joint (common) costs incurred are $400,000 for a standard production run that generates 70,000 pounds of Scout and 30,000 pounds of Andro. Scout sells for $9.00 per pound whereas Andro sells for $7.00 per pound. 1. [CMA Adapted] If there are no additional processing costs incurred after the splitoff point, the amount of joint cost of each production run allocated to Scout on a physical-quantity basis is a. $300,000. b. $280,000. c. $120,000. d. $100,000.

b

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 50 10 minutes Advanced Gizmo 15 25 20 minutes 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

Natural Nutrients Bakery of Springfield produces three flavors of cat morsels that have budgeted and actual sales data for a bag of a dozen of their cat morsels as follows for December 2008: Budgeted Data Actual Data TunaFest ChikBits ChezNips TunaFest ChikBits ChezNips Bags 7,200 4,800 4,000 10,800 3,600 7,200 CM per bag $2.50 $4.00 $5.00 $2.00 $3.00 $7.50 Cont. Margin $18,000 $19,200 $20,000 $21,600 $10,800 $54,000 Total Contribution Margin $57,200 $86,400 According to company forecasts, they were budgeting to earn a 25 percent market share in total units (bags) of specially prepared cat treats sold in December 2008 in Springfield. Reliable industry sources indicate that the total number of bags of cat treats sold for December 2008 in Springfield was 72,000. 6. The amount of Natural Nutrients Bakery's sales-volume variance for December 2008 is a. $3,600 F. b. $20,200 F. c. $20,020 F. d. $29,200 F.

b

[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

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

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

2. Which of the following is considered more of a matter of judgment rather than an operational criterion? a. Cause-and-effect b. Benefits received c. Fairness or equity d. Ability to bear

c

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

5. Which of the factors that managers must consider in deciding the allocation of resources across customers might provide misleading signals about dropping a current customer? a. Potential for customer growth b. Likelihood of customer retention c. Long-run customer profitability d. Ability to learn from customer

c

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

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

8. [CPA Adapted] Tanner Company manufactures products Katran and Klare from a joint process. Product Katran has been allocated $7,500 of total joint costs of $30,000 for the 1,500 units produced. Katran can be sold at the splitoff point for $4 per unit, or it can be processed further with additional costs of $2,000 and sold for $7 per unit. If Katran is processed further and sold, the result would be a. a breakeven situation. b. an overall loss of $1,500. c. a gain of $2,500 from further processing. d. a gain of $1,000 from further processing.

c

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

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. [CMA Adapted] Alvin's 2008 operating income using absorption costing is a. $840,000. b. $800,000. c. $440,000. d. $200,000.

c

Brant Corporation manufactures two products out of a joint process—Scout and Andro. The joint (common) costs incurred are $400,000 for a standard production run that generates 70,000 pounds of Scout and 30,000 pounds of Andro. Scout sells for $9.00 per pound whereas Andro sells for $7.00 per pound. 3. [CMA Adapted] If additional processing costs beyond the splitoff point are $1.00 per pound for Scout and $2.333 per pound for Andro, the amount of joint cost of each production run allocated to Andro on a physical-quantity basis is a. $300,000. b. $280,000. c. $120,000. d. $100,000.

c

Brant Corporation manufactures two products out of a joint process—Scout and Andro. The joint (common) costs incurred are $400,000 for a standard production run that generates 70,000 pounds of Scout and 30,000 pounds of Andro. Scout sells for $9.00 per pound whereas Andro sells for $7.00 per pound. 5. Assume the same cost information as in question 4. The amount of joint cost of each production run allocated to Scout using the constant gross-margin percentage NRV method is a. $224,910. b. $260,120. c. $335,090. d. $405,090.

c

Natural Nutrients Bakery of Springfield produces three flavors of cat morsels that have budgeted and actual sales data for a bag of a dozen of their cat morsels as follows for December 2008: Budgeted Data Actual Data TunaFest ChikBits ChezNips TunaFest ChikBits ChezNips Bags 7,200 4,800 4,000 10,800 3,600 7,200 CM per bag $2.50 $4.00 $5.00 $2.00 $3.00 $7.50 Cont. Margin $18,000 $19,200 $20,000 $21,600 $10,800 $54,000 Total Contribution Margin $57,200 $86,400 According to company forecasts, they were budgeting to earn a 25 percent market share in total units (bags) of specially prepared cat treats sold in December 2008 in Springfield. Reliable industry sources indicate that the total number of bags of cat treats sold for December 2008 in Springfield was 72,000. 7. The sales-quantity variance for December 2008 for Natural Nutrients Bakery is a. $3,600 F. b. $20,200 F. c. $20,020 F. d. $29,200 F.

c

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

1. Which of the following is not a primary purpose given in the text for allocating costs? a. To provide information for economic decisions b. To motivate managers and other employees c. To measure income and assets for reporting to external parties d. To foster cost awareness among managers to improve decisions

d

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

10. [CPA Adapted] Mohler Corporation manufactures a product that yields the byproduct Jep. The only costs associated with Jep are selling costs of $0.10 for each unit sold. Mohler accounts for sales of Jep by deducting Jep's separable costs from Jep's sales and then deducting this net amount from the major product's cost of goods sold. Jep's sales were 200,000 units at $1.00 each. If Mohler changes its method of accounting for Jep's sales by showing the net amount as additional sales revenue, the Mohler's gross margin would a. increase by $180,000. b. increase by $200,000. c. increase by $220,000. d. be unaffected.

d

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

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

Brant Corporation manufactures two products out of a joint process—Scout and Andro. The joint (common) costs incurred are $400,000 for a standard production run that generates 70,000 pounds of Scout and 30,000 pounds of Andro. Scout sells for $9.00 per pound whereas Andro sells for $7.00 per pound. 2. [CMA Adapted] If there are no additional processing costs incurred after the splitoff point, the amount of joint cost of each production run allocated to Andro on a sales value at splitoff basis is a. $300,000. b. $225,000. c. $175,000. d. $100,000.

d

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 50 10 minutes Advanced Gizmo 15 25 20 minutes 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. $265.

d

Natural Nutrients Bakery of Springfield produces three flavors of cat morsels that have budgeted and actual sales data for a bag of a dozen of their cat morsels as follows for December 2008: Budgeted Data Actual Data TunaFest ChikBits ChezNips TunaFest ChikBits ChezNips Bags 7,200 4,800 4,000 10,800 3,600 7,200 CM per bag $2.50 $4.00 $5.00 $2.00 $3.00 $7.50 Cont. Margin $18,000 $19,200 $20,000 $21,600 $10,800 $54,000 Total Contribution Margin $57,200 $86,400 According to company forecasts, they were budgeting to earn a 25 percent market share in total units (bags) of specially prepared cat treats sold in December 2008 in Springfield. Reliable industry sources indicate that the total number of bags of cat treats sold for December 2008 in Springfield was 72,000. 8. The sales-mix variance for December 2008 for Natural Nutrients Bakery is a. $8,600 F. b. $8,760 F. c. $160 F. d. $180 F.

d