cost accounting
28) These questions refer to flexible-budget variance formulas with the following descriptions for the variables: A = Actual; B = Budgeted; P = Price; Q = Quantity. The best label for the formula
(AP)(AQ) - (BP)(BQ)] is the ________. A) efficiency variance. B) price variance C) total flexible-budget variance D) spending variance [Answer: C Diff: 2 Objective: 5 AACSB: Analytical thinking Objective 7.6
2) Which of the following is a financial budget? A) budgeted balance sheet B) cash receivables budget C) production budget D) cost of goods sold budget
Answer: A Diff: 1 Objective: 1 AACSB: Analytical thinking
1) The flexible budget contains ________. A) budgeted amounts for actual output B) budgeted amounts for planned output C) actual costs for actual output D) actual costs for planned output
Answer: A Diff: 1 Objective: 2 AACSB: Analytical thinking
6) Standard cost per output unit for each variable direct cost input is calculated by multiplying ________. A) standard input allowed for one output unit by standard price per input unit B) standard input allowed for one output unit by actual price per input unit C) actual input allowed for one output unit by standard price per input unit D) actual input allowed for one output unit by actual price per input unit
Answer: A Diff: 1 Objective: 4 AACSB: Analytical thinking
27) Favorable direct manufacturing labor efficiency variances are ________. A) always credits B) always debits C) debited to the Work-in-Process Control account D) debited to the Wages Payable Control account
Answer: A Diff: 1 Objective: 5 AACSB: Analytical thinking
7) A master budget ________. A) is the initial plan of what the company intends to accomplish in the period and evolves from both the operating and financing decisions B) is a substitute for the management functions of planning and coordination C) improves companies' market capitalization and evolves from both the investing and financing decisions D) provides an ethical framework for decision making
Answer: A Diff: 2 Objective: 1 AACSB: Analytical thinking
9) Which of the following statements is true of budgets? A) Master budgets express management's operating and financial plans. B) Financial budgets are prepared before the master budget is prepared. C) Operating budgets are prepared independently of the master budget. D) Financial budgets are working documents at the core of the budgeting process.
Answer: A Diff: 2 Objective: 1 AACSB: Analytical thinking
5) A limitation of using past performance as a basis for judging actual results is that ________. A) future conditions can be different from the past B) any undervaluation of profits in the past period is likely to continue C) any subsequent change in accounting treatment will distort performance evaluation D) they tend to distort results when current and past conditions are similar
Answer: A Diff: 2 Objective: 2 AACSB: Analytical thinking
8) Which of the following is true of flexible budget? A) It calculates total variable cost by multiplying actual units by budgeted variable cost per unit. B) It calculates total fixed cost by multiplying actual units by budgeted fixed cost per unit. C) It calculates revenues by multiplying budgeted units by actual selling price per unit. D) It calculates contribution margin by multiplying budgeted units by actual contribution margin per unit.
Answer: A Diff: 2 Objective: 2 AACSB: Analytical thinking
18) Best products, an Atlanta based company, is in the midst of its budgeting process. It has already prepared its direct materials usage budget and is now in the process of preparing its direct material purchase budget. In addition to the details gathered to prepare the direct materials usage budget, Best also must know ________. A) the level of direct material inventory to be maintained B) the ratio of direct materials to cost of goods sold C) the beginning direct materials inventory level D) the quantity of direct materials to be purchased
Answer: A Diff: 2 Objective: 3 AACSB: Analytical thinking
3) ABC systems ________. A) highlight the different levels of activities B) limit cost drivers to units of output C) allocate costs based on the overall level of activity D) generally undercost complex products
Answer: A Diff: 2 Objective: 3 AACSB: Analytical thinking
5) A single indirect-cost rate distort product costs because ________. A) there is an assumption that all support activities affect all products B) it recognizes specific activities that are required to produce a product C) competitive pricing is ignored D) it assumes all costs are product costs
Answer: A Diff: 2 Objective: 3 AACSB: Analytical thinking
8) Activity-based costing (ABC) can eliminate cost distortions because ABC systems ________. A) establish a cause-and-effect relationship with the activities performed B) use single cost pool for all overhead costs, thereby enabling simplicity C) use a broad average to allocate all overhead costs D) never consider interactions between different departments in assigning support costs
Answer: A Diff: 2 Objective: 3 AACSB: Analytical thinking
1) Which of the following can be a reason for a favorable price variance for direct materials? A) a decrease in the price of materials due to an oversupply of materials B) an unexpected increase in the price of materials C) less amount of material used during production than planned for actual output D) workers taking less time to produce the products
Answer: A Diff: 2 Objective: 5 AACSB: Analytical thinking
2) Which of the following is a reason for a favorable material price variance? A) the purchasing manager bargaining effectively with suppliers B) the purchasing manager giving orders for small quantity to reduce storage cost C) the purchasing manager accepting a bid from the highest-priced supplier to ensure the quality of material D) the personnel manager hiring underskilled workers
Answer: A Diff: 2 Objective: 6 AACSB: Analytical thinking
5) An unfavorable flexible-budget variance for variable costs may be the result of ________. A) using more input quantities than were budgeted B) paying lower prices for inputs than were budgeted C) selling output at a higher selling price than budgeted D) selling less quantity compared to the budgeted
Answer: A Diff: 3 Objective: 2 AACSB: Analytical thinking
7) Which of the following information is needed to prepare a flexible budget? A) actual units sold B) actual variable cost C) actual selling price per unit D) actual fixed cost
Answer: A Diff: 3 Objective: 2 AACSB: Analytical thinking
15) The number of units in the sales budget and the production budget may differ because of a change in ________. A) finished goods inventory levels B) overhead charges C) direct material inventory levels D) sales returns and allowances
Answer: A Diff: 3 Objective: 3 AACSB: Analytical thinking
3) An unfavorable price variance for direct materials might indicate ________. A) that the purchasing manager purchased in smaller quantities due to a change to just-in-time inventory methods B) congestion due to scheduling problems C) that the purchasing manager skillfully negotiated a better purchase price D) that the market had an unexpected oversupply of those materials
Answer: A Diff: 3 Objective: 5 AACSB: Analytical thinking
8) Variance analysis should be used ________. A) to understand why variances arise and to improve future performance B) as the sole source of information for performance evaluation C) to punish employees that do not meet standards D) to set the standards which are very easy to achieve to encourage employees to focus on meeting standards
Answer: A Diff: 3 Objective: 6 AACSB: Analytical thinking
14) How much of the total costs will be assigned to Department A? A) $90,250 B) $90,650 C) $90,350 D) $90,750
Answer: A Explanation: A) Account inquiry costs = ($200,000 ÷ 10,000) × 2,500 = $50,000 Billing costs = ($140,000 ÷ 4,000,000) × 400,000 = $14,000 Account verification costs = ($75,000 ÷ 40,000) × 10,000 = $18,750 Correspondence costs = ($25,000 ÷ 4,000) × 1,200 = $7,500 $90,250 Diff: 3 Objective: 3 AACSB: Application of knowledge
23) The flexible-budget variance for variable costs is ________. A) $19,200 unfavorable B) $61,440 unfavorable C) $52,800 favorable D) $76,800 favorable
Answer: A Explanation: A) $307,200 − (12,000 × $360,000/15,000) = $19,200 U Diff: 2 Objective: 2 AACSB: Application of knowledge
10) How much of the account inquiry cost will be assigned to Department A? A) $50,000 B) $200,000 C) $60,000 D) $80,000
Answer: A Explanation: A) Account inquiry costs - Department A = ($200,000 ÷ 10,000) × 2,500= $50,000 Diff: 2 Objective: 3 AACSB: Application of knowledge
11) What is the static-budget variance of operating income? A) $85,000 favorable B) $90,000 unfavorable C) $110,000 favorable D) $105,000 unfavorable
Answer: A Explanation: A) Actual Static Static-budget Results Budget Variance Units sold 180,000 185,000 Revenues $3,780,000 $3,885,000 $(105,000) U Variable costs 1,080,000 1,295,000 (215,000) F Contribution margin $2,700,000 $2,590,000 110,000 F Fixed costs 800,000 775,000 25,000 U Operating income $1,900,000 $1,815,000 $85,000 F Diff: 3 Objective: 1 AACSB: Application of knowledge Objective 7.2
9) The direct manufacturing labor price variance during June is ________. A) $500 unfavorable B) $500 favorable C) $7,600 unfavorable D) 1,600 unfavorable
Answer: A Explanation: A) Direct manufacturing labor price variance = 1,000 dlh × ($30 − $30.50) = $500 U Diff: 2 Objective: 5 AACSB: Application of knowledge
8) The direct material price variance during June is ________. A) $7,600 unfavorable B) $1,600 favorable C) $1,600 unfavorable D) $500 favorable
Answer: A Explanation: A) Direct material price variance = 1,900 × ($64 − $60) = $7,600 U Diff: 2 Objective: 5 AACSB: Application of knowledge
14) Number of setups and number of components are identified as activity-cost drivers for overhead. Assuming an activity-based costing system is used, what is the total amount of overhead cost assigned to the deluxe model? A) $25,650 B) $24,350 C) $26,550 D) $25,350
Answer: A Explanation: A) Setups: 16,500 ÷ (15 + 35) = $330 Components: $23,500 ÷ (10 + 15) = $940 Total amount of overhead cost = ($330 × 35) + ($940 × 15) = $25,650 Diff: 3 Objective: 5 AACSB: Application of knowledge
12) If advertising expense of $125,000 is allocated on the basis of sales, the amount allocated to the Car Rental Department would be ________. A) $83,333.33 B) $87,777.67 C) $86,666.67 D) $85,467.33
Answer: A Explanation: A) The amount allocated to the Car Rental Department = $125,000 × [$750,000 ÷ ($750,000 + $375,000)] =$83,333.33 Diff: 3 Objective: 8 AACSB: Application of knowledge
12) Assume a traditional costing system applies the $40,000 of overhead costs based on direct labor hours. What is the total amount of overhead cost assigned to the deluxe model? A) $16,000 B) $24,000 C) $25,000 D) $15,000
Answer: A Explanation: A) [$40,000 / (750 + 500)] × 500 = $16,000 Diff: 2 Objective: 5 AACSB: Application of knowledge
9) Variances should be investigated ________. A) when they are kept below a certain amount B) when there is a small variance for critical items such as product defects C) even though the cost of investigation exceeds the benefit D) when there is an in-control occurrence
Answer: B
2) Management by exception is a practice whereby managers focus more closely on ________. A) a static budget B) areas that are not operating as anticipated C) activity-based costing D) exceptional decision-making models
Answer: B Diff: 1 Objective: 1 AACSB: Analytical thinking
3) A flexible budget ________. A) is another name for management by exception B) is developed at the end of the period C) is based on the budgeted level of output D) provides favorable operating results
Answer: B Diff: 1 Objective: 2 AACSB: Analytical thinking
19) Total finished units to be produced is based on the ________. A) direct material purchase budget B) budgeted sales units C) direct material usage budget D) budgeted manufacturing overhead
Answer: B Diff: 1 Objective: 3 AACSB: Analytical thinking
5) ABC assumes all costs are ________ because over the long run management can adjust the amount of resources employed. A) fixed B) variable C) committed D) nondiscretionary
Answer: B Diff: 1 Objective: 5 AACSB: Analytical thinkin
26) Unfavorable direct material price variances are ________. A) always credits B) always debits C) credited to the Materials Control account D) credited to the Accounts Payable Control account
Answer: B Diff: 1 Objective: 5 AACSB: Analytical thinking
2) Which of the following items will be same for a flexible budget and a master budget? A) total variable cost B) total fixed costs C) total contribution margin D) total revenues
Answer: B Diff: 2
10) A master budget forces managers to examine the business as they plan, so they can ________. A) detect inaccurate historical records to avoid errors in budgets B) set expectations against which actual results can be compared C) complete the budgeting task on time D) ensure that only financial risks and opportunities are incorporated
Answer: B Diff: 2 Objective: 1 AACSB: Analytical thinking
4) Which of the following is true of master budgets? A) They include only financial aspects of a plan and exclude nonfinancial aspects. B) They aid in coordinating what needs to be done to implement a plan. C) They aid in quantifying the expectations of all stakeholders. D) They must be administered rigidly after they are committed to.
Answer: B Diff: 2 Objective: 1 AACSB: Analytical thinking
5) A favorable variance indicates that ________. A) budgeted costs are less than actual costs B) actual revenues exceed budgeted revenues C) actual operating income is less than the budgeted amount D) budgeted contribution margin is more than the actual amount
Answer: B Diff: 2 Objective: 1 AACSB: Analytical thinking Answer the following questions using the information below:
4) Which of the following statements is true of activity-based costing? A) In activity-based costing, direct labor-hours is always the best allocation base to allocate all non-manufacturing indirect costs. B) Activity based costing is more suited to companies with high product diversity than companies with single product line. C) Activity based costing broadly averages or spreads the cost of resources uniformly to cost objects such as products or services. D) The main advantage of activity-based costing over peanut-butter costing is the accurate distribution of all direct costs to the products.
Answer: B Diff: 2 Objective: 3 AACSB: Analytical thinking
4) Which of the following is true of variance? A) Managers should interpret a favorable variance as "good news" or assume it means their subordinates performed well. B) A variance within an acceptable range is considered to be an "in-control occurrence" and calls for no investigation or action by managers. C) The purchasing manager secured a discount for buying in bulk with fewer purchase orders which results in unfavorable material price variance. D) Managers' performance must be evaluated solely on single variance.
Answer: B Diff: 2 Objective: 6 AACSB: Analytical thinking
4) A favorable efficiency variance for direct materials might indicate that ________. A) lower-quality materials were purchased B) work is scheduled efficiently C) there is an unexpected increase in direct labor rates D) management hired underskilled workers
Answer: B Diff: 3 Objective: 5 AACSB: Analytical thinking
6) An unfavorable efficiency variance for direct manufacturing labor might indicate that ________. A) there is unexpected increase in direct labor rates B) work is scheduled inefficiently C) lower-quality materials were purchased D) more higher-skilled workers were scheduled than planned
Answer: B Diff: 3 Objective: 5 AACSB: Analytical thinking
22) The flexible budget will report ________ for the fixed costs. A) $343,500 B) $270,000 C) $274,800 D) $216,000
Answer: B Explanation: B) $270,000, given in the static budget Diff: 2 Objective: 2 AACSB: Analytical thinking
12) How much of account verification costs will be assigned to Department A? A) $15,000 B) $18,750 C) $75,000 D) $5,000
Answer: B Explanation: B) Account verification costs - Department A = ($75,000 / 40,000) × 10,000 = $18,750 Diff: 2 Objective: 3 AACSB: Analytical thinking
Answer the following questions using the information below: Stark Corporation has two departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways. Car Rental Truck Rental Number of Vehicles in fleet 850 430 Number of employees 125 75 Sales $750,000 $375,000 10) If administrative expense of $62,500 is allocated on the basis of number of employees, the cost per cost driver rate would be ________. A) $500.00 B) $312.50 C) $833.33 D) $572.50
Answer: B Explanation: B) Cost per cost driver rate = $62,500 ÷ (125 + 75) =$ 312.50 Diff: 2 Objective: 8
13) Number of setups and number of components are identified as activity-cost drivers for overhead. Assuming an activity-based costing system is used, what is the total amount of overhead cost assigned to the standard model? A) $13,450 B) $14,350 C) $14,650 D) $15,150
Answer: B Explanation: B) Setups: 16,500 ÷ (15 + 35) = $330 Components: $23,500 ÷ (10 + 15) = $940 Total amount of overhead cost = ($330 × 15) + ($940 × 10) = $14,350 Diff: 3 Objective: 5 AACSB: Application of knowledge
8) Standard labor rate is $8 per hour. Standard labor allowed per unit is 0.6 hours. Actual cost per labor hour is $7.5 and actual labour hour per unit is 0.7 hours. What is the standard labor cost per output unit? A) $4.5 B) $4.8 C) $5.6 D) $5.25
Answer: B Explanation: B) Standard cost per output unit = Standard labor allowed per unit × Standard labor rate = $8 × 0.6 hours = $4.8 per unit Diff: 2 Objective: 4 AACSB: Application of knowledge
Contrafic Corporation used the following data to evaluate its current operating system. The company sells items for $21 each and used a budgeted selling price of $21 per unit. Actual Budgeted Units sold 180,000 units 185,000 units Variable costs $1,080,000 $1,295,000 Fixed costs $ 800,000 $ 775,000 9) What is the static-budget variance of revenues? A) $105,000 favorable B) $105,000 unfavorable C) $8,000 favorable D) $8,000 unfavorable
Answer: B Explanation: B) Static-budget variance of revenues = (180,000 units × $21) − (185,000 units × $21) = $105,000 U Diff: 2 Objective: 1 AACSB: Application of knowledge
15) If the facility lease expense of $384, 000 is allocated on the basis of vehicles in the fleet, the amount allocated to the Car Rental Department would be ________. A) $249,000 B) $255,000 C) $267,000 D) $261,000
Answer: B Explanation: B) The amount allocated to the Car Rental Department = $384,000 × [850 ÷ (850 + 430)] = $255,000 Diff: 2 Objective: 8 AACSB: Application of knowledge Chapter 6 Master Budget and Responsibility Accounting Objective 6.1
11) If administrative expense of $77,500 is allocated on the basis of number of employees, the amount allocated to the Car Rental Department would be ________. A) $47,387.50 B) $48,437.50 C) $46,877.50 D) $49,247.50
Answer: B Explanation: B) The amount allocated to the Car Rental Department = $77,500 × [125 ÷ (125 + 75)] =$48,437.50 Diff: 3 Objective: 8 AACSB: Application of knowledge
Trintal Corporation manufactures two models of motorized go-carts, a standard and a deluxe model. The following activity and cost information has been compiled: Number of Number of Number of Product Setups Components Direct Labor Hours Standard 15 10 750 Deluxe 35 15 500 Overhead costs $16,500 $23,500 11) Assume a traditional costing system applies the $40,000 of overhead costs based on direct labor hours. What is the total amount of overhead cost assigned to the standard model? A) $16,000 B) $24,000 C) $25,000 D) $15,000
Answer: B Explanation: B) [$40,000 / (750 + 500)] × 750 = $24,000 Diff: 2 Objective: 5 AACSB: Application of knowledge
3) A variance is ________. A) the difference between actual fixed cost per unit and standard variable cost per unit B) the standard units of inputs for one output C) the difference between an actual result and a budgeted performance D) the difference between actual variable cost per unit and standard fixed cost per unit
Answer: C 16 Copyright © 2015 Pearson Education, Inc. Diff: 1 Objective: 1 AACSB: Analytical thinking
14) The revenues budget identifies ________. A) expected cash flows for each product B) actual sales from last year for each product C) the expected level of sales for the company D) the variance of sales from actual for each product
Answer: C Diff: 1 Objective: 3 AACSB: Analytical thinking
6) A manufacturing firm produces multiple families of products requiring various combinations of different types of parts. Of the following, the most appropriate cost driver for assigning materials handling costs to the various products is ________. A) direct labor hours B) number of units produced C) number of parts used D) number of suppliers involved
Answer: C Diff: 1 Objective: 5 AACSB: Analytical thinking
4) An unfavorable variance indicates that ________. A) the actual costs are less than the budgeted costs B) the actual revenues exceed the budgeted revenues C) the actual units sold are less than the budgeted units D) the budgeted contribution margin is more than the actual amount
Answer: C Diff: 2 Objective: 1 AACSB: Analytical thinking
3) Which of the following is a limitation of using past performance as a basis for judging actual results? A) It does not account for productivity increases over the periods. B) It increases the incentive for managers to introduce budgetary slack. C) It does consider inefficiencies of previous periods. D) It increases the tendency of senior managers exaggerating changes in future conditions as opposed to changes in current conditions.
Answer: C Diff: 2 Objective: 2 AACSB: Analytical thinking
6) In a flexible budget ________. A) variable costs are calculated proportionately for the budgeted level of sales B) fixed costs are calculated proportionately for the actual level of sales C) fixed costs are kept at the same level of static budget D) variable costs are kept at the same level of static budget
Answer: C Diff: 2 Objective: 2 AACSB: Analytical thinking
17) Budgeted production equals ________. A) beginning finished goods inventory + budgeted unit sales - targeted ending finished goods inventory B) targeted ending finished goods inventory + beginning finished goods inventory - budgeted unit sales C) budgeted unit sales + targeted ending finished goods inventory - beginning finished goods inventory D) budgeted unit sales + targeted ending finished goods inventory + beginning finished goods inventory
Answer: C Diff: 2 Objective: 3 AACSB: Analytical thinking
7) Which of the following statements is true of activity-based costing? A) Activity-based costing ignores the allocation of marketing and distribution costs. B) Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products. C) Activity-based costing classifies some of the indirect costs as direct costs. D) Chances of product-cost cross-subsidization are higher in activity-based costing compared to traditional costing systems.
Answer: C Diff: 2 Objective: 3 AACSB: Analytical thinking
2) For a company which produce its products in batches, the CEO's salary is a(n) ________ cost. A) batch-level B) output unit-level C) facility-sustaining D) product-sustaining
Answer: C Diff: 2 Objective: 4 AACSB: Analytical thinking
2) A favorable efficiency variance for direct manufacturing labor indicates that ________. A) a lower wage rate than planned was paid for direct labor B) a higher wage rate than planned was paid for direct labor C) less direct manufacturing labor-hours were used during production than planned for actual output D) more direct manufacturing labor-hours were used during production than planned for actual output
Answer: C Diff: 2 Objective: 5 AACSB: Analytical thinking
5) A favorable price variance for direct manufacturing labor might indicate that ________. A) employees were paid more than planned B) unexpected increase in direct labor rates C) underskilled employees are being hired D) congestion due to scheduling problems
Answer: C Diff: 3 Objective: 5 AACSB: Analytical thinking
15) How much of the total costs will be assigned to Department B? A) $117,350 B) $113,250 C) $113,750 D) $112,350
Answer: C Explanation: C) Account inquiry costs = ($200,000 ÷ 10,000) × 4,000 = $80,000 Billing costs = ($140,000 ÷ 4,000,000) × 250,000 = $ 8,750 Account verification costs = ($75,000 ÷ 40,000) × 8,000 = $15,000 Correspondence costs = ($25,000 ÷ 4,000) × 1,600 = $10,000 $113,750 Objective 5.4
Answer the following questions using the information below: The actual information pertains to the month of September. As a part of the budgeting process, Twilith Fencing Company developed the following static budget for September. Twilith is in the process of preparing the flexible budget and understanding the results. Actual Flexible Static Results Budget Budget Sales volume (in units) 12,000 15,000 Sales revenues $600,000 $ $750,000 Variable costs 307,200 $ ________ 360,000 Contribution margin 292,800 $ 390,000 Fixed costs 274,800 $ ________ 270,000 Operating profit $ 18,000 $ $ 120,000 21) The flexible budget will report ________ for variable costs. A) $245,760 B) $360,000 C) $288,000 D) $384,000
Answer: C Explanation: C) 12,000 units × $360,000 / 15,000 = $288,000 Diff: 2 Objective: 2 AACSB: Application of knowledge
11) How much of the account billing cost will be assigned to Department B? A) $8,500 B) $8,250 C) $8,750 D) $8,540
Answer: C Explanation: C) Billing costs - Department B = ($140,000 ÷ 4,000,000) × 250,000 = $8,750 Diff: 2 Objective: 3 AACSB: Application
13) How much of correspondence costs will be assigned to Department A? A) $4,000 B) $6,250 C) $7,500 D) $10,000
Answer: C Explanation: C) Correspondence costs - Department A = ($25,000 ÷ 4,000) × 1,200 = $7,500 Diff: 2 Objective: 3 AACSB: Application of knowledge
Answer the following questions using the information below: Animent Industries, Inc. (AII), developed standard costs for direct material and direct labor. In 2015, AII estimated the following standard costs for one of their major products, the 10-gallon plastic container. Budgeted quantity Budgeted price Direct materials 0.10 pounds $60 per pound Direct labor 0.05 hours $30 per hour During June, AII produced and sold 20,000 containers using 1,900 pounds of direct materials at an average cost per pound of $64 and 1,000 direct manufacturing labor-hours at an average wage of $30.50 per hour. 7) June's direct material flexible-budget variance is ________. A) $7,200 unfavorable B) $600 favorable C) $1,600 unfavorable D) $500 favorable
Answer: C Explanation: C) Flexible-budget variance = (1,900 × $64) − (20,000 × 0.10 × $60) = $1,600 U Diff: 2 Objective: 5 AACSB: Application of knowledge
25) Orange Corporation has budgeted sales of 16,000 units, targeted ending finished goods inventory of 4,000 units, and beginning finished goods inventory of 2,000 units. How many units should be produced next year? A) 22,000 units B) 20,000 units C) 18,000 units D) 16,000 units
Answer: C Explanation: C) Number of units to be produced next year = 16,000 units (estimated sales) + 4,000 units (budgeted ending inventory) - 2,000 units (opening inventory) = 18,000 units. Diff: 2 Objective: 3 AACSB: Application of knowledge
6) Extracts from cost information of Hebar Corp.: Simple L3 Pack Complex L7 Pack Total Setup cost allocated using direct labor-hours $18,750 $6,250 $25,000 Setup cost allocated using setup-hours $13,200 $11,800 $25,000 Which of the following statement is true of Hebar's setup costs under traditional costing? A) L3 pack is undercosted by $5,550 B) L7 pack is undercosted by $5,450 C) L3 pack is overcosted by $5,550 D) L7 pack is overcosted by $5,550
Answer: C Explanation: C) Setup cost allocated using direct labor-hours - Setup cost allocated using setup-hours = $18,750 − $13,200 = $5,550 Diff: 2 Objective: 3 AACSB: Application of knowledge
7) Standard material cost per kg of raw material is $5. Standard material allowed per unit is 2 Kg. Actual material used per unit is 2.5 Kg. Actual cost per kg is $4.5. What is the standard cost per output unit? A) $9 B) $11.25 C) $10 D) $12.5
Answer: C Explanation: C) Standard cost per output unit = Standard material cost per kg × standard material allowed per unit = $5 × 2kg = $10 Diff: 2 Objective: 4 AACSB: Application of knowledge 21
10) What is the static-budget variance of variable costs? A) $25,000 favorable B) $25,000 unfavorable C) $215,000 favorable D) $215,000 unfavorable
Answer: C Explanation: C) Static-budget variance of variable costs = $1,080,000 − $1,295,000 = $215,000 F Diff: 2 Objective: 1 AACSB: Application of knowledge
14) If the facility lease expense of $384,000 is allocated on the basis of vehicles in the fleet, the amount allocated to the Truck Rental Department would be ________. A) $125,000 B) $127,000 C) $129,000 D) $123,000
Answer: C Explanation: C) The amount allocated to the Truck Rental Department = $384,000 × [430 ÷ (850 + 430)] = $129,000 Diff: 2 Objective: 8 AACSB: Application of knowledge
13) If advertising expense of $112,500 is allocated on the basis of sales, the cost per cost driver rate would be ________. A) $0.15 B) $0.11 C) $0.10 D) $0.13
Answer: C Explanation: C) The cost per cost driver rate = $112,500 ÷ ($750,000 + $375,000)] = $0.10 Diff: 2 Objective: 8 AACSB: Application of knowledge
26) For next year, Roberto, Inc., has budgeted sales of 15,000 units, targeted ending finished goods inventory of 750 units, and beginning finished goods inventory of 450 units. All other inventories are zero. How many units should be produced next year? A) 14,700 units B) 15,000 units C) 15,300 units D) 16,200 units
Answer: C Explanation: C) Units to be produced next year = 15,000 units (estimated sales) + 750 units (budgeted ending inventory) - 450 units (opening inventory) = 15,300 units Diff: 2 Objective: 3 AACSB: Application of knowledge
2) A budget is an end product of negotiations among senior and subordinate mangers because ________. A) budgeting is their mutual responsibility B) senior managers alone cannot spare the time required for the budgeting process C) senior managers are responsible for providing information on competitors performance and subordinate managers are responsible for information on external market conditions D) senior managers want stiffer targets and subordinates want relatively easy targets
Answer: D
1) Which of the following is true of a budget? A) Budgets are used to express only the operational plans and not the strategic plans of a company. B) Budgets do not account for nonfinancial aspects of the upcoming period. C) Budgets are most useful when they are planned independent of the company's strategic plans. D) Budgets help managers to revise their plans and strategies.
Answer: D Diff: 1 Objective: 1 AACSB: Analytical thinking
2) Activity based costing system differs from traditional costing systems in the treatment of ________. A) direct labor costs B) direct material costs C) prime costs D) indirect costs
Answer: D Diff: 1 Objective: 3 AACSB: Analytical thinking
5) The ________ is a component of financial budgets. A) cost of goods sold budget B) marketing costs budget C) distribution costs budget D) cash budget
Answer: D Diff: 1 Objective: 3 AACSB: Analytical thinking A) Revenue budgets B) Financial budgets C) Operating budgets D) Production budgets Answer: B Diff: 1 Objective: 3 AACSB: Analytical thinking
1) ________ is an example of an output unit-level cost in the cost hierarchy. A) Factory rent expense B) Building security costs C) Top management compensation costs D) Machine depreciation
Answer: D Diff: 1 Objective: 4 AACSB: Analytical thinking
3) Top management compensation cost is an example of ________ in the cost hierarchy. A) unit-level costs B) batch-level costs C) product-sustaining costs D) facility-sustaining costs
Answer: D Diff: 1 Objective: 4 AACSB: Analytical thinking
4) ________ costs support the organization as a whole. A) Unit-level B) Batch-level C) Product-sustaining D) Facility-sustaining
Answer: D Diff: 1 Objective: 4 AACSB: Analytical thinking
5) A price variance reflects the difference between ________. A) a standard input price in a company and its competitor B) an actual input price used last period and current period C) an actual input price used in a company and its competitor D) an actual input price and a budgeted input price
Answer: D Diff: 1 Objective: 4 AACSB: Analytical thinking
5) It is usually difficult to find good cause-and-effect relationships between ________ and a cost allocation base. A) unit-level costs B) batch-level costs C) product-sustaining costs D) facility-sustaining costs
Answer: D Diff: 1 Objective: 4 AACSB: Analytical thinking Objective 5.5
3) Efficiency is ________. A) the degree to which a predetermined objective or target is met B) the difference between an actual input quantity and a budgeted input quantity C) the continuous process of comparing a firm's performance levels against the best levels of performance in competing companies D) the relative amount of inputs used to achieve a given output level
Answer: D Diff: 1 Objective: 6 AACSB: Analytical thinking
3) Budgets are used to ________. A) increase the book value of its assets B) communicate with external stakeholders C) calculate the income tax liability D) formulate company strategies
Answer: D Diff: 2 Objective: 1 AACSB: Analytical thinking
4) Challenging budgets tend to ________. A) discourage out-of-the-box and creative thinking as there is very little room for error B) set unrealistic expectations and are perceived as overly ambitious and unachievable C) increase anxiety without motivation not meeting them is viewed as a failure D) motivate improved performance as employees work more intensely to avoid failure
Answer: D Diff: 2 Objective: 2 AACSB: Analytical thinking
9) A flexible-budget variance is $600 favorable for unit-related costs. This indicates that costs were ________. A) $600 more than the master budget B) $600 less than for the planned level of activity C) $600 more than standard for the achieved level of activity D) $600 less than standard for the achieved level of activity
Answer: D Diff: 2 Objective: 2 AACSB: Analytical thinking
22) When direct material and direct labor is the limiting factor, revenue budgets are usually based on ________. A) expected demand of the company's products B) the capital in the budget period C) the supply of indirect material and labor in the market D) maximum units that can be manufactured
Answer: D Diff: 2 Objective: 3 AACSB: Analytical thinking
9) Product lines that produce different variations (models, styles, or colors) often require specialized manufacturing activities that translate into ________. A) fewer indirect costs for each product line B) decisions to drop product variations C) a greater number of direct manufacturing labor cost allocation rates D) greater overhead costs for each product line
Answer: D Diff: 2 Objective: 3 AACSB: Analytical thinking Premium Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry $200,000 10,000 hours Account billing $140,000 4,000,000 lines Account verification accounts $75,000 40,000 accounts Correspondence letters $ 25,000 4,000 letters Total costs $440,000 The above activities are used by Departments A and B as follows: Department A Department B Account inquiry hours 2,500 hours 4,000 hours Account billing lines 400,000 lines 250,000 lines Account verification accounts 10,000 accounts 8,000 accounts Correspondence letters 1,200 letters 1,600 letters
1) Put the following ABC implementation steps in order ________. A Compute the allocation rates. B Compute the total cost of the products. C Identify the products that are the cost objects. D Select the cost allocation bases. A) DACB B) DBCA C) BADC D) CDAB
Answer: D Diff: 2 Objective: 5 AACSB: Analytical thinking
9) Which of the following is referred to as the bottom-up aspect of the budgeting process? A) lower-level managers setting their individual targets that aggregate to be the company-wide target B) senior managers consulting middle- and lower-level managers to investigate any deviations from the budget C) lower-level managers implementing the budgets with senior managers monitoring progress and investigating deviations D) lower-level managers providing inputs to the budgeting process based on their specialized knowledge
Answer: D Diff: 3 Objective: 2 AACSB: Analytical thinking
1) A purchasing manager's performance is best evaluated using the ________. A) direct materials price variance B) direct materials flexible-budget variance C) direct manufacturing labor flexible-budget variance D) affect the manager's action has on total costs for the entire company
Answer: D Diff: 3 Objective: 6 AACSB: Analytical thinking
27) Antique Brass Company has budgeted sales volume of 120,000 units and budgeted production of 108,000 units, while 20,000 units are in beginning finished goods inventory. How many units are targeted for ending finished goods inventory? A) 20,000 units B) 32,000 units C) 12,000 units D) 8,000 units
Answer: D Explanation: D) 108,000 units (Budgeted production) + 20,000 units (Beginning finished goods inventory) - 120,000 units (Budgeted sales) = 8,000 units (Budgeted ending finished goods inventory) Diff: 2 Objective: 3 AACSB: Application of knowledge
10) The direct manufacturing labor efficiency variance during June is ________. A) $125 unfavorable B) $500 favorable C) $1,600 unfavorable D) $0
Answer: D Explanation: D) Direct manufacturing labor efficiency variance = [1,000 dlh − (20,000 × 0.05)] × $30 = $0 Diff: 2 Objective: 5 AACSB: Application of knowledge
