Quiz+1+key - A202 Spring 2010 Quiz 1A KEY Worth 20 points...

A202 Spring 2010 Quiz 1A KEY Worth 20 points
True-false questions: Please circle your answer. (1 point each.)
T F 1. For a student choosing between two colleges, researching the cost of tuition, room, and board
at each college is part of step three in the four-step decision-making framework. True. Step 3
includes measuring the costs of each option.
T F 2. The position of treasurer manages the day-to-day accounting of a firm, and also oversees the
internal audit function. False. The treasurer manages the firm’s cash flow and serves as the
contact point for banks, bondholders, and other creditors.
T F 3. All fixed costs are also non-controllable costs. False. A cost may be fixed in its behavior (not
changing in total as volume changes), but controllable with respect to a particular decision.
T F 4. Production equipment depreciation is an example of a conversion cost. True. Conversion
costs include direct labor and overhead; production equipment is part of overhead.
T F 5. If the Kelley Undergraduate building is the cost object, the cost of cleaning supplies used to
clean the building is a direct cost. True. The entire cost of the cleaning supplies can be easily
traced to the cost object.
T F 6. Although firms are not required to include capacity costs on their income statements, many
choose to do so anyway. False. Firms are required under GAAP to include capacity costs on
their income statements.
7. Short answer question: Please keep your answer to one or two sentences.
GAAP does not allow firms to include most research and development costs with their inventoriable (i.e.
product) costs. Why do you think GAAP takes this approach to R & D? (2 pts)
Be generous with your grading. Answer should include mention of at least one of the following:
- The matching principle (R&D would be difficult to match with the revenue generated by any particular
goup of products or services sold)
- R & D does not relate directly to readying products or services for sale, so is not considered a product
cost
8. Corn State University is facing a budget crunch and is deciding between laying off 5% of its
maintenance staff, or 10% of its maintenance staff. The remaining workers will be expected to take on the
duties formerly performed by the laid off workers, but without working any extra hours. Given this
decision setting, for each of the costs listed below, check all boxes that describe that cost . (3 pts)
Controllable? Relevant?
Maintenance workers’ wages XXX XXX
Depreciation, maintenance equipment (assume 5 yr life,
straight-line depreciation)
Utilities for dormitories
For each of the three costs, subtract 1 point if correct boxes aren’t checked for that cost.

Quiz 1A key, cont’d
9. Jasper Products recorded the following costs and other activity for 2009:
Direct labor $200,000
Direct materials 400,000
Overhead 500,000
Selling and admin. 160,000
Labor hours 10,000
Machine hours 50,000
Jasper Products produces grills, torches, and ovens. Here is information about the products for 2009:
Grills 12,000 machine hours 3,000 labor hours
Torches 5,000 machine hours 2,000 labor hours
Ovens 3,000 machine hours 5,000 labor hours
The company allocates overhead cost using labor hours as the cost driver.