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If substantial batch-level or product-level costs exist, then overhead allocation based on a measure of volume such as direct labor-hours alone: a)...

1.
If substantial batch-level or product-level costs exist, then overhead allocation based on a measure of volume such as direct labor-hours alone:

a)
is a key aspect of the activity-based costing model.
b)
will systematically overcost high-volume products and undercost low-volume products.
c)
will systematically overcost low-volume products and undercost high-volume products.
d)
must be used for external financial reporting since activity-based costing cannot be used for external reporting purposes.

2.
The opportunity cost of using one unit of the constrained resource in a volume trade-off decision is equal to:

a)
the profitability index for the company's best selling product.
b)
the profitability index for the product whose production would be cut back if necessary.
c)
the profitability index of the product with the fastest growing sales.
d)
the profitability index of the company's most profitable product.

3.
Of the following transfer pricing methods which is often regarded as the best?

a)
Administered transfer price
b)
Market-based transfer price
c)
Cost-based transfer price
d)
Negotiated transfer price

4.
A good description of "cost of goods manufactured" is the recorded cost of the:

a)
units completed during the period.
b)
units started and completed during the period.
c)
work done on all units during the period.
d)
work done this period on units completed this period.

5.
A company has two divisions, the Selling Division and the Buying Division. The Selling Division manufactures an intermediate product and then "sells" them to the Buying Division, which completes the product and sells the final product to retailers. The market price for the Buying Division to purchase one unit of the intermediate product is $20. Fixed costs assume 100,000 units.
Unit costs for the intermediate product of the Selling Division are:
Direct materials $4
Direct labor $3
Variable overhead $2
Division fixed costs $1
Unit costs for the final product of the Buying Division (excluding the intermediate product) are:
Direct materials $5
Direct labor $1
Variable overhead $1
Division fixed costs $9
Assume the transfer price for the intermediate product is 180% of full costs of the Selling Division and 100,000 units are produced and transferred to the Buying Division. The Selling Division's operating income is:

a)
$800,000
b)
$900,000
c)
$1,280,000
d)
$1,800,000

6.
Last month the cost of goods sold of a merchandising company was $86,000. The company's beginning merchandise inventory was $20,000 and its ending merchandise inventory was $21,000. What was the total amount of the company's merchandise purchases for the month?

a)
$86,000
b)
$127,000
c)
$87,000
d)
$85,000

7.
A company produces and sells a single product. Data concerning that product appear below:
Selling price $240.00
Variable expense per unit $81.60
Fixed expense per month $997,920
The unit sales to attain the company's monthly target profit of $44,000 is closest to:

a)
7,896
b)
12,769
c)
6,578
d)
4,341

8.
Holding all other things constant, if fixed costs increase, the profit-maximizing price will:

a)
increase.
b)
remain the same.
c)
decrease.
d)
The effect cannot be determined.

9.
When capacity is insufficient in the short run to meet demand, products should be ranked by:

a)
the contribution margin per unit divided by the amount of the constrained resource required by one unit
b)
total contribution margin divided by the number of units
c)
total contribution margin
d)
the absolute profitability index

10.
After the level of sales volume exceeds the breakeven point:

a)
the contribution margin ratio increases
b)
the total contribution margin will turn from negative to positive
c)
the total contribution margin exceeds the total fixed costs
d)
total fixed costs per unit will remain constant.

11.
A company currently operates two stores, Uptown and Midtown:
Last year's results Uptown Midtown
Sales revenues $300,000 $400,000
Variable costs (120,000) (140,000)
Contribution margin $180,000 $260,000
Store related fixed costs (100,000) (100,000)
Allocated common fixed costs (90,000) (120,000)
Operating income (loss) ($10,000) $40,000
The company is considering closing the Uptown store because of its sustained operating losses during the last two years. It is estimated that all of store related and 20% of common fixed costs allocated to Uptown can be avoided if the Uptown store is closed. What is the amount of avoidable costs if the Uptown store is closed?

a)
$100,000.
b)
$190,000.
c)
$118,000.
d)
$238,000.

12.
Oak Cabinets Company maintains a cafeteria for its employees. For June, total variable food costs were budgeted at $48 per employee, based on a budgeted level of 1,000 employees in operating departments. During the month, an average of 1,100 employees worked in operating departments. The cafeteria's actual total variable food costs for the month came to $57,750. How much variable food cost should be charged to the operating departments at the end of the month for performance evaluation purposes?

a)
$57,750
b)
$52,500
c)
$48,000
d)
$52,800

13.
A company uses a predetermined overhead rate based on direct labor cost to apply manufacturing overhead to jobs. The predetermined overhead rates for the year are 200% for Department A and 50% for Department B. Job 123, started and completed during the year, was charged with the following costs:
Dept. A Dept. B
Direct materials $25,000 $5,000
Direct labor ? $30,000
Manufacturing overhead $40,000 ?
The total manufacturing costs associated with Job 123 should be:

a)
$135,000
b)
$180,000
c)
$195,000
d)
$240,000

14.
A corporation manufactures and sells a product with the following expected sales:
Budgeted Unit Sales
October 28,000
November 25,000
December 31,000
Company policy requires a finished goods inventory equal to 30% of the next month's estimated unit sales. How many units should the company plan on producing during the month of November?

a)
23,200
b)
26,800
c)
25,900
d)
34,300

15.
For performance evaluation purposes, if budgeted fixed costs differ from actual fixed costs in a service department, this difference should be:

a)
allocated both to operating departments and to other service departments on the basis of usage.
b)
allocated to operating departments only on the basis of usage.
c)
allocated to other service departments only on the basis of usage.
d)
retained in the service department itself.

16.
A is a fixed cost; B is a variable cost. During the current year the level of activity has decreased but is still within the relevant range. We would expect that:

a)
The cost per unit of A has remained unchanged.
b)
The cost per unit of B has decreased.
c)
The cost per unit of A has decreased.
d)
The cost per unit of B has remained unchanged.

17.
The following information pertains to a company's cost-volume-profit relationships:
Breakeven point in units sold 1,000
Variable expenses per unit $500
Total fixed expenses $150,000
How much will be contributed to net operating income by the 1,001st unit sold?

a)
$650
b)
$500
c)
$150
d)
$0

18.
A company has the following preliminary budget assuming no advertising expenditures:
Selling price $10 per unit
Unit sales 100,000
Variable expenses $600,000
Fixed expenses $300,000
Based on a market study, the company estimated that it could increase the unit selling price by 15% and increase the unit sales volume by 10% if $100,000 were spent on advertising. Assuming that these changes are incorporated in its budget, what should be the budgeted net operating income?

a)
$175,000
b)
$190,000
c)
$205,000
d)
$365,000

19.
A company estimates the amount of materials handling overhead cost that should be allocated to the company's two products using the data given below:
Mirrors Windows
Total expected units produced 8,000 7,000
Total expected material moves 300 900
Expected direct labor-hours per unit 5 7
The total materials handling cost for the year is expected to be $38,448.00.
If the materials handling cost is allocated on the basis of direct labor-hours, how much of the total materials handling cost should be allocated to the mirrors? (Round off your answer to the nearest whole dollar.)

a)
$19,696
b)
$16,020
c)
$19,224
d)
$17,280

20.
A company estimates the amount of materials handling overhead cost that should be allocated to the company's two products using the data given below:
Mirrors Windows
Total expected units produced 8,000 7,000
Total expected material moves 300 900
Expected direct labor-hours per unit 5 7
The total materials handling cost for the year is expected to be $38,448.00. If the materials handling cost is allocated on the basis of material moves, how much of the total materials handling cost should be allocated to the windows? (Round off your answer to the nearest whole dollar.)

a)
$18,752
b)
$19,224
c)
$22,428
d)
$28,836

21.
A company manufactures three different product lines: Model X, Model Y and Model Z. Considerable market demand exists for all three models. Financial data per unit are below:
Model X Model Y Model Z
Selling price $50 $60 $70
Direct materials 6 6 6
Direct labor ($12 per hour) 12 12 24
Variable overhead costs ($4 per machine hour) 4 8 8
Fixed overhead costs 10 10 10
If there is a machine breakdown, which model is the most profitable to produce?

a)
Model x
b)
Model y
c)
Model z
d)
Both models x and y

22.
Which of the following statements is true about the Balanced Scorecard?

a)
financial performance and nonfinancial performance are always correlated
b)
all performance measures should be consistent with the organization's strategy
c)
all four perspectives of the BSC should receive equal weights for evaluating individual performance
d)
financial measures help predict future performance, while nonfinancial measures help assess the results of past management decisions.

23.
A job order cost system uses a predetermined overhead rate based on estimated activity and estimated manufacturing overhead cost. At the end of the year, underapplied overhead might be explained by which of the following situations?

a)
Actual activity Actual manufacturing overhead costs
Greater than estimated Greater than estimated

b)
Actual activity Actual manufacturing overhead costs
Greater than estimated Less than estimated

c)
Actual activity Actual manufacturing overhead costs
Less than estimated Greater than estimated

d)
Actual activity Actual manufacturing overhead costs
Less than estimated Less than estimated


24.
A company produces 1,000 units of a component per month. The total manufacturing costs of the component are as follows:
Direct materials $10,000
Direct labor 5,000
Variable overhead 5,000
Fixed overhead 30,000
Total manufacturing cost $50,000
An outside supplier has offered to supply the component at $30 per unit. It is estimated that 20% of the fixed overhead assigned to the component will no longer be incurred if the company purchases it from the outside supplier. What is the maximum price that the company should be willing to pay the outside supplier?

a)
$30 per unit.
b)
$26 per unit.
c)
$20 per unit.
d)
$15 per unit.

25.
A company is considering implementing an activity-based costing system with the following three activity cost pools:
Activity Cost Pool Total Activity
Fabrication 10,000 machine-hours
Order processing 800 orders
Other Not applicable
The Other activity cost pool will be used to accumulate costs of idle capacity and organization-sustaining costs. The company has provided the following data concerning its costs:
Wages and salaries $320,000
Depreciation 220,000
Occupancy 120,000
Total $660,000
The distribution of resource consumption across activity cost pools is given below:
Activity Cost Pools
Fabrication Order Processing Other Total
Wages and salaries 20% 65% 15% 100%
Depreciation 15% 35% 50% 100%
Occupancy 5% 70% 25% 100%
The activity rate for the Fabrication activity cost pool is closest to:

a)
$3.30 per machine-hour
b)
$13.20 per machine-hour
c)
$10.30 per machine-hour
d)
$8.80 per machine-hour

26.
The owner of a restaurant is contemplating investing in a new patio for outdoor dining. If net income for the patio is 15% of patio sales, $50,000 of average operating assets are used for the new patio, the minimum required return is 8%, and patio sales is $120,000, what is the residual income?

a)
$18,000
b)
36%
c)
$14,000
d)
24%

27.
A company currently operates two stores, Uptown and Midtown:
Last year's results Uptown Midtown
Sales revenues $300,000 $400,000
Variable costs (120,000) (140,000)
Contribution margin $180,000 $260,000
Store related fixed costs (100,000) (100,000)
Allocated common fixed costs (90,000) (120,000)
Operating income (loss) ($10,000) $40,000
The company is considering closing the Uptown store because of its sustained operating losses during the last two years. It is estimated that all of store related and 20% of common fixed costs allocated to Uptown can be avoided if the Uptown store is closed. What would be the effect on total operating income for last year if the Uptown store had been closed before Jan 1st?

a)
it would increase by $40,000
b)
it would decrease by $62,000
c)
it would increase by $8,000.
d)
it would increase by $118,000.

28.
A law firm would like to develop a method of predicting its total overhead costs in a period, based on the following records for the past two periods:
Total overhead costs $120,000 $132,000
Number of billable hours 300 360
Assuming X= billable hours and Y= total overhead costs, the best estimate of the cost formula for the company based on the high-low method is:

a)
Y = 60,000 + 200X
b)
Y = 200X - 60,000
c)
Y = 12,000 + 60X
d)
Y = 400 + 60X

29.
The employees at Mobile Sun Lotion Company roam the beaches with a tank of premium suntan lotion strapped on their backs. For a $2 charge, the employees will spray sunbathers with suntan lotion. Last year, Mobile sprayed 250,000 customers and incurred the following costs:
Total variable costs $175,000
Total fixed costs 50,000
Total costs $225,000
Assuming that this activity is within the relevant range, what would Mobile's total contribution margin have been last year if only 240,000 customers were sprayed?

a)
$255,000
b)
$262,000
c)
$305,000
d)
$312,000

30.
In a predetermined overhead rate in a job-order costing system that is based on machine-hours, which of the following would be used in the numerator and denominator?

a)
Numerator Denominator
Actual manufacturing overhead Actual machine-hours

b)
Numerator Denominator
Actual manufacturing overhead Estimated machine-hours

c)
Numerator Denominator
Estimated manufacturing overhead Actual machine-hours

d)
Numerator Denominator
Estimated manufacturing overhead Estimated machine-hours


31.
A company has two divisions, the Selling Division and the Buying Division. The Selling Division manufactures an intermediate product and then "sells" them to the Buying Division, which completes the product and sells the final product to retailers. The market price for the Buying Division to purchase one unit of the intermediate product is $20. Fixed costs assume 100,000 units.
Unit costs for the intermediate product of the Selling Division are:
Direct materials $4
Direct labor $3
Variable overhead $2
Division fixed costs $1
Unit costs for the final product of the Buying Division (excluding the intermediate product) are:
Direct materials $5
Direct labor $1
Variable overhead $1
Division fixed costs $9
Assume the transfer price for the intermediate product is 180% of full costs of the Selling Division and 100,000 units are produced and transferred to the Buying Division. If the Buying Division sells 100,000 units of the final product at a price of $60 to outside customers, what is the operating income of both divisions together?

a)
$4,400,000
b)
$3,400,000
c)
$3,000,000
d)
indeterminable

32.
Which of the following would not affect the break-even point?

a)
number of units actually sold
b)
variable expense per unit
c)
total fixed expenses
d)
selling price per unit

33.
A company is in the process of preparing its Selling and Administrative Expense Budget for next year. The following budget data are available:
Monthly
Fixed Cost Variable
Cost Per
Unit Sold
Sales commissions $0.75
Shipping $1.30
Advertising $30,000 $0.20
Executive salaries $25,000
Depreciation on office equipment $15,000
Other $7,000
All of these expenses (except depreciation) are paid in cash in the month they are incurred.
If the company has budgeted to sell 20,000 units in March, then the total budgeted selling and administrative expenses per unit sold for March is:

a)
$2.25
b)
$5.35
c)
$5.80
d)
$6.10

34.
A company manufactures three different product lines: Model X, Model Y and Model Z. Considerable market demand exists for all three models. Financial data per unit are below:
Model X Model Y Model Z
Selling price $50 $60 $70
Direct materials 6 6 6
Direct labor ($12 per hour) 12 12 24
Variable overhead costs ($4 per machine hour) 4 8 8
Fixed overhead costs 10 10 10
If there is excess capacity, which model is the most profitable to produce?

a)
Model x
b)
Model y
c)
Model z
d)
Both models x and y

35.
Allocated common fixed costs:

a)
can make a product line appear to be unprofitable.
b)
are always incremental costs.
c)
are always relevant in decisions involving dropping a product line.
d)
responses A, B, and C are all correct.

36.
For a home improvement job, estimated direct materials are $4,000, direct labor is $5,500, and variable plus fixed manufacturing overhead costs are $7,400. A bid on this job, assuming absorption costing approach and a 20% markup, would be:

a)
$11,400
b)
$20,280
c)
$15,480
d)
$13,680

37.
A company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, estimated manufacturing overhead cost was $300,000 based on an estimated activity level of 100,000 direct labor-hours. Actual overhead amounted to $325,000 with actual direct labor-hours totaling 110,000 for the year. How much was the overapplied or underapplied overhead?

a)
$25,000 overapplied
b)
$25,000 underapplied
c)
$5,000 overapplied
d)
$5,000 underapplied

38.
If turnover is 1.45, net operating income is $5,000,000, sales is $35,000,000, ROI is:

a)
2.071%
b)
20.71%
c)
200.71%
d)
10.15%

39.
Departmental overhead rates are generally preferred to plant-wide overhead rates when:

a)
the activities of the various departments in the plant are not homogeneous.
b)
the activities of the various departments in the plant are homogeneous.
c)
most of the overhead costs are fixed.
d)
all departments in the plant are heavily automated.

40.
A manufacturer wants to introduce a new product, for which the expected market price is $40. The company requires a 20% rate of return on investment on all new products. In order to produce and sell 30,000 units each year, the company would have to make an investment of $850,000. The target cost per unit of product would be:

a)
$16.50
b)
$23.50
c)
$28.33
d)
$34.33

41.
A company has two divisions, the Selling Division and the Buying Division. The Selling Division manufactures an intermediate product and then "sells" them to the Buying Division, which completes the product and sells the final product to retailers. The market price for the Buying Division to purchase one unit of the intermediate product is $20. Fixed costs assume 100,000 units.
Unit costs for the intermediate product of the Selling Division are:
Direct materials $4
Direct labor $3
Variable overhead $2
Division fixed costs $1
Unit costs for the final product of the Buying Division (excluding the intermediate product) are:
Direct materials $5
Direct labor $1
Variable overhead $1
Division fixed costs $9
Assume the transfer price for the intermediate product is set at market price and 100,000 units are produced and transferred to the Buying Division. The Selling Division's operating income is:

a)
$800,000
b)
$900,000
c)
$1,000,000
d)
$1,800,000

42.
Costs that are always relevant in decision-making are:

a)
avoidable costs.
b)
fixed costs.
c)
sunk costs.
d)
variable costs.

43.
A company has received a request for a special order of 6,000 units of product Y45 for $13.70 each. Product Y45's unit product cost is $11.50, determined as follows:
Product cost per unit:
Direct materials $2.50
Direct labor 1.90
Variable overhead 2.30
Fixed overhead 4.80

Direct materials and direct labor are variable costs. The special order would have no effect on the company's total fixed costs. The customer would like modifications made to product Y45 that would increase the existing variable costs by $8.10 per unit and that would require an investment of $20,000 in special molds that would have no savage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. If the special order is accepted, the company's overall net operating income would increase (decrease) by:

a)
($26,600)
b)
$13,200
c)
($55,400)
d)
($21,300)

44.
A company manufactures three different product lines: Model X, Model Y and Model Z. Considerable market demand exists for all three models. Financial data per unit are below:
Model X Model Y Model Z
Selling price $50 $60 $70
Direct materials 6 6 6
Direct labor ($12 per hour) 12 12 24
Variable overhead costs ($4 per machine hour) 4 8 8
Fixed overhead costs 10 10 10
Which model has the greatest contribution per machine hour?

a) Model x
b) Model y
c)
Model z
d)
Both models y and z

45.
A company is in the process of preparing its Selling and Administrative Expense Budget for next year. The following budget data are available:
Monthly
Fixed Cost Variable
Cost Per
Unit Sold
Sales commissions $0.75
Shipping $1.30
Advertising $30,000 $0.20
Executive salaries $25,000
Depreciation on office equipment $15,000
Other $7,000
All of these expenses (except depreciation) are paid in cash in the month they are incurred.
If the company has budgeted to sell 18,000 units in January, then the total budgeted variable selling and administrative expenses for January will be:

a)
$13,500
b)
$23,400
c)
$37,900
d)
$40,500

46.
A company is in the process of preparing its Selling and Administrative Expense Budget for next year. The following budget data are available:
Monthly
Fixed Cost Variable
Cost Per
Unit Sold
Sales commissions $0.75
Shipping $1.30
Advertising $30,000 $0.20
Executive salaries $25,000
Depreciation on office equipment $15,000
Other $7,000
All of these expenses (except depreciation) are paid in cash in the month they are incurred.
If the budgeted cash disbursements for selling and administrative expenses for April total $116,000, then how many units does the company plan to sell in April?

a)
17,333 units
b)
18,250 units
c)
24,000 units
d)
26,800 units

47.
A corporation has provided the following data from its activity-based costing system:
Activity Cost Pool Total Cost Total Activity
Assembly $613,250 55,000 machine-hours
Processing orders $46,170 1,500 orders
Inspection $146,110 1,900 inspection-hours
Data concerning one of the company's products, Product W58B, appear below:
Selling price per unit $113.70
Direct materials cost per unit $48.14
Direct labor cost per unit $11.62
Annual unit production and sales 360
Annual machine-hours 1,040
Annual orders 60
Annual inspection-hours 30
According to the activity-based costing system, the profit margin for product W58B is:

a)
$3,668.60
b)
$5,975.60
c)
$5,515.40
d)
$19,418.40

48.
Using the following data for March, calculate the cost of goods manufactured:
Direct materials $29,000
Direct labor $19,000
Manufacturing overhead $27,000
Beginning work in process inventory $11,000
Ending work in process inventory $12,000
The cost of goods manufactured was:

a)
$74,000
b)
$86,000
c)
$76,000
d)
$75,000

49.
Which one of the following factors need NOT be considered when evaluating a make-or-buy decision?

a)
the quality of the supplier's product
b)
the reliability of delivery schedule
c)
the savings from the alternative use of the production equipment
d)
the book value of the production equipment

50.
A company is considering the use of residual income as a measure of the performance of its divisions. What major disadvantage of this method should the company consider before deciding to institute it?

a)
this method does not take into account differences in the size of divisions.
b)
investments may be adopted that will decrease the overall return on investment.
c)
the minimum required rate of return may eliminate desirable investments.
d)
residual income does not measure how effectively the division manager controls costs.

1. If substantial batch-level or product-level costs exist, then overhead allocation based on a measure of volume such as direct labor-hours alone: a) is a key aspect of the activity-based costing model. b) will systematically overcost high-volume products and undercost low-volume products. c) will systematically overcost low-volume products and undercost high-volume products. d) must be used for external financial reporting since activity-based costing cannot be used for external reporting purposes. 2. The opportunity cost of using one unit of the constrained resource in a volume trade-off decision is equal to: a) the profitability index for the company's best selling product. b) the profitability index for the product whose production would be cut back if necessary. c) the profitability index of the product with the fastest growing sales. d) the profitability index of the company's most profitable product. 3. Of the following transfer pricing methods which is often regarded as the best? a) Administered transfer price b) Market-based transfer price c) Cost-based transfer price d) Negotiated transfer price 4. A good description of "cost of goods manufactured" is the recorded cost of the: a) units completed during the period. b) units started and completed during the period. c) work done on all units during the period. d) work done this period on units completed this period. 5. A company has two divisions, the Selling Division and the Buying Division. The Selling Division manufactures an intermediate product and then "sells" them to the Buying Division, which completes the product and sells the final product to retailers. The market price for the Buying Division to purchase one unit of the intermediate product is $20. Fixed costs assume 100,000 units. Unit costs for the intermediate product of the Selling Division are: Direct materials $4
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Direct labor $3 Variable overhead $2 Division fixed costs $1 Unit costs for the final product of the Buying Division (excluding the intermediate product) are: Direct materials $5 Direct labor $1 Variable overhead $1 Division fixed costs $9 Assume the transfer price for the intermediate product is 180% of full costs of the Selling Division and 100,000 units are produced and transferred to the Buying Division. The Selling Division's operating income is: a) $800,000 b) $900,000 c) $1,280,000 d) $1,800,000 6. Last month the cost of goods sold of a merchandising company was $86,000. The company's beginning merchandise inventory was $20,000 and its ending merchandise inventory was $21,000. What was the total amount of the company's merchandise purchases for the month? a) $86,000 b) $127,000 c) $87,000 d) $85,000 7. A company produces and sells a single product. Data concerning that product appear below: Selling price $240.00 Variable expense per unit $81.60 Fixed expense per month $997,920 The unit sales to attain the company's monthly target profit of $44,000 is closest to: a) 7,896 b) 12,769 c) 6,578 d) 4,341 8. Holding all other things constant, if fixed costs increase, the profit-maximizing price will:
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