TEST BANK for Cost Management: A Strategic Emphasis, 9th Edition By Edward Blocher, Paul Juras and S by ACADEMIAMILL

Chapter 1 1)

At one time, management at General Motors decided to improve the competitiveness of its products by stressing product quality, style, and innovation. The objective was to improve the image of GM vehicles and thus improve sales and brand loyalty. Managers decided to push this strategy in both the manufacturing and marketing divisions of the firm. One of the key moves to implement this strategy was to insist that GM dealers stop price-cutting and push brand value and image instead. GM exerted some control over dealers' pricing/selling strategy in part by reducing the money it set aside for dealers to use in local ads. Required: Was General Motors following a strategy of cost leadership or differentiation at this time? Comment on how effective you think the new strategy in dealer relations is likely to be.

2) In six months you are scheduled to graduate with a degree in business; you are majoring in

accounting and minoring in finance and management information systems. In the first few chapters of your cost management text, there are repeated references to the following two terms: strategic management and the strategic emphasis to cost management. Required: Explain these ideas, using as a framework your need to develop a plan for interviewing successfully for a challenging professional opportunity within the next six months.

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3) One of the many changes in the business environment in recent years that has had significant

impact on cost management practices is a focus on the customer. You are part of the management team in a medium-size computer service company. The company is just three years old and is growing fast, doubling its customer base every six months. Required: 1. (a) Describe your typical customer's needs and service expectations. 2. (b) How has the doubling of your firm's customer base every six months affected its ability to maintain this focus on the customer? If this dramatic growth continues, what are some specific actions your firm can take to retain its goal of "focus on the customer"?

4) Apex Corporation manufactures a complete line of high quality bits for electric drills. Apex

has a good record for product innovation and effective marketing and distribution. An increase in domestic and international competition during the past two years has limited the firm's sales growth to 3 percent per year, down from the previous five-year average annual growth of 5 percent. In addition, market share declined by 0.5 percent this past year. Apex is experiencing profit reductions caused by price competition and manufacturing cost increases. Required: Choose one of the 13 contemporary management techniques introduced in Chapter 1: Explain why the technique you selected is appropriate in helping Apex develop a plan for reversing the decline in sales growth and controlling the growth in costs.

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5) The manager of a business unit of a large corporation made some projections regarding sales

and profits for the upcoming final quarter of the year. The manager's performance evaluation and compensation depended significantly on his ability to meet budget goals. The manager discovered that the final quarter would have to be a particularly good quarter in order to meet these goals. He decided to implement a sales program offering liberal payment terms in order to pull some sales that would normally occur next year into the current year. Customers accepting delivery in the fourth quarter would not have to pay the invoice for 140 days. Also, he sold some equipment that was not being used and realized a significant profit on the sale. Required: Are these actions ethical? Why or why not?

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6) As an inspector for a manufacturer of specialized electronic instruments, you head up the

quality assurance program at one of the firm's manufacturing plants. In recent days, it has come to your attention that a large order involving several hundred expensive instruments for an important customer does not meet all the required specifications. Specifically, the circuit which has been designed by your firm to warn the user of possible malfunction does not appear to work consistently. The firm's engineers say that the problem should have no significant results for the customer, as it does not affect the functionality of the instrument in any way. Moreover, the engineers indicate that it is a high priority for them to find an answer to the mysterious behavior of the circuit, and they will develop a fix as soon as possible, and make sure the customer is provided the fix, probably as part of a routine update or maintenance. The marketing V.P. indicates that the customer wants these instruments urgently, and that no quality assurance issues will get in the way. The quality assurance head knows that the order is very important to the firm, as the firm has faced declining revenues in several recent months. Also, while the intentions of the engineers are likely to be sincere, the quality assurance head knows that they are very busy with current and new products, and are unlikely to have the time to deal with this problem in a timely manner. Required: What are the ethical issues involved in the case for the quality assurance head? What steps would you suggest be taken?

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7) The controller of one division of a large diversified firm is compensated by salary plus

bonus. The bonus is a significant part of total compensation, and is based directly on the profits of the division. Thus, the controller has an incentive to find ways to increase profits, including the delay of discretionary expenses such as research and development, delay of maintenance and repair of manufacturing equipment, and delay of sales promotions. Required: Is finding ways to increase profits as described above unethical? Why or why not? Who is to blame, if anyone?

8) Required:

Consider the contemporary management techniques and how they might be used in each of the following industry groups. For which industry type is each management technique most applicable? 1) Manufacturing, for example, auto manufacturing, appliances, and consumer electronics 2) Professional service firms, for example, accounting firms, law firms, and medical practices 3) Retail firms, for example, Walmart and Sears

9) Required:

Identify two of the most successful companies or organizations in today's business environment, in your opinion. Explain why they are so successful.

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10) Samsung, the large Korean manufacturer of electronics, has just developed a new QLED

(Quantum Dot Light Emitting Diodes) TV. The TV retails retail in the range of $6,800 for the 75 inch, curved panel model. Normally, Samsung sells its TVs and other electronics in Big Box retailers such as Best Buy. In this case, Samsung is thinking of choosing a different means to retail the product. Required: What retail store or stores, or what method would you suggest Samsung use in selling its new TV?

11) The premier auto manufacturer BMW introduced a new compact SUV (the X3) in an effort

to grab a greater share of the overall luxury car market. Because its own resources were pretty well tapped out by a large number of new vehicles BMW had already introduced, the automaker decided to have the new SUV built by the parts manufacturer Magma International, based in Toronto. The vehicles would be manufactured by Magma in an Austrian plant. Required: Comment on the strategic issues surrounding BMW's introduction of the X3 and the use of Magma International to produce the vehicle. Do you think the company made the right decisions? Why or why not?

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12) The story of the telecom giant WorldCom came to a sad turn in 2002 as the firm filed for

bankruptcy, with some of the managers facing criminal charges for fraud. In 2000 a severe slump in the telecom business led to pressures within WorldCom to reduce expenses and improve the financial statements to meet investor expectations. On orders from top managers, accountants within the firm created fraudulent financial statements, ultimately resulting in an $11 billion fraud. The fraud was detected as a result of an inquiry by the SEC, which led an internal auditor within WorldCom to start an investigation that uncovered the fraud in 2002. The successor firm, MCI (which had previously merged with WorldCom and is, since 2006, a part of Verizon), under the leadership of new top management, formed the office of chief ethics officer who had the responsibility for MCI's policy of training all MCI's U.S.-based employees, an ethics hotline, an ethics pledge signed by the firm's top 100 executives, and a company code of ethics, among other responsibilities. Required: What should be the role of an ethics officer? To whom should the ethics officer report within the organization? Do you think MCI had a good plan for ensuring ethical behavior within the firm? How would you change the MCI ethics policy, if at all?

13) Which of the following does not represent a main focus of cost management information? A) Strategic management. B) Performance measurement. C) Planning and decision making. D) Preparation of financial statements. E) Internal audit and control.

14) Strategic management can be defined as the development of a sustainable: A) Chain of command. B) Competitive position. C) Cash flow. D) Business entity. E) Company image.

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15) Cost management has moved from a traditional role of product costing and operational

control to a broader strategic focus, which places an emphasis on: A) Competitive pricing. B) Domestic marketing. C) Short-term thinking. D) Strategic thinking. E) Independent judgment.

16) Cost management is used to analyze the cost consequences of different design choices and to

measure and report the many aspects of quality, including all of the following except: A) Wasted labor or materials. B) The nature of complaints, warranty costs, and product recalls. C) The short- and long-term goals of sustainability. D) The number of service calls. E) Production breakdowns.

17) In a local factory, employees are rewarded for finding new and better ways of changing the

way they work. This company is motivating its employees to use what management technique? A) Benchmarking. B) Activity-Based Costing. C) Theory of Constraints. D) Continuous Improvement. E) Total Quality Management.

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18) A company's management accountant is trying to improve the way costs are allocated within

the company. Currently, several corporate expenses are grouped together and labeled "overhead." If the accountant wanted to use activity-based costing (ABC) to help solve the problem, what should she do? A) She should try to trace the departments' costs to their cost objects, and then charge each department based on those cost relationships. B) She should research how the company's competitors are allocating their costs, and then implement one of those strategies. C) She should look for bottlenecks within the production process, and try to eliminate them, thus reducing costs. D) She should examine the firm's value chain and apply target costing before adopting activity-based costing (ABC) E) She should identify and monitor the costs of a product throughout its life cycle to see where the costs mostly come from.

19) The difference between wholesalers and retailers is: A) Wholesalers are merchandisers that sell directly to customers whereas retailers are

merchandisers that sell to other merchandisers. B) Wholesalers are merchandisers that sell to other merchandisers whereas retailers are merchandisers that sell directly to consumers. C) Wholesalers are merchandisers that sell directly to the government whereas retailers are merchandisers that sell to other merchandisers. D) Wholesalers are merchandisers that sell directly to customers whereas retailers are merchandisers that sell directly to the government. E) There is no difference between wholesalers and retailers.

20) When managers produce value for the customer, their orientation consists of all the following

except: A) B) C) D) E)

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Quality. Timeliness of delivery. The ability to respond to the customer's desire for specific features. State of the art manufacturing facilities. Service.

21) In which of the following situations would Theory of Constraints be useful? A) Firms that have just adopted lean manufacturing. B) Balanced, fast movement of product through the plant. C) Management wants its products to have competitive prices that earn a desired profit. D) Long lines at checkout stands. E) Competitors have started to focus on sustainability and have found success in the

public’s eyes.

22) Target costing determines the desired cost for a product upon the basis of a given competitive

price such that the product will: A) Earn at least a small profit. B) Earn a desired profit. C) Earn the maximum profit. D) Break even. E) Sell the highest volume.

23) Which of the following is not a consequence of a lack of strategic information? A) Lack of clarity about direction and goals. B) Failure to identify most profitable products, customers, and markets. C) Decisions based on quality financial information. D) Incorrect investment decisions. E) Choosing products, markets, or manufacturing processes inconsistent with strategic

goals.

24) The strategy map is a tool that is used: A) as one of the key aspects of the contemporary management environment. B) to enhance the sustainability of the organization. C) to link the perspectives of the balanced scorecard. D) to organize the critical success factors of a company. E) to implement strategy.

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25) Cost management information typically is the responsibility of the: A) Chief Financial Officer. B) Controller. C) Treasurer. D) Chief Information Officer. E) None of these answers are correct.

26) Which of the following aspects of a company would not be considered a critical success

factor, for a company that competes on differentiation? A) Cutting edge research and development. B) Excellent customer service. C) Award-winning product quality. D) Continually beating competitors to the market with new, innovative products. E) A high level of production efficiency.

27) Target costing: A) Determines cost based on an expected market demand for the product. B) Determines cost based on a budget. C) Determines cost based on standard cost. D) Determines cost based upon market price and desired profit. E) Determines cost based on a break-even formula.

28) If a firm decided to reevaluate and reorganize the way it did business, in hopes of creating

competitive advantage, by changing or removing employee positions, the company would be using which of the following management techniques? A) The value chain. B) Business analytics. C) Business process improvement. D) Product reevaluation. E) Life cycle costing.

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29) A consulting firm is trying to increase the long-term strategic focus of its company reports.

Therefore, the firm has decided to use the balanced scorecard. What type of new information, that the company currently does not use in its financial reports, should the company now include? A) Nonfinancial information, including customer satisfaction, innovation, etc. B) Additional financial information, such as profitability measures and market value. C) Product life cycle information. D) Supplemental accounting reports. E) Continuous improvement.

30) If a firm goes through the process of making improvements to its critical success factors

based on the best practices of other firms, it is using which business process? A) The value chain B) Benchmarking C) Total quality management D) Lean Accounting E) Enterprise risk management

31) The Institute of Management Accountants' Statement of Ethical Professional Practice for

management accountants includes the elements of: A) Competence, confidentiality, integrity, and relevance. B) Competence, confidentiality, integrity, and credibility. C) Competence, confidentiality, independence, and objectivity. D) Competence, accuracy, integrity, and independence. E) Competence, accuracy, integrity, and credibility.

32) The five steps of strategic decision-making include all of the following except: A) Identify the alternative actions. B) Gather and report accounting information. C) Determine the strategic issues surrounding the problem. D) Choose and implement the desired alternative. E) Provide an ongoing evaluation of the effectiveness of implementation.

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33) Which of the following is not considered part of the Institute of Management Accountants'

definition of management accounting? A) partnering in management decision making. B) devising planning and performance management systems. C) analyzing data and providing information. D) providing expertise in financial reporting and control. E) assisting management in the formulation and implementation of an organization's strategy.

34) Which of the following professional certificates is considered to be the most relevant for

dealing with cost management issues? A) The Certified Public Accountant (CPA), which is monitored differently for each state in the U.S. B) The Certificate in Management Accounting (CMA), which is administered through the Institute of Management Accountants. C) The Chartered Financial Analyst (CFA), since its program focuses on the broadest range of topics and responsibilities for financial analysis. D) The CPA, CMA, and CFA are viewed as equally relevant, since all three require an exam, as well as specific background and experience requirements. E) None of these answers are correct.

35) According to the Institute of Management Accountants (IMA) Statement of Ethical

Professional Practice, what should a management accountant do if a significant ethical situation can't be resolved? A) The accountant should confront the guilty party and demand the unethical action be stopped. B) The accountant should try to rationalize and understand the position of the other party. C) The accountant should say nothing about the matter until he or she has retired. D) The accountant should first discuss the matter with the immediate supervisor. E) The accountant should do what they think is best and move on.

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36) Which of the following aspects of the contemporary business environment involves using

statistical methods such as regression or correlation analysis to predict consumer behavior, to measure customer satisfaction, or to develop models for setting prices, among other uses? A) Business analytics B) Target Costing C) Life Cycle Costing D) Benchmarking E) Business Process Improvement

37) Which of the following is not one of the stages of the development of cost management

systems? A) Cost management systems track key operating data and develop more accurate and relevant cost information for decision making. B) Cost management systems are basic transaction reporting systems. C) Strategically relevant cost management information is an integral part of the system. D) Cost management systems focus on costs and other financial measures. E) Cost management systems focus on external financial reporting.

38) Which of the following is the primary user of management accounting information regarding

business units? A) Company management. B) Investors. C) Creditors. D) Industry and governmental organizations. E) None of these answers are correct.

39) Management accounting information plays a critical role in all of the following management

functions except: A) Profit planning. B) Managerial compensation. C) Planning and decision making. D) Hiring a new Chief Information Officer (CIO). E) Financial reporting to the Securities and Exchange Commission (SEC).

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40) Corporate management is required to identify and solve problems from a cross-functional

view. Instead of viewing a problem as related to a specific business function, management solves these problems by combining skills from different functions simultaneously. This approach is called: A) Inclusive approach. B) Integrative approach. C) Intra-function approach. D) Multilateral approach. E) Multi-Tasking Approach.

41) Which of the following is not included in cost management information? A) Information about productivity. B) Financial information about costs and revenues. C) Information about customer retention. D) Information about a competitor’s market strategy. E) Nonfinancial information.

42) Under the framework of Enterprise Risk Management (ERM), risk is considered to include

all of the following except: A) Safety risk due to high crime in the area. B) Hazards such as fire or flood. C) Operating risk related to customers, products, or employees. D) Strategic risk related to top management decisions. E) Financial risks due to foreign currency fluctuations, commodity price fluctuations, and changes in interest rates.

43) Nonfinancial measures of operations include all the following except: A) Stock price. B) Product quality. C) Customer satisfaction. D) Market share. E) Growth opportunities.

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44) Under the Sarbanes-Oxley Act of 2002, the Public Company Accounting Oversight Board

(PCAOB) established rules relating to which of the following areas? A) Financial reporting. B) Production quality control. C) Executive compensation. D) Hiring and firing practices. E) Audit quality, ethics, and independence.

45) With the enactment of the Sarbanes-Oxley Act of 2002, all public companies are now

required by the Securities and Exchange Commission (SEC) to disclose whether or not the company has: A) An audit committee. B) Human resources guidelines. C) A code of ethics. D) A management compensation plan. E) A certified management accountant.

46) The national sales manager for your company has pulled you aside and asked you to prepare

a sales document (bill) for one of the company's largest clients before the end of the fiscal year which ends this month. This sales document will include items that have not yet been shipped and are not planned for shipment until the next fiscal year. What should you do in this situation? A) Bill the client as asked by the national sales manager. B) Bill the client since this is consistent with past transactions near fiscal year-end. C) Contact the client and notify them that credit terms are being extended on this invoice since the goods have not been shipped. D) Discuss this situation with your supervisor since the transaction cannot be recognized as a sale until the items are shipped. E) Bring up the matter with the external auditor.

47) Which of the following is the most important function of management? A) Preparation of financial statements. B) Strategic management. C) Planning and decision making. D) Management control. E) Operational control.

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48) The competitive strategy of cost leadership allows a firm to outperform competitors by

producing products or services: A) With reduced quality standards, thus reducing overall costs. B) In smaller operational units. C) At lower cost achieved by increased productivity. D) With attractive added features making the product more expensive, or "the cost leader". E) That are heavily promoted and heavily warranted.

49) The competitive strategy of differentiation requires that a product or service must be: A) Always readily available. B) Price competitive. C) Produced at the lowest possible cost. D) Unique in some important way in terms of features, innovation, service or quality. E) Marketed in different ways to different groups.

50) The competitive strategy of differentiation is implemented by a firm's targeted, careful

attention to a(n): A) Specific feature of the product or service. B) High efficiency level of production. C) Broad possible market. D) Aggressive competitive pricing plan. E) Financial goal decided upon by management.

51) Which of the following is not included in the planning and decision making function of

management? A) Budgeting. B) Deciding when to lease or buy a facility. C) Monitoring the short-term operating performance. D) Cash flow management. E) Deciding when to begin development of a new product.

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52) With regards to a firms product line, a cost leadership strategy would strive for _______

while a differentiation strategy would strive for ________. A) Wide variety; limited selection B) Broad cross section of the market; focused section of the market C) Limited selection; wide variety D) Focused section of the market; broad cross section of the market E) None of these answers are correct

53) A potential weakness of the cost leadership strategy is: A) Cutting costs in a way that causes the firm to grow too fast. B) Deleting key features or reducing quality of products or services. C) Lowering productivity to ensure lower costs. D) Increasing life cycle costs. E) Increasing prices temporarily to undermine competition.

54) Which of the following is not a benefit of using a lean manufacturing system? A) Lead times are reduced. B) Average inventory is decreased. C) Productivity is improved. D) Production operations are linked in a smooth, uninterrupted flow. E) Products, on average, have less variety.

55) Of the following, which aspect of a contemporary management technique is a framework and

process that organizations use to manage the occurrence of possible events that could negatively or positively affect the company's competitiveness and success? A) Total quality management B) Lean accounting C) The theory of constraints D) Enterprise sustainability E) Enterprise risk management

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56) Which of the following formulas best reflects target costing? A) Target cost = Firm-determined price less desired profit. B) Target cost = Market-determined price less desired profit. C) Target cost = Firm-determined price less desired revenue. D) Target cost = Market-determined price less desired revenue. E) Target cost = Firm-determined price less market-determined price.

57) A large company has recently been experiencing larger than normal inventory levels.

Management would like to implement a theory of constraints system to help control the company's inventories. Which of the following is not a benefit associated with the theory of constraints? A) Speed of product development. B) Existing problems such as bottlenecks are highlighted. C) Reduced cycle time. D) Prompt delivery. E) Better product design.

58) The Dodd-Frank Act (2010) includes a variety of new regulations, including the creation of: A) The Cost Accounting Standards Board. B) The Consumer Financial Protection Bureau. C) The Financial Services Industry Control Commission. D) The Wall Street Reform and Protection Board. E) The Executive Compensation Review Board.

59) Which of the following contemporary management techniques requires a balancing of

multiple environmental and social goals? A) Target costing. B) The theory of constraints. C) Benchmarking. D) Business process improvement. E) Enterprise sustainability.

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60) The competitive strategy in which the firm succeeds by producing at the lowest cost in the

industry is termed: A) Differentiation. B) Cost advantage. C) Price strategy. D) Cost leadership. E) Resource-based strategy.

61) The competitive strategy in which the firm succeeds by developing and maintaining a unique

value for the product, as perceived by the customer, is termed: A) Differentiation. B) Specialization advantage. C) Design strategy. D) Benchmarking. E) Product specialization.

62) What is one of the weaknesses of the differentiation strategy? A) Easy to undermine its strength by attempting to lower costs. B) A lack of strategic information. C) It undermines demand for the product. D) It cuts out the need for a marketing department. E) Consumers come to expect too high of quality from your company.

63) Due in part to increased global competitiveness and changes in management techniques and

processes, what has changed about the role of the management accountant? A) Management accountants have started to place a greater emphasis on financial information, in order to promote continued growth in earnings. B) Rather than to focus on problems within functions (such as a marketing problem or a production problem), management accountants are using a strategic approach to address problems in a cross-functional manner. C) Management accountants have developed a variety of new techniques to measure functional area performance. D) There has been a renewed emphasis on short-term profitability, since product life cycles have started getting shorter. E) The role of management accountants has grown smaller as companies increase their global competitiveness.

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64) In the current business environment, companies cannot survive without a strategy. What

exactly should an effective strategy include? A) A set of plans for using resources to achieve sustainable goals. B) A focus on accurate financial data, thus allowing the firm to effectively compete in any environment. C) A focus on long-term nonfinancial information that will provide the company with versatile management techniques capable of being used in a wide variety of situations. D) A clear, concise mission statement, naming every product and outlining the company's long-term goals of success. E) A printed-out statement that every member of the firm should have at their desk.

65) Which of the following is considered to be a nonfinancial measure of success for customer

satisfaction? A) Product Quality. B) Innovation (number of new products). C) On-time delivery. D) Product yield and reduction in waste. E) Increase in stock price.

66) If a company is working on strategic positioning, what best describes what the company is

considering? A) How the firm is perceived by its external environment, its competitors, and its customers. B) Where the firm's physical plants, buildings, and warehouses will be located. C) The firm's position on important issues, such as the environment and government regulations. D) Which competitive strategy the firm will use to achieve a sustainable competitive advantage. E) None of these answers are correct.

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67) A firm that has traditionally succeeded on the basis of its innovative products and excellent

customer service has started to place greater emphasis on reducing waste and providing its customers with the lowest priced product. Which of the following most accurately describes this change of competitive strategy? A) Cost leadership to differentiation. B) A balanced strategy to cost leadership. C) Differentiation to a balanced strategy. D) Cost leadership to a balanced strategy. E) Differentiation to cost leadership.

68) Which of following statements is true concerning strategy? A) Once a firm has chosen a strategy, it is unwise to change it, even though the company

or business environment might change. B) If a company does decide to compete on more than one strategy, it must carefully execute both strategies to be successful. C) Since the business environment is always changing, rather than stick constantly with one strategy, firms should pay close attention during times of change and adjust their strategies accordingly. D) A company following both cost leadership and differentiation strategies is likely to succeed only if it achieves one of the strategies very well. E) A strategy is only helpful when you are entering a new business environment.

69) A strategy can be best defined as: A) an effective use of the organization's resources. B) a plan for using a firm's resources to achieve sustainable goals within a competitive

environment. C) a clear and detailed statement of an organization's mission and vision. D) a plan developing a firm's mission and vision statements. E) a mission statement that all employees must memorize to have success.

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70) Which of the following is a contemporary management technique used by the management

accountant to identify and monitor the costs of a product throughout all steps from product design to the finished product? A) Enterprise risk management. B) Target costing. C) Life cycle costing. D) Enterprise sustainability. E) None of these answers are correct.

71) Which of the following is not among the management accounting profession's response to

changes in the contemporary business environment? A) Introduction of the balanced scorecard. B) Value chain analysis. C) Advances in costing, including activity-based costing. D) The introduction of business process improvement. E) New forms of management organization.

72) Important changes in the contemporary business environment include all of the following

except: A) B) C) D) E)

Management organizations. Climate change. Information technology. Customer expectations. Global competition.

73) Cost advantages usually result from: A) Productivity in customer satisfaction. B) Productivity in the hiring of new employees. C) Productivity in distribution. D) Using cheaper but lower quality materials. E) A differentiation strategy.

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74) Which of the following is not a way for a management accountant to resolve an ethical

conflict? A) Bring the matter to the attention of the company's auditor. B) Consult an attorney concerning the ethical conflict. C) Initiate a confidential discussion on the Ethics helpline. D) Discuss the issue with the management accountant's immediate supervisor except when the supervisor is involved. E) Follow the organization’s established policies on the resolution of conflict.

75) Which of the following is one of the two types of organizations that influence the

professional environment of the management accountant? A) One that oversees the hiring of management accountants for public companies. B) One that makes the management accountant’s reports publicly available. C) One that sets the rules for how to be a management accountant. D) One that distinguishes management accountants from all other accountants. E) One that promotes the professionalism and competence of management accountants.

76) Under a cost leadership strategy, the cost leader: A) Goes into segmented markets. B) Attracts a small but loyal portion of the market. C) Has a small market share. D) Has a large market share. E) Attracts customers with low prices and then raises prices once loyalty has been

established.

77) The management accountant's responsibility under the Institute of Management Accountants

(IMA) Statement of Ethical Professional Practice includes the responsibility to "mitigate actual conflicts of interest." This responsibility fits within which of the four standards in the IMA Statement? A) Communication. B) Integrity. C) Honesty. D) Quality. E) Confidentiality.

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78) Communicating information fairly and objectively falls under which standard in the Institute

of Management Accountants (IMA) Statement of Ethical Professional Practice? A) Objectivity. B) Integrity. C) Competence. D) Credibility. E) Confidentiality.

79) The management accountant who planned to improve an organization's operations by

developing models of consumer behavior would be using which of the following contemporary management techniques? A) Target costing. B) Benchmarking. C) Business analytics. D) Lean accounting. E) Focus on the customer.

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Answer Key Test name: chapter 1 1) Essay 2) Essay 3) Essay 4) Essay 5) Essay 6) Essay 7) Essay 8) Essay 9) Essay 10) Essay 11) Essay 12) Essay 13) E 14) B 15) D 16) C 17) D 18) A 19) B 20) D 21) D 22) B 23) C 24) C 25) B 26) E 27) D 28) C 29) A 30) B 31) B 32) B 33) C 34) B 35) D 36) A 37) D

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38) A 39) D 40) B 41) D 42) A 43) A 44) E 45) C 46) D 47) B 48) C 49) D 50) A 51) C 52) C 53) B 54) E 55) E 56) B 57) E 58) B 59) E 60) D 61) A 62) A 63) B 64) A 65) C 66) D 67) E 68) D 69) B 70) C 71) E 72) B 73) C 74) A 75) E 76) D 77) B

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78) D 79) C

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Chapter 2 1) Roweil Company is a manufacturer of agricultural chemicals located in Eastern North

Carolina that sells its products directly to farmers in the Atlantic states. The company is known for the quality of its products, packaging, delivery, and customer service. The production process at Roweil involves several steps, one of which involves the cleaning of each vat before a batch of a new chemical is added. This is done so there is no contamination of chemicals. Currently the cleansing of the batch is time-consuming, requiring a good bit of water and additional chemicals to ensure that the vat is appropriately cleaned. The waste resulting from the cleaning process is itself treated carefully, as many of the chemicals Roweil produces can be harmful to plants and animals if not properly handled. Roweil is considering an investment in new equipment that would speed up the cleaning process and would require less water and fewer additional chemicals. The new process would involve the application of heat and high air flow. The new cleaning equipment would, however, be quite expensive. Required: (a) Comment on the strategic issues facing Roweil concerning the potential investment in the cleaning equipment. (b) What are the ethical questions, if any, that should be addressed in the above decision?

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2) Studebaker Corporation, a U.S. automobile manufacturer from 1902 to 1966, prospered in

the late 1940s and into the 1960s. Its advertising after World War II emphasized quality of design and production. The corporation also used the stability of its work force in its advertisements, often featuring pictures of fathers and sons working side by side in its factories. Required: (a) From just this brief description of Studebaker Corporation, which type of competitive strategy, cost leadership or differentiation, would you guess Studebaker was using? Explain your choice. (b) Given your answer in Part (a), speculate on what market factors might have caused the corporation to go into bankruptcy and cease production in the mid-1960s.

3) Many products in the marketplace today are built from components designed and

manufactured by sub-contractors. While the extent of this practice is not well known to consumers, the manufacture and sale of multi-component units that use parts from many different companies continues to grow. Required: If the assembling company is using value-chain analysis in its strategic planning, comment on the following: (a) The cost justification for subcontracting. (b) The willingness of consumers to buy products they know contain subcontracted parts. (c) The problems of quality control facing the assembling company.

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4) Exeter Industries produces and markets several lines of food and beverage products. The

company plans to expand its market to cover a new geographical area, and the first products to be introduced into this new market are three of Exeter's coffees. A meeting of the marketing committee has been called to determine the pricing and promotional strategy for the introduction of these coffees. Exeter has adopted the differentiation strategy and is using the marketing committee to come up with the proper way to execute this strategy in the firm's pricing and promotional policy. Mark Williams, vice president of marketing, has suggested that Exeter continue its policy of premium pricing for Rich Roast Coffee in the new market. "Rich Roast is a superior blend of Brazilian coffees and should have little difficulty gaining customer acceptance. The use of other promotional strategies doesn't appear necessary at this time." Carol Randolph, general sales manager, agreed with this strategy for Rich Roast but recommended a different approach for Vitality Coffee, Exeter's brand of decaffeinated coffee. "Vitality is an unknown name in this region and will require a determined promotional effort to gain market share from other very competitive products. We could try penetration pricing or packaging options combined with either manufacturer's coupons or rebates. Whatever strategy we select, we should hit the market hard if we want to be successful." Dan Felton has been appointed regional sales manager for the new geographical area and is concerned about the acceptance of Mellow Roast Coffee, a blend of regular and decaffeinated coffees. "This is a brand new type of coffee in this region and may just sit on the shelf unless we develop an effective advertising campaign." Pricing or packaging options will be worthless unless the product gains some visibility and the targeted customer base is made aware of the benefits of Mellow Roast. We need a good slogan like "A gentle wakeup without caffeine stress!" Required: Mark Williams has suggested the continuance of premium pricing for Rich Roast Coffee. Explain the strategic role of premium pricing, and describe the economic circumstances in the marketplace that would encourage the use of this pricing strategy. (CMA adapted)

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5) Williams Instruments manufactures specialized surgical equipment for hospitals and clinics

throughout the world. One of Williams' most popular products, comprising 40% of its revenues and 35% of its profits, is a blood pressure measuring device. Average production and sales are 400 units per month. Williams has achieved its success in the market through excellent customer service and product reliability. The manufacturing process consists primarily of assembly of components purchased from various electronic firms, plus a small amount of metalworking and finishing. The manufacturing operations cost $600 per unit. The purchased parts cost Williams $800, of which $300 is for parts which Williams could manufacture in its existing facility for $100 in materials for each unit, plus an investment in labor and equipment which would cost $175,000 per month. Also, Williams is considering outsourcing to another firm, Matrix Concepts, Inc., the marketing, distribution, and servicing for its units. This would save Williams $75,000 in monthly materials and labor costs. The cost of the contract would be $125 per product. Required: (1) Prepare a value chain analysis for Williams to assist in the decision whether to manufacture or buy the parts, and whether to contract out the marketing, distribution, and servicing of the units. (2) Should Williams continue to: (a) purchase the parts or manufacture them? (b) provide the marketing, distribution and service, or outsource this activity to Matrix? Explain your answers.

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6) Levi Strauss & Company, maker of Levi's popular 501, 512, and 711 jeans, also makes a

brand that was introduced for discount retailers such as Walmart. Levi's strategy with the new jeans (the Signature brand) was to sell a competitively priced pair of jeans. The jeans are about one-half or less the price of the popular 501, 512, and 711 jeans. To reduce costs Levi's: Uses cheaper fabrics and materials. Shuns costly mass-market advertising. Strictly limits the variety of fits, styles, and colors. Required: 1. Assess the new strategy at Levi’s. What do you think to be the potential benefits and risks? 2. How will the firm's value chain and balanced scorecard change as a result of the new strategy?

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7) Gordon Manufacturing produces high-end furniture products for the luxury hotel industry.

Gordon has succeeded through excellence in design, careful attention to quality in manufacturing and in customer service, and through continuous product innovation. The manufacturing process at Gordon begins with a close consultation with each customer so that the finished product exactly meets the customer's specifications. This commonly means unique designs, special fabrics, and high levels of manufacturing quality. In addition, Gordon believes that a key competitive edge it has over other competitors is that it has an outstanding design staff that is able to work with customers to come up with product designs that go beyond the customer's expectations. Anticipating a growth in the demand for luxury hotel rooms, Gordon has expanded its operations to include one new manufacturing plant, and by refitting some of the older plants with newer, more efficient equipment. The installation of the new equipment has caused some delays in filling some customer orders, and Gordon has shifted production from those plants with the delays to other manufacturing plants. The result has been an increase in some processing costs, transportation costs, and delays in meeting customer order deadlines. Also, the introduction of the new equipment has created some tensions with employees who see the new, more efficient equipment as a potential threat to their job security. There is also some disagreement among managers as to whether the new equipment will improve or reduce quality. Required: Develop a SWOT analysis for Gordon Manufacturing. List one or more items in each category.

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8) Gordon Manufacturing produces high-end furniture products for the luxury hotel industry.

9) Gordon Manufacturing produces high-end furniture products for the luxury hotel industry.

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10) The tire business is becoming increasingly competitive as new manufacturers from Southeast

Asia and elsewhere enter the global marketplace. At the same time, customer expectations for performance, tread life, and safety continue to increase. An increasing variety of vehicles, from the small and innovative gas/electric vehicles to the large SUVs, place more demands on tire designers and on tire manufacturing flexibility. Established brands such as Goodyear and Firestone must look to new ways to compete and maintain profitability. Required: 1. Is the competitive strategy of a global tire maker cost leadership or differentiation? Explain your answer. 2. What are the ethical issues, if any, for tire manufacturers?

11) In Strengths-Weaknesses-Opportunities-Threats (SWOT) analysis, strengths and weaknesses

are most easily identified by looking: A) At the firm as a potential customer. B) Inside the firm at its specific resources. C) At the firm's competition. D) At the firm's product. E) Outside the firm from a consultant's perspective.

12) In Strengths-Weaknesses-Opportunities-Threats (SWOT) analysis, opportunities and threats

are identified by: A) Consultation with middle management. B) Talking with the rank and file workers. C) Looking outside the firm. D) Brainstorming techniques. E) Reviewing our corporate strategy.

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13) Which of the following does not represent a possible opportunity for a manufacturing firm as

a part of Strengths-Weaknesses-Opportunities-Threats (SWOT) analysis? A) Demographic trends. B) Technological advances in the industry. C) A patent developed by another firm for manufacturing a product. D) Changes in regulation of the industry. E) Changes in the economic environment facing all industries.

14) The balanced scorecard: A) Is not comprehensive, since it doesn't include all the critical success factors which

contribute to competitive success. B) Helps focus managers' attention to bottom line profits. C) Is forward looking, stressing nonfinancial measures that can lead to benefits in the future. D) Fails to reflect environmental and social effects of the firm's operations. E) Is heavily weighted toward the financial critical success factors.

15) The balanced scorecard can be made more effective by developing it at a detail level so that

employees: A) Can see how it is put together. B) Appreciate all the effort that goes into its preparation. C) Respect management for including them in its formulation. D) Can see how their actions contribute to the success of the firm. E) Do not feel left out.

16) To execute either a cost leadership or differentiation strategy, what is needed to begin the

process? A) Access to capital. B) Incentives based on meeting quantitative targets. C) A concise statement of strategy that is clearly communicated within the organization. D) Strong marketing capability. E) Long tradition in the industry.

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17) The main objective of value chain analysis is to identify stages of the value chain where the

firm can: A) Justify increases in the price of the product or service. B) Increase value to the customer or reduce cost in some way. C) Outsource production to other producers. D) Improve efficiency. E) None of these answer choices are correct.

18) It is becoming more common to see manufacturing firms use the value chain to take strategic

steps to improve the overall profitability of the firm by: A) Placing greater emphasis on the value chain. B) Moving to an emphasis on upstream activities in the value chain. C) Moving to an emphasis on downstream activities in the value chain. D) Identifying most profitable customers. E) Moving to an emphasis on both the upstream and downstream activities in the value chain.

19) Which of the following is a financial Critical Success Factor? A) Sales B) Market Value C) Liquidity D) Profitability E) All of the answer choices are financial Critical Success Factors

20) Which one of the following would be the best way to measure quality of internal critical

success factors? A) Number of returns. B) Setup time. C) Share Price. D) Warranty Expense. E) Trends in sales performance.

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21) Which one of the following is not usually included as a perspective of the balanced

scorecard? A) Financial Performance. B) Tax Reporting. C) Learning and Growth. D) Customer Satisfaction. E) Internal Business Processes.

22) Which of the following best describes the type of information that cost management must

provide that is most important for the success of the organization? A) Short term information for decision making. B) Reported financial information. C) Reported nonfinancial information. D) Information that addresses the strategic objectives of the organization. E) Long-term planning information.

23) After critical success factors have been identified, the next step in developing a competitive

strategy is to develop relevant and reliable measure for these critical success factors. These measures are important to help the organization: A) Make profit for any extended period. B) Increase sales above previous year(s). C) Develop policies to enhance customer profitability. D) Improve productivity in selected product areas. E) Monitor progress toward achieving strategic goals.

24) A firm has decided to use the balanced scorecard. Which of the following is not an

advantage the company will gain by using the balanced scorecard? A) It links the firm's Critical Success Factors to its strategy. B) It helps the firm monitor progress to achievement of its strategic goals. C) It can provide a basis for implementing strategic changes desired by the firm. D) It provides a comprehensive financial overview of the firm. E) It helps to coordinate activities in the firm.

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25) During which step of value chain analysis will the company discover whether or not it has a

cost advantage, and why? A) During the first step, when the value-chain activities are identified. B) During the first step, when the cost driver(s) are identified. C) During the second step, when the firm develops a competitive advantage by either reducing cost or adding value. D) The entire purpose of value chain analysis is to determine if the company has a cost advantage; therefore, it occurs in all steps. E) In the third step, when the company adopts and implements the balanced scorecard.

26) A local pharmaceutical firm has just announced its discovery of a revolutionary new drug for

dieting. However, due to its deteriorating relationship with its union, the unionized portions of the company's employees have threatened to strike. In addition, the company's stock has started to drop due to the firm's difficulty in paying off some of its debt. In this example, what was the firm's core competency(ies)? A) Its research and development. B) Its human resources abilities. C) Its financing activities. D) Its operating activities. E) None of the answer choices are correct.

27) During the strengths and weaknesses portion of a firm's Strengths-Weaknesses-

Opportunities-Threats (SWOT) analysis, which of the following would not be discovered? A) The firm's method of product distribution was not very efficient. B) Through continued research and development, the firm's products were state-of-theart. C) Due to a lack of barriers to entry into the industry, several new competitors were beginning to enter the market. D) The production process needed to be reengineered to reduce unnecessary scrap. E) The firm's employees are trained in new manufacturing methods each month.

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28) When a firm is determining its opportunities and threats, which of the following would not

be mentioned? A) An intense rivalry with a local competitor was beginning to start a price war. B) The firm just received a patent on its main product. C) The success of the firm's latest marketing campaign. D) In spite of its patent, there are several substitute products consumers could use. E) Increased competition in some of its key product lines.

29) When the value of the United States dollar is declining relative to other currencies this means

that: A) United States exporters will face a greater challenge in exporting United States -made

products. B) United States firms will be eager to buy foreign products. C) United States firms will be less profitable. D) United States exporters will have a temporary advantage over other countries in foreign trade. E) The United States trade balance will worsen.

30) The cause and effect relationships among critical success factors are best captured in: A) The balanced scorecard. B) Business analytics. C) The value chain. D) The strategy map. E) Strengths-Weaknesses-Opportunities-Threats (SWOT) analysis.

31) Which of the following types of organizations can most benefit from value chain analysis? A) Service firms. B) Not-for-profit organizations. C) Manufacturing firms. D) All types of organizations can benefit from value chain analysis. E) None of these types of organizations can benefit from value chain analysis.

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32) Which of the following is not one of the four perspectives of the balanced scorecard? A) Customer perspective. B) Internal process perspective. C) Financial perspective. D) Learning and growth perspective. E) Costs perspective.

33) Which of the following statements concerning value chain analysis is false? A) The goal of value chain analysis is to find areas where a company can either add

value or reduce cost. B) The value chain focuses on the entire production process, as well as the sale of the product and service after the sale. C) If a company cannot compete in a specific area of the value chain, it might consider the option of outsourcing that portion of the value chain to someone who can perform it better. D) Throughout most industries, the most successful firms are the ones that operate within the entire value chain, thereby overseeing every aspect of the value chain for the customer. E) All of the statements are true.

34) Which of the following would likely not be considered part of the value chain in a service

firm? A) B) C) D) E)

Inspection of product. Advertising. Employee training. Customer service. Materials handling.

35) What does the upstream phase in the value chain include? A) Linkages with customers. B) Manufacturing operations. C) Customer relationship management. D) Distribution and retail sales. E) Product development and linkage with suppliers.

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36) Both cost leadership and differentiated firms can improve on execution through: A) Improved automation and a higher output of products. B) Benchmarking and total quality management. C) Cost cutting and downsizing of personnel. D) Emphasis on research and product development. E) None of these answer choices are correct.

37) How do management accountants support the strategy and execution of differentiated firms? A) By providing leadership to the firm. B) By developing customer loyalty and brand recognition. C) By gathering, analyzing, and reporting relevant information. D) By using market research to decide how a company should implement its strategy. E) None of these answer choices are correct.

38) Which of the following is not a key benefit of the balanced scorecard (BSC)? A) It provides a means for implementing strategy. B) It provides an objective basis for determining each manager's compensation and

advancement. C) It provides a framework for the firm to achieve a desired organizational change in strategy. D) It provides a baseline for how an organization’s financial operations compare to competition within the industry. E) It provides a means for tracking progress toward the achievement of strategic goals.

39) A strategy map is: A) A detailed flowchart outlining which firm managers are responsible for each

implementation of a firm's strategy and when these implementations are to take place. B) A cause and effect diagram of the relationships among the balanced scorecard perspectives to show how the achievement of critical success factors in each perspective affects the achievement of goals in other perspectives and the overall financial performance of the firm. C) A framework for the firm to achieve a desired organizational change in strategy while mapping the successes of other firms within the industry. D) None of these answer choices are correct. E) A spreadsheet that lists the top goals and priorities of an organization and the steps needed to achieve them.

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40) Sustainability is the balancing of short- and long-term goals in all three dimensions of the

company's performance. Those three areas are: A) Economic, social, and environmental. B) Economic, social, and financial. C) Economic, environmental, and political. D) Social, environmental, and political. E) None of the answer choices are correct.

41) Over the past several years it has become increasingly important for firms to improve

achievement towards their social and environmental responsibilities. What is the best way the management accountant can help the firm improve on sustainability? A) Participate in programs of environmental organizations. B) Develop and implement a legal staff and public relations staff for dealing with sustainability issues that may affect the firm. C) Develop and implement a sustainability scorecard. D) Risk management. E) None of the answer choices are correct.

42) Which of the following is a value activity that an organization in the computer manufacturing

industry would perform first? A) Processing returns, inquiries, and repairs. B) Making retail sales. C) Conducting research and development for design. D) Purchasing, receiving, and stocking. E) Converting materials into components.

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43) In order to remain competitive in the contemporary business environment, several firms have

started training their employees to stop viewing problems as strictly functional - that is, as only a marketing problem, or an accounting problem, for example. What does this trend illustrate about strategic management? A) There has been a renewed emphasis on integrative thinking and solving problem cross-functionally. B) Functional barriers are an inherent part of a company's value chain. C) Firms are increasingly seeing the value of business analytics. D) Strengths-Weaknesses-Opportunities-Threats (SWOT) analysis is designed to break down functional barriers. E) Management doesn’t understand how a firm works in the real world.

44) Which of the following organizations presents awards to firms that excel at execution of

strategy, based on criteria such as leadership, marketing, strategic planning, and process management? A) International Organization for Standardization. B) Malcolm Baldrige National Quality Program. C) Global Reporting Initiative. D) World Resources Institute. E) American Institute of Certified Public Accountants.

45) The customer critical success factor of price can be measured by: A) Community service activities. B) Customer returns and complaints. C) Number of product defects. D) Cash Flows. E) Sales Volume.

46) Using value-chain analysis, a firm can develop a competitive advantage by specifically

looking for ways to: A) Add value and reduce cost. B) Improve manufacturing productivity. C) Improve customer service. D) Improve product quality. E) Reduce organizational risk.

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47) Value activities can best be defined as: A) Activities that firms in the industry must perform to improve a product. B) Activities that firms in the industry must perform in the process of producing the

product or providing the service. C) Activities that firms in the industry must perform in the process of closing down a product line, including customer service. D) Activities that firms in the industry must perform to consider ways of marketing a product. E) Activities that firms in the industry must perform in the process of considering new products, including customer service.

48) The role of the management accountant is to make sustainability indicators an integral part of

which of the following? A) Product design. B) Strategic planning. C) Management decision making. D) Purchasing. E) Product design, strategic planning, management decision making, and purchasing.

49) A firm succeeds on its ability to deliver products to customers more quickly than rival

companies in its industry. This skill is an example of the firm's: A) Core competency. B) Research effectiveness. C) Production efficiency. D) Cost control effectiveness. E) Value-chain analysis.

50) The analysis tool acronym SWOT stands for: A) Strengths - Workability - Opportunities - Threats. B) Strategies - Weaknesses - Opportunities - Thinking. C) Strengths - Weaknesses - Observations - Threats. D) Strengths - Weaknesses - Opportunities - Threats. E) Strategies - Weaknesses - Observations - Threats.

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51) Which of the following perspectives of a Balanced Scorecard would most likely be the

ultimate goal in a strategy map for a public company? A) Learning and innovation. B) Internal processes. C) Financial performance. D) Customer service. E) Employees and community.

52) Some of the indicators of a growing concern for sustainability include: A) The immigration crisis in many countries. B) The trend to economic nationalism. C) The increased use of value chain analysis. D) The increased concern about climate change. E) The increased use of the balanced scorecard.

53) Outdoor Company, maker of clothing and gear for outdoor enthusiasts, is very conscious of

sustainability issues. The company chose not to produce a product because: A) The cost of manufacturing the product exceeded its target cost. B) There was not sufficient demand for the product at the planned price. C) The environmental impact of toxic waste was unacceptable. D) The environmental impact of producing the product in terms of carbon emissions and energy consumptions was unacceptable. E) The company could not justify adding another product when there were acceptable alternatives already in the company's product offerings.

54) How can a firm develop a competitive advantage? A) Hire better managers who use value-chain analysis. B) Provide massive discounts on products or services to drive away competition. C) Reduce costs or add value. D) Expand into more markets. E) Require more capital to fund more projects.

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55) What is the first step of value-chain analysis? A) Develop a competitive advantage. B) Identify value-chain activities. C) Identify opportunities for added value. D) Identify opportunities for reduced cost. E) Determine the strategic issues surrounding the problem.

56) The five steps of strategic decision-making include all of the following steps except: A) Obtain information and conduct analyses. B) Determine the organization's critical success factors. C) Identify the alternative actions. D) Continue an on-going evaluation of the problem. E) Choose and implement the desired action.

57) A final step in the Strengths-Weaknesses-Opportunities-Threats (SWOT) analysis is to

identify quantitative measures for the: A) Value propositions. B) Competitor analyses. C) Critical success factors. D) Value propositions and also critical success factors. E) Competitor analyses and also critical success factors.

58) Which of the following would be a resource that a firm would analyze during the Strengths

and Weaknesses step of the Strengths-Weaknesses-Opportunities-Threats (SWOT) analysis? A) Barriers to entry. B) Pressure from substitute products. C) Bargaining power of suppliers. D) Operations. E) Pressure from substitute products.

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59) All of the following are required resources for differentiation except: A) Product engineering. B) Corporate reputation for quality. C) Intense supervision of labor. D) Strong marketing capability. E) Long tradition in the industry.

60) All of the following are required resources for cost leadership except: A) Substantial capital investment. B) Strong marketing capability. C) Products designed for ease of manufacturing. D) Process engineering skills. E) Intense supervision of labor.

61) Which of the following is not a term used for a phase of the value chain? A) Operations. B) Upstream. C) Downstream. D) Sustainability. E) All of the answer choices are terms used for a phase of the value chain.

62) Which of the following measures would likely be found on the financial perspective section

of a balanced scorecard? A) Sales growth. B) Customer retention. C) Efficiency of manufacturing. D) Increase in number of sales staff. E) None of these answer choices are correct.

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63) Which of the following is not an effective way to implement the balanced scorecard? A) Obtain the support of top management. B) Make it so that the balanced scorecard cannot be modified so that the strategy can

have time to take effect. C) Give managers and employees clear incentives linked to the scorecard. D) Include processes for ensuring the accuracy and reliability of the information in the scorecard. E) Ensure that the relevant portions of the scorecard are readily accessible to those responsible for the measures.

64) Which of the following is not a reason why global companies choose to report on corporate

responsibility? A) Ethical considerations. B) Innovation and learning. C) Risk management. D) Market share. E) Saves time.

65) Which of the following is not a category of the environmental component of sustainability

indicators? A) Operational indicators. B) Management indicators. C) Environmental condition indicators. D) Working condition indicators. E) All of the answers are a category of the environmental component of sustainability indicators.

66) Which is not a concern for sustainability? A) Climate change. B) Labor. C) Profit. D) Health. E) Safety.

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67) The five competitive forces that help identify opportunities and threats include all of the

following except? A) Pressure from substitute products. B) Barriers to entry. C) Bargaining power of competitors. D) Intensity of rivalry among competitors. E) Bargaining power of suppliers.

68) Effective execution of the cost leadership strategy requires all of the following except: A) Incentives based on meeting strict quantitative goals. B) Frequent, detailed control reports. C) Tight cost control. D) Structured organization and policies. E) Strong coordination among functions: research, product development, manufacturing,

and marketing.

69) The differentiation strategy requires all of the following resources, except: A) Strong marketing capability. B) Long tradition in the industry or unique skills. C) Product engineering. D) Products designed for ease of manufacture. E) Corporate reputation for quality or technology leadership.

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Answer Key Test name: chapter 2 1) Essay 2) Essay 3) Essay 4) Essay 5) Essay 6) Essay 7) Essay 8) Essay 9) Essay 10) Essay 11) B 12) C 13) C 14) C 15) D 16) C 17) B 18) E 19) E 20) A 21) B 22) D 23) E 24) D 25) C 26) A 27) C 28) C 29) D 30) D 31) D 32) E 33) D 34) E 35) E 36) B 37) C

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38) D 39) B 40) A 41) C 42) C 43) A 44) B 45) E 46) A 47) B 48) E 49) A 50) D 51) C 52) D 53) D 54) C 55) B 56) B 57) C 58) D 59) C 60) B 61) D 62) A 63) B 64) E 65) D 66) C 67) C 68) E 69) D

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Chapter 3 1) Williams Company is an East Coast producer of electronic furnace air filters. A significant

jump in new housing starts in the region has triggered a 25 percent increase in orders for the filter units, especially the quality model that Williams sells for $270. Six weeks after increasing production to supply the increased orders, the assistant controller notices some unusual unit cost data in the monthly report she is preparing. Prior and current month unit values are given below: Filter Average total cost Cost of last unit produced

This Month $ 167.20 104.90

Last Month $ 171.14 101.22

Change −$ 3.94 + 3.68

Required: (1) Suggest some possible causes for the decline in average total cost. (2) Assume now the opposite change has occurred, namely, average total cost has risen $3.94 per unit, while unit variable cost has fallen by $3.68 per unit. Suggest a possible situation to explain these changes.

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2) Roadmaster Equipment is an up-scale, higher-priced, specialty road construction equipment

maker based in Irvine, California. The management accountant for Roadmaster compiled information for various levels of output in units:

Variable production costs Fixed production costs

3,000 $ 162,000,000

Output 6,000

9,000

235,000,000

Variable selling costs

36,000,000

Fixed selling costs

15,000,000

Total costs Selling price per unit Unit cost

155,000

Profit per unit

Required: Rounding all calculations to the nearest dollar, fill in the blanks with the correct figures.

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3) Choco Chocolata is a cookie company in Juarez, Mexico that produces and sells American-

style chocolate chip cookies with extremely high quality and service. The owner would like to identify the various costs incurred during each year in order to plan and control the costs in the business. Chocolata's costs are the following (in thousands of pesos): Utilities for the bakery Paper used in packaging product Salaries and wages in the bakery Cookie ingredients Bakery labor fringe benefits Administrative costs Bakery equipment maintenance Depreciation of bakery plant and equipment Uniforms for bakers Insurance for the bakery Rent for administration offices Advertising Boxes, bags, and cups used in the bakery Office Manager's salary Overtime premiums Idle Time

$ 2,100 180 23,500 43,500 1,300 2,300 800 2,200 750 900 18,500 3,500 1,100 13,000 2,600 500

Required: (1) What is the total amount of product costs? (2) What is the total amount of period costs?

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4) Young Fashions Company produces children's clothing. During the current year, the

company incurred the following costs: Factory Rent Direct labor used Factory utilities Direct materials purchases Indirect materials Indirect labor

$ 144,000 525,000 120,000 850,000 106,000 96,000

Inventories for the year were: January 1 Direct materials Work in process Finished goods

$ 220,000 160,000 320,000

December 31 $ 155,000 128,000 310,000

Required: Prepare a statement of cost of goods manufactured and cost of goods sold.

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5) The following costs are incurred by the Oakland Company, a manufacturer of furniture. 1. (1) wood and fabric used in furniture 2. (2) depreciation on machinery 3. (3) property taxes on the factory 4. (4) labor costs to manufacture the furniture 5. (5) electricity cost to operate the machinery 6. (6) factory rent 7. (7) production supervisor's salary 8. (8) sandpaper and other supplies 9. (9) fire insurance on factory 10. (10) commissions paid to salespersons

Required: Classify each cost as either variable or fixed.

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6) A portion of the costs incurred by business organizations is designated as direct labor cost.

As used in practice, the term direct labor cost has a wide variety of meanings. Unless the meaning intended in a given context is clear, misunderstanding and confusion are likely to ensue. If a user does not understand the elements included in direct labor cost, erroneous interpretations of the numbers might occur and could result in poor management decisions. Measurement of direct labor costs has two aspects: (1) the quantity of labor effort that is to be included, that is, the types of hours or other units of time that are to be counted; and (2) the unit price by which each of these quantities is multiplied to arrive at a monetary cost. Required: 1) Distinguish between direct labor and indirect labor. 2) Presented below are labor cost elements that a company has been classified as direct labor, factory overhead, or either direct labor or factory overhead depending upon the situation. Direct labor-Included in the company's direct labor are cost production efficiency bonuses and certain benefits for direct labor workers such as FICA (employer's portion), group life insurance, vacation pay, and workers' compensation insurance. Factory overhead-The company's calculation of manufacturing overhead includes the cost of the following: wage continuation plans, the company sponsored cafeteria, the personnel department, and recreational facilities. Direct labor or factory overhead-The costs that the company includes in this category are maintenance expense, overtime premiums, and shift premiums. Explain the reasoning used by the company in classifying the cost elements in each of the three categories.

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7) Lester-Sung, Incorporated is a large general construction firm in the commercial building

industry. The following is a list of costs incurred by this company: 1. (1) The cost of an employee for 8 hours at $6.00 an hour. 2. (2) The cost of insurance for the employees. 3. (3) The cost of 1,000 board feet of 2×4 lumber. 4. (4) The CEO's salary. 5. 6. Required: 7. Classify each cost above using the following categories: 8. (a) General, selling, and administrative cost 9. (b) Direct material 10. (c) Direct labor 11. (d) Overhead cost

8) Advanced Technical Services Limited, has many products and services in the medical field.

The Clinical Division of the company does research and testing of consumer products on human participants in controlled clinical studies. Required: Determine for each cost below whether it is best classified as a fixed, variable, or step-fixed cost. 1. 2. 3. 4. 5. 6.

(1) Director's salary (2) Part-time help (3) Payment on purchase of medical equipment (4) Allocation of company-wide advertising (5) Patches used on participants' arms during the study (6) Stipends paid to participants

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9) The following data relates to the Solar Products Company for the fiscal year ended December

31: Direct Materials Inventory, Beginning Direct Materials Inventory, Ending Direct Materials Purchases Direct Labor Finished Goods Inventory, Beginning Finished Goods Inventory, Ending Factory Overhead Work-in-Process Inventory, Beginning Work-in-Process Inventory, Ending

$ 60 40 290 33 90 100 155 80 60

Required: Prepare a statement of cost of goods manufactured and a statement of cost of goods sold.

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10) The following information applies to the Johnson Tools Company for the year. Factory Rent Direct Materials Inventory, Beginning Direct Materials Inventory, Ending Direct Materials Purchases Direct Labor-Wages Indirect Labor-Wages Finished Goods Inventory, Beginning Finished Goods Inventory, Ending Indirect Materials Plant Utilities General and Administrative Work-in-Process Inventory, Beginning Work-in-Process Inventory, Ending Marketing Expenses Sales Revenue

$ 330,000 96,000 87,000 654,000 425,000 28,000 25,000 44,000 66,000 40,000 101,350 27,000 33,000 225,000 2,550,000

Required: Prepare a statement of cost of goods manufactured and an income statement for the year.

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11) A computer virus destroyed some of the accounting records for Hampton Furniture Company

for the periods of 2019-2021. The following information was salvaged from the computer system.

Beginning direct materials Purchases of direct materials Ending direct materials Direct materials used Direct labor Manufacturing overhead Total manufacturing costs Beginning work-in-process inventory Ending work-in-process inventory Costs of goods manufactured Beginning finished goods inventory Ending finished goods inventory Cost of goods sold Net sales Selling and Administrative Expenses Net income

12/31/19

12/31/20

12/31/21

$ 50,250 A 34,165 91,385 B 115,325 C 36,450

F 65,250 45,210 54,205 155,050 G 319,255 21,985

$ 45,210 70,125 K L 162,000 127,145 364,130 29,635

21,985

29,635

386,700 37,000

H I

362,920 42,500

D 377,050 550,000 135,950

42,500 315,755 495,000 J

39,550 N O 130,130

46,250

39,000

Required: Determine the correct amounts for items A through O.

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12) Dave's Lighting Incorporated produces lamps for the construction industry. During the year,

the company incurred the following costs: Factory Rent Direct labor used Factory utilities Direct materials purchases Indirect materials Indirect labor

$ 80,000 425,000 50,000 600,000 150,000 90,000

Inventories for the year were: January 1 Direct materials Work in process Finished goods

$ 100,000 20,000 250,000

December 31 $ 75,000 10,000 215,000

Required: Prepare a statement of cost of goods manufactured and a statement of cost of goods sold.

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13) The following information applies to the McAdoo Company for the year. Factory Rent Direct Materials Inventory, Beginning Direct Materials Inventory, Ending Direct Materials Purchases Direct Labor-Wages Indirect Labor-Wages Finished Goods Inventory, Beginning Finished Goods Inventory, Ending Indirect Materials Plant Utilities General and Administrative Work-in-Process Inventory, Beginning Work-in-Process Inventory, Ending Marketing Expenses Sales Revenue

$ 90,000 55,000 50,000 350,000 580,000 35,000 50,000 75,000 65,000 15,000 110,000 50,000 55,000 210,000 1,950,000

Required: Prepare a statement of cost of goods manufactured and an income statement for the year.

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14) Consider the following information for Blue Water Equipment, Incorporated, a manufacturer

of sailboat rigging, blocks, and cordage. Advertising expenses Depreciation expense-administrative office Depreciation expense-plant Depreciation expense-delivery trucks Direct materials inventory, beginning Direct materials inventory, ending Direct materials purchases Direct labor Indirect labor Finished goods inventory, beginning Finished goods inventory, ending Insurance on plant Heat and light for plant Repairs on plant building Supervisor’s salary-plant Supplies-plant Supplies-administrative office Work-in-process inventory, beginning Work-in-process inventory, ending Sales representatives’ salaries Sales revenue

$ 16,000 73,000 197,000 34,000 33,000 28,000 190,000 345,000 128,000 66,000 43,000 44,000 23,000 34,000 85,000 21,000 42,000 14,000 11,000 216,000 1,675,000

Required: Prepare a statement of cost of goods manufactured and an income statement for Blue Water Equipment, Incorporated for the year ending December 31.

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15) Greenbelt Hospital has the following activities in its value chain of providing service to each

inpatient admission: 1. Schedule patient. 2. Verify insurance. 3. Admit patient. 4. Prepare patient's room. 5. Review doctor's report. 6. Feed patient. 7. Order tests. 8. Move to/from laboratory. 9. Administer lab tests. 10. Order pharmaceuticals. 11. Complete patient report. 12. Check patient's vital signs. 13. Prepare patient for operation. 14. Move to/from operating room. 15. Operate. 16. Collect charges. 17. Discharge patient. 18. Bill insurance. Required: Assume that the cost object is the individual patient. Determine the appropriate cost driver(s) for each activity.

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16) The following information pertains to the Petrie Company: Prime costs Conversion costs Direct materials used Beginning work in process Ending work in process

$ 180,000 215,000 95,000 75,000 65,000

Required: Determine the cost of goods manufactured.

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17) The following information was taken from the accounting records of Tomek Manufacturing

Company. Unfortunately, some of the data were destroyed by a computer malfunction.

Sales Finished goods inventory, January 1, 2021 Finished goods inventory, December 31, 2021 Cost of goods sold Gross margin Selling and administrative expenses Operating income Work in process, January 1, 2021 Direct materials used Direct labor Factory overhead Total manufacturing costs Work in process, December 31, 2021 Cost of goods manufactured

Case A

Case B

$ 150,000 35,000 40,000

? $ 28,000 ?

? 25,000 ? 10,000 ? 18,000 35,000 50,000 ? 22,000 ?

61,000 23,000 1,000 22,000 14,000 8,000 9,000 ? 35,000 ? 45,000

Required: Calculate the unknowns indicated by question marks.

18) Since indirect cost cannot be conveniently or economically traced directly to a cost pool or

cost object, the management accountant will: A) Assign them by means of cost allocation. B) Assign them where needed. C) Assign them randomly to even out these costs. D) Not assign them at all. E) Assign them in low cost areas.

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19) All indirect manufacturing costs are commonly combined into a single cost pool called: A) Activity cost pools. B) Value streams. C) Resources. D) Overhead. E) Other manufacturing costs.

20) What is the assignment of indirect costs to cost pools and cost objects called? A) Cost allocation. B) Allocation bases. C) Overhead costs. D) Cost separation. E) Cost integration.

21) How will unit (average) cost of manufacturing (materials, labor and overhead) usually

change if the production level rises? A) It will remain constant. B) It will increase in direct proportion to the production increase. C) It will increase, but inversely with the production increase. D) It will decrease inversely and in direct proportion to the production increases. E) It will decrease, but not in direct proportion to the production increase.

22) What is the correct order of the relationship between the different types of costs? A) Resource costs to cost pools to cost objects. B) Resource costs to cost objects to cost pools. C) Cost pools to resource costs to overhead costs. D) Overhead costs to cost allocation to cost pools. E) Cost pools to overhead costs to resource costs.

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23) Theoretically, a decision maker would probably be willing to buy cost management

information if: A) It is accurate. B) It is consistent with management objectives. C) It is timely. D) Its value is equal to or greater than its cost. E) It is relevant.

24) Any product, service, or organizational unit to which costs are assigned for some

management purpose is a(n): A) Cost object. B) Direct cost. C) Indirect cost. D) Cost driver. E) Allocation base.

25) Which one of the following is not a type of cost driver? A) Structural cost driver. B) Executional cost driver. C) Volume-Based cost driver. D) Differential cost driver. E) Activity-Based cost driver.

26) The range of the cost driver in which the actual value of the cost driver is expected to fall is

called the: A) Actual cost range. B) Driver range. C) Activity range. D) Expected cost range. E) Relevant range.

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27) Which of the following is not an example of a decision involving structural cost drivers? A) Experience. B) Scale. C) Volume. D) Technology. E) Complexity.

28) The additional cost incurred as the cost driver increases by one unit is: A) Average cost. B) Controllable cost. C) Variable cost. D) Unit cost. E) Fixed Cost.

29) Strategic analysis uses which of the following to help a firm improve its competitive position

through an analysis of product and production complexity? A) Differential cost drivers. B) Discretionary cost drivers. C) Structural cost drivers. D) Marginal cost drivers. E) Product Cost Drivers.

30) Which of the following describes Work-in-Process Inventory? A) Cost of the supply of materials used in the manufacturing process or to provide the

service. B) The cost of goods that are ready for sale. C) The sum of materials used, labor, and overhead for the period. D) An inventory account that contains all costs put into the manufacture of products that are started but not complete at the financial statement date. E) A method that updates the finished goods inventory account for each purchase or sales transaction.

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31) The cost of goods that were finished and transferred out of work-in-process during the

current period is: A) Cost of goods sold. B) Cost of goods available for use. C) Cost of goods manufactured. D) Cost of goods available for sale. E) Cost of goods purchased.

32) Which of the following tend to be non-differential in the short term since they cannot be

changed, but are more likely to be differential in the long term? A) Fixed costs. B) Variable costs. C) Mixed costs. D) Semivariable costs. E) None of the answers are correct.

33) Assume the following information pertaining to Star Company: Prime costs Conversion costs Direct materials used Beginning work in process Ending work in process

$ 195,500 222,000 85,350 98,450 81,200

Direct labor used is calculated to be: A) $307,350. B) $26,500. C) $110,150. D) $84,350. E) $111,150.

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34) Assume the following information pertaining to Star Company: Prime costs Conversion costs Direct materials used Beginning work in process Ending work in process

$ 195,000 221,000 85,000 98,000 81,000

Direct labor used is calculated to be: A) $306,000. B) $26,000. C) $110,000. D) $84,000. E) $111,000.

35) Assume the following information pertaining to Star Company: Prime costs Conversion costs Direct materials used Beginning work in process Ending work in process

$ 201,500 234,000 89,550 103,850 83,600

Factory overhead is calculated to be: A) $323,550. B) $32,500. C) $111,950. D) $88,550. E) $122,050.

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36) Assume the following information pertaining to Star Company: Prime costs Conversion costs Direct materials used Beginning work in process Ending work in process

$ 195,000 221,000 85,000 98,000 81,000

Factory overhead is calculated to be: A) $306,000. B) $26,000. C) $110,000. D) $84,000. E) $111,000.

37) Assume the following information pertaining to Star Company: Prime costs Conversion costs Direct materials used Beginning work in process Ending work in process

$ 203,500 238,000 90,950 105,650 84,400

Total manufacturing cost is calculated to be: A) $328,950. B) $34,500. C) $112,550. D) $350,550. E) $125,450.

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38) Assume the following information pertaining to Star Company: Prime costs Conversion costs Direct materials used Beginning work in process Ending work in process

$ 195,000 221,000 85,000 98,000 81,000

Total manufacturing cost is calculated to be: A) $306,000. B) $26,000. C) $110,000. D) $331,000. E) $111,000.

39) Assume the following information pertaining to Star Company: Prime costs Conversion costs Direct materials used Beginning work in process Ending work in process

$ 198,500 228,000 87,450 101,150 82,400

Cost of goods manufactured is calculated to be: A) $296,700. B) $359,200. C) $325,200. D) $308,200. E) $334,200.

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40) Assume the following information pertaining to Star Company: Prime costs Conversion costs Direct materials used Beginning work in process Ending work in process

$ 195,000 221,000 85,000 98,000 81,000

Cost of goods manufactured is calculated to be: A) $289,000. B) $348,000. C) $314,000. D) $297,000. E) $323,000.

41) Assume the following information pertaining to Star Company:

Finished goods inventory Work in process inventory Direct materials

Beginning

Ending

$ 139,000 91,000 124,500

$ 132,100 111,500 138,700

Costs incurred during the period are as follows: Total manufacturing costs Factory overhead Direct materials used

$ 908,000 205,000 161,100

Materials purchases are calculated to be: A) $146,900. B) $162,300. C) $102,100. D) $175,300. E) $146,300.

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42) Assume the following information pertaining to Star Company: Beginning Finished goods inventory Work in process inventory Direct materials

$ 130,000 85,000 117,000

Ending $ 124,000 104,000 130,000

Costs incurred during the period are as follows: Total manufacturing costs Factory overhead Direct materials used

$ 896,000 199,000 156,000

Materials purchases are calculated to be: A) $143,000. B) $156,000. C) $91,000. D) $169,000. E) $140,000.

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43) Assume the following information pertaining to Star Company:

Finished goods inventory Work in process inventory Direct materials

Beginning

Ending

$ 157,000 103,000 139,500

$ 148,300 126,500 156,100

Costs incurred during the period are as follows: Total manufacturing costs Factory overhead Direct materials used

$ 932,000 217,000 171,300

Cost of goods sold is calculated to be: A) $924,200. B) $930,200. C) $917,200. D) $908,500. E) $904,200.

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44) Assume the following information pertaining to Star Company: Beginning Finished goods inventory Work in process inventory Direct materials

$ 130,000 85,000 117,000

Ending $ 124,000 104,000 130,000

Costs incurred during the period are as follows: Total manufacturing costs Factory overhead Direct materials used

$ 896,000 199,000 156,000

Cost of goods sold is calculated to be: A) $890,000. B) $896,000. C) $883,000. D) $877,000. E) $870,000.

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45) The following information was taken from the accounting records of Elliott Manufacturing

Corporation. Unfortunately, some of the data were destroyed by a computer malfunction. Sales Revenue Finished Goods Inventory, Beginning Finished Goods Inventory, Ending Cost of Goods Sold Gross Margin Direct Materials Used Selling and Administrative Expense Operating Income Work-in-Process Inventory, Beginning Work-in-Process Inventory, Ending Direct Labor Used Factory Overhead Total Manufacturing Cost Cost of Goods Manufactured

$ 72,250 13,750 9,800 ? 37,350 12,850 ? 17,800 ? 7,850 10,425 13,900 ? ?

Cost of goods sold is calculated to be: A) $33,900. B) $30,950. C) $34,900. D) $39,900. E) $28,900.

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46) The following information was taken from the accounting records of Elliott Manufacturing

$ 58,000 9,000 6,000 ? 25,000 10,000 ? 14,000 ? 5,000 9,000 12,000 ? ?

Cost of goods sold is calculated to be: A) $32,000. B) $30,000. C) $33,000. D) $38,000. E) $27,000.

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47) The following information was taken from the accounting records of Elliott Manufacturing

$ 73,000 14,000 10,000 ? 38,000 13,000 ? 18,000 ? 8,000 10,500 14,000 ? ?

Cost of goods manufactured is calculated to be: A) $33,000. B) $31,000. C) $35,000. D) $39,000. E) $28,000.

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48) The following information was taken from the accounting records of Elliott Manufacturing

$ 58,000 9,000 6,000 ? 25,000 10,000 ? 14,000 ? 5,000 9,000 12,000 ? ?

Cost of goods manufactured is calculated to be: A) $32,000. B) $30,000. C) $33,000. D) $38,000. E) $27,000.

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49) The following information was taken from the accounting records of Elliott Manufacturing

$ 70,000 13,000 9,200 ? 35,400 12,400 ? 17,200 ? 7,400 10,200 13,600 ? ?

Selling and administrative expenses are calculated to be: A) $11,200. B) $10,200. C) $18,200. D) $13,600. E) $25,600.

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50) The following information was taken from the accounting records of Elliott Manufacturing

$ 58,000 9,000 6,000 ? 25,000 10,000 ? 14,000 ? 5,000 9,000 12,000 ? ?

Selling and administrative expenses are calculated to be: A) $4,000. B) $9,000. C) $11,000. D) $12,000. E) $16,000.

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51) The following information was taken from the accounting records of Elliott Manufacturing

$ 61,750 10,250 7,000 ? 28,250 10,750 ? 15,000 ? 5,750 9,375 12,500 ? ?

Work in process inventory, beginning, is calculated to be: A) $3,375. B) $9,375. C) $10,375. D) $12,500. E) $15,875.

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52) The following information was taken from the accounting records of Elliott Manufacturing

$ 58,000 9,000 6,000 ? 25,000 10,000 ? 14,000 ? 5,000 9,000 12,000 ? ?

Work in process inventory, beginning, is calculated to be: A) $4,000. B) $9,000. C) $11,000. D) $12,000. E) $16,000.

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53) The following data pertains to Lam Company's manufacturing operations: Inventories Direct Materials Work in Process Finished Goods

4/1 $ 22,500 10,800 33,300

4/30 $ 18,600 7,350 45,000

Additional information for the month of April: Direct materials purchased Direct labor Direct labor rate per hour Factor overhead incurred

$ 39,200 39,000 10 50,800

Overhead is applied at $12 per direct labor hour. For the month of April, prime cost incurred was: A) $92,100. B) $83,100. C) $82,100. D) $79,100. E) None of these answers are correct.

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54) The following data pertains to Lam Company's manufacturing operations: Inventories Direct Materials Work in Process Finished Goods

4/1 $ 18,000 9,000 27,000

4/30 $ 15,000 6,000 36,000

Additional information for the month of April: Direct materials purchased Direct labor Direct labor rate per hour Factor overhead incurred

$ 32,000 30,000 10.00 40,000

Overhead is applied at $12 per direct labor hour. For the month of April, prime cost incurred was: A) $75,000. B) $66,000. C) $65,000. D) $62,000. E) None of these answers are correct.

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55) The following data pertains to Lam Company's manufacturing operations: Inventories Direct Materials Work in Process Finished Goods

4/1 $ 19,000 9,400 28,400

4/30 $ 15,800 6,300 38,000

Additional information for the month of April: Direct materials purchased Direct labor Direct labor rate per hour Factor overhead incurred

$ 33,600 32,000 10 42,400

Overhead is applied at $12 per direct labor hour. For the month of April, conversion cost incurred was: A) $79,400. B) $70,400. C) $74,400. D) $41,400. E) None of these answers are correct.

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56) The following data pertains to Lam Company's manufacturing operations: Inventories Direct Materials Work in Process Finished Goods

4/1 $ 18,000 9,000 27,000

4/30 $ 15,000 6,000 36,000

Additional information for the month of April: Direct materials purchased Direct labor Direct labor rate per hour Factor overhead incurred

$ 32,000 30,000 10.00 40,000

Overhead is applied at $12 per direct labor hour. For the month of April, conversion cost incurred was: A) $75,000. B) $66,000. C) $70,000. D) $39,000. E) None of these answers are correct.

57) What are the three attributes of cost information? A) Timeliness, cost-benefit, and reliability. B) Accuracy, timeliness, and relevance. C) Accuracy, timeliness, and cost-benefit. D) Reliability, relevance, and understandability. E) Timeliness, relevance, and understandability.

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58) What is the definition of a variable cost? A) The portion of the total cost that, within the relevant range, does not change with a

change in the quantity of a designated cost driver. B) A cost that, within the relevant range, includes both variable and fixed cost components. C) A cost that varies with the cost driver, but in discrete steps within the relevant range; also called semi-fixed cost. D) A cost that changes in total in response to changes in one or more cost drivers. E) The total cost (materials, labor, and overhead) divided by the number of units of output.

59) The term relevant range as used in cost accounting means the range over which: A) Costs may fluctuate. B) Cost relationships are approximately linear. C) Production may vary. D) Relevant costs are incurred. E) Relevant costs are avoided.

60) If the volume of production is increased over the level planned, the cost per unit would be

expected to: A) Decrease for fixed costs and remain unchanged for variable costs. B) Remain unchanged for fixed costs and increase for variable costs. C) Decrease for fixed costs and increase for variable costs. D) Increase for fixed costs and increase for variable costs. E) Decrease for fixed costs and decrease for variable costs.

61) When production levels are expected to decline within a relevant range, what effects would

be anticipated with respect to each of the following? A) Fixed costs per unit increase. Variable costs per unit no change. B) Fixed costs per unit increase. Variable costs per unit also increase. C) Fixed costs per unit stay the same. Variable costs per unit decrease. D) Fixed costs per unit stay the same. Variable costs per unit increase. E) Fixed costs per unit stay the same. Variable costs per unit also stay the same.

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62) What is a product cost? A) Only the costs necessary to complete the product. B) All nonproduct expenditures for managing the firm and selling the product. C) The cost of the product transferred to the income statement when inventory is sold. D) Cost of the supply of materials used in the manufacturing process or to provide the

service. E) The cost of goods that are ready for sale.

63) The Gray Company has a staff of five clerks in its general accounting department. Three

clerks who work during the day perform sundry accounting tasks; the two clerks who work in the evening are responsible for (1) collecting the cost data for the various jobs in process, (2) verifying manufacturing material and labor reports, and (3) supplying production reports to the supervisors by the next morning. The salaries of these two clerks who work at night should be classified as: A) Period costs. B) Direct costs. C) Product costs. D) Indirect costs. E) Variable Costs.

64) A manufacturer of machinery currently produces equipment for a single client. The client

supplies all required raw material on a no-cost basis. The manufacturer contracts to complete the desired units from this raw material. The total production costs incurred by the manufacturer are correctly identified as: A) Prime costs. B) Conversion costs. C) Variable production costs. D) Factory overhead. E) Fixed Costs.

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65) Certain workers are assigned the task of unpacking production materials received from

suppliers. These workers place the material in a storage area pending subsequent use in the production process. The labor cost of such workers is normally classified as: A) Direct labor. B) Direct materials. C) Indirect labor. D) Indirect materials. E) None of these answers are correct.

66) Which of the following situations would cause a firm to combine labor costs with overhead,

creating conversion costs? A) The firm has highly automated operations. B) The firm has a small number of automated tasks. C) The firm wants to focus on materials and labor together. D) The firm already employs the use of prime costs and wants to cover all costs. E) None of these answers are correct.

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67) Conrad, Incorporated recently lost a portion of its records in an office fire. The following

information was salvaged from the accounting records. Cost of Goods Sold Work-in-Process Inventory, Beginning Work-in-Process Inventory, Ending Selling and Administrative Expense Finished Goods Inventory, Ending Finished Goods Inventory, Beginning Direct Materials Used Factory Overhead Applied Operating Income Direct Materials Inventory, Beginning Direct Materials Inventory, Ending Cost of Goods Manufactured

$ 68,500 11,900 9,700 16,750 16,925 ? ? 12,700 14,385 11,315 6,245 63,290

Direct labor cost incurred during the period amounted to 1.5 times the factory overhead. The Chief Financial Officer of Conrad, Incorporated has asked you to recalculate the following accounts and to report to him by the end of the day. What is the amount of direct materials used? A) $24,340. B) $29,340. C) $31,840. D) $36,840. E) $40,670.

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68) Conrad, Incorporated recently lost a portion of its records in an office fire. The following

$ 65,000 10,500 9,000 15,000 15,000 ? ? 12,000 14,000 11,000 6,000 60,000

Direct labor cost incurred during the period amounted to 1.5 times the factory overhead. The Chief Financial Officer of Conrad, Incorporated has asked you to recalculate the following accounts and to report to him by the end of the day. What is the amount of direct materials used? A) $23,500. B) $28,500. C) $31,000. D) $36,000. E) $38,500

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69) Conrad, Incorporated recently lost a portion of its records in an office fire. The following

$ 74,000 14,100 10,800 19,500 19,950 ? ? 13,800 14,990 11,810 6,630 68,460

Direct labor cost incurred during the period amounted to 1.5 times the factory overhead. The Chief Financial Officer of Conrad, Incorporated has asked you to recalculate the following accounts and to report to him by the end of the day. What is the amount of direct materials purchased? A) $25,480. B) $30,660. C) $32,980. D) $37,980. E) $23,620.

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70) Conrad, Incorporated recently lost a portion of its records in an office fire. The following

$ 65,000 10,500 9,000 15,000 15,000 ? ? 12,000 14,000 11,000 6,000 60,000

Direct labor cost incurred during the period amounted to 1.5 times the factory overhead. The Chief Financial Officer of Conrad, Incorporated has asked you to recalculate the following accounts and to report to him by the end of the day. What is the amount of direct materials purchased? A) $23,500. B) $28,500. C) $31,000. D) $36,000. E) $22,000.

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71) Conrad, Incorporated recently lost a portion of its records in an office fire. The following

$ 72,500 13,500 10,500 18,750 19,125 ? ? 13,500 14,825 11,675 6,525 67,050

Direct labor cost incurred during the period amounted to 1.5 times the factory overhead. The Chief Financial Officer of Conrad, Incorporated has asked you to recalculate the following accounts and to report to him by the end of the day. What is the amount in the finished goods inventory at the beginning of the year? A) $15,075. B) $19,575. C) $24,575. D) $29,575. E) $21,000.

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72) Conrad, Incorporated recently lost a portion of its records in an office fire. The following

$ 65,000 10,500 9,000 15,000 15,000 ? ? 12,000 14,000 11,000 6,000 60,000

Direct labor cost incurred during the period amounted to 1.5 times the factory overhead. The Chief Financial Officer of Conrad, Incorporated has asked you to recalculate the following accounts and to report to him by the end of the day. What is the amount in the finished goods inventory at the beginning of the year? A) $10,500. B) $15,000. C) $20,000. D) $25,000. E) $18,000.

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73) Conrad, Incorporated recently lost a portion of its records in an office fire. The following

$ 73,500 13,900 10,700 19,250 19,675 ? ? 13,700 14,935 11,765 6,595 67,990

Direct labor cost incurred during the period amounted to 1.5 times the factory overhead. The Chief Financial Officer of Conrad, Incorporated has asked you to recalculate the following accounts and to report to him by the end of the day. What is the amount of total manufacturing cost? A) $56,790. B) $58,290. C) $62,690. D) $64,790. E) $67,990.

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74) Conrad, Incorporated recently lost a portion of its records in an office fire. The following

$ 65,000 10,500 9,000 15,000 15,000 ? ? 12,000 14,000 11,000 6,000 60,000

Direct labor cost incurred during the period amounted to 1.5 times the factory overhead. The Chief Financial Officer of Conrad, Incorporated has asked you to recalculate the following accounts and to report to him by the end of the day. What is the amount of total manufacturing cost? A) $50,500. B) $52,000. C) $56,400. D) $58,500. E) $60,000.

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75) Conrad, Incorporated recently lost a portion of its records in an office fire. The following

$ 68,500 11,900 9,700 16,750 16,925 ? ? 12,700 14,385 11,315 6,245 63,290

Direct labor cost incurred during the period amounted to 1.5 times the factory overhead. The Chief Financial Officer of Conrad, Incorporated has asked you to recalculate the following accounts and to report to him by the end of the day. What is the amount of net sales? A) $74,135. B) $99,635. C) $78,135. D) $80,635. E) $100,445.

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76) Conrad, Incorporated recently lost a portion of its records in an office fire. The following

$ 65,000 10,500 9,000 15,000 15,000 ? ? 12,000 14,000 11,000 6,000 60,000

Direct labor cost incurred during the period amounted to 1.5 times the factory overhead. The Chief Financial Officer of Conrad, Incorporated has asked you to recalculate the following accounts and to report to him by the end of the day. What is the amount of net sales? A) $68,500. B) $94,000. C) $72,500. D) $75,000. E) $96,000.

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77) Tierney Construction, Incorporated recently lost a portion of its financial records in an office

theft. The following accounting information remained in the office files: Cost of goods sold Work in process inventory, January 1, 2021 Work in process inventory, December 31, 2021 Selling and Administrative Expenses Net Income Factory overhead Direct materials inventory, January 1, 2021 Direct materials inventory, December 31, 2021 Cost of goods manufactured Finished goods inventory, January 1, 2021

$ 84,500 20,300 16,000 18,400 33,000 20,900 27,200 14,750 103,100 33,550

Direct labor cost incurred during the period amounted to 2.5 times the factory overhead. The Chief Financial Officer of Tierney Construction, Incorporated has asked you to recalculate the following accounts and to report to him by the end of tomorrow. What should be the amount of direct materials used? A) $16,650. B) $30,650. C) $21,650. D) $25,650. E) $26,125.

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78) Tierney Construction, Incorporated recently lost a portion of its financial records in an office

$ 80,000 18,500 14,500 16,000 30,000 20,000 26,000 14,000 98,000 31,000

Direct labor cost incurred during the period amounted to 2.5 times the factory overhead. The Chief Financial Officer of Tierney Construction, Incorporated has asked you to recalculate the following accounts and to report to him by the end of tomorrow. What should be the amount of direct materials used? A) $15,000. B) $29,000. C) $20,000. D) $24,000. E) $25,000.

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79) Tierney Construction, Incorporated recently lost a portion of its financial records in an office

$ 95,000 24,500 19,500 24,000 40,000 23,000 30,000 16,500 115,000 39,500

Direct labor cost incurred during the period amounted to 2.5 times the factory overhead. The Chief Financial Officer of Tierney Construction, Incorporated has asked you to recalculate the following accounts and to report to him by the end of tomorrow. What should be the amount of direct materials purchased? A) $32,000. B) $23,000. C) $19,000. D) $16,000. E) $11,500.

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80) Tierney Construction, Incorporated recently lost a portion of its financial records in an office

$ 80,000 18,500 14,500 16,000 30,000 20,000 26,000 14,000 98,000 31,000

Direct labor cost incurred during the period amounted to 2.5 times the factory overhead. The Chief Financial Officer of Tierney Construction, Incorporated has asked you to recalculate the following accounts and to report to him by the end of tomorrow. What should be the amount of direct materials purchased? A) $28,000. B) $19,000. C) $15,000. D) $12,000. E) $10,000.

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81) Tierney Construction, Incorporated recently lost a portion of its financial records in an office

theft. The following accounting information remained in the office files:

Cost of goods sold Work in process inventory, January 1, 2021 Work in process inventory, December 31, 2021 Selling and Administrative Expenses Net Income Factory overhead Direct materials inventory, January 1, 2021 Direct materials inventory, December 31, 2021 Cost of goods manufactured Finished goods inventory, January 1, 2021

$ 86,750 21,200 16,750 19,600 34,500 21,350 27,800 15,125 105,650 34,825

Direct labor cost incurred during the period amounted to 2.5 times the factory overhead. The Chief Financial Officer of Tierney Construction, Incorporated has asked you to recalculate the following accounts and to report to him by the end of tomorrow. What should be the amount in the finished goods inventory at December 31, 2021? A) $60,225. B) $39,725. C) $47,725. D) $53,725. E) $55,850.

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82) Tierney Construction, Incorporated recently lost a portion of its financial records in an office

$ 80,000 18,500 14,500 16,000 30,000 20,000 26,000 14,000 98,000 31,000

Direct labor cost incurred during the period amounted to 2.5 times the factory overhead. The Chief Financial Officer of Tierney Construction, Incorporated has asked you to recalculate the following accounts and to report to him by the end of tomorrow. What should be the amount in the finished goods inventory at December 31, 2021? A) $55,500. B) $35,000. C) $43,000. D) $49,000. E) $50,000.

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83) Tierney Construction, Incorporated recently lost a portion of its financial records in an office

$ 89,000 22,100 17,500 20,800 36,000 21,800 28,400 15,500 108,200 36,100

Direct labor cost incurred during the period amounted to 2.5 times the factory overhead. The Chief Financial Officer of Tierney Construction, Incorporated has asked you to recalculate the following accounts and to report to him by the end of tomorrow. What should be the amount of total manufacturing cost? A) $92,600. B) $103,600. C) $113,600. D) $84,600. E) $114,600.

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84) Tierney Construction, Incorporated recently lost a portion of its financial records in an office

$ 80,000 18,500 14,500 16,000 30,000 20,000 26,000 14,000 98,000 31,000

Direct labor cost incurred during the period amounted to 2.5 times the factory overhead. The Chief Financial Officer of Tierney Construction, Incorporated has asked you to recalculate the following accounts and to report to him by the end of tomorrow. What should be the amount of total manufacturing cost? A) $83,000. B) $94,000. C) $104,000. D) $75,000. E) $96,000.

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85) GigaBite Company's computer system recently crashed, erasing much of the company's

financial data. The following accounting information was discovered soon afterwards on the Chief Financial Officer's back-up computer data. Cost of Goods Sold Work-in-Process Inventory, Beginning Work-in-Process Inventory, Ending Selling and Administrative Expense Finished Goods Inventory, Ending Finished Goods Inventory, Beginning Direct Materials Purchased Factory Overhead Applied Operating Income Direct Materials Inventory, Beginning Direct Materials Inventory, Ending Cost of Goods Manufactured Direct Labor

$ 387,000 31,750 42,100 53,150 16,050 ? 178,700 122,500 25,850 20,100 6,350 347,000 60,250

The Chief Financial Officer of GigaBite Company has asked you to recalculate the following accounts and report to him by week's end. What should be the amount of direct materials used? A) $122,500. B) $192,450. C) $198,800. D) $214,850. E) $199,350.

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86) GigaBite Company's computer system recently crashed, erasing much of the company's

$ 380,000 30,000 40,000 50,000 15,000 ? 171,000 112,000 22,000 18,000 6,000 340,000 55,000

The Chief Financial Officer of GigaBite Company has asked you to recalculate the following accounts and report to him by week's end. What should be the amount of direct materials used? A) $112,000. B) $183,000. C) $189,000. D) $204,000. E) $185,000.

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87) GigaBite Company's computer system recently crashed, erasing much of the company's

$ 386,000 31,500 41,800 52,700 15,900 ? 177,600 121,000 25,300 19,800 6,300 346,000 59,500

The Chief Financial Officer of GigaBite Company has asked you to recalculate the following accounts and report to him by week's end. What should be the amount of direct materials available for use? A) $121,000. B) $191,100. C) $197,400. D) $213,300. E) $199,800.

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88) GigaBite Company's computer system recently crashed, erasing much of the company's

$380,000 30,000 40,000 50,000 15,000 ? 171,000 112,000 22,000 18,000 6,000 340,000 55,000

The Chief Financial Officer of GigaBite Company has asked you to recalculate the following accounts and report to him by week's end. What should be the amount of direct materials available for use? A) $112,000. B) $183,000. C) $189,000. D) $204,000. E) $192,000.

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89) GigaBite Company's computer system recently crashed, erasing much of the company's

$ 391,000 32,750 43,300 54,950 16,650 ? 183,100 128,500 28,050 21,300 6,550 351,000 63,250

The Chief Financial Officer of GigaBite Company has asked you to recalculate the following accounts and report to him by week's end. What should be the amount in the finished goods inventory at the beginning of the year? A) $16,650. B) $45,000. C) $56,650. D) $63,200. E) $66,900.

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90) GigaBite Company's computer system recently crashed, erasing much of the company's

$ 380,000 30,000 40,000 50,000 15,000 ? 171,000 112,000 22,000 18,000 6,000 340,000 55,000

The Chief Financial Officer of GigaBite Company has asked you to recalculate the following accounts and report to him by week's end. What should be the amount in the finished goods inventory at the beginning of the year? A) $15,000. B) $45,000. C) $55,000. D) $61,000. E) $57,000.

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91) GigaBite Company's computer system recently crashed, erasing much of the company's

$ 383,000 30,750 40,900 51,350 15,450 ? 174,300 116,500 23,650 18,900 6,150 343,000 57,250

The Chief Financial Officer of GigaBite Company has asked you to recalculate the following accounts and report to him by week's end. What should be the amount of total manufacturing cost? A) $350,800. B) $360,800. C) $391,550. D) $406,700. E) $362,400.

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92) GigaBite Company's computer system recently crashed, erasing much of the company's

$ 380,000 30,000 40,000 50,000 15,000 ? 171,000 112,000 22,000 18,000 6,000 340,000 55,000

The Chief Financial Officer of GigaBite Company has asked you to recalculate the following accounts and report to him by week's end. What should be the amount of total manufacturing cost? A) $340,000. B) $350,000. C) $380,000. D) $395,000. E) $360,000.

93) If finished goods inventory has increased during the period, which of the following is always

true? A) B) C) D) E)

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Cost of goods sold is less than cost of goods manufactured. Cost of goods sold is more than cost of goods manufactured. Cost of goods manufactured is more than total manufacturing costs. Cost of goods manufactured is less than total manufacturing costs. None of these answers are correct.

94) Manufacturing firms use which of the following three inventory accounts? A) Materials, Work-in-process, Transferred-out. B) Materials, Work-in-process, Finished goods. C) Materials, Finished goods, Transferred-out. D) Work-in-process, Finished goods, Transferred-out. E) None of these answers are correct.

95) Barnes Company incurred the following costs during July: Conversion costs Prime costs Manufacturing overhead

$ 152,500 141,250 81,500

What was the amount of direct materials used and direct labor for July? Direct materials A. B. C. D. A) B) C) D) E)

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$ 46,250 $ 50,250 $ 71,000 $ 70,250

Direct labor $ 50,250 $ 46,250 $ 58,000 $ 71,000

Option A Option B Option C Option D None of these options are correct.

96) Barnes Company incurred the following costs during July: Conversion costs Prime costs Manufacturing overhead

$ 133,000 $ 125,000 $ 75,000

What was the amount of direct materials used and direct labor for July?

A. B. C. D. A) B) C) D) E)

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Direct materials

Direct labor

$ 43,000 $ 47,000 $ 58,000 $ 67,000

$ 47,000 $ 43,000 $ 45,000 $ 58,000

Option A Option B Option C Option D None of these options are correct.

97) Woodcarving Company incurred the following costs during May: Conversion costs Prime costs Manufacturing overhead

$ 463,000 392,500 316,000

What was the amount of direct materials and direct labor used in May? Direct materials A. B. C. D. A) B) C) D) E)

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$ 102,000 $ 107,000 $ 245,500 $ 72,000

Direct labor $ 290,500 $ 214,000 $ 147,000 $ 77,000

Option A Option B Option C Option D None of these options are correct.

98) Woodcarving Company incurred the following costs during May: Conversion costs Prime costs Manufacturing overhead

$ 460,000 $ 390,000 $ 315,000

What was the amount of direct materials and direct labor used in May?

A. B. C. D. A) B) C) D) E)

Direct materials

Direct labor

$ 100,000 $ 105,000 $ 245,000 $ 70,000

$ 295,000 $ 215,000 $ 145,000 $ 75,000

Option A Option B Option C Option D None of these options are correct.

99) Jeffrey's Bottling Company incurred the following costs during November: Conversion costs Prime costs Manufacturing overhead

$ __________ 237,500 189,000

If direct materials cost was $150,500 in November, what was the conversion cost for November? A) $276,000 B) $261,000 C) $236,000 D) $256,000 E) $271,000

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100)

Jeffrey's Bottling Company incurred the following costs during November:

Conversion costs Prime costs Manufacturing overhead

$ __________ $ 220,000 $ 175,000

If direct materials cost was $140,000 in November, what was the conversion cost for November? A) $255,000 B) $240,000 C) $215,000 D) $235,000 E) $250,000

101)

Furniture Company incurred the following costs during 2016:

Conversion costs Prime costs Manufacturing overhead

$ 244,400 213,200 117,200

What was the amount of direct materials and direct labor used for the year? Direct materials A. B. C. D. A) B) C) D) E)

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$ 96,000 $ 106,000 $ 127,200 $ 86,000

Direct labor $ 102,200 $ 82,200 $ 91,000 $ 127,200

Option A Option B Option C Option D None of these options are correct.

102)

Furniture Company incurred the following costs during 2016:

Conversion costs Prime costs Manufacturing overhead

$ 240,000 $ 210,000 $ 115,000

What was the amount of direct materials and direct labor used for the year? Direct materials A. B. C. D. A) B) C) D) E)

$ 95,000 $ 105,000 $ 125,000 $ 85,000

Direct labor $ 100,000 $ 80,000 $ 90,000 $ 125,000

Option A Option B Option C Option D None of these options are correct.

103)

Factory overhead costs for a given period were 3 times as much as the direct material costs. Prime costs totaled $3,700. Conversion costs totaled $5,320. What are the direct labor costs for the period? A) $2,750. B) $2,890. C) $2,940. D) $3,070. E) $2,255.

104)

Factory overhead costs for a given period were 3 times as much as the direct material costs. Prime costs totaled $2,000. Conversion costs totaled $3,280. What are the direct labor costs for the period? A) $1,220. B) $1,360. C) $1,410. D) $1,540. E) $1,320.

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105)

Factory overhead costs for a given period were 2 times as much as the direct material costs. Prime costs totaled $9,950. Conversion costs totaled $13,950. What are the direct labor costs for the period? A) $5,950. B) $4,860. C) $5,500. D) $5,160. E) $5,750.

106)

Factory overhead costs for a given period were 2 times as much as the direct material costs. Prime costs totaled $8,000. Conversion costs totaled $11,350. What are the direct labor costs for the period? A) $4,650. B) $3,560. C) $4,200. D) $3,860. E) $4,450.

107)

Factory overhead costs for a given period were 1.5 times as much as the direct material costs. Prime costs totaled $19,300. Conversion costs totaled $25,670. What are the direct labor costs for the period? A) $6,710. B) $6,560. C) $6,585. D) $6,665. E) $6,510.

108)

Factory overhead costs for a given period were 1.5 times as much as the direct material costs. Prime costs totaled $15,500. Conversion costs totaled $22,725. What are the direct labor costs for the period? A) $1,200. B) $1,050. C) $1,075. D) $1,155. E) $1,000.

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109)

Consider the following for Columbia Street Manufacturing:

Change in finished goods inventory Change in work-in-process inventory Total manufacturing costs

$ 1,057 increase $ 398 decrease $ 960

What are the cost of goods manufactured and cost of goods sold? A) Cost of goods manufactured: $957.; Cost of goods sold: 1,158. B) Cost of goods manufactured: $1,358.; Cost of goods sold: $301. C) Cost of goods manufactured: $1,681.; Cost of goods sold: $1,033. D) Cost of goods manufactured: $1,358.; Cost of goods sold: $637. E) Cost of goods manufactured: $1,881.; Cost of goods sold: $796.

110)

Consider the following for Columbia Street Manufacturing:

Change in finished goods inventory Change in work-in-process inventory Total manufacturing costs

$ 985 increase $ 350 decrease $ 900

What are the cost of goods manufactured and cost of goods sold? A) Cost of goods manufactured: $885.; Cost of goods sold: $1,050. B) Cost of goods manufactured: $1,250.; Cost of goods sold: $265. C) Cost of goods manufactured: $1,525.; Cost of goods sold: $925. D) Cost of goods manufactured: $1,250.; Cost of goods sold: $565. E) Cost of goods manufactured: $1,725.; Cost of goods sold: $700.

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111)

Consider the following for Guardian Manufacturing Company:

Change in finished goods inventory Change in work-in-process inventory Total manufacturing costs

$ 369 increase $ 235 increase $ 765

What are the cost of goods manufactured and cost of goods sold? A) B) C) D)

112)

Cost of goods manufactured: $515. Cost of goods sold: $401. Cost of goods manufactured: $530.; Cost of goods sold: $161. Cost of goods manufactured: $550.; Cost of goods sold: $271. Cost of goods manufactured: $530.; Cost of goods sold: $352.

Consider the following for Guardian Manufacturing Company:

Change in finished goods inventory Change in work-in-process inventory Total manufacturing costs

$ 315 increase $ 145 increase $ 630

What are the cost of goods manufactured and cost of goods sold? A) Cost of goods manufactured: $470.; Cost of goods sold: $320. B) Cost of goods manufactured: $485.; Cost of goods sold: $170. C) Cost of goods manufactured: $505.; Cost of goods sold: $280. D) Cost of goods manufactured: $485.; Cost of goods sold: $370. E) Cost of goods manufactured: $585.; Cost of goods sold: $420.

113)

In order to assure that accounting information is accurate and to avoid potentially costly mistakes in the decision-making process, firms should: A) Design and monitor an effective system of internal accounting controls. B) Have the internal auditors and controller each check the accounting data before it is released to management. C) Purchase an accounting system that is designed specifically for the industry in which the firm conducts business. D) Only hire accountants with substantial work experience. E) None of these answer choices are correct.

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114)

Which of the following best describes a fixed cost? A) It may change in total when such change is unrelated to changes in production volume. B) It may change in total when such change is related to changes in production volume. C) It is constant per unit of change in production volume. D) It may change in total when such change depends on production volume within the relevant range.

115)

A company uses the end of each accounting period to count its inventory to use as the ending balance in inventory. What inventory system does this company employ? A) Perpetual. B) Periodic. C) End-of-Month. D) FIFO. E) LIFO.

116)

What inventory account is used for both manufacturing and merchandising companies? A) Materials Inventory. B) Work-in-Process Inventory. C) Finished Goods Inventory. D) Cost of Goods Sold. E) Labor.

117)

Which of the following should be considered a structural cost driver? A) Scale. B) Experience. C) Complexity. D) Technology. E) All of these answer choices are correct.

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118)

A manager of a small manufacturing firm is interested in knowing what the company's product costs are. Which of the following would be considered a product cost for the manager's company? A) Direct materials. B) Product design cost. C) Office expenses. D) Selling expenses. E) Advertising expense.

119)

A manager of a large retail firm is interested in knowing what the company's product costs are. Which of the following would be considered a period cost for the manager's company? A) Direct materials. B) Direct labor. C) Factory overhead. D) Advertising. E) Purchase Costs.

120)

What are internal accounting controls? A) Policies and procedures that are meant to speed up the accounting process. B) Policies and procedures that are meant to increase revenue. C) Policies and procedures that restrict and guide activities in the processing of financial data. D) Policies and procedures that are meant to facilitate new product lines. E) Policies and procedures that are meant to increase employee morale.

121)

Direct materials and direct labor costs total $90,000 and factory overhead costs total $165 per machine hour. If 280 machine hours were used for Job #333, what is the total manufacturing cost for Job #333? A) $46,200 B) $90,280 C) $90,000 D) $136,200 E) $146,200

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122)

Direct materials and direct labor costs total $70,000 and factory overhead costs total $100 per machine hour. If 200 machine hours were used for Job #333, what is the total manufacturing cost for Job #333? A) $20,000 B) $70,200 C) $70,000 D) $90,000 E) $100,000

123)

Direct materials and direct labor costs total $52,000 and factory overhead costs total $175 per machine hour. If 260 machine hours were used for Job #202, what is the total manufacturing cost for Job #202? A) $132,500 B) $112,500 C) $102,500 D) $97,500 E) $92,500

124)

Direct materials and direct labor costs total $40,000 and factory overhead costs total $100 per machine hour. If 200 machine hours were used for Job #202, what is the total manufacturing cost for Job #202? A) $95,000 B) $75,000 C) $65,000 D) $60,000 E) $55,000

125)

Which of the following would not be considered a cost driver for bank activities? A) Number of customers B) Number of customers turned away C) Number of accounts opened D) Number of loans approved E) Number of ATM transactions

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126)

A group of related products may be referenced as: A) Cost objects B) Cost drivers C) Value streams D) Cost pools E) Cost streams

127)

There is no convenient or economical way to trace a(n) __________ from the cost to the cost pool or from the cost pool to the cost object. A) Direct cost B) Indirect cost C) Cost assignment D) Cost allocation E) Cost driver

128)

Which of the following is not a correct pairing of the activity and the potential cost driver? A) Provide cashier service-number of customers B) Process loan applications-number of loan applications processed C) Mail customer statements-number of accounts by customer type and size D) Advise customers on banking services-number of ATM transactions

129)

Which of the following is an example of an indirect cost? A) Cost of downtime B) Cost of labor C) Cost of materials D) Cost of packaging materials E) None of the answer choices are correct.

130)

Which of the following is a period cost for a manufacturing firm? A) Direct materials costs. B) Salary of the receptionist. C) Direct labor costs. D) Factory overhead costs.

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131)

Complete the inventory formula: Beginning Inventory + __________ = __________ + Ending Inventory A) Cost added; cost transferred out B) Cost transferred out; cost added C) Cost of goods sold; cost added D) Cost added; cost of goods manufactured E) None of the answers are correct.

132)

Which of the following is not an example of a product cost? A) Salary of manufacturing supervisor B) Power for equipment C) Depreciation on company-owned sales outlets D) Depreciation on company-owned manufacturing plant E) Materials used in the product.

133)

Which of the following is not used to calculate total manufacturing cost? A) Prime cost B) Materials C) Labor D) Indirect Labor E) Indirect Materials

134)

The emphasis on effective __________ has __________ significantly in response to Securities and Exchange Commission requirements imposed by the Sarbanes-Oxley Act of 2002. A) Cost allocation; decreased B) Internal accounting controls; increased C) Profitability; increased D) Cost drivers; decreased E) None of the answers are correct.

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Answer Key Test name: chapter 3 1) Essay 2) Essay 3) Essay 4) Essay 5) Essay 6) Essay 7) Essay 8) Essay 9) Essay 10) Essay 11) Essay 12) Essay 13) Essay 14) Essay 15) Essay 16) Essay 17) Essay 18) A 19) D 20) A 21) E 22) A 23) D 24) A 25) D 26) E 27) C 28) C 29) C 30) D 31) C 32) A 33) C 34) C 35) E 36) E 37) A

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38) A 39) E 40) E 41) D 42) D 43) C 44) C 45) C 46) C 47) B 48) B 49) C 50) C 51) A 52) A 53) C 54) C 55) B 56) B 57) C 58) D 59) B 60) A 61) A 62) A 63) A 64) B 65) C 66) A 67) B 68) B 69) A 70) A 71) C 72) C 73) D 74) D 75) B 76) B 77) D

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78) D 79) D 80) D 81) D 82) D 83) B 84) B 85) B 86) B 87) C 88) C 89) C 90) C 91) B 92) B 93) A 94) B 95) D 96) D 97) C 98) C 99) A 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

A D D B B A A B B B B B B A A B D E

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118) 119) 120) 121) 122) 123) 124) 125) 126) 127) 128) 129) 130) 131) 132) 133) 134)

A D C D D D D B C B D A B A C A B

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Chapter 4 1) Amy and Jay Golden have worked for five years in a firm specializing in restoration of

historical buildings. Amy has focused on interior reconditioning and Jay on architectural and structural design. They have specialized in residential structures for the past two years, and are thinking of forming their own residential restoration firm. They plan to do all the structural and decorative design, and subcontract the actual construction and decorative work. One of their concerns is to have an accounting system in place when they begin their business. You have been asked to assist them by answering the following questions. Required: (1) Since we have a very basic service-type firm, can a simple accounting system be developed? (2) What kinds of information does the accounting system need to collect?

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2) LM Company listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual direct labor hours Actual machine hours

$ 1,143,800 86,000 28,595 1,101,770 87,200 28,300

Required: 1. (1) Assuming KLM applied overhead based on direct labor hours, calculate the company's predetermined overhead rate. 2. (2) Assuming KLM applied overhead based on machine hours, calculate the company's predetermined overhead rate. 3. (3) If overhead is applied based on direct labor hours, calculate the overapplied/underapplied overhead. 4. (4) If overhead is applied based on machine hours, calculate the overapplied/underapplied overhead.

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3) Catlett Company manufactures products to customer specifications. A job costing system is

used to accumulate production costs. Factory overhead cost was applied at 120% of direct labor cost. Selected data concerning operations of the company are presented below. Direct Materials Inventory, Beginning Direct Materials Inventory, Ending Direct Materials Purchases Direct Labor Finished Goods Inventory, Beginning Finished Goods Inventory, Ending Actual Factory Overhead Work-in-Process Inventory, Beginning Work-in-Process Inventory, Ending

$ 88,000 75,000 395,000 300,000 137,000 130,000 322,000 72,000 55,000

Required: Prepare a statement of cost of goods manufactured and a statement of cost of goods sold for the year ended December 31, 20XX.

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4) Which method of accumulating product costs, job costing or process costing, would be more

appropriate in each of the following situations: 1. A physicians' clinic 2. A manufacturer of ready-mix cement 3. A custom equipment manufacturing 4. A print shop 5. A chemical manufacturer 6. An automobile repair shop 7. A professional services firm 8. A food processing company 9. A consulting firm 10. An oil refinery

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5) Horton Company uses a job costing system, and factory overhead is applied on the basis of

machine hours. At the beginning of the year, management estimated that the company would incur $1,050,000 of factory overhead costs and use 70,000 machine hours. Horton Company recorded the following events during the month of March. 1. (a) Purchased 200,000 pounds of materials on account. The cost was $4.00 per pound. 2. (b) Issued 150,000 pounds of materials to production, of which 20,000 pounds were used

as indirect materials. Assume all materials are at $4 per pound. (c) Incurred $250,000 of direct labor costs and $50,000 of indirect labor costs. (d) Recorded depreciation on equipment for the month, $18,000. (e) Recorded $4,000 of insurance costs for the manufacturing property. (f) Paid $8,000 cash for utilities and other miscellaneous items for the manufacturing plant. (g) Completed job M11 costing $17,000 and job M12 costing $80,000 during the month and transferred them to Finished Goods inventory account. (h) Shipped job M12 to the customer during the month. The job was invoiced at 40 percent above cost. (i) Used 10,000 machine hours during March. Required: (1) Compute Horton Company's predetermined overhead rate for the year. (2) Prepare journal entries to record the events that occurred during March. (3) Compute the amount of overapplied or underapplied overhead and prepare a journal entry to close overapplied or underapplied overhead into cost of goods sold on March 31.

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6) Harrison allocates factory overhead on the basis of direct labor cost. The overhead rates for

the year are 50% for Department A and 100% for Department B. Harrison started and completed job M15 during May. The costs of job M15 are summarized below.

Direct materials Direct labor Factory overhead

Department A

Department B

? $ 500,000 ?

$ 150,000 ? $ 200,000

The total manufacturing costs assigned to job M15 during May were $1,400,000. Required: Calculate the missing (?) costs (Department A direct materials and factory overhead and Department B direct labor).

7) Warren Company uses a predetermined overhead rate. Overhead for the next twelve months

is estimated to be $480,000. Jackson applies overhead as a percentage of direct labor cost. Direct labor costs are estimated to be $400,000 for the next year. During the year actual direct labor costs amounted to $520,000 and the actual overhead was $605,000. Required: 1. (1) Calculate the over/under-applied overhead for the year. 2. (2) Prepare the journal entries to close the accounts, assuming that the over/under-applied overhead is closed to cost of goods sold.

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8) Powell Company uses a job costing system. During the month of May, Powell spent most of

its time on job A50, which was started late in April. Following is cost information for job A50, other May costs, and relevant annual estimates. Materials issued: 80% for Direct Use on job A50 and 20% for Indirect Use through May Labor:

$ 6,000

Direct Labor for job A50 (300 DLH @ $20 per DLH) Indirect Labor for May Other May Costs:

6,000 310

Depreciation (30% Factory and 70% Administrative) Other (70% Factory and 30% Administrative) Overhead Cost Driver: Direct Labor Hours (DLH)

1,000 700

Estimated Annual Overhead Estimated Annual DLH Markup-as a percent of cost

21,000 3,000 40%

Required: (1) What is the overhead to be applied for May to job A50 upon completion on May 15? (2) What are total manufacturing costs for May for job A50? (3) Prepare the journal entry when job A50 is completed on May 15, assuming that the May 1 work-in-process inventory for job A50 was $600. (4) What is the profit on job A50 when it is sold on May 15? (5) Calculate the under- or over-applied overhead for May.

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9) Rivera Company manufactured two products, A and B, during April. For purposes of product

costing, an overhead rate of $2.00 per direct-labor hour was used, based on budgeted annual factory overhead of $500,000 and 250,000 budgeted annual direct-labor hours, as follows:

Department 1 Department 2

Budgeted Overhead

Budgeted Hours

$ 300,000 200,000 $ 500,000

200,000 50,000 250,000

The number of labor hours required to manufacture each of these products was:

In Department 1 In Department 2 Total

Product A

Product B

3 1 4

1 3 4

During April, production units for products A and B were 1,000 and 3,000, respectively. Required: (1) Using a plantwide overhead rate, what are total overhead costs assigned to products A and B, respectively? (2) Using departmental overhead rates, what are total overhead costs assigned to products A and B, respectively? (3) Assume that materials and labor costs per unit of Product B are $10 and that the selling price is established by adding 40% of total costs to cover profit and selling and administrative expenses. What difference in selling price would result from the use of departmental overhead rates?

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10) Riverside Company manufactures two sizes of T-shirts, medium and large. Both sizes go

through cutting, assembling and finishing departments. The company uses operation costing. Riverside Company's conversion costs applied to products for the month of June were: Cutting Department $60,000, Assembling Department $60,000, and Finishing Department $30,000. June had no beginning or ending work-in-process inventory. The quantities and direct materials costs for June follow: Job Number 601 602

Size Medium Large

Quantity 10,000 20,000

Direct Materials $ 50,000 110,000

Each T-shirt, regardless of size, required the same cutting, assembling and finishing operations.

Required: (1) Compute both unit cost and total cost for each shirt size produced in June. (2) Prepare journal entries to record direct materials and conversion costs incurred in the three departments, and the finished goods costs for both shirt sizes.

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11) Chen Textile Company's Job A had normal spoilage with the estimated disposal selling price

of $500 in March attributable to this particular job; its job B had normal spoilage with the estimated cost of $300 from the general production process failure and abnormal spoilage of $100. The company also incurred scrap due to a specific job and sold it for $60 cash. It also sold the scrap common to all jobs for $110 cash in March. Required: (1) Prepare the necessary journal entries to record normal and abnormal spoilage costs. (2) Prepare the necessary journal entries to record both types of scrap sold.

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12) Rockingham Manufacturing Company builds highly sophisticated engine parts for cars

competing in stock racing and drag racing. The company uses a normal costing system that applies factory overhead on the basis of direct labor-hours. For the current year the company estimated that it would incur $256,000 in factory overhead costs and 16,000 direct laborhours. The April 1 balance in inventory accounts follow: Material Inventory Work-in-Process Inventory (Y12) Finished Goods Inventory (Z11)

$ 54,000 $ 21,000 $ 108,000

Job Y12 is the only job in process on April 1. The following transactions were recorded for the month of April: a. Purchased materials on account, $160,000 b. Issued $180,000 of materials to production, $6,000 of which was for indirect materials. Cost of direct materials issued: Job Y12 Job D20 Job E33

$ 46,000 84,000 44,000

c. Incurred and paid payroll cost of $40,920

Direct labor cost ($20/hour; total 1,196 hours) Job Y12 Job D20 Job E33 Indirect labor Selling and administrative salaries

$ 12,220 8,060 3,640 5,000 12,000

d. Recognize deprecation for the month: Manufacturing assets Selling and administrative assets e. f.

e. f. g. h.

$ 4,000 3,000 Paid advertising expenses Incurred factory utility costs

$ 15,000 3,600

Incurred other factory overhead costs $3,200 Applied factory overhead to production on the basis of direct labor-hours Completed Job Y12 during the month and transferred it to the finished goods warehouse Sold Job Z11 on account for $120,000

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Received $50,000 of collections on account from customers during the month Required: (1) Calculate the company's predetermined overhead rate. (2) Prepare journal entries for the April transactions. Record job-specific items in individual Work-in-Process accounts. (3) What was the balance of the Materials Inventory account on April 30? (4) What was the balance of the Work-in-Process Inventory control account on April 30? (5) What was the amount of underapplied or overapplied overhead?

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13) Jones and Jones CPA firm has the following budget for the year: Direct labor (for professional hours charged to clients) Overhead Indirect materials Indirect labor Depreciation - Building Depreciation - Furniture Utilities Insurance Property taxes Other expenses Total

$ 200,000

10,000 250,000 50,000 5,000 12,000 4,800 5,200 3,000 $ 340,000

The firm uses direct labor as the cost driver to apply overhead to clients. During January, the firm worked for many clients; data for two of them follow: Henderson account Direct materials Direct labor Fisher account

$ 800 $ 3,000

Direct materials Direct labor

$ 2,380 $ 12,600

Required: (1) Compute the Jones and Jones budgeted overhead rate. Explain how this is used. (2) Compute the amount of overhead to be charged to the Henderson and Fisher accounts using the predetermined overhead rate calculated in requirement (1). (3) Compute the separate job cost for the Henderson and Fisher accounts.

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14) Ramirez Company uses a predetermined overhead rate. Overhead for the next twelve months

is estimated to be $500,000. Ramirez applies overhead as a percentage of direct labor cost. Direct labor costs are estimated to be $625,000 for the next year. During the year actual direct labor costs amounted to $600,000 and the actual overhead was as follows: Maintenance Indirect materials Indirect labor Factory rent Depreciation Payroll taxes Other Total

$ 50,000 25,000 80,000 90,000 70,000 80,000 80,000 $ 475,000

Required: 1. (1) Calculate the over/under-applied overhead for the year. 2. (2) Prepare the journal entry to close the overhead accounts, assuming that the over/under-applied overhead is closed to cost of goods sold.

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15) The following information is for Stier Company for the month of November:

a. Factory overhead costs are applied to jobs at the predetermined rate of $80 per labor-hour. Job X-14 incurred 2,300 labor-hours; Job SM-4 used 1,850 labor-hours. b. Job X-14 was shipped to customers during November. The company closed the overapplied or underapplied overhead to the Cost of Goods Sold account at the end of November. c. Factory utilities, factory depreciation, and factory insurance incurred is summarized by these factory vouchers, invoices, and cost memos: Utilities Depreciation Insurance

$ 44,500 53,500 38,600

d. The Company purchased the following direct materials and indirect materials: Material A Material B Indirect materials

$ 6,000 7,000 4,250

Total

$ 17,250

e. Direct materials and indirect materials used are as follows:

Material A Material B Subtotal Indirect materials

Job X-14

Job SM-4

Total

$ 5,450 1,650 $ 7,100

$ 33,000 25,500 $ 58,500

$ 38,450 27,150 $ 65,600 66,500

Total

$ 132,100

f. Factory labor incurred for the two jobs and indirect labor is as follows Job X-14 Job SM-4 Indirect labor

$ 32,200 25,900 122,000

Total

$ 180,100

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Required: 1. Calculate the amount of overapplied or underapplied overhead and state whether the cost of goods sold account will be increased or decreased by the adjustment. 2. Calculate the total manufacturing cost for Job X-14 and Job SM-4 for November.

16) Manufacturers of large equipment such as aircraft and ships and companies involved in road

construction have jobs that may require two or more years for completion. For example, Boeing Corporation might have an order for 50 aircraft for a particular airline, and the order will extend over a three- to five-year period. Aircraft are delivered as completed, but not in a batch of 50 at one time. In the typical fashion, the overhead application rate must be calculated and applied in such a way that each aircraft that is delivered has the proper amount of overhead for that aircraft.

Required: What unique difficulties do you see in the calculation and application of overhead in industries such as aircraft manufacturing or shipbuilding? How do you think these firms should respond to these difficulties in determining overhead rates and applying overhead costs?

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17) Humming Company manufactures high quality musical instruments for professional

musicians. The company estimated that it would incur $120,000 in factory overhead costs and 8,000 direct labor-hours for the year. The April 1 balances in the inventory accounts follow: Materials inventory Work-in-process inventory (S10) Finished goods inventory (J21)

$ 27,000 10,500 54,000

Job S10 is the only job in process on April 1. The following transactions were recorded for the month of April. a. Purchased materials on account, $90,000. b. Issued $91,000 of materials to production, $4,000 of which was for indirect materials.

Cost of direct materials issued: Job S10 Job C20 Job M54

$ 23,000 42,000 22,000

c. Incurred and paid payroll cost of $20,460:

Direct labor cost ($13/hour; total 920 hours) Job S10 Job C20 Job M54 Indirect labor Selling and administrative salaries

$ 6,110 4,030 1,820 2,500 6,000

d. Recognized depreciation for the month: Manufacturing assets Selling and administrative assets e.

Paid advertising expenses

$ 2,200 1,700 $ 6,000

e. Incurred factory utilities costs $1,300. f. Incurred other factory overhead costs $1,600. g. Applied factory overhead to production on the basis of direct labor-hours.

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h. Completed Job S10 during the month and transferred it to the finished goods warehouse. i. Sold Job J21 on account for $59,000. j. Received $25,000 of collections on account from customers during the month.

Required: 1. Calculate the company's predetermined overhead rate. 2. Prepare journal entries for the April transactions. Letter your entries from a to k. 3. What was the balance of the Materials Inventory account on April 30? 4. What was the balance of the Work-in-Process Inventory account on April 30? 5. What was the amount of underapplied or overapplied overhead?

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18) Boston Manufacturing Company had the following cost information for May. Materials Requisitions Job Number Quantity

Department Number 1 88X 6,650 1 88Y 2,130 1 88Y 921 1 88Z 63 1 88Z 1,818 Labor hours and rates Department Job Number Labor Hours Number 1 88X 554 1 88Y 25 1 88Z 613 2 88Y 321 2 88Z 618

Cost per unit $ 8.31 $ 2.52 $ 4.18 $ 3.23 $ 9.16

The labor rate in Department 1 is $10.50 and in Department 2 is $9.50. The overhead rate in Department 1 is based on direct labor-hours, at $4.50 per hour; in Department 2 the rate is 125 percent of direct labor cost. Boston had no beginning work-in-process inventory for May. Required: Calculate the direct materials, direct labor, factory overhead, and total costs for each job.

19) Product costing provides useful cost information for all the following except: A) Both manufacturing and non-manufacturing firms. B) For non-manufacturing firms. C) Management planning, cost control, and performance evaluation. D) Financial statement reporting. E) Identifying and hiring competent managers.

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20) The key distinction between job costing and process costing is: A) The difference in detail required by each approach. B) The use made of the collected data. C) The journal entries required. D) The accumulation of costs to assign to cost objects. E) The standards applied.

21) Standard costs are: A) Planned costs the firm should attain. B) Associated with direct materials and factory overhead only. C) Associated with direct labor and factory overhead only. D) Targeted low costs the firm should strive for. E) Estimates of a portion of overhead.

22) Which of the following can produce unit product costs that fluctuate significantly? A) Actual costing system. B) Standard costing system. C) Normal costing system. D) Industry costing system. E) Overhead costing system.

23) A normal costing system uses actual costs for direct materials and direct labor, and: A) Actual costs for factory overhead. B) Estimated factory overhead costs based on material cost. C) Estimated costs that the firm should attain. D) Estimated costs for factory overhead. E) Charges actual factory overhead as a lump sum.

24) Product costing system design or selection: A) Involves cost management expertise. B) Requires an understanding of the nature of the business. C) Should provide useful cost information for strategic and operational decision needs. D) Should be cost effective in design and operation. E) All of these answer choices are correct.

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25) If a firm is following the cost leadership strategy, and overhead accounts are complex, then

the: A) Firm should use a process costing system. B) Firm can use either a project or job costing system. C) Traditional volume-based job costing will not usually provide the needed cost

accuracy. D) Only recourse is to install a hybrid costing system. E) Firm should attempt to collect only material and labor costs.

26) The three major differences between process and job order costing systems are those relating

to: A) B) C) D) E)

Quantity, quality, and cost. Speed, accuracy, and design. Cost object, product or service variety, and timing of unit cost calculation. Responsibility for cost, system design, and authorization codes. None of these answer choices are correct.

27) The two main advantages of using predetermined factory overhead rates are to provide more

accurate unit cost information and to: A) Simplify the accounting process. B) Provide cost information on a timely basis. C) Insure transmission of correct data. D) Extend the useful life of the cost data. E) Adjust for variances in data sources.

28) What is a choice a management accountant must make when developing a costing system for

a specific firm? A) Cost decreasing method. B) Cost measurement method. C) Cost application method. D) Cost spreading method. E) Overhead accumulation method.

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29) Volume-based rates are appropriate in situations where the incurrence of factory overhead: A) Is related to multiple cost drivers. B) Is related to several non-homogeneous cost drivers. C) Is related to a single, common cost driver. D) Varies considerably from period to period. E) Is relatively small in amount.

30) Which of the following is not one of the four steps to obtain the predetermined overhead

rate? A) Select the most appropriate cost driver(s) for applying the factory overhead costs. B) Divide the estimated factory overhead costs by the estimated amount of the chosen

cost driver(s). C) Estimate the total amount of the chosen cost driver(s) for the upcoming operating period. D) Estimate the total amount of direct materials and labor needed for the upcoming operating period. E) Estimate total factory overhead costs for the planned production for the upcoming operating period, usually a year.

31) Volume-based cost accounting systems often do not provide sufficiently accurate product

costing because they: A) Use only volume-based cost drivers. B) Fail to recognize the impact of overhead in product cost. C) Often do not reflect changes in major cost categories caused by plant automation. D) Too often use an allocation base that does not have a cause-effect relationship to resource usage. E) Have both fixed and variable product costs.

32) Under job costing, factory overhead costs are assigned to products or services using labor or

machine hours which are: A) Multiple cost pools. B) A homogeneous cost pool. C) Volume-based cost drivers. D) Non-volume-based cost drivers only. E) Activity-based cost drivers.

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33) Operation costing is a hybrid costing system for products and services that uses: A) Job costing to assign direct material costs and standard costing for conversion cost. B) Process costing to assign conversion costs and normal costing for materials cost. C) Job costing for direct materials costs and process costing for conversion cost. D) Normal costing for conversion cost and process costing for materials cost. E) None of the answer choices are correct.

34) Cost system design/selection should consider all except which one of the following? A) Cost/benefit of system design. B) A firm's strategy and management information needs. C) Customer needs. D) Nature of the industry, product, or service. E) Cost/benefit of system operation.

35) Which one of the following documents records and summarizes the costs of direct materials,

direct labor, and factory overhead for a particular job? A) Purchase order. B) Material requisition form. C) Job product cost document. D) Bill of materials. E) Job cost sheet.

36) What is the bill of materials? A) A source document used to request the release of materials into the production

process. B) A detailed listing of all the materials needed for a given job. C) A cost sheet that records and summarizes the costs of direct materials, direct labor, and factory overhead for a particular job. D) A sheet showing the time an employee worked on each job, the pay rate, and the total cost chargeable to each job. E) A document that lists the prices of all materials needed in production.

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37) Which one of the following is the amount of factory overhead applied that exceeds the actual

factory overhead cost? A) Factory overhead applied. B) Actual factory overhead. C) Overapplied overhead. D) Allocated factory overhead. E) Underapplied overhead.

38) Which one of the following is the amount that actual factory overhead exceeds the factory

overhead applied? A) Factory overhead applied. B) Actual factory overhead. C) Overapplied overhead. D) Allocated factory overhead. E) Underapplied overhead.

39) The total cost of direct materials, direct labor, and factory overhead transferred from the

Work-in-Process Inventory account to the Finished Goods Inventory account during an accounting period is: A) Normal cost of goods sold. B) Adjusted cost of goods sold. C) Total manufacturing cost. D) Cost of goods manufactured. E) Actual cost of goods sold.

40) Manufacturing operations whose conversion activities are very similar across several product

lines, but whose direct materials used in the various products differ significantly use: A) Process costing. B) Operation costing. C) Actual costing. D) Product costing. E) Job costing.

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41) The journal entry required to record factory depreciation includes: A) A debit to the Cost of Goods Manufactured account. B) A debit to the Factory Overhead account. C) A debit to the Depreciation Expense account. D) A debit to the Accumulated Depreciation account. E) None of these answer choices are correct.

42) Which of the following is not among the most frequently used volume-based cost drivers for

applying factory overhead? A) Direct labor hours. B) Direct labor costs. C) Machine hours. D) Number of products made. E) None of these answers are correct.

43) When completed units are transferred to the warehouse: A) Cost of Goods Sold account is debited. B) Cost of Goods Manufactured account is debited. C) Finished Goods Inventory account is debited. D) Work-in-Process Inventory account is debited. E) Finished Goods Inventory account is credited.

44) When completed units are sold: A) Cost of Goods Sold account is credited. B) Cost of Goods Manufactured account is credited. C) Finished Goods Inventory account is credited. D) Work-in-Process Inventory account is credited. E) Finished Goods Inventory account is debited.

45) Which of the following industries is more suitable for using a job costing system? A) Chemical plants. B) Petroleum product manufacturing. C) Medical clinics. D) Cement manufacturing. E) Food processing.

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46) The system where the cost of a product or service is obtained by assigning costs to masses of

similar units in each department and then computing unit cost on an average basis is called: A) A process costing system. B) A job costing system. C) An activity-based costing system. D) An inventory materials control system. E) None of these answers are correct.

47) A time ticket relates to which of the following costs? A) Direct labor costs. B) Overhead costs. C) Direct materials costs. D) Indirect labor costs. E) Indirect materials costs.

48) Normal spoilage is defined as: A) Spoilage that occurs under efficient operations. B) Scrap. C) Uncontrollable waste as a result of a special production run. D) Spoilage that arises under inefficient operations. E) Controllable spoilage.

49) Normal rework common to all jobs is charged to which account? A) Workin-Process account. B) Loss from Rework account. C) Direct Materials account. D) Factory Overhead account. E) Inventory of Rework account.

50) For job costing in service industries, overhead costs are usually applied to jobs based on: A) Factory overhead. B) Indirect labor. C) Indirect materials. D) Direct labor-hours or dollars. E) Direct materials.

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51) Bright Star Incorporated is a job-order manufacturer. The company uses a predetermined

overhead rate based on direct labor hours to apply overhead to individual jobs. For the current year, estimated direct labor hours were 130,000 and estimated factory overhead was $1,001,000. The following information was for September. Job X was completed during September, while Job Y was started but not finished. September 1, inventories: Materials Work-in-process (All Job X) Finished goods Materials purchases Direct materials requisitioned:

$ 10,700 39,000 82,000 $ 141,000

Job X Job Y Direct labor hours:

$ 56,100 41,600

Job X Job Y Labor costs incurred:

6,600 6,100

Direct labor ($7.60 per hour) Indirect labor Factory supervisory salaries Rental costs:

$ 96,520 17,800 8,800

Factory Administrative offices Total equipment depreciation costs:

$ 10,000 3,800

Factory Administrative offices Indirect materials used

$ 10,700 3,500 $ 16,000

The total cost of Job X is: A) $196,080. B) $145,700. C) $174,300. D) $137,600. E) $181,920.

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52) Bright Star Incorporated is a job-order manufacturer. The company uses a predetermined

overhead rate based on direct labor hours to apply overhead to individual jobs. For the current year, estimated direct labor hours were 114,000 and estimated factory overhead was $695,400. The following information was for September. Job X was completed during September, while Job Y was started but not finished. September 1, inventories: Materials Work-in-process (All Job X) Finished goods Materials purchases Direct materials requisitioned:

$ 9,000 37,400 80,400 $ 125,000

Job X Job Y Direct labor hours:

$ 54,500 40,000

Job X Job Y Labor costs incurred:

5,000 4,500

Direct labor ($6.00 per hour) Indirect labor Factory supervisory salaries Rental costs:

$ 57,000 16,200 7,200

Factory Administrative offices Total equipment depreciation costs:

$ 8,400 2,200

Factory Administrative offices Indirect materials used

$ 9,000 1,900 $ 14,400

The total cost of Job X is: A) $152,400. B) $128,200. C) $151,900. D) $129,600. E) $140,800.

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53) Bright Star Incorporated is a job-order manufacturer. The company uses a predetermined

overhead rate based on direct labor hours to apply overhead to individual jobs. For the current year, estimated direct labor hours were 123,000 and estimated factory overhead was $861,000. The following information was for September. Job X was completed during September, while Job Y was started but not finished. September 1, inventories: Materials Work-in-process (All Job X) Finished goods Materials purchases Direct materials requisitioned:

$ 9,900 38,300 81,300 $ 134,000

Job X Job Y Direct labor hours:

$ 55,400 40,900

Job X Job Y Labor costs incurred:

5,900 5,400

Direct labor ($6.90 per hour) Indirect labor Factory supervisory salaries Rental costs:

$ 77,970 21,000 8,100

Factory Administrative offices Total equipment depreciation costs:

$ 9,400 3,100

Factory Administrative offices Indirect materials used

$ 9,900 2,800 $ 20,000

The total factory overhead applied during September is: A) $74,300. B) $79,100. C) $72,443. D) $70,700. E) $72,271.

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54) Bright Star Incorporated is a job-order manufacturer. The company uses a predetermined

$ 9,000 37,400 80,400 $ 125,000

Job X Job Y Direct labor hours:

$ 54,500 40,000

Job X Job Y Labor costs incurred:

5,000 4,500

Direct labor ($6.00 per hour) Indirect labor Factory supervisory salaries Rental costs:

$ 57,000 16,200 7,200

Factory Administrative offices Total equipment depreciation costs:

$ 8,400 2,200

Factory Administrative offices Indirect materials used

$ 9,000 1,900 $ 14,400

The total factory overhead applied during September is: A) $59,300. B) $57,950. C) $57,848. D) $56,120. E) $57,710.

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55) Bright Star Incorporated is a job-order manufacturer. The company uses a predetermined

overhead rate based on direct labor hours to apply overhead to individual jobs. For the current year, estimated direct labor hours were 126,000 and estimated factory overhead was $919,800. The following information was for September. Job X was completed during September, while Job Y was started but not finished. September 1, inventories: Materials Work-in-process (All Job X) Finished goods Materials purchases Direct materials requisitioned:

$ 10,300 38,600 81,600 $ 137,000

Job X Job Y Direct labor hours:

$ 55,700 41,200

Job X Job Y Labor costs incurred:

6,200 5,700

Direct labor ($7.20 per hour) Indirect labor Factory supervisory salaries Rental costs:

$ 85,680 21,000 8,400

Factory Administrative offices Total equipment depreciation costs:

$ 10,200 3,400

Factory Administrative offices Indirect materials used

$ 10,300 3,100 $ 20,000

The underapplied or overapplied overhead for September is: A) $16,970 underapplied. B) $16,970 overapplied. C) $6,750 overapplied. D) $6,750 underapplied. E) $15,470 underapplied.

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56) Bright Star Incorporated is a job-order manufacturer. The company uses a predetermined

$ 9,000 37,400 80,400 $ 125,000

Job X Job Y Direct labor hours:

$ 54,500 40,000

Job X Job Y Labor costs incurred:

5,000 4,500

Direct labor ($6.00 per hour) Indirect labor Factory supervisory salaries Rental costs:

$ 57,000 16,200 7,200

Factory Administrative offices Total equipment depreciation costs:

$ 8,400 2,200

Factory Administrative offices Indirect materials used

$ 9,000 1,900 $ 14,400

The underapplied or overapplied overhead for September is: A) $2,750 underapplied. B) $2,750 overapplied. C) $920 overapplied. D) $920 underapplied. E) $1,450 underapplied.

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57) Solar World Incorporated is a job-order manufacturer. The company uses a predetermined

overhead rate based on direct labor hours to apply overhead to individual jobs. For the current year, estimated direct labor hours are 146,000 and estimated factory overhead is $1,051,200. The following information is for September. Job X was completed during September, while Job Y was started but not finished. September 1, inventories: Materials Work-in-process (All Job X) Finished goods Materials purchases Direct materials requisitioned:

$ 25,300 54,700 106,900 $ 170,000

Job X Job Y Direct labor hours:

$ 75,300 69,300

Job X Job Y Labor costs incurred:

8,300 6,800

Direct labor ($7.30 per hour) Indirect labor Factory supervisory salaries Rental costs:

$ 110,230 40,100 12,400

Factory Administrative offices Total equipment depreciation costs:

$ 10,600 4,500

Factory Administrative offices Indirect materials used

$ 11,700 4,100 $ 30,100

The total factory overhead applied during September is: A) $149,760. B) $88,892. C) $108,720. D) $92,430. E) $72,640.

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58) Solar World Incorporated is a job-order manufacturer. The company uses a predetermined

overhead rate based on direct labor hours to apply overhead to individual jobs. For the current year, estimated direct labor hours are 133,000 and estimated factory overhead is $784,700. The following information is for September. Job X was completed during September, while Job Y was started but not finished. September 1, inventories: Materials Work-in-process (All Job X) Finished goods Materials purchases Direct materials requisitioned:

$ 24,000 53,400 105,600 $ 157,000

Job X Job Y Direct labor hours:

$ 74,000 68,000

Job X Job Y Labor costs incurred:

7,000 5,500

Direct labor ($6.00 per hour) Indirect labor Factory supervisory salaries Rental costs:

$ 75,000 24,200 11,100

Factory Administrative offices Total equipment depreciation costs:

$ 9,300 3,200

Factory Administrative offices Indirect materials used

$ 10,400 2,800 $ 17,800

The total factory overhead applied during September is: A) $79,300. B) $57,572. C) $73,750. D) $68,120. E) $51,710.

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59) Solar World Incorporated is a job-order manufacturer. The company uses a predetermined

overhead rate based on direct labor hours to apply overhead to individual jobs. For the current year, estimated direct labor hours are 147,000 and estimated factory overhead is $1,073,100. The following information is for September. Job X was completed during September, while Job Y was started but not finished. September 1, inventories: Materials Work-in-process (All Job X) Finished goods Materials purchases Direct materials requisitioned:

$ 25,400 54,800 107,000 $ 171,000

Job X Job Y Direct labor hours:

$ 75,400 69,400

Job X Job Y Labor costs incurred:

8,400 6,900

Direct labor ($7.40 per hour) Indirect labor Factory supervisory salaries Rental costs:

$ 113,220 45,000 12,500

Factory Administrative offices Total equipment depreciation costs:

$ 10,700 4,600

Factory Administrative offices Indirect materials used

$ 11,800 4,200 $ 30,100

The underapplied or overapplied overhead for September is: A) $16,570 underapplied. B) $16,570 overapplied. C) $1,590 overapplied. D) $1,590 underapplied. E) $17,680 underapplied.

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60) Solar World Incorporated is a job-order manufacturer. The company uses a predetermined

$ 24,000 53,400 105,600 $ 157,000

Job X Job Y Direct labor hours:

$ 74,000 68,000

Job X Job Y Labor costs incurred:

7,000 5,500

Direct labor ($6.00 per hour) Indirect labor Factory supervisory salaries Rental costs:

$ 75,000 24,200 11,100

Factory Administrative offices Total equipment depreciation costs:

$ 9,300 3,200

Factory Administrative offices Indirect materials used

$ 10,400 2,800 $ 17,800

The underapplied or overapplied overhead for September is: A) $2,350 underapplied. B) $2,350 overapplied. C) $950 overapplied. D) $950 underapplied. E) $1,450 underapplied.

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61) Solar World Incorporated is a job-order manufacturer. The company uses a predetermined

overhead rate based on direct labor hours to apply overhead to individual jobs. For the current year, estimated direct labor hours are 148,000 and estimated factory overhead is $1,095,200. The following information is for September. Job X was completed during September, while Job Y was started but not finished. September 1, inventories: Materials Work-in-process (All Job X) Finished goods Materials purchases Direct materials requisitioned:

$ 25,500 54,900 107,100 $ 172,000

Job X Job Y Direct labor hours:

$ 75,500 69,500

Job X Job Y Labor costs incurred:

8,500 7,000

Direct labor ($7.50 per hour) Indirect labor Factory supervisory salaries Rental costs:

$ 116,250 45,100 12,600

Factory Administrative offices Total equipment depreciation costs:

$ 10,800 4,700

Factory Administrative offices Indirect materials used

$ 11,900 4,300 $ 30,200

The total ending work-in-process for September is: A) $69,500. B) $122,000. C) $173,800. D) $204,325. E) $54,900.

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62) Solar World Incorporated is a job-order manufacturer. The company uses a predetermined

$ 24,000 53,400 105,600 $ 157,000

Job X Job Y Direct labor hours:

$ 74,000 68,000

Job X Job Y Labor costs incurred:

7,000 5,500

Direct labor ($6.00 per hour) Indirect labor Factory supervisory salaries Rental costs:

$ 75,000 24,200 11,100

Factory Administrative offices Total equipment depreciation costs:

$ 9,300 3,200

Factory Administrative offices Indirect materials used

$ 10,400 2,800 $ 17,800

The total ending work-in-process for September is: A) $68,000. B) $101,000. C) $133,450. D) $157,300. E) $53,400.

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63) Solar World Incorporated is a job-order manufacturer. The company uses a predetermined

$ 25,400 54,800 107,000 $ 171,000

Job X Job Y Direct labor hours:

$ 75,400 69,400

Job X Job Y Labor costs incurred:

8,400 6,900

Direct labor ($7.40 per hour) Indirect labor Factory supervisory salaries Rental costs:

$ 113,220 45,000 12,500

Factory Administrative offices Total equipment depreciation costs:

$ 10,700 4,600

Factory Administrative offices Indirect materials used

$ 11,800 4,200 $ 30,100

Cost of goods manufactured for September is: A) $107,000 B) $200,882. C) $192,360. D) $189,460. E) $253,680.

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64) Solar World Incorporated is a job-order manufacturer. The company uses a predetermined

$ 24,000 53,400 105,600 $ 157,000

Job X Job Y Direct labor hours:

$ 74,000 68,000

Job X Job Y Labor costs incurred:

7,000 5,500

Direct labor ($6.00 per hour) Indirect labor Factory supervisory salaries Rental costs:

$ 75,000 24,200 11,100

Factory Administrative offices Total equipment depreciation costs:

$ 9,300 3,200

Factory Administrative offices Indirect materials used

$ 10,400 2,800 $ 17,800

Cost of goods manufactured for September is: A) $105,600. B) $157,300. C) $169,400. D) $145,500. E) $210,700.

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65) Electric Car Company listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual labor hours Actual machine hours

$ 1,245,000 75,000 25,000 1,200,000 75,500 23,800

Assuming Electric Car Company applied overhead based on direct labor hours, the company's predetermined overhead rate for the year is: A) $50.42 per direct labor hour. B) $17.10 per direct labor hour. C) $16.60 per direct labor hour. D) $15.89 per direct labor hour. E) $15.60 per direct labor hour.

66) Electric Car Company listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual labor hours Actual machine hours

$ 1,044,000 69,600 24,000 1,037,400 72,600 23,600

Assuming Electric Car Company applied overhead based on direct labor hours, the company's predetermined overhead rate for the year is: A) $43.95 per direct labor hour. B) $15.50 per direct labor hour. C) $15.00 per direct labor hour. D) $14.28 per direct labor hour. E) $14.00 per direct labor hour.

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67) Electric Car Company listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual labor hours Actual machine hours

$ 1,078,000 70,000 22,000 1,037,800 71,100 20,800

Assuming Electric Car applied overhead based on machine hours, the company's predetermined overhead rate for the year is: A) $49.89 per machine hour. B) $14.90 per machine hour. C) $14.60 per machine hour. D) $15.16 per machine hour. E) $49.00 per machine hour.

68) Electric Car Company listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual labor hours Actual machine hours

$ 1,044,000 69,600 24,000 1,037,400 72,600 23,600

Assuming Electric Car applied overhead based on machine hours, the company's predetermined overhead rate for the year is: A) $43.95 per machine hour. B) $14.38 per machine hour. C) $43.50 per machine hour. D) $14.50 per machine hour. E) $14.28 per machine hour.

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69) Electric Car Company listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual labor hours Actual machine hours

$ 1,148,000 70,000 25,000 1,100,000 70,500 23,500

If overhead is applied based on direct labor hours, the overapplied/underapplied overhead is: A) $20,950 underapplied. B) $20,950 overapplied. C) $56,200 underapplied. D) $56,200 overapplied. E) $0

70) Electric Car Company listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual labor hours Actual machine hours

$ 1,044,000 69,600 24,000 1,037,400 72,600 23,600

If overhead is applied based on direct labor hours, the overapplied/underapplied overhead is: A) $15,300 underapplied. B) $15,300 overapplied. C) $51,600 underapplied. D) $51,600 overapplied. E) $0

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71) Electric Car Company listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual labor hours Actual machine hours

$ 1,138,270 70,700 24,500 1,090,200 71,000 23,000

If overhead is applied based on machine hours, the overapplied/underapplied overhead is: A) $17,400 underapplied. B) $17,400 overapplied. C) $21,620 underapplied. D) $21,620 overapplied. E) $ 0 .

72) Electric Car Company listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual labor hours Actual machine hours

$ 1,044,000 69,600 24,000 1,037,400 72,600 23,600

If overhead is applied based on machine hours, the overapplied/underapplied overhead is: A) $15,300 underapplied. B) $15,300 overapplied. C) $10,800 underapplied. D) $10,800 overapplied. E) $0.

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73) The journal entry to dispose of a small amount of overapplied or underapplied overhead, if

overhead is applied based on direct labor hours, would be charged to: A) Work-in-Process Inventory. B) Cost of Goods Sold. C) Finished Goods Inventory. D) Factory Overhead Control. E) Materials Inventory.

74) Blue Sky Incorporated listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual direct labor hours Actual machine hours

$ 1,384,000 80,000 40,000 1,150,200 88,100 41,200

Assuming Blue Sky Incorporated applied overhead based on direct labor hours, the firm's predetermined overhead rate for the current year rounded to 2 decimal places is: A) $12.99 per direct labor hour. B) $13.52 per direct labor hour. C) $14.02 per direct labor hour. D) $17.30 per direct labor hour. E) $17.71 per direct labor hour.

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75) Blue Sky Incorporated listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual direct labor hours Actual machine hours

$ 1,271,000 82,000 41,000 1,201,000 86,300 39,400

Assuming Blue Sky Incorporated applied overhead based on direct labor hours, the firm's predetermined overhead rate for the current year rounded to 2 decimal places is: A) $14.20 per direct labor hour. B) $14.38 per direct labor hour. C) $15.24 per direct labor hour. D) $15.50 per direct labor hour. E) $15.85 per direct labor hour.

76) Blue Sky Incorporated listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual direct labor hours Actual machine hours

$ 1,287,000 82,500 44,000 1,201,100 86,400 39,500

Assuming Blue Sky Incorporated applied overhead based on machine hours, the firm's predetermined overhead rate for the current year rounded to 2 decimal places is: A) $30.46 per machine hour. B) $32.57 per machine hour. C) $29.25 per machine hour. D) $33.85 per machine hour. E) $35.24 per machine hour.

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77) Blue Sky Incorporated listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual direct labor hours Actual machine hours

$ 1,271,000 82,000 41,000 1,201,000 86,300 39,400

Assuming Blue Sky Incorporated applied overhead based on machine hours, the firm's predetermined overhead rate for the current year rounded to 2 decimal places is: A) $28.42 per machine hour. B) $32.25 per machine hour. C) $31.00 per machine hour. D) $33.50 per machine hour. E) $37.41 per machine hour.

78) Blue Sky Incorporated listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual direct labor hours Actual machine hours

$ 1,343,000 85,000 42,500 1,201,300 86,600 39,700

If overhead is applied based on direct labor hours, overapplied/underapplied overhead is: (Round intermediate calculations to 2 decimal places.) A) $166,980 overapplied. B) $166,980 underapplied. C) $293,813 underapplied. D) $293,813 overapplied. E) $ − 0 −.

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79) Blue Sky Incorporated listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual direct labor hours Actual machine hours

$ 1,271,000 82,000 41,000 1,201,000 86,300 39,400

If overhead is applied based on direct labor hours, overapplied/underapplied overhead is: (Round intermediate calculations to 2 decimal places.) A) $136,650 overapplied. B) $136,650 underapplied. C) $174,775 underapplied. D) $174,775 overapplied. E) $ − 0 −.

80) Blue Sky Incorporated listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual direct labor hours Actual machine hours

$ 1,120,000 70,000 40,000 1,090,000 87,100 40,200

If overhead is applied based on machine hours, the overapplied/underapplied overhead is: (Round intermediate calculations to 2 decimal places.) A) $35,600 underapplied. B) $35,600 overapplied. C) $47,212 underapplied. D) $47,212 overapplied. E) $ − 0 −.

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81) Blue Sky Incorporated listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual direct labor hours Actual machine hours

$ 1,271,000 82,000 41,000 1,201,000 86,300 39,400

If overhead is applied based on machine hours, the overapplied/underapplied overhead is: (Round intermediate calculations to 2 decimal places.) A) $20,400 underapplied. B) $20,400 overapplied. C) $48,374 underapplied. D) $48,374 overapplied. E) $ − 0 −.

82) Sutherland Company listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual direct labor hours Actual machine hours

$ 2,008,000 80,000 52,200 1,100,900 84,900 50,100

Assuming Sutherland applied overhead based on direct labor hours, the company's predetermined overhead rate for the current year rounded to two decimal places is: A) $25.53 per direct labor hour. B) $25.10 per direct labor hour. C) $13.57 per direct labor hour. D) $12.42 per direct labor hour. E) $12.80 per direct labor hour.

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83) Sutherland Company listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual direct labor hours Actual machine hours

$ 2,100,000 89,000 51,000 2,201,000 83,700 48,900

Assuming Sutherland applied overhead based on direct labor hours, the company's predetermined overhead rate for the current year rounded to two decimal places is: A) $23.20 per direct labor hour. B) $23.60 per direct labor hour. C) $22.24 per direct labor hour. D) $22.50 per direct labor hour. E) $22.85 per direct labor hour.

84) Sutherland Company listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual direct labor hours Actual machine hours

$ 2,082,500 85,000 50,000 2,201,600 84,300 49,500

Assuming Sutherland applied overhead based on machine hours, the company's predetermined overhead rate for the current year rounded to two decimal places is: A) $44.37 per machine hour. B) $42.37 per machine hour. C) $37.68 per machine hour. D) $36.34 per machine hour. E) $41.65 per machine hour.

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85) Sutherland Company listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual direct labor hours Actual machine hours

$ 2,100,000 89,000 51,000 2,201,000 83,700 48,900

Assuming Sutherland applied overhead based on machine hours, the company's predetermined overhead rate for the current year rounded to two decimal places is: A) $44.00 per machine hour. B) $41.98 per machine hour. C) $38.31 per machine hour. D) $35.90 per machine hour. E) $41.18 per machine hour.

86) Sutherland Company listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual direct labor hours Actual machine hours

$ 2,056,000 80,000 52,800 2,300,600 85,500 49,000

If overhead is applied based on direct labor hours, the overapplied/underapplied overhead is: (Round intermediate calculations to 2 decimal places.) A) $96,653 underapplied. B) $96,653 overapplied. C) $36,142 underapplied. D) $36,142 overapplied. E) $103,250 underapplied.

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87) Sutherland Company listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual direct labor hours Actual machine hours

$ 2,100,000 89,000 51,000 2,201,000 83,700 48,900

If overhead is applied based on direct labor hours, the overapplied/underapplied overhead is: (Round intermediate calculations to 2 decimal places.) A) $214,376 underapplied. B) $214,376 overapplied. C) $256,312 underapplied. D) $256,312 overapplied. E) $225,680 underapplied.

88) Sutherland Company listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual direct labor hours Actual machine hours

$ 2,223,000 90,000 50,000 2,201,800 84,500 45,400

If overhead is applied based on machine hours, the overapplied/underapplied overhead is: (Round intermediate calculations to 2 decimal places.) A) $183,316 underapplied. B) $183,316 overapplied. C) $177,873 underapplied. D) $177,873 overapplied. E) $ − 0 −.

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89) Sutherland Company listed the following data for the current year: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual direct labor hours Actual machine hours

$ 2,100,000 89,000 51,000 2,201,000 83,700 48,900

If overhead is applied based on machine hours, the overapplied/underapplied overhead is: (Round intermediate calculations to 2 decimal places.) A) $187,298 underapplied. B) $187,298 overapplied. C) $176,358 underapplied. D) $176,358 overapplied. E) $ − 0 −.

90) In job costing, the job might consist of: A) a single product. B) a batch of identical products. C) a batch of similar products. D) a single, well-defined project. E) a single product, a batch of products, or a single well-defined project.

91) A job in which a quantity of products is ordered by a single customer is more likely to be an

example of: A) the pull method of production. B) the resource-based method. C) the push method of production. D) the lean method of production. E) the single method of production.

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92) Which of the following is not technology used to track cost flows in a company? A) Barcode technology. B) Biometric scanning device. C) Smart phone. D) RFID scanners. E) Card reader.

93) The printing industry has become highly automated. Job costing in the printing industry

would likely have the following general framework. Job cost equals: A) direct materials cost, plus direct labor, plus outside purchase costs, plus applied overhead based on machine hours. B) direct materials cost, plus conversion costs applied on the basis of labor hours. C) direct materials cost, plus outside purchase costs, plus overhead cost applied on the basis of labor hours. D) materials purchases, labor incurred and applied overhead based on labor hours. E) None of these answer choices are correct.

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94) Randall Company manufactures products to customer specifications. A job costing system is

used to accumulate production costs. Factory overhead cost was applied at 120% of direct labor cost. Selected data concerning the past year's operation of the company are presented below.

Direct materials Work in process Finished goods Other information Direct materials purchases

January 1

December 31

$ 78,000 67,000 116,000

$ 41,000 43,000 101,000

$ 325,000

Cost of goods available for sale

951,000

Actual factory overhead costs

261,000

The cost of direct materials used for production is: A) B) C) D) E)

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$353,800. $298,000. $362,000. $308,000. $325,000.

95) Randall Company manufactures products to customer specifications. A job costing system is

used to accumulate production costs. Factory overhead cost was applied at 125% of direct labor cost. Selected data concerning the past year's operation of the company are presented below.

Direct materials Work in process Finished goods Other information Direct materials purchases

January 1

December 31

$ 77,000 66,000 115,000

$ 40,000 42,000 100,000

$ 324,000

Cost of goods available for sale

950,000

Actual factory overhead costs

260,000

The cost of direct materials used for production is: A) $351,000. B) $297,000. C) $361,000. D) $306,000. E) $324,000.

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96) Randall Company manufactures products to customer specifications. A job costing system is

used to accumulate production costs. Factory overhead cost was applied at 125% of direct labor cost. Selected data concerning the past year's operation of the company are presented below.

Direct materials Work in process Finished goods Other information Direct materials purchases

January 1

December 31

$ 95,000 84,000 133,000

$ 58,000 60,000 118,000

$ 342,000

Cost of goods available for sale

986,000

Actual factory overhead costs

278,000

The cost of goods manufactured during the year is: A) $868,000. B) $366,000. C) $708,000. D) $853,000. E) $829,000.

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97) Randall Company manufactures products to customer specifications. A job costing system is

used to accumulate production costs. Factory overhead cost was applied at 125% of direct labor cost. Selected data concerning the past year's operation of the company are presented below.

Direct materials Work in process Finished goods Other information Direct materials purchases

January 1

December 31

$ 77,000 66,000 115,000

$ 40,000 42,000 100,000

$ 324,000

Cost of goods available for sale

950,000

Actual factory overhead costs

260,000

The cost of goods manufactured during the year is: A) $850,000. B) $348,000. C) $672,000. D) $835,000. E) $811,000.

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98) Randall Company manufactures products to customer specifications. A job costing system is

used to accumulate production costs. Factory overhead cost was applied at 120% of direct labor cost. Selected data concerning the past year's operation of the company are presented below.

Direct materials Work in process Finished goods Other information Direct materials purchases

January 1

December 31

$ 93,000 82,000 131,000

$ 56,000 58,000 116,000

$ 340,000

Cost of goods available for sale

982,000

Actual factory overhead costs

276,000

The total manufacturing costs for the year are: A) $866,000. B) $364,000. C) $899,000. D) $851,000. E) $827,000.

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99) Randall Company manufactures products to customer specifications. A job costing system is

used to accumulate production costs. Factory overhead cost was applied at 125% of direct labor cost. Selected data concerning the past year's operation of the company are presented below.

Direct materials Work in process Finished goods Other information Direct materials purchases

January 1

December 31

$ 77,000 66,000 115,000

$ 40,000 42,000 100,000

$ 324,000

Cost of goods available for sale

950,000

Actual factory overhead costs

260,000

The total manufacturing costs for the year are: A) $850,000. B) $348,000. C) $867,000. D) $835,000. E) $811,000.

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100)

Randall Company manufactures products to customer specifications. A job costing system is used to accumulate production costs. Factory overhead cost was applied at 125% of direct labor cost. Selected data concerning the past year's operation of the company are presented below.

Direct materials Work in process Finished goods Other information Direct materials purchases

January 1

December 31

$ 88,000 77,000 126,000

$ 51,000 53,000 111,000

$ 335,000

Cost of goods available for sale

972,000

Actual factory overhead costs

271,000

The cost of goods sold (before adjustment for under or overapplied overhead) is: A) B) C) D) E)

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$861,000. $359,000. $889,000. $846,000. $822,000.

101)

Direct materials Work in process Finished goods Other information Direct materials purchases

January 1

December 31

$ 77,000 66,000 115,000

$ 40,000 42,000 100,000

$ 324,000

Cost of goods available for sale

950,000

Actual factory overhead costs

260,000

The cost of goods sold (before adjustment for under or overapplied overhead) is: A) $850,000. B) $348,000. C) $867,000. D) $835,000. E) $811,000.

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102)

Randall Company manufactures products to customer specifications. A job costing system is used to accumulate production costs. Factory overhead cost was applied at 120% of direct labor cost. Selected data concerning the past year's operation of the company are presented below. January 1

December 31

$ 85,000 74,000 123,000

$ 48,000 50,000 108,000

Direct materials Work in process Finished goods Other information Direct materials purchases

$ 332,000

Cost of goods available for sale

978,000

Actual factory overhead costs

268,000

The amount of underapplied or overapplied overhead is: A) $58,000 overapplied. B) $58,000 underapplied. C) $16,000 overapplied. D) $16,000 underapplied. E) $0.

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103)

December 31

$ 77,000 66,000 115,000

$ 40,000 42,000 100,000

Direct materials Work in process Finished goods Other information Direct materials purchases

$ 324,000

Cost of goods available for sale

950,000

Actual factory overhead costs

260,000

The amount of underapplied or overapplied overhead is: A) $60,000 overapplied. B) $60,000 underapplied. C) $10,000 overapplied. D) $10,000 underapplied. E) $0.

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104)

Maple Mount Fishery is a canning company in Astoria. The company uses a normal costing system in which factory overhead is applied on the basis of direct labor costs. Budgeted factory overhead for the year was $680,000, and management budgeted $320,000 of direct labor costs. During the year, the company incurred the following actual costs. Direct materials used Direct labor Factory overhead

$ 382,000 313,000 650,700

The January 1 balances of inventory accounts are shown below. Materials-all direct Work-in-process Finished goods

$ 64,000 41,400 25,600

The December 31 balances of these inventory accounts were ten percent lower than the balances at the beginning of the year. The predetermined factory overhead rate is: A) 215% of direct labor costs. B) 208% of direct labor costs. C) 217% of direct labor costs. D) 203% of direct labor costs. E) 213% of direct labor costs.

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105)

Maple Mount Fishery is a canning company in Astoria. The company uses a normal costing system in which factory overhead is applied on the basis of direct labor costs. Budgeted factory overhead for the year was $680,400, and management budgeted $324,000 of direct labor costs. During the year, the company incurred the following actual costs. Direct materials used Direct labor Factory overhead

$ 384,000 306,000 658,000

The January 1 balances of inventory accounts are shown below. Materials-all direct Work-in-process Finished goods

$ 70,000 41,000 26,000

The December 31 balances of these inventory accounts were ten percent lower than the balances at the beginning of the year. The predetermined factory overhead rate is: A) 212% of direct labor costs. B) 215% of direct labor costs. C) 222% of direct labor costs. D) 203% of direct labor costs. E) 210% of direct labor costs.

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106)

Maple Mount Fishery is a canning company in Astoria. The company uses a normal costing system in which factory overhead is applied on the basis of direct labor costs. Budgeted factory overhead for the year was $680,000, and management budgeted $332,000 of direct labor costs. During the year, the company incurred the following actual costs. Direct materials used Direct labor Factory overhead

$ 379,000 312,000 653,700

The January 1 balances of inventory accounts are shown below. Materials-all direct Work-in-process Finished goods

$ 61,600 43,200 27,100

The December 31 balances of these inventory accounts were ten percent lower than the balances at the beginning of the year. The amount of direct materials purchased during the year is: A) $386,000. B) $383,000. C) $372,840. D) $375,000. E) $383,300.

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107)

Maple Mount Fishery is a canning company in Astoria. The company uses a normal costing system in which factory overhead is applied on the basis of direct labor costs. Budgeted factory overhead for the year was $680,400, and management budgeted $324,000 of direct labor costs. During the year, the company incurred the following actual costs. Direct materials used Direct labor Factory overhead

$ 384,000 306,000 658,000

The January 1 balances of inventory accounts are shown below. Materials-all direct Work-in-process Finished goods

$ 70,000 41,000 26,000

The December 31 balances of these inventory accounts were ten percent lower than the balances at the beginning of the year. The amount of direct materials purchased during the year is: A) $391,000. B) $388,000. C) $377,000. D) $380,000. E) $374,000.

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108)

Maple Mount Fishery is a canning company in Astoria. The company uses a normal costing system in which factory overhead is applied on the basis of direct labor costs. Budgeted factory overhead for the year was $680,000, and management budgeted $352,000 of direct labor costs. During the year, the company incurred the following actual costs. Direct materials used Direct labor Factory overhead

$ 361,000 325,000 652,700

The January 1 balances of inventory accounts are shown below. Materials-all direct Work-in-process Finished goods

$ 61,300 40,000 25,600

The December 31 balances of these inventory accounts were ten percent lower than the balances at the beginning of the year. The total manufacturing costs for the year are: (Round your "predetermined overhead rate" to 1 decimal place.) A) B) C) D) E)

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$1,303,500. $1,345,260. $1,307,500. $1,343,500. $1,310,060.

109)

Maple Mount Fishery is a canning company in Astoria. The company uses a normal costing system in which factory overhead is applied on the basis of direct labor costs. Budgeted factory overhead for the year was $680,400, and management budgeted $324,000 of direct labor costs. During the year, the company incurred the following actual costs. Direct materials used Direct labor Factory overhead

$ 384,000 306,000 658,000

The January 1 balances of inventory accounts are shown below. Materials-all direct Work-in-process Finished goods

$ 70,000 41,000 26,000

The December 31 balances of these inventory accounts were ten percent lower than the balances at the beginning of the year. The total manufacturing costs for the year are: A) $1,332,600. B) $1,354,700. C) $1,336,700. D) $1,373,600. E) $1,339,300.

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110)

Maple Mount Fishery is a canning company in Astoria. The company uses a normal costing system in which factory overhead is applied on the basis of direct labor costs. Budgeted factory overhead for the year was $680,000, and management budgeted $352,000 of direct labor costs. During the year, the company incurred the following actual costs. Direct materials used Direct labor Factory overhead

$ 361,000 325,000 652,700

The January 1 balances of inventory accounts are shown below. Materials-all direct Work-in-process Finished goods

$ 61,300 40,000 25,600

The December 31 balances of these inventory accounts were ten percent lower than the balances at the beginning of the year. The cost of goods manufactured during the year is: (Round your "predetermined overhead rate" to 1 decimal place.) A) $1,303,500. B) $1,345,260. C) $1,307,500. D) $1,343,500. E) $1,310,060.

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111)

Maple Mount Fishery is a canning company in Astoria. The company uses a normal costing system in which factory overhead is applied on the basis of direct labor costs. Budgeted factory overhead for the year was $680,400, and management budgeted $324,000 of direct labor costs. During the year, the company incurred the following actual costs. Direct materials used Direct labor Factory overhead

$ 384,000 306,000 658,000

The January 1 balances of inventory accounts are shown below. Materials-all direct Work-in-process Finished goods

$ 70,000 41,000 26,000

The December 31 balances of these inventory accounts were ten percent lower than the balances at the beginning of the year. The cost of goods manufactured during the year is: A) $1,332,600. B) $1,354,700. C) $1,336,700. D) $1,373,600. E) $1,339,600.

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112)

Maple Mount Fishery is a canning company in Astoria. The company uses a normal costing system in which factory overhead is applied on the basis of direct labor costs. Budgeted factory overhead for the year was $680,000, and management budgeted $355,000 of direct labor costs. During the year, the company incurred the following actual costs. Direct materials used Direct labor Factory overhead

$ 385,000 314,000 652,300

The January 1 balances of inventory accounts are shown below. Materials-all direct Work-in-process Finished goods

$ 60,600 43,800 26,800

The December 31 balances of these inventory accounts were ten percent lower than the balances at the beginning of the year. The normal cost of goods sold, before under or overapplied overhead is: (Do not round intermediate calculations.) A) $1,295,600. B) $1,358,360. C) $1,299,980. D) $1,339,400. E) $1,302,660.

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113)

Maple Mount Fishery is a canning company in Astoria. The company uses a normal costing system in which factory overhead is applied on the basis of direct labor costs. Budgeted factory overhead for the year was $680,400, and management budgeted $324,000 of direct labor costs. During the year, the company incurred the following actual costs. Direct materials used Direct labor Factory overhead

$ 384,000 306,000 658,000

The January 1 balances of inventory accounts are shown below. Materials-all direct Work-in-process Finished goods

$ 70,000 41,000 26,000

The December 31 balances of these inventory accounts were ten percent lower than the balances at the beginning of the year. The normal cost of goods sold, before under or overapplied overhead is: A) $1,332,600. B) $1,354,700. C) $1,336,700. D) $1,373,600. E) $1,339,300.

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Maple Mount Fishery is a canning company in Astoria. The company uses a normal costing system in which factory overhead is applied on the basis of direct labor costs. Budgeted factory overhead for the year was $680,000, and management budgeted $346,000 of direct labor costs. During the year, the company incurred the following actual costs. Direct materials used Direct labor Factory overhead

$ 369,000 302,000 651,200

The January 1 balances of inventory accounts are shown below. Materials-all direct Work-in-process Finished goods

$ 60,100 41,200 26,400

The December 31 balances of these inventory accounts were ten percent lower than the balances at the beginning of the year. The adjusted cost of goods sold, after under or overapplied overhead, is: (Round your "predetermined overhead rate" to 1 decimal place.) A) $1,275,000. B) $1,328,960. C) $1,331,860. D) $1,316,200. E) $1,281,760.

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115)

Maple Mount Fishery is a canning company in Astoria. The company uses a normal costing system in which factory overhead is applied on the basis of direct labor costs. Budgeted factory overhead for the year was $680,400, and management budgeted $324,000 of direct labor costs. During the year, the company incurred the following actual costs. Direct materials used Direct labor Factory overhead

$ 384,000 306,000 658,000

The January 1 balances of inventory accounts are shown below. Materials-all direct Work-in-process Finished goods

$ 70,000 41,000 26,000

The December 31 balances of these inventory accounts were ten percent lower than the balances at the beginning of the year. The adjusted cost of goods sold, after under or overapplied overhead, is: A) $1,332,600. B) $1,354,700. C) $1,357,600. D) $1,373,600. E) $1,339,300.

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ABC Company uses a Materials Inventory account to record both direct and indirect materials. ABC charges direct materials to Work In Process, while indirect materials are charged to the Factory Overhead account. During the month of April, the company has the following cost information: Total materials (direct and indirect) purchased Indirect materials issued to production Total materials issued to production Beginning materials inventory

$ 91,600 39,200 104,000 51,600

The amount of direct materials issued is: A) $104,000. B) $39,200. C) $91,600. D) $64,800. E) $51,600.

117)

$ 90,000 30,000 110,000 50,000

The amount of direct materials issued is: A) $110,000. B) $30,000. C) $90,000. D) $80,000. E) $50,000.

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$ 92,500 37,900 105,000 50,400

The credit to the materials inventory account for materials used is: A) $105,000. B) $37,900. C) $92,500. D) $67,100. E) $50,400.

119)

$ 90,000 30,000 110,000 50,000

The credit to the materials inventory account for materials used is: A) $110,000. B) $30,000. C) $90,000. D) $80,000. E) $50,000.

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$ 90,900 13,700 129,000 51,800

The ending materials inventory cost is: A) $129,000. B) $13,700. C) $90,900. D) $115,300. E) $51,800.

121)

$ 90,000 30,000 110,000 50,000

The ending materials inventory cost is: A) $110,000. B) $30,000. C) $90,000. D) $80,000. E) $50,000.

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$ 90,000 27,300 113,000 50,300

The debit to Work-in-Process Inventory account for materials is: A) $113,000. B) $27,300. C) $90,000. D) $85,700. E) $50,300.

123)

$ 90,000 30,000 110,000 50,000

The debit to Work-in-Process Inventory account for materials is: A) $110,000. B) $30,000. C) $90,000. D) $80,000. E) $50,000.

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$ 92,500 37,900 105,000 50,400

The debit to the Factory Overhead account is: A) B) C) D) E)

$105,000. $37,900. $92,500. $67,100. $50,400.

125)

$ 90,000 30,000 110,000 50,000

The debit to the Factory Overhead account is: A) $110,000. B) $30,000. C) $90,000. D) $80,000. E) $50,000.

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L & L, Certified Public Accountants (CPAs), employs two full-time professional CPAs and five support employees. Budgeted direct salary costs include $179,000 for each CPA. The support employees are considered as indirect costs, and this cost was budgeted for $207,000 although the actual cost was $232,000. Actual salaries were $130,000 for each CPA. Direct and indirect costs are applied on a CPA-labor-hour basis. Total budgeted CPAlabor-hours were 6,000. If a client used 590 labor-hours, what are the budgeted direct-cost rate and the budgeted indirect-cost rate, respectively (rounded to the nearest dollar)? A) $87; $35. B) $43; $35. C) $77; $35. D) $60; $35. E) $43; $39.

127)

L & L, Certified Public Accountants (CPAs), employs two full-time professional CPAs and five support employees. Budgeted direct salary costs include $160,000 for each CPA. The support employees are considered as indirect costs, and this cost was budgeted for $200,000 although the actual cost was $225,000. Actual salaries were $155,000 for each CPA. Direct and indirect costs are applied on a CPA-labor-hour basis. Total budgeted CPAlabor-hours were 5,000. If a client used 500 labor-hours, what are the budgeted direct-cost rate and the budgeted indirect-cost rate, respectively? A) $100; $40. B) $62; $40. C) $90; $40. D) $64; $40. E) $62; $45.

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Orange, Incorporated has identified the following cost drivers for its expected overhead costs for the year: Overhead Item Setup costs Ordering costs Maintenance Power Total Overhead

Expected Cost $ 57,500 45,000 130,000 27,500 $ 260,000

Cost Driver Number of setups Number of orders Machine hours Kilowatt hours

Expected Quantity 250 1,500 2,000 4,000

Total direct labor hours budgeted = 2,000 hours. The following actual data applies to one of the products completed during the year:

Direct materials Direct labor Units completed Direct labor hours

Product X 6,500 Number of setups 4,500 Number of orders 100 Machine hours 100 Kilowatt hours

5 50 50 500

If Orange, Incorporated uses direct labor hours to assign overhead, the unit product cost for Product X will be: A) $120.00. B) $130.00. C) $140.00. D) $150.00. E) $240.00.

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Orange, Incorporated has identified the following cost drivers for its expected overhead costs for the year: Overhead Item Setup costs Ordering costs Maintenance Power Total Overhead

Expected Cost $ 50,000 30,000 100,000 20,000 $ 200,000

Cost Driver Number of setups Number of orders Machine hours Kilowatt hours

Expected Quantity 250 1,500 2,000 4,000

Total direct labor hours budgeted = 2,000 hours. The following actual data applies to one of the products completed during the year:

Direct materials Direct labor Units completed Direct labor hours

Product X $ 5,000 Number of setups $ 3,000 Number of orders 100 Machine hours 100 Kilowatt hours

5 50 50 500

If Orange, Incorporated uses direct labor hours to assign overhead, the unit product cost for Product X will be: A) $60.00. B) $70.00. C) $80.00. D) $90.00. E) $180.00.

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Orange, Incorporated has identified the following cost drivers for its expected overhead costs for the year: Overhead Item Setup costs Ordering costs Maintenance Power Total Overhead

Expected Cost $ 53,500 37,000 114,000 23,500 $ 228,000

Cost Driver Number of setups Number of orders Machine hours Kilowatt hours

Expected Quantity 250 1,500 2,000 4,000

Total direct labor hours budgeted = 2,000 hours. The following actual data applies to one of the products completed during the year:

Direct materials Direct labor Units completed Direct labor hours

Product X 5,700 Number of setups 3,700 Number of orders 100 Machine hours 100 Kilowatt hours

5 50 50 500

If Orange, Incorporated uses machine hours to allocate overhead cost, the unit product cost of Product X will be: A) $81.00. B) $101.00 C) $111.00 D) $131.00. E) $151.00.

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Orange, Incorporated has identified the following cost drivers for its expected overhead costs for the year: Overhead Item Setup costs Ordering costs Maintenance Power Total Overhead

Expected Cost $ 50,000 30,000 100,000 20,000 $ 200,000

Cost Driver Number of setups Number of orders Machine hours Kilowatt hours

Expected Quantity 250 1,500 2,000 4,000

Total direct labor hours budgeted = 2,000 hours. The following actual data applies to one of the products completed during the year:

Direct materials Direct labor Units completed Direct labor hours

Product X $ 5,000 Number of setups $ 3,000 Number of orders 100 Machine hours 100 Kilowatt hours

5 50 50 500

If Orange, Incorporated uses machine hours to allocate overhead cost, the unit product cost of Product X will be: A) $60.00. B) $80.00. C) $90.00. D) $110.00. E) $130.00.

132)

If estimated annual factory overhead is $980,500; overhead is applied using direct labor hours; estimated annual direct labor hours are 265,000; actual March factory overhead is $88,800; and actual March direct labor hours are 23,500; then overhead is: A) $1,450 overapplied. B) $850 overapplied. C) $1,450 underapplied. D) $850 underapplied. E) $1,850 underapplied.

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133)

If estimated annual factory overhead is $480,000; overhead is applied using direct labor hours; estimated annual direct labor hours are 200,000; actual March factory overhead is $42,000; and actual March direct labor hours are 17,000; then overhead is: A) $800 overapplied. B) $200 overapplied. C) $800 underapplied. D) $200 underapplied. E) $1,200 underapplied.

134)

Dye Company uses a job cost system and predetermines a factory overhead rate based on the amount of expected fixed costs and expected volume. At the conclusion of the fiscal year, overapplied overhead could be explained by which of the following? Actual Fixed Costs A) B) C) D) A) B) C) D)

135)

Less than expected Less than expected More than expected More than expected

Actual Volume Less than expected More than expected More than expected Less than expected

Option A Option B Option C Option D

Total product costs at the end of the accounting period should be based on what? A) Estimated overhead. B) Actual overhead. C) Applied overhead. D) Standard overhead. E) Normal overhead.

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136)

Chris Fly, owner of Falcon Aircraft Company, is preparing the accounting record for the year just ended. During the year, he had projected that the company would produce 420 Falcon Aircraft for its clients with a factory overhead cost of $220,080,000. However, business was better than expected and the company was able to produce 520 aircraft at factory overhead cost of $236,236,000. What is the amount per unit that Falcon Aircraft has over- or underapplied factory overhead? A) $69,700 overapplied. B) $69,700 underapplied. C) $139,400 overapplied. D) $139,400 underapplied. E) None of these answer choices are correct.

137)

Chris Fly, owner of Falcon Aircraft Company, is preparing the accounting record for the year just ended. During the year, he had projected that the company would produce 300 Falcon Aircraft for its clients with a factory overhead cost of $150,000,000. However, business was better than expected and the company was able to produce 400 aircraft at factory overhead cost of $175,000,000. What is the amount per unit that Falcon Aircraft has over- or underapplied factory overhead? A) $62,500 overapplied. B) $62,500 underapplied. C) $125,000 overapplied. D) $125,000 underapplied. E) None of these answer choices are correct.

138)

Operation costing uses which of the following costing systems?

A) B) C) D) A) B) C) D) E)

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Process Costing Yes Yes No Yes

Standard Costing Yes No Yes Yes

Job Costing No Yes Yes Yes

Option A Option B Option C Option D None of the options are correct.

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139)

What is the definition of scrap? A) An unacceptable unit that is discarded or sold for disposal value. B) The additional work that must be done to make a nonconforming good acceptable so that it can be sold in regular channels. C) Spoilage that is inherent in the manufacturing process. D) Materials left over from the manufacture of a product that have little or no value. E) Waste in excess of what is expected to occur under normal operating conditions.

140)

Depending on the nature of rework being done on a particular unit of product, the cost can be charged to one of three specific accounts. Which of the following is correct? A) Abnormal rework is charged to a Loss from Abnormal Rework account. B) Abnormal rework is charged to the Work-in-Process Inventory account. C) Normal rework for a particular job is charged to that specific job's Finished Goods Inventory account. D) Normal rework common to all jobs is charged to the Work-in-Process Inventory account. E) Normal rework common to all jobs is charged to a Loss from Normal Rework account.

141)

Scrap can be classified according to which of the following? Specific Job A) B) C) D) A) B) C) D)

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Yes No No Yes

Common to all Jobs No Yes No Yes

Option A Option B Option C Option D

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142)

Which of the following journal entries is correct if scrap is being incurred and sold for all jobs in common in the amount of $810? Debit Cash

$ 810

Work-in-Process Inventory

$ 810 Debit

Cash

$ 810 Debit

Credit

$ 810

Factory Overhead

$ 810 Debit

Cash

Credit

$ 810

Finished Goods Inventory

Cash

Credit

$ 810

Work-in-Process Inventory

$ 270

Finished Goods Inventory

$ 270

Factory Overhead

$ 270

A) None of the answer choices are correct.

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143)

Which of the following journal entries is correct if scrap is being incurred and sold for all jobs in common in the amount of $600? Debit Cash

$ 600

Work-in-Process Inventory

$ 600 Debit

Cash

$ 600 Debit

Credit

$ 600

Factory Overhead

$ 600 Debit

Cash

Credit

$ 600

Finished Goods Inventory

Cash

Credit

$ 600

Work-in-Process Inventory

$ 200

Finished Goods Inventory

$ 200

Factory Overhead

$ 200

A) None of the answer choices are correct.

144)

Which of the following is not a reason that a firm needs accurate cost information to be competitive? A) Competitor analysis. B) Product pricing. C) Profitability analysis of individual products. D) Evaluation of management performance. E) Refinement of strategic goals.

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145)

Departmental overhead rates are preferred over plantwide rates when: A) The plant makes a single product. B) The plant has a complex production process for a small number of products that go through the same production processes. C) There are a number of different products in the plant which go through the same processes. D) The products use different amounts of different processes in different departments. E) Products consume departmental resources in a mostly identical manner.

146)

Billy Baroo Company uses a job order cost system. The following information was found in the Work-in-Process account for the month of July. Date July 1 July 31 July 31 July 31 July 31

Description Balance Direct labor Direct materials Factory overhead Transfer to finished goods

Amount [Debit or (Credit)] $12,750 39,500 55,000 31,600 (83,000)

Billy Baroo applies overhead to production at a predetermined rate of 80% based on the direct labor cost. Job #23, the only job still in process at the end of July, has been charged with direct labor of $13,050. Direct material charged to Job #23 was: A) $32,360. B) $33,960. C) $36,960. D) $39,360.

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147)

Billy Baroo Company uses a job order cost system. The following information was found in the Work-in-Process account for the month of July. Date July 1 July 31 July 31 July 31 July 31

Description Balance Direct labor Direct materials Factory overhead Transfer to finished goods

Amount [Debit or (Credit)] $ 12,000 38,000 52,000 30,400 (80,000)

Billy Baroo applies overhead to production at a predetermined rate of 80% based on the direct labor cost. Job #23, the only job still in process at the end of July, has been charged with direct labor of $12,000. Direct material charged to Job #23 was: A) $30,800. B) $52,400. C) $40,400. D) $22,560. E) $32,100.

148)

The primary focus of job costing in service industries is on: A) Direct materials. B) Direct labor. C) Indirect materials. D) Supplies. E) Factory overhead.

149)

A time ticket: A) Shows the time an employee worked on each job, the pay rate, and the total cost chargeable to each job. B) Shows the time that a department's employees worked on all jobs, the pay rate of each employee, and the total cost chargeable to each job. C) Shows the time an employee worked on each job and the total cost chargeable to each job only. D) Shows the time an employee worked on each job only. E) None of the answer choices are correct.

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150)

Many firms use which one of the following terms to indicate the use of job costing in service industries? A) Actual costing. B) Normal costing. C) Project costing. D) Industry costing. E) Standard costing.

151)

Standard costing systems provide a basis for which of the following? A) Timely estimates. B) Accurate costs. C) Performance evaluation. D) Overhead assignment method. E) Project costing.

152)

Which of the following costing systems is the only one to use estimated costs? A) Actual Costing. B) Standard Costing. C) Estimated Costing. D) Normal Costing. E) None of these answer choices are correct.

153)

Which of the following methods accurately represents the process below?

A customer orders twenty cases of nails, and the firm then produces the nails: A) Pull method. B) Push method. C) Order method. D) Overhead assignment method. E) Labor decision method.

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154)

When is a job costing system appropriate to use? A) When products produced are homogenous in nature. B) When most costs incurred for the job can be readily identified with a specific product. C) When the costs of a product increase dramatically. D) When mass production is used. E) When it is impractical to trace costs to individual products.

155)

Which type of firm is most likely to require a very accurate costing system? A) A firm in a process industry. B) A firm in a professional services industry. C) A firm in a competitive environment. D) A global firm. E) A new firm.

156)

If a company needs to know the cost and profitability of projects as they are completed, which costing should it use? A) Standard costing. B) Actual costing. C) Normal costing. D) Reduced costing. E) None of these answer choices are correct.

157)

The time ticket shows which amount for an employee? A) The pay rate. B) Number of hours a manager assigns. C) Check-in times and check-out times. D) Overtime costs. E) Total hours worked each day.

158)

The predetermined factory overhead rate includes: A) Estimated annual sales. B) Estimated total amount of cost driver. C) Estimated total cost. D) Estimated electricity consumed. E) Estimated direct labor costs.

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159)

Which of the following industries is often suitable for applying operation costing? A) Electronic equipment. B) Healthcare. C) Legal services. D) Universities. E) Food services.

160)

Which of the following is not an example of a situation in which project costing is used for service firms? A) Projects to introduce a new software system. B) Projects to develop a new marketing plan. C) Projects to build employee trust in management. D) Projects to improve operating efficiency. E) Projects to implement a new strategic direction for the company.

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Answer Key Test name: chapter 4 1) Essay 2) Essay 3) Essay 4) Essay 5) Essay 6) Essay 7) Essay 8) Essay 9) Essay 10) Essay 11) Essay 12) Essay 13) Essay 14) Essay 15) Essay 16) Essay 17) Essay 18) Essay 19) E 20) D 21) A 22) A 23) D 24) E 25) C 26) C 27) B 28) B 29) C 30) D 31) D 32) C 33) C 34) C 35) E 36) B 37) C

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38) E 39) D 40) B 41) B 42) D 43) C 44) C 45) C 46) A 47) A 48) A 49) D 50) D 51) A 52) A 53) B 54) B 55) B 56) B 57) C 58) C 59) C 60) C 61) C 62) C 63) E 64) E 65) C 66) C 67) E 68) C 69) D 70) D 71) C 72) C 73) B 74) D 75) D 76) C 77) C

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78) A 79) A 80) B 81) B 82) B 83) B 84) E 85) E 86) E 87) E 88) A 89) A 90) E 91) A 92) C 93) A 94) C 95) C 96) D 97) D 98) E 99) E 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

A A D D E E C C A A C C E E B B D D

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118) 119) 120) 121) 122) 123) 124) 125) 126) 127) 128) 129) 130) 131) 132) 133) 134) 135) 136) 137) 138) 139) 140) 141) 142) 143) 144) 145) 146) 147) 148) 149) 150) 151) 152) 153) 154) 155) 156) 157)

A A B B D D B B D D E E E AEAE E E B B A A B D A D C C A D A A B A C C D A B C C A

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158) 159) 160)

B A C

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Chapter 5 1) Scott Cameras produces digital cameras and have decided to switch from a volume-based

system to an activity-based system. Scott produced 100,000 digital cameras in the most recent quarter and has determined that their total activity costs were: $3,000,000 of materials cost, $500,000 of labor costs, $50,000 of inspection costs, and $500,000 of packaging costs. It takes 30 minutes of labor to produce each camera, inspections are done for 20% of all cameras produced, and cameras are packaged individually. Required: What are the driver rates for each activity?

2) Plant overhead for ABC Corporation in $150 million per year, a portion of which (20%) is

attributable to inspection costs which are charged to products on the basis the number of parts in the products. The plant produces 500,000 units per year, and on the average, each product has 20 parts. Required: What is the average inspection cost in a product? What is the inspection cost for a product with 50 parts?

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3) Johnson Associates is a catering firm in Tucson, Arizona, with revenue of $4 million. The

business began ten years ago as a one-owner bakery, but has dramatically changed in size and function during the past five years. The four partners foresee the business doubling in sales revenue within two years, and expect the firm to expand into other services including flowers, furnishings, decorations, and music. Johnson Associates employs six full-time and ten part-time employees. The four partners also work full-time, each partner managing a separate business function. The firm currently uses a volume-based costing system installed seven years ago and modified three years later. Required: (1) With just the above information, comment on Johnson Associates changing and future costing system needs. (2) Is Johnson Associates a probable candidate for an activity-based costing system (ABC)? Why or why not?

4) Two students in a cost accounting class were arguing about the need to gather good unit cost

information for manufacturing. One student, Travis, maintained that a firm producing and selling large quantities of relatively few products would have no need for an activity-based costing (ABC) system, since an ABC system is usually more expensive to implement than a volume-based system. Alicia countered that even firms with high-volume homogeneous products could benefit from a cost management technique like activity-based costing (ABC). Required: Choose sides in this discussion and present justifications for your choice.

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5) The controller for Alabama Cooking Oil Company established the following overhead cost

pools and cost drivers: Overhead Cost Pool Machine setups Material handling Quality control Other overhead cost

Budgeted Overhead $ 186,000

Number of setups

Estimated Cost Driver Level 120 setups

124,800

Number of barrels

7,800 barrels

316,200

Number of inspections Number of machine hours

1,020 inspections

172,500

Cost Driver

11,500 machine hours

An order of 800 barrels of cooking oil used: Number of setups Number of barrels Number of inspections Number of machine hours

14 800 22 1,100

Required: (1) What is the overhead rate per machine hour if the number of machine hours is used as a single cost driver under traditional costing system? (Round your intermediate calculation to the nearest cent and final answer to the nearest whole dollar.) (2) Using volume-based costing, how much overhead is assigned to the order based on machine hours as a single cost driver? (3) Using ABC costing, how much total overhead is assigned to the order?

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6) Blackwelder Company manufactures a variety of razors used by both men and women. The

company's plant is partially automated. The company uses an activity-based cost system. Listed below is cost driver information used in the product-costing system: Overhead Cost pool

Budgeted Overhead Cost

Machine $227,500 depreciation/maintenance Factory 154,940 depreciation/utilities/insuran ce Product design 665,720 Material purchasing/storing

1,293,76 0

Budgeted Cost Driver Level 25,000 25,400

35,600 124,40 0

Cost Driver Machine hours Machine hours Hours in design Raw material s

Two current product orders had the following requirements: Men’s Razors Units produced and sold Direct labor hours Pounds of raw materials Hours in design Machine hours

26,000 50 980 32 85

Women’s Razor 30,000 40 1,120 38 60

Required: 1. Using ABC costing, how much overhead is assigned to the order for men's razors? 2. Using ABC costing, how much overhead is assigned to the order for women's razors?

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7) Classify each of the following costs as unit-level (U), batch-level (B), product-level (P), or

facility-level (F) costs and identify an appropriate example of a possible cost driver for each item: 1. (1) Parts administration 2. (2) Production scheduling 3. (3) Materials handling 4. (4) Machine operations 5. (5) Personnel administration and training 6. (6) Plant security 7. (7) Machine setups 8. (8) Engineering changes 9. (9) Product design 10. (10) Rent for factory plant

11. (A) Number of pieces of equipment 12. (B) Number of direct material purchase orders 13. (C) Number of production runs 14. (D) Square feet of warehouse space 15. (E) Number of machine hours 16. (F) Square feet of factory space

Heating costs Machinery power costs Machinery set-up costs Equipment maintenance costs for the various types of equipment Materials storage costs Purchasing department costs

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8) Altima Company uses an overhead costing system based on direct labor hours for its two

products X and Y. The company is considering adopting an activity-based costing system, and collects the following information for the month of October.

Production units Direct materials cost per unit Direct labor cost per hour Direct labor hours

Product X

Product Y

20,000 $ 50.00

2,000 $ 40.00

$ 10.00

34,000

6,000 Activity Consumption

Overhead Cost pool Machine setup Engineering change order Facility rent

Overhead cost $ 60,000 40,000

Total activity 1,000 setups 100 orders

90,000

1,000 square feet

Product X

Product Y

300 20

700 80

300

700

Required: (1) Compute the unit manufacturing cost of each product under a volume-based costing system based on direct labor hours. (2) Compute the unit manufacturing cost of each product under the activity-based costing system.

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9) Castenet Company uses a volume-based costing system that applies overhead cost based on

direct labor hours at $250 per direct labor hour. The company is considering adopting an activity-based costing system with the following data: Activity Area Materials handling Lathe work Milling Grinding Testing

Cost Driver Number of parts Number of turns Number of machine hours Number of parts Number of units tested

Cost Driver Rate $ 1.20 0.30 16.00 1.25 12.00

The two jobs processed in the month of June had the following characteristics:

Direct materials costs Direct labor costs Number of direct labor hours Number of parts Number of turns Number of machine hours Number of units in each job (all tested)

Job A

Job B

$ 10,000 $ 1,000 40 500 25,000 140 15

$ 50,000 $ 10,000 400 2,000 50,000 1,000 200

Required: 1. Compute the unit manufacturing cost of each job under the firm's current volume-based costing system. 2. Compute the unit manufacturing cost of each job under the activity-based costing system. 3. Compare the unit manufacturing cost for Jobs A and B computed in requirements 1 and 2. (a) Why do the two cost systems differ in their total cost for each job? (b) Why might these differences be important to the Company?

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10) Demski Company has used a two-stage cost allocation system for many years. In the first

stage, plant overhead costs are allocated to two production departments, P1 and P2, based on machine hours. In the second stage, Demski uses direct labor hours to assign overhead costs from the production departments to individual products A and B. Budgeted factory overhead costs for the year are $300,000. Both the budgeted and actual machine hours in P1 and P2 are 12,000 and 28,000 hours, respectively. After attending a seminar to learn the potential benefits of adopting an activity-based costing system (ABC), Ted Demski, the president of Demski Company, is considering implementing an ABC system. Upon his request, the controller at Demski Company has compiled the following information for analysis Cost Pool Machine setup Inspection Power Supervision Total overhead cost

Factory overhead costs $ 100,000 50,000 50,000 100,000

Activity cost driver Setup hours Inspection hours Kilowatt hours Direct labor hours

Expected activity level 1,000 2,500 25,000 10,000

$ 300,000

Demski manufactures two types of product, A and B, for which the following information is available:

Units produced and sold Direct materials Direct labor costs Direct labor hours in P1 Direct labor hours in P2 Setup hours Inspection hours Power (kilowatt hours)

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5,000 $ 200,000 $ 80,000 1,500 1,500 700 1,500 12,500

10,000 $ 250,000 150,000 3,000 4,000 300 1,000 12,500

Required: 1. Determine the unit cost for each of the two products using the traditional two-stage allocation method. (Round calculations to 2 decimal places.) 2. Determine the unit cost for each of the two products using the proposed ABC system. 3. Compare the unit manufacturing costs for product A and product B computed in requirements 1 and 2. (a) Why do two the cost systems differ in their total cost for each product? (b) Why might these differences be important to the Demski Company?

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11) Swenson Company manufactures 4,000 units of Deluxe Product and 20,000 units of Regular

Product each year. The company currently uses direct labor-hours to assign overhead cost to products. The pre-determined overhead rate is: Manufactur ing overhead cost/Direct labor hours = $20/DLH Deluxe Direct materials Direct labor Factory overhead:

Regular

$ 40.00 20.00

2.5 DLH × $20/DLH

$ 30.00 15.00

50.00

2.0 DLH × $20/DLH

40.00

Total cost per unit

$ 110.00

$ 85.00

Suppose, however, that factory overhead costs are actually caused by the five activities listed below: Activity Machine setups Quality Inspections Production orders Machine-hours worked Material receipts Total

Costs $ 300,000 200,000 90,000 330,000 80,000 $ 1,000,000

Also suppose the following transaction data has been collected: Number of Transactions Activity Machine setups Quality inspections Production orders Machine-hours worked Material receipts

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Total 5,000 8,000 600 33,000 800

Deluxe 3,000 5,000 200 10,000 200

Regular 2,000 3,000 400 23,000 600

Required: Using the activity-based costing method to calculate unit costs of Deluxe and Regular products, and compare them with the current direct labor hours-based costing system.

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12) Moss Manufacturing has just completed a major change in its quality control (QC) process.

Previously, products had been reviewed by QC inspectors at the end of each major process, and the company's ten QC inspectors were charged as direct labor to the operation or job. In an effort to improve efficiency and quality, a computerized video QC system was purchased for $250,000. The system consists of a minicomputer, 15 video cameras, other peripheral hardware, and software. The new system used cameras stationed by QC engineers at key points in the production process. Each time an operation changes or there is a new operation, the cameras are moved, and a new master picture is loaded into the computer by a QC engineer. The camera takes pictures of the units in process, and the computer compares them to the picture of a "good" unit. Any differences are sent to a QC engineer who removes the bad units and discusses the flaws with the production supervisors. The new system has replaced the ten QC inspectors with two QC engineers. The operating costs of the new QC system, including the salaries of the QC engineers, have been included as factory overhead in calculating the company's volume-based factory overhead rate which is based on direct labor dollars. The company's president is confused. His vice president of production has told him how efficient the new system is, yet there is a large increase in the factory overhead rate. The computation of the rate before and after automation is shown below.

Budgeted overhead Budgeted direct labor Budgeted overhead rate

Before

After

$ 1,900,000 1,000,000 190%

$ 2,100,000 700,000 300%

"Three hundred percent," lamented the president, "How can we compete with such a high factory overhead rate?" Required: 1. a. Define factory overhead, and cite three examples of typical costs that would be included in factory overhead. b. Explain why companies develop factory overhead rates. 2. Explain why the increase in the overhead rate should not have a negative financial impact on Moss Manufacturing. 3. Explain, in the greatest detail possible, how Moss Manufacturing could change its overhead accounting system to eliminate confusion over product costs. Version 1

13) The controller for Ocean Sailboats Incorporated, a company which uses an automated

process to make sailboats, established the following overhead cost pools and cost drivers: Overhead Cost Pool Machine setups Quality control Other overhead cost

Budgeted Overhead $ 250,500 419,500 180,000

Cost Driver Number of setups Number of inspections Number of machine hours

Estimated Cost Driver Level 500 setups 2,500 inspections 20,000 machine hours

A recent order for sailboats used: Machine setups Quality inspections Machine hours

50 setups 305 inspections 2,024 machine hours

Required: 1. What is the overhead rate per machine hour if the number of machine hours is used as a single cost driver under traditional costing system? 2. Utilizing traditional costing, how much overhead is assigned to the order based on machine hours as a single cost driver? 3. Utilizing ABC, how much total overhead is assigned to the order?

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14) Skateline Incorporated designs and manufactures roller skates. The following data pertain to

two of its major customers: FantasticSkates and SkateToday. FantasticSkates Total sales Sales discount Sales terms Sales returns

$ 1,500,000 4% 2/10, n/30 5%

SkateToday $ 1,450,000 3% 2/10, n/30 2%

Assume sales discounts are taken on total invoice amount and that returns occur within 10 days of the sale. Required: Compare the net proceeds from each customer to Skateline Incorporated 30 days after sale. (Rounded to nearest dollar for each step where applicable.)

15) Certo Health Products was formed two years ago to produce and distribute a newly-patented

protein supplement. Two variations of the original supplement have since been developed and introduced for general sale. The three products are processed in essentially the same way, but Ann Marshall, the owner of Certo, anticipates that a half-dozen new products will be developed for sale in the next two years. These products will not be variations of the patented supplement, and will require a different production process other than the one currently used. Ann has asked you to review the current use of a single volume-based rate and explain the arguments for using departmental rates with activity-based drivers.

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16) Cost Pools and Cost Drivers: Based on a recent study of its manufacturing operations

Johnston Manufacturing Corporation has identified six resource consumption cost drivers. These cost drivers and their budgeted activity levels for the coming year are: Cost Driver Number of purchase orders Number of production runs (2,500 units per production run) Machine-hours Factory space (square feet) Units of production Engineering hours

Activity Level 6 40 100,000 24,000 100,000 20,000

The firm has budgeted the following costs for the year: Engineering design Depreciation-building Depreciation-machine Electrical power (for factory building) Electrical power (for machining) Insurance Property taxes Machine maintenance-labor Machine maintenance-materials Natural gas (for heating) Inspection of finished goods Setup wages Receiving Inspection of direct materials on receiving Purchasing Custodial labor

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$ 600,000 50,000 40,000 6,000 30,000 20,000 15,000 11,000 9,000 8,000 7,000 20,000 10,000 3,000 20,000 51,000

With the exception of the factory space cost pool, which uses machine-hours as the activity consumption cost driver, other cost pools have identical resource and activity consumption cost drivers. Required: 1. Identify the most appropriate activity cost pool for each of the cost items and cost driver for each activity cost pool you identified. 2. Johnston has received a request to quote the price for 4,000 units of a new product. The production will require 100 engineering-hours and 4,250 machine-hours. What is the manufacturing overhead per unit the firm should use in determining the price?

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17) Volume-Based Costing Versus ABC: Gorden Company produces a variety of electronic

products. One of its plants produces two laser printers, Speedy and Deluxe. At the beginning of 2019, the following data were prepared for this plant:

Quantity Selling price Unit prime cost Unit overhead cost

Deluxe

Speedy

50,000 $ 475.00 180.00 20.00

400,000 $ 300.00 110.00 153.60

The unit overhead cost is calculated using the predetermined overhead application rate based on direct labor-hours. Upon examining the data, the marketing manager was particularly impressed with the perunit profitability of the Deluxe printer and suggested that more emphasis be placed on producing and selling this product. The plant supervisor objected to this strategy, arguing that the Deluxe model required a very delicate manufacturing process. The supervisor believed that the cost of the Deluxe printer was likely to be much higher than reported. The controller suggests an activity-based costing system and provides the following budget data pertaining to the period: Activity Consumption Overhead Activity Setups Machine costs Engineering Packing

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Cost Driver Number of setups Machine-hours Engineeringhours Packing orders

Pool Rate*

Deluxe

Speedy

$ 2,800 100 40

200

100

100,000 45,000

400,000 120,000

50,000

200,000

* Cost per unit of cost driver Required: 1. Using the projected data based on the firm's current costing system, calculate gross profit per unit and gross profit percentage for each product. (Round calculations to 2 decimal places.) 2. Using the suggested multiple cost drivers' overhead rates, calculate the overhead cost per unit for each product and determine gross profit per unit and gross profit percentage for each product. 3. Based on your results, evaluate the suggestion of the marketing manager to emphasize the Deluxe model. 4. How does ABC contribute to Gorden's competitive advantage?

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18) Customer Profitability Analysis: Boston Depot sells office supplies to area corporations

and organizations. Tom Delayne, founder and CEO, has been disappointed with the operating results and the profit margin for the last two years. Business forms are mostly a "commodity" business with low profit margins. To increase profit margins and gain competitive advantages, Delayne introduced "Desk-Top Delivery" service. The business seems to be as busy as ever. Yet, the operating income has been declining. To help identify the root cause of declining profits, he decided to analyze the profitability of two of the firm's major customers: Omega International (OI) and City of Albion (CA). According to the customer profitability analysis that Boston Depot conducts regularly, Boston Depot has the same amount of total sales with both OI and CA. However, the firm earns a higher gross margin and gross margin ratio from CA than those from the sales to OI, as demonstrated here: Customer Profitability Analysis Omega International Sales Product cost Service fees (17.5% of sales) Gross margin Gross margin percent

$ 80,000 (50,000) (14,000) $ 16,000 20%

City of Albion $ 80,000 (48,000) (14,000) $ 18,000 22.5%

Boston Depot adds a flat 17.5 percent to all sales for expenses incurred in such activities as handling customers' requests, pick-packing, order delivery, warehousing, and data entry. However, not all customers require the same level of services. Operation Manager, Jamie Steel, points out that CA has been a much heavier service user than OI. She shows the following data to support her belief: Distribution Services Activities for OI and CA OI Number of requisitions Requisition line (all pick-packing) Average number of cartons in warehouse Number of miles per delivery

300 900 50 5

CA 700 2,100 500 6

Controller Rod Jay has been investigating ways to determine the costs of performing various activities. He summarized his findings:

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Total Estimated Estimated Annual Activity Annual Cost Driver Activity Expense Level Requisitions $ Requisitions 300,000 handling 3,000,000 Warehouse 1,050,000 Number of cartons 70,000 Pick-packing 900,000 Pick-pack lines 600,000 Data entry 600,000 Pick-pack lines 600,000 Delivery charge $10 per requisition (delivery) plus $0.30 per mile

Steel points out that activities cost money. Two customers who request different service activities most likely are not costing the firm the same. Required: 1. Using activity-based costing, compute the charges per unit of service activities. 2. Using activity-based costing, compute the total distribution costs for each of the customers. 3. Is the City of Albion a more profitable customer? 4. Is Omega International a better customer for Boston Depot?

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19) Customer Profitability Analysis: Spring Company collected the following data pertaining

to its activities with selected customers. HS Incorporated Total sales Sales discounta Sales termsb Shipping terms Sales returns ratec Number of ordersd Units per order Expedited order Sales visits Number of sales returns

Adventix

$600,000 2%

$750,000 3%

2/10, n/30

1/15, n/60

Baldwin $900,000 2% 2/10, n/eom FOB Destination

FOB Shipping point 2%

FOB Destination 1%

100

250

1 3

1 4

2 10

Sales discounts are incentives offered on the full invoice price Sales terms are an incentive in the form of a reduction of the net invoice amount to customers that pay an invoice early c Sales returns are all completed within the first 10 days of this billing month d Each order is filled in a single delivery b

Spring Company mails monthly statements on or before the first day of each month. HS pays all of its account payables within the payment discount periods. Adventix does not take the early payment discounts. In fact, the company pays half of its accounts on the date that these accounts are due and pays the remainder at the end of the following month. Baldwin also does not take advantage of discounts for early payments. However, it pays its accounts on the specified due date. Cost of goods sold is sixty percent of gross sales price. Joan Lieberman, the controller of Spring Company, has estimated that the cost of working capital is approximately 2 percent per month. Lieberman also gathered the following cost data: Activity

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Cost Driver and Rate

Order taking Order processing Delivery Expedited orders Restocking Sales visits

$ 50 per order $ 75 per order $ 300 per delivery $ 500 per order $ 10 per unit plus $200 per return $ 800 per visit

Required: Prepare and interpret a customer profitability analysis for Spring Company. How does it help Spring Company become more competitive and profitable?

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20) Volume-based Versus ABC Overhead Rate: Medical Arts Hospital (MAH) uses a

hospital-wide overhead rate based on nurse-hours. The intensive care unit (ICU), which has 30 beds, applies over-head using patient-days. Its budgeted cost and operating data for the year follow: Hospital Budget Information Hospital total $ 57,600,000 overhead Hospital total 1,152,000 nurse-hours Budget Cost Driver Information for ICU for the Month of June Cost Pool Budget Cost Cost Driver Budget Cost Driver Activity Facilities and $ 2,400,000 Number of 7,500 equipment patient-days Nursing care 3,000,000 Number of nurse80,000 hours

In June, MAH's intensive care unit had the following operating data: 81,000 nurse-hours 7,250 patient-days Required: 1. Calculate the ICU's overhead costs for the month of June usinga. The hospital-wide rate b. The ICU department-wide rate c. The cost driver rates for the ICU department 2. Explain the differences and determine which overhead assignment method is more appropriate.

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21) The major limitation of volume-based costing systems is the use of volume-based: A) Criteria. B) Standards. C) Rates. D) Variances. E) Restrictions.

22) Volume-based rates produce inaccurate product cost when: A) A large portion of factory overhead cost is not volume-based. B) Firms produce a diverse mix of products. C) Large volumes of a product are manufactured. D) Both a lack of volume-based overhead and there is a large range of products. E) None of these answer choices are correct.

23) If the usage of project activities is not proportional to the number of units produced, then

some managers will be overcharged and others undercharged under: A) Activity-based costing. B) Volume-based costing. C) Overhead costing. D) Process costing. E) Materials costing.

24) Which of the following is not an indirect manufacturing cost of producing wooden tables? A) Manufacturing supervision. B) Equipment maintenance. C) Wood acquisition costs. D) Wood used in the manufacturing process. E) Wood storage and handling.

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25) Which of the following describes a cost driver? A) A factor that causes or relates to a change in the total cost of an activity. B) A costing approach that assigns resource costs to cost objects based on activities

performed for the cost objects. C) A measure of the frequency and intensity of demand placed on a resource by an activity. D) A measure of the demand placed on the resources by products, services, or customers. E) An activity performed for each unit of the cost object.

26) In performing activity analysis during the design of an activity-based costing (ABC) system,

the management accountant studies: A) The cost drivers and managers in the plant. B) The advice of operation-level managers. C) The resources, activities, and cost drivers in the operation. D) The cost allocation methods applicable to the firm. E) The implementation problems for an Activity-Based Costing system.

27) Effective implementation of activity-based costing (ABC) requires: A) Normally the assistance of a consultant. B) A sophisticated and expensive computer system. C) Support of top management and key employees. D) Capturing properly the complexity of the data. E) Activity-Based Costing has no significant implementation issues.

28) Elimination of low-value-added activities in a firm should: A) Be discouraged because of potential harmful effects. B) Not affect customer value. C) Not have priority because low-value-added activities have little effect on a firm's

performance. D) Have priority only when a firm is operating at a loss. E) Happen naturally if the firm is well-managed.

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29) When gathering activity data, which of the following would not be a question that Activity-

Based Costing project team members typically ask employees or managers? A) Time spent performing the activity B) Resources required for the activity C) Where the activity takes place D) Value the activity has for the customer E) Work or activities performed

30) Successful activity-based costing (ABC) implementation depends upon the firm: A) Having support of consultants with needed expertise. B) Having a thorough activity analysis. C) Starting with a relatively simple system. D) Having well-trained managers. E) Having adequate computer resources.

31) Which of the following is not a level that a firm classifies its activities at? A) Unit-level B) corporate-level C) batch level D) product-level E) facility-level

32) A measure of frequency and intensity of demands placed on activities by cost objects is: A) A quantity driver. B) A resource consumption cost driver. C) Not a cost driver. D) An activity consumption cost driver. E) A consumption cost driver.

33) An activity that is performed for each unit of production is a(n): A) Product-level activity. B) Facility-level activity. C) Unit-level activity. D) Performance-level activity. E) Batch-level activity.

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34) An activity that is performed to support the production of a new custom-order product is a: A) Product-level activity. B) Facility-level activity. C) Unit-level activity. D) Customer-support activity. E) Batch-level activity.

35) Which of the following is a step in developing an Activity-Based Costing System? A) Talk to management for cost details. B) Research commonly used cost drivers. C) Determine which products will use activity-based costing and which will not. D) Assign activity costs to cost objects. E) Hire a management accountant to find effective cost drivers.

36) The management of activities to improve the value received by the customer and the

competitiveness of the organization is: A) Cost driver analysis. B) Customer profitability analysis. C) Activity-based management. D) Performance measurement. E) Activity analysis.

37) The examination of the efficiency of each of a firm's activities is: A) Activity analysis. B) Pareto analysis. C) Activity-based management. D) Performance measurement. E) Attribute-based management.

38) Which one of the following is a high value-added activity? A) Set-up. B) Rework. C) Repair. D) Storage. E) Processing.

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39) Customer profitability analysis allows managers to do which of the following? A) Identify the closest competitor. B) Sell to higher end customers. C) Manage each customer’s costs-to-serve. D) Focus solely on service calls. E) None of the answers are correct.

40) Which one of the following is not a recommendation for a successful implementation of

Activity-Based Costing/M? A) Obtain support of management and personnel. B) Complete an activity analysis. C) Start with a relatively simple system. D) Use Activity-Based Costing/M on a job that will succeed. E) All of these answer choices are features of successful Activity-Based Costing/M implementations.

41) Which of the following activities is a facility-level activity? A) Plant management salaries. B) Depreciation on a highly specialized piece of production equipment. C) Direct labor. D) Product design. E) Materials handling.

42) A company using a volume-based overhead assignment (allocation) method will tend to: A) Overstate the cost of low volume products. B) Understate the cost of low volume products. C) Understate the cost of high volume products. D) Understate the cost of all products. E) Either understate or overstate the cost of high volume products depending on the

specific manufacturing factors involved.

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43) Which of the following is a batch-level cost driver? A) Output units. B) Number of engineering change orders. C) Number of materials handling transactions. D) Square feet of plant area occupied. E) Number of employees.

44) What is the resource consumption cost driver for the storeroom of a company? A) Time worked. B) Number of items picked for an order. C) Number of new codes developed. D) Square footage. E) Number of workers.

45) In an organization that makes furniture, which of the following is a high value-added

activity? A) Using direct materials in production. B) Inspecting production. C) Storing finished goods inventory. D) Moving work-in-process inventory between work stations. E) Reworking the product to repair defects.

46) More accurate and informative product costs describes which ebenfit of activity-based

costing? A) Process improvement. B) Better profitability measures. C) Improved planning. D) Better decision making. E) Identification of the cost of unused capacity.

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47) Which of the following is a batch-level cost driver? A) Output units. B) Number of employees. C) Number of orders. D) Number of parts. E) Machine hours.

48) Which of the following has the weakest linkage between activity and cost driver? Model A) B) C) D) E) A) B) C) D) E)

Machine setup Machine maintenance Lighting on shop floor Quality control Materials Handling

Cost Driver Number of setups Machine hours Number of kilowatt-hours Square feet of floor space Weight of materials in process

Option A Option B Option C Option D Option E

49) A volume-based rate is an appropriate overhead application base when: A) Several well-differentiated products are manufactured. B) Direct labor costs are large. C) Direct material costs are large relative to direct labor costs incurred. D) Only one product is manufactured. E) Manufacturing is process-based.

50) Which of the following would likely be the most appropriate cost driver of electric power

used by machines? A) Number of units. B) Machine size. C) Number of machine hours. D) Number of production runs. E) Purchase cost of machines.

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51) Using a volume-based overhead rate based on machine hours to assign manufacturing

overhead to a product line that uses relatively few machine hours is likely to: A) Overapply overhead to the product line. B) Underapply overhead to the product line. C) Understate direct labor costs. D) Overstate direct labor costs. E) Either over- or under-apply overhead to the product line depending on many other factors.

52) What ensures that no activities are missed during the value-added analysis? A) A process map. B) A production supervisor. C) A management accountant. D) A flowchart. E) The previous value added analysis.

53) Engineering change orders, maintenance of equipment used in manufacturing, and product

design costs are examples of: A) Unit costs. B) Batch costs. C) Product-level costs. D) Facility-level costs. E) Unit, batch, and customer-sustaining costs, respectively.

54) In an activity-based costing system, overhead costs are divided into separate: A) Cost objects. B) Activity cost pools. C) Resource consumption and activity consumption cost drivers. D) Product-line cost pools. E) Plantwide or departmental cost pools.

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55) Which of the following would likely be the most appropriate cost driver to allocate machine

set-up costs to products? A) Machine hours. B) Direct labor hours. C) Number of production runs. D) Number of products. E) Number of purchase orders.

56) A firm has many products, some produced in an automated production process and some

produced in a manual production process. Using direct labor hours to assign manufacturing overhead to a product manufactured with a highly automated process is likely to: A) Overstate overhead of the product. B) Understate overhead of the product. C) Overapply overhead to the period. D) Underapply overhead to the period. E) Have no effect on overhead of the product.

57) Activity-based costing for manufacturing operations is used to assign: A) Direct material and direct labor costs to products. B) Direct labor and manufacturing overhead costs to products. C) Manufacturing overhead costs to products. D) Selling and general administrative overhead costs to products. E) Selling and general administrative overhead and manufacturing overhead costs to

products.

58) The use of activity-based costing is most appropriate for: A) Firms that manufacture multiple product lines. B) Firms that have very low manufacturing overhead costs relative to other costs of

production. C) Firms with high levels of production activity. D) Firms that are labor intensive. E) Firms that manufacture a small number of product lines.

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59) Which of the following is a benefit of activity-based costing? A) Reduced overhead costs. B) More accurate measures of production volume. C) Facilitate better product pricing decisions. D) Having fewer cost drivers than volume-based costing systems. E) More streamlined manufacturing processes.

60) The Activity-Based costs assigned to cost objects are based on what? A) Activity cost pools. B) Actual levels of spending. C) Actual levels of capacity usage. D) Planned levels of spending and capacity usage. E) The size of the cost object.

61) Which of the following proportions is not used for volume-based costing? A) Number of activities in production. B) Units of production. C) Direct labor hours. D) Machine Hours. E) None of these answers are the correct choice.

62) Which of the following would be the most appropriate cost driver to allocate factory

electricity costs to products? A) Machinery depreciation expense. B) Machinery maintenance work orders. C) Machinery down-time. D) Machine hours. E) Machine productivity.

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63) Which of the following activity cost pools would most likely be allocated based on the

number of production runs? A) Machinery set-up costs. B) Raw materials warehousing costs. C) Factory heating costs. D) Factory janitorial costs. E) Indirect labor costs.

64) Which of the following is most likely to be the cost driver for the packaging and shipping

activity? A) Number of setups. B) Number of components. C) Number of orders. D) Hours of testing. E) Number of production runs.

65) What is idle capacity cost? A) The difference between the available capacity and the planned level of utilization. B) The cost of having to fix broken machines. C) The money lost from workers taking breaks. D) The economic value of resources not utilized to produce products or provide services. E) The value of resources utilized until they are proved useless.

66) Which of the following is not true regarding activity-based costing (ABC) systems? A) Activity-Based Costing can provide more accurate product costs. B) Activity-Based Costing identifies more costs as indirect costs than do traditional

volume-based systems. C) Activity-Based Costing is likely to be more time-consuming than volume-based systems. D) Activity-Based Costing is used in both manufacturing and non-manufacturing companies. E) Activity-Based Costing is likely to have more overhead rates than volume-based systems.

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67) Which of the following describes a low-value-added activity? A) Producing an unnecessary or unwanted output. B) Designing products. C) Processing products. D) Delivering products. E) Designing services.

68) Which of the following cost pools are used to classify costs under activity-based costing?

A) B) C) D) E) A) B) C) D) E)

Unit

Batch

Product

Facility

Y es Yes No Yes Yes

Yes Yes Yes No Yes

Yes Yes Yes Yes No

No Yes No Yes No

Option A Option B Option C Option D Option E

69) Purchase order, set-up, and inspection costs are examples of: A) Unit-level costs. B) Batch-level costs. C) Product-level costs. D) Facility-level costs. E) Department-level costs.

70) Which of the following would not be considered a facility-level activity? A) Providing security for the plant. B) Factory property taxes and insurance. C) Closing the books each month. D) Placing purchase orders.

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71) Costs at the unit-level of activity should be allocated to products using cost drivers that are: A) Customer-oriented. B) Design-related. C) Volume-related. D) Product-related. E) Order-related.

72) If a costing system uses a single base to allocate overhead costs that are the result of several

production activities: A) Products that use relatively more of this base tend to be undercosted. B) Products that use relatively less of this base tend to be overcosted. C) Products that use relatively more of this base tend to be overcosted. D) Products may be over- or under-costed, depending on the overhead rate. E) None of these answers are correct.

73) Procurement costs such as costs of placing orders for materials and paying suppliers are

usually classified as: A) Output-unit-level costs. B) Batch-level costs. C) Product-level costs. D) Facility-level costs. E) Vendor costs.

74) The cost of sales visits is a: A) Customer unit-level cost. B) Customer batch-level cost. C) Customer-sustaining cost. D) Distribution-channel cost. E) Sales-sustaining cost.

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75) What is a customer unit-level cost? A) resources consumed for each unit sold to a customer. B) resources consumed for each sales transaction. C) resources consumed to service a customer regardless of the number of units or

batches sold. D) resources consumed in each distribution channel the firm uses to service customers. E) resources consumed to sustain sales and service activities that cannot be traced to an individual unit, batch, customer, or distribution channel.

76) Processing sales returns and allowances is usually classified as a: A) Customer unit-level cost. B) Customer batch-level cost. C) Customer-sustaining cost. D) Distribution-channel cost. E) Sales-level cost.

77) Invoicing cost is an example of a: A) Customer unit-level cost. B) Customer batch-level cost. C) Customer-sustaining cost. D) Distribution-channel cost. E) Sales-level cost.

78) The cost to process monthly statements is an example of a: A) Customer unit-level cost. B) Customer batch-level cost. C) Customer-sustaining cost. D) Distribution-channel cost. E) Sales-level cost.

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79) The costs of operating a regional warehouse is an example of a: A) Customer unit-level cost. B) Customer batch-level cost. C) Customer-sustaining cost. D) Distribution-channel cost. E) Sales-level cost.

80) General corporate sales expenditures are: A) Customer unit-level costs. B) Customer batch-level costs. C) Customer-sustaining costs. D) Distribution-channel costs. E) Sales-sustaining costs.

81) Customer lifetime value is concerned with what? A) The loyalty of a customer. B) The wealth of a customer. C) Long-term value of customer. D) Short-term value of customer. E) None of these answers are correct.

82) Which of the following is a description of categorizing related customer costs into cost pools

on the basis of cost drivers? A) Customer revenue analysis. B) Customer cost analysis. C) Customer profitability analysis. D) Customer value assessment. E) Customer equity analysis.

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83) Metal Company budgeted $558,000 manufacturing direct wages, 2,000 direct labor hours,

and had the following manufacturing overhead: Overhead Cost Pool Materials handling Machine setup Machine repair Inspections

Budgeted Overhead Cost $ 140,000

Budgeted Level for Cost Driver

14,700 1,500

420 setups 30,000 machine hours 190 inspections

11,400

3,500 pounds

Overhead Cost Driver Weight of materials Number of setups Machine hours Number of inspections

Requirements for Job #971 which manufactured 4 units of product: Direct labor Direct materials Machine setup Machine hours Inspections

20 hours 160 pounds 40 setups 15,300 machine hours 15 inspections

If Metal Company uses a volume-based overhead rate based on direct labor hours, the manufacturing overhead for Job #971 is: A) $900.00 . B) $1,400.00. C) $1,676.00. D) $3,810.00. E) $6,704.00.

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84) Metal Company budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours,

and had the following manufacturing overhead: Overhead Cost Pool Materials handling Machine setup Machine repair Inspections

Budgeted Overhead Cost $ 160,000

Budgeted Level for Cost Driver

13,260 1,380

390 setups 30,000 machine hours 160 inspections

10,560

3,200 pounds

Overhead Cost Driver Weight of materials Number of setups Machine hours Number of inspections

Requirements for Job #971 which manufactured 4 units of product: Direct labor Direct materials Machine setup Machine hours Inspections

20 hours 130 pounds 30 setups 15,000 machine hours 15 inspections

If Metal Company uses a volume-based overhead rate based on direct labor hours, the manufacturing overhead for Job #971 is: A) $990. B) $1,020. C) $1,600. D) $3,460. E) $6,400.

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85) Metal Company budgeted $566,000 manufacturing direct wages, 3,000 direct labor hours,

and had the following manufacturing overhead: Overhead Cost Pool Materials handling Machine setup Machine repair Inspections

Budgeted Overhead Cost $ 172,000

Budgeted Level for Cost Driver

20,000 1,860

500 setups 31,000 machine hours 270 inspections

16,200

4,300 pounds

Overhead Cost Driver Weight of materials Number of setups Machine hours Number of inspections

Requirements for Job #971 which manufactured 4 units of product: Direct labor Direct materials Machine setup Machine hours Inspections

25 hours 240 pounds 40 setups 16,100 machine hours 20 inspections

Using activity-based costing, the materials handling overhead cost assigned to Job #971 is: A) $3,310. B) $1,200. C) $9,600. D) $966. E) $1,600.

Version 1

86) Metal Company budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours,

and had the following manufacturing overhead: Overhead Cost Pool Materials handling Machine setup Machine repair Inspections

Budgeted Overhead Cost $ 160,000

Budgeted Level for Cost Driver

13,260 1,380

390 setups 30,000 machine hours 160 inspections

10,560

3,200 pounds

Overhead Cost Driver Weight of materials Number of setups Machine hours Number of inspections

Requirements for Job #971 which manufactured 4 units of product: Direct labor Direct materials Machine setup Machine hours Inspections

20 hours 130 pounds 30 setups 15,000 machine hours 15 inspections

Using activity-based costing, the materials handling overhead cost assigned to Job #971 is: A) $2,300. B) $990. C) $6,500. D) $690. E) $1,020.

Version 1

87) Metal Company budgeted $569,000 manufacturing direct wages, 2,500 direct labor hours,

and had the following manufacturing overhead: Overhead Cost Pool Materials handling Machine setup Machine repair Inspections

Budgeted Overhead Cost $ 184,000

Budgeted Level for Cost Driver

15,900 1,200

530 setups 30,000 machine hours 300 inspections

21,000

4,600 pounds

Overhead Cost Driver Weight of materials Number of setups Machine hours Number of inspections

Requirements for Job #971 which manufactured 4 units of product: Direct labor Direct materials Machine setup Machine hours Inspections

20 hours 190 pounds 40 setups 16,400 machine hours 15 inspections

Using Activity-Based Costing, overhead cost assigned to Job #971 for machine setup is: A) $2,740. B) $1,050. C) $7,600. D) $656. E) $1,200.

Version 1

88) Metal Company budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours,

and had the following manufacturing overhead: Overhead Cost Pool Materials handling Machine setup Machine repair Inspections

Budgeted Overhead Cost $ 160,000

Budgeted Level for Cost Driver

13,260 1,380

390 setups 30,000 machine hours 160 inspections

10,560

3,200 pounds

Overhead Cost Driver Weight of materials Number of setups Machine hours Number of inspections

Requirements for Job #971 which manufactured 4 units of product: Direct labor Direct materials Machine setup Machine hours Inspections

20 hours 130 pounds 30 setups 15,000 machine hours 15 inspections

Using Activity-Based Costing, overhead cost assigned to Job #971 for machine setup is: A) $2,300. B) $990. C) $6,500. D) $690. E) $1,020.

Version 1

89) Metal Company budgeted $575,000 manufacturing direct wages, 2,000 direct labor hours,

and had the following manufacturing overhead: Overhead Cost Pool Materials handling Machine setup Machine repair Inspections

Budgeted Overhead Cost $ 156,000

Budgeted Level for Cost Driver

17,700 1,600

590 setups 32,000 machine hours 360 inspections

21,600

5,200 pounds

Overhead Cost Driver Weight of materials Number of setups Machine hours Number of inspections

Requirements for Job #971 which manufactured 4 units of product: Direct labor Direct materials Machine setup Machine hours Inspections

20 hours 330 pounds 40 setups 17,000 machine hours 15 inspections

Using activity-based costing, overhead cost assigned to Job #971 for machine repair is: A) B) C) D) E)

Version 1

$2,790. $900. $9,900. $850. $1,200.

90) Metal Company budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours,

and had the following manufacturing overhead: Overhead Cost Pool Materials handling Machine setup Machine repair Inspections

Budgeted Overhead Cost $ 160,000

Budgeted Level for Cost Driver

13,260 1,380

390 setups 30,000 machine hours 160 inspections

10,560

3,200 pounds

Overhead Cost Driver Weight of materials Number of setups Machine hours Number of inspections

Requirements for Job #971 which manufactured 4 units of product: Direct labor Direct materials Machine setup Machine hours Inspections

20 hours 130 pounds 30 setups 15,000 machine hours 15 inspections

Using activity-based costing, overhead cost assigned to Job #971 for machine repair is: A) $2,300. B) $990. C) $6,500. D) $690. E) $1,020.

Version 1

91) Metal Company budgeted $558,000 manufacturing direct wages, 2,000 direct labor hours,

and had the following manufacturing overhead: Overhead Cost Pool Materials handling Machine setup Machine repair Inspections

Budgeted Overhead Cost $ 140,000

Budgeted Level for Cost Driver

14,700 1,500

420 setups 30,000 machine hours 190 inspections

11,400

3,500 pounds

Overhead Cost Driver Weight of materials Number of setups Machine hours Number of inspections

Requirements for Job #971 which manufactured 4 units of product: Direct labor Direct materials Machine setup Machine hours Inspections

20 hours 160 pounds 40 setups 15,300 machine hours 15 inspections

Using Activity-Based Costing, overhead cost assigned to Job #971 for inspections is: A) B) C) D) E)

Version 1

$2,650. $900. $6,400. $765. $1,400.

92) Metal Company budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours,

and had the following manufacturing overhead: Overhead Cost Pool Materials handling Machine setup Machine repair Inspections

Budgeted Overhead Cost $ 160,000

Budgeted Level for Cost Driver

13,260 1,380

390 setups 30,000 machine hours 160 inspections

10,560

3,200 pounds

Overhead Cost Driver Weight of materials Number of setups Machine hours Number of inspections

Requirements for Job #971 which manufactured 4 units of product: Direct labor Direct materials Machine setup Machine hours Inspections

20 hours 130 pounds 30 setups 15,000 machine hours 15 inspections

Using Activity-Based Costing, overhead cost assigned to Job #971 for inspections is: A) $2,300. B) $990. C) $6,500. D) $690. E) $1,020.

Version 1

93) Metal Company budgeted $569,000 manufacturing direct wages, 2,500 direct labor hours,

and had the following manufacturing overhead: Overhead Cost Pool Materials handling Machine setup Machine repair Inspections

Budgeted Overhead Cost $ 184,000

Budgeted Level for Cost Driver

15,900 1,200

530 setups 30,000 machine hours 300 inspections

21,000

4,600 pounds

Overhead Cost Driver Weight of materials Number of setups Machine hours Number of inspections

Requirements for Job #971 which manufactured 4 units of product: Direct labor Direct materials Machine setup Machine hours Inspections

20 hours 190 pounds 40 setups 16,400 machine hours 15 inspections

The total overhead of Job #971 under the Activity-Based Costing costing is: A) $155. B) $510. C) $1,970. D) $2,740. E) $10,506.

Version 1

94) Metal Company budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours,

and had the following manufacturing overhead: Overhead Cost Pool Materials handling Machine setup Machine repair Inspections

Budgeted Overhead Cost $ 160,000

Budgeted Level for Cost Driver

13,260 1,380

390 setups 30,000 machine hours 160 inspections

10,560

3,200 pounds

Overhead Cost Driver Weight of materials Number of setups Machine hours Number of inspections

Requirements for Job #971 which manufactured 4 units of product: Direct labor Direct materials Machine setup Machine hours Inspections

20 hours 130 pounds 30 setups 15,000 machine hours 15 inspections

The total overhead of Job #971 under the Activity-Based Costing costing is: A) $95. B) $380. C) $1,520. D) $2,300. E) $9,200.

Version 1

95) Techno Incorporated manufactures two models of cameras that can be used as cell phones,

MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 10,200 16,200

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 38.20 $ 17.80

$ 25.60 $ 13.40

2,440 12,870 33,750 26,430

engineering hours inspection hours machine hours direct labor hours

Total

$ 402,600 295,780 607,320 158,520 $ 1,464,220

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

980 5,660 20,300 12,020

1,460 7,210 13,450 14,410

What is the overhead application rate using the firm's volume-based costing system? (Rounded to the nearest percent or cents.) A) 367 percent of direct labor cost. B) $56.19 per direct labor-hour. C) 68.7 percent of direct labor cost. D) 5,619 percent of direct labor cost. E) 5,540 percent of direct labor cost.

Version 1

96) Techno Incorporated manufactures two models of cameras that can be used as cell phones,

MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 10,000 16,000

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 38.00 $ 17.52

$ 25.40 $ 13.14

2,409 12,848 33,726 26,400

engineering hours inspection hours machine hours direct labor hours

Total

$ 404,712 269,808 539,616 134,904 $ 1,349,040

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

969 5,648 20,286 12,000

1,440 7,200 13,440 14,400

What is the overhead application rate using the firm's volume-based costing system? (Rounded to the nearest percent or cents.) A) 350 percent of direct labor cost. B) $51.89 per direct labor-hour. C) 68 percent of direct labor cost. D) 5,189 percent of direct labor cost. E) 5,110 percent of direct labor cost.

Version 1

97) Techno Incorporated manufactures two models of cameras that can be used as cell phones,

MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 11,000 17,000

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 39.00 $ 18.60

$ 26.40 $ 14.20

2,600 13,030 33,910 26,590

engineering hours inspection hours machine hours direct labor hours

Total

$ 468,000 310,560 574,940 185,500 $ 1,539,000

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

1,060 5,740 20,380 12,100

1,540 7,290 13,530 14,490

Using the firm's volume-based costing, applied factory overhead per unit for the High F model is: (Rounded to the nearest cent.) A) $64.18. B) $70.16. C) $45.52. D) $49.00. E) $57.19.

Version 1

98) Techno Incorporated manufactures two models of cameras that can be used as cell phones,

MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 10,000 16,000

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 38.00 $ 17.52

$ 25.40 $ 13.14

2,409 12,848 33,726 26,400

engineering hours inspection hours machine hours direct labor hours

Total

$ 404,712 269,808 539,616 134,904 $ 1,349,040

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

969 5,648 20,286 12,000

1,440 7,200 13,440 14,400

Using the firm's volume-based costing, applied factory overhead per unit for the High F model is: (Rounded to the nearest cent.) A) B) C) D) E)

Version 1

$61.32. $65.43. $43.42. $45.99. $54.04. 57

Version 1

99) Techno Incorporated manufactures two models of cameras that can be used as cell phones,

MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 10,700 16,700

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 38.70 $ 18.30

$ 26.10 $ 13.90

2,540 12,970 33,850 26,530

engineering hours inspection hours machine hours direct labor hours

Total

$ 431,800 258,200 506,850 105,880 $ 1,302,730

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

1,030 5,710 20,350 12,070

1,510 7,260 13,500 14,460

Using the firm's volume- based costing, applied factory overhead per unit for the Great P model is: (Rounded to the nearest cent.) A) $55.71. B) $58.70. C) $44.92. D) $42.31. E) $56.29.

Version 1

100)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 10,000 16,000

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 38.00 $ 17.52

$ 25.40 $ 13.14

2,409 12,848 33,726 26,400

engineering hours inspection hours machine hours direct labor hours

Total

$ 404,712 269,808 539,616 134,904 $ 1,349,040

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

969 5,648 20,286 12,000

1,440 7,200 13,440 14,400

Using the firm's volume- based costing, applied factory overhead per unit for the Great P model is: (Rounded to the nearest cent.) A) B) C) D) E)

Version 1

$61.32. $65.43. $43.42. $45.99. $54.04. 61

Version 1

101)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 11,000 17,000

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 39.00 $ 18.60

$ 26.40 $ 14.20

2,600 13,030 33,910 26,590

engineering hours inspection hours machine hours direct labor hours

Total

$ 468,000 310,560 574,940 185,500 $ 1,539,000

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

1,060 5,740 20,380 12,100

1,540 7,290 13,530 14,490

Using activity-based costing, applied engineering and design factory overhead for the High F model per unit is: (Rounded to the nearest cent.) A) B) C) D) E)

Version 1

$7.67. $12.44. $17.35. $31.41. $68.87. 63

Version 1

102)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 10,000 16,000

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 38.00 $ 17.52

$ 25.40 $ 13.14

2,409 12,848 33,726 26,400

engineering hours inspection hours machine hours direct labor hours

Total

$ 404,712 269,808 539,616 134,904 $ 1,349,040

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

969 5,648 20,286 12,000

1,440 7,200 13,440 14,400

Using activity-based costing, applied engineering and design factory overhead for the High F model per unit is: (Rounded to the nearest cent.) A) B) C) D) E)

Version 1

$6.13. $11.86. $16.28. $32.46. $66.73. 65

Version 1

103)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 12,000 17,000

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 40.00 $ 19.60

$ 27.40 $ 15.20

2,800 13,230 34,110 26,790

engineering hours inspection hours machine hours direct labor hours

Total

$ 420,000 326,000 610,560 133,000 $ 1,489,560

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

1,160 5,840 20,480 12,200

1,640 7,390 13,630 14,590

Using activity-based costing, applied quality control factory overhead for the High F model per unit is: (Rounded to the nearest cent.) A) B) C) D) E)

Version 1

$5.05. $11.99. $14.50. $30.55. $62.09. 67

Version 1

104)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 10,000 16,000

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 38.00 $ 17.52

$ 25.40 $ 13.14

2,409 12,848 33,726 26,400

engineering hours inspection hours machine hours direct labor hours

Total

$ 404,712 269,808 539,616 134,904 $ 1,349,040

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

969 5,648 20,286 12,000

1,440 7,200 13,440 14,400

Using activity-based costing, applied quality control factory overhead for the High F model per unit is: (Rounded to the nearest cent.) A) B) C) D) E)

Version 1

$6.13. $11.86. $16.28. $32.46. $66.73. 69

Version 1

105)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 11,900 17,900

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 39.90 $ 19.50

$ 27.30 $ 15.10

2,780 13,210 34,090 26,770

engineering hours inspection hours machine hours direct labor hours

Total

$ 472,600 260,600 678,200 132,950 $ 1,544,350

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

1,150 5,830 20,470 12,190

1,630 7,380 13,620 14,580

Using activity-based costing, applied machinery overhead for the High F model per unit is: (Rounded to the nearest cent.) A) B) C) D) E)

Version 1

$5.09. $9.66. $16.43. $34.22. $65.40. 71

Version 1

106)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 10,000 16,000

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 38.00 $ 17.52

$ 25.40 $ 13.14

2,409 12,848 33,726 26,400

engineering hours inspection hours machine hours direct labor hours

Total

$ 404,712 269,808 539,616 134,904 $ 1,349,040

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

969 5,648 20,286 12,000

1,440 7,200 13,440 14,400

Using activity-based costing, applied machinery overhead for the High F model per unit is: (Rounded to the nearest cent.) A) B) C) D) E)

Version 1

$6.13. $11.86. $16.28. $32.46. $66.73. 73

Version 1

107)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 10,500 16,500

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 38.50 $ 18.10

$ 25.90 $ 13.70

2,500 12,930 33,810 26,490

engineering hours inspection hours machine hours direct labor hours

Total

$ 412,500 270,690 574,090 158,700 $ 1,415,980

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

1,010 5,690 20,330 12,050

1,490 7,240 13,480 14,440

Using activity-based costing, applied miscellaneous overhead for the High F model per unit is: (Rounded to the nearest cent.) A) B) C) D) E)

Version 1

$6.88. $11.34. $15.87. $32.88. $66.97. 75

Version 1

108)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 10,000 16,000

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 38.00 $ 17.52

$ 25.40 $ 13.14

2,409 12,848 33,726 26,400

engineering hours inspection hours machine hours direct labor hours

Total

$ 404,712 269,808 539,616 134,904 $ 1,349,040

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

969 5,648 20,286 12,000

1,440 7,200 13,440 14,400

Using activity-based costing, applied miscellaneous overhead for the High F model per unit is: (Rounded to the nearest cent.) A) $6.13. B) $11.86. C) $16.28. D) $32.36. E) $66.73.

Version 1

109)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 10,800 16,800

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 38.80 $ 18.40

$ 26.20 $ 14.00

2,560 12,990 33,870 26,550

engineering hours inspection hours machine hours direct labor hours

Total

$ 409,600 271,320 540,800 132,400 $ 1,354,120

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

1,040 5,720 20,360 12,080

1,520 7,270 13,510 14,470

Using activity-based costing, total overhead per unit of the High F model is: (Rounded to the nearest cent.) A) B) C) D) E)

Version 1

$40.65. $43.69. $57.42. $62.15. $160.00. 79

Version 1

110)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 10,000 16,000

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 38.00 $ 17.52

$ 25.40 $ 13.14

2,409 12,848 33,726 26,400

engineering hours inspection hours machine hours direct labor hours

Total

$ 404,712 269,808 539,616 134,904 $ 1,349,040

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

969 5,648 20,286 12,000

1,440 7,200 13,440 14,400

Using activity-based costing, total overhead per unit of the High F model is: (Rounded to the nearest cent.) A) $42.61. B) $45.99. C) $61.32. D) $66.73. E) $168.00.

Version 1

111)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 11,300 17,300

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 39.30 $ 18.90

$ 26.70 $ 14.50

2,660 13,090 33,970 26,650

engineering hours inspection hours machine hours direct labor hours

Total

$ 425,600 350,190 541,600 132,650 $ 1,450,040

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

1,090 5,770 20,410 12,130

1,570 7,320 13,560 14,520

Using activity-based costing, applied engineering and design factory overhead for the Great P model per unit is: (Rounded to the nearest cent.) A) B) C) D) E)

Version 1

$4.18. $11.32. $12.50. $14.52. $42.51. 83

Version 1

112)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 10,000 16,000

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 38.00 $ 17.52

$ 25.40 $ 13.14

2,409 12,848 33,726 26,400

engineering hours inspection hours machine hours direct labor hours

Total

$ 404,712 269,808 539,616 134,904 $ 1,349,040

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

969 5,648 20,286 12,000

1,440 7,200 13,440 14,400

Using activity-based costing, applied engineering and design factory overhead for the Great P model per unit is: (Rounded to the nearest cent.) A) $4.60. B) $9.45. C) $13.44. D) $15.12. E) $42.61.

Version 1

113)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 11,900 17,900

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 39.90 $ 19.50

$ 27.30 $ 15.10

2,780 13,210 34,090 26,770

engineering hours inspection hours machine hours direct labor hours

Total

$ 472,600 260,600 678,200 132,950 $ 1,544,350

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

1,150 5,830 20,470 12,190

1,630 7,380 13,620 14,580

Using activity-based costing, applied quality control factory overhead for the Great P model per unit is: (Rounded to the nearest cent.) A) B) C) D) E)

Version 1

$4.05. $8.13. $15.14. $15.48. $42.80. 87

Version 1

114)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 10,000 16,000

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 38.00 $ 17.52

$ 25.40 $ 13.14

2,409 12,848 33,726 26,400

engineering hours inspection hours machine hours direct labor hours

Total

$ 404,712 269,808 539,616 134,904 $ 1,349,040

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

969 5,648 20,286 12,000

1,440 7,200 13,440 14,400

Using activity-based costing, applied quality control factory overhead for the Great P model per unit is: (Rounded to the nearest cent.) A) $4.60. B) $9.45. C) $13.44. D) $15.12. E) $42.61.

Version 1

115)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 11,400 17,400

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 39.40 $ 19.00

$ 26.80 $ 14.60

2,680 13,110 33,990 26,670

engineering hours inspection hours machine hours direct labor hours

Total

$ 482,400 324,500 507,900 106,160 $ 1,420,960

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

1,100 5,780 20,420 12,140

1,580 7,330 13,570 14,530

Using activity-based costing, applied machinery overhead for the Great P model per unit is: (Rounded to the nearest cent.) A) B) C) D) E)

Version 1

$3.32. $10.43. $11.65. $16.34. $41.75. 91

Version 1

116)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 10,000 16,000

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 38.00 $ 17.52

$ 25.40 $ 13.14

2,409 12,848 33,726 26,400

engineering hours inspection hours machine hours direct labor hours

Total

$ 404,712 269,808 539,616 134,904 $ 1,349,040

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

969 5,648 20,286 12,000

1,440 7,200 13,440 14,400

Using activity-based costing, applied machinery overhead for the Great P model per unit is: (Rounded to the nearest cent.) A) $4.60. B) $9.45. C) $13.44. D) $15.12. E) $42.61.

Version 1

117)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 10,200 16,200

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 38.20 $ 17.80

$ 25.60 $ 13.40

2,440 12,870 33,750 26,430

engineering hours inspection hours machine hours direct labor hours

Total

$ 402,600 295,780 607,320 158,520 $ 1,464,220

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

980 5,660 20,300 12,020

1,460 7,210 13,450 14,410

Using activity-based costing, applied miscellaneous overhead for the Great P model per unit is: (Rounded to the nearest cent.) A) B) C) D) E)

Version 1

$5.34. $10.23. $14.94. $14.87. $45.37. 95

Version 1

118)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 10,000 16,000

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 38.00 $ 17.52

$ 25.40 $ 13.14

2,409 12,848 33,726 26,400

engineering hours inspection hours machine hours direct labor hours

Total

$ 404,712 269,808 539,616 134,904 $ 1,349,040

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

969 5,648 20,286 12,000

1,440 7,200 13,440 14,400

Using activity-based costing, applied miscellaneous overhead for the Great P model per unit is: (Rounded to the nearest cent.) A) $4.60. B) $9.45. C) $13.44. D) $15.12. E) $42.61.

Version 1

119)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 11,700 17,700

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 39.70 $ 19.30

$ 27.10 $ 14.90

2,740 13,170 34,050 26,730

engineering hours inspection hours machine hours direct labor hours

Total

$ 411,000 338,260 610,020 132,850 $ 1,492,130

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

1,130 5,810 20,450 12,170

1,610 7,360 13,600 14,560

Using activity-based costing, total overhead per unit of Great P model is: (Rounded to the nearest cent.) A) B) C) D) E)

Version 1

$42.18. $45.42. $58.83. $63.72. $150.00. 99

Version 1

100

120)

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model High F Great P

Annual Sales in Units 10,000 16,000

Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

Direct materials Direct labor Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead

High F

Great P

$ 38.00 $ 17.52

$ 25.40 $ 13.14

2,409 12,848 33,726 26,400

engineering hours inspection hours machine hours direct labor hours

Total

$ 404,712 269,808 539,616 134,904 $ 1,349,040

Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities:

Engineering and design hours Quality control inspection hours Machine hours Labor hours

High F

Great P

969 5,648 20,286 12,000

1,440 7,200 13,440 14,400

Using activity-based costing, total overhead per unit of Great P model is: (Rounded to the nearest cent.) A) $42.61. B) $45.99. C) $61.32. D) $66.73. E) $168.00.

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101

121)

Print Company manufacturers laser printers. It has outlined the following overhead cost drivers: Overhead Costs Pool

Cost Driver

Quality control

Number of inspections Machine hours Number of batches Direct labor hours

Machine operation Materials handling Miscellaneous overhead cost

Overhead Cost $ 75,000 151,000 1,500 60,000

Budgeted Level for Cost Driver 1,500 1,000 30 5,000

Print Company has an order for 1,000 laser printers that has the following production requirements: Number of inspections Machine hours Number of batches Direct labor hours

275 230 6 750

Using activity-based costing, applied quality control factory overhead for the 1,000 laser printers order is: A) B) C) D) E)

Version 1

$9,000. $13,300. $13,750. $300. $34,730.

102

122)

Print Company manufacturers laser printers. It has outlined the following overhead cost drivers: Overhead Costs Pool

Cost Driver

Quality control

Number of inspections Machine hours Number of batches Direct labor hours

Machine operation Materials handling Miscellaneous overhead cost

Overhead Cost $ 64,800 132,000 900 48,000

Budgeted Level for Cost Driver 1,080 1,100 30 4,000

Print Company has an order for 1,000 laser printers that has the following production requirements: Number of inspections Machine hours Number of batches Direct labor hours

175 180 5 650

Using activity-based costing, applied quality control factory overhead for the 1,000 laser printers order is: A) $7,800. B) $10,000. C) $10,500. D) $150. E) $21,600.

Version 1

103

123)

Print Company manufacturers laser printers. It has outlined the following overhead cost drivers: Overhead Costs Pool

Cost Driver

Quality control

Number of inspections Machine hours Number of batches Direct labor hours

Machine operation Materials handling Miscellaneous overhead cost

Overhead Cost $ 82,000 159,000 800 62,000

Budgeted Level for Cost Driver 2,000 1,000 40 6,200

Print Company has an order for 1,000 laser printers that has the following production requirements: Number of inspections Machine hours Number of batches Direct labor hours

230 270 5 830

Using activity-based costing, applied machine operation overhead for the 1,000 laser printers order is: A) $8,300. B) $8,700. C) $9,430. D) $100. E) $42,930.

Version 1

104

124)

Print Company manufacturers laser printers. It has outlined the following overhead cost drivers: Overhead Costs Pool

Cost Driver

Quality control

Number of inspections Machine hours Number of batches Direct labor hours

Machine operation Materials handling Miscellaneous overhead cost

Overhead Cost $ 64,800 132,000 900 48,000

Budgeted Level for Cost Driver 1,080 1,100 30 4,000

Print Company has an order for 1,000 laser printers that has the following production requirements: Number of inspections Machine hours Number of batches Direct labor hours

175 180 5 650

Using activity-based costing, applied machine operation overhead for the 1,000 laser printers order is: A) $7,800. B) $10,000. C) $10,500. D) $150. E) $21,600.

Version 1

105

125)

Print Company manufacturers laser printers. It has outlined the following overhead cost drivers: Overhead Costs Pool

Cost Driver

Quality control

Number of inspections Machine hours Number of batches Direct labor hours

Machine operation Materials handling Miscellaneous overhead cost

Overhead Cost $ 84,000 240,000 1,600 64,000

Budgeted Level for Cost Driver 1,500 2,000 40 6,400

Print Company has an order for 1,000 laser printers that has the following production requirements: Number of inspections Machine hours Number of batches Direct labor hours

330 280 5 850

Using activity-based costing, applied materials handling factory overhead for the 1,000 laser printers order is: A) B) C) D) E)

Version 1

$8,500. $17,830. $18,480. $200. $33,600.

106

126)

Print Company manufacturers laser printers. It has outlined the following overhead cost drivers: Overhead Costs Pool

Cost Driver

Quality control

Number of inspections Machine hours Number of batches Direct labor hours

Machine operation Materials handling Miscellaneous overhead cost

Overhead Cost $ 64,800 132,000 900 48,000

Budgeted Level for Cost Driver 1,080 1,100 30 4,000

Print Company has an order for 1,000 laser printers that has the following production requirements: Number of inspections Machine hours Number of batches Direct labor hours

175 180 5 650

Using activity-based costing, applied materials handling factory overhead for the 1,000 laser printers order is: A) $7,800. B) $10,000. C) $10,500. D) $150. E) $21,600.

Version 1

107

127)

Print Company manufacturers laser printers. It has outlined the following overhead cost drivers: Overhead Costs Pool

Cost Driver

Quality control

Number of inspections Machine hours Number of batches Direct labor hours

Machine operation Materials handling Miscellaneous overhead cost

Overhead Cost $ 80,000 157,000 1,500 60,000

Budgeted Level for Cost Driver 1,600 1,000 30 4,000

Print Company has an order for 1,000 laser printers that has the following production requirements: Number of inspections Machine hours Number of batches Direct labor hours

210 260 5 810

Using activity-based costing, applied miscellaneous factory overhead for the 1,000 laser printers order based on direct labor hours is: A) B) C) D) E)

Version 1

$12,150. $9,940. $10,500. $250. $40,820.

108

128)

Print Company manufacturers laser printers. It has outlined the following overhead cost drivers: Overhead Costs Pool

Cost Driver

Quality control

Number of inspections Machine hours Number of batches Direct labor hours

Machine operation Materials handling Miscellaneous overhead cost

Overhead Cost $ 64,800 132,000 900 48,000

Budgeted Level for Cost Driver 1,080 1,100 30 4,000

Print Company has an order for 1,000 laser printers that has the following production requirements: Number of inspections Machine hours Number of batches Direct labor hours

175 180 5 650

Using activity-based costing, applied miscellaneous factory overhead for the 1,000 laser printers order based on direct labor hours is: A) $7,800. B) $10,000. C) $10,500. D) $150. E) $21,600.

Version 1

109

129)

Print Company manufacturers laser printers. It has outlined the following overhead cost drivers: Overhead Costs Pool

Cost Driver

Quality control

Number of inspections Machine hours Number of batches Direct labor hours

Machine operation Materials handling Miscellaneous overhead cost

Overhead Cost $ 90,000 156,000 1,200 64,000

Budgeted Level for Cost Driver 1,500 1,500 40 4,000

Print Company has an order for 1,000 laser printers that has the following production requirements: Number of inspections Machine hours Number of batches Direct labor hours

200 255 5 800

What is the total overhead cost per unit of the laser printers order using activity-based costing? (Rounded to the nearest cent.) A) B) C) D) E)

Version 1

$50.82. $51.47. $54.47. $63.97. $75.80.

110

130)

Print Company manufacturers laser printers. It has outlined the following overhead cost drivers: Overhead Costs Pool

Cost Driver

Quality control

Number of inspections Machine hours Number of batches Direct labor hours

Machine operation Materials handling Miscellaneous overhead cost

Overhead Cost $ 64,800 132,000 900 48,000

Budgeted Level for Cost Driver 1,080 1,100 30 4,000

Print Company has an order for 1,000 laser printers that has the following production requirements: Number of inspections Machine hours Number of batches Direct labor hours

175 180 5 650

What is the total overhead cost per unit of the laser printers order using activity-based costing? (Rounded to the nearest cent.) A) $39.55. B) $40.05. C) $42.25. D) $50.65. E) $58.30.

Version 1

111

131)

Gold Shoes Company manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers: Overhead Cost Pool

Cost Driver

Quality Control

Number of inspections Machine hours Number of Batches Direct labor hours

Machine Time Materials Handling Miscellaneous Overhead Cost

Overhead Cost Budgeted Level for Cost Driver $ 71,200

Budgeted

800

285,265 9,350

967 110

62,000

7,400

Gold Shoes Company has an order for cleats that has the following production requirements: Number of Inspections Number of Machine hours Number of Batches Direct Labor Hours

555 340 9 1,360

Using activity-based costing, applied quality control factory overhead for the baseball cleat order is: A) B) C) D) E)

Version 1

$28,350. $30,120. $49,395. $21,050. $19,500.

112

132)

Gold Shoes Company manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers: Overhead Cost Pool

Cost Driver

Quality Control

Number of inspections Machine hours Number of Batches Direct labor hours

Machine Time Materials Handling Miscellaneous Overhead Cost

Overhead Cost Budgeted Level for Cost Driver $ 78,000 188,000 1,200 59,000

Budgeted

1,200 800 50 5,000

Gold Shoes Company has an order for cleats that has the following production requirements: Number of Inspections Number of Machine hours Number of Batches Direct Labor Hours

375 220 8 840

Using activity-based costing, applied quality control factory overhead for the baseball cleat order is: A) $28,450. B) $30,220. C) $24,375. D) $21,150. E) $19,600.

Version 1

113

133)

Gold Shoes Company manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers: Overhead Cost Pool

Cost Driver

Quality Control

Number of inspections Machine hours Number of Batches Direct labor hours

Machine Time Materials Handling Miscellaneous Overhead Cost

Overhead Cost Budgeted Level for Cost Driver $ 79,200

Budgeted

800

264,320 14,850

826 135

67,000

7,300

Gold Shoes Company has an order for cleats that has the following production requirements: Number of Inspections Number of Machine hours Number of Batches Direct Labor Hours

630 390 6 1,560

Using activity-based costing, applied machine overhead for the baseball cleat order is: A) B) C) D) E)

Version 1

$47,200. $54,700. $39,900. $58,550. $124,800.

114

134)

Gold Shoes Company manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers: Overhead Cost Pool

Cost Driver

Quality Control

Number of inspections Machine hours Number of Batches Direct labor hours

Machine Time Materials Handling Miscellaneous Overhead Cost

Overhead Cost Budgeted Level for Cost Driver $ 78,000 188,000 1,200 59,000

Budgeted

1,200 800 50 5,000

Gold Shoes Company has an order for cleats that has the following production requirements: Number of Inspections Number of Machine hours Number of Batches Direct Labor Hours

375 220 8 840

Using activity-based costing, applied machine overhead for the baseball cleat order is: A) $47,800. B) $55,300. C) $40,500. D) $59,150. E) $51,700.

Version 1

115

135)

Gold Shoes Company manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers: Overhead Cost Pool

Cost Driver

Quality Control

Number of inspections Machine hours Number of Batches Direct labor hours

Machine Time Materials Handling Miscellaneous Overhead Cost

Overhead Cost Budgeted Level for Cost Driver $ 71,100

Budgeted

900

163,890 5,100

607 85

62,000

7,000

Gold Shoes Company has an order for cleats that has the following production requirements: Number of Inspections Number of Machine hours Number of Batches Direct Labor Hours

480 290 9 1,160

Using activity-based costing, applied materials handling factory overhead for the baseball cleat order is: A) B) C) D) E)

Version 1

$345. $591. $540. $360. $693.

116

136)

Gold Shoes Company manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers: Overhead Cost Pool

Cost Driver

Quality Control

Number of inspections Machine hours Number of Batches Direct labor hours

Machine Time Materials Handling Miscellaneous Overhead Cost

Overhead Cost Budgeted Level for Cost Driver $ 78,000 188,000 1,200 59,000

Budgeted

1,200 800 50 5,000

Gold Shoes Company has an order for cleats that has the following production requirements: Number of Inspections Number of Machine hours Number of Batches Direct Labor Hours

375 220 8 840

Using activity-based costing, applied materials handling factory overhead for the baseball cleat order is: A) $338. B) $584. C) $192. D) $353. E) $686.

Version 1

117

137)

Gold Shoes Company manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers: Overhead Cost Pool

Cost Driver

Quality Control

Number of inspections Machine hours Number of Batches Direct labor hours

Machine Time Materials Handling Miscellaneous Overhead Cost

Overhead Cost Budgeted Level for Cost Driver $ 66,400

Budgeted

800

194,880 6,650

696 95

77,520

5,700

Gold Shoes Company has an order for cleats that has the following production requirements: Number of Inspections Number of Machine hours Number of Batches Direct Labor Hours

510 310 9 1,240

Using activity-based costing, applied miscellaneous factory overhead for the baseball cleat order based on direct labor hours is: A) B) C) D) E)

Version 1

$9,195. $11,212. $11,389. $16,864. $9,356.

118

138)

Gold Shoes Company manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers: Overhead Cost Pool

Cost Driver

Quality Control

Number of inspections Machine hours Number of Batches Direct labor hours

Machine Time Materials Handling Miscellaneous Overhead Cost

Overhead Cost Budgeted Level for Cost Driver $ 78,000

Budgeted

1,200

188,000 1,200

800 50

59,000

5,000

Gold Shoes Company has an order for cleats that has the following production requirements: Number of Inspections Number of Machine hours Number of Batches Direct Labor Hours

375 220 8 840

Using activity-based costing, applied miscellaneous factory overhead for the baseball cleat order based on direct labor hours is: A) $8,745. B) $10,312. C) $10,489. D) $9,912. E) $8,456.

Version 1

119

139)

Gold Shoes Company manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers: Overhead Cost Pool

Cost Driver

Quality Control

Number of inspections Machine hours Number of Batches Direct labor hours

Machine Time Materials Handling Miscellaneous Overhead Cost

Overhead Cost Budgeted Level for Cost Driver $ 78,000 188,000 1,200 59,000

Budgeted

1,200 800 50 5,000

Gold Shoes Company has an order for cleats that has the following production requirements: Number of Inspections Number of Machine hours Number of Batches Direct Labor Hours

375 220 8 840

Activity-based costing helps an organization implement its strategy through all of the following means except: A) Providing accurate cost information. B) Identifying the most profitable products and customers. C) Helping improve cycle time. D) Identifying value added and non-value added activities. E) Providing a basis for effective utilization of capacity.

140)

If Activity X had a budgeted cost of $164,000 and a budgeted activity consumption of 8,000 engineering hours, what would the activity consumption rate be? A) $8 per hour. B) $20.50 per hour. C) $0.05 per hour. D) $0.13 per hour. E) $3 per hour.

Version 1

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141)

If Activity X had a budgeted cost of $125,000 and a budgeted activity consumption of 10,000 engineering hours, what would the activity consumption rate be? A) $10 per hour. B) $12.50 per hour. C) $0.08 per hour. D) $0.10 per hour. E) $6 per hour.

142)

Implementing activity-based costing does not require which of the following groups? A) Management accountants. B) Manufacturing managers. C) Marketers. D) Operating managers. E) Engineers.

143)

The cost of unused capacity can be determined using activity-based costing (ABC) for the purpose of: A) Determining more accurately the activity-based costing costs. B) Helping managers plan the short and longer-term use of the operating resources. C) Determining product profitability. D) Completing an effective activity analysis. E) All of these answer choices are correct.

144)

Multistage activity-based costing is used when: A) There are many departments in the organization. B) Management wants a higher level of accuracy from the activity-based costing calculations. C) There are complex relationships among the activities. D) To simplify the activity-based costing calculations. E) There is no such thing as Multistage activity-based costing.

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145)

An adaptation of activity-based costing that simplifies costing by assigning resource costs directly to cost objects is called: A) Activity analysis. B) Multistage activity-based costing. C) Time-Driven activity-based costing. D) Resource Consumption Accounting. E) Customer profitability analysis.

146)

The Time Equation is used in activity-based costing to: A) Track the implementation of the activity-based costing system. B) Assess the amount of time required for each activity, in determining the application rate. C) Incorporate complexities in the application of activity-based costing. D) Plan for the implementation of an activity-based costing system. E) None of these answer choices are correct.

147)

In the context of activity-based costing, cross-subsidization refers to: A) Production departments subsidizing each other. B) Costing inaccuracies which affect the relative profitability of products. C) Cross-selling products lines, which affect customer profitability. D) Efforts to increased coordination among department heads. E) None of these answer choices are correct.

148)

Important concepts in resource consumption accounting include all of the following except: A) Variable costing. B) Resource interrelationships. C) Activity interrelationships. D) Detail level cost information. E) Treatment of idle capacity.

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149)

What is multistage activity-based costing? A) A comprehensive and fully integrated management accounting approach that provides management with decision support information based on an operational view of the organization. B) The assignment of resource costs to certain activities that, in turn, are assigned to other activities before being assigned to the final cost objects. C) The assignment of resource costs directly to cost objects using the cost per time unit of supplying the resource, rather than first assigning costs to activities and then from activities to cost objects. D) The net present value of estimated future profits from a given customer; in practice, a firm is likely to estimate this value over the next three to five years. E) Identifies cost activities and cost drivers related to servicing customers.

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123

150)

Power Company manufactures a variety of drill bits. The company's plant is partially automated. The budget for the year includes $480,000 payroll for 5,200 direct labor-hours. Listed below is cost driver information used in the product-costing system: Overhead Cost Pool Machine setups

Budgeted Overhead $ 400,100

Materials handling Quality control Other overhead cost

106,800

Total overhead

$ 1,206,900

420,000 280,000

Cost Driver Number of setups Number of barrels Number of inspections Number of machine hours

Estimated Cost Driver Level 160 setups 8,900 barrels 1,500 inspections 14,000 machine hours

A current product order has the following requirements: Machine setups Materials handling Quality inspections Machine hours Direct labor hour

13 setups 630 barrels 82 inspections 900 machine hours 384 hours

What is the total manufacturing overhead for the current product order if the firm uses a plantwide rate based on direct labor-hours? (Round your intermediate calculation to 2 decimal places.) A) $10,160. B) $35,446. C) $46,719. D) $89,126. E) $208,890.

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151)

Power Company manufactures a variety of drill bits. The company's plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system: Overhead Cost Budgeted Pool Overhead Machine setups $ 120,000 Materials 104,400 handling Quality 264,000 control Other overhead 144,000 cost

Cost Driver

Estimated Cost Driver Level Number of setups 120 setups Number of 8,700 barrels barrels Number of 1,100 inspections inspections Number of 12,000 machine hours machine hours

Total overhead $ 632,400

A current product order has the following requirements: Machine setups Materials handling Quality inspections Machine hours Direct labor hour

8 setups 606 barrels 80 inspections 830 machine hours 336 hours

What is the total manufacturing overhead for the current product order if the firm uses a plantwide rate based on direct labor-hours? A) $9,960. B) $30,240. C) $43,741. D) $44,268. E) $109,352.

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Power Company manufactures a variety of drill bits. The company's plant is partially automated. The budget for the year includes $528,000 payroll for 6,400 direct labor-hours. Listed below is cost driver information used in the product-costing system: Overhead Cost Pool Machine setups

Budgeted Overhead $ 678,700

Materials handling Quality control Other overhead cost

109,200

Total overhead

$ 1,843,900

608,000 448,000

Cost Driver Number of setups Number of barrels Number of inspections Number of machine hours

Estimated Cost Driver Level 200 setups 9,100 barrels 1,900 inspections 16,000 machine hours

A current product order has the following requirements: Machine setups Materials handling Quality inspections Machine hours Direct labor hour

17 setups 654 barrels 84 inspections 1,500 machine hours 432 hours

What is the total manufacturing overhead for the current product order if the firm assigns overhead costs based on machine hours? (Round your intermediate calculation to 2 decimal places.) A) $10,360. B) $38,016. C) $172,860. D) $83,115. E) $221,625.

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Cost Driver

Estimated Cost Driver Level Number of setups 120 setups Number of 8,700 barrels barrels Number of 1,100 inspections inspections Number of 12,000 machine hours machine hours

Total overhead $ 632,400

A current product order has the following requirements: Machine setups Materials handling Quality inspections Machine hours Direct labor hour

8 setups 606 barrels 80 inspections 830 machine hours 336 hours

What is the total manufacturing overhead for the current product order if the firm assigns overhead costs based on machine hours? A) $9,960. B) $30,240. C) $43,741. D) $44,268. E) $109,352.

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127

154)

Power Company manufactures a variety of drill bits. The company's plant is partially automated. The budget for the year includes $488,160 payroll for 5,424 direct labor-hours. Listed below is cost driver information used in the product-costing system: Overhead Cost Budgeted Pool Overhead Machine setups $ 135,600 Materials handling Quality control Other overhead cost

112,200 420,000 151,800

Cost Driver Number of setups Number of barrels Number of inspections Number of machine hours

Estimated Cost Driver Level 120 setups 9,350 barrels 1,750 inspections 12,650 machine hours

Total overhead $ 819,600

A current product order has the following requirements: Machine setups Materials handling Quality inspections Machine hours Direct labor hour

6 setups 612 barrels 86 inspections 836 machine hours 342 hours

Using activity-based costing, how much machine setup overhead is assigned to the order? A) $17,980. B) $6,780. C) $9,888. D) $8,740. E) $6,052.

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155)

Cost Driver

Estimated Cost Driver Level Number of setups 120 setups Number of 8,700 barrels barrels Number of 1,100 inspections inspections Number of 12,000 machine hours machine hours

Total overhead $ 632,400

A current product order has the following requirements: Machine setups Materials handling Quality inspections Machine hours Direct labor hour

8 setups 606 barrels 80 inspections 830 machine hours 336 hours

Using activity-based costing, how much machine setup overhead is assigned to the order? A) $19,200. B) $8,000. C) $11,108. D) $9,960. E) $7,272.

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129

156)

Power Company manufactures a variety of drill bits. The company's plant is partially automated. The budget for the year includes $636,000 payroll for 8,200 direct labor-hours. Listed below is cost driver information used in the product-costing system: Overhead Cost Pool Machine setups Materials handling Quality control Other overhead cost Total overhead

Budgeted Overhead $ 1,492,750 114,600 1,148,000 943,000

Cost Driver Number of setups Number of barrels Number of inspections Number of machine hours

Estimated Cost Driver Level 290 setups 9,550 barrels 2,800 inspections 20,500 machine hours

$ 3,698,350

A current product order has the following requirements: Machine setups Materials handling Quality inspections Machine hours Direct labor hour

26 setups 708 barrels 89 inspections 1,600 machine hours 540 hours

Using activity-based costing, how much material handling overhead is assigned to the order? A) $18,600. B) $310,492. C) $10,508. D) $9,660. E) $8,496.

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104,400 264,000 144,000

Cost Driver Number of setups Number of barrels Number of inspections Number of machine hours

Estimated Cost Driver Level 120 setups 8,700 barrels 1,100 inspections 12,000 machine hours

Total overhead $ 632,400

A current product order has the following requirements: Machine setups Materials handling Quality inspections Machine hours Direct labor hour

8 setups 606 barrels 80 inspections 830 machine hours 336 hours

Using activity-based costing, how much material handling overhead is assigned to the order? A) $19,200. B) $8,000. C) $11,108. D) $9,960. E) $7,272.

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131

158)

Power Company manufactures a variety of drill bits. The company's plant is partially automated. The budget for the year includes $600,000 payroll for 7,600 direct labor-hours. Listed below is cost driver information used in the product-costing system: Overhead Cost Pool Machine setups Materials handling Quality control Other overhead cost Total overhead

Budgeted Overhead $ 1,192,600 112,800 950,000 760,000

Cost Driver Number of setups Number of barrels Number of inspections Number of machine hours

Estimated Cost Driver Level 260 setups 9,400 barrels 2,500 inspections 19,000 machine hours

$ 3,015,400

A current product order has the following requirements: Machine setups Materials handling Quality inspections Machine hours Direct labor hour

23 setups 690 barrels 87 inspections 1,450 machine hours 504 hours

Using activity-based costing, how much quality control overhead is assigned to the order? A) B) C) D) E)

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$274,298. $9,810. $10,808. $33,060. $45,633.

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159)

Cost Driver

Estimated Cost Driver Level Number of setups 120 setups Number of 8,700 barrels barrels Number of 1,100 inspections inspections Number of 12,000 machine hours machine hours

Total overhead $ 632,400

A current product order has the following requirements: Machine setups Materials handling Quality inspections Machine hours Direct labor hour

8 setups 606 barrels 80 inspections 830 machine hours 336 hours

Using activity-based costing, how much quality control overhead is assigned to the order? A) $8,000. B) $9,960. C) $11,108. D) $19,200. E) $45,933.

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133

160)

Power Company manufactures a variety of drill bits. The company's plant is partially automated. The budget for the year includes $564,000 payroll for 7,000 direct labor-hours. Listed below is cost driver information used in the product-costing system: Overhead Cost Pool Machine setups

Budgeted Overhead $ 921,250

Materials handling Quality control Other overhead cost

111,000

Total overhead

$ 2,397,250

770,000 595,000

Cost Driver Number of setups Number of barrels Number of inspections Number of machine hours

Estimated Cost Driver Level 230 setups 9,250 barrels 2,200 inspections 17,500 machine hours

A current product order has the following requirements: Machine setups Materials handling Quality inspections Machine hours Direct labor hour

20 setups 672 barrels 86 inspections 1,300 machine hours 468 hours

Using activity-based costing, how much other overhead is assigned to the order? A) $368,500. B) $44,200. C) $12,208. D) $30,100. E) $47,033.

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134

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Cost Driver

Estimated Cost Driver Level Number of setups 120 setups Number of 8,700 barrels barrels Number of 1,100 inspections inspections Number of 12,000 machine hours machine hours

Total overhead $ 632,400

A current product order has the following requirements: Machine setups Materials handling Quality inspections Machine hours Direct labor hour

8 setups 606 barrels 80 inspections 830 machine hours 336 hours

Using activity-based costing, how much other overhead is assigned to the order? A) $8,000. B) $9,960. C) $11,108. D) $19,200. E) $45,992.

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135

162)

Power Company manufactures a variety of drill bits. The company's plant is partially automated. The budget for the year includes $660,000 payroll for 8,600 direct labor-hours. Listed below is cost driver information used in the product-costing system: Overhead Cost Pool Machine setups Materials handling Quality control Other overhead cost

Budgeted Overhead $ 310,000 115,800

Cost Driver

1,290,000

# of inspections # of machine hours

Total overhead

$ 2,790,800

1,075,000

# of setups # of barrels

Estimated Cost Driver Level 310 setups 9,650 barrels 3,000 inspections 21,500 machine hours

A current product order has the following requirements: Machine setups Materials handling Quality inspections Machine hours Direct labor hour

28 setups 720 barrels 90 inspections 1,700 machine hours 564 hours

Using activity-based costing, how much total overhead is assigned to the order? A) B) C) D) E)

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$41,360. $42,940. $43,468. $160,340. $45,193.

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163)

Cost Driver

Estimated Cost Driver Level Number of setups 120 setups Number of 8,700 barrels barrels Number of 1,100 inspections inspections Number of 12,000 machine hours machine hours

Total overhead $ 632,400

A current product order has the following requirements: Machine setups Materials handling Quality inspections Machine hours Direct labor hour

8 setups 606 barrels 80 inspections 830 machine hours 336 hours

Using activity-based costing, how much total overhead is assigned to the order? A) $42,160. B) $43,740. C) $44,268. D) $44,432. E) $45,993.

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164)

Sharp Company manufactures a variety of electric razors for men and women. The company's plant is partially automated. Listed below is cost driver information used in the product-costing system: Overhead Cost Pool

Machinery depreciation/maintenance Factory depreciation/utilities/insuranc e Product design Material handling

Budgeted Overhead Cost $ 199,675 142,625

Budgeted Cost Driver Level

Cost Driver

30,100

Machine hours Machine hours

684,600

42,490

1,312,15 0

231,00 0

30,100

Hours in design Pounds of raw material s

In addition, Sharp Company expects to spend $570,500 for 8,150 direct labor-hours. Two current product orders had the following requirements:

Units produced and sold Direct labor hours Pounds of raw materials Hours in design Machine hours

Men’s Razors

Women’s Razors

20,000 40 528 30 65

26,000 50 418 33 50

What is the total manufacturing overhead assigned to the current order for Men's Razors if the firm uses a volume-based plant wide overhead rate based on direct labor dollars? A) $2,000.00. B) $13,325.00. C) $291.10. D) $11,480.00. E) $18,655.00.

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165)

Machinery depreciation/maintenance Factory depreciation/utilities/insuranc e Product design Material handling

Budgeted Overhead Cost $ 168,640 127,840

Budgeted Cost Driver Level

Cost Driver

27,200

Machine hours Machine hours

554,400

38,500

1,078,00 0

134,75 0

27,200

Hours in design Pounds of raw material s

In addition, Sharp Company expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements:

Units produced and sold Direct labor hours Pounds of raw materials Hours in design Machine hours

Men’s Razors

Women’s Razors

20,000 30 860 20 65

26,000 40 750 23 50

What is the total manufacturing overhead assigned to the current order for Men's Razors if the firm uses a volume-based plant wide overhead rate based on direct labor dollars? A) $112.50. B) $150.00. C) $243.75. D) $7,200.00. E) $15,600.00.

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166)

Machinery depreciation/maintenance Factory depreciation/utilities/insuranc e Product design Material handling

Budgeted Overhead Cost $ 169,134 120,810

Budgeted Cost Driver Level

Cost Driver

25,800

Machine hours Machine hours

579,888

36,540

1,111,45 2

234,00 0

25,800

Hours in design Pounds of raw material s

In addition, Sharp Company expects to spend $483,240 for 8,054 direct labor-hours. Two current product orders had the following requirements:

Units produced and sold Direct labor hours Pounds of raw materials Hours in design Machine hours

Men’s Razors

Women’s Razors

25,000 40 657 30 62

32,000 50 547 33 47

What is the total manufacturing overhead assigned to the current order for Women's Razors if the firm uses a volume-based plant wide overhead rate based on direct labor hours? A) $1,551.00. B) $698.30. C) $254.20. D) $12,300.00. E) $11,562.00.

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140

167)

Machinery depreciation/maintenance Factory depreciation/utilities/insuranc e Product design Material handling

Budgeted Overhead Cost $ 168,640 127,840

Budgeted Cost Driver Level

Cost Driver

27,200

Machine hours Machine hours

554,400

38,500

1,078,00 0

134,75 0

27,200

Hours in design Pounds of raw material s

In addition, Sharp Company expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements:

Units produced and sold Direct labor hours Pounds of raw materials Hours in design Machine hours

Men’s Razors

Women’s Razors

20,000 30 860 20 65

26,000 40 750 23 50

What is the total manufacturing overhead assigned to the current order for Women's Razors if the firm uses a volume-based plant wide overhead rate based on direct labor hours? A) $112.50. B) $150.00. C) $187.50. D) $9,600.00. E) $12,000.00.

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141

168)

Machinery depreciation/maintenance Factory depreciation/utilities/insuranc e Product design Material handling

Budgeted Overhead Cost $ 198,499 141,785

Budgeted Cost Driver Level

Cost Driver

28,357

Machine hours Machine hours

680,568

42,700

1,304,42 2

196,00 0

28,357

Hours in design Pounds of raw material s

In addition, Sharp Company expects to spend $567,140 for 8,102 direct labor-hours. Two current product orders had the following requirements:

Units produced and sold Direct labor hours Pounds of raw materials Hours in design Machine hours

Men’s Razors

Women’s Razors

23,000 20 759 10 70

29,000 30 649 13 55

Using activity-based costing, how much facility-level overhead is assigned to the current order for Men's Razors? A) $287.00. B) $291.10. C) $840.00. D) $578.10. E) $910.00.

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142

169)

Machinery depreciation/maintenance Factory depreciation/utilities/insuranc e Product design Material handling

Budgeted Overhead Cost $ 168,640 127,840

Budgeted Cost Driver Level

Cost Driver

27,200

Machine hours Machine hours

554,400

38,500

1,078,00 0

134,75 0

27,200

Hours in design Pounds of raw material s

In addition, Sharp Company expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements:

Units produced and sold Direct labor hours Pounds of raw materials Hours in design Machine hours

Men’s Razors

Women’s Razors

20,000 30 860 20 65

26,000 40 750 23 50

Using activity-based costing, how much facility-level overhead is assigned to the current order for Men's Razors? A) $403.00. B) $310.00. C) $708.50. D) $545.00. E) $936.00.

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170)

Machinery depreciation/maintenance Factory depreciation/utilities/insuranc e Product design Material handling

Budgeted Overhead Cost $ 199,087 142,205

Budgeted Cost Driver Level

Cost Driver

28,441

Machine hours Machine hours

619,140

42,630

1,308,28 6

203,00 0

28,441

Hours in design Pounds of raw material s

In addition, Sharp Company expects to spend $568,820 for 8,126 direct labor-hours. Two current product orders had the following requirements:

Units produced and sold Direct labor hours Pounds of raw materials Hours in design Machine hours

Men’s Razors

Women’s Razors

18,000 20 734 10 67

22,000 30 624 13 52

Using activity-based costing, how much product-level overhead is assigned to the current order for Men's Razors? A) 207.40. B) 283.18. C) 490.58. D) 871.00. E) 145.24.

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171)

Machinery depreciation/maintenance Factory depreciation/utilities/insuranc e Product design Material handling

Budgeted Overhead Cost $ 168,640 127,840

Budgeted Cost Driver Level

Cost Driver

27,200

Machine hours Machine hours

554,400

38,500

1,078,00 0

134,75 0

27,200

Hours in design Pounds of raw material s

In addition, Sharp Company expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements:

Units produced and sold Direct labor hours Pounds of raw materials Hours in design Machine hours

Men’s Razors

Women’s Razors

20,000 30 860 20 65

26,000 40 750 23 50

Using activity-based costing, how much product-level overhead is assigned to the current order for Men's Razors? A) $218.00. B) $250.70. C) $331.20. D) $284.00. E) $288.00.

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145

172)

Machinery depreciation/maintenance Factory depreciation/utilities/insuranc e Product design Material handling

Budgeted Overhead Cost $ 198,205 141,575

Budgeted Cost Driver Level

Cost Driver

28,315

Machine hours Machine hours

666,360

42,770

1,302,49 0

182,00 0

28,315

Hours in design Pounds of raw material s

In addition, Sharp Company expects to spend $566,300 for 8,090 direct labor-hours. Two current product orders had the following requirements:

Units produced and sold Direct labor hours Pounds of raw materials Hours in design Machine hours

Men’s Razors

Women’s Razors

19,000 30 538 20 62

27,000 40 428 23 47

Using activity-based costing, how much product-level overhead is assigned to the current order for Women's Razors? A) $191.60. B) $289.45. C) $358.34. D) $481.05. E) $1,426.00.

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146

173)

Machinery depreciation/maintenance Factory depreciation/utilities/insuranc e Product design Material handling

Budgeted Overhead Cost $ 168,640 127,840

Budgeted Cost Driver Level

Cost Driver

27,200

Machine hours Machine hours

554,400

38,500

1,078,00 0

134,75 0

27,200

Hours in design Pounds of raw material s

In addition, Sharp Company expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements:

Units produced and sold Direct labor hours Pounds of raw materials Hours in design Machine hours

Men’s Razors

Women’s Razors

20,000 30 860 20 65

26,000 40 750 23 50

Using activity-based costing, how much product-level overhead is assigned to the current order for Women's Razors? A) $218.00. B) $250.70. C) $331.20. D) $284.00. E) $288.00.

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147

174)

Machinery depreciation/maintenance Factory depreciation/utilities/insuranc e Product design Material handling

Budgeted Overhead Cost $ 288,840 242,980

Budgeted Cost Driver Level

Cost Driver

24,234

Machine hours Machine hours

669,540

36,240

1,134,00 0

141,75 0

24,234

Hours in design Pounds of raw material s

In addition, Sharp Company expects to spend $524,800 for 8,200 direct labor-hours. Two current product orders had the following requirements:

Units produced and sold Direct labor hours Pounds of raw materials Hours in design Machine hours

Men’s Razors

Women’s Razors

20,000 20 524 10 61

23,000 30 414 13 46

Using activity-based costing, how much batch-level overhead is assigned to the current order for Women's Razors based on pounds of raw materials? A) $3,312. B) $4,192. C) $2,644. D) $5,487. E) $6,686.

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148

175)

Machinery depreciation/maintenance Factory depreciation/utilities/insuranc e Product design Material handling

Budgeted Overhead Cost $ 168,640 127,840

Budgeted Cost Driver Level

Cost Driver

27,200

Machine hours Machine hours

554,400

38,500

1,078,00 0

134,75 0

27,200

Hours in design Pounds of raw material s

In addition, Sharp Company expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements:

Units produced and sold Direct labor hours Pounds of raw materials Hours in design Machine hours

Men’s Razors

Women’s Razors

20,000 30 860 20 65

26,000 40 750 23 50

Using activity-based costing, how much batch-level overhead is assigned to the current order for Women's Razors based on pounds of raw materials? A) $6,000. B) $6,880. C) $5,332. D) $8,175. E) $9,374.

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149

176)

Fast Company has established the following overhead cost pools and cost drivers for the month of May: Cost Pool Purchase orders Machine setups Electricity

Overhead Costs $ 12,000 50,000 25,000

Cost Driver Levels 20 orders 100 setups 25,000 kilowatt hours

The following information pertains to the actual consumption of activity resources for two sample jobs completed during May. Job M1

Job M2

540 10 10 540

1,080 5 5 1,080

Number of units produced Number of purchase orders Number of setups Number of kilowatt hours

What is the activity-based overhead rate per purchase order? A) $610. B) $600. C) $590. D) $560. E) $540.

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150

177)

Fast Company has established the following overhead cost pools and cost drivers for the month of May: Cost Pool Purchase orders Machine setups Electricity

Overhead Costs $ 30,000 50,000 10,000

Cost Driver Levels 50 orders 100 setups 10,000 kilowatt hours

The following information pertains to the actual consumption of activity resources for two sample jobs completed during May. Job M1 Number of units produced Number of purchase orders Number of setups Number of kilowatt hours

500 15 20 500

Job M2 1,000 10 10 1,000

What is the activity-based overhead rate per purchase order? A) $615. B) $600. C) $575. D) $550. E) $500.

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151

178)

Fast Company has established the following overhead cost pools and cost drivers for the month of May: Cost Pool Purchase orders Machine setups Electricity

Overhead Costs $ 33,000 49,000 25,000

Cost Driver Levels 30 orders 100 setups 25,000 kilowatt hours

The following information pertains to the actual consumption of activity resources for two sample jobs completed during May.

Number of units produced Number of purchase orders Number of setups Number of kilowatt hours

Job M1

Job M2

530 10 15 530

1,000 5 5 1,000

Using activity-based costing, what is the overhead cost per unit produced for Job M2? A) $27.90. B) $40.00. C) $15.00. D) $8.95. E) $10.00.

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152

179)

Fast Company has established the following overhead cost pools and cost drivers for the month of May: Cost Pool Purchase orders Machine setups Electricity

Overhead Costs $ 30,000 50,000 10,000

Cost Driver Levels 50 orders 100 setups 10,000 kilowatt hours

500 15 20 500

Job M2 1,000 10 10 1,000

Using activity-based costing, what is the overhead cost per unit produced for Job M2? A) $39. B) $25. C) $20. D) $12. E) $10.

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153

180)

Bally Incorporated has identified the following cost drivers for its expected overhead costs for the year: Cost Pools Setup Ordering Maintenance Power

Budgeted Cost

Cost Driver

$ 30,000 15,000 37,500 7,500

Number of setups Number of orders Machine hours Kilowatt hours

Cost Driver Level 150 750 3,750 7,500

Total direct labor hours budgeted = 1,500 hours. The following data applies to Product X, one of the products completed during the year. Direct materials Direct labor Units completed Direct labor hours Number of setups Number of orders Machine hours Kilowatt hours

$ 750 $ 900 100 30 3 6 30 60

If a volume-based costing system based on direct labor hours to assign overhead is used, the total overhead cost for Product X will be: A) $1,020. B) $1,080. C) $1,500. D) $1,800. E) $2,080.

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154

181)

Bally Incorporated has identified the following cost drivers for its expected overhead costs for the year: Cost Pools

Budgeted Cost

Setup Ordering Maintenance Power

$ 40,000 20,000 50,000 10,000

Cost Driver Number of setups Number of orders Machine hours Kilowatt hours

Cost Driver Level 200 1,000 5,000 10,000

Total direct labor hours budgeted = 2,000 hours. The following data applies to Product X, one of the products completed during the year. Direct materials Direct labor Units completed Direct labor hours Number of setups Number of orders Machine hours Kilowatt hours

$ 1,000 $ 1,200 100 40 4 8 50 100

If a volume-based costing system based on direct labor hours to assign overhead is used, the total overhead cost for Product X will be: A) $1,500. B) $1,560. C) $2,000. D) $2,400. E) $2,560.

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155

182)

Bally Incorporated has identified the following cost drivers for its expected overhead costs for the year: Cost Pools Setup Ordering Maintenance Power

Budgeted Cost

Cost Driver

$ 90,000 45,000 112,500 22,500

Number of setups Number of orders Machine hours Kilowatt hours

Cost Driver Level 450 2,250 11,250 22,500

Total direct labor hours budgeted = 4,500 hours. The following data applies to Product X, one of the products completed during the year. Direct materials Direct labor Units completed Direct labor hours Number of setups Number of orders Machine hours Kilowatt hours

$ 2,250 $ 2,700 225 90 9 18 90 225

If the activity-based cost drivers are used to allocate overhead cost, the total overhead cost of Product X will be: A) $3,225. B) $3,285. C) $4,500. D) $5,400. E) $4,285.

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156

183)

Bally Incorporated has identified the following cost drivers for its expected overhead costs for the year: Cost Pools

Budgeted Cost

Setup Ordering Maintenance Power

$ 40,000 20,000 50,000 10,000

Cost Driver Number of setups Number of orders Machine hours Kilowatt hours

Cost Driver Level 200 1,000 5,000 10,000

$ 1,000 $ 1,200 100 40 4 8 50 100

If the activity-based cost drivers are used to allocate overhead cost, the total overhead cost of Product X will be: A) $1,500. B) $1,560. C) $2,000. D) $2,400. E) $2,560.

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157

184)

Underwood Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of manufacturing overhead that should be assigned to each of the two product lines from the information given below. Wall Mirrors Total units produced Total number of material moves Direct labor hours per unit

30 7 100

Specialty Windows 30 18 100

Budgeted material-handling costs are $42,000. Under a costing system that allocates manufacturing overhead on the basis of direct labor hours, the material-handling cost per wall mirror is: A) $0. B) $840. C) $700. D) $1,400. E) $3,000.

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185)

25 5 200

Specialty Windows 25 15 200

Budgeted material-handling costs are $50,000. Under a costing system that allocates manufacturing overhead on the basis of direct labor hours, the material-handling cost per wall mirror is: A) $0. B) $500. C) $1,000. D) $2,000. E) $5,000.

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186)

19 9 185

Specialty Windows 19 11 185

Budgeted material-handling costs are $70,300. The material-handling cost per wall mirror under activity-based costing is: A) $0. B) $1,665. C) $1,850. D) $3,700. E) $8,800.

187)

25 5 200

Specialty Windows 25 15 200

Budgeted material-handling costs are $50,000. The material-handling cost per wall mirror under activity-based costing is: A) $0. B) $500. C) $1,000. D) $2,000. E) $5,000.

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160

188)

Tango Company produces and sells two products, Alpha and Zeta. The following information is available relating to its setup activities:

Units produced Batch size (units) Total direct labor hours Cost per setup

Alpha

Zeta

250 10 1,000 $ 2,000

20,000 500 38,000 $ 2,000

With a volume-based costing system that applies overhead based on direct labor hours, the setup cost portion of overhead for each unit is: (Round intermediate calculations and your final answers to the nearest cent.) Alpha A) B) C) D) E) A) B) C) D) E)

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$ 3.33 $ 13.32 $ 8.00 $ 25.58 $ 102.32

Zeta $ 3.33 $ 6.33 $ 0.10 $ 25.58 $ 49.72

Option A Option B Option C Option D Option E

161

189)

Tango Company produces and sells two products, Alpha and Zeta. The following information is available relating to its setup activities:

Units produced Batch size (units) Total direct labor hours Cost per setup

Alpha

Zeta

250 10 1,000 $ 2,000

20,000 500 39,000 $ 2,000

With a volume-based costing system that applies overhead based on direct labor hours, the setup cost portion of overhead for each unit is: (Rounded to the nearest cent.) Alpha A) B) C) D) E) A) B) C) D) E)

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$ 3.25 $ 13.00 $ 8.00 $ 25.50 $ 102.00

Zeta $ 3.25 $ 6.34 $ 0.10 $ 25.50 $ 49.73

Option A Option B Option C Option D Option E

162

190)

Tango Company produces and sells two products, Alpha and Zeta. The following information is available relating to its setup activities:

Units produced Batch size (units) Total direct labor hours Cost per setup

Alpha

Zeta

400 40 4,000 $ 4,000

35,000 1,000 70,000 $ 4,000

Use of activity-based costing would allocate the following amounts of setup cost to each unit: (Rounded to the nearest cent.) Alpha A) B) C) D) E) A) B) C) D) E)

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$ 100.00 $ 250.00 $ 4.42 $ 88.00 $ 10.00

Zeta $ 4.00 $ 775.64 $ 4.50 $ 10.00 $ 0.11

Option A Option B Option C Option D Option E

163

191)

Tango Company produces and sells two products, Alpha and Zeta. The following information is available relating to its setup activities: Alpha

Zeta

250 10 1,000 $ 2,000

20,000 500 39,000 $ 2,000

Units produced Batch size (units) Total direct labor hours Cost per setup

Use of activity-based costing would allocate the following amounts of setup cost to each unit: (Rounded to the nearest cent.)

A) B) C) D) E) A) B) C) D) E)

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Alpha

Zeta

$ 200.00 $ 500.00 $ 6.42 $ 80.00 $ 8.00

$ 4.00 $ 1,025.64 $ 6.50 $ 50.00 $ 0.10

Option A Option B Option C Option D Option E

164

192)

Pasternik Company produces and sells two products, Alpha and Zeta. The following information is available relating to its setup activities:

Units produced Batch size (units) Total direct labor hours Cost per setup

Alpha

Zeta

300 10 3,000 $ 1,500

23,000 500 43,000 $ 3,000

Assume the cost per setup remains at $1,500 but that the batch size for product Alpha is changed from 10 to 25 units per batch. Using activity-based and a volume-based overhead costing that uses direct labor-hours to assign overhead, the amount of setup cost applied to each unit of product Alpha would be: (Round intermediate calculations and your final answers to the nearest cent.) Activity Based Costing A) B) C) D) E) A) B) C) D) E)

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Volume Based Costing

$ 300.00 $ 380.00 $ 60.00 $ 1.64 None of these answer choices is correct.

$ 17.90 $ 16.90 $ 18.90 $ 3.28

Option A Option B Option C Option D Option E

165

193)

Tango Company produces and sells two products, Alpha and Zeta. The following information is available relating to its setup activities: Units produced Batch size (units) Total direct labor hours Cost per setup

Alpha

Zeta

250 10 1,000 $ 2,000

20,000 500 39,000 $ 2,000

Assume the cost per setup remains at $2,000 but that the batch size for product Alpha is changed from 10 to 25 units per batch. Using activity-based and a volume-based overhead costing that uses direct labor-hours to assign overhead, the amount of setup cost applied to each unit of product Alpha would be: (Rounded to the nearest cent.) Activity Based Costing A) B) C) D) E) A) B) C) D) E)

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Volume Based Costing

$ 400.00 $ 500.00 $ 80.00 $ 2.25 None of these answer choices is correct.

$ 9.00 $ 8.00 $ 10.00 $ 4.50

Option A Option B Option C Option D Option E

166

194)

Smith Company sells its products at $900 per unit, net 30. The firm's gross margin ratio is 40 percent. The firm has estimated the following operating costs: Activity Sales calls Order processing Deliveries Sales returns

Cost Driver and Rate $ 600 per visit $ 200 per order $ 95 per order + $0.50 per mile $ 110 per return and $3 restocking per unit returned

Smith Company has gathered the following data pertaining to activities it performed for two of its customers: XBT

NINTO

Number of orders Number of parts per order Sales returns:

30 700

2 2,200

Number of returns Number of units returned (per return) Number of sales calls Miles per delivery Shipping terms

4 40

10 50

17 10 FOB, Factory

13 20 FOB, Destination

What is Smiths total customer-sustaining cost applicable to Ninto? A) $600. B) $800. C) $7,800. D) $10,100. E) $10,220.

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167

195)

Smith Company sells its products at $500 per unit, net 30. The firm's gross margin ratio is 40 percent. The firm has estimated the following operating costs: Activity Sales calls Order processing Deliveries Sales returns

Cost Driver and Rate $ 400 per visit $ 100 per order $ 50 per order + $0.50 per mile $ 60 per return and $3 restocking per unit returned

Smith Company has gathered the following data pertaining to activities it performed for two of its customers: XBT

NINTO

Number of orders Number of parts per order Sales returns:

10 500

2 2,000

Number of returns Number of units returned (per return) Number of sales calls Miles per delivery Shipping terms

4 40

10 50

6 10 FOB, Factory

10 20 FOB, Destination

What is Smith's total customer-sustaining cost applicable to Ninto? A) $400. B) $600. C) $4,000. D) $6,300. E) $6,420.

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168

196)

Smith Company sells its products at $880 per unit, net 30. The firm's gross margin ratio is 40 percent. The firm has estimated the following operating costs: Activity Sales calls Order processing Deliveries Sales returns

Cost Driver and Rate $ 590 per visit $ 195 per order $ 90 per order + $0.50 per mile $ 105 per return and $3 restocking per unit returned

Smith Company has gathered the following data pertaining to activities it performed for two of its customers: XBT

NINTO

Number of orders Number of parts per order Sales returns:

29 690

2 2,190

Number of returns Number of units returned (per return) Number of sales calls Miles per delivery Shipping terms

4 40

10 50

16 10 FOB, Factory

12 20 FOB, Destination

What is Smith's total customer batch-level cost applicable to Ninto? A) $1,640. B) $1,560. C) $2,940. D) $3,060. E) $6,940.

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169

197)

Cost Driver and Rate $ 400 per visit $ 100 per order $ 50 per order + $0.50 per mile $ 60 per return and $3 restocking per unit returned

Smith Company has gathered the following data pertaining to activities it performed for two of its customers: XBT

NINTO

Number of orders Number of parts per order Sales returns:

10 500

2 2,000

Number of returns Number of units returned (per return) Number of sales calls Miles per delivery Shipping terms

4 40

10 50

6 10 FOB, Factory

10 20 FOB, Destination

What is Smith's total customer batch-level cost applicable to Ninto? A) $800. B) $920. C) $2,300. D) $2,420. E) $6,300.

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170

198)

Smith Company sells its products at $620 per unit, net 30. The firm's gross margin ratio is 40 percent. The firm has estimated the following operating costs: Activity Sales calls Order processing Deliveries Sales returns

Cost Driver and Rate $ 460 per visit $ 130 per order $ 80 per order + $0.50 per mile $ 90 per return and $3 restocking per unit returned

Smith Company has gathered the following data pertaining to activities it performed for two of its customers: XBT

NINTO

Number of orders Number of parts per order Sales returns:

16 560

2 2,060

Number of returns Number of units returned (per return) Number of sales calls Miles per delivery Shipping terms

4 40

10 50

12 10 FOB, Factory

10 20 FOB, Destination

What is Smith's total sales-sustaining cost applicable to XBT as a customer? A) $0. B) $950. C) $4,150. D) $6,330. E) $6,450.

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171

199)

Cost Driver and Rate $ 400 per visit $ 100 per order $ 50 per order + $0.50 per mile $ 60 per return and $3 restocking per unit returned

Smith Company has gathered the following data pertaining to activities it performed for two of its customers: XBT

NINTO

Number of orders Number of parts per order Sales returns:

10 500

2 2,000

Number of returns Number of units returned (per return) Number of sales calls Miles per delivery Shipping terms

4 40

10 50

6 10 FOB, Factory

10 20 FOB, Destination

What is Smith's total sales-sustaining cost applicable to XBT as a customer? A) $0. B) $920. C) $4,120. D) $6,300. E) $6,420.

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172

200)

Smith Company sells its products at $560 per unit, net 30. The firm's gross margin ratio is 40 percent. The firm has estimated the following operating costs: Activity Sales calls Order processing Deliveries Sales returns

Cost Driver and Rate $ 430 per visit $ 115 per order $ 65 per order + $0.50 per mile $ 75 per return and $3 restocking per unit returned

Smith Company has gathered the following data pertaining to activities it performed for two of its customers: XBT

NINTO

Number of orders Number of parts per order Sales returns:

13 530

2 2,030

Number of returns Number of units returned (per return) Number of sales calls Miles per delivery Shipping terms

4 46

10 50

9 10 FOB, Factory

7 20 FOB, Destination

What is Smith's total customer unit-level cost applicable to XBT as a customer? A) $65. B) $552. C) $4,165. D) $4,197. E) $6,372.

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173

201)

Cost Driver and Rate $ 400 per visit $ 100 per order $ 50 per order + $0.50 per mile $ 60 per return and $3 restocking per unit returned

Smith Company has gathered the following data pertaining to activities it performed for two of its customers: XBT

NINTO

Number of orders Number of parts per order Sales returns:

10 500

2 2,000

Number of returns Number of units returned (per return) Number of sales calls Miles per delivery Shipping terms

4 40

10 50

6 10 FOB, Factory

10 20 FOB, Destination

What is Smith's total customer unit-level cost applicable to XBT as a customer? A) $50. B) $480. C) $4,120. D) $4,125. E) $6,300.

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174

202)

Service and not-for-profit organizations often: A) Have activity-based costing systems which are similar to those of manufacturing firms. B) Do not have changeable outputs. C) Are unable to benefit from activity-based costing. D) Do not have activity-based costing systems which are similar to those of manufacturing firms. E) None of these answer choices are correct.

203)

Customer profitability analysis: A) Always shows that the company with the highest total sales generates the highest net customer profit. B) Always shows that the company with the lowest total sales generates the lowest net customer profit. C) Produces the same results as a Pareto analysis. D) Helps identify actions that affect customer profitability. E) None of these answer choices are correct.

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175

Answer Key Test name: chapter 5 1) Essay 2) Essay 3) Essay 4) Essay 5) Essay 6) Essay 7) Essay 8) Essay 9) Essay 10) Essay 11) Essay 12) Essay 13) Essay 14) Essay 15) Essay 16) Essay 17) Essay 18) Essay 19) Essay 20) Essay 21) Essay 22) C 23) D 24) B 25) D 26) A 27) C 28) C 29) B 30) C 31) C 32) B 33) D 34) C 35) A 36) D 37) C

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38) A 39) E 40) C 41) E 42) A 43) B 44) C 45) B 46) A 47) B 48) C 49) D 50) D 51) C 52) B 53) A 54) C 55) B 56) C 57) B 58) C 59) A 60) C 61) D 62) A 63) D 64) A 65) C 66) D 67) B 68) A 69) B 70) B 71) D 72) C 73) C 74) B 75) C 76) A 77) B

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78) B 79) C 80) D 81) E 82) C 83) B 84) C 85) C 86) C 87) C 88) E 89) E 90) D 91) D 92) B 93) B 94) E 95) E 96) A 97) A 98) A 99) A 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

D D C C B B D D A A D D D D B B C C

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118) 119) 120) 121) 122) 123) 124) 125) 126) 127) 128) 129) 130) 131) 132) 133) 134) 135) 136) 137) 138) 139) 140) 141) 142) 143) 144) 145) 146) 147) 148) 149) 150) 151) 152) 153) 154) 155) 156) 157)

A A A A C C E E D D A A B B C C E E C C D D C B B C B C C C B C B D D C C B B E

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158) 159) 160) 161) 162) 163) 164) 165) 166) 167) 168) 169) 170) 171) 172) 173) 174) 175) 176) 177) 178) 179) 180) 181) 182) 183) 184) 185) 186) 187) 188) 189) 190) 191) 192) 193) 194) 195) 196) 197)

E D D B B D D D D D D C C E E C C A A B B D D D D B B C C B B B B A A C C C C A

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198) 199) 200) 201) 202) 203) 204)

B A A B B D D

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Chapter 6_____ 1) Amos and Son Manufacturing Company of Asheville, Tennessee, produces about 1,000 units

of hand-crafted wooden chairs per month. Their chairs are known for quality and durability. Most of the chairs are marketed through two furniture outlets with over 200 stores in the southwestern United States. You have been hired as a cost consultant to recommend improvements in Amos and Son's process cost system, a system installed some fifty years ago. Since then, the number of product lines has increased tenfold, and the units sold each year have increased from 3,000 to 12,000. You discover a process cost system driven by volume only, with a single rate for factory overhead based on units produced. Required: Given these limited facts, explain what impact changing to an activity-based process costing/management system (ABC/ABM) would have on Amos and Son's costing and pricing activities.

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2) Bob and Nancy Barnett have recently expanded their television-based educational film

business by shooting 30-second television ads for a regional television market in southern Colorado. They began business about 15 years ago with a contract to film training videos for the U.S. Army, and that business continues to provide a steady revenue base, currently about 40 percent of total revenue. Nancy Barnett is the firm's accountant, and in a visit to your accounting class last week, made a presentation detailing her firm's costing activities. Your instructor has asked you to respond to one particular statement that Nancy Barnett made: "Since our contract for military training films requires us to detail all costs, we use the process cost method that gives the maximum amount of fixed overhead cost. This almost covers all of our overhead, giving us an edge in competitively pricing our 30-second TV ads, and explains why we have grown so much in this sector of our business." Nancy knows that the U.S. Army uses cost-plus contracts on services like the Barnetts provide. Required: Is there an ethical problem with this approach? Does it represent acceptable accounting procedure?

3) Many industries, for example mining and other extractive industries, use process costing to

provide information regarding sustainability. Required: Provide an example of how a company could use process costing to assist in making decisions regarding sustainability.

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4) Pierce Company manufactures a single product that goes through two processes - mixing and

cooking. The following data pertains to the Mixing Department for September. Work-in-process inventory, September 1

38,000 units

Conversion - 60% completed Work-in-process inventory, September 30

24,000 units

Conversion - 40% completed Units started into production Units completed and transferred out

86,000 units ? units

Costs: Work-in-process inventory, September 1 Material R

$ 122,300

Material S

143,780

Conversion

194,550

Costs added during September: Material R

409,660

Material S

246,820

Conversion

526,618

Material R is added at the beginning of work in the Mixing Department. Material S is also added in the Mixing Department, but not until units of product are thirty percent completed with regard to conversion. Conversion costs are incurred uniformly during the process. Required: (1) Calculate the equivalent units for Material R using the weighted-average method. (2) Calculate the equivalent units for Material S using the weighted-average method. (3) Calculate the equivalent units for conversion using the weighted-average method. (4) Calculate the unit costs using the weighted-average method. (5) Calculate the cost of units completed and transferred out using the weighted-average method. (6) Calculate the cost of ending work in process using the weighted-average method.

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5) Assad Company uses the process costing method with the following data for the month of

July. Work-in-process, July 1, 30,000 units: Direct material: 100% completed Conversion: 30% completed

$ 65,500 51,910

Balance in work in process, July 1

$ 117,410

Units started during July Units finished Work in process, July 31, 20,000 units:

40,000 50,000

Direct material: 100% completed Conversion: 60% completed Cost incurred during July: Direct materials Conversion costs Total

$ 120,000 199,810 $ 319,810

Required: (1) Compute cost per equivalent unit under the weighted-average method. (2) Compute cost per equivalent unit under FIFO method.

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6) Each of the following cases is independent. Use the FIFO method for Cases A, B and C, and

the Weighted-Average Method for Case D, E and F.

Beginning Inventory A $ 5,000

Current Cost

B C

18,000

$ 30,000 45,000

20,000

E F

40,000

Transferred Ending Out Cost Inventory $ 44,000 $ 6,000 35,000

28,000

Equivalent Unit Cost Units $ 6 10,000

11,000

30,000

10,000

30,000

25,000

60,000

80,000

10,000

20,000

Required: Fill in the blanks.

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7) Irvine Company uses process costing. The following data are available for the month of June.

(a) Materials purchased, $800,000. (b) Materials used: Direct materials: Department A $250,000, Department B $230,000. Indirect materials: $20,000. (c) Factory payroll incurred, $600,000: Direct labor: Department A $300,000, Department B $200,000. Indirect labor: $100,000. (d) Other factory overhead incurred, $30,000: Power and light $2,000, Depreciation $20,000, Property tax $5,000, Insurance $3,000. (e) Factory overhead cost was allocated equally to Department A and Department B. (f) Department A completed and transferred to department B $600,000. (g) Department B completed and transferred to Finished Goods Inventory account $1,000,000. Required: (1) Prepare journal entries for June activities in Irvine Company. (2) Compute ending working-in-process inventories in Department A and Department B.

8) Edenton Boat Company manufactures small pleasure boats on an assembly-line basis. The

units are started in the Department A. On July 1 of this year, the Work-in-Process inventory of the Department A consisted of 200 units 100% complete as to materials and 40% complete as to conversion. During the month, 400 units were started and 500 units were completed and transferred out. The Work-in-Process on July 31 was 100% complete as to materials and 30% complete as to conversion. Costs in process at the beginning of the period amounted to $600,000 for materials and $160,000 for conversion. Costs added during the period were materials costs of $1,802,700 and conversion costs of $905,512. Required: Prepare a production cost report using the weighted-average method.

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9) Williams Corporation's Department A has the following information: % Completed

Costs

80 40

$ 43,708 35,550

Beginning work in process: 6,000 units Direct Materials Conversion New Units Started: 28,000 units Direct Materials

112,000

Conversion

88,200

Ending work in process: 2,000 units Direct Materials

Conversion

Required: 1. Use the FIFO method to calculate: (a) Equivalent units. (b) Cost per unit, rounded to three decimal places. (c) Cost completed and transferred out, rounded to the nearest whole dollar. (d) Cost in the ending work-in-process inventory, rounded to the nearest whole dollar. 2. Use the weighted-average method to answer items (a) through (d) in requirement 1.

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10) Marshall Company uses the weighted-average process costing in accounting for its

production activities. Materials are added at the beginning of the process and conversion costs are incurred uniformly throughout the process. August's production records indicate the following information: Quantities: Beginning work in process inventory (40%) Started during August Completed and transferred out Ending work in process inventory (20%)

Direct materials Direct labor Factory overhead

2,000 units 11,000 units 10,000 units ? Beginning WIP inventory costs: $ 500 400 240 August production costs: $ 4,440 8,000 4,610

Required: Prepare a production cost report for the Marshall Company. In your report, combine direct labor and factory overhead into a single cost pool for conversion costs.

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11) DowntonTractor Company manufactures small tractors on an assembly-line basis. The units

are started in Department Y. On January 1 of this year, the Work-in-Process inventory of Department Y consisted of 200 units 100% complete as to materials and 20% complete as to conversion. During the month, 800 units were started and 500 units were completed and transferred out. The Work-in-Process on January 31 was 100% complete as to materials and 20% complete as to conversion. Costs in process at the beginning of the period amounted to $100,000 for materials and $25,000 for conversion. Costs added during the period were materials costs of $200,000 and conversion costs of $143,000. Required Prepare a production cost report using the weighted-average method.

12) Atlantic Manufacturing Company uses process costing. All materials are added at the

beginning of the process. The normal spoilage rate is calculated as 10% of good units completed. The cost of the beginning work-in-process in the Month of May is $3,000,000, including $1,600,000 of input of materials, 100,000 units, and $1,400,000 for conversion costs. The beginning work-in-process is 70% complete. During May, the input includes $7,400,000 for materials, 800,000 units started and $4,190,000 for conversion costs. There were 700,000 good units finished. In addition, the ending work-in-process in May is 100,000 units with 60% complete. The abnormal spoilage is 30,000 units. All spoilage occurred when all processing was complete, at the final inspection. Required: Use the weighted-average method to calculate: (a) The dollar value of abnormal spoilage. (b) The cost of the good units finished. (c) The cost of ending work-in-process inventory.

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13) NYI Corporation manufactures decorative window glass in two sequential departments.

These data pertain to the month of August:

Direct Materials used for production Direct Labor Applied factory overhead Cost of goods completed and transferred

Department 1

Department 2

$ 55,000

$ 32,000

160,000 340,000 850,000

320,000 250,000 740,000

Required: Prepare journal entries to record these events: 1. Incurrence of direct materials and direct labor. Application of factory overhead in department 1. 2. Transfer of products from department 1 to department 2. 3. Incurrence of direct materials and direct labor. Application of factory overhead in department 2. 4. Transfer of complete products from department 2 to finished goods inventory.

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14) Chen Manufacturing uses backflush costing. Chen has the following information for the most

recent month of activity: Purchase of direct materials

$ 725,000

Direct materials used

$ 705,000

Conversion cost incurred Direct materials standard cost Conversion cost at standard Units produced Units sold

$ 1,450,000 $ 20 per unit $ 40 per unit 35,000 units 33,000 units

Required: 1. Prepare the journal entries for purchase of materials, conversion costs, the completion of product during the month, the sale of product, and the closing entries for conversion costs and material costs. 2. What is the final amount for cost of goods sold? 3. Under what conditions is backflush costing used in practice?

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15) You are engaged in the audit of the December 31, financial statements of Epworth Products

Corporation. You are attempting to verify the costing of the work-in-process and finished goods ending inventories that were recorded on Epworth's books as follows:

Work-in-process (50 percent complete as to labor and overhead)

Units

Cost

300,000

$ 860,960

Materials are added to production at the beginning of the manufacturing process, and overhead is applied to each product at the rate of 160 percent of direct labor costs. Epworth uses the FIFO costing method. A review of Epworth's January inventory cost records disclosed the following information:

Work-in-process beginning inventory (80% complete for labor & overhead) Units started Units completed Current period costs

Units

Materials

Labor

200,000

$ 200,000

$ 315,000

1,300,000

1,991,375

1,000,000 900,000

Required: Prepare a production cost report to verify the inventory balances. What is the amount of potential understatement or overstatement of the ending work-in-process account?

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16) How is unit product cost calculated? A) Assigning all indirect costs to overhead and estimating the cost of each unit produced. B) Dividing total process costs by the number of units sold durind the period. C) Dividing process costs in each department by the number of equivalent units

produced during the period. D) Dividing all costs by the number of units started during the period. E) Dividing overhead costs by the number of equivalent units produced during the period.

17) In process costing, unit product cost is calculated by dividing process cost in each department

by the equivalent units produced: A) Less beginning inventory. B) Plus beginning inventory. C) In the prior period. D) In the following period. E) During the period.

18) In calculating unit cost in a process costing system, "conversion cost" is defined as the sum

of: A) B) C) D) E)

Direct and indirect material costs. Direct and indirect labor costs. Direct labor and factory overhead costs. Indirect labor and factory overhead costs. Indirect material and factory overhead costs.

19) The first step in determining process costs is: A) Assigning cost to completed and uncompleted production. B) Computing the cost per equivalent unit. C) Calculating equivalent units of production. D) Analyzing physical flow of production units. E) Determining total cost for each manufacturing element.

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20) The fifth and final step in determining process costs is: A) Analyzing physical flow of production units. B) Calculating equivalent units of production. C) Determining total cost for each manufacturing element. D) Computing the cost per equivalent unit. E) Assigning cost to completed and uncompleted production.

21) What are “units to account for”? A) The sum of the units transferred out and ending inventory units. B) The sum of the beginning inventory units and the number of units started during the

period. C) The sum of all units started and transferred out. D) The sum of beginning inventory and ending inventory. E) Beginning inventory only.

22) The key difference between weighted-average and FIFO process costing methods is the

handling of the partially completed: A) Beginning direct materials inventory. B) Ending direct materials inventory. C) Beginning work-in-process inventory. D) Ending work-in-process inventory. E) Beginning finished goods inventory.

23) When is it most appropriate to use the first-in, first-out method? A) When Work-in-Process Inventory is relatively small or when direct materials prices

and conversion costs are stable. B) It doesn’t matter what method you use because they both give you the same answer. C) When you sell very little inventory during the period. D) When you want to use the most simple method. E) When direct materials prices, conversion costs, or inventory levels fluctuate significantly.

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24) Which of the statements below is not correct? A) Normal spoilage is spoilage that occurs under efficient operating conditions. B) Normal spoilage is controllable in the short term and not considered a part of product

cost. C) Abnormal spoilage is spoilage in excess of that expected under efficient operating conditions. D) Abnormal spoilage is charged as a loss to operations in the period detected. E) All of these statements are correct.

25) Process cost systems are used in all of the following industries except: A) Chemicals. B) Home building. C) Oil refining. D) Textiles. E) Steel.

26) Which of the following is one of the key steps in determining process costs? A) Assigning the total manufacturing costs to the units completed and transferred out and

the units of work in process at the end of the period. B) Analyzing the physical flow of production units. C) Computing the cost per equivalent unit for each manufacturing cost element. D) Calculating equivalent units of production for all manufacturing cost elements. E) All of these answer choices are correct.

27) The first-in, first out method is different from the weighted average method in what way? A) It is used more frequently in most industries. B) It is much simpler to apply. C) It uses a different set of five steps to determine product costs. D) It does not combine beginning inventory costs with current costs when computing

equivalent unit costs. E) The two methods only differ in scale of production.

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28) Which one of the following process costing methods includes only current costs in the

calculations of cost per equivalent unit? A) FIFO method. B) LIFO method. C) Specific unit method. D) Weighted-average method. E) Moving-average method.

29) The sum of the beginning inventory units and the number of units started during the period

determines the: A) Units completed during the period. B) Units to account for. C) Units transferred in during the period. D) Units accounted for. E) Units started during the period.

30) The sum of units transferred out and ending inventory units, assuming no spoilage,

determines the: A) Units completed during the period. B) Units spoiled. C) Units transferred in during the period. D) Units accounted for. E) Units started during the period.

31) The journal entry to record the application of factory overhead to work in process would

include a credit to: A) Work-in-Process. B) Cost of Goods Sold. C) Factory Overhead. D) Materials Inventory. E) Finished Goods Inventory.

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32) When using the first-in, first-out (FIFO) method of process costing, equivalent units for work

done during this period is equal to the number of units: A) In work-in-process at the beginning of the period times the percent of work necessary to complete the items, plus the number of units started and completed during the period, plus the number of units remaining in work-in-process at the end of the period times the percent of work done during the period. B) In work-in-process at the beginning of the period, plus the number of units started during the period, plus the number of units remaining in work-in-process at the end of the period times the percent of work necessary to complete the items. C) Started into process during the period, plus the number of units in work-in-process at the beginning of the period. D) Transferred out during the period, plus the number of units remaining in work-inprocess at the end of the period times the percent of work necessary to complete the items. E) None of these answers are correct.

33) The percentage of completion of the beginning work-in-process inventory should be

considered in the computation of the equivalent units for which of the following methods of process costing? FIFO

Weighted-Average

Yes

A) B) C) D) E)

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Option A Option B Option C Option D None of the options are correct.

34) In a given process costing system, the equivalent units are computed using the weighted-

average method. With respect to conversion costs, the percentage of completion for the current period is necessary for the calculation of the: Beginning Work-In-Process Inventory

Ending Work-In-Process Inventory

Yes

A) B) C) D) E)

Option A Option B Option C Option D None of the options are correct.

35) From the industries listed below, which one is most likely to use process costing in

accounting for production costs? A) Printing shop. B) Accounting firm. C) Electrical contractor. D) Steel mill. E) Automobile repair shop.

36) Which of the following characteristics applies to process costing but not to job costing? A) Identifiable batches of production. B) Average costs. C) Equivalent units. D) Application of overhead. E) Use of standard costs.

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37) In the computation of manufacturing cost per equivalent unit, the weighted-average method

of process costing considers: A) Current costs only. B) Current costs less cost of ending work-in-process inventory. C) Current costs plus cost of beginning work-in-process inventory. D) Current costs plus cost of ending work-in-process inventory. E) Current costs less cost of beginning work-in-process inventory.

38) In a production cost report using process costing, transferred-in costs are similar to: A) Materials costs added at the end of the process. B) Materials costs added at the beginning of the process. C) Conversion costs added during the process. D) Conversion costs transferred to the next process. E) Conversion costs included in beginning inventory.

39) Which of the following is one of the approaches used to account for normal spoilage in

process costing systems? A) Ignore the spoiled units until the very end of the production process. B) Treat the spoiled units as overhead and estimate beforehand how much it will cost to produce them. C) Omit the spoiled units in computing the equivalent units of production. D) Treat the normal and abnormal spoilage the same. E) None of these answers are correct.

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40) Normal spoilage and abnormal spoilage should be classified as: Normal

Abnormal

Period cost

Product cost

Period cost

Product cost

A) B) C) D) E)

Option A Option B Option C Option D None of the options are correct.

41) In a process costing system which assumes that normal spoilage occurs at the end of a

process, the cost attributable to normal spoilage should be assigned to: A) Beginning work-in-process inventory. B) Ending work-in-process inventory. C) Cost of goods manufactured and ending work-in-process inventory in the ratio of units worked on during the period to units remaining in work-in-process inventory. D) Cost of goods manufactured (transferred out). E) A separate loss account in order to highlight production inefficiencies.

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42) Hook Bait Incorporated processes king salmon for various distributors. Two departments are

involved — processing and packaging. Data relating to tons of king salmon processed in the processing department during June 2020 are provided below: Tons of King Salmon

Percent Completed Materials

Conversion

Work-in-process inventory — June 1

3,000

Work-in-process inventory — June 30

4,300

Started processing during June

9,200

Total equivalent units for materials under the weighted-average method are calculated to be: A) 7,815 equivalent units. B) 10,652 equivalent units. C) 7,978 equivalent units. D) 10,425 equivalent units. E) 9,921 equivalent units.

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43) Hook Bait Incorporated processes king salmon for various distributors. Two departments are

involved — processing and packaging. Data relating to tons of king salmon processed in the processing department during June 2020 are provided below: Tons of King Salmon

Percent Completed Materials

Conversion

Work-in-process inventory — June 1

1,500

Work-in-process inventory — June 30

2,800

Started processing during June

7,800

Total equivalent units for materials under the weighted-average method are calculated to be: A) 6,830 equivalent units. B) 8,180 equivalent units. C) 6,980 equivalent units. D) 7,140 equivalent units. E) 7,620 equivalent units.

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44) Hook Bait Incorporated processes king salmon for various distributors. Two departments are

involved — processing and packaging. Data relating to tons of king salmon processed in the processing department during June 2020 are provided below: Tons of King Salmon

Percent Completed Materials

Conversion

Work-in-process inventory — June 1

2,600

Work-in-process inventory — June 30

3,900

Started processing during June

8,900

Total equivalent units for conversion under the weighted-average method are calculated to be: A) 7,657 equivalent units. B) 10,096 equivalent units. C) 7,818 equivalent units. D) 9,743 equivalent units. E) 9,043 equivalent units.

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45) Hook Bait Incorporated processes king salmon for various distributors. Two departments are

involved — processing and packaging. Data relating to tons of king salmon processed in the processing department during June 2020 are provided below: Tons of King Salmon

Percent Completed Materials

Conversion

Work-in-process inventory — June 1

1,500

Work-in-process inventory — June 30

2,800

Started processing during June

7,800

Total equivalent units for conversion under the weighted-average method are calculated to be: A) 6,830 equivalent units. B) 8,180 equivalent units. C) 6,980 equivalent units. D) 7,140 equivalent units. E) 7,620 equivalent units.

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46) Hook Bait Incorporated processes king salmon for various distributors. Two departments are

involved — processing and packaging. Data relating to tons of king salmon processed in the processing department during June 2020 are provided below: Tons of King Salmon

Percent Completed Materials

Conversion

Work-in-process inventory — June 1

2,600

Work-in-process inventory — June 30

3,900

Started processing during June

8,900

Total equivalent units for materials under the FIFO method are calculated to be: A) 7,574 equivalent units. B) 10,096 equivalent units. C) 7,735 equivalent units. D) 9,127 equivalent units. E) 9,043 equivalent units.

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47) Hook Bait Incorporated processes king salmon for various distributors. Two departments are

involved — processing and packaging. Data relating to tons of king salmon processed in the processing department during June 2020 are provided below: Tons of King Salmon

Percent Completed Materials

Conversion

Work-in-process inventory — June 1

1,500

Work-in-process inventory — June 30

2,800

Started processing during June

7,800

Total equivalent units for materials under the FIFO method are calculated to be: A) 6,830 equivalent units. B) 8,180 equivalent units. C) 6,980 equivalent units. D) 7,140 equivalent units. E) 7,620 equivalent units.

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48) Hook Bait Incorporated processes king salmon for various distributors. Two departments are

involved — processing and packaging. Data relating to tons of king salmon processed in the processing department during June 2020 are provided below: Tons of King Salmon

Percent Completed Materials

Conversion

Work-in-process inventory — June 1

2,800

Work-in-process inventory — June 30

4,100

Started processing during June

9,000

Total equivalent units for conversion under the FIFO method are calculated to be: A) 7,773 equivalent units. B) 10,719 equivalent units. C) 7,269 equivalent units. D) 11,461 equivalent units. E) 11,680 equivalent units.

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49) Hook Bait Incorporated processes king salmon for various distributors. Two departments are

involved — processing and packaging. Data relating to tons of king salmon processed in the processing department during June 2020 are provided below: Tons of King Salmon

Percent Completed Materials

Conversion

Work-in-process inventory — June 1

1,500

Work-in-process inventory — June 30

2,800

Started processing during June

7,800

Total equivalent units for conversion under the FIFO method are calculated to be: A) 6,560 equivalent units. B) 8,180 equivalent units. C) 6,420 equivalent units. D) 7,140 equivalent units. E) 7,320 equivalent units.

50) The journal entry to record requisitioned and usage of direct materials would include a credit

to: A) B) C) D) E)

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Work-in-Process Inventory. Accrued Payroll. Factory Overhead. Materials Inventory. Finished Goods Inventory.

51) Closet Company had the following information for the month of December. All direct

materials were one hundred percent complete, and beginning materials cost $19,700. Work in Process Inventory Beginning balance @ 12/1: 360 units, 10% completed

$ 23,000

Direct materials

71,000

Direct labor

48,000

Overhead Property taxes

12,000

Depreciation

44,000

Utilities

28,000

Indirect labor

11,000

Completed 1,030 $ 200,473 units and transferred them to finished goods inventory

Ending balance @ $ 36,527 12/31: 390 units, 20% completed

Total equivalent units for materials under the FIFO method are calculated to be: A) 1,090 equivalent units. B) 1,060 equivalent units. C) 1,012 equivalent units. D) 988 equivalent units. E) 1,420 equivalent units.

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52) Closet Company had the following information for the month of December. All direct

materials were one hundred percent complete, and beginning materials cost $14,000. Work in Process Inventory Beginning balance @ 12/1: 240 units, 10% completed

$ 17,000

Direct materials

65,000

Direct labor

41,000

Overhead Property taxes

7,000

Depreciation

38,000

Utilities

22,000

Indirect labor

5,000

Completed 960 units and transferred them to finished goods inventory

$ 165,262

Ending balance @ $ 29,738 12/31: 360 units, 20% completed

Total equivalent units for materials under the FIFO method are calculated to be: A) 1,110 equivalent units. B) 1,080 equivalent units. C) 1,032 equivalent units. D) 1,008 equivalent units. E) 1,320 equivalent units.

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53) Closet Company had the following information for the month of December. All direct

materials were one hundred percent complete, and beginning materials cost $33,700. Work in Process Inventory Beginning balance @ 12/1: 640 units, 10% completed

$ 37,000

Direct materials

85,000

Direct labor

61,000

Overhead Property taxes

27,000

Depreciation

58,000

Utilities

42,000

Indirect labor

25,000

Completed 1,160 units and transferred them to finished goods inventory

$ 278,607

Ending balance @ $ 56,393 12/31: 460 units, 20% completed

Total equivalent units for conversion under the FIFO method are calculated to be: A) 1,218 equivalent units. B) 1,140 equivalent units. C) 1,116 equivalent units. D) 1,188 equivalent units. E) 1,828 equivalent units.

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54) Closet Company had the following information for the month of December. All direct

materials were one hundred percent complete, and beginning materials cost $14,000. Work in Process Inventory Beginning balance @ 12/1: 240 units, 10% completed

$ 17,000

Direct materials

65,000

Direct labor

41,000

Overhead Property taxes

7,000

Depreciation

38,000

Utilities

22,000

Indirect labor

5,000

Completed 960 units and transferred them to finished goods inventory

$ 165,262

Ending balance @ $ 29,738 12/31: 360 units, 20% completed

Total equivalent units for conversion under the FIFO method are calculated to be: A) 1,110 equivalent units. B) 1,080 equivalent units. C) 1,032 equivalent units. D) 1,008 equivalent units. E) 1,320 equivalent units.

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55) Closet Company had the following information for the month of December. All direct

materials were one hundred percent complete, and beginning materials cost $32,700. Work in Process Inventory Beginning balance @ 12/1: 620 units, 10% completed

$ 36,000

Direct materials

84,000

Direct labor

60,000

Overhead Property taxes

26,000

Depreciation

57,000

Utilities

41,000

Indirect labor

24,000

Completed 1,150 units and transferred them to finished goods inventory

$ 273,144

Ending balance @ $ 54,856 12/31: 455 units, 20% completed

Cost per equivalent unit for materials under the FIFO method is calculated to be (rounded): A) $176.421. B) $59.155. C) $79.352. D) $84.332. E) $85.279.

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56) Closet Company had the following information for the month of December. All direct

materials were one hundred percent complete, and beginning materials cost $14,000. Work in Process Inventory Beginning balance @ 12/1: 240 units, 10% completed

$ 17,000

Direct materials

65,000

Direct labor

41,000

Overhead Property taxes

7,000

Depreciation

38,000

Utilities

22,000

Indirect labor

5,000

Completed 960 units and transferred them to finished goods inventory

$ 165,262

Ending balance @ $ 29,738 12/31: 360 units, 20% completed

Cost per equivalent unit for materials under the FIFO method is calculated to be (rounded): A) $112.103. B) $49.242. C) $109.496. D) $82.757. E) $60.185.

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57) Closet Company had the following information for the month of December. All direct

materials were one hundred percent complete, and beginning materials cost $24,700. Work in Process Inventory Beginning balance @ 12/1: 480 units, 10% completed

$ 28,000

Direct materials

78,000

Direct labor

54,000

Overhead Property taxes

19,000

Depreciation

50,000

Utilities

30,000

Indirect labor

20,000

Completed 1,090 units and transferred them to finished goods inventory

$ 234,288

Ending balance @ $ 44,712 12/31: 420 units, 20% completed

Cost per equivalent unit for conversion under the FIFO method is calculated to be (rounded): A) $75.388. B) $153.641. C) $167.635. D) $75.728. E) $126.699.

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58) Closet Company had the following information for the month of December. All direct

materials were one hundred percent complete, and beginning materials cost $14,000. Work in Process Inventory Beginning balance @ 12/1: 240 units, 10% completed

$ 17,000

Direct materials

65,000

Direct labor

41,000

Overhead Property taxes

7,000

Depreciation

38,000

Utilities

22,000

Indirect labor

5,000

Completed 960 units and transferred them to finished goods inventory

$ 165,262

Ending balance @ $ 29,738 12/31: 360 units, 20% completed

Cost per equivalent unit for conversion under the FIFO method is calculated to be (rounded): A) $112.103. B) $49.242. C) $109.496. D) $82.757. E) $60.185.

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59) Lights Incorporated calculates cost for an equivalent unit of production using the weighted-

average method. Data for July: Work-in-process inventory, July 1 (37,000 units): Direct materials (93% completed) Conversion (50% completed) Balance in work in process inventory, July 1

$ 122,100 77,600 $ 199,700

Units started during July

88,000

Units completed and transferred

99,500

Work-in-process inventory, July 31: Direct materials (93% completed)

25,500

Conversion (50% completed) Cost incurred during July: Direct materials

$ 170,500

Conversion costs

268,000

Total equivalent units for materials under the weighted-average method are calculated to be: A) 123,215 equivalent units. B) 112,250 equivalent units. C) 88,000 equivalent units. D) 99,500 equivalent units. E) 93,750 equivalent units.

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60) Lights Incorporated calculates cost for an equivalent unit of production using the weighted-

average method. Data for July: Work-in-process inventory, July 1 (36,000 units): Direct materials (100% completed) Conversion (50% completed) Balance in work in process inventory, July 1

$ 122,400 76,800 $ 199,200

Units started during July

90,000

Units completed and transferred

102,000

Work-in-process inventory, July 31: Direct materials (100% completed)

24,000

Conversion (50% completed) Cost incurred during July: Direct materials

$ 180,000

Conversion costs

288,000

Total equivalent units for materials under the weighted-average method are calculated to be: A) 126,000 equivalent units. B) 114,000 equivalent units. C) 90,000 equivalent units. D) 102,000 equivalent units. E) 96,000 equivalent units.

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61) Lights Incorporated calculates cost for an equivalent unit of production using the FIFO

method. Data for July: Work-in-process inventory, July 1 (34,500 units): Direct materials (98% completed)

$ 122,900

Conversion (45% completed) Balance in work in process inventory, July 1

77,350 $ 200,250

Units started during July

95,000

Units completed and transferred

104,500

Work-in-process inventory, July 31: Direct materials (98% completed)

25,000

Conversion (45% completed) Cost incurred during July: Direct materials

$ 185,000

Conversion costs

265,500

Total equivalent units for conversion under the FIFO method are calculated to be: A) 129,000 equivalent units. B) 115,750 equivalent units. C) 95,000 equivalent units. D) 104,500 equivalent units. E) 100,225 equivalent units.

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62) Lights Incorporated calculates cost for an equivalent unit of production using the FIFO

method. Data for July: Work-in-process inventory, July 1 (36,000 units): Direct materials (100% completed)

$ 122,400

Conversion (50% completed) Balance in work in process inventory, July 1

76,800 $ 199,200

Units started during July

90,000

Units completed and transferred

102,000

Work-in-process inventory, July 31: Direct materials (100% completed)

24,000

Conversion (50% completed) Cost incurred during July: Direct materials

$ 180,000

Conversion costs

288,000

Total equivalent units for conversion under the FIFO method are calculated to be: A) 126,000 equivalent units. B) 114,000 equivalent units. C) 90,000 equivalent units. D) 102,000 equivalent units. E) 96,000 equivalent units.

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63) Lights Incorporated calculates cost for an equivalent unit of production using the weighted-

average method. Data for July: Work-in-process inventory, July 1 (38,500 units): Direct materials (95% completed) Conversion (55% completed) Balance in work in process inventory, July 1

$ 122,650 77,100 $ 199,750

Units started during July

92,500

Units completed and transferred

106,500

Work-in-process inventory, July 31: Direct materials (95% completed)

24,500

Conversion (55% completed) Cost incurred during July: Direct materials

$ 182,500

Conversion costs

290,500

Cost per equivalent unit for materials under the weighted-average method is calculated to be: A) $1.97. B) $2.35. C) $2.94. D) $3.04. E) $3.14.

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64) Lights Incorporated calculates cost for an equivalent unit of production using the weighted-

average method. Data for July: Work-in-process inventory, July 1 (36,000 units): Direct materials (100% completed) Conversion (50% completed) Balance in work in process inventory, July 1

$ 122,400 76,800 $ 199,200

Units started during July

90,000

Units completed and transferred

102,000

Work-in-process inventory, July 31: Direct materials (100% completed)

24,000

Conversion (50% completed) Cost incurred during July: Direct materials

$ 180,000

Conversion costs

288,000

Cost per equivalent unit for materials under the weighted-average method is calculated to be: A) $2.00. B) $2.40. C) $3.00. D) $3.10. E) $3.20.

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65) Lights Incorporated calculates cost for an equivalent unit of production using the FIFO

method. Data for July: Work-in-process inventory, July 1 (38,000 units): Direct materials (96% completed)

$ 122,600

Conversion (54% completed) Balance in work in process inventory, July 1

77,050 $ 199,650

Units started during July

92,000

Units completed and transferred

105,800

Work-in-process inventory, July 31: Direct materials (96% completed)

24,200

Conversion (54% completed) Cost incurred during July: Direct materials

$ 182,000

Conversion costs

290,000

Cost per equivalent unit for conversion under the FIFO method is calculated to be: A) $1.98. B) $2.36. C) $2.95. D) $3.05. E) $3.15.

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66) Lights Incorporated calculates cost for an equivalent unit of production using the FIFO

method. Data for July: Work-in-process inventory, July 1 (36,000 units): Direct materials (100% completed)

$ 122,400

Conversion (50% completed) Balance in work in process inventory, July 1

76,800 $ 199,200

Units started during July

90,000

Units completed and transferred

102,000

Work-in-process inventory, July 31: Direct materials (100% completed)

24,000

Conversion (50% completed) Cost incurred during July: Direct materials

$ 180,000

Conversion costs

288,000

Cost per equivalent unit for conversion under the FIFO method is calculated to be: A) $2.00. B) $2.40. C) $3.00. D) $3.10. E) $3.20.

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67) Lights Incorporated calculates cost for an equivalent unit of production using the weighted-

average method. Data for July: Work-in-process inventory, July 1 (36,500 units): Direct materials (94% completed) Conversion (49% completed) Balance in work in process inventory, July 1

$ 122,050 77,550 $ 199,600

Units started during July

87,500

Units completed and transferred

98,600

Work-in-process inventory, July 31: Direct materials (94% completed)

25,400

Conversion (49% completed) Cost incurred during July: Direct materials

$ 170,000

Conversion costs

267,500

The cost of goods completed and transferred out under the weighted-average method is calculated to be: (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.) A) $103,561. B) $621,070. C) $541,314. D) $556,210. E) $582,190.

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68) Lights Incorporated calculates cost for an equivalent unit of production using the weighted-

average method. Data for July: Work-in-process inventory, July 1 (36,000 units): Direct materials (100% completed) Conversion (50% completed) Balance in work in process inventory, July 1

$ 122,400 76,800 $ 199,200

Units started during July

90,000

Units completed and transferred

102,000

Work-in-process inventory, July 31: Direct materials (100% completed)

24,000

Conversion (50% completed) Cost incurred during July: Direct materials

$ 180,000

Conversion costs

288,000

The cost of goods completed and transferred out under the weighted-average method is calculated to be: A) $96,000. B) $476,400. C) $571,200. D) $484,000. E) $468,200.

69) The journal entry to record finished product units would include a debit to: A) Work-in-Process Inventory. B) Accrued Payroll. C) Factory Overhead. D) Materials Inventory. E) Finished Goods Inventory.

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70) The journal entry to record incurred direct labor would include a credit to: A) Work-in-Process Inventory. B) Accrued Payroll. C) Factory Overhead. D) Materials Inventory. E) Finished Goods Inventory.

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71) Great Pasta Company manufactures a single product that goes through two processes —

mixing and cooking. The following data pertains to the Mixing Department for September. Work-in-process Inventory September 1 Conversion complete Work-in-process inventory September 30 Conversion complete Units started into production in September Units completed and transferred out

31,000

units

70% 18,000

units

50% 80,000 ?

units

Costs Work-in-process inventory September 1 Material P

$ 133,000

Material Q

122,000

Conversion

133,000

Costs added in September Material P

$ 199,000

Material Q

183,000

Conversion

392,800

Material P is added at the beginning of work in the Mixing Department. Material Q is also added in the Mixing Department, but not until units of product are forty percent completed with regard to conversion. Conversion costs are incurred uniformly during the process. Total equivalent units for Material P under the weighted-average method are calculated to be: A) 111,000 equivalent units. B) 102,000 equivalent units. C) 93,000 equivalent units. D) 80,000 equivalent units. E) 75,000 equivalent units.

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72) Great Pasta Company manufactures a single product that goes through two processes —

28,000 units 70% 16,000 units 50% 72,000 ? units

Costs Work-in-process inventory September 1 Material P

$ 120,000

Material Q

110,000

Conversion

165,000

Costs added in September Material P

$ 180,000

Material Q

165,000

Conversion

354,800

Material P is added at the beginning of work in the Mixing Department. Material Q is also added in the Mixing Department, but not until units of product are forty percent completed with regard to conversion. Conversion costs are incurred uniformly during the process. Total equivalent units for Material P under the weighted-average method are calculated to be: A) 100,000 equivalent units. B) 92,000 equivalent units. C) 84,000 equivalent units. D) 72,000 equivalent units. E) 68,000 equivalent units.

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73) Great Pasta Company manufactures a single product that goes through two processes —

21,000

units

70% 14,000

units

50% 62,000 ?

units

Costs Work-in-process inventory September 1 Material P

$ 103,000

Material Q

94,000

Conversion

103,000

Costs added in September Material P

$ 154,000

Material Q

141,000

Conversion

304,100

Material P is added at the beginning of work in the Mixing Department. Material Q is also added in the Mixing Department, but not until units of product are forty percent completed with regard to conversion. Conversion costs are incurred uniformly during the process. Total equivalent units for Material Q under the weighted-average method are calculated to be: A) 83,000 equivalent units. B) 76,000 equivalent units. C) 69,000 equivalent units. D) 62,000 equivalent units. E) 55,000 equivalent units.

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74) Great Pasta Company manufactures a single product that goes through two processes —

28,000 units 70% 16,000 units 50% 72,000 ? units

Costs Work-in-process inventory September 1 Material P

$ 120,000

Material Q

110,000

Conversion

165,000

Costs added in September Material P

$ 180,000

Material Q

165,000

Conversion

354,800

Material P is added at the beginning of work in the Mixing Department. Material Q is also added in the Mixing Department, but not until units of product are forty percent completed with regard to conversion. Conversion costs are incurred uniformly during the process. Total equivalent units for Material Q under the weighted-average method are calculated to be: A) 100,000 equivalent units. B) 92,000 equivalent units. C) 84,000 equivalent units. D) 72,000 equivalent units. E) 68,000 equivalent units.

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75) Great Pasta Company manufactures a single product that goes through two processes —

34,000

units

70% 19,000

units

50% 87,000 ?

units

Costs Work-in-process inventory September 1 Material P

$ 146,000

Material Q

134,000

Conversion

146,000

Costs added in September Material P

$ 219,000

Material Q

200,000

Conversion

430,800

Material P is added at the beginning of work in the Mixing Department. Material Q is also added in the Mixing Department, but not until units of product are forty percent completed with regard to conversion. Conversion costs are incurred uniformly during the process. Total equivalent units for conversion under the weighted-average method are calculated to be: A) 121,000 equivalent units. B) 111,500 equivalent units. C) 102,000 equivalent units. D) 87,000 equivalent units. E) 83,000 equivalent units.

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76) Great Pasta Company manufactures a single product that goes through two processes —

28,000 units 70% 16,000 units 50% 72,000 ? units

Costs Work-in-process inventory September 1 Material P

$ 120,000

Material Q

110,000

Conversion

165,000

Costs added in September Material P

$ 180,000

Material Q

165,000

Conversion

354,800

Material P is added at the beginning of work in the Mixing Department. Material Q is also added in the Mixing Department, but not until units of product are forty percent completed with regard to conversion. Conversion costs are incurred uniformly during the process. Total equivalent units for conversion under the weighted-average method are calculated to be: A) 100,000 equivalent units. B) 92,000 equivalent units. C) 84,000 equivalent units. D) 72,000 equivalent units. E) 68,000 equivalent units.

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77) Great Pasta Company manufactures a single product that goes through two processes —

30,000

units

70% 14,000

units

50% 64,000 ?

units

Costs Work-in-process inventory September 1 Material P

$ 107,000

Material Q

98,000

Conversion

107,000

Costs added in September Material P

$ 161,000

Material Q

147,000

Conversion

316,800

Material P is added at the beginning of work in the Mixing Department. Material Q is also added in the Mixing Department, but not until units of product are forty percent completed with regard to conversion. Conversion costs are incurred uniformly during the process. Cost per equivalent unit for Material P under the weighted-average method is calculated to be: A) $2.61. B) $4.36. C) $2.85. D) $2.18. E) $4.87.

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78) Great Pasta Company manufactures a single product that goes through two processes —

28,000 units 70% 16,000 units 50% 72,000 ? units

Costs Work-in-process inventory September 1 Material P

$ 120,000

Material Q

110,000

Conversion

165,000

Costs added in September Material P

$ 180,000

Material Q

165,000

Conversion

354,800

Material P is added at the beginning of work in the Mixing Department. Material Q is also added in the Mixing Department, but not until units of product are forty percent completed with regard to conversion. Conversion costs are incurred uniformly during the process. Cost per equivalent unit for Material P under the weighted-average method is calculated to be: A) $2.75. B) $4.60. C) $3.00. D) $2.30. E) $5.65.

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79) Great Pasta Company manufactures a single product that goes through two processes —

25,000

units

70% 15,000

units

50% 67,000 ?

units

Costs Work-in-process inventory September 1 Material P

$ 111,000

Material Q

102,000

Conversion

111,000

Costs added in September Material P

$ 167,000

Material Q

153,000

Conversion

329,500

Material P is added at the beginning of work in the Mixing Department. Material Q is also added in the Mixing Department, but not until units of product are forty percent completed with regard to conversion. Conversion costs are incurred uniformly during the process. Cost per equivalent unit for Material Q under the weighted-average method is calculated to be: A) $2.77. B) $4.63. C) $3.02. D) $2.32. E) $5.21.

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80) Great Pasta Company manufactures a single product that goes through two processes —

28,000 units 70% 16,000 units 50% 72,000 ? units

Costs Work-in-process inventory September 1 Material P

$ 120,000

Material Q

110,000

Conversion

165,000

Costs added in September Material P

$ 180,000

Material Q

165,000

Conversion

354,800

Material P is added at the beginning of work in the Mixing Department. Material Q is also added in the Mixing Department, but not until units of product are forty percent completed with regard to conversion. Conversion costs are incurred uniformly during the process. Cost per equivalent unit for Material Q under the weighted-average method is calculated to be: A) $2.75. B) $4.60. C) $3.00. D) $2.30. E) $5.65.

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81) Great Pasta Company manufactures a single product that goes through two processes —

34,000

units

70% 15,000

units

50% 69,000 ?

units

Costs Work-in-process inventory September 1 Material P

$ 116,000

Material Q

106,000

Conversion

116,000

Costs added in September Material P

$ 174,000

Material Q

159,000

Conversion

342,100

Material P is added at the beginning of work in the Mixing Department. Material Q is also added in the Mixing Department, but not until units of product are forty percent completed with regard to conversion. Conversion costs are incurred uniformly during the process. Cost per equivalent unit for conversion under the weighted-average method is calculated to be: A) $2.57. B) $4.31. C) $2.82. D) $2.16. E) $4.80.

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82) Great Pasta Company manufactures a single product that goes through two processes —

28,000 units 70% 16,000 units 50% 72,000 ? units

Costs Work-in-process inventory September 1 Material P

$ 120,000

Material Q

110,000

Conversion

165,000

Costs added in September Material P

$ 180,000

Material Q

165,000

Conversion

354,800

Material P is added at the beginning of work in the Mixing Department. Material Q is also added in the Mixing Department, but not until units of product are forty percent completed with regard to conversion. Conversion costs are incurred uniformly during the process. Cost per equivalent unit for conversion under the weighted-average method is calculated to be: A) $2.75. B) $4.60. C) $3.00. D) $2.30. E) $5.65.

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83) Great Pasta Company manufactures a single product that goes through two processes —

33,000

units

70% 22,000

units

50% 100,000 ?

units

Costs Work-in-process inventory September 1 Material P

$ 167,000

Material Q

153,000

Conversion

167,000

Costs added in September Material P

$ 251,000

Material Q

230,000

Conversion

494,200

Material P is added at the beginning of work in the Mixing Department. Material Q is also added in the Mixing Department, but not until units of product are forty percent completed with regard to conversion. Conversion costs are incurred uniformly during the process. The cost of goods completed and transferred out under the weighted-average method is calculated to be: (Do not round your intermediate calculations.) A) $1,462,200. B) $1,270,087. C) $1,168,487. D) $1,244,487. E) $1,199,487.

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84) Great Pasta Company manufactures a single product that goes through two processes —

28,000 units 70% 16,000 units 50% 72,000 ? units

Costs Work-in-process inventory September 1 Material P

$ 120,000

Material Q

110,000

Conversion

165,000

Costs added in September Material P

$ 180,000

Material Q

165,000

Conversion

354,800

Material P is added at the beginning of work in the Mixing Department. Material Q is also added in the Mixing Department, but not until units of product are forty percent completed with regard to conversion. Conversion costs are incurred uniformly during the process. The cost of goods completed and transferred out under the weighted-average method is calculated to be: A) $1,094,800. B) $957,600. C) $856,000. D) $932,000. E) $887,000.

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85) Running Company had the following information for the month of June: Work in process beginning inventory, June 1

3,200 units

Units transferred in

15,400 units

Work in process ending inventory, June 30

3,800 units

Beginning work-in-process inventory is 30 percent complete as to conversion. Ending workin-process inventory is 50 percent complete as to conversion. Materials are added at the end of the process. How many units were completed in June? A) 11,600. B) 8,400. C) 14,800. D) 15,400. E) 16,000.

86) Running Company had the following information for the month of June: Work in process beginning inventory, June 1

2,000 units

Units transferred in

16,000 units

Work in process ending inventory, June 30

4,000 units

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87) Running Company had the following information for the month of June: Work in process beginning inventory, June 1

3,300 units

Units transferred in

15,100 units

Work in process ending inventory, June 30

3,700 units

Beginning work-in-process inventory is 30 percent complete as to conversion. Ending workin-process inventory is 50 percent complete as to conversion. Materials are added at the end of the process. How many units were started and completed in June? A) 11,400. B) 8,100. C) 13,250. D) 16,550. E) 16,950.

88) Running Company had the following information for the month of June: Work in process beginning inventory, June 1

2,000 units

Units transferred in

16,000 units

Work in process ending inventory, June 30

4,000 units

Beginning work-in-process inventory is 30 percent complete as to conversion. Ending workin-process inventory is 50 percent complete as to conversion. Materials are added at the end of the process. How many units were started and completed in June? A) 12,000. B) 10,000. C) 14,000. D) 16,000. E) 18,000.

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89) Running Company had the following information for the month of June: Work in process beginning inventory, June 1

3,300 units

Units transferred in

15,100 units

Work in process ending inventory, June 30

3,700 units

Beginning work-in-process inventory is 30 percent complete as to conversion. Ending workin-process inventory is 50 percent complete as to conversion. Materials are added at the end of the process. The equivalent units for materials under the weighted-average method are calculated to be: A) 12,850. B) 8,100. C) 14,700. D) 16,550. E) 16,950.

90) Running Company had the following information for the month of June: Work in process beginning inventory, June 1

2,000 units

Units transferred in

16,000 units

Work in process ending inventory, June 30

4,000 units

Beginning work-in-process inventory is 30 percent complete as to conversion. Ending workin-process inventory is 50 percent complete as to conversion. Materials are added at the end of the process. The equivalent units for materials under the weighted-average method are calculated to be: A) 12,000. B) 10,000. C) 14,000. D) 16,000. E) 18,000.

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91) Running Company had the following information for the month of June: Work in process beginning inventory, June 1

3,400 units

Units transferred in

14,800 units

Work in process ending inventory, June 30

3,600 units

Beginning work-in-process inventory is 30 percent complete as to conversion. Ending workin-process inventory is 50 percent complete as to conversion. Materials are added at the end of the process. The equivalent units for conversion under the weighted average method are calculated to be: A) 12,800. B) 7,800. C) 11,400. D) 16,400. E) 16,600.

92) Running Company had the following information for the month of June: Work in process beginning inventory, June 1

2,000 units

Units transferred in

16,000 units

Work in process ending inventory, June 30

4,000 units

Beginning work-in-process inventory is 30 percent complete as to conversion. Ending workin-process inventory is 50 percent complete as to conversion. Materials are added at the end of the process. The equivalent units for conversion under the weighted average method are calculated to be: A) 12,000. B) 10,000. C) 14,000. D) 16,000. E) 18,000.

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93) Running Company had the following information for the month of June: Work in process beginning inventory, June 1

3,700 units

Units transferred in

13,900 units

Work in process ending inventory, June 30

3,300 units

Beginning work-in-process inventory is 30 percent complete as to conversion. Ending workin-process inventory is 50 percent complete as to conversion. Materials are added at the end of the process. The equivalent units for transferred-in costs under the FIFO method are calculated to be: A) 10,600. B) 6,900. C) 12,250. D) 13,900. E) 17,600.

94) Running Company had the following information for the month of June: Work in process beginning inventory, June 1

2,000 units

Units transferred in

16,000 units

Work in process ending inventory, June 30

4,000 units

Beginning work-in-process inventory is 30 percent complete as to conversion. Ending workin-process inventory is 50 percent complete as to conversion. Materials are added at the end of the process.

The equivalent units for transferred-in costs under the FIFO method are calculated to be: A) 12,000. B) 10,000. C) 14,000. D) 16,000. E) 18,000.

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95) Longboard Company has a process costing system. All materials are introduced at the

beginning of the process in Department One. The following information is available for the month of January: Units Work in process, July 1 (40% complete for conversion)

360

Started

1,800

Completed and transferred to Department 2

1,700

Work in process, July 31 (60% complete for conversion)

460

What are the equivalent units for the month of July if the company uses the FIFO method? A) Materials 2,160 and Conversion 1,800 B) Materials 2,160 and Conversion 1,832 C) Materials 2,160 and Conversion 1,976 D) Materials 1,800 and Conversion 1,832 E) Materials 1,800 and Conversion 1,976

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96) Longboard Company has a process costing system. All materials are introduced at the

beginning of the process in Department One. The following information is available for the month of January: Units Work in process, July 1 (40% complete for conversion)

400

Started

2,000

Completed and transferred to Department 2

1,900

Work in process, July 31 (60% complete for conversion)

500

What are the equivalent units for the month of July if the company uses the FIFO method? A) Materials 2,400 and Conversion 2,000 B) Materials 2,400 and Conversion 2,040 C) Materials 2,400 and Conversion 2,200 D) Materials 2,000 and Conversion 2,040 E) Materials 2,000 and Conversion 2,200

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97) Longboard Company has a process costing system. All materials are introduced at the

beginning of the process in Department One. The following information is available for the month of January: Units Work in process, July 1 (40% complete for conversion)

390

Started

1,950

Completed and transferred to Department 2

1,850

Work in process, July 31 (60% complete for conversion)

490

What are the equivalent units for the month of July if the company uses the weighted-average method? A) Materials 2,340 and Conversion 1,950 B) Materials 2,340 and Conversion 1,988 C) Materials 2,340 and Conversion 2,144 D) Materials 1,950 and Conversion 1,988 E) Materials 1,950 and Conversion 2,144

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98) Longboard Company has a process costing system. All materials are introduced at the

beginning of the process in Department One. The following information is available for the month of January: Units Work in process, July 1 (40% complete for conversion)

400

Started

2,000

Completed and transferred to Department 2

1,900

Work in process, July 31 (60% complete for conversion)

500

What are the equivalent units for the month of July if the company uses the weighted-average method? A) Materials 2,400 and Conversion 2,000 B) Materials 2,400 and Conversion 2,040 C) Materials 2,400 and Conversion 2,200 D) Materials 2,000 and Conversion 2,040 E) Materials 2,000 and Conversion 2,200

99) On March 1, Portland Company had 44,000 units of work in process in Department A, which

were 100% complete as to material costs and 40% complete as to conversion costs. During March, 190,000 units were started in Department A and 190,000 units were completed and transferred to Department B. Work in process on March 31 was 100% complete as to material costs and 50% complete as to conversion costs. By what amount would the equivalent units for conversion costs for the month of March differ if the FIFO method were used instead of the weighted-average method? A) 22,000 decrease. B) 17,600 decrease. C) 13,200 decrease. D) 11,000 decrease. E) 8,800 decrease.

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100)

On March 1, Portland Company had 20,000 units of work in process in Department A, which were 100% complete as to material costs and 40% complete as to conversion costs. During March, 150,000 units were started in Department A and 160,000 units were completed and transferred to Department B. Work in process on March 31 was 100% complete as to material costs and 50% complete as to conversion costs. By what amount would the equivalent units for conversion costs for the month of March differ if the FIFO method were used instead of the weighted-average method? A) 10,000 decrease. B) 8,000 decrease. C) 6,000 decrease. D) 5,000 decrease. E) 4,000 decrease.

101)

Leakage Company adds materials at the beginning of the process in Department 2. Data concerning the materials used in May production are as follows: Units Work-in-process at May 1

14,000

Started during May

37,000

Completed and transferred out during May

38,000

Normal spoilage incurred

4,000

Work-in-process at May 31

9,000

Using the weighted-average method, the equivalent units for materials are: A) 51,000. B) 47,000. C) 42,000. D) 38,000. E) 37,000.

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102)

Leakage Company adds materials at the beginning of the process in Department 2. Data concerning the materials used in May production are as follows: Units Work-in-process at May 1

12,000

Started during May

32,000

Completed and transferred out during May

33,000

Normal spoilage incurred

3,000

Work-in-process at May 31

8,000

Using the weighted-average method, the equivalent units for materials are: A) 44,000. B) 41,000. C) 36,000. D) 33,000. E) 32,000.

103)

Firms that use process costing operate in which sort of competitive environment? A) low-volume, high price. B) high-volume, low-price. C) high-volume, high price. D) low-volume, low price. E) None of these answers are correct.

104)

Factory overhead and direct labor costs are often combined and called: A) Process Costs. B) Conversion Costs. C) Total Overhead Costs. D) Labor Costs. E) Direct Costs.

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105)

Place the following Process costing steps in the correct order: A) 1. Analyze flow of physical units, 2. Compute unit costs, 3. Determine the total costs to account for, 4. Calculate equivalent units, 5. Assign total manufacturing costs. B) 1. Determine the total costs to account for, 2. Calculate equivalent units, 3. Compute unit costs, 4. Assign total manufacturing costs, 5. Analyze flow of physical units. C) 1. Determine the total costs to account for, 2. Analyze flow of physical units, 3. Compute unit costs, 4. Assign total manufacturing costs, 5. Calculate equivalent units. D) 1. Analyze flow of physical units, 2. Calculate equivalent units, 3. Determine the total costs to account for, 4. Assign total manufacturing costs, 5. Compute unit costs. E) 1. Compute unit costs, 2. Analyze flow of physical units, 3. Calculate equivalent units, 4. Assign total manufacturing costs, 5. Determine the total costs to account for.

106)

Which method is (are) used to prepare the departmental production cost report when using a process cost system? A) LIFO method. B) FIFO method. C) Weighted average method. D) Both LIFO and FIFO are correct. E) Both FIFO and weighted average are correct.

107)

The number of the same or similar units that could have been produced given the amount of work actually performed on both complete and partially complete units is referred to as: A) Physical units. B) Completed units. C) Equivalent units. D) Produced units. E) Units to account for.

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108)

Which equation correctly calculates the total weighted average equivalent units of production? A) Completed and transferred out units + Beginning work-in-process equivalent units. B) Ending work-in-process equivalent units − Completed and transferred out units. C) Beginning work-in-process equivalent units − Completed and transferred out units. D) Completed and transferred out units + Ending work-in-process equivalent units. E) Ending work-in-process equivalent units + Beginning work-in-process equivalent units.

109)

Goodheart Pharmaceutical Company is a maker of drugs for high blood pressure and uses a process costing system. The following information pertains to the final department of Goodheart's blockbuster drug called Solcax. Beginning work-in-process (40% completed)

625 units

Transferred-in

3,300 units

Normal spoilage

365 units

Abnormal spoilage

165 units

Good units transferred out Ending work-in-process (1/3 completed)

2,900 units 495 units

Conversion costs in beginning inventory

$ 2,260

Current conversion costs

$ 6,200

Goodheart calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of Solcax that are spoiled are the result of defects not discovered before inspection of finished units. Materials are added at the beginning of the process. Using the weighted-average method, answer the following question: What are the equivalent units for conversion costs? A) 3,430 units. B) 3,925 units. C) 3,265 units. D) 3,595 units. E) 3,795 units.

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110)

800 units

Transferred-in

4,000 units

Normal spoilage

400 units

Abnormal spoilage

200 units

Good units transferred out Ending work-in-process (1/3 completed)

3,600 units 600 units

Conversion costs in beginning inventory

$ 2,560

Current conversion costs

$ 6,900

Goodheart calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of Solcax that are spoiled are the result of defects not discovered before inspection of finished units. Materials are added at the beginning of the process. Using the weighted-average method, answer the following question: What are the equivalent units for conversion costs? A) 4,200 units. B) 4,800 units. C) 4,000 units. D) 4,400 units. E) 4,600 units.

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111)

700 units

Transferred-in

3,600 units

Normal spoilage

380 units

Abnormal spoilage

180 units

Good units transferred out Ending work-in-process (1/3 completed)

3,200 units 540 units

Conversion costs in beginning inventory

$ 2,562

Current conversion costs

$ 6,500

Goodheart calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of Solcax that are spoiled are the result of defects not discovered before inspection of finished units. Materials are added at the beginning of the process. Using the weighted-average method, answer the following question: What are the unit conversion costs? A) $2.30. B) $2.51. C) $2.65. D) $2.90. E) $2.15.

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112)

800 units

Transferred-in

4,000 units

Normal spoilage

400 units

Abnormal spoilage

200 units

Good units transferred out Ending work-in-process (1/3 completed)

3,600 units 600 units

Conversion costs in beginning inventory

$ 2,560

Current conversion costs

$ 6,900

Goodheart calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of Solcax that are spoiled are the result of defects not discovered before inspection of finished units. Materials are added at the beginning of the process. Using the weighted-average method, answer the following question: What are the unit conversion costs? A) $2.15. B) $2.36. C) $2.50. D) $2.75. E) $2.00.

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113)

1,050 units

Transferred-in

5,000 units

Normal spoilage

450 units

Abnormal spoilage

250 units

Good units transferred out Ending work-in-process (1/3 completed)

4,600 units 750 units

Conversion costs in beginning inventory

$ 5,975

Current conversion costs

$ 7,900

Goodheart calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of Solcax that are spoiled are the result of defects not discovered before inspection of finished units. Materials are added at the beginning of the process. Using the weighted-average method, answer the following question: What are the total conversion costs of abnormal spoilage? A) $570. B) $625. C) $820. D) $1,250. E) $675.

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114)

800 units

Transferred-in

4,000 units

Normal spoilage

400 units

Abnormal spoilage

200 units

Good units transferred out Ending work-in-process (1/3 completed)

3,600 units 600 units

Conversion costs in beginning inventory

$ 2,560

Current conversion costs

$ 6,900

Goodheart calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of Solcax that are spoiled are the result of defects not discovered before inspection of finished units. Materials are added at the beginning of the process. Using the weighted-average method, answer the following question: What are the total conversion costs of abnormal spoilage? A) $375. B) $430. C) $625. D) $860. E) $480.

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115)

925 units

Transferred-in

4,500 units

Normal spoilage

425 units

Abnormal spoilage

225 units

Good units transferred out Ending work-in-process (1/3 completed)

4,100 units 675 units

Conversion costs in beginning inventory

$ 5,535

Current conversion costs

$ 7,400

Goodheart calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of Solcax that are spoiled are the result of defects not discovered before inspection of finished units. Materials are added at the beginning of the process. Using the weighted-average method, answer the following question: What are the total conversion costs transferred to finished goods? A) $9,915. B) $10,660. C) $11,765. D) $12,805. E) $11,565.

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116)

800 units

Transferred-in

4,000 units

Normal spoilage

400 units

Abnormal spoilage

200 units

Good units transferred out Ending work-in-process (1/3 completed)

3,600 units 600 units

Conversion costs in beginning inventory

$ 2,560

Current conversion costs

$ 6,900

Goodheart calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of Solcax that are spoiled are the result of defects not discovered before inspection of finished units. Materials are added at the beginning of the process. Using the weighted-average method, answer the following question: What are the total conversion costs transferred to finished goods? A) $6,750. B) $7,740. C) $8,600. D) $9,460. E) $8,400.

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117)

625 units

Transferred-in

3,300 units

Normal spoilage

365 units

Abnormal spoilage

165 units

Good units transferred out Ending work-in-process (1/3 completed)

2,900 units 495 units

Conversion costs in beginning inventory

$ 3,147

Current conversion costs

$ 6,200

Goodheart calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of Solcax that are spoiled are the result of defects not discovered before inspection of finished units. Materials are added at the beginning of the process. Using the weighted-average method, answer the following question: What are the total conversion costs in ending inventory? A) $429. B) $499. C) $848. D) $1,147. E) $329.

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118)

800 units

Transferred-in

4,000 units

Normal spoilage

400 units

Abnormal spoilage

200 units

Good units transferred out Ending work-in-process (1/3 completed)

3,600 units 600 units

Conversion costs in beginning inventory

$ 2,560

Current conversion costs

$ 6,900

Goodheart calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of Solcax that are spoiled are the result of defects not discovered before inspection of finished units. Materials are added at the beginning of the process. Using the weighted-average method, answer the following question: What are the total conversion costs in ending inventory? A) $430. B) $500. C) $850. D) $1,150. E) $330.

119)

Abnormal spoilage is considered what kind of cost? A) Period cost. B) Product cost. C) Opportunity cost. D) Sunk cost. E) Abnormal cost.

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120)

Zebra Company manufactures Product Z in a two-stage production cycle in Departments A and B. Materials are added at the beginning of the process in Department B. Zebra uses the weighted-average method. Conversion costs for Department B were 40% complete as to the 35,000 units in the beginning work-in-process (WIP) inventory and 50% complete as to the 49,000 units in the ending work-in-process inventory. 70,000 units were completed and transferred out of Department B during October. An analysis of the costs relating to work-inprocess inventories and production activity in Department B for October follows:

WIP, October 1: Costs added in October

Transferredin Costs $ 70,000 168,000

Materials Costs $ 21,000 38,500

Conversion Costs $ 7,000 30,800

The total cost per equivalent unit transferred-out for October of Product Z, rounded to the nearest penny, was: A) $2.75. B) $2.80. C) $2.85. D) $2.90. E) $2.95.

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121)

Zebra Company manufactures Product Z in a two-stage production cycle in Departments A and B. Materials are added at the beginning of the process in Department B. Zebra uses the weighted-average method. Conversion costs for Department B were 40% complete as to the 5,000 units in the beginning work-in-process (WIP) inventory and 50% complete as to the 7,000 units in the ending work-in-process inventory. 10,000 units were completed and transferred out of Department B during October. An analysis of the costs relating to work-inprocess inventories and production activity in Department B for October follows:

WIP, October 1: Costs added in October

Transferred-in Costs $ 10,000 24,000

Materials Costs Conversion Costs $ 3,000 5,500

$ 1,000 4,400

The total cost per equivalent unit transferred-out for October of Product Z, rounded to the nearest penny, was: A) $2.75. B) $2.80. C) $2.85. D) $2.90. E) $2.95.

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122)

Electric Automotive Group is a maker of engines for high performance cars and uses a process costing system. The following information pertains to the final department of manufacturing for Electric's most popular engine, the "Atomic 8". Beginning work-in-process (40% completed) Transferred-in Normal spoilage Abnormal spoilage Good units transferred out Ending work-in-process (25% completed) Conversion costs in beginning inventory

386 units 1,590 units 95 units 95 units 1,390 units 396 units $ 179,500

Current conversion costs

$ 715,407

Electric Automotive Group calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of the Atomic 8 that are spoiled are the result of defects not discovered before inspection of finished units. Using the weighted-average method, answer the following question: What are the equivalent units for conversion costs? A) 1,679 units. B) 1,786 units. C) 1,881 units. D) 1,976 units. E) 1,479 units.

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123)

400 units 1,600 units 100 units 100 units 1,400 units 400 units $ 180,500

Current conversion costs

$ 728,218

Electric Automotive Group calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of the Atomic 8 that are spoiled are the result of defects not discovered before inspection of finished units. Using the weighted-average method, answer the following question: What are the equivalent units for conversion costs? A) 1,700 units. B) 1,800 units. C) 1,900 units. D) 2,000 units. E) 1,500 units.

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124)

386 units 1,590 units 95 units 95 units 1,390 units 396 units $ 179,500

Current conversion costs

$ 715,407

Electric Automotive Group calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of the Atomic 8 that are spoiled are the result of defects not discovered before inspection of finished units. Using the weighted-average method, answer the following question: What are the unit conversion costs? A) $533. B) $582. C) $604. D) $648. E) $521.

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125)

400 units 1,600 units 100 units 100 units 1,400 units 400 units $ 180,500

Current conversion costs

$ 728,218

Electric Automotive Group calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of the Atomic 8 that are spoiled are the result of defects not discovered before inspection of finished units. Using the weighted-average method, answer the following question: What are the unit conversion costs? A) $534.54. B) $583.14. C) $605.81. D) $649.08. E) $522.67.

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126)

274 units 1,510 units 55 units 55 units 1,310 units 364 units $ 171,500

Current conversion costs

$ 621,775

Electric Automotive Group calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of the Atomic 8 that are spoiled are the result of defects not discovered before inspection of finished units. Using the weighted-average method, answer the following question: What are the total conversion costs of abnormal spoilage? A) $35,939. B) $28,875. C) $40,329. D) $33,735. E) $27,877.

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127)

400 units 1,600 units 100 units 100 units 1,400 units 400 units $ 180,500

Current conversion costs

$ 728,218

Electric Automotive Group calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of the Atomic 8 that are spoiled are the result of defects not discovered before inspection of finished units. Using the weighted-average method, answer the following question: What are the total conversion costs of abnormal spoilage? A) $60,518. B) $53,454. C) $64,908. D) $58,314. E) $54,456.

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128)

260 units 1,500 units 50 units 50 units 1,300 units 360 units $ 170,500

Current conversion costs

$ 610,260

Electric Automotive Group calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of the Atomic 8 that are spoiled are the result of defects not discovered before inspection of finished units. Using the weighted-average method, answer the following question: What are the total conversion costs transferred to finished goods? A) $707,400. B) $761,310. C) $826,930. D) $815,590. E) $704,442.

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129)

400 units 1,600 units 100 units 100 units 1,400 units 400 units $ 180,500

Current conversion costs

$ 728,218

Electric Automotive Group calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of the Atomic 8 that are spoiled are the result of defects not discovered before inspection of finished units. Using the weighted-average method, answer the following question: What are the total conversion costs transferred to finished goods? A) $801,810. B) $855,720. C) $921,340. D) $910,000. E) $798,852.

130)

Backflush costing: A) Is a simplified approach to determining product cost that is used when there is little or no work-in-process inventory. B) Involves the use of standard costing. C) Allows product costs to be quickly and conveniently calculated. D) Is an approach to determining product cost that is used when JIT is used. E) All of these answer choices are correct.

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131)

What is the final step in the process costing procedure for weighted average? A) Compute Cost per Equivalent Unit. B) Calculate Equivalent Units for Each Manufacturing Cost Element. C) Determine Total Costs for Each Manufacturing Cost Element. D) Analyze the Physical Flow of Production Units. E) Assign Total Manufacturing Costs to Units Completed and Ending WIP.

132)

Process costing can be found in which of the following companies (industries)? A) Coca-Cola. B) Royal Dutch Shell Group (petroleum). C) Kimberly-Clark (paper products). D) Reichhold Chemical (chemicals). E) All of these answer choices are correct.

133)

Which cost element is not included in the Work-In-Process Inventory of a company with multiple departments? A) Transferred-in costs. B) Process costs. C) Direct materials. D) Factory overhead. E) Direct labor.

134)

The two methods used to prepare the departmental production cost report when the firm uses process costing are the __________ method and __________ method. A) first-in first-out, last-in first-out. B) last-in first-out, weighted-average. C) last-in last-out, last-in first-out. D) weighted-average, first-in first-out E) weighted-average, last-in last-out.

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135)

What do Input units include? A) Units that are complete and transferred out from a production department and units in the ending Work-in-Process Inventory. B) The current costs incurred and the prior period costs of the units in Work-in Process beginning inventory. C) Beginning Work-in-Process Inventory and all units that enter a production department during an accounting period. D) All units that enter a production department during an accounting period only. E) Beginning Work-in-Process Inventory only.

136)

If a firm has 1,110 completed and transferred out units, 110 equivalent units of beginning work in process and 410 ending work-in-process equivalent units, what is the total of equivalent units of production using the weighted-average method? A) 1,410 units. B) 1,520 units. C) 1,110 units. D) Cannot be determined from the information provided. E) 1,630 units.

137)

If a firm has 1,200 completed and transferred out units, 200 equivalent units of beginning work in process and 500 ending work-in-process equivalent units, what is the total of equivalent units of production using the weighted-average method? A) 1,500 units. B) 1,700 units. C) 1,200 units. D) Cannot be determined from the information provided. E) 1,900 units.

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138)

The following table was taken from Firm X's Production Cost Report:

Completed and transferred out units

52,000

Ending work-in-process equivalent units

6,800

Beginning work-in-process equivalent units

10,800

What is the number of FIFO equivalent units? A) 48,000. B) 58,800. C) 56,000. D) 45,200. E) 62,800.

139)

The following table was taken from Firm X's Production Cost Report:

Completed and transferred out units Ending work-in-process equivalent units Beginning work-in-process equivalent units

44,000 6,000 10,000

What is the number of FIFO equivalent units? A) 40,000. B) 50,000. C) 48,000. D) 38,000. E) 54,000.

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140)

The following table was taken from Firm X's Production Cost Report:

Completed and transferred out units

42,000

Ending work-in-process equivalent units

5,800

Beginning work-in-process equivalent units

11,200

What is the number of weighted-average equivalent units? A) 36,600. B) 47,800. C) 47,400. D) 36,200. E) 53,200.

141)

The following table was taken from Firm X's Production Cost Report:

Completed and transferred out units Ending work-in-process equivalent units Beginning work-in-process equivalent units

44,000 6,000 10,000

What is the number of weighted-average equivalent units? A) 40,000. B) 50,000. C) 48,000. D) 38,000. E) 54,000.

142)

The first-in, first-out method assumes that: A) Costs of production are relatively small. B) The company only has one department. C) The first units completed are among the first units sold. D) The first units to enter a production process are the first units to be completed and transferred out. E) The company has already calculated the weighted average method.

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143)

The costs of work performed in the earlier departments that are transferred into the present department are called: A) Beginning inventory. B) Transferred-in costs. C) Work-in-Process inventory. D) Transferred-out costs. E) None of these answers are correct.

144)

Backflush costing is a method used with: A) Just-in-time systems. B) Weighted Average methods. C) First-in, first-out methods. D) Overhead costs. E) Normal Costing.

145)

The U.S. Department of Agriculture urges the use of process costing together with: A) Normal costing. B) Volume-based costing. C) Activity-based costing. D) Standard costing. E) None of these answers are correct.

146)

JIT (Just in time) methods are designed primarily to: A) Reduce costs. B) Reduce inventory levels. C) Improve product design. D) Improve the accuracy of product costs. E) Speed up production.

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147)

What is not an advantage of standard costing used in conjunction with process costing? A) It can provide a means for evaluating performance. B) It provides a basis with which to measure and analyze the cost changes. C) It can help management identify and respond promptly to unexpected changes in labor. D) It is the only method that can be used with process costing. E) It is helpful when materials or labor costs are changing rapidly.

148)

Reichhold Chemical Company uses process costing together with: A) Standard costing. B) Activity-based costing. C) Backflush costing. D) Throughput costing. E) Normal costing.

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Answer Key Test name: chapter 6 1) Essay 2) Essay 3) Essay 4) Essay 5) Essay 6) Essay 7) Essay 8) Essay 9) Essay 10) Essay 11) Essay 12) Essay 13) Essay 14) Essay 15) Essay 16) C 17) E 18) C 19) D 20) E 21) B 22) C 23) E 24) B 25) B 26) E 27) D 28) A 29) B 30) D 31) C 32) A 33) B 34) C 35) D 36) C 37) C

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38) B 39) C 40) B 41) D 42) B 43) B 44) E 45) E 46) A 47) A 48) C 49) C 50) D 51) B 52) B 53) D 54) D 55) E 56) E 57) B 58) A 59) A 60) A 61) E 62) E 63) B 64) B 65) C 66) C 67) C 68) C 69) E 70) B 71) A 72) A 73) A 74) A 75) B 76) B 77) C

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78) C 79) A 80) A 81) E 82) E 83) B 84) B 85) C 86) C 87) A 88) A 89) C 90) C 91) D 92) D 93) D 94) D 95) D 96) D 97) C 98) C 99) B 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

B A A B B D E C D D D A A B B C C A

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118) 119) 120) 121) 122) 123) 124) 125) 126) 127) 128) 129) 130) 131) 132) 133) 134) 135) 136) 137) 138) 139) 140) 141) 142) 143) 144) 145) 146) 147) 148)

A A D D A A A A B B A A E E E B D C B B A A B B D B A C B D B

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108

Chapter 7 1) Beth Johnson was recently appointed Vice President of Administration in the Sigma Group, a

nationwide personal financial planning services firm. Ann Garber, department manager, has just finished reading the most recent memo from VP Johnson, which reads in part: In order to more efficiently apportion the costs of hard copy duplication, departments will be charged $0.075 per page for all duplicated materials. This new rate replaces the two-tier rate structures of $0.05 and $0.10 per page, and is effective as of the date of this memo. The two tier system was used to charge a higher rate for the more difficult jobs. "What is she trying to do?" Ann asks. "This new price will drive up my department's duplicating costs so much that we'll have to cut back on how much stuff we have duplicated." Required: a. What is the control advantage of any multi-tier pricing (costing) system versus a single price (cost) system? b. If the new price for duplication reduces total usage of duplicating services, are there any significant disadvantages to such a reduction in usage?

2) "What's the big fuss about learning three different methods of cost allocation for joint

products? The total cost doesn't change, and the real question that needs answering is whether to further process joint products or sell right away. Besides, our firm uses JIT inventory, so there aren't any ending inventories to cost." Required: Comment on these ideas.

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3) The Chapman Manufacturing Company has two service departments — manufacturing

support and facilities management, and two production departments — assembly and packing/shipping. The distribution of each service department's efforts to the other departments is shown below: FROM Support Facilities

Support 0% 30%

TO Facilities 45% 0%

Assembly 25% 30%

Pack/Ship 30% 40%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Manufacturing Support Facilities Management Assembly Pack/Ship

$ 240,000 450,000 1,200,000 225,000

Required: (Calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar.): (1) Allocate the service department costs to the production departments using the direct method. (2) Allocate the service department costs to the production departments using the step method with the support department going first. (3) Allocate the service department costs to the production departments using the reciprocal method.

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4) Stulce Incorporated produces joint products A, B, and C from a joint process. Information

concerning a batch produced in May at a joint cost of $120,000 was as follows: A

Total

2,500 $ 35

4,000 $ 22

1,500 $ 15

8,000

$ 35,000 2,500

$ 12,000 4,000

$ 16,000 1,500

$ 63,000

Sales Price at $ 25.00 Split-off Sales Value (after $ additional 87,500 processing) Sales Value at Split $ Off 62,500

$ 12.00

$ 13.00

$ 88,000

$ 22,500

$ 198,000

$ 48,000

$ 19,500

$ 130,000

Units Sold Price (after additional processing) Separable Processing cost Units Produced Total Joint Cost

8,000 120,000

Required: (Calculate all ratios, percentages, and unit costs to 2 decimal places, for example 33.33%, and round all dollar amounts to the nearest whole dollar.): 1. Allocate the joint costs to the joint products using the physical measure method. 2. Calculate the gross margin for each of the three products using the cost allocation for the physical measure method in part (1) above. 3. Allocate the joint costs to the joint products using the net realizable method. 4. Calculate the gross margin for each of the three products using the cost allocation for the net realizable value method in part (3) above.

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5) The following data on overhead apply to the Acme Manufacturing Company that

manufactures frames for large trucks in three production departments (J-122, J-123, and J125). There are two service departments, the Human Resources Department and the Facilities Department. Service Departments Human Facilitie Resource s s Budgeted Overhead

$ 16,00 0

Human Resources* (hours) Facilities* * (thousand square feet)

600

Production Department J-122

J-123

J-125

Total

$ 35,000

$ 28,00 0

$ 145,00 0

$ 185,00 0

$ 409,00 0

400

800

1,200

1,600

4,000

400

1,200

1,800

4,000

*Allocated on the basis of hours of usage in the HR department. **Allocated on the basis of floor space. Required: Using hours as the application base for the Human Resources Department and square feet of floor space for the Facilities Department, apply overhead from these service departments to the production departments, using the following two methods. Calculate all ratios and percentages to 6 decimal places, for example 33.333333%, and round all dollar amounts to the nearest whole dollar. (1) Direct method. (2) Step method (assume the human resources department is allocated first).

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6) Lond Company produces joint products Jana and Reta, and by-product Bynd. Jana is sold at

split-off; Reta and Bynd undergo additional processing. Production data pertaining to these products for the year ended December 31 were as follows: Jana

Reta

Bynd

Total

Joint costs Variable

$ 88,000

Fixed

148,000

Separable costs Variable Fixed

$ 120,000

$ 3,000

123,000

90,000

2,000

92,000 100,000

Production in pounds

50,000

40,000

10,000

Sales price per pound

$ 4.00

$ 7.50

$ 1.10

Lond had no beginning or ending inventories and no materials were spoiled in production. Bynd's net realizable value is deducted from joint costs. Joint costs are allocated to joint products to achieve the same gross margin percentage for each joint product. Required: Prepare the following information for Lond Company for the year ended December 31: 1. Total gross margin. 2. Allocation of joint costs to Jana and Reta. 3. Separate gross margins for Jana and Reta.

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7) Princess Corporation grows, processes, packages, and sells three apple products: slices that

are used in frozen pies, applesauce, and apple juice. The outside skin of the apple, which is removed in the cutting department and processed as animal feed, is treated as a by-product. Princess uses the net realizable value method to assign costs of the joint process to its main products. The apple skin by-product net realizable value is used to reduce the joint production costs prior to allocation to the main products. Details of Princess' production process follow: The cutting department washes the apples and removes the outside skin. The department then cores and trims the apples for slicing. At this point, each of the three main products and the by-product are recognizable. Each product is then transferred to the next department for final processing. The slicing department receives the trimmed apples and slices and freezes them. Any juice generated during the slicing operation is frozen with the slices. The crushing department trims pieces of apple and processes them into applesauce. The juice generated during this operation is used in the applesauce. The juicing department pulverizes the core and any surplus apple from the cutting department into a liquid. This department experiences a loss equal to 8 percent of the weight of the good output produced. The feed department chops the outside skin into animal food and packages it. A total of 270,000 pounds of apples entered the cutting department during November. The following information shows the costs incurred in each department, the proportion by weight (based on pounds) transferred to the four final processing departments, and the selling price of each end product. Assume no beginning or ending inventory of apple slices, applesauce, or juice. Department

Costs Incurred

Cutting

$ 60,000

Slicing

11,280

33%

$ 0.80

Crushing

8,550

30%

0.55

Juicing

3,000

27%

0.40

Feed

700

10%

0.10

Total

$ 83,530

100%

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Proportion of Product by Weight Transferred to Departments

Selling Price per Pound of Final Product

Required: 1. Princess Corporation uses the net realizable value method to determine inventory values for its main products and by-products. For the month of November, calculate each of the following: a. Output in pounds for apple slices, applesauce, apple juice, and animal feed. b. Net realizable value at the split-off point for each of the three main products. c. Cutting department cost assigned to each of the three main products and to the by-product in accordance with corporate policy. d. Gross margin in dollars for each of the three main products. 2. Comment on the significance to management of the gross margin dollar information by main product for planning and control purposes as opposed to inventory valuation. 3. List the important issues that Princess faces as a global company. What are its critical success factors? Which key issues arise because Princess operates in several countries? Should any of these issues affect the way Princess allocates costs, as determined in requirement 1?

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8) Ted Brown is the chief financial officer of Haywood Inc., a large manufacturer of cosmetics

and other personal care products. Ted is conducting a financial analysis of the firm's line of hand lotions which consists of three products: SkinSalve, SkinCream, and SkinBalm. Total sales for the three products in the recent year were $400,000, $250,000 and $500,000, respectively. Because there is a small amount of additional processing cost for each of the three products, which differs between the products ($20,000, $50,000 and $30,000, respectively), Ted has been using the net realizable value method for allocating the joint production cost of $500,000. However, he is not satisfied with the result of somewhat different gross margin percentage ratios (gross margin/sales) for the three products when using this approach. He knows only of the physical measure method, the sales value at splitoff method, and the net realizable value method for allocating joint cost. Required: Prepare a new cost allocation for Ted so that after allocation of joint costs and separable costs, the gross margin percentage is the same for all three products.

9) The objectives of cost allocation are to: A) Motivate effort, provide incentives, and fairly determine rewards. B) Accurately define, divide and spread direct costs. C) Value, measure, and interpret cost data. D) Connect, communicate, and discern information. E) Define, refine, and re-define indirect costs.

10) A key ethical issue in cost allocation involves costing in an international context, because the

choice of a cost allocation method can affect: A) Management reward systems. B) Management fraud. C) Taxes in domestic and foreign countries. D) The firm's financial statements. E) The fair share of cost by a governmental unit.

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11) Which of the following about joint costs is not true? A) Joint costs are the cost of resources employed jointly in the production of two or more

outputs. B) Joint costs are incurred in a service department. C) The costs cannot be directly assigned to any one of the outputs involved. D) Allocation is not always needed when joint costs are involved. E) Assignment is made through one or more consistent allocation procedures.

12) An alternative concept of fairness in cost allocation, absent the cause-and-effect basis,

includes: A) Ability-to-bear. B) Efficiency. C) Different costs for different purposes. D) Consistency. E) Equity share.

13) Cost allocation is an important strategic issue for U.S. manufacturing firms with foreign

subsidiaries because of: A) The tax implications. B) Quality concerns. C) Import restrictions. D) Cultural differences. E) The company's desire to grow.

14) What is the first phase of departmental allocation? A) Select which departments the company will allocate costs to. B) The step method. C) Trace the direct costs and allocate the indirect manufacturing costs in the plant to

each service and production department. D) The direct method. E) Decide which method to use for cost allocation.

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15) Cost allocation provides a service firm a basis for evaluating the: A) Cost and profitability of its services. B) Value of its services. C) Manufacturing costs for the company. D) Profitability of its customers. E) The exact cost of each department.

16) Which one of the following methods uses units of output to allocate joint costs to joint

products? A) Net realizable value method. B) Physical measures method. C) Net sales value method. D) Sales value at split-off method. E) Activity-based costing.

17) The reciprocal method can be solved using the Excel function: A) Goal Seek B) Regression C) Solver D) Scenarios E) Pivot Tables

18) Cost allocation of shared facilities cost is intended to remind managers of: A) The cost of using a shared resource. B) Both the cost and value of using shared resources. C) How much capacity a firm has. D) Why the firm invests in these facilities. E) How dependent the managers are for these facilities.

19) An overhead cost that can be traced directly to either a service or production department: A) Is called a "flow through" cost. B) Requires less allocation effort. C) Is charged directly to that department. D) Must be variable. E) Must be fixed.

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20) Allocation of service department costs to producing departments is the most complex of the

allocation phase of departmental cost allocation because of the likely presence of: A) Manager bias. B) Formula distracters. C) Repetitive steps. D) Reciprocal flows. E) Non-value adding activities.

21) What is the key implementation issue for cost allocation? A) The managers' bias. B) The complexity of the equations. C) The time-intensive calculations. D) The changes to reporting in the financial statements. E) The choice of the most accurate allocation method.

22) The reciprocal method of departmental cost allocation is preferred over the step method

because it takes into account all the reciprocal flows between: A) The service departments. B) The producing departments. C) Multiple products. D) Competing departments. E) Similar, but separate products.

23) The mathematical technique that underlies the reciprocal cost allocation method is: A) Regression analysis. B) Simultaneous equations. C) Analysis of variances. D) Complex algebraic functions. E) Multiple correlation.

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24) Dual allocation is a cost allocation approach that separates direct and indirect costs, tracing

the direct costs directly to the cost object that: A) Can bear the cost. B) Relates best to the cost. C) Is first identified with the cost. D) Caused the cost. E) Is most impacted by the cost.

25) If a budgeted activity base is used as the base in cost allocation, each department's cost

allocation will be predictable, and not influenced by the: A) Actual total cost. B) Change in activity. C) Variations from budget. D) Errors in calculations. E) Actual usage in other departments.

26) The concepts of cost allocation that are used in manufacturing can also apply in: A) Service and not-for-profit industries. B) Service industries. C) Not-for-profit industries. D) Limited instances outside of manufacturing. E) The concepts apply only in manufacturing.

27) In making decisions about whether to sell or further process joint products or by-products,

allocation of common or joint costs is: A) Essential. B) Useful. C) Irrelevant and should be ignored. D) Useful depending on the method chosen. E) The only way to get the true total product cost.

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28) By-product costing that uses the asset recognition method(s) creates: A) Expense recognition in the current period. B) A distortion of net income. C) An adjustment on the income statement. D) An inventory value in the period in which the by-products are produced. E) A result that is not compatible with GAAP.

29) Revenue methods of by-product cost allocation are justified on financial accounting concepts

of: A) B) C) D) E)

Revenue realization and materiality. Revenue realization, materiality, and cost-benefit. Materiality and cost-benefit. Materiality and stable dollar. Cost-benefit and stable dollar.

30) A concept which is commonly employed with allocation bases related to size is: A) Cost shifting. B) Benefit received. C) Equity share. D) Cause-and-effect relationship. E) Ability-to-bear.

31) Which one of the following methods of cost allocation is completed by taking the service

flows to production departments only and determining each production department's share of that service? A) Direct method. B) Indirect method. C) Step method. D) Reciprocal method. E) Cross-functional method.

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32) Which one of the following methods of allocating joint costs uses a measure of weight, size

or number of units to allocate joint costs to joint products? A) Net realizable value method. B) Physical measure method. C) Product measure method. D) Cost measure method. E) Sales value at split-off method.

33) Which of the following is not true about joint products? A) All joint products can be sold at the split-off point. B) There is no market value attached to some products at the split-off point. C) The net realizable value of a product is the ultimate net sales value that is estimated at

the split-off point. D) An important decision for management to make in regard to separable costs is whether the company should incur the separable costs and process the product further. E) Sometimes it is desirable that the company have joint products with constant or equal gross margin percentages.

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34) Clothing Company has two service departments — purchasing and maintenance, and two

production departments — fabrication and assembly. The distribution of each service department's efforts to the other departments is shown below: FROM Purchasing Maintenance

Purchasing 0% 20%

TO Maintenance 60% 0%

Fabrication 25% 65%

Assembly 15% 15%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Purchasing Maintenance Fabrication Assembly

$ 117,000 39,000 93,000 69,000

The total cost accumulated in the fabrication department using the direct method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $197,813. B) $148,200. C) $257,625. D) $120,188. E) $52,313.

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35) Clothing Company has two service departments — purchasing and maintenance, and two

production departments — fabrication and assembly. The distribution of each service department's efforts to the other departments is shown below: FROM Purchasing Maintenance

Purchasing 0% 20%

TO Maintenance 60% 0%

Fabrication 10% 30%

Assembly 30% 50%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Purchasing Maintenance Fabrication Assembly

$ 96,000 18,000 72,000 48,000

The total cost accumulated in the fabrication department using the direct method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $102,750. B) $114,600. C) $87,000. D) $131,250. E) $135,000.

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36) Clothing Company has two service departments — purchasing and maintenance, and two

production departments — fabrication and assembly. The distribution of each service department's efforts to the other departments is shown below: FROM Purchasing Maintenance

Purchasing 0% 20%

TO Maintenance 60% 0%

Fabrication 25% 65%

Assembly 15% 15%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Purchasing Maintenance Fabrication Assembly

$ 117,000 39,000 93,000 69,000

The total cost accumulated in the assembly department using the direct method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $197,813. B) $148,200. C) $119,400. D) $120,188. E) $52,313.

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37) Clothing Company has two service departments — purchasing and maintenance, and two

production departments — fabrication and assembly. The distribution of each service department's efforts to the other departments is shown below: FROM Purchasing Maintenance

Purchasing 0% 20%

TO Maintenance 60% 0%

Fabrication 10% 30%

Assembly 30% 50%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Purchasing Maintenance Fabrication Assembly

$ 96,000 18,000 72,000 48,000

The total cost accumulated in the assembly department using the direct method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $102,750. B) $114,600. C) $85,800. D) $131,250. E) $135,000.

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38) Clothing Company has two service departments — purchasing and maintenance, and two

production departments — fabrication and assembly. The distribution of each service department's efforts to the other departments is shown below: FROM Purchasing Maintenance

Purchasing 0% 45%

TO Maintenance 35% 0%

Fabrication 50% 45%

Assembly 15% 10%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Purchasing Maintenance Fabrication Assembly

$ 102,000 24,000 78,000 54,000

The total cost accumulated in the fabrication department using the step method is (assume the purchasing department goes first; calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $172,395. B) $177,845. C) $80,155. D) $86,855. E) $92,605.

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39) Clothing Company has two service departments — purchasing and maintenance, and two

production departments — fabrication and assembly. The distribution of each service department's efforts to the other departments is shown below: FROM Purchasing Maintenance

Purchasing 0% 20%

TO Maintenance 60% 0%

Fabrication 10% 30%

Assembly 30% 50%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Purchasing Maintenance Fabrication Assembly

$ 96,000 18,000 72,000 48,000

The total cost accumulated in the fabrication department using the step method is (assume the purchasing department goes first; calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $104,500. B) $109,950. C) $124,050. D) $130,750. E) $136,500.

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40) Clothing has two service departments — purchasing and maintenance, and two production

departments — fabrication and assembly. The distribution of each service department's efforts to the other departments is shown below: FROM Purchasing Maintenance

Purchasing 0% 70%

TO Maintenance 30% 0%

Fabrication 45% 20%

Assembly 25% 10%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Purchasing Maintenance Fabrication Assembly

$ 147,000 69,000 123,000 99,000

The total cost accumulated in the assembly department using the step method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $259,100. B) $264,550. C) $173,450. D) $180,150. E) $185,900.

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41) Clothing Company has two service departments — purchasing and maintenance, and two

production departments — fabrication and assembly. The distribution of each service department's efforts to the other departments is shown below: FROM Purchasing Maintenance

Purchasing 0% 20%

TO Maintenance 60% 0%

Fabrication 10% 30%

Assembly 30% 50%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Purchasing Maintenance Fabrication Assembly

$ 96,000 18,000 72,000 48,000

The total cost accumulated in the assembly department using the step method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $104,500. B) $109,950. C) $124,050. D) $130,750. E) $136,500.

42) Which of the following is not an ethical issue managers encounter with cost allocation? A) Products that are produced for both a competitive market and a public agency. B) Governmental agency provides a free service to the public. C) Governmental agency reimburses the costs of a private institution. D) Costs of products sold to or from foreign subsidiaries. E) The equity or fair share issue.

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43) Which of the following is not one of the four objectives of cost allocation? A) Lower costs in the manufacturing process by finding areas of waste. B) Provide the right incentive for managers to make decisions that are consistent with

the goals of top management. C) Determine accurate departmental and product costs as a basis for the evaluation of the cost efficiency of departments and the profitability of different products, financial reporting, and tax compliance. D) Fairly determine the rewards earned by the managers for their effort and skill and for the effectiveness of their decision making. E) Motivate managers to exert a high level of effort to achieve the goals of top management.

44) Batches Incorporated produces joint products L, M, and N from a joint process. Information

concerning a batch produced in May at a joint cost of $85,000 was as follows:

Separable Processing cost Units Produced Sales Value (after additional processing)

$ 11,000 1,600 $ 64,000

$ 27,000 3,500 $ 55,000

Total

$ 5,000

$ 43,000

4,700 $ 13,000

9,800 $ 132,000

The amount of joint costs allocated to product L using the physical measure method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $30,357. B) $36,062. C) $40,765. D) $29,737. E) $13,878.

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45) Batches Incorporated produces joint products L, M, and N from a joint process. Information

concerning a batch produced in May at a joint cost of $75,000 was as follows: L Separable Processing $ 10,000 cost Units Produced 1,200 Sales Value (after $ 60,000 additional processing)

Total

$ 25,000

$ 2,000

$ 37,000

2,500 $ 50,000

4,300 $ 7,000

8,000 $ 117,000

The amount of joint costs allocated to product L using the physical measure method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $23,438. B) $33,434. C) $40,313. D) $27,109. E) $11,250.

46) Batches Incorporated produces joint products L, M, and N from a joint process. Information

concerning a batch produced in May at a joint cost of $135,000 was as follows:

Separable Processing cost Units Produced Sales Value (after additional processing)

Total

$ 16,000 3,600 $ 84,000

$ 37,000 8,500 $ 80,000

$ 20,000 6,700 $ 43,000

$ 73,000 18,800 $ 207,000

The amount of joint costs allocated to product M using the physical measure method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $61,037. B) $48,035. C) $48,112. D) $41,710. E) $25,851.

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47) Batches Incorporated produces joint products L, M, and N from a joint process. Information

concerning a batch produced in May at a joint cost of $75,000 was as follows: L Separable Processing $ 10,000 cost Units Produced 1,200 Sales Value (after $ 60,000 additional processing)

Total

$ 25,000

$ 2,000

$ 37,000

2,500 $ 50,000

4,300 $ 7,000

8,000 $ 117,000

The amount of joint costs allocated to product M using the physical measure method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $11,250. B) $23,438. C) $33,434. D) $40,313. E) $27,109.

48) Batches Incorporated produces joint products L, M, and N from a joint process. Information

concerning a batch produced in May at a joint cost of $90,000 was as follows:

Separable Processing cost Units Produced Sales Value (after additional processing)

$ 11,500 1,800 $ 66,000

$ 28,000 4,000 $ 57,500

Total

$ 6,500

$ 46,000

4,900 $ 16,000

10,700 $ 139,500

The amount of joint costs allocated to product N using the physical measure method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $33,645. B) $37,324. C) $41,215. D) $30,999. E) $15,140.

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49) Batches Incorporated produces joint products L, M, and N from a joint process. Information

concerning a batch produced in May at a joint cost of $75,000 was as follows: L Separable Processing $ 10,000 cost Units Produced 1,200 Sales Value (after $ 60,000 additional processing)

Total

$ 25,000

$ 2,000

$ 37,000

2,500 $ 50,000

4,300 $ 7,000

8,000 $ 117,000

The amount of joint costs allocated to product N using the physical measure method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $23,438. B) $33,434. C) $40,313. D) $27,109. E) $11,250.

50) Batches Incorporated produces joint products L, M, and N from a joint process. Information

concerning a batch produced in May at a joint cost of $90,000 was as follows:

Separable Processing cost Units Produced Sales Value (after additional processing)

$ 11,500 1,800 $ 66,000

$ 28,000 4,000 $ 57,500

Total

$ 6,500

$ 46,000

4,900 $ 16,000

10,700 $ 139,500

The amount of joint costs allocated to product L using the net realizable value method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $8,070. B) $9,144. C) $28,396. D) $39,019. E) $52,460.

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51) Batches Incorporated produces joint products L, M, and N from a joint process. Information

concerning a batch produced in May at a joint cost of $75,000 was as follows: L Separable Processing $ 10,000 cost Units Produced 1,200 Sales Value (after $ 60,000 additional processing)

Total

$ 25,000

$ 2,000

$ 37,000

2,500 $ 50,000

4,300 $ 7,000

8,000 $ 117,000

The amount of joint costs allocated to product L using the net realizable value method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $3,614. B) $4,688. C) $23,438. D) $33,434. E) $46,875.

52) Batches Incorporated produces joint products L, M, and N from a joint process. Information

concerning a batch produced in May at a joint cost of $135,000 was as follows:

Separable Processing cost Units Produced Sales Value (after additional processing)

Total

$ 16,000 3,600 $ 84,000

$ 37,000 8,500 $ 80,000

$ 20,000 6,700 $ 43,000

$ 73,000 18,800 $ 207,000

The amount of joint costs allocated to product M using the net realizable value method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $22,098. B) $23,172. C) $43,321. D) $55,066. E) $68,507.

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53) Batches Incorporated produces joint products L, M, and N from a joint process. Information

concerning a batch produced in May at a joint cost of $75,000 was as follows: L Separable Processing $ 10,000 cost Units Produced 1,200 Sales Value (after $ 60,000 additional processing)

Total

$ 25,000

$ 2,000

$ 37,000

2,500 $ 50,000

4,300 $ 7,000

8,000 $ 117,000

The amount of joint costs allocated to product M using the net realizable value method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $3,614. B) $4,688. C) $23,438. D) $33,434. E) $46,875.

54) Batches Incorporated produces joint products L, M, and N from a joint process. Information

concerning a batch produced in May at a joint cost of $95,000 was as follows:

Separable Processing cost Units Produced Sales Value (after additional processing)

$ 12,000 2,000 $ 68,000

$ 29,000 4,500 $ 60,000

Total

$ 8,000

$ 49,000

5,100 $ 19,000

11,600 $ 147,000

The amount of joint costs allocated to product N using the net realizable value method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $9,589. B) $10,663. C) $30,051. D) $40,845. E) $54,286.

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55) Batches Incorporated produces joint products L, M, and N from a joint process. Information

concerning a batch produced in May at a joint cost of $75,000 was as follows: L Separable Processing $ 10,000 cost Units Produced 1,200 Sales Value (after $ 60,000 additional processing)

Total

$ 25,000

$ 2,000

$ 37,000

2,500 $ 50,000

4,300 $ 7,000

8,000 $ 117,000

The amount of joint costs allocated to product N using the net realizable value method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $3,614. B) $4,688. C) $23,438. D) $33,434. E) $46,875.

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56) Split Company produces three products — X, Y, and Z — from a joint process. Each product

may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond splitoff. Joint production costs for the year were $134,000. Sales values and costs needed to evaluate Split's production policy follow. Product

Units Produced

Sales Value at Split Off

x y z

22,000 12,000 6,000

$ 43,500 25,500 30,000

If Processed Further Sales Value Additional Costs $ 97,500 $ 4,700 50,500 10,000 44,000 12,000

The amount of joint costs allocated to product X using the physical measure method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $20,100. B) $36,200. C) $40,200. D) $60,300. E) $73,700.

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57) Split Company produces three products — X, Y, and Z — from a joint process. Each product

may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond splitoff. Joint production costs for the year were $120,000. Sales values and costs needed to evaluate Split's production policy follow. Product

Units Produced

Sales Value at Split Off

x y z

6,000 3,000 1,000

$ 40,000 15,000 16,000

If Processed Further Sales Value Additional Costs $ 80,000 $ 1,200 40,000 3,000 30,000 1,500

The amount of joint costs allocated to product X using the physical measure method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $12,000. B) $32,000. C) $36,000. D) $48,000. E) $72,000.

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58) Split Company produces three products — X, Y, and Z — from a joint process. Each product

Units Produced

Sales Value at Split Off

x y z

22,000 12,000 6,000

$ 43,500 25,500 30,000

If Processed Further Sales Value Additional Costs $ 97,500 $ 4,700 50,500 10,000 44,000 12,000

The amount of joint costs allocated to product Y using the physical measure method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $20,100. B) $36,200. C) $40,200. D) $60,300. E) $73,700.

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59) Split Company produces three products — X, Y, and Z — from a joint process. Each product

may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond splitoff. Joint production costs for the year were $120,000. Sales values and costs needed to evaluate Split's production policy follow. Product

Units Produced

Sales Value at Split Off

x y z

6,000 3,000 1,000

$ 40,000 15,000 16,000

If Processed Further Sales Value Additional Costs $ 80,000 $ 1,200 40,000 3,000 30,000 1,500

The amount of joint costs allocated to product Y using the physical measure method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $12,000. B) $32,000. C) $36,000. D) $48,000. E) $72,000.

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60) Split Company produces three products — X, Y, and Z — from a joint process. Each product

may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond splitoff. Joint production costs for the year were $148,000. Sales values and costs needed to evaluate Split's production policy follow. Product

Units Produced

Sales Value at Split Off

x y z

15,000 7,500 2,500

$ 47,000 36,000 44,000

If Processed Further Sales Value Additional Costs $ 115,000 $ 8,200 61,000 17,000 58,000 22,500

The amount of joint costs allocated to product Z using the physical measure method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $14,800. B) $40,400. C) $44,400. D) $59,200. E) $88,800.

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61) Split Company produces three products — X, Y, and Z — from a joint process. Each product

may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond splitoff. Joint production costs for the year were $120,000. Sales values and costs needed to evaluate Split's production policy follow. Product

Units Produced

Sales Value at Split Off

x y z

6,000 3,000 1,000

$ 40,000 15,000 16,000

If Processed Further Sales Value Additional Costs $ 80,000 $ 1,200 40,000 3,000 30,000 1,500

The amount of joint costs allocated to product Z using the physical measure method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $12,000. B) $32,000. C) $36,000. D) $48,000. E) $72,000.

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62) Split Company produces three products — X, Y, and Z — from a joint process. Each product

may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond splitoff. Joint production costs for the year were $122,000. Sales values and costs needed to evaluate Split's production policy follow. Product

Units Produced

Sales Value at Split Off

x y z

28,000 16,000 6,000

$ 41,500 19,500 22,000

If Processed Further Sales Value Additional Costs $ 87,500 $ 2,700 44,500 6,000 36,000 6,000

The amount of joint costs allocated to product X using the sales value at split-off method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $23,652. B) $28,663. C) $32,337. D) $38,982. E) $61,000.

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63) Split Company produces three products — X, Y, and Z — from a joint process. Each product

may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond splitoff. Joint production costs for the year were $120,000. Sales values and costs needed to evaluate Split's production policy follow. Product

Units Produced

Sales Value at Split Off

x y z

6,000 3,000 1,000

$ 40,000 15,000 16,000

If Processed Further Sales Value Additional Costs $ 80,000 $ 1,200 40,000 3,000 30,000 1,500

The amount of joint costs allocated to product X using the sales value at split-off method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $20,341. B) $25,352. C) $27,042. D) $33,687. E) $67,606.

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64) Split Company produces three products — X, Y, and Z — from a joint process. Each product

may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond splitoff. Joint production costs for the year were $158,000. Sales values and costs needed to evaluate Split's production policy follow. Product

Units Produced

Sales Value at Split Off

x y z

10,000 5,000 10,000

$ 49,500 43,500 54,000

If Processed Further Sales Value Additional Costs $ 127,500 $ 10,700 68,500 22,000 68,000 30,000

The amount of joint costs allocated to product Y using the sales value at split-off method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $41,744. B) $46,755. C) $58,041. D) $64,686. E) $53,204.

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65) Split Company produces three products — X, Y, and Z — from a joint process. Each product

may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond splitoff. Joint production costs for the year were $120,000. Sales values and costs needed to evaluate Split's production policy follow. Product

Units Produced

Sales Value at Split Off

x y z

6,000 3,000 1,000

$ 40,000 15,000 16,000

If Processed Further Sales Value Additional Costs $ 80,000 $ 1,200 40,000 3,000 30,000 1,500

The amount of joint costs allocated to product Y using the sales value at split-off method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $20,341. B) $25,352. C) $27,042. D) $33,687. E) $67,606.

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66) Split Company produces three products — X, Y, and Z — from a joint process. Each product

may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond splitoff. Joint production costs for the year were $130,000. Sales values and costs needed to evaluate Split's production policy follow. Product

Units Produced

Sales Value at Split Off

x y z

14,000 7,500 3,500

$ 42,500 22,500 26,000

If Processed Further Sales Value Additional Costs $ 92,500 $ 3,700 47,500 8,000 40,000 9,000

The amount of joint costs allocated to product Z using the sales value at split-off method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $27,132. B) $32,143. C) $37,143. D) $43,788. E) $60,714.

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67) Split Company produces three products — X, Y, and Z — from a joint process. Each product

may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond splitoff. Joint production costs for the year were $120,000. Sales values and costs needed to evaluate Split's production policy follow. Product

Units Produced

Sales Value at Split Off

x y z

6,000 3,000 1,000

$ 40,000 15,000 16,000

If Processed Further Sales Value Additional Costs $ 80,000 $ 1,200 40,000 3,000 30,000 1,500

The amount of joint costs allocated to product Z using the sales value at split-off method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $20,341. B) $25,352. C) $27,042. D) $33,687. E) $67,606.

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68) Split Company produces three products — X, Y, and Z — from a joint process. Each product

may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond splitoff. Joint production costs for the year were $140,000. Sales values and costs needed to evaluate Split's production policy follow. Product

Units Produced

Sales Value at Split Off

x y z

12,000 6,000 2,000

$ 45,000 30,000 36,000

If Processed Further Sales Value Additional Costs $ 105,000 $ 6,200 55,000 13,000 50,000 16,500

The amount of joint costs allocated to product X using the net realizable value method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $21,980. B) $26,908. C) $33,735. D) $79,357. E) $98,593.

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69) Split Company produces three products — X, Y, and Z — from a joint process. Each product

may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond splitoff. Joint production costs for the year were $120,000. Sales values and costs needed to evaluate Split's production policy follow. Product

Units Produced

Sales Value at Split Off

x y z

6,000 3,000 1,000

$ 40,000 15,000 16,000

If Processed Further Sales Value Additional Costs $ 80,000 $ 1,200 40,000 3,000 30,000 1,500

The amount of joint costs allocated to product X using the net realizable value method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $18,773. B) $23,701. C) $30,769. D) $65,530. E) $84,766.

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70) Split Company produces three products — X, Y, and Z — from a joint process. Each product

may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond splitoff. Joint production costs for the year were $128,000. Sales values and costs needed to evaluate Split's production policy follow. Product

Units Produced

Sales Value at Split Off

x y z

12,000 5,000 3,000

$ 42,000 21,000 24,000

If Processed Further Sales Value Additional Costs $ 90,000 $ 3,200 46,000 7,000 38,000 7,500

The amount of joint costs allocated to product Y using the net realizable value method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $20,050. B) $24,978. C) $31,939. D) $71,084. E) $90,320.

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71) Split Company produces three products — X, Y, and Z — from a joint process. Each product

may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond splitoff. Joint production costs for the year were $120,000. Sales values and costs needed to evaluate Split's production policy follow. Product

Units Produced

Sales Value at Split Off

x y z

6,000 3,000 1,000

$ 40,000 15,000 16,000

If Processed Further Sales Value Additional Costs $ 80,000 $ 1,200 40,000 3,000 30,000 1,500

The amount of joint costs allocated to product Y using the net realizable value method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $18,773. B) $23,701. C) $30,769. D) $65,530. E) $84,766.

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72) Split Company produces three products — X, Y, and Z — from a joint process. Each product

may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond splitoff. Joint production costs for the year were $158,000. Sales values and costs needed to evaluate Split's production policy follow. Product

Units Produced

Sales Value at Split Off

x y z

10,000 5,000 10,000

$ 49,500 43,500 54,000

If Processed Further Sales Value Additional Costs $ 127,500 $ 10,700 68,500 22,000 68,000 30,000

The amount of joint costs allocated to product Z using the net realizable value method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $24,898. B) $29,826. C) $36,498. D) $91,676. E) $110,912.

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73) Split Company produces three products — X, Y, and Z — from a joint process. Each product

may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond splitoff. Joint production costs for the year were $120,000. Sales values and costs needed to evaluate Split's production policy follow. Product

Units Produced

Sales Value at Split Off

x y z

6,000 3,000 1,000

$ 40,000 15,000 16,000

If Processed Further Sales Value Additional Costs $ 80,000 $ 1,200 40,000 3,000 30,000 1,500

The amount of joint costs allocated to product Z using the net realizable value method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $18,773. B) $23,701. C) $30,769. D) $65,530. E) $84,766.

74) Which of the following statements best describes a by-product? A) A product that is produced from material that would otherwise be scrap. B) A product that has a selling price similar to that of the main product. C) A product created along with the main product whose sales value does not cover its

cost of production. D) A product that usually produces a small amount of revenue when compared to the main product's revenue. E) A product that has a lower unit selling price than the main unit.

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75) For the purposes of cost accumulation, which of the following are identifiable as different

individual products before the split-off point?

A) B) C) D) A) B) C) D)

By-products

Joint products

No Yes Yes No

No No Yes Yes

Option A Option B Option C Option D

76) Relative sales value at split-off is used to allocate:

Cost Beyond

A) B) C) D) A) B) C) D)

Split-Off

Joint Costs

Yes Yes No No

Yes No No Yes

Option A Option B Option C Option D

77) Which of the following is not one of the objectives of cost allocation? A) Motivate managers to exert a high-level of effort. B) Provide useful departmental and product costs. C) Identify production constraints. D) Provide the right incentive for managers to make the right decisions. E) Provide an appropriate basis for performance evaluation.

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78) The cost allocation method most widely used because of its accuracy and ability to provide a

detailed level of analysis is: A) Departmental approach. B) Activity-based approach. C) Direct approach. D) Accounting approach. E) Joint product costing.

79) The departmental approach of cost allocation recognizes that the typical manufacturing

operation involves which type(s) of departments? A) Service departments and production departments. B) Production departments and assembly departments. C) Joint product departments and separable departments. D) Cost pools and cost objects. E) Support departments and other service departments.

80) Place the following phases of the departmental approach in the correct order. 1. Allocate the production department costs to products. 2. Allocate service costs to the overhead costs. 3. Allocate the service department costs to the production department. 4. Trace all direct costs and allocate overhead costs to both the service and production

departments. B) 3,4,1,2. C) 4,3,2,1. D) 4,3,1. E) 3,2,1. F) 1,3,2.

81) Which of the following is an example of a physical measure used in the physical measure

method? A) Weight. B) Minutes. C) Seconds. D) Dollars. E) Color.

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82) Which is the most complex of the allocation phases? A) Second Phase. B) Fourth Phase. C) First Phase. D) Third Phase. E) Fifth Phase.

83) Which of the following is not a disincentive effect for cost allocation? A) allocated costs are less than external purchase costs. B) the choice of the most accurate allocation method. C) the allocation base is actual usage. D) the allocation base is unrelated to usage. E) the allocation costs exceed external purchase costs.

84) Net Realizable Value (NRV) of a product is: A) Split-off cost - profit margin - additional processing and selling cost. B) Profit at split-off + additional processing and selling cost. C) Ultimate sales value - additional processing and selling cost. D) Ultimate sales value + additional processing and selling cost. E) Cost allocation plus separable cost.

85) The two approaches used for by-product costing are: A) Activity-based approach/revenue approach B) Cost approach/Sales value at split off approach C) Asset recognition approach/revenue approach D) Resource consumption approach/asset recognition approach E) Sales value at split off approach/revenue approach

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86) Tiger Company manufactures products R, S, and T from a joint process. The following

information is available: Product R 68,000 ?

Units produced Sales value at split-off Joint costs Sales value if processed further Additional costs if processed further

$ 272,000 $ 670,000 $ 102,000

? $ 278,000 ?

Total 136,000 $ 1,140,000 $ 680,000

$ 510,000 $ 74,000

$ 340,000 $ 57,800

$ 1,520,000 $ 233,800

? ?

Assuming that joint product costs are allocated using the relative-sales-value at split-off approach, what was the sales value at split-off for products R and S? Product R A) B) C) D) E) A) B) C) D) E)

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$ 431,000 $ 439,000 $ 456,000 $ 467,000 $ 477,000

Product S $ 411,000 $ 417,000 $ 406,000 $ 419,000 $ 428,000

Option A Option B Option C Option D Option E

87) Tiger Company manufactures products R, S, and T from a joint process. The following

information is available: Product R 12,000 ?

Units produced Sales value at split-off Joint costs Sales value if processed further Additional costs if processed further

T ? ?

? $ 50,000

$ 48,000

$ 110,000 $ 18,000

$ 90,000

$ 60,000

$ 14,000

$ 10,000

Total 24,000 $ 200,000 $ 120,000 $ 260,000 $ 42,000

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$ 55,000 $ 63,000 $ 80,000 $ 91,000 $ 101,000

Product S $ 75,000 $ 81,000 $ 70,000 $ 83,000 $ 92,000

Option A Option B Option C Option D Option E

88) Better Health Company has two service departments — actuarial and premium rating, and

two operations departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below: FROM

Actuarial Rating

Actuarial 0% 25%

Rating 40% 0%

Marketing 20% 37.5%

Sales 40% 37.5%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Actuarial Premium Rating Marketing Sales

$ 75,000 $ 50,000 $ 75,000 $ 85,000

The total cost accumulated in the marketing department using the direct method is (calculate all ratios and percentages to 2 decimal places, for example 33.33%, and round all dollar amounts to the nearest whole dollar): A) B) C) D) E)

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$125,000. $129,000. $156,000. $160,000. $112,000.

89) Better Health Company has two service departments — actuarial and premium rating, and

two operations departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below: FROM Actuarial Rating

TO Actuarial 0% 25%

Rating 40% 0%

Marketing 20% 37.5%

Sales 40% 37.5%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Actuarial Premium Rating Marketing Sales

$ 60,000 $ 40,000 $ 60,000 $ 70,000

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90) Better Health Company has two service departments — actuarial and premium rating, and

two operations departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below: FROM Actuarial Rating

TO Actuarial 0% 25%

Rating 40% 0%

Marketing 20% 37.5%

Sales 40% 37.5%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Actuarial Premium Rating Marketing Sales

$ 57,000 $ 40,000 $ 57,000 $ 67,000

The total cost accumulated in the sales department using the direct method is (calculate all ratios and percentages to 2 decimal places, for example 33.33%, and round all dollar amounts to the nearest whole dollar): A) $96,000. B) $105,000. C) $121,000. D) $125,000. E) $131,000.

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91) Better Health Company has two service departments — actuarial and premium rating, and

two operations departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below: FROM Actuarial Rating

TO Actuarial 0% 25%

Rating 40% 0%

Marketing 20% 37.5%

Sales 40% 37.5%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Actuarial Premium Rating Marketing Sales

$ 60,000 $ 40,000 $ 60,000 $ 70,000

The total cost accumulated in the sales department using the direct method is (calculate all ratios and percentages to 2 decimal places, for example 33.33%, and round all dollar amounts to the nearest whole dollar): A) $100,000. B) $109,000. C) $126,000. D) $130,000. E) $135,000.

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92) Better Health Company has two service departments — actuarial and premium rating, and

two operations departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below: FROM Actuarial Rating

TO Actuarial 0% 25%

Rating 40% 0%

Marketing 20% 37.5%

Sales 40% 37.5%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Actuarial Premium Rating Marketing Sales

$ 58,000 $ 40,000 $ 58,000 $ 68,000

The total cost accumulated in the marketing department using the step method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar; assume the actuarial department goes first): A) $97,200. B) $101,200. C) $122,800. D) $126,800. E) $131,800.

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93) Better Health Company has two service departments — actuarial and premium rating, and

two operations departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below: FROM Actuarial Rating

TO Actuarial 0% 25%

Rating 40% 0%

Marketing 20% 37.5%

Sales 40% 37.5%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Actuarial Premium Rating Marketing Sales

$ 60,000 $ 40,000 $ 60,000 $ 70,000

The total cost accumulated in the marketing department using the step method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar; assume the actuarial department goes first): A) $100,000. B) $104,000. C) $126,000. D) $130,000. E) $135,000.

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94) Better Health Company has two service departments — actuarial and premium rating, and

two operations departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below: FROM Actuarial Rating

TO Actuarial 0% 25%

Rating 40% 0%

Marketing 20% 37.5%

Sales 40% 37.5%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Actuarial Premium Rating Marketing Sales

$ 30,000 $ 20,000 $ 30,000 $ 40,000

The total cost accumulated in the sales department using the step method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar; assume that the actuarial department goes first): A) $48,000. B) $52,000. C) $68,000. D) $72,000. E) $77,000.

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95) Better Health Company has two service departments — actuarial and premium rating, and

two operations departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below: FROM Actuarial Rating

TO Actuarial 0% 25%

Rating 40% 0%

Marketing 20% 37.5%

Sales 40% 37.5%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Actuarial Premium Rating Marketing Sales

$ 60,000 $ 40,000 $ 60,000 $ 70,000

The total cost accumulated in the sales department using the step method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar; assume that the actuarial department goes first): A) $100,000. B) $104,000. C) $126,000. D) $130,000. E) $135,000.

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96) Better Health Company has two service departments — actuarial and premium rating, and

two operations departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below: FROM Actuarial Rating

TO Actuarial 0% 20%

Rating 10% 0%

Marketing 20% 40.0%

Sales 70% 40.0%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Actuarial Premium Rating Marketing Sales

$ 70,000 $ 130,000 $ 56,000 $ 65,000

The total cost accumulated in the marketing department using the reciprocal method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $131,510. B) $151,690. C) $157,066. D) $171,759. E) $179,338.

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97) Better Health Company has two service departments — actuarial and premium rating, and

two operations departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below: FROM Actuarial Rating

TO Actuarial 0% 25%

Rating 40% 0%

Marketing 20% 37.5%

Sales 40% 37.5%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Actuarial Premium Rating Marketing Sales

$ 60,000 $ 40,000 $ 60,000 $ 70,000

The total cost accumulated in the marketing department using the reciprocal method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $102,222. B) $122,402. C) $127,778. D) $142,471. E) $150,050.

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98) Better Health Company has two service departments — actuarial and premium rating, and

two operations departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below: FROM

Actuarial Rating

TO Actuarial

Rating

Marketing

Sales

0% 20%

20% 0%

10% 40.0%

70% 40.0%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Actuarial Premium Rating Marketing Sales

$ 100,000 $ 150,000 $ 41,000 $ 83,000

The total cost accumulated in the sales department using the reciprocal method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $125,375 B) $145,555. C) $248,625. D) $165,624. E) $173,203.

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99) Better Health Company has two service departments — actuarial and premium rating, and

two operations departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below: FROM Actuarial Rating

TO Actuarial 0% 25%

Rating 40% 0%

Marketing 20% 37.5%

Sales 40% 37.5%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Actuarial Premium Rating Marketing Sales

$ 60,000 $ 40,000 $ 60,000 $ 70,000

The total cost accumulated in the sales department using the reciprocal method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $102,222. B) $122,402. C) $127,778. D) $142,471. E) $150,050.

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Double Company produces three products — DBB-1, DBB-2, and DBB-3 from a joint process. Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Key information about Double's production, sales, and costs follows.

100)

Units Sold Price (after additional processing) Separable Processing cost Units Produced Total Joint Cost Sales Price at Split-off

DBB-1

DBB-2

DBB-3

Total

19,600 $ 65

29,400 $ 50

41,400 $ 75

90,400

$ 146,000

$ 80,000

$ 102,000

$ 328,000

19,600

29,400

41,400

90,400 $ 3,780,000

$ 25

$ 35

$ 55

The amount of joint costs allocated to product DBB-1 using the physical measure method is: A) $787,500. B) $819,558. C) $1,731,106. D) $1,260,000. E) $1,229,336.

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101)

Units Sold Price (after additional processing) Separable Processing cost Units Produced Total Joint Cost Sales Price at Split-off

DBB-1

DBB-2

DBB-3

Total

16,000 $ 65

24,000 $ 50

36,000 $ 75

76,000

$ 110,000

$ 44,000

$ 66,000

$ 220,000

16,000

24,000

36,000

76,000 $ 3,600,000

$ 25

$ 35

$ 55

The amount of joint costs allocated to product DBB-1 using the physical measure method is: A) $54,250. B) $757,895. C) $1,705,320. D) $49,200. E) $1,136,880.

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102)

Units Sold Price (after additional processing) Separable Processing cost Units Produced Total Joint Cost Sales Price at Split-off

DBB-1

DBB-2

DBB-3

Total

19,400 $ 65

29,100 $ 50

41,100 $ 75

89,600

$ 133,375

$ 53,350

$ 75,350

$ 262,075

19,400

29,100

41,100

89,600 $ 4,280,000

$ 25

$ 35

$ 55

The amount of joint costs allocated to product DBB-2 using the physical measure method is: A) $891,667. B) $926,696. C) $1,963,259. D) $1,426,667. E) $1,390,045.

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103)

Units Sold Price (after additional processing) Separable Processing cost Units Produced Total Joint Cost Sales Price at Split-off

DBB-1

DBB-2

DBB-3

Total

16,000 $ 65

24,000 $ 50

36,000 $ 75

76,000

$ 110,000

$ 44,000

$ 66,000

$ 220,000

16,000

24,000

36,000

76,000 $ 3,600,000

$ 25

$ 35

$ 55

The amount of joint costs allocated to product DBB-2 using the physical measure method is: A) $54,250. B) $757,800. C) $1,705,320. D) $49,200. E) $1,136,842.

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104)

Units Sold Price (after additional processing) Separable Processing cost Units Produced Total Joint Cost Sales Price at Split-off

DBB-1

DBB-2

DBB-3

Total

17,200 $ 65

25,800 $ 50

37,800 $ 75

80,800

$ 118,250

$ 47,300

$ 69,300

$ 234,850

17,200

25,800

37,800

80,800 $ 3,840,000

$ 25

$ 35

$ 55

The amount of joint costs allocated to product DBB-3 using the physical measure method is: A) $800,000. B) $817,426. C) $1,796,436. D) $1,280,000. E) $1,226,139.

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105)

Units Sold Price (after additional processing) Separable Processing cost Units Produced Total Joint Cost Sales Price at Split-off

DBB-1

DBB-2

DBB-3

Total

16,000 $ 65

24,000 $ 50

36,000 $ 75

76,000

$ 110,000

$ 44,000

$ 66,000

$ 220,000

16,000

24,000

36,000

76,000 $ 3,600,000

$ 25

$ 35

$ 55

The amount of joint costs allocated to product DBB-3 using the physical measure method is: A) $54,250. B) $757,800. C) $1,705,263. D) $49,200. E) $1,136,880.

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106)

Units Sold Price (after additional processing) Separable Processing cost Units Produced Total Joint Cost Sales Price at Split-off

DBB-1

DBB-2

DBB-3

Total

16,400 $ 65

24,600 $ 50

36,600 $ 75

77,600

$ 112,750

$ 45,100

$ 67,100

$ 224,950

16,400

24,600

36,600

77,600 $ 3,680,000

$ 25

$ 35

$ 55

The amount of joint costs allocated to product DBB-1 using the sales value at split-off method is: A) $964,823. B) $694,041. C) $459,440. D) $861,000. E) $2,255,737.

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107)

Units Sold Price (after additional processing) Separable Processing cost Units Produced Total Joint Cost Sales Price at Split-off

DBB-1

DBB-2

DBB-3

Total

16,000 $ 65

24,000 $ 50

36,000 $ 75

76,000

$ 110,000

$ 44,000

$ 66,000

$ 220,000

16,000

24,000

36,000

76,000 $ 3,600,000

$ 25

$ 35

$ 55

The amount of joint costs allocated to product DBB-1 using the sales value at split-off method is: A) $939,240. B) $216,870. C) $447,205. D) $757,800. E) $2,213,640.

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108)

Units Sold Price (after additional processing) Separable Processing cost Units Produced Total Joint Cost Sales Price at Split-off

DBB-1

DBB-2

DBB-3

Total

18,200 $ 65

27,300 $ 50

39,300 $ 75

84,800

$ 125,125

$ 50,050

$ 72,050

$ 247,225

18,200

27,300

39,300

84,800 $ 4,040,000

$ 25

$ 35

$ 55

The amount of joint costs allocated to product DBB-2 using the sales value at split-off method is: A) $1,080,689. B) $766,632. C) $514,614. D) $955,500. E) $2,444,698.

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109)

Units Sold Price (after additional processing) Separable Processing cost Units Produced Total Joint Cost Sales Price at Split-off

DBB-1

DBB-2

DBB-3

Total

16,000 $ 65

24,000 $ 50

36,000 $ 75

76,000

$ 110,000

$ 44,000

$ 66,000

$ 220,000

16,000

24,000

36,000

76,000 $ 3,600,000

$ 25

$ 35

$ 55

The amount of joint costs allocated to product DBB-2 using the sales value at split-off method is: A) $939,130. B) $216,870. C) $447,120. D) $757,800. E) $2,213,640.

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110)

Units Sold Price (after additional processing) Separable Processing cost Units Produced Total Joint Cost Sales Price at Split-off

DBB-1

DBB-2

DBB-3

Total

17,400 $ 65

26,100 $ 50

38,100 $ 75

81,600

$ 119,625

$ 47,850

$ 69,850

$ 237,325

17,400

26,100

38,100

81,600 $ 3,880,000

$ 25

$ 35

$ 55

The amount of joint costs allocated to product DBB-3 using the sales value at split-off method is: A) $1,029,146. B) $734,382. C) $490,070. D) $913,500. E) $2,360,784.

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111)

Units Sold Price (after additional processing) Separable Processing cost Units Produced Total Joint Cost Sales Price at Split-off

DBB-1

DBB-2

DBB-3

Total

16,000 $ 65

24,000 $ 50

36,000 $ 75

76,000

$ 110,000

$ 44,000

$ 66,000

$ 220,000

16,000

24,000

36,000

76,000 $ 3,600,000

$ 25

$ 35

$ 55

The amount of joint costs allocated to product DBB-3 using the sales value at split-off method is: A) $939,240. B) $216,870. C) $447,120. D) $757,800. E) $2,213,665.

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112)

Units Sold Price (after additional processing) Separable Processing cost Units Produced Total Joint Cost Sales Price at Split-off

DBB-1

DBB-2

DBB-3

Total

18,000 $ 65

27,000 $ 50

39,000 $ 75

84,000

$ 123,750

$ 49,500

$ 71,500

$ 244,750

18,000

27,000

39,000

84,000 $ 4,000,000

$ 25

$ 35

$ 55

The amount of joint costs allocated to product DBB-1 using the net realizable value method is: A) $2,194,894. B) $1,117,409. C) $1,000,337. D) $1,046,250. E) $804,769.

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113)

Units Sold Price (after additional processing) Separable Processing cost Units Produced Total Joint Cost Sales Price at Split-off

DBB-1

DBB-2

DBB-3

Total

16,000 $ 65

24,000 $ 50

36,000 $ 75

76,000

$ 110,000

$ 44,000

$ 66,000

$ 220,000

16,000

24,000

36,000

76,000 $ 3,600,000

$ 25

$ 35

$ 55

The amount of joint costs allocated to product DBB-1 using the net realizable value method is: A) $2,009,160. B) $286,500. C) $881,640. D) $667,345. E) $709,322.

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114)

Units Sold Price (after additional processing) Separable Processing cost Units Produced Total Joint Cost Sales Price at Split-off

DBB-1

DBB-2

DBB-3

Total

17,200 $ 65

25,800 $ 50

37,800 $ 75

80,800

$ 118,250

$ 47,300

$ 69,300

$ 234,850

17,200

25,800

37,800

80,800 $ 3,840,000

$ 25

$ 35

$ 55

The amount of joint costs allocated to product DBB-2 using the net realizable value method is: A) $2,120,601. B) $1,067,921. C) $952,840. D) $999,750. E) $766,559.

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115)

Units Sold Price (after additional processing) Separable Processing cost Units Produced Total Joint Cost Sales Price at Split-off

DBB-1

DBB-2

DBB-3

Total

16,000 $ 65

24,000 $ 50

36,000 $ 75

76,000

$ 110,000

$ 44,000

$ 66,000

$ 220,000

16,000

24,000

36,000

76,000 $ 3,600,000

$ 25

$ 35

$ 55

The amount of joint costs allocated to product DBB-2 using the net realizable value method is: A) $2,009,160. B) $286,500. C) $881,640. D) $667,345. E) $709,200.

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116)

Units Sold Price (after additional processing) Separable Processing cost Units Produced Total Joint Cost Sales Price at Split-off

DBB-1

DBB-2

DBB-3

Total

16,800 $ 65

25,200 $ 50

37,200 $ 75

79,200

$ 115,500

$ 46,200

$ 68,200

$ 229,900

16,800

25,200

37,200

79,200 $ 3,760,000

$ 25

$ 35

$ 55

The amount of joint costs allocated to product DBB-3 using the net realizable value method is: A) $2,083,420. B) $1,043,176. C) $929,111. D) $976,500. E) $747,468.

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117)

Units Sold Price (after additional processing) Separable Processing cost Units Produced Total Joint Cost Sales Price at Split-off

DBB-1

DBB-2

DBB-3

Total

16,000 $ 65

24,000 $ 50

36,000 $ 75

76,000

$ 110,000

$ 44,000

$ 66,000

$ 220,000

16,000

24,000

36,000

76,000 $ 3,600,000

$ 25

$ 35

$ 55

The amount of joint costs allocated to product DBB-3 using the net realizable value method is: A) $2,008,983. B) $286,500. C) $881,640. D) $667,345. E) $709,200.

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Fans Company has two service departments — product design and engineering support, and two production departments — assembly and finishing. The distribution of each service department's efforts to the other departments is shown below:

118)

SERVICE DEPARTMENT Product Design Engineering Support

Design 0% 20%

SERVICES PROVIDED TO Support Assembly 10% 30% 0% 45%

Finishing 60% 35%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Product Design Engineering Support Assembly Finishing

$ 280,000 $ 300,000 $ 1,110,000 $ 1,680,000

The total cost accumulated in the assembly department using the direct method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $1,997,917. B) $3,370,000. C) $1,372,083. D) $1,332,083. E) $1,378,749.

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119)

SERVICE DEPARTMENT Product Design Engineering Support

Design 0% 20%

SERVICES PROVIDED TO Support Assembly 10% 30% 0% 45%

Finishing 60% 35%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Product Design Engineering Support Assembly Finishing

$ 140,000 $ 160,000 $ 550,000 $ 840,000

The total cost accumulated in the assembly department using the direct method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $1,033,333. B) $1,690,000. C) $686,667. D) $646,667. E) $693,333.

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120)

SERVICE DEPARTMENT Product Design Engineering Support

Design 0% 20%

SERVICES PROVIDED TO Support Assembly 10% 30% 0% 45%

Finishing 60% 35%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Product Design Engineering Support Assembly Finishing

$ 150,000 $ 170,000 $ 590,000 $ 900,000

The total cost accumulated in the finishing department using the direct method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $1,074,375. B) $1,810,000. C) $735,625. D) $695,625. E) $742,291.

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121)

SERVICE DEPARTMENT Product Design Engineering Support

Design 0% 20%

SERVICES PROVIDED TO Support Assembly 10% 30% 0% 45%

Finishing 60% 35%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Product Design Engineering Support Assembly Finishing

$ 140,000 $ 160,000 $ 550,000 $ 840,000

The total cost accumulated in the finishing department using the direct method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $1,033,333. B) $1,690,000. C) $686,667. D) $646,667. E) $693,333.

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122)

SERVICE DEPARTMENT Product Design Engineering Support

Design 0% 20%

SERVICES PROVIDED TO Support Assembly 10% 30% 0% 45%

Finishing 60% 35%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Product Design Engineering Support Assembly Finishing

$ 198,000 $ 178,000 $ 588,000 $ 878,000

The total cost accumulated in the assembly department using the step method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar. Assume that the engineering support department goes first): A) $1,096,033. B) $2,042,000. C) $745,967. D) $698,092. E) $1,018,908.

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123)

SERVICE DEPARTMENT Product Design Engineering Support

Design 0% 20%

SERVICES PROVIDED TO Support Assembly 10% 30% 0% 45%

Finishing 60% 35%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Product Design Engineering Support Assembly Finishing

$ 140,000 $ 160,000 $ 550,000 $ 840,000

The total cost accumulated in the assembly department using the step method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar assume that the engineering support department goes first): A) $1,000,125. B) $1,690,000. C) $679,333. D) $689,875. E) $923,000.

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124)

SERVICE DEPARTMENT Product Design Engineering Support

Design 0% 20%

SERVICES PROVIDED TO Support Assembly 10% 30% 0% 45%

Finishing 60% 35%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Product Design Engineering Support Assembly Finishing

$ 186,000 $ 166,000 $ 576,000 $ 866,000

The total cost accumulated in the finishing department using the step method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar assume that the engineering support department goes first): A) $1,070,233. B) $1,994,000. C) $723,767. D) $683,767. E) $730,433.

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125)

SERVICE DEPARTMENT Product Design Engineering Support

Design 0% 20%

SERVICES PROVIDED TO Support Assembly 10% 30% 0% 45%

Finishing 60% 35%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Product Design Engineering Support Assembly Finishing

$ 140,000 $ 160,000 $ 550,000 $ 840,000

The total cost accumulated in the finishing department using the step method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar assume that the engineering support department goes first): A) $1,010,667. B) $1,000,125. C) $689,875. D) $642,000. E) $923,000.

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126)

SERVICE DEPARTMENT Product Design Engineering Support

Design 0% 20%

SERVICES PROVIDED TO Support Assembly 10% 30% 0% 45%

Finishing 60% 35%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Product Design Engineering Support Assembly Finishing

$ 165,000 $ 135,000 $ 490,000 $ 730,000

The total cost accumulated in the assembly department using the reciprocal method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $1,784,209. B) $562,934. C) $618,342. D) $957,066. E) $901,658.

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127)

SERVICE DEPARTMENT Product Design Engineering Support

Design 0% 20%

SERVICES PROVIDED TO Support Assembly 10% 30% 0% 45%

Finishing 60% 35%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Product Design Engineering Support Assembly Finishing

$ 140,000 $ 160,000 $ 550,000 $ 840,000

The total cost accumulated in the assembly department using the reciprocal method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $1,890,000. B) $627,143. C) $682,551. D) $1,062,857. E) $1,007,449.

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128)

SERVICE DEPARTMENT Product Design Engineering Support

Design 0% 20%

SERVICES PROVIDED TO Support Assembly 10% 30% 0% 45%

Finishing 60% 35%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Product Design Engineering Support Assembly Finishing

$ 100,000 $ 200,000 $ 540,000 $ 820,000

The total cost accumulated in the finishing department using the reciprocal method is(calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $1,863,265. B) $623,878. C) $679,286. D) $1,036,122. E) $980,714.

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129)

SERVICE DEPARTMENT Product Design Engineering Support

Design 0% 20%

SERVICES PROVIDED TO Support Assembly 10% 30% 0% 45%

Finishing 60% 35%

The direct operating costs of the departments (including both variable and fixed costs) were as follows: Product Design Engineering Support Assembly Finishing

$ 140,000 $ 160,000 $ 550,000 $ 840,000

The total cost accumulated in the finishing department using the reciprocal method is(calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A) $1,890,000. B) $627,143. C) $682,551. D) $1,062,857. E) $1,007,449.

130)

How is the department to be allocated first usually chosen in the step method? A) It is the department that employs the most people. B) It is the smallest department. C) It provides the highest percentage of service to other service departments. D) It is the department with the least amount of costs. E) It provides the smallest percentage of service to other service departments.

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131)

The direct method of departmental cost allocation is the simplest of the three methods because it: A) Ignores the reciprocal flows. B) Uses the service flows only to service departments. C) Uses a sequence of steps to allocate service department costs. D) Doesn’t require any calculations. E) All of these answer choices are correct.

132)

How are reciprocal flows determined? A) Simultaneously in a system of equations. B) Separately in a system of equations. C) Simultaneously with one equation. D) In a step by step process. E) None of the answer choices are correct.

133)

Which of the following is not a "production" department in a service firm? A) Accounting department. B) Operations department. C) Marketing department. D) Factory engineering and maintenance. E) Administrative services department.

134)

By-products are products: A) From the same production process that have relatively substantial sales values. B) In a joint production process whose total sales values are minor in comparison with the total sales value of all the joint products. C) That come from different production processes. D) That are marketed in a joint marketing program. E) That yield multiple outputs from a common resource input.

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135)

What is the split-off point? A) A process that yields multiple outputs from a common resource input. B) A method that uses a physical measure such as pounds, gallons, yards, or units of volume produced at the split-off point to allocate the joint costs to joint products. C) The point in a joint production process where products with individual identities emerge. D) A method that uses units of output to allocate costs to products. E) The point in cost allocation that managers decide to split costs.

136)

Firm X has a production process that has a total joint cost of $14,000. At the split-off point, there are 1,000 pounds of Product 1 and 3,000 pounds of Product 2. What is the cost per pound of Product 1 using the physical measure method? A) $3.00. B) $3.50. C) $4.00. D) $4.50. E) $4.25.

137)

Firm X has a production process that has a total joint cost of $15,000. At the split-off point, there are 2,000 pounds of Product 1 and 3,000 pounds of Product 2. What is the cost per pound of Product 1 using the physical measure method? A) $2.50. B) $3.00. C) $3.50. D) $4.00. E) $3.75.

138)

Which of the following is an advantage of the net realizable value method? A) It produces an allocation that yields a predictable, comparable level of profitability among the products. B) Market prices for some industries change constantly. C) The sales price might not be available. D) Conceptually superior to the revenue recognition method. E) It is easy to calculate.

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Answer Key Test name: chapter 7 1) Essay 2) Essay 3) Essay 4) Essay 5) Essay 6) Essay 7) Essay 8) Essay 9) A 10) C 11) D 12) A 13) A 14) C 15) A 16) B 17) C 18) B 19) C 20) D 21) E 22) A 23) B 24) D 25) E 26) A 27) C 28) D 29) B 30) E 31) A 32) B 33) A 34) A 35) A 36) D 37) D

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38) B 39) B 40) C 41) C 42) B 43) A 44) E 45) E 46) A 47) B 48) C 49) C 50) E 51) E 52) C 53) C 54) B 55) B 56) E 57) E 58) C 59) C 60) A 61) A 62) E 63) E 64) B 65) B 66) C 67) C 68) D 69) D 70) C 71) C 72) B 73) B 74) D 75) A 76) D 77) C

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78) B 79) A 80) C 81) A 82) A 83) A 84) C 85) C 86) C 87) C 88) A 89) A 90) D 91) D 92) B 93) B 94) C 95) C 96) A 97) A 98) C 99) C 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

B B E E C C C C A A E E E E C C A A

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118) 119) 120) 121) 122) 123) 124) 125) 126) 127) 128) 129) 130) 131) 132) 133) 134) 135) 136) 137) 138)

C C A A C C A A C C E E C A A D B C B B A

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100

Chapter 8 1) Based in Minneapolis, Minnesota, the Hubert Memorial Foundation has $300 million in

investments and contributes approximately 80 percent of the average annual return of $25 million to worthy causes. Individuals and groups requesting grants of $100,000 or more must make an in-person presentation of their request. These presentations generally involve three to five individuals and take an average of two hours each. The Executive Director of the Hubert Foundation is concerned with the cost of resources used to schedule and accommodate the 500 to 600 group presentations each year. She has asked you for suggestions about what kind of cost data to gather, and ways to classify the data to help her understand cause/effect relationships between costs and results. Required: Write a brief memo to the Executive Director giving her some basic information on cost classification and behavior.

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2) Green Mountain College is a 5,000 student state-supported, four-year institution located in

the mid-South. Physical facilities can accommodate another 1,000 students, and the college administration is attempting to estimate the added yearly cost of educating the additional students. The Business Manager of Green Mountain College has asked you to evaluate two linear regressions given below, and recommend the better one to her. Regression 1 SC = 4,303 + 143.50 CH Coefficient of determination, 0.594 Standard error of the estimate, 117 (average cost is $6,025)

Regression 2 SC = 3,800 + 441.25 IS Coefficient of determination, 0.707 Standard error of estimate, 133 (average cost is $6,025)

Where: SC = Student cost CH = Cost per credit hour IS = Incremental cost per student Required: (1) Explain your choice of cost function (regression 1 or regression 2) for predicting added student educational costs per year. (2) What information value does the standard error of estimate (SE) have in this situation?

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3) US Best Corporation produces and distributes products nationwide, and competes on cost

leadership. In order to maintain its current industry cost and price leadership role, US Best uses cost-based pricing techniques. One of the factors considered in determining future prices is the Consumer Price Index (CPI). Considerable discussion over the past few years on the national level has strongly suggested the monthly CPI inflation adjustment figure is skewed upward by as much as one percentage point. Required: What implication does this purported inflation exaggeration in the Consumer Price Index have on US Best Corporation's cost-based pricing changes in the near future?

4) Kumar Company is attempting to predict its maintenance costs more accurately. Maintenance

costs are a mixed cost. Maintenance costs and machine hours for the first four months of the year are as follows: Month January February March April

Maintenance Costs $ 8,430 7,620 8,810 7,580

Machine Hours 1,320 1,190 1,430 1,130

Required: Using the high-low method, calculate unit variable cost and monthly fixed costs.

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5) Austen Company produced a pilot run of eighty units of a recently developed part used in the

finished products. Austen Company expects to produce and sell 2,560 units annually. The pilot run required 40 direct labor hours for the eighty units, averaging 0.5 direct labor hours per unit. Austen experiences an eighty percent learning curve. Required: Calculate the average direct labor hours per unit for the first 2,560 units (including the pilot run) produced.

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6) School Kids' ShoeStore expanded the size of its store in Westfield, NJ two months ago. The

owner, Montgomery Brown, has asked you to develop an analysis of the cost structure in his store, as a basis for assessing the profitability of his business. He provides you with account data for the most recent month, which he explains is representative of what these costs are in most months of the year; there is not much seasonality in his business. Last month, May, 890 pairs of shoes were sold. This month Montgomery expects to sell 1,100 pairs of shoes. Account Salesperson’s Wages Shoe Purchases Rent Depreciation Shopping Bags Insurance Advertising Utilities Mr. Brown’s Salary

June $ 2,200 8,250 2,025 40 22 75 65 125 2,850

May $ 1,780 6,675 2,025 40 18 75 65 125 2,850

$ 15,652

$ 13,653

NOTE: Assume that Mr. Brown purchases promptly on a day-to-day basis to replace inventory, so that the level of inventory remains constant. Required: (1) Develop the cost equation for Mr. Brown's store, using the account classification method, assuming that the cost object is each pair of shoes. (2) Mr. Brown plans to increase sales by 25% next month, July, by reducing the price of his shoes. Assuming a 25% increase in sales, what is the lowest price Mr. Brown can sell his shoes for if he wants to meet all costs plus make $1 profit per pair of shoes? (3) What would the profit per pair of shoes be if sales actually increased by only 15% and the shoes were sold at the price calculated in (2)?

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7) Moss Point Manufacturing recently completed and sold an order of 50 units that had the

following costs: Direct materials Direct labor (1,000 hours @ $8.50) Variable overhead (1,000 hours @ $4.00)* Fixed overhead*

1,500 8,500 4,000 2,400 $ 16,400

Applied on the basis of direct labor hours

The company has now been requested to prepare a bid for 150 units of the same product. Required: If an 80 percent learning curve is applicable, estimate Moss Point's total cost on this order.

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8) Andrews & Henderson Incorporated is a manufacturer of mining equipment in Colorado.

Eric Andrews, the founder of the corporation, has just won a new contract from Shakley Inc. to build seven new tunneling machines for a price of $500,000 each. The machines are to be delivered in the next seven months. The costs associated with the production of the first machine are listed below. Eric estimates that an 85% cumulative average learning rate exists for these types of projects. Following is the cost information for the first tunneling machine:

Direct Materials: Direct Labor (8,500 hours @ $50) Variable Overhead (8,500 @ $10)

$ 150,000 $ 425,000 $ 85,000

Required: (1) Prepare an estimate of the total hours for producing the second through eighth machines. (2) Determine the expected profit from this project.

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9) Elisko Incorporated is a major book distributor. Elisko's Shipping Department consists of a

manager plus ten other permanent positions- four supervisors and six loaders. The four supervisors and six loaders provide the minimum staff and frequently must be supplemented by additional workers, especially during the weeks when the volume of shipments is heavy. Thus, the number of people shipping the orders frequently averages over 30 per week, i.e., ten permanent persons plus 20 temporary workers. The temporary workers are hired through a local agency. Elisko must use temporary workers to maintain a minimum daily shipment rate of 95 percent of orders presented for shipping. The loss of efficiency from using temporary workers is minimal, and the $10.00 per hour cost of temporary workers is less than the $15.00 per hour for the loaders and $22.50 per hour for the supervisors on Elisko's permanent staff. The agency requires Elisko to utilize each temporary worker for at least four hours each day. Jim Locter, Shipping Manager, schedules temporary help based on forecasted orders for the coming week. Supervisors serve as loaders until temporary help is needed. A supervisor stops loading when the ratio of loaders to supervisors reaches 7:1. Locter knows that he will need temporary help when the forecasted average daily orders exceed 300. Locter has frequently requested from two to four extra temporary workers per day to guard against unexpected rush orders. If there was not enough work, he would dismiss the extra people at noon after four hours of work. The agency has not been pleased with Locter's practice of overhiring and has notified Elisko that it is changing its policy. From now on, if a person is dismissed before an eight-hour assignment is completed, Elisko will still be charged for an eight-hour day plus mileage back to the agency for reassignment. This policy would go into effect the following week. Paula Brand, General Manager, called Jim Locter to her office when she received the notice from the agency. She told Locter, "Your staffing has to be better. This penalty could cost us up to $300 - $500 per week in labor cost for which we receive no benefit. Why can't you schedule better?" Locter replied, "I agree that the staffing should be better, but I can't do it accurately when there are rush orders. By being able to layoff people at noon, I have been able to adjust for the uncertain order schedule without cost to the company. Of course the agency's new policy changes this." Locter and Brand contacted Elisko's Controller, Mitch Berg regarding Locter's problem on how to estimate the number of people needed each week. Berg reasoned that Locter needed a quick solution until he could study the work flow. Berg suggested a regression analysis using the number of orders shipped as the independent variable and the number of workers

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(permanent plus temporary) as the dependent variable. Berg indicated that data for the past year was available and that the analysis could be done quickly using the accounting department's computer system. Berg completed the two regression analyses that are presented below. The first regression was based on the data for the entire year. The second regression excluded the weeks when only the 10 permanent staff persons were used; these weeks were unusual and appeared to be out of the relevant range. Locter was not familiar with regression analysis and, therefore, was unsure how to implement this technique. He wondered which regression data he should employ, i.e., which one was better. When he recognized that the regression was based on actual orders shipped by week, Berg told him he could use the forecasted shipments for the week to determine the number of workers needed. Regression Equation: W = a + bS S = orders shipped Regression 1

a b Standard error of the estimate (SE) 95% confidence for W R-Squared t-value of coefficient

Regression 2

(Daily data for 52 (Daily data for 38 weeks) weeks) 5.062 0.489 0.023 0.028 2.012 0.432 3.943 0.962 32.85

0.848 0.998 140

Required: (1) Using Regression 1 based on data from a full year, calculate the number of temporary workers Jim Locter would plan to hire for a forecast indicating 1,200 shipments per day. (2) Which one of the two regressions appears to be better? Explain your answer. (3) Explain the circumstances under which Jim Locter can use the regression in his planning for temporary workers. (4) Explain whether the regression analysis that Elisko Incorporated employed in this situation could be improved. If it cannot be improved, explain why. (5) How can the regression analysis help Elisko be more competitive? Version 1

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10) Quick Telephone Response (QTR) was started several years ago to provide an outsource

telephone service for the growing number of small, specialty catalog mail-order companies that commenced operations in recent years. Since most of the calls are received between 10 a.m. and 2 p.m., QTR began offering a telephone answering service to attempt to fill the remainder of the day for its operators. However, as outsource competition has recently increased, QTR analyzed its operations and concluded that it should focus on its core business of providing service to its mail-order clients only. To bring operating costs into line, QTR concluded that it should shed some of its full-time operators and replace them with part-time operators in order to cover the peak mid-day calling period. Weldon Miller, director of the Telephone Response Operations Department, engaged a consultant to assist in analyzing the situation and determining the number of full-time and part-time employees that will be required to meet QTR's variable operating schedule. Based on a study of one month's activity they concluded that the number of daily orders received for their specialty clients averaged 3,450 with the mid-day period averaging 2,250 orders. They calculated that there would be a need to retain twenty five (25) full-time employees. They further developed two regression analyses. Regression 1 relates to the average of 3,450 orders per day and Regression 2 relates to the average of 2,250 peak mid-day orders. The data resulting from these analyses are presented below. Regression Equation: where: E = a + bN E = Employees N = Number of orders

a b Standard error of the coefficient Standard error of the estimate R squared 95% confidence interval for the estimate of E

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Regression 1

Regression 2

26.0265 0.0051 0.0005

31.6785 0.0045 0.0009

4.623

4.228

0.563 8.697

0.682 7.552

Required: (1) Refer to the regression data in the previous column for Quick Telephone Response (QTR).(a) Calculate the number of part-time employees that will be needed each day using the regression results relating to the average number of daily orders handled. Round your response to the nearest whole number. (b) Apply the regression results that relate to the average number of orders handled during the mid- day peak period. Calculate the number of part-time employees that will be needed daily. Round your response to the nearest whole number. (c) Of the two regression analyses used select the regression analysis which appears to be the better one and explain the reason for your conclusion. (2) Describe at least two ways that Weldon Miller could improve the regression predictions. (CMA adapted)

11) Train Express Company, which manufactures locomotive engines, is attempting to predict its

maintenance costs more accurately. Maintenance costs are a mixed cost. Maintenance costs and machine hours for the first four months of the year are as follows: Month January February March April

Maintenance Costs $ 50,320 60,210 58,005 62,370

Machine Hours 1,340 1,580 1,450 1,840

Required: Using the high-low method, calculate unit variable cost and monthly fixed costs.

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12) Patterson Equipment Incorporated produced a pilot run of 20 units of a recently developed

motor used in the finished products. The pilot run required an average of 12 direct labor hours per motor. Patterson has an eighty percent learning curve on the direct labor hours needed to produce new motors. Required Calculate the average direct labor hours per unit for the first 640 motors (including the pilot run) produced.

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13) Whittenberg Distributors, a major retailing and mail-order operation, has been in business for

the past 10 years. During that time, its mail-order operations have grown from a sideline to represent more than 80 percent of the company's annual sales. Of course, the company has suffered growing pains. At times, overloaded or faulty computer programs resulted in lost sales. And scheduling temporary workers to augment the permanent staff during peak periods has always been a problem. Peter Bloom, manager of mail-order operations, has developed procedures for handling most problems. However, he is still trying to improve the scheduling of temporary workers to take customer telephone orders. Under the current system, Peter keeps a permanent staff of 60 employees who handle the base telephone workload and supplements this staff with temporary workers as needed. The temporary workers are hired on a daily basis; he determines the number needed for the next day the afternoon before based on his estimate of the upcoming telephone volume. Peter has decided to try regression analysis to improve the hiring of temporary workers. By summarizing the daily labor-hours into weekly totals for the past year, he determined the number of workers used each week. In addition, he listed the number of orders processed each week. After entering the data into a spreadsheet, Peter ran two regressions. Regression 1 related the total number of workers (permanent staff plus temporary workers) to the number of orders received. Regression 2 related only temporary workers to the number of orders received. The output of these analyses follows: Regression model: W = a + b × T where: W = workers; T = telephone orders

a b Standard error of the estimate t-value Coefficient of determination

Regression 1

Regression 2

21.938 0.0043 3.721 1.95 0.624

−46.569 0.0051 1.495 2.04 0.755

Required: 1. Peter Bloom estimates that Whittenberg Distributors will receive 12,740 orders during the second week of December.a. Predict the number of temporary workers needed for this week using regression 1. b. Using regression 2, predict the number of temporary workers needed during this week. 2. Which of the two regression analyses appears to be better? Explain your answer. 3. Describe at least three ways that Peter Bloom could improve his analysis to make better predictions than either of these regression results provides. (CMA Adapted)

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14) Regression analysis is increasingly being used in business applications, often called

"business analytics", in which a company studies its customers to gather information that can be used to make each customer more profitable. Companies that do this include Harrah's and eHarmony, among many others. Required: (1) Briefly explain how a company could use regression to improve customer profitability. (2) Do you see any ethical issues involved in the use of business analytics? Explain.

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15) Clothes for U is a large merchandiser of apparel for budget-minded families. Management

recently became concerned about the amount of inventory carrying costs and transportation costs between warehouses and retail outlets. As a starting point in further analyses, Gregory Gonzales, the controller, wants to test different forecasting methods and then use the best one to forecast quarterly expenses for 2021. The relevant data for the previous three years follows: Quarter 1/2018 2/2018 3/2018 4/2018 1/2019 2/2019 3/2019 4/2019 1/2020 2/2020 3/2020 4/2020

Expense $ 12,500 11,300 11,600 13,700 12,900 12,100 11,700 14,000 13,300 12,300 12,100 14,600

The results of a simple regression analysis using all 12 data points yielded an intercept of $11,854.55 and a coefficient for the independent variable of $126.22 ( R-squared = 0.19, t = 1.5, SE = 974). Required: (1) Determine the quarterly forecasts for 2021 using the high-low method and also regression analysis. Recommend which method Gregory should use and explain why. (2) How does your analysis in requirement 1 change if Clothes for U is involved in global sourcing of products for its stores? Clothes for U Regression Estimation 1 12500 2 11300 3 11600 4 13700 5 12900 6 12100 7 11700

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8 9 10 11 12

14000 13300 12300 12100 14600

SUMMARY OUTPUT Regression Statistics Multip le R

0.43973 4

R Square

0.19336 6

Adjust ed R Square

0.11270 3

Standa rd Error

974.892 9

Observ ations

ANOVA df

F Signifi cance F

Regres sion

227833 9.2

2278 339

Residu al

950416 0.8

9504 16.1

Total

117825 00

2.39 0.15259 7202 3

t PCoeffic Standard Static valu ients Error e

Lower Upper Lower 95% 95% 95.0%

Upper 95.0%

Interc 11854. ept 55

600. 0050 8

19.7 5741

2.42 10517 E−09 .65

1319 1.44

1051 7.65

13191. 44008

X 126.22 Variab 38 le 1

81.5 2463 6

1.54 829

0.15 −55.4 2593 2446

307. 872

−55. 4244 6

307.87 199

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16) Data mining and business analytics software are increasingly used by large retailers and hotel

chains, restaurants, and other businesses. In recent years, the trend is for smaller companies and manufacturers to begin to see the value of data mining, analyzing the data the company has about its customers and competitive environment to help the company make improved decisions about pricing, customer service strategies, new product development, and other competitive issues. Required: Explain how a growing, medium-sized manufacturer of furniture for hotels, businesses, and other commercial enterprises could use analytics to help it reach out to new customers.

17) Companies such as Walmart and UPS are committed to reducing cost and improving their

competitive position through sustainability efforts. Walmart and UPS have both reduced significantly the amount of fuel used in their truck fleets. Required: Suggest how regression and correlation analysis might be used to supplement the efforts of companies like Walmart and UPS to improve the fuel efficiency of their trucks.

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18) Which of the four types of cost drivers-activity-based, volume-based, structural and

executional-are often best related to linear cost estimation methods? A) Activity-based only. B) Activity-based and volume-based. C) Structural and volume-based. D) Executional and volume-based. E) Structural and executional.

19) Which of the following is not considered as part of step 6 in cost estimation? A) The consistency and accuracy of data selected. B) The precision of the method selected. C) The study of the graphs. D) The definition of the cost object. E) The completeness and appropriateness of cost drivers selected.

20) The identification of cost drivers is perhaps the most important step in developing the cost

estimate because: A) It is the first step in cost estimation. B) It is the final step in cost estimation. C) There may be a number of relevant drivers, some not immediately obvious. D) The other steps are easier to execute. E) It requires much more time than the other steps.

21) Technology and complexity issues often lead management to simplify and to: A) Use linear estimation methods. B) Use volume-based costing and nonlinear estimation methods. C) Use volume-based costing methods. D) Use nonlinear estimation methods. E) Use activity-based costing and volume-based costing methods.

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22) Data collected on the cost objects and cost drivers for cost estimation must be: A) Brief and limited. B) Exhaustive. C) Concrete. D) Consistent and accurate. E) Varied.

23) Data on cost objects and cost drivers must be: A) Consistent and accurate. B) Clean and understandable. C) Comprehensive and efficient. D) Accurate and comprehensive. E) Clean and consistent.

24) Selection and employment of the correct estimation method is: A) Easy once the data is gathered. B) Relatively easy because only two effective methods exist. C) Dependent on the accuracy/cost tradeoff for the estimation objectives. D) Primarily subjective in nature. E) Difficult because so many effective methods are available.

25) Regression analysis is better than the high-low method of cost estimation because regression

analysis: A) Is mathematical. B) Can provide greater precision and reliability. C) Fits data into a mathematical equation. D) Takes less time. E) Is a statistical method.

26) When there are two or more cost drivers, regression is termed: A) Simple. B) Binary. C) Multiple. D) Curvilinear. E) Synergistic.

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27) The independent variable in regression analysis is: A) The cost to be estimated. B) The cost driver used to estimate the value of the dependent variable. C) Hard to define because of its independence. D) Usually expressed as a range of values. E) Always a volume-based cost driver.

28) High-low and regression cost estimation methods are alike in that they both: A) Have an intercept term and a slope term. B) Have an intercept term but not a slope term. C) Have a slope term but not an intercept term. D) Use all data points. E) Use only a few selected data points.

29) What is the difference between a simple linear regression and a multiple linear regression? A) Multiple has more than one dependent variable. B) Simple has a single independent variable. C) Simple has more than one dependent variable. D) There is no difference. E) Multiple always includes a dummy variable.

30) A variable used in regression analysis that represents the presence or absence of a condition,

e.g., seasonality, is called a(n): A) Random variable. B) Dummy variable. C) Constant term variable. D) Correlating variable. E) Fixed term variable.

31) An R-squared value that approaches one (1.0) would indicate: A) An average degree of explanatory power. B) A low degree of explanatory power. C) A high degree of explanatory power. D) The presence of outliers. E) The absence of outliers.

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32) Extending the length of a time period in cost estimation will result in: A) Fewer recording lags or cut-off errors. B) Confounding data. C) Increasing the explanatory power of the data. D) Better results because more data is being used. E) More recording lags or cut-off errors.

33) The learning curve in cost estimation is a good example of: A) Non-linear cost behavior. B) Machine-intensive production. C) Simple regression. D) A random variable. E) Efficient labor.

34) Why use the high-low method? A) It is easiest to understand and apply. B) It is the most accurate. C) It has greater computational complexity. D) It requires more expertise. E) It is the least accurate.

35) In least squares regression analysis, the cost to be estimated is the: A) Independent variable. B) Dependent variable. C) Cost object D) Outlier. E) Dummy variable.

36) Which one the following is a variable that takes on values of 1, 2, 3, … for each period in

sequence? A) Dummy variable. B) Price change index. C) Trend variable. D) Dependent variable. E) Independent variable.

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37) Muffler Incorporated produces floor mats for cars and trucks. The owner, Kenneth Muffler,

asked you to assist him in estimating his maintenance costs. Together, Mr. Muffler and you determined that the single best cost driver for maintenance costs was machine hours. Below are data from the previous fiscal year for maintenance expense and machine hours: Month 1 2 3 4 5 6 7 8 9 10 11 12

Maintenance Expense $ 3,400 3,590 3,770 3,900 3,900 4,240 3,890 3,700 3,420 3,040 2,920 3,160

Machine Hours 2,340 2,440 2,540 2,570 2,420 2,590 2,560 2,530 2,350 2,220 1,830 2,210

Using the high-low method, unit variable cost is calculated to be: A) $1.85. B) $2.13. C) $1.90. D) $1.68. E) $1.74.

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38) Muffler Incorporated produces floor mats for cars and trucks. The owner, Kenneth Muffler,

Maintenance Expense $ 3,120 3,310 3,490 3,620 3,620 3,680 3,610 3,420 3,140 2,880 2,780 2,940

Machine Hours 2,200 2,300 2,400 2,430 2,280 2,440 2,420 2,390 2,210 2,080 1,690 2,070

Using the high-low method, unit variable cost is calculated to be: A) $1.31. B) $1.59. C) $1.36. D) $1.14. E) $1.20.

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39) Muffler Incorporated produces floor mats for cars and trucks. The owner, Kenneth Muffler,

Maintenance Expense $ 3,480 3,670 3,850 3,980 3,980 4,400 3,970 3,780 3,500 3,120 2,960 3,240

Machine Hours 2,380 2,480 2,580 2,610 2,460 2,620 2,600 2,570 2,390 2,260 1,650 2,250

Using the high-low method, total monthly fixed cost is calculated to be (Round final answer to full dollar amount with no decimal places): A) $312. B) $236. C) $511. D) $171. E) $576.

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40) Muffler Incorporated produces floor mats for cars and trucks. The owner, Kenneth Muffler,

Maintenance Expense $ 3,120 3,310 3,490 3,620 3,620 3,680 3,610 3,420 3,140 2,880 2,780 2,940

Machine Hours 2,200 2,300 2,400 2,430 2,280 2,440 2,420 2,390 2,210 2,080 1,690 2,070

Using the high-low method, total monthly fixed cost is calculated to be: A) $484. B) $364. C) $752. D) $259. E) $898.

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41) Tractor Company needs to prepare pro forma financial statements for the next fiscal year. To

do so, the company must forecast its total overhead cost. The actual machine hours and total overhead cost are presented below for the past six months. Month January February March April May June

Total Overhead $ 6,320 6,500 6,020 5,590 6,060 6,370

Machine Hours 1,990 2,100 1,750 1,600 1,870 2,020

Using the high-low method, unit variable overhead cost is calculated to be: A) $1.52 B) $1.62 C) $1.72 D) $1.82 E) $1.92

42) Tractor Company needs to prepare pro forma financial statements for the next fiscal year. To

do so, the company must forecast its total overhead cost. The actual machine hours and total overhead cost are presented below for the past six months. Month January February March April May June

Total Overhead $ 6,288 6,460 5,987 5,559 6,032 6,341

Machine Hours 1,980 2,090 1,745 1,560 1,865 2,012

Using the high-low method, unit variable overhead cost is calculated to be: A) $1.40 B) $1.50 C) $1.60 D) $1.70 E) $1.80

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43) Tractor Company needs to prepare pro forma financial statements for the next fiscal year. To

do so, the company must forecast its total overhead cost. The actual machine hours and total overhead cost are presented below for the past six months. Month January February March April May June

Total Overhead $ 6,320 6,600 6,020 5,590 6,060 6,370

Machine Hours 1,990 2,100 1,750 1,600 1,870 2,020

Using the high-low method, total monthly fixed overhead cost is calculated to be: A) $2,077. B) $2,149. C) $1,963. D) $2,358. E) $2,284.

44) Tractor Company needs to prepare pro forma financial statements for the next fiscal year. To

do so, the company must forecast its total overhead cost. The actual machine hours and total overhead cost are presented below for the past six months. Month January February March April May June

Total Overhead $ 6,288 6,460 5,987 5,559 6,032 6,341

Machine Hours 1,980 2,090 1,745 1,560 1,865 2,012

Using the high-low method, total monthly fixed overhead cost is calculated to be: A) $2,626. B) $2,698. C) $2,512. D) $2,907. E) $2,833.

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45) Cool Box Incorporated needs to prepare pro forma financial statements for the next fiscal

year. To do so, the company must forecast its total overhead cost. The actual machine hours and total overhead cost are presented below for the past six months. Month January February March April May June

Total Overhead $ 8,540 8,290 8,670 9,150 9,450 8,090

Machine Hours 2,200 2,120 2,350 2,820 2,910 2,110

Using the high-low method, unit variable overhead cost is calculated to be: A) $1.70. B) $1.45. C) $1.75. D) $2.00. E) $1.60.

46) Cool Box Incorporated needs to prepare pro forma financial statements for the next fiscal

Total Overhead $ 8,258 8,006 8,387 8,832 8,921 7,841

Machine Hours 2,134 2,045 2,276 2,743 2,834 2,034

Using the high-low method, unit variable overhead cost is calculated to be: A) $1.35. B) $1.15. C) $1.40. D) $1.65. E) $1.25.

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47) Cool Box Incorporated needs to prepare pro forma financial statements for the next fiscal

Total Overhead $ 9,020 8,570 9,180 9,750 10,410 8,470

Machine Hours 2,320 2,270 2,470 2,940 3,060 2,260

Using the high-low method, total monthly fixed overhead cost is calculated to be: A) $2,989.50 B) $3,357.20 C) $3,556.30 D) $3,769.70 E) $3,860.80

48) Cool Box Incorporated needs to prepare pro forma financial statements for the next fiscal

Total Overhead $ 8,258 8,006 8,387 8,832 8,921 7,841

Machine Hours 2,134 2,045 2,276 2,743 2,834 2,034

Using the high-low method, total monthly fixed overhead cost is calculated to be: A) $5,095.10 B) $5,462.80 C) $5,661.90 D) $5,875.30 E) $5,966.40

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49) Do-Over Incorporated recently obtained a short-term bank loan from City National Bank.

The bank required that certain credit information and pro forma financial statements be maintained through the life of the loan. In order to prepare the pro forma statements, DoOver must forecast total overhead cost. The actual machine hours and overhead cost are presented below for the past six months. Month January February March April May June

Overhead Cost $ 3,420 3,720 3,096 3,450 3,550 3,680

Machine Hours 1,390 1,510 1,270 1,350 1,350 1,420

Using the high-low method, unit variable overhead cost is calculated to be: A) $3.09. B) $4.00. C) $2.66. D) $3.20. E) $2.60.

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50) Do-Over Incorporated recently obtained a short-term bank loan from City National Bank.

Overhead Cost $ 3,185 3,484 2,996 3,210 3,315 3,440

Machine Hours 1,274 1,394 1,150 1,235 1,230 1,300

Using the high-low method, unit variable overhead cost is calculated to be: A) $2.49. B) $3.40. C) $2.06. D) $2.60. E) $2.00.

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51) Do-Over Incorporated recently obtained a short-term bank loan from City National Bank.

Overhead Cost $ 3,320 3,628 3,212 3,570 3,630 3,674

Machine Hours 1,301 1,430 1,204 1,280 1,275 1,435

Using the high-low method, total monthly fixed overhead cost is calculated to be: A) $734 B) $804 C) $720 D) $798 E) $830

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52) Do-Over Incorporated recently obtained a short-term bank loan from City National Bank.

Overhead Cost $ 3,185 3,484 2,996 3,210 3,315 3,440

Machine Hours 1,274 1,394 1,150 1,235 1,230 1,300

Using the high-low method, total monthly fixed overhead cost is calculated to be: A) $626. B) $696. C) $612. D) $690. E) $722.

53) Comp Company hired Smith & Smith to design a new computer-aided manufacturing

facility. The new facility was designed to produce 660 computers per month. The variable costs for each computer are $675 and the fixed costs total $73,450 per month. The average cost per unit, if the facility normally expects to operate at eighty five percent of capacity, is calculated to be (round to nearest cent): A) $805.93. B) $761.99. C) $789.66. D) $824.24. E) $795.46.

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54) Comp Company hired Smith & Smith to design a new computer-aided manufacturing

facility. The new facility was designed to produce 300 computers per month. The variable costs for each computer are $660 and the fixed costs total $74,700 per month. The average cost per unit, if the facility normally expects to operate at eighty-five percent of capacity, is calculated to be (round to nearest cent): A) $952.94. B) $909.00. C) $936.67. D) $971.25. E) $942.47.

55) Eiffel’s Café bakes croissants that are sold to local restaurants and grocery stores in the

Athens, Georgia area. When 800 croissants are baked, the average cost is $0.70. When 960 croissants are baked, the average cost is $0.65. What is the total cost when 695 croissants are baked? A) $638. B) $658. C) $518. D) $602. E) $570.

56) Eiffel’s Café bakes croissants that are sold to local restaurants and grocery stores in the

Athens, Georgia area. When 600 croissants are baked, the average cost is $0.70. When 720 croissants are baked, the average cost is $0.65. What is the total cost when 670 croissants are baked? A) $568. B) $588. C) $448. D) $532. E) $500.

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57) The following costs were for Clear Vision Incorporated, a contact lens manufacturer: Output 400 450 500 550

Fixed Cost $ 5,200 5,200 5,200 5,200

Variable Cost $ 16,800 18,900 21,000 23,100

Total Costs $ 22,000 24,100 26,200 28,300

At an output level of 475 lenses, per unit variable cost is calculated to be: A) $36.29. B) $50.00. C) $32.00. D) $37.56. E) $42.00.

58) The following costs were for Clear Vision Incorporated, a contact lens manufacturer: Output 300 350 400 450

Fixed Cost $ 5,200 5,200 5,200 5,200

Variable Cost $ 12,000 14,000 16,000 18,000

Total Costs $ 17,200 19,200 21,200 23,200

At an output level of 425 lenses, per unit variable cost is calculated to be: A) $34.29. B) $48.00. C) $30.00. D) $35.56. E) $40.00.

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59) The following costs were for Clear Vision Incorporated, a contact lens manufacturer: Output 310 360 410 460

Fixed Cost $ 5,700 5,700 5,700 5,700

Variable Cost $ 12,400 14,400 16,400 18,400

Total Costs $ 18,100 20,100 22,100 24,100

At an output level of 510 lenses, per unit total cost is projected to be: A) $46.63. B) $57.45. C) $40.23. D) $51.18. E) $49.34.

60) The following costs were for Clear Vision Incorporated, a contact lens manufacturer: Output 300 350 400 450

Fixed Cost $ 5,200 5,200 5,200 5,200

Variable Cost $ 12,000 14,000 16,000 18,000

Total Costs $ 17,200 19,200 21,200 23,200

At an output level of 500 lenses, per unit total cost is projected to be: A) $45.85. B) $56.67. C) $39.45. D) $50.40. E) $48.56.

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61) Pepper Company has accumulated data to use in preparing its annual profit plan for the

upcoming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff suggested that linear regression be employed to derive an equation for maintenance hours and costs. Data regarding the maintenance hours and costs for the last year and the results of the regression analysis are as follows: Month January February March April May June July August September October November December Sum Average

Maintenance Cost $ 5,040 3,666 4,430 3,325 5,210 3,520 3,574 5,382 5,124 4,849 3,942 3,970

Machine Hours 560 410 620 290 670 300 350 770 600 560 470 420

$ 52,032

6,020

$ 4,336.00

501.67

Average cost per hour ($52,032/6,020) = $8.64

r = 0.93799 r2 = 0.87983 Using the high-low method, unit variable cost is calculated to be: A) $4.34. B) $6.18. C) $4.29. D) $5.39. E) $3.99.

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62) Pepper Company has accumulated data to use in preparing its annual profit plan for the

Maintenance Cost $ 5,040 3,648 4,320 3,331 5,221 3,550 3,655 5,365 5,110 4,866 3,944 3,790

Machine Hours 620 420 520 390 650 400 430 690 640 610 460 440

$ 51,840

6,270

$ 4,320.00

522.50

Average cost per hour ($51,840/6,270) = $8.27 (rounded to the nearest cent) r = 0.99743 r2 = 0.99487 Using the high-low method, unit variable cost is calculated to be (round to the nearest cent): A) $6.83. B) $8.67. C) $6.78. D) $7.88. E) $6.48.

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63) Pepper Company has accumulated data to use in preparing its annual profit plan for the

Maintenance Cost $ 5,070 3,664 4,440 3,323 5,228 3,600 3,676 5,356 5,117 4,850 3,946 3,860

Machine Hours 580 390 440 340 680 500 510 690 600 560 520 350

$ 52,130

6,160

$ 4,344.17

513.33

Average cost per hour ($52,130/6,160) = $8.46 r = 0.84278 r2 = 0.71028 Using the high-low method, total monthly fixed cost is calculated to be: (Do not round intermediate calculations. Round your answer to the nearest dollar.) A) $1,418. B) $1,348. C) $1,417. D) $1,394. E) $1,378.

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64) Pepper Company has accumulated data to use in preparing its annual profit plan for the

Maintenance Cost $ 5,040 3,648 4,320 3,331 5,221 3,550 3,655 5,365 5,110 4,866 3,944 3,790

Machine Hours 620 420 520 390 650 400 430 690 640 610 460 440

$ 51,840

6,270

$ 4,320.00

522.50

Average cost per hour ($51,840/6,270) = $8.27 (rounded to the nearest cent) r = 0.99743 r2 = 0.99487 Using the high-low method, total monthly fixed cost is calculated to be (round to nearest dollar): A) $757. B) $687. C) $756. D) $733. E) $717.

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65) Pepper Company has accumulated data to use in preparing its annual profit plan for the

Maintenance Cost $ 5,340 3,948 4,620 3,631 5,521 3,850 3,955 5,665 5,410 5,166 4,244 4,090

Machine Hours 650 450 550 420 680 430 460 720 670 640 490 470

$ 55,440

6,630

$ 4,620.00

552.50

Average cost per hour ($55,440/6,630) = $8.36 r = 0.99743 r2 = 0.99488 Using the high-low method, total maintenance cost for 630 hours is calculated to be: (Do not round intermediate calculations. Round your answer to the nearest dollar.) A) $5,593. B) $5,077. C) $5,828. D) $5,055. E) $5,956.

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66) Pepper Company has accumulated data to use in preparing its annual profit plan for the

Maintenance Cost $ 5,040 3,648 4,320 3,331 5,221 3,550 3,655 5,365 5,110 4,866 3,944 3,790

Machine Hours 620 420 520 390 650 400 430 690 640 610 460 440

$ 51,840

6,270

$ 4,320.00

522.50

Average cost per hour ($51,840/6,270) = $8.27 (rounded to the nearest cent) r = 0.99821 r2 = 0.99780 Using the high-low method, total maintenance cost for 600 hours is calculated to be (round to the nearest dollar): A) $5,293. B) $4,777. C) $5,528. D) $4,755. E) $5,656.

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67) Pepper Company has accumulated data to use in preparing its annual profit plan for the

Maintenance Cost $ 5,010 3,654 4,400 3,324 5,230 3,420 3,628 5,380 5,118 4,884 3,928 3,840

Machine Hours 550 390 520 470 590 440 370 610 570 690 450 430

$ 51,816

6,080

$ 4,318.00

506.67

Average cost per hour ($51,816/6,080) = $8.52 (rounded to the nearest cent) r = 0.84731 r2 = 0.71793 The percent of the total variance that can be explained by the regression equation is: A) 71.834%. B) 41.683%. C) 53.062% D) 71.793%. E) 71.655%.

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68) Pepper Company has accumulated data to use in preparing its annual profit plan for the

Maintenance Cost $ 5,040 3,648 4,320 3,331 5,221 3,550 3,655 5,365 5,110 4,866 3,944 3,790

Machine Hours 620 420 520 390 650 400 430 690 640 610 460 440

$ 51,840

6,270

$ 4,320.00

522.50

Average cost per hour ($51,840/6,270) = $8.27 (rounded to the nearest cent) r = 0.99821 r2 = 0.99780 The percent of the total variance that can be explained by the regression equation is: A) 99.821%. B) 69.670%. C) 81.049% D) 99.780%. E) 99.642%.

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69) Carr Company produced a pilot run of seventy units of a recently developed piston used in

one of its products. Carr expected to produce and sell 1,870 units annually. The pilot run required an average of 0.55 direct labor hours per piston for 70 pistons. Carr experienced an sixty percent learning curve on the direct labor hours needed to produce new pistons. Past experience indicated that learning tends to cease by the time 1,120 pistons are produced. Carr's manufacturing costs for pistons are presented below. Direct labor Variable overhead Fixed overhead Materials

$ 10.00 per direct labor hour 14.00 per direct labor hour 30.00 per direct labor hour 3.00 per unit

Carr received a quote of $8 per unit from Truck Machine Company for the additional 1,800 needed pistons. Marshall frequently subcontracts this type of work and has always been satisfied with the quality of the units produced by Truck. If the pistons are manufactured by Carr Company, the average direct labor hours per unit for the first 1,120 pistons (including the pilot run) produced is calculated to be (use five decimal places in calculating the average time): A) 0.05526. B) 0.06008. C) 0.07128. D) 0.07656. E) 0.09397.

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70) Carr Company produced a pilot run of fifty units of a recently developed piston used in one

of its products. Carr expected to produce and sell 1,950 units annually. The pilot run required an average of .55 direct labor hours per piston for 50 pistons. Carr experienced an eighty percent learning curve on the direct labor hours needed to produce new pistons. Past experience indicated that learning tends to cease by the time 800 pistons are produced. Carr's manufacturing costs for pistons are presented below. Direct labor Variable overhead Fixed overhead Materials

$ 14.00 per direct labor hour 12.00 per direct labor hour 20.00 per direct labor hour 5.00 per unit

Carr received a quote of $9 per unit from Truck Machine Company for the additional 1,900 needed pistons. Carr frequently subcontracts this type of work and has always been satisfied with the quality of the units produced by Truck. If the pistons are manufactured by Carr Company, the average direct labor hours per unit for the first 800 pistons (including the pilot run) produced is calculated to be (use five decimal places in calculating the average time): A) 0.20926. B) 0.21408. C) 0.22528. D) 0.23056. E) 0.24797.

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71) Carr Company produced a pilot run of fifty units of a recently developed piston used in one

of its products. Carr expected to produce and sell 1,860 units annually. The pilot run required an average of 0.55 direct labor hours per piston for 50 pistons. Carr experienced an eighty percent learning curve on the direct labor hours needed to produce new pistons. Past experience indicated that learning tends to cease by the time 800 pistons are produced. Carr's manufacturing costs for pistons are presented below. Direct labor Variable overhead Fixed overhead Materials

$ 16.00 per direct labor hour 9.00 per direct labor hour 20.00 per direct labor hour 7.00 per unit

Carr received a quote of $7 per unit from Truck Machine Company for the additional 1,810 needed pistons. Carr frequently subcontracts this type of work and has always been satisfied with the quality of the units produced by Truck. If the pistons are manufactured by Carr Company, the total direct labor hours for the first 800 pistons (including the pilot run) produced is calculated to be (round to two digits after the decimal point): A) 167.11. B) 173.69. C) 176.95. D) 180.22. E) 192.04.

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72) Carr Company produced a pilot run of fifty units of a recently developed piston used in one

$ 14.00 per direct labor hour 12.00 per direct labor hour 20.00 per direct labor hour 5.00 per unit

Carr received a quote of $9 per unit from Truck Machine Company for the additional 1,900 needed pistons. Carr frequently subcontracts this type of work and has always been satisfied with the quality of the units produced by Truck. If the pistons are manufactured by Carr Company, the total direct labor hours for the first 800 pistons (including the pilot run) produced is calculated to be (round to two digits after the decimal point): A) 167.11. B) 173.69. C) 176.95. D) 180.22. E) 192.04.

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73) Maintenance expenses of a company are to be analyzed for purposes of constructing a

flexible budget. Examination of past records disclosed the following costs and volume measures: Highest Cost per month Machine hours

$ 42,000 41,000

Lowest $ 36,000 28,000

Using the high-low method, the estimated variable cost per machine hour is: A) $0.86 B) $0.66 C) $0.46 D) $0.56 E) $0.06

74) Maintenance expenses of a company are to be analyzed for purposes of constructing a

flexible budget. Examination of past records disclosed the following costs and volume measures: Highest Cost per month Machine hours

$ 42,000 46,000

Lowest $ 34,000 30,000

Using the high-low method, the estimated variable cost per machine hour is: A) $0.70 B) $0.60 C) $0.50 D) $0.90 E) $0.10

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75) Maintenance expenses of a company are to be analyzed for purposes of constructing a

flexible budget. Examination of past records disclosed the following costs and volume measures: Highest Cost per month Machine hours

$ 42,000 41,000

Lowest $ 34,000 31,000

Using the high-low technique, estimate the annual fixed cost for maintenance expenditures: A) $329,400. B) $122,400. C) $112,400. D) $266,400. E) $110,400.

76) Maintenance expenses of a company are to be analyzed for purposes of constructing a

flexible budget. Examination of past records disclosed the following costs and volume measures: Highest Cost per month Machine hours

$ 42,000 46,000

Lowest $ 34,000 30,000

Using the high-low technique, estimate the annual fixed cost for maintenance expenditures: A) $447,000. B) $240,000. C) $230,000. D) $384,000. E) $228,000.

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77) Maintenance expenses of a company are to be analyzed for purposes of constructing a

flexible budget. Examination of past records disclosed the following costs and volume measures: Highest Cost per month Machine hours

$ 72,000 92,000

Lowest $ 65,000 72,000

Using the high-low-point method of analysis, the estimated variable cost per machine hour is: A) $0.35 B) $0.15 C) $0.85 D) $0.05 E) $0.65

78) Maintenance expenses of a company are to be analyzed for purposes of constructing a

flexible budget. Examination of past records disclosed the following costs and volume measures: Highest Cost per month Machine hours

$ 86,000 96,000

Lowest $ 74,000 66,000

Using the high-low-point method of analysis, the estimated variable cost per machine hour is: A) $0.40 B) $0.20 C) $0.90 D) $0.10 E) $0.70

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79) Maintenance expenses of a company are to be analyzed for purposes of constructing a

flexible budget. Examination of past records disclosed the following costs and volume measures: Highest Cost per month Machine hours

$ 93,000 99,000

Lowest $ 81,000 75,000

Using the high-low technique, estimate the annual fixed cost for maintenance expenditures: A) $398,200. B) $319,600. C) $483,700. D) $522,000. E) $169,500.

80) Maintenance expenses of a company are to be analyzed for purposes of constructing a

flexible budget. Examination of past records disclosed the following costs and volume measures: Highest Cost per month Machine hours

$ 86,000 96,000

Lowest $ 74,000 66,000

Using the high-low technique, estimate the annual fixed cost for maintenance expenditures: A) $447,400. B) $368,800. C) $532,900. D) $571,200. E) $218,700.

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81) Which of the following cost drivers pairs with product design cost as a cost to be estimated? A) Machine hours. B) Temperature outside the building. C) Direct labor hours. D) Number of design elements. E) Miles driven.

82) Which step in cost estimation comes after Collect Consistent and Accurate Data? A) Assess the Accuracy of the Cost Estimate. B) Graph the Data. C) Define the Cost Object. D) Determine the Cost Drivers. E) Select and Employ the Estimation Method.

83) What does a management accountant not consider when choosing the best estimation

method? A) Level of accuracy desired. B) Limitations on time. C) Limitations on cost. D) Limitations on revenue. E) Limitations on expertise.

84) The high-low method: A) Always selects the highest and lowest data points. B) Chooses high and low activity data points that are representative of the data around

them. C) Chooses the highest and lowest data points for the dependent variable only. D) Chooses the highest and lowest data points for the independent variable only. E) None of these answers are correct.

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85) Thomas, Incorporated is preparing a budget for the coming year and requires a breakdown of

the cost of electrical power used in its factory into the fixed and variable elements. The following data on the cost of power used and direct labor hours worked are available for the last six months of this year: Month July August September October November December Total

Cost of Power $ 17,800 16,000 20,920 28,900 25,400 23,700 $ 132,720

Direct Labor Hours 4,300 2,700 9,400 9,450 5,270 6,030 37,150

Assuming that Thomas uses the high-low method of analysis, the estimated variable cost of steam per direct labor hour is: A) $1.91. B) $3.06. C) $3.70. D) $3.57. E) $1.41.

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86) Thomas, Incorporated is preparing a budget for the coming year and requires a breakdown of

Cost of Power $ 15,850 13,400 16,370 19,800 17,600 18,500 $ 101,520

Direct Labor Hours 3,000 2,050 2,900 3,650 2,670 2,650 16,920

Assuming that Thomas uses the high-low method of analysis, the estimated variable cost of steam per direct labor hour is: A) $4.00. B) $5.42. C) $5.82. D) $6.00. E) $3.50.

87) A company allocates its variable factory overhead based on direct labor hours. During the

past three months, the actual direct labor hours and the total factory overhead allocated were as follows:

Direct labor hours Total overhead Allocated

January

February

March

1,030 $ 84,400

3,030 $ 217,000

5,030 $ 278,000

Based upon this information, monthly fixed factory overhead was: (Do not round intermediate calculations.) A) $49,852. B) $34,548. C) $69,339. D) $15,061.

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88) A company allocates its variable factory overhead based on direct labor hours. During the

past three months, the actual direct labor hours and the total factory overhead allocated were as follows:

Direct labor hours Total overhead Allocated

January

February

March

1,000 $ 80,000

3,000 $ 140,000

5,000 $ 200,000

Based upon this information, monthly fixed factory overhead was: A) $30,000. B) $50,000. C) $46,667. D) $33,333.

89) Simple regression analysis involves the use of:

A) B) C) D) A) B) C) D) E)

Dependent Variables

Independent Variables

One One One None

None One Two Two

Option A Option B Option C Option D None of the options are correct.

90) Multiple regression analysis: A) Establishes a cause and effect relationship. B) Does not produce measures of probable error. C) Measures the change in one variable associated with the change in one other variable

only. D) Measures the change in one variable associated with the change in more than one other variable. E) None of these answers are correct.

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91) A company using regression analysis to correlate income to a variety of sales indicators

found that the relationship between the number of sales managers in a territory and net income for the territory had a correlation coefficient of -1. Which is the best description of this situation? A) More sales managers should be hired. B) Imperfect negative correlation. C) Perfect inverse correlation. D) There is no correlation at all. E) None of these answers are correct.

92) For a simple regression analysis model that is used to allocate factory overhead, an internal

auditor finds that the intersection of the line of best fit for the overhead allocation with the yaxis is $25,000. The slope of the line is 0.2. The independent variable, factory wages, amounts to $700,000 for the month. What is the estimated amount of factory overhead to be allocated for the month? A) $71,667. B) $140,000. C) $340,000. D) $82,500. E) $165,000.

93) For a simple regression analysis model that is used to allocate factory overhead, an internal

auditor finds that the intersection of the line of best fit for the overhead allocation with the yaxis is $5,000. The slope of the line is .20. The independent variable, factory wages, amounts to $900,000 for the month. What is the estimated amount of factory overhead to be allocated for the month? A) $65,000. B) $180,000. C) $230,000. D) $92,500. E) $185,000.

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94) A retailer, in business for over 50 years, has developed the following regression model from

the past 60 months of operating data: Monthly sales dollars = $50,000 + $4.70A + $30B − $1,000X Where: A = number of customers B = advertising dollars per month X = 1 if a winter month X = 0 if other months An appropriate interpretation of this model is that: A) The business is seasonal, generating higher sales in winter months than other months. B) Advertising is not cost effective. C) Within the relevant range, each additional customer will make an average purchase of $4.70 per month. D) Sales are always expected to be at least $50,000. E) None of these answers are correct.

95) A manager uses regression to express sales as a function of advertising expenditures (X1),

and per capita income (X2) in your sales area. The following multiple linear regression equation is developed: Y = 10 + 0.51X1 + 0.45X2 The coefficient of determination is 0.96 This coefficient of determination explains that: A) 96% of sales variations are due to an error term. B) The dependent variable is not related to advertising expenditures and per capita income. C) 96% of sales variations are explained by the equation. D) Only 4% of the sales variations are explained by advertising expenditures and per capita income. E) None of these answers are correct.

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96) A manager uses regression to express sales as a function of advertising expenditures (X1),

and per capita income (X2) in your sales area. The following multiple linear regression equation is developed: Y = 10 + 0.51X1 + 0.45X2 The coefficient of determination is 0.96 Determine which of the following conclusions is valid regarding the coefficient of determination: A) More analysis is needed. The coefficient of determination leaves much unexplained. B) The regression line fits the data used in the sample very well. There is a strong indication of the relationship of the two variables with sales. C) The coefficient of determination is positive because the constant term is positive. D) The coefficient of determination should always be greater than one. E) None of these answers are correct.

97) Based on analyzing the relationship of total factory overhead (Y) to direct labor hours (X).

The following relationship was found: Y = $1,000 + $2X The relationship is: A) Data shift. B) Nonlinear. C) Linear. D) Probabilistic. E) Independent.

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98) Based on analyzing the relationship of total factory overhead (Y) to direct labor hours (X).

The following relationship was found: Y = $1,000 + $2X The equation was probably found through the use of which of the following mathematical techniques? A) Linear programming. B) Multiple regression analysis. C) Simple regression analysis. D) High-low method. E) Nonlinear regression.

99) Based on analyzing the relationship of total factory overhead (Y) to direct labor hours (X).

The following relationship was found: Y = $1,000 + $2X What does the $1,000 in the equation represent? A) Total variable costs. B) Total factory overhead. C) Total fixed costs. D) Total direct labor hours. E) Total direct labor costs plus factory overhead costs.

100)

Based on analyzing the relationship of total factory overhead (Y) to direct labor hours (X). The following relationship was found: Y = $1,000 + $2X The $2 in the equation is an estimate of: A) Total fixed costs. B) Variable overhead costs per direct labor hour. C) Total overhead costs. D) Fixed overhead costs per direct labor hour. E) Total direct labor hours.

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101)

What is time-series regression? A) A method of cost estimation for a particular cost object based on information on other cost objects and variables, where the information for all variables is taken from the same period of time. B) The application of regression analysis to predict future amounts, using prior periods’ data. C) Used to describe regression applications having a single independent variable. D) Used to describe regression applications having two or more independent variables. E) A cost-estimation method in which the variable and fixed cost coefficients are found by minimizing the sum of the squares of the estimation errors.

102)

As a preliminary step in the selection of variables to use in a statistical-forecasting model, the management accountant has calculated the coefficient of correlation between the firm's sales and three economic indexes. The results were as follows: Index A B C

Coefficient of Correlation 0.105 −0.009 −0.854

Which of the following statements indicates the best course of action for the auditor to take in the development of a forecasting model? A) Drop all three indexes from further consideration because a coefficient of correlation of + 1.0 is necessary for a statistically significant relationship. B) Include only indexes B and C in the model because they have the only negative coefficients of correlation. C) Include only index C in the model because its coefficient of correlation is relatively high and therefore probably statistically significant, while the coefficients of indexes A and B are likely to be insignificant. D) Include only index A in the model because it has the only positive coefficient of correlation. E) None of these answers are correct.

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103)

Bradford Company derived the following cost relationship from a regression analysis of its monthly manufacturing overhead cost: C = $100,000 + $12M where: C = monthly manufacturing overhead cost, and M = machine hours

The standard error of estimate of the regression is $16,000. The standard time required to manufacture one six-unit case of Bradford's single product is two machine hours. Bradford applies manufacturing overhead to production on the basis of machine hours, and its normal annual production is 70,000 cases. Bradford's estimated variable manufacturing overhead cost for a month in which scheduled production is 7,000 cases would be: A) $100,000. B) $168,000. C) $184,000. D) $268,000. E) Some amount other than these answer choices.

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104)

Bradford Company derived the following cost relationship from a regression analysis of its monthly manufacturing overhead cost: C = $80,000 + $12M where: C = monthly manufacturing overhead cost, and M = machine hours

The standard error of estimate of the regression is $6,000. The standard time required to manufacture one six-unit case of Bradford's single product is two machine hours. Bradford applies manufacturing overhead to production on the basis of machine hours, and its normal annual production is 50,000 cases. Bradford's estimated variable manufacturing overhead cost for a month in which scheduled production is 5,000 cases would be: A) $80,000. B) $120,000. C) $140,000. D) $200,000. E) Some amount other than these answer choices.

105)

Which financial data would be a good independent variable for utilities expense? A) Sales. B) Wage rates. C) Total expenses. D) Hours worked. E) Number of hours the store is open.

106)

Which of the following is required for multiple regression? A) The use of dummy variables. B) The use of more than one cost driver. C) The use of more than one dependent variable. D) The use of a trend variable. E) The use of multiple sets of data.

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107)

The p-value measures: A) The probability that the regression equation is reliable. B) The statistical significance of the dependent variable. C) The risk that a particular independent variable has only a chance relationship to the dependent variable. D) The confidence range around the regression prediction. E) The price of the regression.

108)

The learning rate is the percentage by which average time (or total time) falls from previous levels as output: A) decreases. B) stays the same. C) doubles. D) triples. E) None of these answers are correct.

109)

Copper Company uses the high-low method to analyze mixed costs. The following information relates to the production data for the first six months of the year. Month January February March April May June

Cost $ 4,585 $ 4,895 $ 5,610 $ 4,555 $ 5,895 $ 5,300

Hours 370 470 620 270 940 570

How should the cost function be properly stated? A) Y = $1,955 + $2.50H. B) Y = $3,820 + $2.00H. C) Y = $4,015 + $2.00H. D) Y = $5,190 + $2.50H. E) None of these answers are correct.

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110)

Cost $ 4,515 $ 4,825 $ 5,540 $ 4,485 $ 5,685 $ 5,230

Hours 300 400 550 200 800 500

How should the cost function be properly stated? A) Y = $2,025 + $2.50H. B) Y = $3,890 + $2.00H. C) Y = $4,085 + $2.00H. D) Y = $5,260 + $2.50H. E) None of these answers are correct.

111)

Cost $ 4,580 $ 4,890 $ 5,605 $ 4,550 $ 5,880 $ 5,295

Hours 365 465 615 265 930 565

What is the estimated total cost at an operating level of 1,030 hours? A) $5,470. B) $5,940. C) $5,310. D) $6,080. E) $5,470.

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112)

Cost $ 4,515 $ 4,825 $ 5,540 $ 4,485 $ 5,685 $ 5,230

Hours 300 400 550 200 800 500

What is the estimated total cost at an operating level of 900 hours? A) $5,275. B) $5,745. C) $5,115. D) $5,885. E) $5,875.

113)

Cost $ 4,535 $ 4,845 $ 5,560 $ 4,505 $ 5,745 $ 5,250

Hours 320 420 570 220 840 520

What is the estimated total cost at an operating level of 190 hours? A) $4,445.00. B) $4,845.20. C) $4,245.65. D) $4,935.00. E) $4,405.00.

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114)

Cost $ 4,515 $ 4,825 $ 5,540 $ 4,485 $ 5,685 $ 5,230

Hours 300 400 550 200 800 500

What is the estimated total cost at an operating level of 150 hours? A) $4,385.00. B) $4,785.20. C) $4,185.65. D) $4,875.00. E) $4,345.00.

115)

Shock Company uses the high-low method to analyze mixed costs. The following information relates to the production data for the first six months of the year. Month January February March April May June

Cost(Y) $ 7,325 $ 9,150 $ 7,565 $ 7,510 $ 9,560 $ 9,055

Hours(H) 285 755 435 355 1,030 730

How should the cost function be properly stated using the high-low method? A) Y = $5,975 + $2.00H. B) Y = $6,470 + $3.00H. C) Y = $6,035 + $2.00H. D) Y = $6,200 + $3.00H. E) None of these answers are correct.

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116)

Cost(Y) $ 7,300 $ 9,125 $ 7,540 $ 7,485 $ 9,460 $ 9,030

Hours(H) 260 730 410 330 980 705

How should the cost function be properly stated using the high-low method? A) Y = $6,025 + $2.00H. B) Y = $6,520 + $3.00H. C) Y = $6,085 + $2.00H. D) Y = $6,250 + $3.00H. E) None of these answers are correct.

117)

Cost(Y) $ 7,330 $ 9,155 $ 7,570 $ 7,515 $ 9,580 $ 9,060

Hours(H) 290 760 440 360 1,040 735

What is the estimated total cost at an operating level of 1,180 hours, using the high-low method? A) $10,000. B) $10,085. C) $9,955. D) $10,745. E) None of these answers are correct.

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118)

Cost(Y) $ 7,300 $ 9,125 $ 7,540 $ 7,485 $ 9,460 $ 9,030

Hours(H) 260 730 410 330 980 705

What is the estimated total cost at an operating level of 1,180 hours, using the high-low method? A) $10,060. B) $10,145. C) $10,015. D) $10,805. E) None of these answers are correct.

119)

Valley Company uses the high-low method to analyze production costs. The following information relates to the production data for the first six months of the year. Month January February March April May June

Cost(Y) $ 8,632 $ 7,840 $ 9,790 $ 7,525 $ 7,290 $ 9,353

Hours(H) 6,620 6,040 7,590 5,790 5,590 6,840

How should the cost function be properly stated using the high-low method? A) Y = $1,002 + $1.25H. B) Y = $852 + $1.05H. C) Y = $302 + $1.25H. D) Y = $9,240 + $0.162H. E) None of these answers are correct.

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120)

Cost(Y) $ 8,542 $ 7,750 $ 9,700 $ 7,435 $ 7,200 $ 9,263

Hours(H) 6,530 5,950 7,500 5,700 5,500 6,750

How should the cost function be properly stated using the high-low method? A) Y = $1,025 + $1.25H. B) Y = $875 + $1.05H. C) Y = $325 + $1.25H. D) Y = $9,263 + $0.162H. E) None of these answers are correct.

121)

Cost(Y) $ 8,622 $ 7,830 $ 9,780 $ 7,515 $ 7,280 $ 9,343

Hours(H) 6,610 6,030 7,580 5,780 5,580 6,830

What is the estimated total cost at an operating level of 8,000 hours? A) $9,505. B) $9,815. C) $10,165. D) $10,305. E) None of these answers are correct.

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122)

Cost(Y) $ 8,542 $ 7,750 $ 9,700 $ 7,435 $ 7,200 $ 9,263

Hours(H) 6,530 5,950 7,500 5,700 5,500 6,750

What is the estimated total cost at an operating level of 8,000 hours? A) $9,525. B) $9,835. C) $10,185. D) $10,325. E) None of these answers are correct.

123)

Hawk Airplane Company has built a new model jet aircraft which it intends to sell to high net worth clients. This aircraft required 26,000 hours to complete. Hawk believes an incremental unit-time learning model with an 82% learning curve best reflects the company's production efficiency. Hawk just received a contract to make fifteen identical aircraft. What will be the expected unit time for the sixteenth aircraft? A) 21,320.00. B) 17,482.40. C) 14,335.57. D) 11,755.17. E) 11,856.00.

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124)

Hawk Airplane Company has built a new model jet aircraft which it intends to sell to high net worth clients. This aircraft required 25,000 hours to complete. Hawk believes an incremental unit-time learning model with an 82% learning curve best reflects the company's production efficiency. Hawk just received a contract to make fifteen identical aircraft. What will be the expected unit time for the sixteenth aircraft? A) 20,500.00. B) 16,810.00. C) 13,784.20. D) 11,303.04. E) 11,400.00.

125)

Which of the following is a common way to detrend a variable? A) Throw out the data that is outside of the trend. B) Linear regressions automatically detrend the data. C) The use of an inflation index. D) The use of first differences. E) You cannot detrend data.

126)

Which of the following R-squared values is the most satisfactory? A) 0.3 B) 0 C) 0.5 D) 0.75 E) −0.5

127)

The standard error of the estimate (SE) in a regression analysis is: A) A measure indicating the amount of a data falling within the relevant range. B) A measure of explanatory power which is a number between zero and 1. C) A measure of the accuracy of the regression's estimates. D) A measure of reliability of each independent variable. E) Used in a regression model to represent the presence or absence of a condition.

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128)

Which of the following is not usually influenced by learning curve analysis? A) Make-or-buy decisions. B) Cost-volume-profit analysis. C) Capital budgeting. D) Development of standard product costs. E) Theory of constraints.

129)

A range around the regression line within which the management accountant can rely that the actual value of the predicted cost will fall is referred to as: A) A relevant range. B) A goodness of fit. C) A confidence interval. D) A t-value. E) A p-value.

130)

Cost estimation includes all of the following steps except: A) Defining the cost object for which the related costs are to be estimated. B) Determining the cost drivers. C) Graphing the data. D) Selecting and employing the appropriate estimation method. E) Calculating the multiple regression coefficient.

131) 1. 2. 3. 4. 5. 6.

Place the six cost estimation steps into the correct order: Determine the cost drivers Graph the data Select and employ the appropriate estimation method Define the cost object for which the related costs are to be estimated Evaluate the accuracy of the cost estimate Collect consistent and accurate data on the cost object and the cost drivers B) 6,4,1,3,5,2. C) 4,1,6,2,3,5. D) 2,1,4,3,6,5. E) 1,3,4,6,5,2. F) 4,1,6,5,2,3.

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132)

Hook Company has accumulated data to use in preparing its annual profit plan for the upcoming year. The cost behavior pattern of the maintenance costs must be determined. Data regarding the machine hours and maintenance costs for the last year and the results of the regression analysis are as follows: Month

Maintenance Cost

Machine Hours

January

$ 5,040

620

February

3,600

420

March

4,320

520

April

3,380

390

May

5,220

650

June

3,550

400

July

3,640

430

August

5,360

680

September

5,110

640

October

4,860

610

November

3,960

460

December

3,790

440

Sum

$ 51,830

6,260

Average

$ 4,319

522

A staff assistant has run regression analyses on the data and obtained the following output using Excel: REGRESSION ANALYSIS Y(Dependent) Variable: Maintenance Cost X (Independent) Variable: Maintenance Hours Regression Statistics Multiple R

0.9982102 94

R Square

0.9964237 91

Adjusted R Square

0.9960661 7

Standard Error

47.062956 3

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Observati ons

ANOVA df

F Significan ce F

Regressio n

6171342.44 617134 8 2

Residual

22149.2185 2214.9 6 22

Total

6193491.66 7

Coefficie nts

Standard Error

2786.2 1.44166E57 13

t Static

Pvalue

Lower 95%

Upper 95%

Intercept 783.77821 88

68.34114 772

11.4686 1

4.47E -07

631.5046 53

936.051 785

Hours

0.128390 66

52.7850 1

1.44E -13

6.491030 239

7.06317 467

6.7771024 56

The t statistic for the independent variable: A) Is statistically significant at less than 5% risk B) At 11.46, is statistically significant C) At 52.78, is too large to be statistically significant D) Lies somewhere between 6.49 and 7.063 E) None of these answers are correct.

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133)

Maintenance Cost

Machine Hours

January

$ 5,040

620

February

3,600

420

March

4,320

520

April

3,380

390

May

5,220

650

June

3,550

400

July

3,640

430

August

5,360

680

September

5,110

640

October

4,860

610

November

3,960

460

December

3,790

440

Sum

$ 51,830

6,260

Average

$ 4,319

522

0.9982102 94

R Square

0.9964237 91

Adjusted R Square

0.9960661 7

Standard Error

47.062956 3

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Observati ons

ANOVA df

F Significan ce F

Regressio n

6171342.44 617134 8 2

Residual

22149.2185 2214.9 6 22

Total

6193491.66 7

Coefficie nts

Standard Error

2786.2 1.44166E57 13

t Static

Pvalue

Lower 95%

Upper 95%

Intercept 783.77821 88

68.34114 772

11.4686 1

4.47E -07

631.5046 53

936.051 785

Hours

0.128390 66

52.7850 1

1.44E -13

6.491030 239

7.06317 467

6.7771024 56

The 95% confidence range for a prediction of monthly manufacturing cost using the model is: A) From $631 to $936 B) From $6.49 to $7.06 C) The range of +/− $47.06 around the predicted amount D) The range of +/− $47.06 × 2 = $94.12 around the predicted amount E) None of these answers are correct.

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134)

Maintenance Cost

Machine Hours

January

$ 5,040

620

February

3,600

420

March

4,320

520

April

3,380

390

May

5,220

650

June

3,550

400

July

3,640

430

August

5,360

680

September

5,110

640

October

4,860

610

November

3,960

460

December

3,790

440

Sum

$ 51,830

6,260

Average

$ 4,319

522

0.9982102 94

R Square

0.9964237 91

Adjusted R Square

0.9960661 7

Standard Error

47.062956 3

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Observati ons

ANOVA df

F Significan ce F

Regressio n

6171342.44 617134 8 2

Residual

22149.2185 2214.9 6 22

Total

6193491.66 7

Coefficie nts

Standard Error

2786.2 1.44166E57 13

t Static

Pvalue

Lower 95%

Upper 95%

Intercept 783.77821 88

68.34114 772

11.4686 1

4.47E -07

631.5046 53

936.051 785

Hours

0.128390 66

52.7850 1

1.44E -13

6.491030 239

7.06317 467

6.7771024 56

The p-value is a measure of: A) The precision of the regression. B) The reliability of the independent variable. C) The accuracy of the regression predictions. D) The linearity in the data. E) None of these answers are correct.

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135)

Maintenance Cost

Machine Hours

January

$ 5,040

620

February

3,600

420

March

4,320

520

April

3,380

390

May

5,220

650

June

3,550

400

July

3,640

430

August

5,360

680

September

5,110

640

October

4,860

610

November

3,960

460

December

3,790

440

Sum

$ 51,830

6,260

Average

$ 4,319

522

0.9982102 94

R Square

0.9964237 91

Adjusted R Square

0.9960661 7

Standard Error

47.062956 3

Version 1

Observati ons

ANOVA df

F Significan ce F

Regressio n

6171342.44 617134 8 2

Residual

22149.2185 2214.9 6 22

Total

6193491.66 7

Coefficie nts

Standard Error

2786.2 1.44166E57 13

t Static

Pvalue

Lower 95%

Upper 95%

Intercept 783.77821 88

68.34114 772

11.4686 1

4.47E -07

631.5046 53

936.051 785

Hours

0.128390 66

52.7850 1

1.44E -13

6.491030 239

7.06317 467

6.7771024 56

The statistic that indicates precision of the regression is: A) 9982. B) 47.0630. C) 0.9981. D) Lower 95% and Upper 95%. E) Significance F (1.44E-13).

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136)

Maintenance Cost

Machine Hours

January

$ 5,040

620

February

3,600

420

March

4,320

520

April

3,380

390

May

5,220

650

June

3,550

400

July

3,640

430

August

5,360

680

September

5,110

640

October

4,860

610

November

3,960

460

December

3,790

440

Sum

$ 51,830

6,260

Average

$ 4,319

522

0.9982102 94

R Square

0.9964237 91

Adjusted R Square

0.9960661 7

Standard Error

47.062956 3

Version 1

Observati ons

ANOVA df

F Significan ce F

Regressio n

6171342.44 617134 8 2

Residual

22149.2185 2214.9 6 22

Total

6193491.66 7

Coefficie nts

Standard Error

2786.2 1.44166E57 13

t Static

Pvalue

Lower 95%

Upper 95%

Intercept 783.77821 88

68.34114 772

11.4686 1

4.47E -07

631.5046 53

936.051 785

Hours

0.128390 66

52.7850 1

1.44E -13

6.491030 239

7.06317 467

6.7771024 56

A key statistic that indicates reliability of the regression is: A) 12. B) 47.0630. C) 0.9964. D) 783.338. E) 6.777.

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137)

Maintenance Cost

Machine Hours

January

$ 5,040

620

February

3,600

420

March

4,320

520

April

3,380

390

May

5,220

650

June

3,550

400

July

3,640

430

August

5,360

680

September

5,110

640

October

4,860

610

November

3,960

460

December

3,790

440

Sum

$ 51,830

6,260

Average

$ 4,319

522

0.9982102 94

R Square

0.9964237 91

Adjusted R Square

0.9960661 7

Standard Error

47.062956 3

Version 1

Observati ons

ANOVA df

F Significan ce F

Regressio n

6171342.44 617134 8 2

Residual

22149.2185 2214.9 6 22

Total

6193491.66 7

Coefficie nts

Standard Error

2786.2 1.44166E57 13

t Static

Pvalue

Lower 95%

Upper 95%

Intercept 783.77821 88

68.34114 772

11.4686 1

4.47E -07

631.5046 53

936.051 785

Hours

0.128390 66

52.7850 1

1.44E -13

6.491030 239

7.06317 467

6.7771024 56

The Lower 95% and Upper 95% shown in the output suggests that: A) We can be 95% confident that the precision of the regression equation will be within the ranges specified. B) We can be 95% confident that the statistical reliability of the regression equation will be within the ranges specified. C) We can be 95% confident that the coefficients of the dependent variable will be within the ranges specified. D) We can be 95% confident that the coefficients of the independent variables will be within the ranges specified. E) We can be 95% confident that the regression equation will be within the ranges specified.

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138)

Maintenance Cost

Machine Hours

January

$ 5,040

620

February

3,600

420

March

4,320

520

April

3,380

390

May

5,220

650

June

3,550

400

July

3,640

430

August

5,360

680

September

5,110

640

October

4,860

610

November

3,960

460

December

3,790

440

Sum

$ 51,830

6,260

Average

$ 4,319

522

0.9982102 94

R Square

0.9964237 91

Adjusted R Square

0.9960661 7

Standard Error

47.062956 3

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Observati ons

ANOVA df

F Significan ce F

Regressio n

6171342.44 617134 8 2

Residual

22149.2185 2214.9 6 22

Total

6193491.66 7

Coefficie nts

Standard Error

2786.2 1.44166E57 13

t Static

Pvalue

Lower 95%

Upper 95%

Intercept 783.77821 88

68.34114 772

11.4686 1

4.47E -07

631.5046 53

936.051 785

Hours

0.128390 66

52.7850 1

1.44E -13

6.491030 239

7.06317 467

6.7771024 56

Using regression analysis, what is the estimated maintenance expense for a month that the firm expects to operate 600 machine hours (round to nearest whole dollar)? A) $88. B) $4,050. C) $4,850. D) $6,934. E) $5,120.

139)

A measure of the statistical reliability of each independent variable is: A) Correlation. B) t-value. C) R-Squared. D) Standard error. E) Multicollinearity.

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140)

Which of the following means that two or more independent variables are highly correlated with each other? A) Correlation. B) t-value. C) R-Squared. D) Standard error. E) Multicollinearity.

141)

Which of the following is not used for evaluating a regression analysis? A) Correspondence. B) T-value. C) R-Squared. D) Standard error. E) Multicollinearity.

142)

Which of the following is true about outliers? A) Any unusual data point is considered an outlier. B) It takes business judgement to decide a data point is an outlier. C) Outliers must always be thrown out. D) Outliers increase the precision of an estimate. E) Outliers are always the result from an error in the data.

143)

Which of the following is the percentage by which average time (or total time) falls from previous levels as output doubles? A) Learning speed. B) Learning curve. C) Learning analysis. D) Learning average. E) Learning rate.

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144)

Which of the following is not a way that cost estimations facilitates strategic management? A) It helps predict future costs using previously identified activity-based, volume-based, structural, and executional cost drivers. B) The cost drivers and cost-estimating relationships are useful in decision making. C) It helps identify the key cost drivers for a cost object. D) It helps predict future sales so that a budget can be made. E) The cost drivers and cost-estimating relationships are useful in planning.

145)

The following costs were for Handle Bar Incorporated, a bicycle manufacturer that uses the high-low method: Output

Fixed Costs

Variable Costs

Total Costs

810

$ 26,000

$ 81,000

$ 107,000

860

$ 26,000

$ 86,000

$ 112,000

910

$ 26,000

$ 91,000

$ 117,000

960

$ 26,000

$ 96,000

$ 122,000

At an output level of 1,000 bicycles, per unit variable cost is calculated to be: A) $100.00. B) $102.50. C) $126.00. D) $127.08. E) $131.25.

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146)

The following costs were for Handle Bar Incorporated, a bicycle manufacturer that uses the high-low method: Output

Fixed Costs

Variable Costs

Total Costs

800

$ 25,000

$ 80,000

$ 105,000

850

$ 25,000

$ 85,000

$ 110,000

900

$ 25,000

$ 90,000

$ 115,000

950

$ 25,000

$ 95,000

$ 120,000

At an output level of 1,000 bicycles, per unit variable cost is calculated to be: A) $100.00. B) $101.50. C) $125.00. D) $126.32. E) $131.58.

147)

The following costs were for Handle Bar Incorporated, a bicycle manufacturer that uses the high-low method: Output 1,000 1,050 1,100 1,150

Fixed Costs $ 35,000 $ 35,000 $ 35,000 $ 35,000

Variable Costs $ 140,000 $ 147,000 $ 154,000 $ 161,000

Total Costs $ 175,000 $ 182,000 $ 189,000 $ 196,000

At an output level of 1,400 bicycles, per unit total cost is calculated to be: A) $140.00. B) $141.50. C) $165.00. D) $170.43. E) $200.87.

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148)

The following costs were for Handle Bar Incorporated, a bicycle manufacturer that uses the high-low method: Output

Fixed Costs

Variable Costs

Total Costs

800

$ 25,000

$ 80,000

$ 105,000

850

$ 25,000

$ 85,000

$ 110,000

900

$ 25,000

$ 90,000

$ 115,000

950

$ 25,000

$ 95,000

$ 120,000

At an output level of 1,000 bicycles, per unit total cost is calculated to be: A) $100.00. B) $101.50. C) $125.00. D) $126.32. E) $131.58.

149)

What is the effect of multicollinearity in regression estimates? A) The coefficients for the independent variables are reliable. B) The regression is more easily interpreted. C) The coefficients for the independent variables are unreliable. D) The regression becomes more accurate. E) None of these answers are correct.

150)

The coefficient of determination is a number between: A) 0 and 1 B) −1 and 1 C) −2 and 2 D) −1 and 1 E) The coefficient of determination can be any number

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151)

A p-value of less than __________ is typically considered statistically significant. A) 0.5 B) 0.05 C) 0.005 D) 5 E) 1

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152)

Hammer Company is accumulating data to use in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested the use of linear regression to derive an equation for maintenance hours and costs. Data regarding the maintenance hours and costs for the last year and the results of the regression analysis follow: Month

Maintenance Cost

Machine Hours

January

$ 4,400

560

February

3,200

400

March

3,800

480

April

3,020

380

May

4,550

580

June

3,160

390

July

3,230

400

August

4,670

600

September

4,460

570

October

4,250

550

November

3,500

430

December

3,360

420

Sum

$ 45,600

5,760

Average

$ 3,800

$ 480

Average cost per hour a (intercept)

$ 8.00 $ 301.5800

b (coefficient)

7.2884

Standard error of the estimate

34.4689

R-squared

0.9972

t-value for b

60.1047

If Hammer Company uses the high-low method of analysis, the equation for the relationship between hours of activity and maintenance cost follows: (Do not round intermediate calculations.) A) y = 480 + 8.0x B) y = 170 + 7.5x C) y = 3,800 + 480x D) y = 170 + 8x E) None of these answer choices are correct.

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153)

Maintenance Cost

Machine Hours

January

$ 4,200

480

February

3,000

320

March

3,600

400

April

2,820

300

May

4,350

500

June

2,960

310

July

3,030

320

August

4,470

520

September

4,260

490

October

4,050

470

November

3,300

350

December

3,160

340

Sum

$ 43,200

4,800

Average

$ 3,600

$ 400

Average cost per hour

$ 9.00

a (intercept)

$ 684.65

b (coefficient)

7.2884

Standard error of the estimate

34.469

R-squared

0.99724

t-value for b

60.105

If Hammer Company uses the high-low method of analysis, the equation for the relationship between hours of activity and maintenance cost follows: A) y = 400 + 9.0 x B) y = 570 + 7.5 x C) y = 3,600 + 400 x D) y = 570 + 9.0 x E) None of these answer choices are correct.

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154)

Maintenance Cost

Machine Hours

January

$ 4,030

700

February

3,550

540

March

4,150

620

April

3,370

520

May

4,900

720

June

3,510

530

July

3,580

540

August

5,020

780

September

4,810

710

October

4,600

690

November

3,850

570

December

3,710

560

Sum

$ 49,080

7,480

Average

$ 4,090

$ 623

Average cost per hour

$ 7.00

a (intercept)

$ 232.62

b (coefficient)

6.1883

Standard error of the estimate

199.2843

R-squared

0.89856

t-value for b

9.412

Based on the data derived from the regression analysis, 420 maintenance hours in a month mean that maintenance costs should be budgeted to the nearest dollar at A) $3,031. B) $3,222. C) $3,044. D) $2,832. E) None of these answer choices are correct.

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155)

Maintenance Cost

Machine Hours

January

$ 4,200

480

February

3,000

320

March

3,600

400

April

2,820

300

May

4,350

500

June

2,960

310

July

3,030

320

August

4,470

520

September

4,260

490

October

4,050

470

November

3,300

350

December

3,160

340

Sum

$ 43,200

4,800

Average

$ 3,600

$ 400

Average cost per hour

$ 9.00

a (intercept)

$ 684.65

b (coefficient)

7.2884

Standard error of the estimate

34.469

R-squared

0.99724

t-value for b

60.105

Based on the data derived from the regression analysis, 420 maintenance hours in a month mean that maintenance costs should be budgeted to the nearest dollar at A) $3,780. B) $3,461. C) $3,797. D) $3,746. E) None of these answer choices are correct.

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156)

Maintenance Cost

Machine Hours

January

$ 4,700

680

February

3,500

520

March

4,100

600

April

3,320

500

May

4,850

700

June

3,460

510

July

3,530

520

August

4,970

760

September

4,760

690

October

4,550

670

November

3,800

550

December

3,660

540

Sum

$ 49,200

7,240

Average

$ 4,100

$ 603

Average cost per hour

$ 7.00

a (intercept)

$ 3.86

b (coefficient)

6.7892

Standard error of the estimate

83.417

R-squared

0.9838

t-value for b

24.668

The coefficient of determination for Hammer's regression equation for the maintenance activities is A) 83.417/0.984. B) 0.9838. C) square root of 0.9838. D) (0.9838)2. E) None of these answer choices are correct.

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157)

Maintenance Cost

Machine Hours

January

$ 4,200

480

February

3,000

320

March

3,600

400

April

2,820

300

May

4,350

500

June

2,960

310

July

3,030

320

August

4,470

520

September

4,260

490

October

4,050

470

November

3,300

350

December

3,160

340

Sum

$ 43,200

4,800

Average

$ 3,600

$ 400

Average cost per hour

$ 9.00

a (intercept)

$ 684.65

b (coefficient)

7.2884

Standard error of the estimate

34.469

R-squared

0.99724

t-value for b

60.105

The coefficient of determination for Hammer's regression equation for the maintenance activities is A) 34.469/49.515. B) 0.99724. C) square root of 0.99724. D) (0.99724)2. E) None of these answer choices are correct.

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158)

Maintenance Cost

Machine Hours

January

$ 4,320

840

February

3,900

680

March

4,500

760

April

3,720

660

May

5,250

860

June

3,860

670

July

3,930

680

August

5,370

980

September

5,160

850

October

4,950

830

November

4,200

710

December

4,060

700

Sum

$ 53,220

9,220

Average

$ 4,435

$ 768

Average cost per hour a (intercept) b (coefficient)

$ 6.00 $ 255.1200 5.4402

Standard error of the estimate

235.1136

R-squared

0.85919

t-value for b

7.811

The percent of the total variance that can be explained by the regression equation is A) 85.919%. B) 425.839%. C) 552.282%. D) 1.733%. E) None of these answer choices are correct.

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100

159)

Maintenance Cost

Machine Hours

January

$ 4,200

480

February

3,000

320

March

3,600

400

April

2,820

300

May

4,350

500

June

2,960

310

July

3,030

320

August

4,470

520

September

4,260

490

October

4,050

470

November

3,300

350

December

3,160

340

Sum

$ 43,200

4,800

Average

$ 3,600

$ 400

Average cost per hour

$ 9.00

a (intercept)

$ 684.65

b (coefficient)

7.2884

Standard error of the estimate

34.469

R-squared

0.99724

t-value for b

60.105

The percent of the total variance that can be explained by the regression equation is A) 99.724%. B) 69.613%. C) 80.982%. D) 99.862%. E) None of these answer choices are correct.

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101

160)

Maintenance Cost

Machine Hours

January

$ 4,200

480

February

3,000

320

March

3,600

400

April

2,970

300

May

4,350

500

June

2,960

340

July

3,030

320

August

4,320

490

September

4,260

490

October

4,050

470

November

3,300

350

December

3,160

340

Sum

$ 43,200

4,800

Average

$ 3,600

$ 400

Average cost per hour

$ 9.00

a (intercept)

$ 656.57

b (coefficient)

7.3586

Standard error of the estimate

79.749

R-squared

0.98350

t-value for b

24.413

At 400 hours of activity, Hammer management can be approximately two-thirds confident that the maintenance costs will be in the range of A) $3,505.22 to $3,694.78. B) $3,540.90 to $3,659.21. C) $3,506.09 to $3,693.79. D) $3,520.25 to $3,679.75. E) None of these answer choices are correct.

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102

161)

Maintenance Cost

Machine Hours

January

$ 4,200

480

February

3,000

320

March

3,600

400

April

2,820

300

May

4,350

500

June

2,960

310

July

3,030

320

August

4,470

520

September

4,260

490

October

4,050

470

November

3,300

350

December

3,160

340

Sum

$ 43,200

4,800

Average

$ 3,600

$ 400

Average cost per hour

$ 9.00

a (intercept)

$ 684.65

b (coefficient)

7.2884

Standard error of the estimate

34.469

R-squared

0.99724

t-value for b

60.105

At 400 hours of activity, Hammer management can be approximately two-thirds confident that the maintenance costs will be in the range of A) $3,550.50 to $3,649.53. B) $3,551.37 to $3,648.51. C) $3,586.18 to $3,613.93. D) $3,565.54 to $3,634.48. E) None of these answer choices are correct.

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103

Answer Key Test name: chapter 8 1) Essay 2) Essay 3) Essay 4) Essay 5) Essay 6) Essay 7) Essay 8) Essay 9) Essay 10) Essay 11) Essay 12) Essay 13) Essay 14) Essay 15) Essay 16) Essay 17) Essay 18) B 19) D 20) C 21) A 22) D 23) A 24) C 25) B 26) C 27) B 28) A 29) B 30) B 31) C 32) A 33) A 34) A 35) B 36) C 37) E

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38) E 39) C 40) C 41) D 42) D 43) D 44) D 45) A 46) A 47) A 48) A 49) E 50) E 51) B 52) B 53) A 54) A 55) C 56) C 57) E 58) E 59) D 60) D 61) C 62) C 63) B 64) B 65) D 66) D 67) D 68) D 69) C 70) C 71) D 72) D 73) C 74) C 75) E 76) E 77) A

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78) A 79) D 80) D 81) D 82) B 83) D 84) B 85) A 86) A 87) B 88) B 89) B 90) D 91) C 92) E 93) E 94) C 95) C 96) B 97) C 98) C 99) C 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

B B C B B A B C C C C D D A A B B A

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118) 119) 120) 121) 122) 123) 124) 125) 126) 127) 128) 129) 130) 131) 132) 133) 134) 135) 136) 137) 138) 139) 140) 141) 142) 143) 144) 145) 146) 147) 148) 149) 150) 151) 152) 153) 154) 155) 156) 157)

A C C D D D D D D C E C E B A D B B C D C B E A B E D A A C C C A B B B D D B B

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158) 159) 160) 161)

A A D D

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Chapter 9 1) New Hope Corporation manufactures replacement windshield wiper blades for the U.S.

domestic market, and is recognized in the industry for quality and product design innovations. New Hope has just received a patent for a superior rubberized plastic wiper insert and wants you to help plan several strategic directions for manufacturing and distributing the new product. Required: 1. Incremental material, labor, and variable overhead costs to produce and distribute the new blade insert total $0.073 per blade. Incremental fixed costs of production and distribution total $62,500 per month. Marketing research indicates that New Hope can raise the price of their new product by $0.37 per package of two-blade inserts. What would be the package breakeven sales for the new blade inserts? Round your answer up, to the nearest whole number.2. Without prejudice to your answer to Part 1, assume the annual breakeven sales for the new blade is 276,000 packages. Calculate the incremental profit New Hope should earn with projected sales of 316,000 packages. 3. Assume once again the annual 276,000 package breakeven sales level referenced in Part 2. If sales are expected to range between 280,000 and 300,000 packages annually, what added information or refinement of information would you want before recommending production and distribution of the new wiper blades?

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2) Gallery 12 Company operates the franchise for grade school and high school pictures taken

annually at some 4,000 sites in the upper Midwestern U.S. One of the continuing problems in this industry is retakes—returning to a site to re-photograph students who do not like the results of their first sitting. Until now, no charge has been made for the second picture session; the cost is spread over all customers and reflected in the pricing of photo packages. Gallery 12 executives have proposed a $4 charge for a second sitting with slightly lowered picture prices for students who select poses from the first sitting. You are part of a management team that has analyzed the alternative proposal, and your team has just presented the following data to top management.

Margin of safety (MOS) Degree of operating leverage (DOL) Breakeven sittings per year

Present

Proposed

12% 3.63 1,232,000

20% 2.37 1,232,000

Required: 1. The current level of sittings is 1.4 million, and contribution margin per sitting is unchanged at $2.76. Calculate the projected change in operating profit from an increase of 100,000 sittings that the company could produce because of time savings from reduced picture retake sittings. Fixed costs are not expected to change under the new proposal. 2. Explain why the margin of safety (MOS) almost doubles from 12 percent to 20 percent, while the degree of operating leverage (DOL) falls by almost one-third (3.63 down to 2.37). As above, assume that fixed costs do not change.

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3) Daley Company manufactures computer monitors. Following is a summary of its basic cost

and revenue data:

Sales price Variable costs Contribution margin

Per Unit

Percent

$ 580 348 $ 232

100 60 40

Assume that Daley Company is currently selling 700 computer monitors per month. Fixed costs are $96,000 per month. Required: Calculate Daley Company's: 1. Breakeven sales volume, in units (round your answer up, to the nearest whole number) 2. Current level of operating income, πB.

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4) Daley Company manufactures computer monitors. Following is a summary of its basic cost

and revenue data:

Sales price Variable costs Unit contribution margin

Per Unit

Percent

$ 580 348 $ 232

100 60 40

Assume that Daley Company is currently selling 700 computer monitors per month. Fixed costs are expected to be $96,000. Required: Calculate Daley Company's margin of safety (MOS) in units if 700 units are sold. Round your answer up, to the nearest whole number.

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5) Daley Company manufactures computer monitors. Following is a summary of its basic cost

and revenue data:

Sales price Variable costs contribution margin

Per Unit

Percent

$ 580 348 $ 232

100 60 40

Assume that Daley Company is currently selling 700 computer monitors per month. Fixed costs are expected to be $96,000. Required: Calculate Daley Company's margin of safety ratio (MOS %) if 700 units are sold. Round your answer to 2 decimal places, e.g., 0.1234 would be 12.34%.

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6) Daley Company manufactures computer monitors. Following is a summary of its basic cost

and revenue data:

Sales price Variable costs contribution margin

Per Unit

Percent

$ 580 348 $ 232

100 60 40

Assume that Daley Company is currently selling 700 computer monitors per month. Fixed costs are expected to be $96,000. Required: 1. Calculate Daley Company's degree of operating leverage (DOL) if 700 units are sold. 2. Define what is meant by the DOL. 3. Of what purpose/value is the DOL to decision makers?

7) Firms A and B both produce and sell computer cables. The sales price is $5 per cable. Data

for both firms at a sales volume of 100 units are as follows: Firm A

Firm B

Sales Variable costs (@$1, $3) Total contribution margin Fixed costs

$ 500 100 $ 400 300

$ 500 300 $ 200 100

Operating income (πB)

$ 100

Required: Which firm's profit or loss is more sensitive to changes in sales volume? Explain.

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8) TexFab manufactures two products, GT450 and GT600 that have the following sales and cost

information. GT450

GT600

Total

Amount

$ 25,000 Variable costs 20,000 Contribution $ margin 5,000

100

$ 75,000 37,500 $ 37,500

100

$ 100,000 57,500 $ 42,500

100.0

Sales

80 20

50 50

Fixed costs

20,000

Operating income

$ 22,500

57.5 42.5

Round all dollar answers up, to the nearest whole number. Required: 1. What is the breakeven point in dollars if sales remain at the same sales mix reflected in the income statement presented above? 2. If the TexFab Company's sales mix becomes $50,000 of product GT450 and $50,000 of product GT600, what is the breakeven point in sales dollars? Prepare an income statement— in the format given above—for this scenario. 3. Why have the breakeven point and the amount of operating income (πB) changed?

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9) Fashions, Incorporated is a retail store that sells sweaters and jackets. In the past, it has

bought all its sweaters from a supplier for $20 per unit and had no fixed costs for this line of clothing. However, Fashions has the opportunity to acquire a small manufacturing facility where it could produce its own sweaters. The projected data for producing its own sweaters are as follows: Selling price per unit Variable cost per unit Total fixed costs (per month)

$ 30.00 $ 15.00 $ 150,000

Required: 1. If Fashions acquired the manufacturing facility, how many sweaters would it have to produce in order to break even? 2. To earn an after tax profit (πA) of $125,000 per month, how many sweaters would Fashions have to sell if it buys the sweaters from the supplier? If it produces its own sweaters? Fashion's combined income tax rate, t, is 30%. (Round your answers up, to the nearest whole number.) 3. What is the profit-indifference sales volume in terms of the two options under consideration? (Ignore income tax effects.) Show a computation of operating income (πB) to prove your answer.

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10) The Subway Sandwich Shop, Incorporated is seeking to sell new franchises for its business.

The company is in the process of developing a business plan to present to potential investors. Following are various projected cost data for a typical sandwich shop: Lease of store space Equipment lease License Advertising Royalty Salaries Utilities Insurance

$500/month $500/month $240/year 2.5% gross sales revenue 8% of gross sales revenue $2,000/month $400/month $1,500/year

The average order (sandwich) sells for $4, with food cost of $2. Required: 1. What is the contribution of each order (sandwich) toward covering fixed expenses? 2. What is the projected monthly breakeven point in units (round your answer up, to nearest whole unit)? 3. A potential franchisee has a target before-tax profit (πB) of $2,000 per month. What level of sales (in units and in dollars, per month) must be achieved to meet the franchisee's profit goal (round up, to nearest whole unit)? 4. This potential franchisee has a target after-tax profit (πA) of $1,800 per month. To achieve this profit objective, what level of sales (in units and in dollars, per month) must be achieved if the tax rate, t, is 35% (roundup to nearest whole unit)? 5. What is the degree of operating leverage (DOL) of a typical sandwich shop at the volume level needed to achieve a targeted before-tax profit (i.e., an operating income) of $2,000 per month? Round your answer to 2 decimal places. 6. From the sales volume level needed to achieve the monthly pre-tax profit (πB) goal of $2,000, what would be the percentage change in πB if sales increased by 5%?

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11) FastQ Company, a specialist in printing, has established 500 convenience copying centers

throughout the country. In order to upgrade its services, the company is considering three new models of laser copying machines for use in producing high-quality copies. These highquality copies would be added to the growing list of products offered in the FastQ shops. The selling price to the customer for each laser copy would be the same, no matter which machine is installed in the shop. The three models of laser copying machines under consideration are 1024S (a small-volume model), 1024M (a medium-volume model), and 1024G (a large-volume model). The annual rental costs and the variable operating costs vary with the size of the machine. The machine capacities and costs are shown below: Copier Model 1024S

1024M

1024G

Annual capacity (copies) Costs:

100,000

350,000

800,000

Annual machine rental Variable costs per unit:

$ 8,000

$ 11,000

$ 20,000

Cost of paper Variable operating costs

0.02 0.12

0.02 0.07

0.02 0.03

Required: 1. Determine the volume level in copies at which FastQ Company would be indifferent between acquiring either the small-volume model (1024S) or the medium-volume model (1024M).2. The management of FastQ Company is able to estimate the number of copies to be sold at each establishment. Present an analysis that would enable FastQ Company to select the most profitable machine without having to make a separate cost calculation for each establishment. (CMA Adapted)

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12) Due to the sluggish economy, the Bi-Wheels Company has experienced some difficulty in

selling its bicycles. The following data relate to the current year: Sales (9,000 units @ $100/unit) Less variable costs (9,000 @ $60/unit) Contribution margin Less fixed costs

$ 900,000 540,000 $ 360,000 400,000

Net operating loss

$ (40,000)

Required: 1. Compute Bi-Wheels' annual breakeven point, in both units and dollars. Also, compute the contribution margin ratio.2. The manager believes that a $40,000 increase in advertising would result in a $120,000 increase in annual sales. If the manager is right, what will be the net effect on the company's operating income (πB)? 3. Refer to the original data. The vice-president in charge of sales is certain that a 10% reduction in selling price in combination with a $30,000 increase in advertising will cause sales volume to increases by 50%. What effect would this strategy have on operating income (πB) of the company? 4. Refer to the original data. In the following year, Bi-Wheels saved $5 of total variable costs per bicycle by buying parts from a different manufacturer. However, Bi-Wheels' rent and insurance increased by $5,600. The store sold 11,000 bikes. What was its operating income (πB) for the year?

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13) Hightech Company recently developed the technology necessary to produce a low-end, a

medium-end, and high-end computer memory chip for heart monitoring healthcare equipment. Budgeted fixed costs for the manufacture of all three products total $4,250,000. Budgeted sales, by product and in total, for the coming year were as follows:

Sales

Variable costs Contributio n

Economy Standard High Amount Percent Amount Percent Amount Percent $ 100 $ 100 $ 100 1,750,00 % 4,000,00 % 2,500,00 % 0 0 0 $ 69% $ 25% $ 50% 1,207,50 1,000,00 1,250,00 0 0 0 $ 542,500

31%

$ 3,000,00 0

75%

$ 1,250,00 0

50%

Actual sales for the year were as follows: Economy Standard High

$ 4,000,000 $ 2,250,000 $ 2,000,000

Total sales

$ 8,250,000

Required: 1. Prepare a contribution income statement for the year based on actual sales data (but budgeted cost data, for both variable and fixed costs).2. Compare the breakeven sales dollars for the year based on both budgeted sales and on actual sales, assuming that the sales mix remains constant in terms of sales dollars. (Round contribution margin ratios, in all calculations, to three decimal places. Round answer in dollars up, to the nearest whole number.) 3. The company president knows that total actual sales were $8,250,000 for the year, the same as budgeted. Because she had seen the budgeted income statement, she was expecting a nice profit from producing the memory chips. Explain to her what happened.

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14) The non-profit University Hospital is contemplating purchasing a new laboratory blood

analysis machine at a cost of $1,500,000. Useful life of this machine is 10 years. The hospital currently serves 5,000 patients per year, 40 percent of whom need this machine’s analysis as part of the diagnostic tests. The patient’s blood samples are presently sent to a private laboratory that charges $150 per sample. In-house variable expenses are estimated to be $85 per sample if the hospital purchases the analysis machine. Required Round your answers up, to the nearest whole number. 1. Determine the indifference point (expressed in number of tests per year) between purchasing the machine and using the private laboratory. 2. Determine how many additional patients would be needed so that the hospital would be indifferent between purchasing the analysis machine and paying the $150 lab charge. 3. Determine the amount of the private laboratory charge so that the hospital would be indifferent as to purchasing the machine or using the private laboratory, assuming the current service level of 5,000 patients per year.

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15) Firms Y and Z both produce and sell small gasoline engines. The sales price is $200 per

engine. Data for both firms at a sales volume of 50 units are as follows: Firm Y

Firm Z

Sales (50 units) Variable costs ($50, $25) Total contribution margin Fixed costs

$ 10,000 2,500 $ 7,500 4,500

$ 10,000 1,250 $ 8,750 5,750

Operating income (πB)

$ 3,000

Required: From the existing level of sales, which firm's operating income (πB) is more sensitive to changes in sales volume? Show calculations and round your answers to 2 decimal places.

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16) Walker Corporation is a retail store that sells shoes and boots. In the past, it has bought all its

shoes from a supplier for $15 per unit. However, Walker has the opportunity to acquire a small manufacturing facility where it could produce its own shoes. The projected data for producing its own shoes are as follows, for a pair of shoes: selling price $25; variable costs, $5; total fixed costs (per year), $125,000. Required 1. If Walker acquired the manufacturing facility, how many pairs of shoes (per year) would it have to produce to break even (round your answer up, to the nearest whole unit)? 2. To earn an annual after-tax profit (πA) of $100,000, how many pairs of shoes would Walker have to sell if it buys the shoes from the supplier? How many pairs would it have to sell if it produces its own shoes? Walker's combined income tax rate, t, is estimated as 35%. Round up your answers, to the nearest whole number of units. 3. At what annual volume of sales (in units) would Walker be indifferent between the two decision alternatives (ignore income tax effects)? Show a computation of operating incomes to prove your answer.

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17) Headlines Publishing Company (HPC) specializes in international business news

publications. Its principal product is HPC-Monthly, which is mailed to subscribers the first week of each month. A weekly version, called HPC-Weekly, is also available to subscribers over the Web at a higher cost. Sixty percent (60%) of HPC's subscribers are international customers. The company experienced a fast growth in subscribers in its first few years of operation, but sales have begun to slow in recent years as new competitors have entered the market. HPC has the following cost structure and sales revenue for its subscription operations on a yearly basis. All costs and all subscription fees are in U.S. dollars. Fixed Cost $306,000 per year Variable Costs Mailing Commission Administrative Sales-Mix Information (based on volume) HPC-Weekly HPC-Monthly Selling Price HPC-Weekly HPC-Monthly

$ 0.60 per issue 3.00 /subscription 1.50 /subscription 20 percent 80 percent

$ 47 /subscription $ 19 /subscription

Required: Use these data to determine the following:1. Contribution margin per unit for weekly and for monthly subscriptions. 2. Contribution margin ratio for weekly and for monthly subscriptions. (Round answers to two decimal points.) 3. HPC's breakeven point in annual sales units and sales dollars (round answers up, to nearest whole number). 4. HPC's required sales to reach a target before-tax profit (πB) of $75,000 for the year. What is the breakdown of this overall level of subscriptions into Weekly and Monthly subscriptions? (Round answers up to nearest whole number.) 5. What are the critical success factors for HPC? For its domestic subscribers? For its international subscribers? How can CVP analysis be used to make HPC more competitive?

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18) Garner Stores, Incorporated is a multiple-store chain retailer of women's clothing. You are

provided with the following budgeted income statement for the coming year. GARNER STORES, INCORPORATED Budgeted Income Statement For the Year Ending June 30, 2019 ($000 omitted) Sales

$ 34,000

Cost of goods sold Variable Fixed Gross profit

$ 10,200 3,250

13,450 $ 20,550

Selling and administrative costs Commissions

$ 5,440

Fixed advertising cost

3,400

Fixed marketing salaries

500

Fixed administrative cost Operating income

6,500

Income taxes (@ 30 percent) After-tax income

15,840 $ 4,710 1,413 $ 3,297

Required: 1. Determine the breakeven point in dollars for 2019.2. What is the required sales dollars if desired profit is to increase by 10% over the budgeted pre-tax profit? 3. What is the indifference point between reducing the commissions to 10% of sales dollars, and at the same time increasing total fixed cost per year by $2.4 million, relative to the current budget?

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19) The contribution income statement would require a firm to: A) Separate costs into fixed and variable categories. B) Separate revenue into different categories. C) Round off amounts to the nearest dollar. D) Ignore some estimated fixed expenses, such as depreciation, that don't involve a cash

outlay. E) Restructure its accounting system to accommodate activity-based costing.

20) Which of the following is not an application of cost-volume-profit analysis? A) Deciding whether to cut a product line. B) Deciding whether to make or buy a given product or service. C) Determining the short-term cost or profit implications of many decisions. D) Setting prices for products and services. E) Performing strategic “what-if” analyses.

21) Cost-volume-profit (CVP) analysis for revenue planning determines: A) The costs associated with a certain level of revenue. B) The max amount of revenue a firm can receive. C) Both revenue maximization and cost minimization. D) The revenue required to achieve a desired profit level. E) The desired profit level of a firm.

22) The breakeven point is: A) The sales volume at which revenues equal total cost plus an operating profit of zero. B) The sales volume at which revenues equal variable cost and profit is zero. C) The sales volume at which revenues equal fixed cost and profit is zero. D) The point at which revenues meet the budget target. E) The sales volume at which the total contribution margin exceeds total variable costs.

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23) Cost-volume-profit (CVP) analysis using activity-based costs will tend to shift some costs

from fixed to variable classifications, resulting in: A) Lower breakeven sales. B) Higher breakeven sales. C) Higher or lower breakeven sales, depending on batch size. D) A higher or lower contribution margin per unit. E) None of the answer choices are correct.

24) What tool can you use to incorporate probabilities into the What-If analysis? A) Margin of Safety B) Sensitivity analysis C) Cost-volume-profit (CVP) graph D) Degree of operating leverage E) Decision Tables

25) A relatively low margin of safety ratio (MOS%) for a product is usually an indication that the

product: A) Is losing money. B) Has a high contribution margin. C) Is riskier than a product with a higher margin of safety ratio. D) Is less risky than a product with a higher margin of safety ratio. E) Requires heavy fixed cost to produce or sell.

26) High operating leverage represents increased risk associated with relatively: A) High variable costs in the firm's cost structure. B) High fixed cost in the firm's cost structure. C) High sales revenue combined with high variable costs. D) High asset turnover. E) High levels of unit-level (i.e., volume-related) costs.

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27) Cost-volume-profit (CVP) analysis with multiple products assumes that sales will continue at

the same mix of products, expressed in either sales units or sales dollars. This assumption is essential, because a change in the product mix will probably change: A) The average sales price per unit. B) The average variable cost per unit. C) The weighted-average contribution margin (per unit or ratio). D) The total fixed cost. E) The average contribution margin (per unit or ratio).

28) The cost-volume-profit (CVP) profit-planning model assumes that over the relevant range of

activity: A) Only revenues are linear. B) Only revenues and fixed costs are linear. C) Only revenues and variable costs are linear. D) Variable cost per unit decreases because of increases in productivity. E) Both revenues and total costs are linear.

29) In performing short-term cost-volume-profit (CVP) analysis for a new product or service, the

decision-maker would: A) Include all current and future fixed costs. B) Include only current fixed costs. C) Include only future fixed costs. D) Include only incremental fixed costs. E) Include only allocated fixed costs.

30) What can the weighted average contribution margin ratio be used for? A) To calculate an average per-unit contribution margin based on an assumed sales mix. B) To figure out the relative proportion in which a company’s products (or services) are

sold. C) Breakeven and profit planning for sales volume expressed in dollars (Y) rather than units (Q). D) To solve for a measure, at any level of sales volume, of the sensitivity of operating profit to changes in volume. E) To determine the extent of fixed costs in an organization’s cost structure.

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31) The difference between sales price per unit and variable cost per unit is the: A) Contribution margin per unit (cm). B) Total contribution margin (CM). C) Contribution margin ratio. D) Margin of safety (MOS). E) Breakeven point.

32) What excel tool can be used in cost planning to determine the most cost-effective trade-off

between different types of costs? A) Sum. B) Goal Seek. C) Average. D) Forecast Sheet. E) Scatter plot.

33) What can the margin of safety ratio measure? A) The amount of risk in a single product. B) The risk of two alternative products. C) Financial leverage. D) The extend of fixed costs in an organization’s structure. E) The amount of planned (or actual) sales above the breakeven point.

34) Which one of the following is defined, at any given sales volume, as the ratio of the total

contribution margin to operating profit at that sales volume? A) Contribution margin ratio. B) Margin of safety ratio (MOS%). C) Degree of operating leverage (DOL). D) Breakeven point. E) Margin of safety (MOS).

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35) Operating profit is profit exclusive of __________ items and is __________ tax. A) regular; before B) nonrecurring; after C) regular; after D) unusual; after E) unusual; before

36) Many cost functions are __________ in nature when considered over the entire range of

possible output levels. A) Nonlinear. B) Linear. C) Flat. D) Nonexistent. E) Choppy.

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37) Tom's Sports Wear is a retailer of sports hats located in Atlanta, Georgia. Although Tom's

carries numerous styles of sports hats, each hat has approximately the same price and invoice purchase cost, as shown below. Sales personnel receive large commissions to encourage them to be more aggressive in their sales efforts. Currently the economy of Atlanta is really humming, and sales growth at Tom's has been great. However, the business is very competitive, and Tom has relied on its knowledgeable and courteous staff to attract and retain customers, who otherwise might go to other sports wear stores. Also, because of the rapid growth in sales, Tom is finding it more difficult to manage certain aspects of the business, such as restocking of inventory and hiring and training new salespeople. Sales price Per-unit variable costs: Invoice cost Sales commissions Total per-unit variable costs

$ 42.00

18.90 5.70 $ 24.60

Total annual fixed costs: Advertising Rent Salaries Total fixed costs

$ 24,300 30,600 126,600 $ 181,500

The annual breakeven point in unit sales is calculated to be: A) 10,432 units. B) 9,432 units. C) 11,432 units. D) 8,432 units. E) 12,432 units.

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38) Tom's Sports Wear is a retailer of sports hats located in Atlanta, Georgia. Although Tom's

$ 36.00

18.60 5.40 $ 24.00

Total annual fixed costs: Advertising Rent Salaries Total fixed costs

$ 24,000 30,000 126,000 $ 180,000

The annual breakeven point in unit sales is calculated to be: A) 15,000 units. B) 14,000 units. C) 16,000 units. D) 13,000 units. E) 17,000 units.

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39) Tom's Sports Wear is a retailer of sports hats located in Atlanta, Georgia. Although Tom's

$ 60.00

35.00 5.00 $ 40.00

Total annual fixed costs: Advertising Rent Salaries Total fixed costs

$ 25,600 34,000 128,400 $ 188,000

The annual breakeven point in dollar sales is calculated to be: (Do not round intermediate calculations.) A) $528,000. B) $600,000. C) $492,000. D) $636,000. E) $564,000.

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40) Tom's Sports Wear is a retailer of sports hats located in Atlanta, Georgia. Although Tom's

$ 36.00

18.60 5.40 $ 24.00

Total annual fixed costs: Advertising Rent Salaries Total fixed costs

$ 24,000 30,000 126,000 $ 180,000

The annual breakeven point in dollar sales is calculated to be: A) $504,000. B) $576,000. C) $468,000. D) $612,000. E) $540,000.

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41) Tom's Sports Wear is a retailer of sports hats located in Atlanta, Georgia. Although Tom's

$ 41.00

18.85 5.65 $ 24.50

Total annual fixed costs: Advertising Rent Salaries Total fixed costs

$ 24,250 30,500 126,500 $ 181,250

If 24,500 hats were sold, Tom's operating income (πB) would be: A) $215,800. B) $230,200. C) $208,600. D) $223,000. E) $237,400.

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42) Tom's Sports Wear is a retailer of sports hats located in Atlanta, Georgia. Although Tom's

$ 36.00

18.60 5.40 $ 24.00

Total annual fixed costs: Advertising Rent Salaries Total fixed costs

$ 24,000 30,000 126,000 $ 180,000

If 24,000 hats were sold, Tom's operating income (πB) would be: A) $100,800. B) $115,200. C) $93,600. D) $108,000. E) $122,400.

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43) No More Standing is a retailer of office chairs located in San Francisco, California. Due to

increased market competition, the CFO of No More Standing has grown worried about the firm's upcoming income stream. The CFO asked you to use the company financial information provided below. Sales price Per-unit variable costs: Invoice cost Sales commissions Total per-unit variable costs

$ 78.00

41.85 18.45 $ 60.30

Total annual fixed costs: Advertising Rent Salaries Total annual fixed costs

$ 56,150 78,300 226,300 $ 360,750

The annual breakeven point, in unit sales, is: A) 11,382 units. B) 20,382 units. C) 32,382 units. D) 9,382 units. E) 15,382 units.

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44) No More Standing is a retailer of office chairs located in San Francisco, California. Due to

$ 75.00

41.70 18.30 $ 60.00

Total annual fixed costs: Advertising Rent Salaries Total fixed costs

$ 56,000 78,000 226,000 $ 360,000

The annual breakeven point, in unit sales, is: A) 15,000 units. B) 24,000 units. C) 36,000 units. D) 13,000 units. E) 19,000 units.

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45) No More Standing is a retailer of office chairs located in San Francisco, California. Due to

$ 79.00

41.90 18.50 $ 60.40

Total annual fixed costs: Advertising Rent Salaries Total annual fixed costs

$ 56,200 78,400 226,400 $ 361,000

The annual breakeven point, in dollar sales, is: (Do not round intermediate calculations.) A) $1,033,280. B) $1,233,280. C) $833,280. D) $1,333,280. E) $1,533,280.

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46) No More Standing is a retailer of office chairs located in San Francisco, California. Due to

$ 75.00

41.70 18.30 $ 60.00

Total annual fixed costs: Advertising Rent Salaries Total fixed costs

$ 56,000 78,000 226,000 $ 360,000

The annual breakeven point, in dollar sales, is: A) $1,300,000. B) $1,500,000. C) $1,100,000. D) $1,600,000. E) $1,800,000.

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47) No More Standing is a retailer of office chairs located in San Francisco, California. Due to

$ 73.00

40.45 17.45 $ 57.90

Total annual fixed costs: Advertising Rent Salaries Total annual fixed costs

$ 54,500 77,000 225,000 $ 356,500

If 38,900 office chairs were sold, No More Standing's operating income (πB) would be: (Do not round intermediate calculations.) A) $230,890. B) $270,890. C) $200,890. D) $330,890. E) $110,890.

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48) No More Standing is a retailer of office chairs located in San Francisco, California. Due to

$ 75.00

41.70 18.30 $ 60.00

Total annual fixed costs: Advertising Rent Salaries Total fixed costs

$ 56,000 78,000 226,000 $ 360,000

If 40,000 office chairs were sold, No More Standing's operating income (πB) would be: A) $240,000. B) $280,000. C) $210,000. D) $340,000. E) $120,000.

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49) Sleepy Time is a retailer of luxury bed frames located in Los Angeles, California. Due to a

recent industry-wide financial crisis, the CFO of Sleepy Time fears a significant drop in the firm's upcoming income stream. The CFO asked you to use the company financial information provided below. Sales price per unit Per-unit variable costs: Invoice cost Sales commissions Total per-unit variable costs

$ 3,600.00

2,698.80 401.20 $ 3,100.00

Total annual fixed costs: Advertising Rent Salaries Total annual fixed costs

$ 238,400 180,400 385,200 $ 804,000

The annual breakeven point in units is: A) 1,608 units. B) 2,008 units. C) 3,408 units. D) 1,308 units. E) 2,608 units.

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50) Sleepy Time is a retailer of luxury bed frames located in Los Angeles, California. Due to a

$ 3,000.00

2,218.80 281.20 $ 2,500.00

Total annual fixed costs: Advertising Rent Salaries Total fixed costs

$ 236,000 178,000 386,000 $ 800,000

The annual breakeven point in units is: A) 1,600 units. B) 2,000 units. C) 3,400 units. D) 1,300 units. E) 2,600 units.

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51) Sleepy Time is a retailer of luxury bed frames located in Los Angeles, California. Due to a

$ 3,100.00

2,350.00 250.00 $ 2,600.00

Total annual fixed costs: Advertising Rent Salaries Total annual fixed costs

$ 230,500 176,600 385,500 $ 792,600

The annual breakeven point in dollars is: (Do not round intermediate calculations.) A) $4,914,120. B) $4,614,120. C) $4,214,120. D) $4,714,120. E) $4,414,120.

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52) Sleepy Time is a retailer of luxury bed frames located in Los Angeles, California. Due to a

$ 3,000.00

2,218.80 281.20 $ 2,500.00

Total annual fixed costs: Advertising Rent Salaries Total fixed costs

$ 236,000 178,000 386,000 $ 800,000

The annual breakeven point in dollars is: A) $4,800,000. B) $4,500,000. C) $4,100,000. D) $4,600,000. E) $4,300,000.

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53) Sleepy Time is a retailer of luxury bed frames located in Los Angeles, California. Due to a

$ 2,900.00

2,150.00 210.00 $ 2,360.00

Total annual fixed costs: Advertising Rent Salaries Total annual fixed costs

$ 230,100 176,200 385,100 $ 791,400

If 3,200 bed frames were sold, Sleepy Time's operating income (πB) would be: (Do not round intermediate calculations.) A) $976,600. B) $1,016,600. C) $936,600. D) $1,076,600. E) $856,600.

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54) Sleepy Time is a retailer of luxury bed frames located in Los Angeles, California. Due to a

$ 3,000.00

2,218.80 281.20 $ 2,500.00

Total annual fixed costs: Advertising Rent Salaries Total fixed costs

$ 236,000 178,000 386,000 $ 800,000

If 4,000 bed frames were sold, Sleepy Time's operating income (πB) would be: A) $1,240,000. B) $1,280,000. C) $1,200,000. D) $1,340,000. E) $1,120,000.

55) During the current year, Mute Corporation expected to sell 22,800 telephone switches. Fixed

costs for the year were expected to be $12,144,000, the unit sales price was budgeted at $3,400, and unit variable costs were budgeted at $1,520. Mute's margin of safety (MOS) in units is A) 17,510. B) 16,340. C) 20,120. D) 16,210. E) 21,430.

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56) During the current year, Mute Corporation expected to sell 24,000 telephone switches. Fixed

costs for the year were expected to be $12,144,000, the unit sales price was budgeted at $3,200, and unit variable costs were budgeted at $1,440. Mute's margin of safety (MOS) in units is A) 18,270. B) 17,100. C) 20,880. D) 16,970. E) 22,190.

57) During the current year, Mute Corporation expected to sell 24,800 telephone switches. Fixed

costs for the year were expected to be $12,148,000, the unit sales price was budgeted at $3,600, and unit variable costs were budgeted at $1,760. Mute's margin of safety (MOS) in sales dollars is: (Do not round intermediate calculations.) A) $87,369,174. B) $98,309,174. C) $68,512,044. D) $65,512,174. E) $77,692,174.

58) During the current year, Mute Corporation expected to sell 24,000 telephone switches. Fixed

costs for the year were expected to be $12,144,000, the unit sales price was budgeted at $3,200, and unit variable costs were budgeted at $1,440. Mute's margin of safety (MOS) in sales dollars is: A) $76,577,000. B) $87,517,000. C) $82,044,000. D) $54,720,000. E) $66,900,000.

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59) During the current year, Mute Corporation expected to sell 25,000 telephone switches. Fixed

costs for the year were expected to be $12,149,000, the unit sales price was budgeted at $3,700, and unit variable costs were budgeted at $1,840. Mute's margin of safety ratio (MOS %) is: (Do not round intermediate calculations.) A) 73.87%. B) 89.62%. C) 72.87%. D) 95.12%. E) 78.77%.

60) During the current year, Mute Corporation expected to sell 24,000 telephone switches. Fixed

costs for the year were expected to be $12,144,000, the unit sales price was budgeted at $3,200, and unit variable costs were budgeted at $1,440. Mute's margin of safety ratio (MOS %) is: A) 71.25%. B) 87.00%. C) 70.25%. D) 92.50%. E) 76.15%.

61) For the current year, Electric Corporation expected to sell 42,800 industrial power cords.

Fixed costs were expected to total $1,654,000; unit sales price was expected to be $4,150; and unit variable costs were budgeted at $2,650. Electric Corporation's margin of safety (MOS) in units is: A) 49,597. B) 39,797. C) 41,697. D) 36,897. E) 33,297.

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62) For the current year, Electric Corporation expected to sell 42,000 industrial power cords.

Fixed costs were expected to total $1,650,000; unit sales price was expected to be $3,750; and unit variable costs were budgeted at $2,250. Electric Corporation's margin of safety (MOS) in units is: A) 48,800. B) 39,000. C) 40,900. D) 36,100. E) 32,500.

63) For the current year, Electric Corporation expected to sell 42,900 industrial power cords.

Fixed costs were expected to total $1,654,500; unit sales price was expected to be $4,200; and unit variable costs were budgeted at $2,700. Electric Corporation's margin of safety (MOS) in sales dollars is: (Do not round intermediate calculations.) A) $175,547,400. B) $209,722,398. C) $181,467,397. D) $193,272,400. E) $165,097,400.

64) For the current year, Electric Corporation expected to sell 42,000 industrial power cords.

Fixed costs were expected to total $1,650,000; unit sales price was expected to be $3,750; and unit variable costs were budgeted at $2,250. Electric Corporation's margin of safety (MOS) in sales dollars is: A) $153,375,000. B) $187,550,000. C) $159,295,000. D) $171,100,000. E) $142,925,000.

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65) For the current year, Electric Corporation expected to sell 40,600 industrial power cords.

Fixed costs were expected to total $1,755,000; unit sales price was expected to be $5,450; and unit variable costs were budgeted at $3,950. Electric Corporation's margin of safety ratio (MOS%) is (rounded to two decimal points): (Do not round intermediate calculations.) A) 91.33%. B) 97.12%. C) 90.45%. D) 99.21%. E) 92.89%.

66) For the current year, Electric Corporation expected to sell 42,000 industrial power cords.

Fixed costs were expected to total $1,650,000; unit sales price was expected to be $3,750; and unit variable costs were budgeted at $2,250. Electric Corporation's margin of safety ratio (MOS%) is (rounded to two decimal points): A) 91.59%. B) 97.38%. C) 90.71%. D) 99.47%. E) 93.15%.

67) In the current year, Comfy Couch Company expected to sell 11,300 leather sofas. Fixed costs

for the year were expected to be $8,399,500; unit sales price was budgeted at $4,150; and unit variable costs were expected to be $1,900. Comfy Couch Company's margin of safety (MOS) in units is: A) 7,866. B) 7,066. C) 8,966. D) 8,166. E) 7,566.

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68) In the current year, Comfy Couch Company expected to sell 12,000 leather sofas. Fixed costs

for the year were expected to be $8,400,000; unit sales price was budgeted at $4,600; and unit variable costs were expected to be $2,200. Comfy Couch Company's margin of safety (MOS) in units is: A) 8,800. B) 8,000. C) 9,900. D) 9,100. E) 8,500.

69) In the current year, Comfy Couch Company expected to sell 11,100 leather sofas. Fixed costs

for the year were expected to be $8,398,500; unit sales price was budgeted at $4,050; and unit variable costs were expected to be $1,800. Comfy Couch Company's margin of safety (MOS) in sales dollars is: (Do not round intermediate calculations.) A) $26,937,700. B) $33,337,700. C) $24,037,700. D) $37,437,700. E) $29,837,700.

70) In the current year, Comfy Couch Company expected to sell 12,000 leather sofas. Fixed costs

for the year were expected to be $8,400,000; unit sales price was budgeted at $4,600; and unit variable costs were expected to be $2,200. Comfy Couch Company's margin of safety (MOS) in sales dollars is: A) $36,200,000. B) $42,600,000. C) $33,300,000. D) $46,700,000. E) $39,100,000.

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71) In the current year, Comfy Couch Company expected to sell 11,300 leather sofas. Fixed costs

for the year were expected to be $8,399,500; unit sales price was budgeted at $4,150; and unit variable costs were expected to be $1,900. Comfy Couch Company's margin of safety ratio (MOS %) is (rounded to two decimal places): (Do not round intermediate calculations.) A) 67.42%. B) 74.11%. C) 66.96%. D) 75.40%. E) 69.48%.

72) In the current year, Comfy Couch Company expected to sell 12,000 leather sofas. Fixed costs

for the year were expected to be $8,400,000; unit sales price was budgeted at $4,600; and unit variable costs were expected to be $2,200. Comfy Couch Company's margin of safety ratio (MOS %) is (rounded to two decimal places): A) 71.29%. B) 77.98%. C) 70.83%. D) 79.27%. E) 73.35%.

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73) The sales and cost data for two companies in the transportation industry are as follows:

X Company Amount Percent Sales $ 146,000 100.00 Variable costs 87,600 60.00 Contribution margin 58,400 40.00 Fixed costs Operating income (πB)

Y Company Amount Percent $ 146,000 100.00 43,800 30.00 102,200 70.00

34,100

70,150

$ 24,300

$ 32,050

The annual breakeven point in sales dollars for X Company is: A) $98,107. B) $85,250. C) $58,250. D) $106,019. E) $86,907.

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74) The sales and cost data for two companies in the transportation industry are as follows:

Sales Variable costs Contribution margin

X Company Amount Percent $ 120,000 100 72,000 60 48,000 40

Fixed costs Operating income (πB)

Y Company Amount Percent $ 120,000 100 36,000 30 84,000 70

36,000

72,000

$ 12,000

The annual breakeven point in sales dollars for X Company is: A) $102,857. B) $90,000. C) $63,000. D) $110,769. E) $91,657.

75) The sales and cost data for two companies in the transportation industry are as follows:

Sales Variable costs

X Company Amount Percent $ 132,000 100.00 79,200 60.00

Contribution margin

52,800

Fixed costs

36,300

72,350

$ 16,500

$ 20,050

Operating income (πB)

40.00

Y Company Amount Percent $ 132,000 100.00 39,600 30.00 92,400

70.00

Y Company's margin of safety (MOS) in sales dollars (rounded) is: A) $20,731. B) $39,843. C) $41,500. D) $28,643. E) $61,500.

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76) The sales and cost data for two companies in the transportation industry are as follows:

Sales Variable costs Contribution margin

X Company Amount Percent $ 120,000 100 72,000 60 48,000 40

Fixed costs Operating income (πB)

Y Company Amount Percent $ 120,000 100 36,000 30 84,000 70

36,000

72,000

$ 12,000

Y Company's margin of safety (MOS) in sales dollars (rounded) is: A) $9,231. B) $28,343. C) $30,000. D) $17,143. E) $57,000.

77) The sales and cost data for two companies in the transportation industry are as follows:

Sales Variable costs

X Company Amount Percent $ 150,000 100.00 90,000 60.00

Contribution margin

60,000

Fixed costs

34,200

70,250

$ 25,800

$ 34,750

Operating income (πB)

40.00

Y Company Amount Percent $ 150,000 100.00 45,000 30.00 105,000

70.00

X Company's margin of safety ratio (MOS%) (rounded) is: A) -25.69%. B) 32.29%. C) 41.62%. D) 65.50%. E) 43.00%.

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78) The sales and cost data for two companies in the transportation industry are as follows:

Sales Variable costs Contribution margin Fixed costs Operating income (πB)

X Company Amount Percent $ 120,000 100 72,000 60 48,000 40

Y Company Amount Percent $ 120,000 100 36,000 30 84,000 70

36,000

72,000

$ 12,000

X Company's margin of safety ratio (MOS%) (rounded) is: A) 7.69%. B) 14.29%. C) 23.62%. D) 47.50%. E) 25.00%.

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79) The sales and cost data for two companies in the transportation industry are as follows: X Company Y Company Amount Percent Amount Percent Sales $ 100.00 $ 154,000 100.00 154,000 Variable costs 92,400 60.00 46,200 30.00 Contribution margin

61,600

Fixed costs

34,300

70,350

$ 27,300

$ 37,450

Operating income (πB)

40.00

107,800

70.00

XCompany's degree of operating leverage (DOL) at the current sales volume level is calculated to be: A) 2.26 B) 3.00 C) 5.00 D) 4.00 E) 1.00

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80) The sales and cost data for two companies in the transportation industry are as follows:

Sales Variable costs Contribution margin Fixed costs Operating income (πB)

X Company Amount Percent $ 120,000 100 72,000 60 48,000 40

Y Company Amount Percent $ 120,000 100 36,000 30 84,000 70

36,000

72,000

$ 12,000

XCompany's degree of operating leverage (DOL) at the current sales volume level is calculated to be: A) 4.00 B) 5.00 C) 7.00 D) 6.00 E) 3.00

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81) Shock Company manufactures electronic equipment. The following is a summary of its basic

cost and revenue data: Per Unit

Percent

Sales price Variable costs

$ 490 317

100.00 64.69

Unit contribution margin

$ 173

35.31

Assume that Shock Company is currently selling 610 products per month and monthly fixed costs are $80,100.

Shock Company's operating income (πB) is calculated to be: A) $24,430. B) $26,430. C) $29,430. D) $28,430. E) $25,430.

82) Shock Company manufactures electronic equipment. The following is a summary of its basic

cost and revenue data: Per Unit

Percent

Sales price Variable costs

$ 480 312

100 65

Unit contribution margin

$ 168

Assume that Shock Company is currently selling 600 products per month and monthly fixed costs are $80,000. Shock Company's operating income (πB) is calculated to be: A) $19,800. B) $21,800. C) $24,800. D) $23,800. E) $20,800.

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83) Shock Company manufactures computer monitors. The following is a summary of its basic

cost and revenue data: Per Unit

Percent

Sales price Variable costs

$ 860 559

100 65

Unit contribution margin

$ 301

Assume that Shock Company is currently selling 828 computer monitors per month and monthly fixed costs are $232,000. If an $24,840 increase in the advertising budget would increase monthly sales by $107,500, the new level of operating income (πB) for Shock Company would be: (Do not round intermediate calculations.) A) $26,013. B) $28,013. C) $31,013. D) $30,013. E) $17,228.

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84) Shock Company manufactures computer monitors. The following is a summary of its basic

cost and revenue data: Per Unit

Percent

Sales price Variable costs

$ 480 312

100 65

Unit contribution margin

$ 168

Assume that Shock Company is currently selling 600 computer monitors per month and monthly fixed costs are $80,000. If an $18,000 increase in the advertising budget would increase monthly sales by $60,000, the new level of operating income (πB) for Shock Company would be: A) $19,800. B) $21,800. C) $24,800. D) $23,800. E) $20,800.

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85) Shock Company manufactures computer monitors. The following is a summary of its basic

cost and revenue data: Per Unit

Percent

Sales price Variable costs

$ 460 237

100.00 51.52

Unit contribution margin

$ 223

48.48

Assume that Shock Company is currently selling 590 computer monitors per month and monthly fixed costs are $79,800. What is Shock Company's margin of safety (MOS), in units, if 590 units are sold and all costs and revenues are as budgeted? (Round intermediate calculation up to nearest whole number of units.) A) 232. B) 351. C) 237. D) 250. E) 323.

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86) Shock Company manufactures computer monitors. The following is a summary of its basic

cost and revenue data: Per Unit

Percent

Sales price Variable costs

$ 480 312

100 65

Unit contribution margin

$ 168

Assume that Shock Company is currently selling 600 computer monitors per month and monthly fixed costs are $80,000. What is Shock Company's margin of safety (MOS), in units, if 600 units are sold and all costs and revenues are as budgeted? (Round intermediate calculation up to nearest whole number of units.) A) 123. B) 242. C) 128. D) 141. E) 214.

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87) Shock Company manufactures computer monitors. The following is a summary of its basic

cost and revenue data: Per Unit

Percent

Sales price Variable costs

$ 390 202

100.00 51.79

Unit contribution margin

$ 188

48.21

Assume that Shock Company is currently selling 520 computer monitors per month and monthly fixed costs are $79,000. Shock Company's margin of safety ratio (MOS%) if 520 units are sold would be (Round up your intermediate calculations to the nearest whole unit.) A) B) C) D) E)

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31.94%. 16.24%. 19.04%. 18.04%. 73.04%.

88) Shock Company manufactures computer monitors. The following is a summary of its basic

cost and revenue data: Per Unit

Percent

Sales price Variable costs

$ 480 312

100 65

Unit contribution margin

$ 168

Assume that Shock Company is currently selling 600 computer monitors per month and monthly fixed costs are $80,000. Shock Company's margin of safety ratio (MOS%) if 600 units are sold would be (Round up your intermediate calculations to the nearest whole unit.) A) 33.4%. B) 17.7%. C) 20.5%. D) 19.5%. E) 79.5%.

89) Shock Company manufactures computer monitors. The following is a summary of its basic

cost and revenue data: Per Unit

Percent

Sales price Variable costs

$ 600 372

100.00 62.00

Unit contribution margin

$ 228

38.00

Assume that Shock Company is currently selling 720 computer monitors per month and monthly fixed costs are $90,200. What is Shock Company's degree of operating leverage (DOL) at this sales volume (i.e., at 720 units)? (Round your answer to three decimal places.) A) 2.492. B) 1.779. C) 3.004. D) 2.374. E) 2.220.

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90) Shock Company manufactures computer monitors. The following is a summary of its basic

cost and revenue data: Per Unit

Percent

Sales price Variable costs

$ 480 312

100 65

Unit contribution margin

$ 168

Assume that Shock Company is currently selling 600 computer monitors per month and monthly fixed costs are $80,000. What is Shock Company's degree of operating leverage (DOL) at this sales volume (i.e., at 600 units)? (Round your answer to three decimal places.) A) 5.118. B) 4.405. C) 5.630. D) 5.000. E) 4.846.

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91) Genie Company can produce two types of lamps, the Enlightner and Foglighter. The data on

the two lamp models are as follows Enlightner

Foglighter

Sales volume in units Unit sales price Unit variable cost

700 $ 351 234

900 $ 485 291

Unit contribution margin

$ 117

$ 194

It takes one machine hour to produce each product. Total fixed costs for the manufacture of both products are $107,000. Demand is high enough for either product to keep the plant operating at maximum capacity. Assuming that sales mix in terms of units remains constant, what is the breakeven point in total units? A) 644. B) 668. C) 762. D) 902. E) 963.

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92) Genie Company can produce two types of lamps, the Enlightner and Foglighter. The data on

the two lamp models are as follows: Enlightner

Foglighter

Sales volume in units Unit sales price Unit variable cost

500 $ 300 200

400 $ 400 240

Unit contribution margin

$ 100

$ 160

It takes one machine hour to produce each product. Total fixed costs for the manufacture of both products are $90,000. Demand is high enough for either product to keep the plant operating at maximum capacity. Assuming that sales mix in terms of units remains constant, what is the breakeven point in total units? A) 687. B) 711. C) 805. D) 945. E) 1,006.

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93) Genie Company can produce two types of lamps, the Enlightner and Foglighter. The data on

the two lamp models are as follows: Enlightner

Foglighter

Sales volume in units Unit sales price Unit variable cost

700 $ 300 200

600 $ 400 240

Unit contribution margin

$ 100

$ 160

It takes one machine hour to produce each product. Total fixed costs for the manufacture of both products are $190,000. Demand is high enough for either product to keep the plant operating at maximum capacity. Assuming that sales mix in terms of dollars remains constant, what is the breakeven point in dollars? A) $515,061. B) $576,837. C) $388,689. D) $1,215,891. E) $559,059.

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94) Genie Company can produce two types of lamps, the Enlightner and Foglighter. The data on

the two lamp models are as follows: Enlightner

Foglighter

Sales volume in units Unit sales price Unit variable cost

500 $ 300 200

400 $ 400 240

Unit contribution margin

$ 100

$ 160

It takes one machine hour to produce each product. Total fixed costs for the manufacture of both products are $90,000. Demand is high enough for either product to keep the plant operating at maximum capacity. Assuming that sales mix in terms of dollars remains constant, what is the breakeven point in dollars? A) $244,737. B) $306,513. C) $118,365. D) $945,667. E) $288,735.

95) Cotton Company produces and sells socks. Variable costs are budgeted at $4 per pair, and

fixed costs for the year are expected to total $70,000. The selling price is expected to be $6 per pair. The sales units required for Cotton Company to make a before-tax profit (πB) of $8,000 are: A) 34,000 units. B) 39,500 units. C) 38,000 units. D) 39,000 units. E) 40,000 units.

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96) Cotton Company produces and sells socks. Variable costs are budgeted at $4 per pair, and

fixed costs for the year are expected to total $90,000. The selling price is expected to be $6 per pair. The sales units required for Cotton Company to make a before-tax profit (πB) of $12,000 are: A) 46,000 units. B) 51,500 units. C) 50,000 units. D) 51,000 units. E) 52,000 units.

97) Cotton Company produces and sells socks. Variable costs are budgeted at $3 per pair, and

fixed costs for the year are expected to total $70,000. The selling price is expected to be $5 per pair. The sales dollars required for Cotton Company to make a before-tax profit (πB) of $21,000 are: A) $227,500. B) $236,500. C) $203,500. D) $233,500. E) $239,500.

98) Cotton Company produces and sells socks. Variable costs are budgeted at $4 per pair, and

fixed costs for the year are expected to total $90,000. The selling price is expected to be $6 per pair. The sales dollars required for Cotton Company to make a before-tax profit (πB) of $10,000 are: A) $300,000. B) $309,000. C) $276,000. D) $306,000. E) $312,000.

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99) Cotton Company produces and sells socks. Variable costs are budgeted at $2 per pair, and

fixed costs for the year are expected to total $90,000. The selling price is expected to be $4 per pair. The sales units required for Cotton Company to make an after-tax profit (πA) of $21,000, given an income tax rate of 40%, are: A) 52,500 units. B) 61,500 units. C) 70,661 units. D) 65,000 units. E) 62,500 units.

100)

Cotton Company produces and sells socks. Variable costs are budgeted at $4 per pair, and fixed costs for the year are expected to total $90,000. The selling price is expected to be $6 per pair. The sales units required for Cotton Company to make an after-tax profit (πA) of $15,000, given an income tax rate of 40%, are: A) 47,500 units. B) 56,500 units. C) 65,661 units. D) 60,000 units. E) 57,500 units.

101)

Cotton Company produces and sells socks. Variable costs are budgeted at $7 per pair, and fixed costs for the year are expected to total $160,000. The selling price is expected to be $9 per pair. The sales dollars required to make an after-tax profit (πA) for Cotton Company of $20,000, given an income tax rate of 20%, are calculated to be: A) $823,500. B) $826,500. C) $829,500. D) $847,500. E) $832,500.

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102)

Cotton Company produces and sells socks. Variable costs are budgeted at $4 per pair, and fixed costs for the year are expected to total $90,000. The selling price is expected to be $6 per pair. The sales dollars required to make an after-tax profit (πA) for Cotton Company of $15,000, given an income tax rate of 40%, are calculated to be: A) $336,000. B) $339,000. C) $342,000. D) $360,000. E) $345,000.

103)

Photo Finish, Incorporated produces and sells picture frames. Variable costs are expected to be $15 per frame; fixed costs for the year are expected to total $110,000. The budgeted selling price is $23 per frame. The sales units required by Photo Finish to make a before-tax profit (πB) of $22,000 would be: A) 15,225 units. B) 10,000 units. C) 19,050 units. D) 26,725 units. E) 16,500 units.

104)

Photo Finish, Incorporated produces and sells picture frames. Variable costs are expected to be $17 per frame; fixed costs for the year are expected to total $130,000. The budgeted selling price is $25 per frame. The sales units required by Photo Finish to make a before-tax profit (πB) of $15,000 would be: A) 16,850 units. B) 11,625 units. C) 20,675 units. D) 28,350 units. E) 18,125 units.

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105)

Photo Finish, Incorporated produces and sells picture frames. Variable costs are expected to be $13 per frame; fixed costs for the year are expected to total $90,000. The budgeted selling price is $21 per frame. The sales dollars required to make a before-tax profit (πB) of $14,000 for Photo Finish would be: A) $249,900. B) $273,000. C) $280,600. D) $210,400. E) $216,300.

106)

Photo Finish, Incorporated produces and sells picture frames. Variable costs are expected to be $17 per frame; fixed costs for the year are expected to total $130,000. The budgeted selling price is $25 per frame. The sales dollars required to make a before-tax profit (πB) of $20,000 for Photo Finish would be: A) $445,650. B) $468,750. C) $476,350. D) $406,150. E) $412,050.

107)

Photo Finish, Incorporated produces and sells picture frames. Variable costs are expected to be $23 per frame; fixed costs for the year are expected to total $180,000. The budgeted selling price is $31 per frame. The sales in units required by Photo Finish to make an after-tax profit (πA) of $19,000, given an income tax rate, t, of 20%, would be (rounded up to nearest whole unit): A) 25,390 units. B) 24,239 units. C) 25,469 units. D) 24,705 units. E) 24,022 units.

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108)

Photo Finish, Incorporated produces and sells picture frames. Variable costs are expected to be $17 per frame; fixed costs for the year are expected to total $130,000. The budgeted selling price is $25 per frame. The sales in units required by Photo Finish to make an after-tax profit (πA) of $10,000, given an income tax rate, t, of 20%, would be (rounded up to nearest whole unit): A) 17,734 units. B) 16,583 units. C) 17,813 units. D) 17,049 units. E) 16,366 units.

109)

Photo Finish, Incorporated produces and sells picture frames. Variable costs are expected to be $23 per frame; fixed costs for the year are expected to total $180,000. The budgeted selling price is $31 per frame. The sales dollars required by Photo Finish to make an after-tax profit (πA) of $19,000, given an income tax rate, t, of 20 percent, would be: (Round units up to nearest whole number.) A) $780,714 B) $783,214 C) $786,964 D) $804,214 E) $789,539

110)

Photo Finish, Incorporated produces and sells picture frames. Variable costs are expected to be $17 per frame; fixed costs for the year are expected to total $130,000. The budgeted selling price is $25 per frame. The sales dollars required by Photo Finish to make an after-tax profit (πA) of $10,000, given an income tax rate, t, of 20 percent, would be: (Round units up to the nearest whole number.) A) $436,500 B) $439,000 C) $442,750 D) $460,000 E) $445,325

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111)

Cost-volume-profit (CVP) relationships that are curvilinear may be analyzed linearly by considering only: A) Fixed and semi-variable costs. B) Relevant fixed costs. C) Relevant variable costs. D) A relevant range of volume. E) The multi-product/multi-service context.

112)

How does a contribution income statement differ from a conventional income statement? A) In the contribution income statement, items are separated by product costs and nonproduct costs. B) In the contribution income statement, variable costs and fixed costs are one line-item. C) In the contribution income statement, product costs are subtracted from sales to get gross margin. D) There is no difference between the two. E) In the contribution income statement, variable costs are subtracted from sales to get total contribution margin.

113)

At the breakeven point, total fixed cost (F) is: A) Less than the total contribution margin (CM). B) Equal to the total contribution margin (CM). C) More than the total contribution margin (CM). D) Equal to the contribution margin per unit (CM). E) Equal to the total contribution margin (CM) divided by operating income (πB).

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114)

Cost-volume-profit (CVP) analysis is a technique available to management to understand better the interrelationships of several factors that combine to determine a firm's operating profit, πB. As with many such techniques, the accountant oversimplifies the real world by making assumptions. Which of the following is not a major assumption underlying a conventional CVP analysis? A) All costs incurred by a firm can be separated into their fixed and variable components. B) The product selling price per unit is not affected by changes in volume levels. C) Operating efficiency and employee productivity are constant at all volume levels. D) In multi-product situations, the sales mix changes as volume changes. E) Total costs vary only with changes in sales volume.

115)

What cost behavior could make an approximation via relevant range unworkable? A) Step-costs. B) Nonlinear costs. C) Linear costs. D) Variable costs. E) Fixed costs.

116)

A cost-volume-profit (CVP) analysis models short-term profit (πB) as a function of all of the following variables except: A) Variable costs. B) Fixed costs. C) Output level. D) Gross margin. E) Sales volume.

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117)

Lamp Company has the following cost-volume-profit (CVP) data:

Breakeven point, in units Selling price per unit Total fixed costs

2,000 $ 645 $ 124,000

What is the variable cost per unit (rounded to two decimal places)? A) $535.50. B) $583.00. C) $645.50. D) $675.75. E) $83.00.

118)

Lamp Company has the following cost-volume-profit (CVP) data:

Breakeven point, in units Selling price per unit Total fixed costs

2,000 $ 625 $ 125,000

What is the variable cost per unit (rounded to two decimal places)? A) $515.00. B) $562.50. C) $625.00. D) $655.25. E) $62.50.

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119)

The following information pertains to Corn Corporation:

Selling price per unit Variable cost per unit Total fixed costs Income tax rate

$ 760 $ 280 $ 366,800 35%

How many total units must be sold to obtain an after-tax profit (πA) of $53,760? (Round up your final answer to the nearest whole unit.) A) 762 units. B) 876 units. C) 937 units. D) 1,003 units.

120)

The following information pertains to Corn Corporation:

Selling price per unit Variable cost per unit Total fixed costs Income tax rate

$ 670 $ 250 $ 327,600 35%

How many total units must be sold to obtain an after-tax profit (πA) of $47,775? (Round up your final answer to the nearest whole unit.) A) 780 units. B) 894 units. C) 955 units. D) 1,021 units.

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121)

Which of the following equations is correct for determining the required sales in units to generate a targeted amount of pre-tax income (πB) under the equation method (where Q = sales in units, F = total fixed costs, πB = pre-tax profit, v = variable cost per unit, and p = selling price per unit)? A) [vQ + F] + πB − pQ = 0. B) vQ − F + πB − pQ = 0. C) F − πB − vQ − pQ = 0. D) pQ + vQ + F + πB = 0. E) πB = F × (p − v)Q.

122)

Index Corporation compares two products' margin of safety ratios (MOS%). Product A has a ratio of 0.13 and product B has a ratio of 0.31. Everything else held constant, what should the managers at Index Corporation do and why? A) They should choose Product A because it will cost less than half as much to produce. B) They should choose Product A because it is less risky and might require less management attention than Product B. C) They should choose Product B because it will produce more than double the profit of Product A. D) They should choose Product B because it is less risky and might require less management attention than Product A. E) They should choose Product B because it will cost less than half as much to produce.

123)

The following information pertains to Cans Corporation:

Sales (20,800 units) Fixed costs Breakeven sales point, in dollars

$ 832,000 $ 500,000 $ 1,000,000

If the sales price per unit were to decrease by 10% and variable expenses were to increase by $8 per unit, which of the following is true? A) The new selling price is $28 per unit. B) The new breakeven point is $2,250,000. C) The new variable expenses are $12 per unit. D) The new breakeven point is $62,375 units. E) The new selling price is $48 per units.

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124)

The following information pertains to Cans Corporation:

Sales (22,500 units) Fixed costs Breakeven sales point, in dollars

$ 900,000 $ 350,000 $ 700,000

If the sales price per unit were to decrease by 5% and variable expenses were to increase by $2.00 per unit, which of the following is true? A) The new selling price is $36 per unit. B) The new breakeven point is $831,250. C) The new variable expenses are $18 per unit. D) The new breakeven point is 21,750 units. E) The new selling price is $42 per unit.

125)

Birdie Corporation is the maker of high-quality golf bags. The company currently has three different lines of bags, which it sells to sporting goods stores and golf shops throughout the world. Birdie sells a constant mix of 4 small bags for each medium-sized bag and 5 medium bags for each large-sized bag. Total fixed costs for the year are expected to be $2,027,524. Small Selling price per bag Variable cost per bag

$ 180 $ 108

Medium $ 270 $ 171

Large $ 350 $ 224

The breakeven point in units (for the year) would be: (Round up "Break-even units" to the nearest whole unit and do not round other intermediate calculations.) A) 17,268 small; 4,317 medium; 864 large. B) 19,676 small; 4,919 medium; 984 large. C) 21,878 small; 5,467 medium; 1,094 large. D) 23,373 small; 5,842 medium; 1,169 large. E) None of the answer choices are correct.

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126)

Birdie Corporation is the maker of high-quality golf bags. The company currently has three different lines of bags, which it sells to sporting goods stores and golf shops throughout the world. Birdie sells a constant mix of 4 small bags for each medium-sized bag and 5 medium bags for each large-sized bag. Total fixed costs for the year are expected to be $2,027,562. (Note: round all decimals to three places; round final answers up to nearest whole number.)

Selling price per bag Variable cost per bag

Small

Medium

Large

$ 100 $ 60

$ 150 $ 95

$ 250 $ 160

The breakeven point in units (for the year) would be: A) 32,400 small; 8,100 medium; 1,620 large. B) 34,808 small; 8,702 medium; 1,741 large. C) 37,010 small; 9,250 medium; 1,850 large. D) 38,505 small; 9,625 medium; 1,925 large. E) None of the answer choices are correct.

127)

Kevin Company sold 5,050 units for a price of $70 per unit and had the following information: Variable expenses Fixed expenses Breakeven sales point

$ 202,000 $ 126,250 $ 294,584

If the sales price per unit were to increase by 10%, variable expenses were to increase by 10.0%, and fixed expenses were to increase by 20%, what would be the new contribution margin per unit? A) $33.00. B) $35.00. C) $37.00. D) $39.00. E) $46.00.

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128)

Kevin Company sold 5,000 units for a price of $50 per unit and had the following information: Variable expenses Fixed expenses Breakeven sales point

$ 160,000 $ 125,000 $ 347,222

If the sales price per unit were to increase by 10%, variable expenses were to increase by 12.5%, and fixed expenses were to increase by 20%, what would be the new contribution margin per unit? A) $19. B) $21. C) $23. D) $25. E) $32.

129)

The degree of operating leverage (DOL), at a given sales volume, is equal to: A) (Operating profit − fixed expenses)/sales. B) (Sales − variable expenses)/operating profit. C) Operating profit/(fixed expenses − variable expenses). D) Sales/(fixed expenses A − operating profit). E) Fixed costs/Total contribution margin.

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130)

Super Sports plans to market a new product for the upcoming college season. Costs associated with the new product, at two different volume ranges, are as follows: ≤ 160,000 units > 160,000 units Fixed costs (total) Selling price per unit Contribution margin ratio

$ 240,000 $ 20 15%

$ 340,000 $ 20 15%

How many units must be sold in order to reach a before-tax income (πB) of $320,000? A) 93,333. B) 330,000. C) 258,000. D) 220,000. E) 186,667.

131)

Super Sports plans to market a new product for the upcoming college season. Costs associated with the new product, at two different volume ranges, are as follows: ≤ 200,000 units > 200,000 units Fixed costs (total) Selling price per unit Contribution margin ratio

$ 300,000 $ 20 15%

$ 425,000 $ 20 15%

How many units must be sold in order to reach a before-tax income (πB) of $400,000? A) 148,333. B) 385,000. C) 313,000. D) 275,000. E) 233,333.

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132)

Music Corporation recorded sales of $2,234,914 for the most recent year. The company's breakeven sales point (in dollars) is $1,550,000, and its margin of safety ratio (MOS%) at the current sales level is 31%. What sales (in dollars) would be needed to increase the company's MOS% to 40%? A) $2,199,043. B) $2,583,333. C) $2,854,683. D) $2,946,093. E) $2,499,000.

133)

Music Corporation recorded sales of $2,235,245 for the most recent year. The company's breakeven sales point (in dollars) is $1,650,000, and its margin of safety ratio (MOS%) at the current sales level is 26%. What sales (in dollars) would be needed to increase the company's MOS% to 38%? A) $2,277,000. B) $2,661,290. C) $2,932,640. D) $3,024,050. E) $2,660,000.

134)

Tommy's Towels sells three items (which it purchases from a supplier): bath towels, hand towels, and washcloths in a 4:3:2 mix (thus, a batch of 9 towels has 4 bath towels, 3 hand towels, and 2 washcloths). Each bath towel sells for $11 and costs $5, each hand towel sells for $6 and costs $3; and each washcloth sells for $3.50 and costs $2. The shop's annual fixed expenses are $333,000, and the income tax rate, t, is 40%. How many bath towels must the firm sell at the breakeven point? (Round per-unit amounts to 2 decimal places.) A) 21,000. B) 37,000. C) 45,000. D) 52,000. E) 82,000.

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135)

Tommy's Towels sells three items (which it purchases from a supplier): bath towels, hand towels, and washcloths in a 4:3:2 mix (thus, a batch of 9 towels has 4 bath towels, 3 hand towels, and 2 washcloths). Each bath towel sells for $10 and costs $4, each hand towel sells for $5 and costs $2; and each washcloth sells for $2.50 and costs $1. The shop's annual fixed expenses are $324,000, and the income tax rate, t, is 40%. How many bath towels must the firm sell at the breakeven point? A) 20,000. B) 36,000. C) 44,000. D) 51,000. E) 81,000.

136)

Which of the following illustrates how the level of operating profit (πB) changes over different levels of output (that is, sales volume)? A) Revenue-volume graph. B) Cost-revenue chart. C) Revenue-cost graph. D) Profit-volume graph. E) Profit-cost graph.

137)

Which of the following entities can use cost-volume-profit (CVP) analysis? A) Not-for-profit organizations, but not service firms. B) Service firms, but not organizations that are not-for-profit. C) Not-for-profit organizations, service firms, and manufacturers. D) Manufacturing firms, but not service firms. E) None of these answers are correct.

138)

The calculation of an amount, given different levels of a factor that influences that amount, is called: A) Sales-value analysis. B) What-if analysis. C) Factor analysis. D) Cost analysis. E) Profit Analysis.

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139)

Which of the following is not one of the five steps of strategic decision making for costvolume-profit (CVP) analysis? A) Identify the revenue maximizing quantity for the firm. B) Provide an ongoing evaluation of the effectiveness of implementation C) Determine the strategic issues surrounding the problem. D) Obtain information and conduct an analysis of the decision alternatives. E) Identify the alternative actions.

140)

What does the cost-volume-profit (CVP) graph show? A) How the level of operating profit changes over different levels of sales volume, Q. B) How the contribution margin changes over time. C) How the revenues of a company change with cost. D) How the sales volume of a company changes over time. E) How revenues and total costs change over different levels of sales volume.

141)

Wet Mop Incorporated expects to sell 9,000 mops. Fixed costs (for the year) are expected to be $11,000, unit sales price is expected to be $11, and unit variable costs are budgeted at $6. Wet Mop's margin of safety (MOS) in units is: A) 1,200. B) 2,200. C) 3,400. D) 6,800. E) 7,800.

142)

Wet Mop Incorporated expects to sell 10,000 mops. Fixed costs (for the year) are expected to be $10,000, unit sales price is expected to be $12, and unit variable costs are budgeted at $7. Wet Mop's margin of safety (MOS) in units is: A) 1,000. B) 2,000. C) 4,000. D) 8,000. E) 9,000.

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143)

Wet Mop Incorporated expects to sell 10,000 mops. Fixed costs (for the year) are expected to be $9,000, unit sales price is expected to be $14, and unit variable costs are budgeted at $9. Wet Mop's margin of safety (MOS) in sales dollars is: A) $14,000. B) $25,200. C) $57,400. D) $59,200. E) $114,800.

144)

Wet Mop Incorporated expects to sell 10,000 mops. Fixed costs (for the year) are expected to be $10,000, unit sales price is expected to be $12, and unit variable costs are budgeted at $7. Wet Mop's margin of safety (MOS) in sales dollars is: A) $12,000. B) $24,000. C) $48,000. D) $50,000. E) $96,000.

145)

Wet Mop Incorporated expects to sell 11,000 mops. Fixed costs (for the year) are expected to be $10,000, unit sales price is expected to be $13, and unit variable costs are budgeted at $8. Wet Mop's margin of safety ratio (MOS %) is: A) 18%. B) 41%. C) 82%. D) 87%. E) 92%.

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146)

Wet Mop Incorporated expects to sell 10,000 mops. Fixed costs (for the year) are expected to be $10,000, unit sales price is expected to be $12, and unit variable costs are budgeted at $7. Wet Mop's margin of safety ratio (MOS %) is: A) 20%. B) 40%. C) 80%. D) 85%. E) 90%.

147)

Effective use of the cost-volume-profit (CVP) model requires an understanding of all of the following concepts, except: A) Contribution margin per unit. B) Contribution margin ratio. C) Contribution income statement. D) Total cost of goods sold (CGS). E) Variable versus fixed cost behavior patterns.

148)

Calculating the margin of safety (MOS) measure will help a firm answer which of the following questions? A) Will we break even? B) Are we using our debt wisely? C) How much will operating profit (πB) change if sales change? D) How much operating profit (πB) will we earn? E) How much revenue can we lose before we drop below the breakeven point?

149)

In measuring variable cost per unit for cost-volume-profit (CVP) analysis purposes: A) Only variable production costs are included. B) Only variable selling/distribution costs are included. C) Both variable production and variable selling/distribution costs are included. D) Only variable and semi-variable production costs are included. E) The amount assumed is a function of anticipated output volume.

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150)

What is the contribution margin ratio? A) The ratio of the total contribution margin to the selling price per unit. B) The ratio of the contribution margin per unit to the selling price per unit. C) The ratio of the contribution margin per unit to the total revenue. D) The ratio of the total contribution margin to the total operating profit. E) None of these answers are correct.

151)

Which of the following items is not useful for addressing risk and uncertainty in costvolume-profit (CVP) analysis? A) Regression analysis B) Sensitivity analysis C) What-if analysis D) Monte Carlo Simulation (MCS) analysis E) Decision trees and decision tables

152)

Income taxes have the following effect on the breakeven point calculation: A) They generally increase the breakeven point. B) They generally decrease the breakeven point. C) They have no effect on the breakeven point. D) They may increase or decrease the breakeven point, depending on the cost structure of the organization. E) They increase the variable cost per unit.

153)

Which type of firm would choose a high-fixed-costs structure to exploit an advantage? A) A firm with a weak position in its market. B) A firm that just entered the market. C) A firm that needs to increase sales. D) A firm with a dominant position in its market. E) No firm should choose a high-fixed-costs structure.

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154)

Which of the following is a technique most suited to dealing with uncertainty regarding the inputs to a cost-volume-profit (CVP) (short-term profit-planning) model? A) Sensitivity analysis. B) Regression analysis. C) Constrained optimization analysis. D) Net present value (NPV) analysis. E) Linear programming.

Which of the following formulas can be used to represent targeted pretax profit, πB, as a function of targeted after-tax profit, πA, given an effective income tax rate of t? A) πB = πA × (1 − t) B) πB = πA/(1 − t) C) πB = πA × (1 + t) D) πB = (1 + t)/πA E) πB = FC/(1 − t)

155)

156)

Which of the following statements regarding CVP (cost-volume-profit) analysis is true? A) Because of cost-structure issues, it cannot be used in a service setting. B) It is a short-term profit-planning tool. C) It is impossible to apply when there are multiple products sold by the firm in question. D) It relies on the use of regression analysis to solve for the point of optimum profit. E) It cannot be used in conjunction with activity-based costing (ABC).

157)

What are the two broad methods for dealing with uncertainty as applied to the costvolume-profit (CVP) modeling process? A) Sensitivity analysis and measures of operating risk B) Uncertainty model and the contribution income statement C) Profit analysis and cost structures D) Measures of operating risk and profit analysis E) None of these answers are correct

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Answer Key Test name: chapter 9 1) Essay 2) Essay 3) Essay 4) Essay 5) Essay 6) Essay 7) Essay 8) Essay 9) Essay 10) Essay 11) Essay 12) Essay 13) Essay 14) Essay 15) Essay 16) Essay 17) Essay 18) Essay 19) A 20) A 21) D 22) A 23) C 24) E 25) C 26) B 27) C 28) E 29) D 30) C 31) A 32) B 33) B 34) C 35) E 36) A 37) A

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38) A 39) E 40) E 41) D 42) D 43) B 44) B 45) E 46) E 47) A 48) A 49) A 50) A 51) A 52) A 53) C 54) C 55) B 56) B 57) D 58) D 59) A 60) A 61) C 62) C 63) A 64) A 65) B 66) B 67) E 68) E 69) E 70) E 71) C 72) C 73) B 74) B 75) D 76) D 77) E

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78) E 79) A 80) A 81) E 82) E 83) D 84) D 85) A 86) A 87) C 88) C 89) E 90) E 91) B 92) B 93) A 94) A 95) D 96) D 97) A 98) A 99) E 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

E E E E E B B C C E E D E B D A D B

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118) 119) 120) 121) 122) 123) 124) 125) 126) 127) 128) 129) 130) 131) 132) 133) 134) 135) 136) 137) 138) 139) 140) 141) 142) 143) 144) 145) 146) 147) 148) 149) 150) 151) 152) 153) 154) 155) 156) 157)

B C C A D B B B B A A B D D B B B B D C B A E D D E E C C D E C B A C D A B B A

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Chapter 10 1) Explain benefits of implementing a master budgeting system.

2) Contrast operating budgets and financial budgets. How do these budgets relate to the

master budget for a period? What is the culmination of the master budgeting process?

3) In both activity-based cost (ABC) systems and time-driven activity-based cost (TDABC)

systems we calculate cost-driver rates for support activities (for example, the cost to ship an item or the cost to process a customer order). It is asserted that these rates are best determined by dividing budgeted resource costs (for a given cost pool) by the practical capacity of resources supplied. Required: 1. What is the primary advantage of using practical capacity as the volume level for determining cost allocation rates in an ABC or TDABC system? 2. What is the appropriate accounting treatment for unused capacity costs for a given accounting period?

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4) Uncertainty and the Budgeting Process: As indicated in the text, the validity of pro-forma

financial statements that are produced as part of the master budgeting process is affected by the accuracy of the forecasted data going into the component budgets. Such data are subject to various levels of uncertainty. For this reason, accountants need to understand ways of dealing with uncertainty in the budgeting process.

Required: Define and distinguish among the following ways of handling uncertainty in the budgeting process: 1. What-if analysis (give at least one concrete example) 2. Sensitivity analysis 3. Scenario analysis.

5) List factors that should be considered in developing a sales forecast for an upcoming budget

period.

6) What is zero-base budgeting (ZBB) and how does this approach to budgeting compare to

what can be considered "traditional budgeting"? How is ZBB implemented in practice?

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7) What is the focus of activity-based budgeting (ABB)? What is the principal advantage of

ABB?

8) Contrast the budgeting unit (or focus) under a traditional budgeting system and under an

activity-based budgeting (ABB) system.

9) Flowers Incorporated has budgeted cost of goods sold for August of $1,000 for plastic

flowers. Management also wants to have $500 in inventory at the end of the month to prepare for the fall season. Beginning inventory in August was $400. What dollar amount of plastic flowers should be purchased to meet the above objectives?

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10) Lighting Incorporated's sales budget showed the following projections, by quarter, for the

coming year: Quarter First Second Third Fourth

Units 100,000 120,000 140,000 160,000

Total

520,000

Inventory on December 31 of the current year (that is, at the beginning of the coming year) is expected to be 20,000 units. The quantity of finished goods inventory at the end of each quarter was to equal seven percent of the next quarter's budgeted units to be sold.

Required: Calculate the units to be produced during the third quarter.

11) Lovely Pet Store has budgeted cost of goods sold for May of $6,000 for flea collars.

Management also wants to have $300 in inventory at the end of the month to prepare for the summer season. Beginning inventory in May was $200. Required: What dollar amount of flea collars should be purchased to meet the above objectives?

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12) Allmakes Software budgeted August purchases of new software at $140,000. The store had

software costing $6,000 on hand at the beginning of August, and to cover part of anticipated back-to-school sales in September they expect to have $15,000 of software on hand at the end of August. Required: What was the budgeted cost of goods sold for August?

13) Helen Auger has seen the Centicle Group, a not-for-profit, in-home health care organization,

grow during the past 10 years to a $500 million revenue, multi-state organization. Helen was promoted to her controller position six months ago, after serving capably in several financial accounting positions at the Centicle Group. At a Budget Review Committee meeting last Friday, several committee members expressed frustration with the pace of the budget development. They described the newly introduced "bottom up" system of participative budgeting as "unwieldy," "slow-paced," and "repetitive." Helen's objective in introducing the participative approach was to involve to a much greater extent lower level supervisors and employees. Helen is meeting with the Budget Review Committee again tomorrow when she plans to explain the advantages of "bottom up" versus "top down" approaches to the budgeting process. Required: Helen has asked you to help her prepare for tomorrow's meeting by preparing the following: 1. A 40-50 word description of participative budgeting, including some basic advantages of this approach to budgeting. 2. A brief, one-paragraph explanation of the concept of "budget ownership," one of the values that participative ("bottom up") budgeting is said to have.

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14) A business develops a budget for many reasons beyond wanting to know what future profits

will be. Comment on the role of a firm's strategic goals in both the master budget and the capital budget.

15) Kurt Helfter graduated with a B.S. degree in Mechanical Engineering and joined Andrew

Consulting, a firm specializing in HVAC (heating, ventilation, and air conditioning) for small to medium-size business structures. Kurt is knowledgeable in the use of CAD (computerassisted design) and was pleased during his initial employment to find Andrew Consulting a leader in the use of CAD software. During Kurt's third year at Andrew, he felt a sense of unease with the firm's slow pace in updating computer hardware and software. Although not directly involved in budgeting for the firm, Kurt has not been satisfied with the resources that Andrew provided for his use. Kurt felt the need to detail his concerns in a memo to his superior, in which he requested significant investment in computer resources to "allow us to respond to clients' needs, both in quantity and quality." Kurt was surprised and hurt when he received his superior's response, which suggested that resource allocation in the firm is decided at a higher administrative level. "But all I wanted to do was help keep our firm competitive," Kurt responded to his boss when visiting him about the rejection memo. "Sorry, Kurt," his boss said, "That's how things get done in this firm." Kurt now feels lost, wondering if it's time to look for another job. Does this situation suggest what type of budgeting process the company is using? Is there a problem with individual and company goal congruence in Andrew Consulting? If so, how might Kurt's supervisor have prevented the problem?

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16) Discuss the components of each of the following manufacturing cost budgets: 1. 2. 3. 4. 5. 6.

Production budget Direct materials purchases budget Direct labor budget Factory overhead budget Cost of goods manufactured budget Cost of goods sold budget.

17) Ardan Company's sales budget showed the following projections, by quarter, for the coming

year: Quarter First Second Third Fourth

Units 60,000 90,000 120,000 150,000

Total

420,000

Inventory on December 31 of the current year is expected to be 3,000 units. The quantity of finished goods inventory at the end of each quarter was to equal five percent of the next quarter's budgeted units to be sold. Required: Calculate the units to be produced during the second quarter.

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18) Information pertaining to Yek Company's budgeted sales revenue for the first quarter of the

coming year is presented below. January

February

March

Cash sales Credit sales

120,000 330,000

160,000 440,000

275,000 275,000

Total sales

$ 450,000

$ 600,000

$ 550,000

Management estimates that four percent of credit sales are likely to be uncollectible. Of the collectible credit sales, 60% are expected to be collected in the month of sale and the remainder in the month following the month of sale. Required: Calculate total budgeted cash receipts for February.

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19) The budget committee for Amacom Company, with the help of the district sales manager,

projects sales of 80,000 units of its primary product next year. The budget committee and key executives have decided that finished goods inventory should be decreased from the 10,000 units expected at the end of the current year, to 7,000 units at the end of next year. Each unit of finished product requires three units of material MPS15 and six units of material NAV23. At the end of the current year, the inventory of material MPS15 is expected to be 10,000 units and material NAV23 is expected to be 20,000 units. The budget committee believes that these material inventories can be reduced by 80% during the coming year because of the newly installed supply chain system. Required: 1. Calculate the number of units Amacom expects to produce during the next year. 2. Compute the number of units that should be purchased of each of the raw materials in order to produce the budgeted units and comply with inventory policy.

20) Willard Company anticipates that its fixed manufacturing overhead costs will be $50,000

during the next period. Its variable manufacturing overhead is expected to be $8 per unit produced. Required: 1. What amount of overhead should be budgeted if the production budget shows that 40,000 units are to be produced? 2. What amount of overhead should be budgeted if the production budget shows that 50,000 units are to be produced? 3. Compute the total overhead cost per unit for requirements 1 and 2.

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21) Uecker Enterprise expects sales of 20,000 units of T1 in September. T1 is its most popular

high-performance desktop model. The sales manager is confident that, between October and December, the total sales will experience a 50% growth rate each month from the month before. Each unit requires 40 sets of the Alpha-5 chip. The firm has a policy to maintain inventory at the end of each month equal to 1% of the following month's estimated sales. The same policy applies to the chips and components required to assemble the finished product. Required: 1. What is the budgeted production (in units) for each of the months September, October, and November? 2. How many sets of Alpha-5 does the company plan to purchase in September and in October?

22) Enterprise Tax Services (ETS) provides tax-planning services to its clients. The company

billed 5,000 hours at $100 per hour for the year just completed. ETS, in planning next year's operations, is focusing on increasing the company's share of the market. It proposes to do that by hiring more tax specialists and by lowering its billing rate by 20% for work done by these new specialists. ETS estimates that revenues generated from existing staff would increase in total by 40% as a result of the new billing policy and that the additional specialists will provide billings of 3,000 hours (at the reduced rate) during the coming year.

Required: Compute the budgeted revenue amount for next year based on ETS's plans and projections.

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23) Transcript Company is preparing a cash budget for February. The company expects to have

$150,000 cash at the beginning of February and anticipates total February sales of $800,000, consisting of 25% cash sales and 75% bank credit card sales. The bank charges 3 percent for credit card transactions. The company sets its selling price at 160 percent of the cost of purchases and pays for each month's purchases at the end of the month. Other cash disbursements are $20,000 per month plus 4% of total sales. In addition, a $600,000 note will be due in February for equipment purchased last August. Transcript Company has an agreement with its bank to maintain a cash balance of $100,000. Required: What amount, if any, must the company borrow during February?

24) West Company budgeted the following credit sales during the current year: September,

$75,000; October, $108,000; November, $90,000; December, $96,000. Experience has shown that cash from credit sales is received as follows: 10% in the month of sale, 50% in the first month after sale, 35% in the second month after sale, and 5% is uncollectible. All collections in the month of sale are subject to 2 percent cash discount. Required: How much total cash can West Company expect to collect in November?

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25) In preparing a budget for the first three months of the year starting in October, Dubya

Company is planning the number of units of merchandise to order each month. The company's policy is to have on hand at the end of each month 40% of the next month's sales. Projected sales for October, November, and December are 40,000 units, 50,000 units, and 100,000 units, respectively. Required: How many units must be ordered in November?

26) The Shoecraft Company's budgeted sales for January, February, and March of $80,000,

$60,000, and $50,000, respectively. Seventy percent of sales are on credit. The company collects 60% of its credit sales in the month following sale, 35% in the second month following sale, and 5% is not collected. Shoecraft mailed all statements to credit customers at the end of the month with a term of 1/30, n/60. What are Shoecraft's expected (i.e., budgeted) cash receipts for March?

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27) Papa Joe, Incorporated, is preparing its budget for the second quarter of the calendar year.

The following unit sales data per month have been forecasted: April May June July August

300,000 360,000 400,000 450,000 500,000

Desired ending inventory each month = 30% of next month's estimated sales (in units)

Required: 1. How many units should be budgeted for production in June? 2. How many units should be budgeted for production in the second quarter?

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28) Dockille, Incorporated, is preparing its budget for the second quarter of the calendar year.

The following monthly sales data (in units) have been forecasted: April May June July August

30,000 32,000 36,000 40,000 50,000

Additional information: Desired ending inventory each month—Finished goods: 30% of next month's sales Desired ending inventory each month—Raw materials: 25% of next month's production needs Number of raw material units required per unit of finished product: 4

Required: How many units of raw materials should be purchased in the 2nd quarter?

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29) Olde Corporation is preparing a cash budget for the first two months of the coming year. The

following data have been forecasted:

Sales Purchases Operating expenses: Payroll Advertising Rent Depreciation End-of-January balances:

January

February

$ 750,000 450,000

$ 800,000 480,000

146,800 52,700 8,750 23,750

167,400 62,800 8,750 23,750

Cash

120,000

Bank loan

480,000

Additional data: 1. Sales are 40% cash and 60% credit. The term of credit sales is 2/10, n/30. The collection pattern for credit sales is 80% in the month following the month of sale (of which 75% are collected within 10 days), and 20% in the month thereafter. Total sales in December of the prior year were $1,000,000. 2. Purchases are all on credit, with 40% paid in the month of purchase and the balance the following month. 3. Operating expenses are paid in the month incurred. 4. The firm desires to maintain a minimum cash balance of $150,000 at the end of each month. 5. Loans are used to maintain the minimum cash balance. At the end of each month, interest of 1% per month is paid on the outstanding loan balance as of the beginning of the month. Repayments are made (at the end of the month) whenever the cash balance exceeds $150,000. Required: Prepare the cash budget, in the form of a statement of cash flow, for February. Report interest expense, if any, as a financing activity. What is the amount of the loan balance at the end of the month (after loan repayments, if any)?

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30) Grey Company is considering replacing its existing cutting machine with a new machine that,

according to the manufacturer, is more efficient in terms of energy consumption—a variable cost of production. In this regard, the company would like to do some financial planning, including "what-if" analysis. Budgeted information regarding the two machines is as follows: Item Variable cost per unit Fixed costs per month Selling price per unit

Existing Machine $ 44 $ 32,000 $ 55

New Machine $ 40 $ 40,000 $ 55

Required: 1. Determine the sales volume at which the costs are the same for both machines. 2. What amount of sales, in dollars, for the new machine would produce a 10% profit margin (that is, a ratio of operating profit to sales of 10%)?

31) As indicated in the text, sensitivity analysis is an important tool for dealing with uncertainty

in the budget preparation process. Which estimates, out of all that management has to deal with, do you think are the most critical in terms of developing the master budget for the typical profit-seeking organization?

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32) One of the behavioral considerations in implementing a budgeting system has to do with the

issue of budgetary slack. What are the positive and negative aspects of building slack into budgets from top management's point of view, and the employee's point of view (i.e., the individual responsible for building slack into the budget)?

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33) Omni, Incorporated manages a medical-expense reimbursement program for colleges and

universities throughout the United States. University employees submit claims for reimbursement of medical expenses from reimbursement accounts established each year by the employees. Omni then processes reimbursement requests, verifies the legitimacy of each request, computes the deductible and co-payment required, determines whether the employee's expense reimbursement account has adequate funds available, and, if applicable, issues a reimbursement check to the eligible employee. Omni employs three different types of clerks who manage these reimbursement accounts: managers, clerical staff-1, and clerical staff-2. The managers are each paid $50,000 per year, clerical staff-1 employees are paid $40,000 per year, while clerical staff-2 employees are paid $35,000 per year. Based on prior experience, for every 150,000 claims processed per year, Omni needs to budget for one manager's position, two clerical staff-1 positions, and six clerical staff-2 positions. Last year, Omni processed 2 million reimbursement claims, and employed 14 managers, 30 clerical staff-1 employees, and 83 clerical staff-2 employees.

Required: 1. Based on the data provided, calculate the cost savings or excess staffing costs for Omni during the most recent year. (Assume that the policy of the company is to hire only full-time employees.) 2. What managerial insights are suggested on the basis of your analysis? If you were attempting to judge the processing efficiency of Omni's staff, what additional information might you want to have?

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34) The Bambola Doll Company produces a single product: an inexpensive plastic toy doll. This

item sells for $4.00 per unit, and has variable costs (manufacturing plus marketing) of $2.50 per unit. Monthly fixed costs amount to approximately $60,000. Last month, sales reached 100,000 units. Management would like to do some financial planning, the end result of which would—it is hoped— be even better future financial performance. As a management accountant you have been asked to construct a planning model and to conduct "what-if" analyses with the model you develop. Management has told you to consider the following options, all of which have the potential to increase the profitability of the company: 1. A) Increase monthly promotional and advertising costs. 2. B) Increase raw material quality and increase the product selling price. 3. C) Increase the product selling price, with no increase in the raw material costs. Required: 1. The sales manager of the company is fairly confident that a well-done marketing campaign could increase sales volume substantially, perhaps as much as doubling sales from the current position. The president of the company would like to increase operating profits by 50% over those of the most recent month. You are asked to determine how much the company could afford to spend on an intensive marketing campaign, in order to achieve the projected doubling of sales volume? 2. As an alternative to 1 above, assume that the company increases the quality of its raw materials going into the manufacturing of its product. This increase would result in a new variable cost per unit of $3.00. What is the required increase in selling price per unit that would be needed to maintain the same break-even volume as currently exists? 3. As a final alternative, assume that the company has decided to increase the selling price of its product by $1 per unit, with no accompanying marketing and promotion campaign. What is the unit sales volume needed, with the new selling price, for the company to make the same amount of profit as it did last month?

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35) Over the years, alternative approaches to traditional budgeting practices have been proposed

to facilitate budget preparation and usefulness.

Required: 1) Define what is meant by the term "traditional budgeting." 2) Compare and contrast the following alternative budgeting approaches to a traditional budgeting process: a. Zero Base Budgeting (ZBB) b. Activity-Based Budgeting (ABB) c. Time-Driven ABB d. Kaizen budgeting

36) Compare and contrast traditional budgeting and activity-based budgeting (ABB) along the

following dimensions: budgeting unit; primary focus; time orientation; roles of suppliers and customers; and, control objective.

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37) As indicated in the text, one of the behavioral issues associated with budgeting deals with the

linkage of employee compensation to budgeted performance. In this regard, distinguish between so-called fixed-performance contracts (i.e., a traditional approach) and the following two recommended alternatives: (1) linear compensation plans, and (2) the use of relative performance (relative improvement) contracts along with "rolling financial forecasts." With respect to the use of fixed performance contracts, define what is meant by the term "gaming the performance indicator." With respect to the use of relative performance contracts, define what is meant by the term "rolling financial forecasts."

38) One of the behavioral considerations associated with the budgeting process relates to the

difficulty level embodied in the budget (i.e., how difficult or easy it is to achieve budgeted results).

Required: 1. Explain the negative consequences of budgetary targets that are too easy or too difficult to achieve. 2. What is meant by the term "highly achievable (budget) target"? 3. What are the primary advantages of using "highly achievable targets" in terms of budgetary expectations?

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39) Transcript Company is preparing a cash budget forFebruary.

The company has $150,000 cash at the beginning of February and anticipates total sales of $800,000, consisting of 25% cash sales and 75% bank credit-card sales. The bank charges 3 percent for credit-card deposits. The firm sets its selling price at 160 percent of the cost of purchases and pays the cost of each month's sales at the end of the month. Operating expenses are $45,000 per month, of which $25,000 is depreciation expense. Selling expenses (commissions) each month amount to 4 percent of total sales dollars. In addition, a $600,000 note will be due in February for equipment purchased last August. In addition to the principal amount, interest for one month (at 12% per year) will be paid in February. Transcript Company has an agreement with its bank to maintain a minimum cash balance of $100,000.

Required: Prepare in good form a cash budget that shows the amount, if any, that the company must borrow during February. Separate your budget, at a minimum, into the following categories: Beginning Cash Balance Operating Cash Flows (Both Inflows and Outflows) Cash Balance before Financing Effects Financing Activity (Including Interest Expense, if any) Ending Cash Balance

40) The master budget for a given accounting period has all of the followingexcept: A) It consists of a series of operating and financial budgets. B) It is considered the "grand plan of action" for the upcoming period. C) It culminates in a set of pro forma financial statements. D) It is considered an important planning document for many organizations. E) It is based on the actual level of sales activity for the period.

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41) "Budgetary slack" occurs when: A) Employees refuse to adhere to budgeted plans and operations. B) The budget is so difficult to meet that employees slack-off from work. C) An authoritative, or imposed, budgeting process is used. D) To "meet" budget objectives, employees ask for resources in excess of what they

need. E) Employees ask for fewer resources than they need, in order to continuously improve.

42) A master budget is typically prepared for: A) Coordinating activities among subunits of an organization. B) Top management only. C) Strategic planning purposes only. D) Strategic business units only. E) Operating activities only.

43) How is goal congruence achieved? A) When the company reaches all of its goal by the end of the year. B) When the employees know the goals of the company and work towards them. C) When the goals of the company are the same as other companies in the industry. D) When the manager acts independently in such a way as to simultaneously achieve

personal objectives and those of top management.. E) When the company outperforms its goals for any given time period.

44) All of the following are ways of setting the budget,except: A) Negotiation-based budgeting. B) Two-stage budgeting. C) Participative budgeting. D) Authoritative budgeting. E) All of these answer choices are ways of setting the budget.

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45) Revision of a completed and approved budget: A) Should be conducted whenever actual events differ significantly from those

envisioned when the budget was prepared. B) Reduces employee commitment to achieve budgeted performance. C) Should be discouraged. D) May discourage diligence in its initial preparation. E) Is never needed under Kaizen budgeting.

46) A detailed plan for the acquisition and use of financial and other resources over a specified

period of time is called a(n): A) Budget. B) Framework. C) Calendar. D) Accounting Goal. E) Yearly Plan.

47) A plan of dollar amounts to be spent on long-term projects is called a: A) Cash budget. B) Capital budget. C) Rolling budget. D) Research budget. E) Rolling financial forecast.

48) A plan that shows the cash balance on hand at the beginning of a budget period, expected

cash flow from operations, cash flows from investing activities, cash flows from financing activities, and an ending cash balance is called a(n): A) Capital budget. B) Financial budget. C) Operating budget. D) Cash budget. E) Cash receipts budget.

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49) A comprehensive or overall formal plan for a business that includes specific plans for

expected sales, the units of product to be produced, the merchandise (or materials) to be purchased, the manufacturing, selling, administrative, and general expense to be incurred, the long-term assets to be purchased, and the amounts of cash to be borrowed or loans to be repaid, as well as a budgeted income statement and balance sheet, is called a(n): A) Master budget. B) Kaizen budget. C) Capital expenditures budget. D) Continuous budget. E) Operating budget.

50) A plan that states the units or cost of merchandise to be purchased by a retailer or wholesaler

during the budget period is called a: A) Production budget. B) Merchandise purchases budget. C) Accounts payable budget. D) Cash payments budget. E) Cost of goods sold budget.

51) A plan showing the units of goods expected to be sold and the expected revenue from sales is

called the: A) Cash budget. B) Sales receipts budget. C) Selling expense budget. D) Cash receipts budget. E) Sales budget.

52) The practice of maintaining budgets for the same number of future periods, revising those

budgets as each period is completed and adding a new budget each period, is called: A) Master budgeting. B) Cyclical budgeting. C) Zero-based budgeting (ZBB). D) Rolling budgets (or rolling financial forecasts). E) Kaizen (or continuous improvement) budgeting.

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53) An accounting statement that presents predicted amounts of the company's assets, liabilities,

and stockholders' equity as of the end of the budget period is called a(n): A) Master balance sheet. B) Budgeted income statement. C) Pro forma balance sheet. D) Pro forma cash flow statement. E) Operating balance sheet.

54) What identifies required actions over a five- to seven-year period to attain the strategic

goal(s) specified by the organization? A) Long-range plan. B) Capital Budget. C) Master Budget. D) Short-range plan. E) Goal Sheet.

55) Which of the following isnot a potential benefit of having a sound budgeting process? A) Improved decision-making. B) Improved performance-evaluation process. C) Improved coordination of business activities. D) Improved motivation for company employees. E) Lower acceptance rate for capital budgeting projects.

56) Which of the following budgets must be completed before preparing a cash budget? A) Cash receipts budget. B) Rolling budget. C) Cash financing budget. D) Pro forma balance sheet. E) Pro forma income statement.

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57) Which of the following statements about budgeting isnot true? A) Budgeting is designed to be an aid to planning and control. B) Budgets create standards for performance evaluation. C) Budgets help coordinate the activities of the entire organization. D) Budgeting forces managers to think ahead and to formalize long-range objectives. E) Budgeting eliminates the need for day-to-day monitoring of operations.

58) Which of the following factors isleast likely to be considered in sales forecasting? A) Competitors’ actions and operating plans. B) Advertising and promotional activities. C) Pricing policies. D) The budgeted cost of goods sold. E) The level of unfilled back orders.

59) A sales forecast is the first step in the budgeting process of a merchandising firm because: A) The revenue data are easiest to generate. B) Sales information is precise in amount. C) Sales personnel have the quickest access to data. D) Sales forecasts are the most objective of all budgeted activities. E) Almost all activities of a firm emanate from (i.e., are linked to) estimated sales

demand.

60) What does the direct materials purchases budget start with? A) The ending inventory amount. B) The cash available for the given period. C) The sales forecast for the given period. D) The amount of direct materials needed in production for the current period. E) The amount of direct materials used last period.

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61) Budgeting for production (i.e., units to be produced in an upcoming budget period): A) Is simply an extension of the sales forecast. B) Is prepared after the materials purchases budget is prepared. C) Involves the sales budget and both beginning and ending finished goods inventory

amounts. D) Is not needed under a JIT production philosophy. E) Is normally the first major step in the master budgeting process.

62) Maintaining a constant production level in a firm has the advantage of: A) Minimizing the amount of inventory held. B) Allowing a stable employment level. C) Meeting customers' changing expectations in terms of demand volume. D) Supporting the organization's move to JIT (just-in-time). E) Allowing the firm to compete successfully as a differentiator.

63) Some firms separate the factory overhead budget into which two categories? A) Direct and indirect costs. B) Current and long-term costs. C) Estimated and actual costs. D) Variable and fixed costs. E) Firms do not separate the factory overhead budget.

64) What is the difference in service industry budgets compared to manufacturing budgets? A) The addition of overhead budgets. B) The absence of sales forecasting. C) The absence of production or merchandise purchases budgets. D) The service industry doesn’t need to budget because they don’t have products. E) None of these answer choices are correct.

65) Which of the following isnot an alternative approach to traditional budgeting practices? A) Kaizen budgeting. B) Zero-based budgeting (ZBB). C) Activity-based budgeting (ABB). D) Time-driven activity-based budgeting (TDABB). E) Operations budgeting.

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66) Zero-base budgeting (ZBB) differs from traditional budgeting in terms of its requirement to: A) Justify all budgeted operations and associated spending. B) Consider the time-value of money in the budgeting process. C) Start the budgeting process from the lowest level of the organization. D) Incorporate continuous-improvement standards in the set of financial and operating

budgets. E) Minimize the existence of "budgetary slack."

67) A "participative" budget is a(n): A) Good two-way communication device. B) Relatively inexpensive and efficient approach to budget preparation. C) "Top down" management approach. D) "Zero-based" approach to planning. E) Alternative budgeting approach to traditional budgeting.

68) Unless properly controlled, a "bottom-up" budgeting process can lead to: A) Excessively tight (i.e., difficult-to-achieve) budgets. B) Easy budget targets. C) Excessive downward communication. D) Reduced incentives for participation. E) Reduced levels of "budgetary slack."

69) Budgeting provides all of the followingexcept: A) A means to communicate the organization's short-term goals to its employees. B) Support for management functions of planning and coordinating activities of the

organization. C) A means to anticipate problems. D) An ethical framework for decision-making. E) A basis for motivating employee behavior.

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70) What is a pro forma balance sheet? A) A budgeted balance sheet. B) Last year’s balance sheet. C) A professionally certified balance sheet. D) A balance sheet that includes both actual and projected numbers. E) A fair market value balance sheet.

71) What is not included in the budgeting process? A) The hiring of an accountant. B) The formation of a budget committee. C) The budget negotiation. D) The determination of the budget period. E) The budget revision.

72) The authorization function of budgets is especially important for government and not-for-

profit (NFP) entities, where budgeted amounts often serve both as approvals of planned activities (or programs) and as: A) Measures of quality. B) Indicators of performance. C) Certification of actions. D) Ceilings for expenditures. E) The basis for contract negotiations.

73) Which one of the following is a plan that will allow a manufacturing firm to satisfy its sales

goals and have on hand the desired amount of inventory at the end of the budget period? A) Direct materials usage budget. B) Sales budget. C) Selling and administrative expense budget. D) Production budget. E) Sales forecast.

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74) Which one of the following shows the raw materials required for production and their

budgeted cost? A) Direct materials usage budget. B) Budgeted cost of goods sold. C) Direct materials purchases budget. D) Production budget. E) Direct materials cost budget.

75) Which of the following isnot an advantage of using a "highly achievable target" when

constructing budgets? A) Increasing managers' commitment to achieving budget targets. B) Increasing the risk that managers will engage in "earnings management" behavior. C) Improving predictability of earnings or operating results. D) Decreasing the cost of achieving organizational control. E) Enhancing the usefulness of a budget as a planning and coordinating tool.

76) A negotiated budgeting process is: A) Less effective than an authoritative budget. B) An alternative way to express a "bottom-up" approach to budget preparation. C) A combination of "top-down" and "bottom-up" approaches to budget preparation. D) Less costly to implement than an imposed (i.e., authoritative) budget. E) Generally completed after one round of negotiation.

77) Organizations that use cellular manufacturing systems can use the direct labor budget to: A) Plan for minor repairs. B) Plan for learning and growth. C) Plan for testing. D) Plan for maintenance. E) All of these answer choices are correct.

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78) Which one of the following is a budgeting process that requires managers to prepare budgets

based on in-depth reviews of all budget items? A) Flexible budgeting. B) Continuous budgeting. C) Activity-based budgeting (ABB). D) Kaizen budgeting. E) Zero-base budgeting (ZBB).

79) Which one of the following is a budgeting approach that explicitly demands continuous

improvement and that incorporates expected improvements in the resultant budget? A) Flexible budgeting. B) Time-driven activity-based budgeting (TDABB). C) Activity-based budgeting (ABB). D) Kaizen budgeting. E) Zero-base budgeting (ZBB).

80) Which of the following is one of the major factors that affect the level of goal congruence

achieved? A) How experienced top management is in goal setting. B) The number of employees in a company. C) How compensation is linked to budgeted performance. D) The number of years a company has existed. E) How budgeted performance is linked to actual performance.

81) A significant advantage of using either an activity-based budgeting (ABB) or a time-driven

activity-based budgeting (TDABB) system is: A) Reduction in the cost of developing budget amounts. B) Estimation of the cost of unused capacity, as a by-product of the budgeting process. C) Increased levels of "budgetary slack," which has a positive influence on motivation. D) Elimination of the need to generate a sales forecast for the upcoming period. E) The incorporation of continuous-improvement standards within the budgets.

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82) Budgets can serve as the standard against which actual performance is measured. When

compensation is based on this comparison, the organization is said to use: A) Fixed performance contracts. B) Rolling financial forecasts. C) Continuous-improvement budgets. D) Variable compensation contracts. E) A linear compensation plan.

83) What is a downside to a participative budget? A) Lacks the commitment of lower-level managers. B) Puts too much emphasis on the need for goal congruency. C) Leads to easy budget targets. D) Gives too much power to lower-level employees. E) It eliminates the need for upper management.

84) Zero-base budgeting (ZBB): A) Involves the review of changes made to an organization's original budget. B) Does not provide a projection of annual expenditures. C) Has as the primary objective to reduce budget expenditures to zero. D) Involves rigorous review of each cost item before inclusion in the budget. E) Emphasizes zero increase in expenditures.

85) Gentlemen Company expects the total costs of goods sold to be $48,000 in November and

$78,000 in December for one of its young adult suits. Management also wants to have on hand at the end of each month 20 percent of the expected total cost of sales for the following month. What dollar amount of suits should be purchased in November? A) $37,900. B) $38,400. C) $54,000. D) $63,600. E) $78,000.

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86) Gentlemen Company expects the total costs of goods sold to be $30,000 in November and

$60,000 in December for one of its young adult suits. Management also wants to have on hand at the end of each month 10 percent of the expected total cost of sales for the following month. What dollar amount of suits should be purchased in November? A) $26,000. B) $27,000. C) $33,000. D) $36,000. E) $60,000.

87) Painter’s Hardware purchased 8,400 gallons of paint in March. The store had 3,200 gallons

on hand at the beginning of March, and expects to have 2,700 gallons on hand at the end of March. What is the budgeted number of gallons to be sold during March? A) 5,200. B) 7,900. C) 8,400. D) 8,900. E) 14,300.

88) Painter’s Hardware purchased 5,000 gallons of paint in March. The store had 1,500 gallons

on hand at the beginning of March, and expects to have 1,000 gallons on hand at the end of March. What is the budgeted number of gallons to be sold during March? A) 3,500. B) 4,500. C) 5,000. D) 5,500. E) 7,500.

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89) Market Company’s policy is to have 20% of the next month's sales on hand at the end of the

current month. Projected sales for August, September, and October are 27,000 units, 22,000 units, and 32,000 units, respectively. How many units must be purchased in September? A) 17,600. B) 18,600. C) 24,000. D) 28,400. E) 30,400.

90) Market Company's policy is to have 20% of the next month's sales on hand at the end of the

current month. Projected sales for August, September, and October are 25,000 units, 20,000 units, and 30,000 units, respectively. How many units must be purchased in September? A) 16,000. B) 17,000. C) 22,000. D) 26,000. E) 28,000.

91) Bookworm Corporation maintains ending inventory for each month at 5% of the following

month's sales. It predicted the following sales (in units) for the first four months of the coming year:

Sales (units)

January

February

March

April

2,100

2,500

3,100

2,900

How many units should be produced in March? A) 2,910. B) 2,890. C) 2,645. D) 3,090. E) 3,235.

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92) Bookworm Corporation maintains ending inventory for each month at 5% of the following

month's sales. It predicted the following sales (in units) for the first four months of the coming year:

Sales (units)

January

February

March

April

2,000

2,400

3,000

2,800

How many units should be produced in March? A) 2,810. B) 2,850. C) 2,970. D) 2,990. E) 4,250.

93) Western Company expects the following credit sales for the first five months of the year:

January, $42,000; February, $57,000; March, $47,000; April, $53,000, May $57,000. Experience has shown that payment for the credit sales is received as follows: 60% in the month of sale, 25% in the first month after sale, 10% in the second month after sale, and the remainder is uncollectible. How much cash can Western Company expect to collect in March as a result of credit sales (current and past)? A) $28,200. B) $41,850. C) $47,000. D) $46,650. E) $40,300.

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94) Western Company expects the following credit sales for the first five months of the year:

January, $25,000; February, $40,000; March, $30,000; April, $36,000, May $40,000. Experience has shown that payment for the credit sales is received as follows: 60% in the month of sale, 25% in the first month after sale, 12% in the second month after sale, and the remainder is uncollectible. How much cash can Western Company expect to collect in March as a result of credit sales (current and past)? A) $18,000. B) $28,600. C) $30,000. D) $31,000. E) $32,040.

95) The Professional Service Company expects 70% of sales for cash and 30% on credit. The

company collects 70% of its credit sales in the month following sale, 25% in the second month following sale, and 5% are not collected (that is, they are "bad debts"). Expected sales for June, July, and August are $59,000, $65,000, and $55,000, respectively. What are the company's expected total cash receipts in August? A) $56,575. B) $76,250. C) $106,300. D) $60,250. E) $18,075.

96) The Professional Service Company expects 70% of sales for cash and 30% on credit. The

company collects 80% of its credit sales in the month following sale, 15% in the second month following sale, and 5% are not collected (that is, they are "bad debts"). Expected sales for June, July, and August are $48,000, $54,000, and $44,000, respectively. What are the company's expected total cash receipts in August? A) $45,920. B) $61,400. C) $87,600. D) $50,400. E) $15,120.

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97) Neighborhood Company has $33,000 cash at the beginning of June and anticipates $82,400

in cash receipts and $52,500 in cash disbursements. The company requires a minimum cash balance of $38,000. Any excess cash over the minimum desired balance is used to pay down debts. Neighborhood has an agreement with its bank to borrow as needed or to repay loans as funds become available. As of May 31, the company owes $33,000 to the bank. The balance of the loan on June 30 will be: A) $8,100. B) $13,100. C) $33,000. D) $41,100. E) $57,900.

98) Neighborhood Company has $15,000 cash at the beginning of June and anticipates $50,000

in cash receipts and $34,500 in cash disbursements. The company requires a minimum cash balance of $20,000. Any excess cash over the minimum desired balance is used to pay down debts. Neighborhood has an agreement with its bank to borrow as needed or to repay loans as funds become available. As of May 31, the company owes $15,000 to the bank. The balance of the loan on June 30 will be: A) $4,500. B) $9,500. C) $15,000. D) $19,500. E) $25,500.

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99) Tasty Foods expects to have 24,000 units of finished goods inventory on hand on March 31

and reports the following expected sales (in units) for the months of April through July: April May June July

124,000 144,000 154,000 124,000

At the end of each month the company desires its ending finished goods inventory to be 20% of the next month's projected sales (in units). The budgeted production (in units) for Tasty Foods for April should be: A) 119,200. B) 124,000. C) 131,200. D) 128,800. E) 149,200.

100)

Tasty Foods expects to have 20,000 units of finished goods inventory on hand on March 31 and reports the following expected sales (in units) for the months of April through July: April May June July

120,000 140,000 150,000 120,000

At the end of each month the company desires its ending finished goods inventory to be 20% of the next month's projected sales (in units). The budgeted production (in units) for Tasty Foods for April should be: A) 112,000. B) 120,000. C) 127,200. D) 128,000. E) 142,000.

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101)

Tasty Foods expects to have 28,000 units of finished goods inventory on hand on March 31 and reports the following expected sales (in units) for the months of April through July: April May June July

128,000 138,000 155,000 128,000

At the end of each month the company desires its ending finished goods inventory to be 25% of the next month's projected sales (in units). The budgeted production (in units) for Tasty Foods for May should be: A) 103,500. B) 140,750. C) 138,000. D) 142,250. E) 157,750.

102)

Tasty Foods expects to have 20,000 units of finished goods inventory on hand on March 31 and reports the following expected sales (in units) for the months of April through July: April May June July

120,000 130,000 140,000 120,000

At the end of each month the company desires its ending finished goods inventory to be 20% of the next month's projected sales (in units). The budgeted production (in units) for Tasty Foods for May should be: A) 104,000. B) 128,000. C) 130,000. D) 132,000. E) 138,000.

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103)

Yummy Foods expects to have 48,000 pounds of raw materials inventory on hand on March 31, the end of the current year. The company budgets the following production (in units) for April through July, inclusive: April May June July

132,000 142,000 163,000 132,000

At the end of each month the firm desires its ending raw material inventory to be 10% of the next month's production needs. Each finished unit requires two pounds of raw materials. Yummy Foods’ budgeted purchases for raw materials (in pounds) during April should be: A) 247,000. B) 264,000. C) 244,400. D) 292,400. E) 340,400.

104)

Yummy Foods expects to have 36,000 pounds of raw materials inventory on hand on March 31, the end of the current year. The company budgets the following production (in units) for April through July, inclusive: April May June July

120,000 130,000 140,000 120,000

At the end of each month the firm desires its ending raw material inventory to be 10% of the next month's production needs. Each finished unit requires three pounds of raw materials. Yummy Foods’ budgeted purchases for raw materials (in pounds) during April should be: A) 224,000. B) 360,000. C) 363,000. D) 399,000. E) 435,000.

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105)

Yummy Foods expects to have 45,000 pounds of raw materials inventory on hand on March 31, the end of the current year. The company budgets the following production (in units) for April through July, inclusive: April May June July

129,000 139,000 157,000 129,000

At the end of each month the firm desires its ending raw material inventory to be 15% of the next month's production needs. Each finished unit requires three pounds of raw materials. Yummy Foods’ budgeted purchases (in pounds) of raw materials for June would be: A) 458,400. B) 471,000. C) 483,600. D) 529,050. E) 599,700.

106)

120,000 130,000 140,000 120,000

At the end of each month the firm desires its ending raw material inventory to be 10% of the next month's production needs. Each finished unit requires three pounds of raw materials. Yummy Foods' budgeted purchases (in pounds) of raw materials for June would be: A) 414,000. B) 420,000. C) 426,000. D) 456,000. E) 498,000.

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107)

Sunlight Company forecasts purchases of 35,000 widgets in June. It sells the widget at $10.00 per unit. The company has 3,000 units on hand on June 1. The desired ending inventory of widgets on June 30 is to be 20% lower than the beginning inventory. Total June sales for widgets are anticipated to be (in dollars): A) $344,000. B) $350,000. C) $356,000. D) $374,000. E) $380,000.

108)

Sunlight Company forecasts purchases of 15,000 widgets in June. It sells the widget at $12.00 per unit. The company has 1,000 units on hand on June 1. The desired ending inventory of widgets on June 30 is to be 20% lower than the beginning inventory. Total June sales for widgets are anticipated to be (in dollars): A) $177,600. B) $180,000. C) $182,400. D) $189,600. E) $192,000.

109)

Frame Manufacturing Corporation has provided the following sales budget information:

July August September

$ 57,000 $ 67,000 $ 72,000

Cash sales are normally 30% of total sales; credit sales are expected to be collected in their entirety in the month following the month of sale. The amount of cash expected to be received from customers in September is: A) $21,600. B) $67,000. C) $68,500. D) $53,200. E) $72,000.

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110)

Frame Manufacturing Corporation has provided the following sales budget information:

July August September

$ 45,000 $ 55,000 $ 60,000

Cash sales are normally 40% of total sales; credit sales are expected to be collected in their entirety in the month following the month of sale. The amount of cash expected to be received from customers in September is: A) $24.000. B) $55,000. C) $57,000. D) $58,000. E) $60,000.

111)

Fast Distribution Company expects its September sales to be 20% higher than its August sales of $156,000. Purchases were $106,000 in August and are expected to be $126,000 in September. All sales are on credit and are expected to be collected as follows: 40% in the month of the sale and 60% in the following month. Purchases are paid 20% in the month of purchase and 80% in the following month. The cash balance on September 1 is $16,000. The ending cash balance on September 30 is estimated to be: A) $74,880. B) $75,120. C) $72,065. D) $74,480. E) $90,480.

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112)

Fast Distribution Company expects its September sales to be 25% higher than its August sales of $150,000. Purchases were $100,000 in August and are expected to be $120,000 in September. All sales are on credit and are expected to be collected as follows: 30% in the month of the sale and 70% in the following month. Purchases are paid 25% in the month of purchase and 75% in the following month. The cash balance on September 1 is $10,000. The ending cash balance on September 30 is estimated to be: A) $56,250. B) $56,500. C) $65,250. D) $66,250. E) $76,250.

113)

New Fashion forecasts sales of $311,000 for the quarter ended December 31. The company's gross profit rate averages 15% of sales. Inventory as of September 30 is $111,000. If the December 31st inventory is targeted at $51,000, budgeted purchases for the quarter should be: A) $153,350. B) $157,650. C) $204,350. D) $200,000. E) $264,350.

114)

New Fashion forecasts sales of $300,000 for the quarter ended December 31. The company's gross profit rate averages 20% of sales. Inventory as of September 30 is $100,000. If the December 31st inventory is targeted at $40,000, budgeted purchases for the quarter should be: A) $140,000. B) $160,000. C) $180,000. D) $200,000. E) $240,000.

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115)

Hunt Company’s sales, based on past experience, are 20% cash and 80% credit. Credit sales are typically collected as follows: 40% in the month of sale, 50% in the month after the sale, and 10% in the second month following month of sale. On December 31, the accounts receivable balance is $76,500, of which $33,000 is from November sales. Total sales for January and February are budgeted to be $115,000 and $135,000, respectively. What are Hunt Company’s budgeted cash receipts for January? A) $76,850. B) $93,750. C) $96,050. D) $99,850. E) $129,050.

116)

Hunt Company’s sales, based on past experience, are 20% cash and 80% credit. Credit sales are typically collected as follows: 40% in the month of sale, 50% in the month after the sale, and 10% in the second month following month of sale. On December 31, the accounts receivable balance is $54,000, of which $12,000 is from November sales. Total sales for January and February are budgeted to be $100,000 and $120,000, respectively. What are Hunt Company’s budgeted cash receipts for January? A) $74,200. B) $85,000. C) $87,000. D) $94,200. E) $99,000.

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117)

Hunt Company’s sales, based on past experience, are 30% cash and 70% credit. Credit sales are typically collected as follows: 40% in the month of sale, 50% in the month after the sale, and 10% in the second month following month of sale. On December 31, the accounts receivable balance is $84,000, of which $30,000 is from November sales. Total sales for January and February are budgeted to be $120,000 and $140,000, respectively. What are Hunt Company’s budgeted cash receipts for February? A) $133,200. B) $127,200. C) $129,800. D) $132,200. E) $175,700.

118)

Hunt Company’s sales, based on past experience, are 20% cash and 80% credit. Credit sales are typically collected as follows: 40% in the month of sale, 50% in the month after the sale, and 10% in the second month following month of sale. On December 31, the accounts receivable balance is $54,000, of which $12,000 is from November sales. Total sales for January and February are budgeted to be $100,000 and $120,000, respectively. What are Hunt Company’s budgeted cash receipts for February? A) $85,400. B) $95,000. C) $106,600. D) $109,400. E) $112,900.

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119)

Box Company budgeted to sell 206,000 units of Zbox in September. Production of one unit of Zbox requires two pounds of aluminum and six pounds of steel powder. The beginning inventory and the desired ending inventory (in units) are as follows:

Zbox Aluminum Steel powder

Beginning Inventory 27,000 33,000 29,000

Desired Ending Inventory 16,000 26,000 34,000

How many units of Zbox are to be manufactured by Box Company during September? A) 153,000. B) 195,000. C) 206,000. D) 207,000. E) 208,000.

120)

Box Company budgeted to sell 200,000 units of Zbox in September. Production of one unit of Zbox requires two pounds of aluminum and five pounds of steel powder. The beginning inventory and the desired ending inventory (in units) are as follows:

Zbox Aluminum Steel powder

Beginning Inventory 24,000 30,000 26,000

Desired Ending Inventory 13,000 23,000 31,000

How many units of Zbox are to be manufactured by Box Company during September? A) 150,000. B) 189,000. C) 200,000. D) 201,000. E) 202,000.

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121)

Box Company budgeted to sell 226,000 units of Zbox in September. Production of one unit of Zbox requires three pounds of aluminum and five pounds of steel powder. The beginning inventory and the desired ending inventory are as follows: Beginning Inventory Zbox Aluminum Steel powder

37,000 units 43,000 pounds 39,000 pounds

Desired Ending Inventory 26,000 units 36,000 pounds 44,000 pounds

How many pounds of aluminum does Box Company need to purchase during September if Box plans to manufacture 163,000 units of Zbox in September? A) 156,000 pounds. B) 170,000 pounds. C) 351,000 pounds. D) 482,000 pounds. E) 489,000 pounds.

122)

24,000 units 30,000 pounds 26,000 pounds

Desired Ending Inventory 13,000 units 23,000 pounds 31,000 pounds

How many pounds of aluminum does Box Company need to purchase during September if Box plans to manufacture 150,000 units of Zbox in September? A) 143,000 pounds. B) 157,000 pounds. C) 286,000 pounds. D) 293,000 pounds. E) 300,000 pounds.

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123)

Box Company budgeted to sell 210,000 units of Zbox in September. Production of one unit of Zbox requires two pounds of aluminum and six pounds of steel powder. The beginning inventory and the desired ending inventory are as follows: Beginning Inventory Zbox Aluminum Steel powder

29,000 units 35,000 pounds 31,000 pounds

Desired Ending Inventory 18,000 units 28,000 pounds 36,000 pounds

How many pounds of steel powder does Box Company need to purchase during September if Box plans to manufacture 155,000 units of Zbox in September? A) 900,000 pounds. B) 925,000 pounds. C) 930,000 pounds. D) 935,000 pounds. E) 960,000 pounds.

124)

24,000 units 30,000 pounds 26,000 pounds

Desired Ending Inventory 13,000 units 23,000 pounds 31,000 pounds

How many pounds of steel powder does Box Company need to purchase during September if Box plans to manufacture 150,000 units of Zbox in September? A) 725,000 pounds. B) 745,000 pounds. C) 750,000 pounds. D) 755,000 pounds. E) 775,000 pounds.

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125)

Information pertaining to Collection Corporation sales revenue is presented below: November

December

January

Cash sales Credit sales

$ 112,000 304,000

$ 141,000 466,000

$ 94,000 250,000

Total sales

$ 416,000

$ 607,000

$ 344,000

Management estimates that 5% of credit sales are eventually uncollectible. Of the collectible credit sales, 60% are likely to be collected in the month of sale and the remainder in the month following the month of sale. The company desires to begin each month with an inventory equal to 70% of the sales projected for the month. All purchases of inventory are on open account; 20% will be paid in the month of purchase, and the remainder paid in the month following the month of purchase. Purchase costs are approximately 50% of the selling prices. Total budgeted cash collections for Collection Corporation in December are: A) $550,900. B) $413,580. C) $478,830. D) $522,140. E) $496,700.

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126)

Information pertaining to Collection Corporation's sales revenue is presented below: November

December

January

Cash sales Credit sales

$ 96,000 288,000

$ 125,000 450,000

$ 78,000 234,000

Total sales

$ 384,000

$ 575,000

$ 312,000

Management estimates that 4% of credit sales are eventually uncollectible. Of the collectible credit sales, 65% are likely to be collected in the month of sale and the remainder in the month following the month of sale. The company desires to begin each month with an inventory equal to 75% of the sales projected for the month. All purchases of inventory are on open account; 30% will be paid in the month of purchase, and the remainder paid in the month following the month of purchase. Purchase costs are approximately 60% of the selling prices. Total budgeted cash collections for Collection Corporation in December are: A) $556,512. B) $375,216. C) $495,080. D) $502,568. E) $506,780.

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127)

Information pertaining to Collection Corporation's sales revenue is presented below: November

December

January

Cash sales Credit sales

$ 116,000 308,000

$ 145,000 470,000

$ 98,000 254,000

Total sales

$ 424,000

$ 615,000

$ 352,000

Management estimates that 4% of credit sales are eventually uncollectible. Of the collectible credit sales, 65% are likely to be collected in the month of sale and the remainder in the month following the month of sale. The company desires to begin each month with an inventory equal to 75% of the sales projected for the month. All purchases of inventory are on open account; 30% will be paid in the month of purchase, and the remainder paid in the month following the month of purchase. Purchase costs are approximately 60% of the selling prices. Total budgeted cash collections in January by Collection Corporation are: A) $601,472. B) $414,416. C) $466,688. D) $511,186. E) $555,928.

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128)

Information pertaining to Collection Corporation's sales revenue is presented below: November

December

January

Cash sales Credit sales

$ 96,000 288,000

$ 125,000 450,000

$ 78,000 234,000

Total sales

$ 384,000

$ 575,000

$ 312,000

Management estimates that 4% of credit sales are eventually uncollectible. Of the collectible credit sales, 65% are likely to be collected in the month of sale and the remainder in the month following the month of sale. The company desires to begin each month with an inventory equal to 75% of the sales projected for the month. All purchases of inventory are on open account; 30% will be paid in the month of purchase, and the remainder paid in the month following the month of purchase. Purchase costs are approximately 60% of the selling prices. Total budgeted cash collections in January by Collection Corporation are: A) $556,512. B) $375,216. C) $421,728. D) $464,006. E) $502,568.

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129)

Information pertaining to Collection Corporation's sales revenue is presented below: November

December

January

Cash sales Credit sales

$ 103,000 295,000

$ 132,000 457,000

$ 85,000 241,000

Total sales

$ 398,000

$ 589,000

$ 326,000

Management estimates that 4% of credit sales are eventually uncollectible. Of the collectible credit sales, 65% are likely to be collected in the month of sale and the remainder in the month following the month of sale. The company desires to begin each month with an inventory equal to 75% of the sales projected for the month. All purchases of inventory are on open account; 30% will be paid in the month of purchase, and the remainder paid in the month following the month of purchase. Purchase costs are approximately 60% of the selling prices. Total budgeted inventory purchases in November by Collection Corporation are: A) $265,050. B) $324,750. C) $398,000. D) $503,850. E) $538,576.

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130)

Information pertaining to Collection Corporation's sales revenue is presented below: November

December

January

Cash sales Credit sales

$ 96,000 288,000

$ 125,000 450,000

$ 78,000 234,000

Total sales

$ 384,000

$ 575,000

$ 312,000

Management estimates that 4% of credit sales are eventually uncollectible. Of the collectible credit sales, 65% are likely to be collected in the month of sale and the remainder in the month following the month of sale. The company desires to begin each month with an inventory equal to 75% of the sales projected for the month. All purchases of inventory are on open account; 30% will be paid in the month of purchase, and the remainder paid in the month following the month of purchase. Purchase costs are approximately 60% of the selling prices. Total budgeted inventory purchases in November by Collection Corporation are: A) $258,750. B) $316,350. C) $384,000. D) $489,150. E) $527,250.

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131)

Information pertaining to Collection Corporation's sales revenue is presented below: November

December

January

Cash sales Credit sales

$ 100,000 292,000

$ 129,000 454,000

$ 82,000 238,000

Total sales

$ 392,000

$ 583,000

$ 320,000

Management estimates that 5% of credit sales are eventually uncollectible. Of the collectible credit sales, 65% are likely to be collected in the month of sale and the remainder in the month following the month of sale. The company desires to begin each month with an inventory equal to 75% of the sales projected for the month. All purchases of inventory are on open account; 20% will be paid in the month of purchase, and the remainder paid in the month following the month of purchase. Purchase costs are approximately 60% of the selling prices. Total budgeted inventory purchases in December by Collection Corporation's are: A) $87,450. B) $144,000. C) $231,450. D) $262,350. E) $349,800.

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132)

Information pertaining to Collection Corporation's sales revenue is presented below: November

December

January

Cash sales Credit sales

$ 96,000 288,000

$ 125,000 450,000

$ 78,000 234,000

Total sales

$ 384,000

$ 575,000

$ 312,000

Management estimates that 4% of credit sales are eventually uncollectible. Of the collectible credit sales, 65% are likely to be collected in the month of sale and the remainder in the month following the month of sale. The company desires to begin each month with an inventory equal to 75% of the sales projected for the month. All purchases of inventory are on open account; 30% will be paid in the month of purchase, and the remainder paid in the month following the month of purchase. Purchase costs are approximately 60% of the selling prices. Total budgeted inventory purchases in December by Collection Corporation are: A) $86,250. B) $140,400. C) $226,650. D) $258,750. E) $345,000.

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133)

Information pertaining to Collection Corporation's sales revenue is presented below: November

December

January

Cash sales Credit sales

$ 110,000 302,000

$ 139,000 464,000

$ 92,000 248,000

Total sales

$ 412,000

$ 603,000

$ 340,000

Management estimates that 5% of credit sales are eventually uncollectible. Of the collectible credit sales, 65% are likely to be collected in the month of sale and the remainder in the month following the month of sale. The company desires to begin each month with an inventory equal to 75% of the sales projected for the month. All purchases of inventory are on open account; 20% will be paid in the month of purchase, and the remainder paid in the month following the month of purchase. Purchase costs are approximately 60% of the selling prices. Budgeted December cash payments by Collection Corporation for December inventory purchases are: A) $48,690. B) $72,360. C) $194,760. D) $289,440. E) $302,600.

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134)

Information pertaining to Collection Corporation's sales revenue is presented below: November

December

January

Cash sales Credit sales

$ 96,000 288,000

$ 125,000 450,000

$ 78,000 234,000

Total sales

$ 384,000

$ 575,000

$ 312,000

Management estimates that 4% of credit sales are eventually uncollectible. Of the collectible credit sales, 65% are likely to be collected in the month of sale and the remainder in the month following the month of sale. The company desires to begin each month with an inventory equal to 75% of the sales projected for the month. All purchases of inventory are on open account; 30% will be paid in the month of purchase, and the remainder paid in the month following the month of purchase. Purchase costs are approximately 60% of the selling prices. Budgeted December cash payments by Collection Corporation for December inventory purchases are: A) $67,995. B) $103,500. C) $158,655. D) $241,500. E) $289,440.

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135)

Information pertaining to Collection Corporation's sales revenue is presented below: November

December

January

Cash sales Credit sales

$ 98,000 290,000

$ 127,000 452,000

$ 80,000 236,000

Total sales

$ 388,000

$ 579,000

$ 316,000

Management estimates that 5% of credit sales are eventually uncollectible. Of the collectible credit sales, 65% are likely to be collected in the month of sale and the remainder in the month following the month of sale. The company desires to begin each month with an inventory equal to 70% of the sales projected for the month. All purchases of inventory are on open account; 30% will be paid in the month of purchase, and the remainder paid in the month following the month of purchase. Purchase costs are approximately 60% of the selling prices. Budgeted cash payments in November for November inventory purchases by Collection Corporation are: A) $72,454. B) $93,906. C) $116,400. D) $162,960. E) $219,114.

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136)

Information pertaining to Collection Corporation's sales revenue is presented below: November

December

January

Cash sales Credit sales

$ 96,000 288,000

$ 125,000 450,000

$ 78,000 234,000

Total sales

$ 384,000

$ 575,000

$ 312,000

Budgeted cash payments in November for November inventory purchases by Collection Corporation are: A) $76,625. B) $94,905. C) $115,200. D) $161,280. E) $221,445.

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137)

Information pertaining to Collection Corporation's sales revenue is presented below: November

December

January

Cash sales Credit sales

$ 105,000 297,000

$ 134,000 459,000

$ 87,000 243,000

Total sales

$ 402,000

$ 593,000

$ 330,000

Management estimates that 3% of credit sales are eventually uncollectible. Of the collectible credit sales, 60% are likely to be collected in the month of sale and the remainder in the month following the month of sale. The company desires to begin each month with an inventory equal to 75% of the sales projected for the month. All purchases of inventory are on open account; 20% will be paid in the month of purchase, and the remainder paid in the month following the month of purchase. Purchase costs are approximately 50% of the selling prices. Budgeted cash payments in December for November inventory purchases by Collection Corporation are: A) $42,975. B) $54,525. C) $80,400. D) $160,800. E) $218,100.

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138)

Information pertaining to Collection Corporation's sales revenue is presented below: November

December

January

Cash sales Credit sales

$ 96,000 288,000

$ 125,000 450,000

$ 78,000 234,000

Total sales

$ 384,000

$ 575,000

$ 312,000

Budgeted cash payments in December for November inventory purchases by Collection Corporation are: A) $76,625. B) $94,905. C) $115,200. D) $161,280. E) $221,445.

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139)

Information pertaining to Collection Corporation's sales revenue is presented below: November

December

January

Cash sales Credit sales

$ 107,000 299,000

$ 136,000 461,000

$ 89,000 245,000

Total sales

$ 406,000

$ 597,000

$ 334,000

Management estimates that 4% of credit sales are eventually uncollectible. Of the collectible credit sales, 60% are likely to be collected in the month of sale and the remainder in the month following the month of sale. The company desires to begin each month with an inventory equal to 80% of the sales projected for the month. All purchases of inventory are on open account; 30% will be paid in the month of purchase, and the remainder paid in the month following the month of purchase. Purchase costs are approximately 55% of the selling prices. Budgeted January cash payments for December inventory purchases by Collection Corporation are: A) $63,789. B) $98,505. C) $148,841. D) $229,845. E) $299,839.

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140)

Information pertaining to Collection Corporation's sales revenue is presented below: November

December

January

Cash sales Credit sales

$ 96,000 288,000

$ 125,000 450,000

$ 78,000 234,000

Total sales

$ 384,000

$ 575,000

$ 312,000

Management estimates that 4% of credit sales are eventually uncollectible. Of the collectible credit sales, 65% are likely to be collected in the month of sale and the remainder in the month following the month of sale. The company desires to begin each month with an inventory equal to 75% of the sales projected for the month. All purchases of inventory are on open account; 30% will be paid in the month of purchase, and the remainder paid in the month following the month of purchase. Purchase costs are approximately 60% of the selling prices. Budgeted January cash payments for December inventory purchases by Collection Corporation are: A) $67,995. B) $103,500. C) $158,655. D) $241,500. E) $289,440.

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141)

Cloudy Company had the following historical collection pattern for its credit sales: 70% collected in the month of sale 14% collected in the first month after month of sale 9% collected in the second month after month of sale 6% collected in the third month after month of sale 1% uncollectible

The sales on open account (credit sales) have been budgeted for the last six months of the year as shown below: July August September October November December

$ 82,000 $ 94,000 $ 106,000 $ 118,000 $ 130,000 $ 112,000

The estimated total cash collections by Cloudy Company during December from accounts receivable is: A) $122,700. B) $110,820. C) $159,280. D) $134,680. E) $113,580.

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142)

Cloudy Company had the following historical collection pattern for its credit sales: 75% collected in the month of sale 12% collected in the first month after month of sale 8% collected in the second month after month of sale 3% collected in the third month after month of sale 2% uncollectible

The sales on open account (credit sales) have been budgeted for the last six months of the year as shown below: July August September October November December

$ 72,000 $ 84,000 $ 96,000 $ 108,000 $ 120,000 $ 102,000

The estimated total cash collections by Cloudy Company during December from accounts receivable is: A) $113,160. B) $101,400. C) $143,640. D) $125,640. E) $102,420.

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143)

Cloudy Company had the following historical collection pattern for its credit sales: 70% collected in the month of sale 14% collected in the first month after month of sale 8% collected in the second month after month of sale 6% collected in the third month after month of sale 2% uncollectible

The sales on open account (credit sales) have been budgeted for the last six months of the year as shown below: July August September October November December

$ 86,000 $ 98,000 $ 110,000 $ 122,000 $ 134,000 $ 116,000

The estimated total cash collections by Cloudy Company during November from collection of accounts receivable is: A) $125,560. B) $113,800. C) $166,640. D) $140,840. E) $116,320.

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144)

The sales on open account (credit sales) have been budgeted for the last six months of the year as shown below: July August September October November December

$ 72,000 $ 84,000 $ 96,000 $ 108,000 $ 120,000 $ 102,000

The estimated total cash collections by Cloudy Company during November from collection of accounts receivable is: A) $113,160. B) $101,400. C) $143,640. D) $125,640. E) $102,420.

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145)

The sales on open account (credit sales) have been budgeted for the last six months of the year as shown below: July August September October November December

$ 83,000 $ 95,000 $ 107,000 $ 119,000 $ 131,000 $ 113,000

The estimated total cash collections by Cloudy Company during October from accounts receivable is: A) $123,940. B) $112,180. C) $164,210. D) $143,460. E) $113,200.

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146)

The sales on open account (credit sales) have been budgeted for the last six months of the year as shown below: July August September October November December

$ 72,000 $ 84,000 $ 96,000 $ 108,000 $ 120,000 $ 102,000

The estimated total cash collections by Cloudy Company during October from accounts receivable is: A) $113,160. B) $101,400. C) $143,640. D) $125,640. E) $102,420.

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147)

Cloudy Company had the following historical collection pattern for its credit sales: 75% collected in the month of sale 10% collected in the first month after month of sale 8% collected in the second month after month of sale 5% collected in the third month after month of sale 2% uncollectible

The sales on open account (credit sales) have been budgeted for the last six months of the year as shown below: July August September October November December

$ 85,000 $ 97,000 $ 109,000 $ 121,000 $ 133,000 $ 115,000

The estimated cash collection by Cloudy Company during September from credit sales in July, August, and September is: A) $95,420. B) $89,725. C) $98,250. D) $63,750. E) $81,250.

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148)

The sales on open account (credit sales) have been budgeted for the last six months of the year as shown below: July August September October November December

$ 72,000 $ 84,000 $ 96,000 $ 108,000 $ 120,000 $ 102,000

The estimated cash collection by Cloudy Company during September from credit sales in July, August, and September is: A) $83,160. B) $79,380. C) $87,840. D) $54,000. E) $71,640.

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149)

The sales on open account (credit sales) have been budgeted for the last six months of the year as shown below: July August September October November December

$ 75,000 $ 87,000 $ 99,000 $ 111,000 $ 123,000 $ 105,000

The estimated cash collection by Cloudy Company during August from July and August credit sales is: A) $86,100. B) $82,215. C) $90,690. D) $56,250. E) $74,250.

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150)

The sales on open account (credit sales) have been budgeted for the last six months of the year as shown below: July August September October November December

$ 72,000 $ 84,000 $ 96,000 $ 108,000 $ 120,000 $ 102,000

The estimated cash collection by Cloudy Company during August from July and August credit sales is: A) $83,160. B) $79,380. C) $87,840. D) $54,000. E) $71,640.

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151)

Cloudy Company had the following historical collection pattern for its credit sales: 75% collected in the month of sale 12% collected in the first month after month of sale 9% collected in the second month after month of sale 3% collected in the third month after month of sale 1% uncollectible

The sales on open account (credit sales) have been budgeted for the last six months of the year as shown below: July August September October November December

$ 90,000 $ 102,000 $ 114,000 $ 126,000 $ 138,000 $ 120,000

The estimated cash collections during July from credit sales made in July by Cloudy Company is: A) $101,940. B) $96,390. C) $105,840. D) $67,500. E) $87,300.

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152)

The sales on open account (credit sales) have been budgeted for the last six months of the year as shown below: July August September October November December

$ 72,000 $ 84,000 $ 96,000 $ 108,000 $ 120,000 $ 102,000

The estimated cash collections during July from credit sales made in July by Cloudy Company is: A) $83,160. B) $79,380. C) $87,840. D) $54,000. E) $71,640.

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153)

Old Antique Store prepared the following budget information for the month of May: Sales are budgeted at $411,000. All sales are on account and a provision for bad debts is made for each month at three percent of sales for the month. Inventory was $99,000 on April 30; an inventory increase of $21,000 is planned for May 31. All inventory is marked to sell at cost plus 50 percent. Estimated cash disbursements for selling and administrative expenses for the month are $63,000. Depreciation for May is projected at $7,500. Old Antique budgeted cost of goods sold (CGS) in May is: A) $137,000. B) $205,500. C) $238,000. D) $295,000. E) $274,000.

154)

Old Antique Store prepared the following budget information for the month of May: Sales are budgeted at $360,000. All sales are on account and a provision for bad debts is made for each month at three percent of sales for the month. Inventory was $84,000 on April 30; an inventory increase of $12,000 is planned for May 31. All inventory is marked to sell at cost plus 50 percent. Estimated cash disbursements for selling and administrative expenses for the month are $48,000. Depreciation for May is projected at $6,000. Old Antique 's budgeted cost of goods sold (CGS) in May is: A) $120,000. B) $180,000. C) $198,000. D) $252,000. E) $240,000.

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155)

Old Antique Store prepared the following budget information for the month of May: Sales are budgeted at $350,000. All sales are on account and a provision for bad debts is made for each month at two percent of sales for the month. Inventory was $101,000 on April 30; an inventory increase of $14,000 is planned for May 31. All inventory is marked to sell at cost plus 40 percent. Estimated cash disbursements for selling and administrative expenses for the month are $65,000. Depreciation for May is projected at $7,700. Old Antique's budgeted cost of inventory purchases for May is: A) $100,000. B) $140,000. C) $213,700. D) $264,000. E) $250,000.

156)

Old Antique Store prepared the following budget information for the month of May: Sales are budgeted at $360,000. All sales are on account and a provision for bad debts is made for each month at three percent of sales for the month. Inventory was $84,000 on April 30; an inventory increase of $12,000 is planned for May 31. All inventory is marked to sell at cost plus 50 percent. Estimated cash disbursements for selling and administrative expenses for the month are $48,000. Depreciation for May is projected at $6,000. Old Antique 's budgeted cost of inventory purchases for May is: A) $120,000. B) $180,000. C) $198,000. D) $252,000. E) $240,000.

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157)

Old Antique Store prepared the following budget information for the month of May: Sales are budgeted at $321,000. All sales are on account and a provision for bad debts is made for each month at three percent of sales for the month. Inventory was $86,000 on April 30; an inventory increase of $15,000 is planned for May 31. All inventory is marked to sell at cost plus 50 percent. Estimated cash disbursements for selling and administrative expenses for the month are $50,000. Depreciation for May is projected at $6,200. Old Antique's budgeted gross profit for May is: A) $107,000. B) $160,500. C) $195,700. D) $229,000. E) $214,000.

158)

Old Antique Store prepared the following budget information for the month of May: Sales are budgeted at $360,000. All sales are on account and a provision for bad debts is made for each month at three percent of sales for the month. Inventory was $84,000 on April 30; an inventory increase of $12,000 is planned for May 31. All inventory is marked to sell at cost plus 50 percent. Estimated cash disbursements for selling and administrative expenses for the month are $48,000. Depreciation for May is projected at $6,000. Old Antique 's budgeted gross profit for May is: A) $120,000. B) $180,000. C) $198,000. D) $252,000. E) $240,000.

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159)

Old Antique Store prepared the following budget information for the month of May: Sales are budgeted at $300,000. All sales are on account and a provision for bad debts is made for each month at three percent of sales for the month. Inventory was $88,000 on April 30; an inventory increase of $11,000 is planned for May 31. All inventory is marked to sell at cost plus 50 percent. Estimated cash disbursements for selling and administrative expenses for the month are $52,000. Depreciation for May is projected at $6,400. Old Antique's budgeted bad debts expense for May is: A) $6,510. B) $9,000. C) $6,840. D) $4,500. E) $12,900.

160)

Old Antique Store prepared the following budget information for the month of May: Sales are budgeted at $360,000. All sales are on account and a provision for bad debts is made for each month at three percent of sales for the month. Inventory was $84,000 on April 30; an inventory increase of $12,000 is planned for May 31. All inventory is marked to sell at cost plus 50 percent. Estimated cash disbursements for selling and administrative expenses for the month are $48,000. Depreciation for May is projected at $6,000. Old Antique 's budgeted bad debts expense for May is: A) $7,200. B) $10,800. C) $7,560. D) $5,400. E) $14,400.

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161)

Old Antique Store prepared the following budget information for the month of May: Sales are budgeted at $375,000. All sales are on account and a provision for bad debts is made for each month at three percent of sales for the month. Inventory was $98,000 on April 30; an inventory increase of $12,000 is planned for May 31. All inventory is marked to sell at cost plus 50 percent. Estimated expense for selling and administrative expenses for the month are $62,000. Depreciation for May is projected at $7,400. Old Antique's budgeted operating income for May is: A) $93,000. B) $81,400. C) $44,350. D) $51,750. E) $32,350.

162)

Old Antique Store prepared the following budget information for the month of May: Sales are budgeted at $360,000. All sales are on account and a provision for bad debts is made for each month at three percent of sales for the month. Inventory was $84,000 on April 30; an inventory increase of $12,000 is planned for May 31. All inventory is marked to sell at cost plus 50 percent. Estimated expense for selling and administrative expenses for the month are $48,000. Depreciation for May is projected at $6,000. Old Antique 's budgeted operating income for May is: A) $72,000. B) $66,000. C) $55,200. D) $61,200. E) $43,200.

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163)

Canyon Corporation's budgeted production schedule, by quarters, for the coming year is as follows: Quarter 1 = 42,500 units Quarter 2 = 39,000 units Quarter 3 = 37,000 units Quarter 4 = 44,000 units Each unit of product requires two pounds of direct material. The company's policy is to begin each quarter with 30% of that quarter's direct materials production requirements. Canyon expects to have 70,000 pounds of direct materials on hand at the beginning of Quarter 1. What would be Canyon budgeted direct materials purchases (in pounds) for the first quarter? A) 15,000 pounds. B) 38,400 pounds. C) 40,500 pounds. D) 93,400 pounds. E) 108,400 pounds.

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164)

Canyon Corporation's budgeted production schedule, by quarters, for the coming year is as follows: Quarter 1 = 22,500 units Quarter 2 = 19,000 units Quarter 3 = 17,000 units Quarter 4 = 24,000 units Each unit of product requires three pounds of direct material. The company's policy is to begin each quarter with 30% of that quarter's direct materials production requirements. Canyon expects to have 50,000 pounds of direct materials on hand at the beginning of Quarter 1. What would be Canyon's budgeted direct materials purchases (in pounds) for the first quarter? A) 17,500 pounds. B) 34,600 pounds. C) 37,750 pounds. D) 67,100 pounds. E) 84,600 pounds.

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165)

Canyon Corporation's budgeted production schedule, by quarters, for the coming year is as follows: Quarter 1 = 39,500 units Quarter 2 = 36,000 units Quarter 3 = 34,000 units Quarter 4 = 41,000 units Each unit of product requires two pounds of direct material. The company's policy is to begin each quarter with 25% of that quarter's direct materials production requirements. Canyon expects to have 67,000 pounds of direct materials on hand at the beginning of Quarter 1. What would be Canyon's budgeted direct materials purchases for the second quarter of the year? A) 70,375 pounds. B) 71,000 pounds. C) 72,000 pounds. D) 73,000 pounds. E) 89,000 pounds.

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166)

Canyon Corporation's budgeted production schedule, by quarters, for the coming year is as follows: Quarter 1 = 22,500 units Quarter 2 = 19,000 units Quarter 3 = 17,000 units Quarter 4 = 24,000 units Each unit of product requires three pounds of direct material. The company's policy is to begin each quarter with 30% of that quarter's direct materials production requirements. Canyon expects to have 50,000 pounds of direct materials on hand at the beginning of Quarter 1. What would be Canyon's budgeted direct materials purchases for the second quarter of the year? A) 53,850 pounds. B) 55,200 pounds. C) 57,000 pounds. D) 58,800 pounds. E) 72,300 pounds.

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167)

Canyon Corporation's budgeted production schedule, by quarters, for the coming year is as follows: Quarter 1 = 30,500 units Quarter 2 = 27,000 units Quarter 3 = 25,000 units Quarter 4 = 32,000 units Each unit of product requires two pounds of direct material. The company's policy is to begin each quarter with 30% of that quarter's direct materials production requirements. Canyon expects to have 58,000 pounds of direct materials on hand at the beginning of Quarter 1. What would be Canyon's budgeted direct materials purchases (in pounds) for the third quarter? A) 18,200 pounds. B) 45,800 pounds. C) 50,000 pounds. D) 54,200 pounds. E) 69,200 pounds.

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168)

Canyon Corporation's budgeted production schedule, by quarters, for the coming year is as follows: Quarter 1 = 22,500 units Quarter 2 = 19,000 units Quarter 3 = 17,000 units Quarter 4 = 24,000 units Each unit of product requires three pounds of direct material. The company's policy is to begin each quarter with 30% of that quarter's direct materials production requirements. Canyon expects to have 50,000 pounds of direct materials on hand at the beginning of Quarter 1. What would be Canyon's budgeted direct materials purchases (in pounds) for the third quarter? A) 19,100 pounds. B) 44,700 pounds. C) 51,000 pounds. D) 57,300 pounds. E) 72,600 pounds.

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169)

Case Manufacturing expects to have 45,000 pounds of raw materials inventory on hand on June 30, the end of the current year. The company has budgeted the following production for the first four months of the coming year:

Production (units)

July

August

September

October

105,000

125,000

155,000

115,000

Case Manufacturing desires each month's ending raw materials inventory to be 20% of the following month's production needs. A finished unit requires three pounds of raw materials. Case Manufacturing's budgeted purchases of raw materials during July (in pounds) should be: A) 75,000 pounds B) 315,000 pounds C) 345,000 pounds D) 390,000 pounds E) 465,000 pounds

170)

Case Manufacturing expects to have 40,000 pounds of raw materials inventory on hand on June 30, the end of the current year. The company has budgeted the following production for the first four months of the coming year:

Production (units)

July

August

September

October

100,000

120,000

150,000

110,000

Case Manufacturing desires each month's ending raw materials inventory to be 20% of the following month's production needs. A finished unit requires two pounds of raw materials. Case Manufacturing's budgeted purchases of raw materials during July (in pounds) should be: A) 48,000 pounds. B) 200,000 pounds. C) 208,000 pounds. D) 248,000 pounds. E) 296,000 pounds.

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171)

Case Manufacturing expects to have 57,000 pounds of raw materials inventory on hand on June 30, the end of the current year. The company has budgeted the following production for the first four months of the coming year:

Production (units)

July

August

September

October

117,000

137,000

167,000

127,000

Case Manufacturing desires each month's ending raw materials inventory to be 20% of the following month's production needs. A finished unit requires two pounds of raw materials. Case Manufacturing's budgeted purchases of materials for September is: A) 66,800 pounds B) 268,800 pounds C) 288,800 pounds D) 318,000 pounds E) 334,000 pounds

172)

Production (units)

July

August

September

October

100,000

120,000

150,000

110,000

Case Manufacturing desires each month's ending raw materials inventory to be 20% of the following month's production needs. A finished unit requires two pounds of raw materials. Case Manufacturing's budgeted purchases of materials for September is: A) 60,000 pounds. B) 228,000 pounds. C) 248,000 pounds. D) 284,000 pounds. E) 300,000 pounds.

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173)

Which of the following is not one of the five steps of strategic decision making? A) Decide what strategy the company wants to adopt. B) Obtain information and analyze each decision alternative. C) Identify the alternative actions. D) Based on strategy and analysis, choose and implement the desired alternative. E) Determine the strategic issues surrounding the problem.

174)

What is a process of varying key estimates to identify those variables that are most critical to a decision (or a model, such as a budget). A) A demand forecast B) Sensitivity analysis C) Regression analysis D) Pareto analysis E) Linear optimization analysis

175)

Assume only the specified parameters (that is, variables) change in a sensitivity analysis. If the contribution margin increases by $2 per unit, then operating profits will: A) Also increase by $2 per unit. B) Increase by less than $2 per unit. C) Decrease by $2 per unit. D) Increase, but by an indeterminate amount. E) Decrease, but by an indeterminate amount.

176)

Assume that only the specified parameters (that is, variables) change in a sensitivity analysis. The contribution margin ratio increases when: A) Total short-term fixed costs increase. B) Total short-term fixed costs decrease. C) The variable cost per unit increases. D) The variable cost per unit decreases. E) Sales volume increases.

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177)

What is one of the primary advantages of conducting sensitivity analysis? A) The ability to understand all future changes that affect a company. B) The ability to know exactly how each change will affect a company. C) The ability to avoid all future risks associated with the budget. D) The ability to isolate risks associated with particular components of operations. E) None of these answer choices are correct.

178)

Which one of the following choices represents alternatives to traditional budgeting approaches? A) Volume-based budgeting and zero-base budgeting (ZBB). B) Activity-based budgeting (ABB) and volume-based budgeting. C) Kaizen budgeting and volume-based budgeting. D) Activity-based budgeting (ABB), kaizen budgeting, and zero-base budgeting (ZBB). E) Activity-based budgeting (ABB), kaizen budgeting, and volume-based budgeting.

179)

One Source Company produces a single product, which it sells for $10.00 per unit. Variable costs per unit equal $2.00. The company expects short-term fixed costs to be $18,400 for the coming month, at the projected sales level of 15,000 units. Management is considering several alternative actions designed to improve operating results. In conjunction with this, they have created a profit-planning (that is, a CVP) model, which can be used to evaluate different scenarios. What is One Source's current break-even point in terms of number of units for the month? A) 2,300 units. B) 9,200 units. C) 3,305units. D) 9,000 units.

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180)

One Source Company produces a single product, which it sells for $8.00 per unit. Variable costs per unit equal $3.20. The company expects short-term fixed costs to be $7,200 for the coming month, at the projected sales level of 20,000 units. Management is considering several alternative actions designed to improve operating results. In conjunction with this, they have created a profit-planning (that is, a CVP) model, which can be used to evaluate different scenarios. What is One Source's current break-even point in terms of number of units for the month? A) 1,500 units. B) 2,250 units. C) 3,330 units. D) 4,000 units. E) 1,000 units.

181)

One Source Company produces a single product, which it sells for $9.50 per unit. Variable costs per unit equal $1.90. The company expects short-term fixed costs to be $18,240 for the coming month, at the projected sales level of 35,000 units. Management is considering several alternative actions designed to improve operating results. In conjunction with this, they have created a profit-planning (that is, a CVP) model, which can be used to evaluate different scenarios. Suppose that One Source Company's management believes that a $1,600 increase in the monthly promotion costs will provide a boost to sales. By how many units must sales increase during the month to justify the contemplated expenditure?(Round answer up to the nearest whole number.) A) 168 units. B) 211 units. C) 337 units. D) 422 units. E) None of these answer choices are correct.

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182)

One Source Company produces a single product, which it sells for $8.00 per unit. Variable costs per unit equal $3.20. The company expects short-term fixed costs to be $7,200 for the coming month, at the projected sales level of 20,000 units. Management is considering several alternative actions designed to improve operating results. In conjunction with this, they have created a profit-planning (that is, a CVP) model, which can be used to evaluate different scenarios. Suppose that One Source Company’s management believes that a $1,600 increase in the monthly promotion costs will provide a boost to sales. By how many units must sales increase during the month to justify the contemplated expenditure? Round answer up to the nearest whole number. A) 200 units. B) 334 units. C) 400 units. D) 668 units. E) None of these answer choices are correct.

183)

One Source Company produces a single product, which it sells for $8.00 per unit. Variable costs per unit equal $3.20. The company expects short-term fixed costs to be $7,200 for the coming month, at the projected sales level of 20,000 units. Management is considering several alternative actions designed to improve operating results. In conjunction with this, they have created a profit-planning (that is, a CVP) model, which can be used to evaluate different scenarios. One Source Company’s management believes that a 10% reduction in the selling price will increase sales volume by 10%. If this plan is implemented, then operating profit should: A) Increase by approximately $8,000 per month. B) Remain approximately the same. C) Decrease by approximately $8,000 per month. D) Decrease by approximately $16,000 per month. E) Increase by approximately $16,000 per month.

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184)

A budgeting system that has, in effect, a budget for a set number of periods (that is, a constant planning horizon) at all times is called a(n): A) Financial budget B) Operating budget C) Rolling financial forecast D) Capital budget E) Master budget

185)

Which of the following is a budgeting approach that can be used as a complement to both traditional and activity-based budgeting systems? A) Kaizen budgeting. B) Goal congruence. C) Sales budgeting. D) Service Industry budgeting. E) Time-driven activity-based budgeting (TDABB)

186)

Which one of the following is not a way to deal with uncertainty in the budgeting process? A) Linear programming. B) What-if analysis. C) Monte Carlo Simulation (MCS). D) Scenario analysis. E) Sensitivity analysis.

187)

The proper treatment of the cost of unused capacity, as identified through the use of an activity-based budgeting (ABB) system, is to charge the amount to: A) Customers whose uneven orders caused the unused capacity. B) A "deferred asset" account on the balance sheet. C) A "deferred credit" account on the balance sheet. D) All products produced during the area (via overhead application rates). E) The product line, department, or a given manager within the organization where the decision to acquire the capacity was made.

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188)

The type of compensation plan that focuses on the difference between actual performance (sales, operating income, etc.) and budgeted performance refers to: A) The use of flexible budgets for performance evaluation. B) The use of the master budget for performance evaluation. C) The use of "rolling financial forecasts." D) The use of a fixed-performance contract. E) The use of a Kaizen forecast.

189)

The act of encouraging non-value-adding actions on the part of management in order to improve indicated performance is referred to as: A) Goal congruency. B) Gaming the performance indicator. C) The use of fixed-performance contract. D) Linear optimization analysis. E) The use of a relative-performance contract.

190)

The practice of managers knowingly including a higher amount of expenditures (or lower amount of revenue) in the budget than they actually believe will occur is called: A) Goal congruency. B) Resource capacity planning. C) Participative budgeting. D) Budgetary slack. E) Kaizen budgeting.

191)

Which of the following is not true regarding the use of linear compensation plans? A) Such plans encourage "gaming" behavior on the part of managers. B) Such plans strongly link managerial compensation to the agreed-upon budget. C) Under such plans, managerial reward is independent of budgetary targets. D) Under such plans, managerial reward is based principally on actual performance. E) Under such plans, managerial reward is based on what managers actually do, not what they do relative to what they say they can do.

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192)

Activity-based budgeting can lead to more accurate budgets pertaining to: A) The entire production process. B) The main production process. C) Activity-based budgeting does not lead to more accurate budgets. D) Support activities, including factory (manufacturing) overhead). E) None of these answer choices are correct.

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Answer Key Test name: chapter 10 1) Essay 2) Essay 3) Essay 4) Essay 5) Essay 6) Essay 7) Essay 8) Essay 9) Essay 10) Essay 11) Essay 12) Essay 13) Essay 14) Essay 15) Essay 16) Essay 17) Essay 18) Essay 19) Essay 20) Essay 21) Essay 22) Essay 23) Essay 24) Essay 25) Essay 26) Essay 27) Essay 28) Essay 29) Essay 30) Essay 31) Essay 32) Essay 33) Essay 34) Essay 35) Essay 36) Essay 37) Essay

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38) Essay 39) Essay 40) E 41) D 42) A 43) D 44) B 45) A 46) A 47) B 48) D 49) A 50) B 51) E 52) D 53) C 54) A 55) E 56) A 57) E 58) D 59) E 60) D 61) C 62) B 63) D 64) C 65) E 66) A 67) A 68) B 69) D 70) A 71) A 72) D 73) D 74) A 75) B 76) C 77) E

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100

78) E 79) D 80) C 81) B 82) A 83) C 84) D 85) C 86) C 87) D 88) D 89) C 90) C 91) D 92) D 93) D 94) D 95) A 96) A 97) A 98) A 99) D 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

D D D C C A A C C C C D D C C E E D

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101

118) 119) 120) 121) 122) 123) 124) 125) 126) 127) 128) 129) 130) 131) 132) 133) 134) 135) 136) 137) 138) 139) 140) 141) 142) 143) 144) 145) 146) 147) 148) 149) 150) 151) 152) 153) 154) 155) 156) 157)

D B B D D D D D D B B B B C C A A B B E E C C E E A A B B C C E E D D E E D D A

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158) 159) 160) 161) 162) 163) 164) 165) 166) 167) 168) 169) 170) 171) 172) 173) 174) 175) 176) 177) 178) 179) 180) 181) 182) 183) 184) 185) 186) 187) 188) 189) 190) 191) 192)

A B B C C B B B B D D C C D D A B A D D D A A B B C C A A E D B D B D

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103

Chapter 11 1) Over the past three decades, the cost structure for a typical manufacturing firm has shifted

dramatically from labor and material as the primary costs in the 1970s, with overhead now the major cost category in the 2000s. What are the implications of this cost-structure shift for strategic relevant cost analysis?

2) Apex Manufacturing Corporation is considering a significant shift in the mix of products it

manufactures. The costs associated with current and proposed production schedules are shown below by category: Cost per month Plant depreciation Equipment depreciation Raw material Direct labor Manufacturing overhead (excluding depreciation)

Present $ 52,000 28,000 276,000 312,000 801,000

Proposed $ 52,000 30,000 284,000 334,000 818,000

The proposed production schedule will require a one-time purchase of equipment costing $180,000. No change in selling or administrative cost from their present levels is expected. Required: 1. What type of relevant cost analysis would be appropriate in this situation (special order, make-lease-buy, etc.)? Why? 2. What role does depreciation and equipment purchase cost play in this decision? 3. What is the minimum amount that revenue would have to increase per month to justify the proposed production schedule? Ignore taxes and the time value of money.

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3) Quinta Incorporated manufactures machine parts for aircraft engines. The CEO is

considering an offer from a subcontractor who would provide 2,800 units of product QR128 for a total price of $190,000. If Quinta does not purchase these parts from the subcontractor it must produce them in-house with the following costs: Direct Materials Direct Labor Variable Overhead Allocated Fixed Factory Overhead Allocated Fixed Selling Costs Total Cost

$ 22 18 14 16 5 $ 75

If Quinta produces part QR128 internally, there would be an incremental (and ongoing) overhead cost of $13,000. Calculate the total relevant costs of producing 2,800 units of product QR128.

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4) Quinta Incorporated manufactures machine parts for aircraft engines. The CEO is

considering an offer from a subcontractor who would provide 2,800 units of product QR128 for a price of $190,000. If Quinta does not purchase these parts from the subcontractor it must produce them in-house with the following costs: Direct Materials Direct Labor Variable Overhead Allocated Fixed Factory Overhead Allocated Fixed Selling Costs Total Cost

$ 22 18 14 16 5 $ 75

If Quinta produces part QR128, there would also be incremental fixed costs of $13,000 per period. Should Quinta Incorporated accept the offer from the subcontractor?

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5) Carter Incorporated produces two products, A and B. Pertinent per-unit data follow:

Sales price Costs: Direct materials Direct labor Variable factory overhead (based on direct labor hours (DLHs) Fixed factory overhead (based on DLHs) Marketing expenses (all variable) Total costs Operating income

$ 268

$ 225

80 43 60

40 80 40

30 40 253

20 31 211

$ 15

$ 14

There is insufficient labor capacity in the plant to meet the combined demand for both products. Both products are produced through the same production departments. The fixed factory overhead rate is $10 per DLH. Assume that there are no avoidable fixed factory overhead costs.

Required: 1. Calculate the unit contribution margin for each of the two products. 2. Determine which product should be produced in priority, given the labor constraint, and explain why.

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6) The following unit cost information pertains to the trumpet division of WGN Music

Company and is based on monthly demand and sales of 100 units: Variable manufacturing costs: Direct materials Direct labor Variable factory overhead Fixed factory overhead:

$ 130 180 70

Depreciation Rent for equipment Other Total manufacturing cost Variable selling costs Fixed selling costs

50 20 20 $ 470 28 43

Total (full) product cost

$ 541

Assume that the Trumpet Division is evaluating whether to accept a special order for 10 trumpets at $500 per unit. Required: 1. Calculate total relevant cost per unit for each unit in the special-sales order. 2. Should WGN accept the special order? Why or why not? (Show details.)

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7) Winona Johnson is the president of Johnson Manufacturing, which manufactures coats. She

is trying to decide whether to make 3,000 Type III coats or purchase them from a subcontractor to fill a special order that she just received. There are no marketing costs on the special order. Acceptance of the special order would not necessitate any premium pay for overtime work or additional fixed costs. The management accountant for Johnson Manufacturing has supplied the following data: Per-Unit Cost Data for Type III Coats: Sale Price Direct Materials Direct Labor Fixed Manufacturing Overhead Variable Manufacturing Overhead Variable Marketing Costs Fixed Marketing Costs Fixed Administrative Overhead

$ 42 15 9 3 6 3 1 2

Required: 1. At what purchase price per unit would Ms. Johnson be indifferent as to whether her firm manufactured the coats or purchased them from a subcontractor? 2. What strategic factors might influence Ms. Johnson's decision regarding this make-vs.-buy decision?

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8) The Crown Company must decide whether to make or buy part 128PC. Although Crown's

idle equipment could be used to produce up to 10,000 units of the part, the company presently needs only 7,000 units. The estimated annual cost of making part 128PC is as follows: Allocated general manufacturing overhead cost Depreciation on existing equipment Annual additional set-up and maintenance costs Total fixed costs (per year)

$ 50,000 15,000 20,000 $ 85,000

Direct materials cost (per unit) Direct labor cost (per unit) Variable manufacturing overhead cost (per unit)

$ 5 6 4

Total variable manufacturing cost per unit

$ 15

Reuten Company is willing to sell part 128PC to the Crown Company for $20 per unit. Required: Based solely on a short-term financial analysis, determine whether Crown should make or buy the part, showing calculations in support of your decision.

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9) HJM Auto Parts makes a muffler/pipe assembly for a cost of $45 each ($10.00 fixed and

$35.00 variable), which it then sells for $68.00. The opportunity exists to modify this assembly (to a more fuel-efficient model) for additional direct materials and labor cost totaling $5.00 per unit. The new muffler/pipe model is expected to sell for $80.00 each. Variable selling and distribution costs would be the same at $10.00 per unit. Projected sales volume is 60,000 units per year for the new model, the same level of sales as for the current assembly. Labor resources are very tight at present but machine capacity is underutilized. Required: 1. Should HJM modify the existing assembly? 2. What would be the increase/decrease in annual operating profit if HJM modifies the assembly? 3. How, if at all, will the labor-hour constraint affect the decision?

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10) The controller for Warner Manufacturing is trying to implement some of the characteristics

of a just-in-time (JIT) inventory system. She has accumulated data on Warner's present inventory system and obtained some projections and estimates of what the results of a JIT system would be. Annual direct material requirements are estimated as 360,000 units. Estimated per-unit costs for various order sizes are presented below: Order size 100,000 + units 75,000 + units 50,000 + units 25,000 + units less than 25,000

Per unit cost $ 23.00 23.25 23.50 24.00 25.00

The inventory holding cost is estimated at $0.75 per unit, per month. Warner currently purchases 120,000 units every four months. Under a JIT system Warner would purchase 30,000 units every month. The monthly inventory schedule and the controller's estimate for a JIT system are provided below: Month January February March April May June

Current System: Average Inventory Balance 105,000 75,000 45,000 15,000 105,000 75,000

JIT System: Average Inventory Balance 15,000 15,000 15,000 15,000 15,000 15,000

(Assume the above trend continues throughout the rest of the year.) Required: Which system should Warner use, and why? Show calculations in support of your recommendation.

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11) To keep the plant busy at a time when production is expected to be slower than normal,

Marchant Industries (which produces heating blankets) has been trying to get a customer, Home Select, Incorporated, to purchase a special order of heating blankets. Home Select has agreed, but only if the per-unit price is reduced to $42.00. Listed below are some data prepared by Marchant. The special order can be produced within available capacity, and will be made in a single batch. Next Month’s Operating Information Sales 10,000 units (made in 10 batches of 1,000 each) Sales Price Per Unit $ 65 Per-unit costs: Variable Manufacturing Costs

Batch-level manufacturing costs Variable Marketing Costs

Fixed Manufacturing Costs

Fixed Marketing Costs

Special Order Information Sales Sales Price Per Unit

5,000 units $ 42

There are no variable marketing costs associated with the special order, but Ruby Marchant, the president of the firm, has spent $1,500 during the past month trying to get Home Select to execute this special sales order. Required: Determine the effect of the special order, if taken, on Marchant's total operating profit.

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12) Luther Company, located in Largeville, Kansas (USA), is a retailer of durable, light-weight

luggage products known for their high-quality and innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, Kryptonite and Meteorite. Sales for Meteorite are decreasing, while purchase costs increasing. The firm is considering dropping the Meteorite product and only selling Kryptonite. Luther Company allocates fixed costs (both corporate and selling/administrative) to products based on sales revenue. When the president of the company saw the product-line income statements (presented below), he agreed that the Meteorite product should be dropped. If this is done, sales of Kryptonite are expected to increase by 15% next year; the firm's cost structure will remain the same.

Sales Cost of goods sold (all variable) Gross margin Operating Expenses: Fixed corporate costs Variable selling and administrative expenses Fixed selling and administrative expenses Total Operating Expenses Operating income (loss)

Kryptonite

Meteorite

$ 200,000 90,000 110,000

$ 320,000 160,000 160,000

60,000 22,000

90,000 59,000

12,000

18,000

94,000

167,000

$ 16,000

$ (7,000)

Required: 1. Find the expected change in annual operating income by dropping the Meteorite product and selling only the Kryptonite product. 2. What strategic factors should be considered?

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13) Old Vine Vineyard produces premium wine. Its success in the industry is due to its quality,

although all its customers, wine shops, and specialty grocery stores, are very cost conscious and negotiate for price cuts on all large orders. Noting that the wine industry is becoming increasingly competitive, Old Vine is looking for a way to meet the challenge. It is negotiating with Eastern Seasons, a regional specialty grocery store, regarding a large order of wine. Old Vine is currently producing at under-capacity and would like to keep its production facilities going, gaining better economies of scale by increasing production. Eastern Seasons has agreed to a large order (2,000 bottles), but only at a price of $39 per bottle. The special order can be produced in one batch with available capacity. Old Vine gathered the following information: Next month's budgeted operating information (based on 10,000 units/month, and a normal batch size of 1,000 bottles): Regular sales price (per bottle) Per-unit costs:

$ 55

Variable manufacturing costs 22 Batch-level costs (incurred with each batch produced) 5 Variable marketing costs 10 Fixed manufacturing costs 6 Fixed marketing costs 2 Special order information (order is produced in one batch of 2,000 bottles): Units (bottles) 2,000 Selling price per bottle $ 39

No variable marketing costs would be associated with the special order, but Old Vine has spent $2,500 during the past two months trying to get Eastern Seasons to execute a deal. Required: 1. How much will the special order change Old Vine's total operating income? 2. How much would the special order change Old Vine's total operating income if Old Vine is operating at full capacity and, if it accepted the order from Eastern Seasons, would lose the sale of 2,000 bottles to regular customers? (Assume that sales lost to normal customers would be produced in two batches of 1,000 bottles, while the special order—as above—could be produced in a single batch of 2,000 bottles.) 3. How might the special order fit into Old Vine's competitive strategy?

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14) Joe Green Enterprises has met all production requirements for the current month and has an

opportunity to produce additional units of product with its excess capacity. Unit selling prices and costs for three models of one of its product lines are as follows:

Selling price Direct materials Direct labor (@$15/hour) Variable Overhead Fixed Overhead

No Frills

Standard Options

Super

$ 35.00 10.00 7.50 4.00 3.00

$ 45.00 12.00 12.00 6.40 5.00

$ 65.00 14.00 21.00 11.20 5.00

Variable overhead is charged to products based on direct labor dollars, and fixed overhead is charged to products based on machine hours. Required: 1. If Joe Green Enterprises has excess machine capacity and can add more labor as needed (that is, neither machine capacity nor labor is a constraint), the excess production capacity should be devoted to producing which product or products? (Show calculations.) 2. If Joe Green Enterprises has excess machine capacity but a limited amount of labor time, the production capacity should be devoted to producing which product or products? (Show calculations.)

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15) Feel the Difference, Incorporated manufactures bath and beauty products such as soaps, skin

creams, lotions, and other products primarily for people with dry and sensitive skin. It has just introduced a new line of product that removes the spotting and wrinkling in skin associated with aging. It sells these products in pharmacies and department stores at prices slightly higher than those of other brands because of Feel the Difference's excellent reputation for quality and effectiveness. Feel the Difference currently has very low utilization of plant capacity. Two years ago, in anticipation of rapid growth, the company opened a new large manufacturing plant, which has yet to be utilized more than 50 percent. Partly for this reason, Feel the Difference has sought new partners and was able, with the help of financial analysts, to locate suitable business partners. The first potential partner identified in this search was a large supermarket chain, All-Mart, which is interested in the partnership because it wants Feel the Difference to manufacture an age cream to sell in its stores. The product would be essentially the same as the Feel the Difference product but would be packaged in the All-Mart brand name. The agreement would pay Feel the Difference $2.00 per unit and would allow All-Mart a limited right to advertise the product as manufactured for All-Mart by Feel the Difference. Feel the Difference's CFO has made some calculations and has determined that the direct materials, direct labor, and other variable costs needed for the All-Mart order would be about $1.00 per unit as compared to the full cost of $2.50 (materials, labor, and overhead) for the equivalent Feel the Difference product. Required: Based on a relevant-cost analysis, should Feel the Difference accept the proposal from AllMart? Beyond short-term financial considerations, what strategic considerations bear on the decision?

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16) SportsCards Incorporated manufactures baseball cards sold in packs of 10 in drugstores and

grocery stores throughout the country. It is the second leading firm in an industry with four major firms. SportsCards has been approached by Zip Cereal Incorporated, which would like to order a special edition of cards to use as a promotion with its new cereal. SportsCards would be solely responsible for designing and producing the cards. Zip wants to order 30,000 sets and has offered $25,500 for the total order. Each set will consist of 30 cards. SportsCards currently produces cards in sheets of 120. Production, marketing and other costs (per sheet): Direct materials Direct labor Variable overhead Fixed overhead Variable marketing Fixed marketing Insurance, taxes and administrative salaries Additional cost for the special order: Design Other setup costs

$ 1.30 $ 0.25 $ 0.45 $ 0.20 $ 0.05 $ 0.35 $ 0.10

$ 2,500 $ 5,000

SportsCards would incur no marketing costs for the special order. It has the capacity to accept this order without interrupting regular production. Required: 1. Based solely on a short-term financial analysis, should SportsCards accept the special order? Why or why not? Support your answer with appropriate calculations. 2. What are the important strategic issues in this decision?

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17) Motor Corporation manufactures machine parts for boat engines. The CEO, James Hamilton,

is considering an offer from a subcontractor who would provide 3,000 units of product AB100 for Hamilton at a price of $230,000. If Motor Corporation does not purchase these parts from the subcontractor it must produce them in-house, with the following per-unit costs: Direct Materials Direct Labor Variable overhead Allocated fixed overhead

$ 40 25 15 4

In addition to the above costs, if the company produces part AB100, it would incur incremental fixed overhead of $10,000. Required: Calculate the relevant costs of producing 3,000 units of product AB100.

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18) Motor Corporation manufactures machine parts for boat engines. The CEO, James Hamilton,

is considering an offer from a subcontractor who would provide 3,000 units of product AB100 for Hamilton at a price of $230,000. If Motor Corp. does not purchase these parts from the subcontractor it must produce them in-house with the following per-unit costs: Direct materials Direct labor Variable overhead Allocated fixed overhead

$ 40 25 15 4

In addition to the above costs, if the company produces part AB100, it would incur incremental fixed overhead costs of approximately $10,000. Required: What would be the impact on short-term operating income if the company were to accept the offer from the subcontractor? Show calculations to support your answer.

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19) Lester-Smith Company manufactures three wood construction components: wood trusses,

wood floor joists, and beams. The plant is currently operating at full capacity. It can produce 200 trusses, 1,000 floor joists, and 600 beams per month. The company sells everything it produces. Monthly revenues and expenses for the three products are as follows: Sales revenues: Trusses Joists Beams

$ 12,000 40,000 90,000

Total revenue

$ 142,000

Expenses: Variable cost: Trusses Joists Beams Total variable cost

$ 10,000 24,000 48,000 $ 82,000

Fixed cost allocation: Trusses Joists Beams Total fixed cost Total cost

$ 4,000 12,000 24,000 $ 40,000 $ 122,000

Total operating profit

$ 20,000

Required: 1. The firm makes wood trusses mainly to satisfy certain customers by offering a full line of wood components. Lately, it had a problem making a profit on the trusses and is considering buying them from another manufacturer at $55 a truss. Based solely on a short-term financial analysis, should the firm buy these trusses or continue to make them itself? (Show calculations.) 2. Lester-Smith has an opportunity to produce an additional 400 beams for a customer at a price of $100 each. If the company accepts this special order, it cannot produce trusses because the plant will be operating at full capacity. What would be the anticipated impact on operating income if the company were to accept this special order? (Show calculations.) What primary strategic consideration is likely associated with this decision?

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20) Three Stars Incorporated manufactures prefabricated houses. The firm's president, Michelle

Brown, is interested in determining whether it would be better to manufacture the doors used in the houses or to buy these doors from a supplier. The following information, based on production of 500 doors, has been gathered by the company’s management accountant to help determine the best option: Per-Unit Costs Direct materials Direct labor Variable overhead Fixed overhead: Administrative salaries Property taxes Insurance Utilities Miscellaneous fixed overhead Total cost

$ 35 50 10

$ 7 2 5 5 6 $ 120

Of the fixed overhead costs, Three Stars estimates that it could save $5 per unit of miscellaneous fixed overhead if it purchases the doors from a supplier and allocates all other fixed costs elsewhere. The total cost to purchase the 500 doors from a supplier would be $55,000. Required: Based on a short-run financial analysis, should Three Stars make or purchase the doors? Show calculations to support your answer.

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21) A recent article in The McKinsey Quarterly, presents a useful list of some of the ways that

strategic decisions can go wrong because of human shortcomings: 1. Overconfidence; 2. Loss aversion; 3. Champion Bias; 4. Misaligned risk aversion; and 5. Misaligned time horizon Required: Provide a one sentence explanation for each of the above-five human shortcomings in decision making.

22) What strategic factors/considerations are generally relevant to the special-order decision

problem (i.e., whether a company should accept a one-time order from a customer with whom the company does not generally do business)?

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23) The firm of Miller, Lombardi, and York was recently formed by the merger of two

companies providing accounting services. York's business was providing personal financial planning, while Miller and Lombardi conducted audits of small governmental units and provided tax-planning and preparation services for several commercial firms. The combined firm has leased new offices and acquired several computer tablets that are used by the professional staff in each area of service (called a “service line”). However, in the short run the firm does not have the financial resources to acquire computers for all its professional staff. The expertise of the professional staff can be divided into three distinct areas that match the services provided by the firm, i.e., tax preparation and tax planning, insurance and investments, and auditing. However, since the merger, the new firm has had to turn away business in all three service lines. One of the problems is that while the total number of staff seems adequate, the staff members are not completely interchangeable. Limited financial resources do not permit hiring any new staff soon, and therefore, the supply of staff is restricted in each area. Rick Oliva has been assigned the responsibility of allocating staff and computers to the various engagements. Management has given Oliva the objective of maximizing revenues in a manner consistent with maintaining a high level of professional service in each of the areas of service. Management's time is billed at $200 per hour and staff's time is billed at $140 per hour for those with experience, and $100 per hour for inexperienced staff. Pam Wren, a member of the staff, recently completed a course in managerial accounting at the local university. She suggested to Oliva, based on material covered in the course she took, that he use linear programming to determine how best to assign staff and computers to the various engagements (service lines). Required: 1. Identify and discuss the assumptions underlying the linear programming model. 2. Explain the reasons why linear programming would be appropriate for Miller, Lombardi, and York to use in making staff assignments. 3. Identify and discuss the data that would be needed to develop a linear programming model for Miller, Lombardi, and York. 4. Discuss objectives other than revenue maximization that Rick Oliva should consider before making staff allocations.

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24) A cost is not relevant for decision making if it: A) Does not differ for each option available to the decision maker. B) Changes from period to period. C) Is a future cost. D) Is a mixed cost. E) Is a fixed cost.

25) Variable costs will generally be relevant for decision making because they: A) Differ between decision options. B) Are volume-based. C) Have not been committed and are likely to differ between decision alternatives. D) Differ between decision options and have been committed. E) Measure opportunity cost.

26) Fixed costs will often be irrelevant for short-term decision making because they: A) Do not vary on a per-unit-of-output basis. B) Are the same each time period. C) Typically do not differ in total between decision alternatives being considered. D) Are not committed. E) Cannot be estimated with precision.

27) A "special sales order" within the context of Chapter 11 is: A) Typically expected. B) A profitable opportunity to sell a specified quantity of a firm's product or service. C) A one-time opportunity to sell a specified quantity of a product or service. D) A particularly large customer order. E) In most cases, a rush order.

28) "Special sales orders," as this term is used in Chapter 11: A) Generally arise from special marketing campaigns on the part of the seller. B) Typically come directly from the customer rather than through normal sales or

distribution channels. C) Commonly represent a large part of a firm's overall business. D) Are usually not profitable to a firm in the short run. E) Usually sell for a higher price than normal sales orders.

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29) What is another name for a relevant cost? A) New cost. B) Variable cost. C) Fixed cost. D) Avoidable cost. E) Recoverable cost.

30) All the following are characteristic of relevant costs except: A) They are generally variable. B) They are not committed. C) They are different in amount for different options. D) They are costs that will be incurred in the future. E) They are confined to inventory-related (i.e., product) costs.

31) The major problem with relevant cost determination is that it fails to recognize the: A) Impact of variable costs in the long run. B) Long-term nature of most product-related decisions. C) "Sunk" nature of most fixed product costs. D) Short-term nature of most product-related decisions. E) Need to calculate costs more precisely.

32) When does depreciation expense become a relevant cost? A) Always. B) Never. C) When tax effects are considered in decision making. D) When depreciation expense exceeds a certain amount set by the company. E) When it is used for large assets like buildings.

33) Operating at or near full capacity will require a firm considering a "special sales order" to

potentially recognize the: A) Opportunity cost from lost sales. B) Value of full employment. C) Use of operating leverage. D) Likely increase in terms of the fixed cost associated with the order. E) The amount of facility-level cost drivers.

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34) Done on a regular basis, relevant cost pricing in "special-order decisions" can erode normal

pricing policies and lead to: A) Overconfidence in decision-making. B) A decrease in the firm's long-term profitability. C) Goal congruence between management and sales personnel. D) A cost leadership strategy. E) Maximization of the internal value stream.

35) The value-chain analysis used regarding the "make-or-buy decision" often leads a firm to

make use of: A) Activity-based costing (ABC). B) Cost-volume profit (CVP) analysis. C) Outsourcing options. D) Relevant cost-based pricing. E) Value stream accounting.

36) The decision to keep or drop products or services involves strategic consideration of all the

following except: A) Potential impact of the decision on the demand for the remaining products or services. B) Potential impact of the decision on employee morale. C) Potential impact of the decision on pricing of other products offered by the firm. D) Growth potential of the firm. E) The desired inventory levels of the product.

37) A useful concept for solving production-planning problems involving multiple products and

limited resources is: A) Gross profit per unit of product. B) Contribution per unit of scarce resource. C) Value-stream costing. D) Relevant cost pricing. E) The contribution income statement.

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38) Why might relevant costs analysis be bad for a company if used too frequently? A) It overemphasizes short-term goals and neglects long-term goals. B) It complicates the job of managers. C) It focuses too much on strategy and not enough on financial measures. D) It could lead to a permanent change in the production process of the company. E) It overemphasizes long-term goals and neglects short-term goals.

39) Given the following, the only item that will generally be included in relevant cost analysis is: A) Sunk costs. B) Allocated fixed costs. C) Average fixed costs. D) Unit variable costs. E) Total fixed costs.

40) The benefit lost when choosing one option precludes receiving the benefits from an

alternative option is called what? A) Opportunity costs. B) Lost costs. C) Variable costs. D) Relevant costs. E) Alternate costs.

41) Which one of the following is most descriptive of a strategic analysis conducted as part of a

decision analysis? A) Quantitative. B) Customer focus. C) Short-term orientation. D) Individual product focus. E) Differential costing.

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42) Which one of the following issues would least likely be addressed during the regular review

of product profitability? A) Which product managers should be rewarded? B) Which products are most profitable? C) Which products provide the greatest contribution margin per unit of any scarce resources? D) Which products should be promoted and advertised most aggressively? E) Are the products priced properly?

43) In what situation does management make trade-offs about the quantity of each product to

manufacture? A) When demand is growing too quickly. B) When demand exceeds production capacity. C) When you don’t have the materials needed for one of your products. D) When the company is thinking about expansion. E) When the company is experiencing economies of scale.

44) Wings Incorporated manufactures machine parts for aircraft engines. The CEO, Chucky

Valters, was considering an offer from a subcontractor that would provide 3,400 units of product PQ107 for Valters for a price of $150,000. If Wings does not purchase these parts from the subcontractor it must produce them in-house with the following unit costs: Cost per Unit Direct materials Direct labor Variable overhead

$44 27 11

In addition to the above costs, if Wings produces part PQ107, it would have a retooling and design cost of $13,900. The relevant costs of producing 3,400 units of product PQ107 internally are: A) $292,700. B) $255,300. C) $293,700. D) $307,900. E) $292,000.

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45) Wings Incorporated manufactures machine parts for aircraft engines. The CEO, Chucky

Valters, was considering an offer from a subcontractor that would provide 2,400 units of product PQ107 for Valters for a price of $150,000. If Wings does not purchase these parts from the subcontractor it must produce them in-house with the following unit costs: Cost per Unit Direct materials Direct labor Variable overhead

$31 19 8

In addition to the above costs, if Wings produces part PQ107, it would have a retooling and design cost of $9,800. The relevant costs of producing 2,400 units of product PQ107 internally are: A) $149,000. B) $129,800. C) $150,000. D) $164,200. E) $148,300.

46) A boat, costing $103,000 and uninsured, was wrecked the very first day it was used. This

boat can either be disposed for $12,000 cash and be replaced with a similar boat costing $106,000, or rebuilt for $93,000 and be brand new as far as operating characteristics and looks are concerned. A relevant cost analysis of the decision to replace the boat shows: A) A cost equivalence between the two decision options. B) An $12,000 net advantage associated with the decision to fix the old boat. C) A $1,000 cost advantage associated with the decision to fix the old boat. D) A $22,000 cost advantage associated with the decision to fix the old boat. E) A $2,000 cost advantage associated with the decision to purchase a new boat.

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47) A boat, costing $108,000 and uninsured, was wrecked the very first day it was used. This

boat can either be disposed for $11,000 cash and be replaced with a similar boat costing $110,000, or rebuilt for $98,000 and be brand new as far as operating characteristics and looks are concerned. A relevant cost analysis of the decision to replace the boat shows: A) A cost equivalence between the two decision options. B) An $11,000 net advantage associated with the decision to fix the old boat. C) A $1,000 cost advantage associated with the decision to fix the old boat. D) A $21,000 cost advantage associated with the decision to fix the old boat. E) A $2,000 cost advantage associated with the decision to purchase a new boat.

48) Split Corporation manufactures products X, Y, and Z from a joint production process. Joint

costs are allocated to products based on relative sales value of the products at the split-off point. Additional information is as follows:

Units produced Allocated joint costs Sales value at splitoff Additional costs for further processing Sales value if processed further

Total

17,000 $ 154,980 ?

13,000 $ 126,000 200,000

9,000 $ 100,800 160,000

39,000 $ 381,780 606,000

47,000

39,000

28,000

114,000

423,000

224,000

180,000

827,000

Product X’s sales value at the split-off point is: A) $212,000. B) $41,000. C) $246,000. D) $151,500. E) $139,000.

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49) Split Corporation manufactures products X, Y, and Z from a joint production process. Joint

costs are allocated to products based on relative sales value of the products at the split-off point. Additional information is as follows:

Units produced Allocated joint costs Sales value at split-off Additional costs for further processing Sales value if processed further

Total

14,000 $ 204,000 ? 38,000

10,000 $ 90,000 150,000 30,000

6,000 30,000 $ 66,000 $ 360,000 110,000 600,000 22,000 90,000

348,000

185,000

147,000

680,000

Product X’s sales value at the split-off point is: A) $306,000. B) $135,000. C) $340,000. D) $150,000. E) $233,000.

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50) Split Corporation manufactures products X, Y, and Z from a joint production process. Joint

costs are allocated to products based on relative sales values of the products at the split-off point. Additional information is as follows:

Units produced Allocated joint costs Sales value at split-off Additional costs for further processing Sales value if processed further

Total

25,000 $ 369,200 ?

21,000 $ 198,800 280,000

17,000 $ 170,400 240,000

63,000 $ 738,400

71,000

63,000

44,000

178,000

527,000

414,000

336,000

1,277,000

1,040,000

Based solely on a relevant cost analysis, which of the three products should be processed by Split beyond the split-off point? A) Only X B) Only Y C) Only Z D) Only Y and Z E) All three products: X,Y and Z

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51) Split Corporation manufactures products X, Y, and Z from a joint production process. Joint

costs are allocated to products based on relative sales values of the products at the split-off point. Additional information is as follows:

Units produced Allocated joint costs Sales value at split-off Additional costs for further processing Sales value if processed further

Total

14,000 $ 204,000 ? 38,000

10,000 $ 90,000 150,000 30,000

6,000 30,000 $ 66,000 $ 360,000 110,000 600,000 22,000 90,000

348,000

185,000

147,000

680,000

52) Joint (common) costs in a joint production process are relevant for determining: A) Whether to produce at all. B) Which products should be produced up to the split-off point in the production

process. C) Which products should be produced internally and which products should be outsourced. D) The set of products that should be subjected to additional processing. E) The selling price of individual products produced as part of the joint production process.

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53) In a joint production process, the allocation of joint (common) costs to each of the joint

products being produced is needed principally: A) To meet external reporting requirements (i.e., for financial statement preparation purposes). B) To determine whether the firm in question should produce at all. C) To assess supplier performance. D) To determine which products, if any, should be processed beyond the split-off point. E) For determining the incremental revenues associated with additional processing of each product.

54) Which costs are not traceable to individual products? A) Processing costs. B) Split-off costs. C) Fixed costs. D) Joint productions costs. E) Variable costs.

55) Which of the following statements regarding a joint production process is not true? A) A common decision facing management is whether to sell products at the split-off

point or to sell these products after further processing. B) The allocation of joint (common) production costs to individual products helps management determine which products should be processed beyond the split-off point. C) Costs incurred up to the split-off point are referred to as joint production costs. D) The decision as to whether individual products should be sold "as is" or processed further is made by comparing incremental revenues and incremental costs. E) For financial reporting purposes output (i.e., inventory) is costed at the sum of separable processing cost plus an allocated share of joint production costs.

56) In deciding whether to accept or reject a "special sales order," managers need critical

information about all the following except: A) Relevant costs. B) Prior period operating costs. C) Any opportunity costs associated with accepting the order. D) The strategic, competitive environment of the firm. E) Alternative uses of existing capacity.

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57) Controller Incorporated produces two basic types of video games, Clash and Slash. Pertinent

data follow (DLH = direct labor hour):

Sales price (per unit) Costs (per unit): Direct materials Direct labor Variable factory overhead (@ $15 per DLH) Allocated fixed factory overhead (based on DLHs) Marketing expenses (all variable) Total costs Operating income (per unit)

Clash

Slash

$ 230

$ 161

65 34 60 23 32

29 60 30 12 23

214

154

$ 16

$ 7

There is insufficient labor capacity in the plant to meet the combined demand for both Clash and Slash. Both products are produced through the same production departments. The contribution margin per unit for Clash is: A) $48. B) $32. C) $44. D) $39. E) $20.

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58) Controller Incorporated produces two basic types of video games, Clash and Slash. Pertinent

data follow (DLH = direct labor hour):

Clash

Slash

$ 240

$ 168

67 36 60 24

31 60 30 12

222

157

$ 18

$ 11

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59) Controller Incorporated produces two basic types of video games, Clash and Slash. Pertinent

data follow (DLH = direct labor hour):

Clash

Slash

$ 400

$ 328

83 68 60 24 51

47 92 30 12 40

286

221

$ 114

$ 107

There is insufficient labor capacity (i.e., DLHs) in the plant to meet the combined demand for both Clash and Slash. Both products are produced through the same production departments. In view of the labor shortage, which of the two products is most profitable, and how much is the contribution margin, per DLH? A) Slash, $119.00. B) Clash, $114.00. C) Slash, $59.50. D) Slash, $107.00. E) Clash, $34.50.

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60) Controller Incorporated produces two basic types of video games, Clash and Slash. Pertinent

data follow (DLH = direct labor hour):

Clash

Slash

$ 240

$ 168

67 36 60 24

31 60 30 12

222

157

$ 18

$ 11

There is insufficient labor capacity (i.e., DLHs) in the plant to meet the combined demand for both Clash and Slash. Both products are produced through the same production departments. In view of the labor shortage, which of the two products is most profitable, and how much is the contribution margin, per DLH? A) Slash, $23.00. B) Clash, $18.00. C) Slash, $11.50. D) Slash, $11.00. E) Clash, $10.50.

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61) The following cost information pertained to the Violin Division of Stringing Music Company

and was based on monthly demand and sales of 100 units: Per-Unit Costs Variable production costs: Direct materials

$ 260

Direct labor

290

Variable factory overhead

200

Fixed production costs: Depreciation (equipment)

160

Factory rent

188

Other

Total production cost Variable selling & administrative costs Fixed selling & administrative costs

$ 1,138 $ 52 per unit $ 64 per unit

Assume that the Violin Division was evaluating whether it would accept a special sales order for 80 violins at $530 per unit. For this purpose, total relevant cost per unit (given the costs stated above) is: A) $750. B) $790. C) $530. D) $814. E) $802.

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62) The following cost information pertained to the Violin Division of Stringing Music Company

and was based on monthly demand and sales of 100 units: Per-Unit Costs Variable production costs: Direct materials

$ 120

Direct labor

150

Variable factory overhead

Fixed production costs: Depreciation (equipment)

Factory rent

Other

Total production cost

$ 410

Variable selling & administrative costs Fixed selling & administrative costs

$ 24 per unit $ 36 per unit

Assume that the Violin Division was evaluating whether it would accept a special sales order for 10 violins at $390 per unit. For this purpose, total relevant cost per unit (given the costs stated above) is: A) $330. B) $342. C) $390. D) $366. E) $354.

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63) The following cost information pertained to the Violin Division of Stringing Music Company

and was based on monthly demand and sales of 100 units: Per-Unit Costs Variable production costs: Direct materials

$ 180

Direct labor

210

Variable factory overhead

120

Fixed production costs: Depreciation (equipment)

Factory rent

108

Other

Total production cost

$ 722

Variable selling & administrative costs Fixed selling & administrative costs

$ 36 per unit $ 48 per unit

Given a normal selling price per unit of $850, what is the contribution margin per unit sold for recurring (i.e., normal) sales? A) $516. B) $496. C) $456. D) $304. E) $670.

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64) The following cost information pertained to the Violin Division of Stringing Music Company

and was based on monthly demand and sales of 100 units: Per-Unit Costs Variable production costs: Direct materials

$ 120

Direct labor

150

Variable factory overhead

Fixed production costs: Depreciation (equipment)

Factory rent

Other

Total production cost

$ 410

Variable selling & administrative costs Fixed selling & administrative costs

$ 24 per unit $ 36 per unit

Given a normal selling price per unit of $750, what is the contribution margin per unit sold for recurring (i.e., normal) sales? A) $336. B) $316. C) $276. D) $396. E) $630.

65) What is not a qualitative decision when looking at a make-vs.-buy decision? A) Examining the quality of the product. B) Looking at the unavoidable costs. C) Examining the reliability of the supplier. D) Looking at the potential alternative uses of plant capacity. E) Looking at the reputation of the supplier.

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66) For the past 12 years, the Shock Company has produced the small electric motors that fit into

its main product line of dental drilling equipment. As material costs have steadily increased, the controller of the company is reviewing the decision to continue to make the small motors and has identified the following facts: 1. (1) The equipment used to manufacture the electric motors has a net book value (NBV) 2. 3. 4. 5.

of $150,000. (2) The space now occupied by the electric motor manufacturing department could be used to eliminate the need for storage space now being rented by the company. (3) Comparable units can be purchased from an outside supplier for $59.75. (4) Four of those who work in the electric motor manufacturing department would be terminated and given eight weeks' severance pay. (5) A $10,000 unsecured note payable is still outstanding on the equipment used in the manufacturing process.

Which of the items above are relevant to the controller's decision analysis (i.e., to make vs. buy the motors)? B) 1, 3, and 4. C) 2, 3, and 4. D) 2, 3, 4, and 5. E) 1, 2, 4, and 5. F) 4 and 5.

67) In deciding whether to manufacture a part or buy it from an outside vendor, a cost that is

irrelevant to this short-run decision is: A) Direct labor. B) Variable overhead. C) Fixed overhead that will be avoided if the part is bought from an outside vendor. D) Fixed overhead that will continue even if the part is bought from an outside vendor. E) Transportation-in charges assessed on external purchases.

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68) Crown Company, which needs 10,000 units of a certain part to be used in its production

cycle, can make or buy the part. If Crown buys the part from Utica Company, Crown could not use the released facilities in another manufacturing activity within the coming year. 60% of the fixed overhead applied will continue regardless of which decision option is chosen. The following per-unit cost information to make the part by Crown is available: Direct materials Direct labor Variable overhead Fixed overhead applied

$ 21 39 27 15 $ 102

Cost to buy the part from Utica Company

$ 98

In deciding whether to make or buy the part, Crown's total relevant cost to make the part would be: A) $792,000. B) $930,000. C) $980,000. D) $1,020,000. E) Some amount other than these choices.

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69) Crown Company, which needs 10,000 units of a certain part to be used in its production

$ 6 24 12 15 $ 57

Cost to buy the part from Utica Company

$ 53

In deciding whether to make or buy the part, Crown's total relevant cost to make the part would be: A) $342,000. B) $480,000. C) $530,000. D) $570,000. E) Some amount other than these choices.

70) Which of the following statements regarding "opportunity costs" is true? A) These costs are recorded routinely by most modern cost accounting systems. B) These costs relate to the benefit lost or foregone when a chosen option (course of

action) precludes the benefits of an alternative option from being realized. C) These costs are generally deductible for federal income tax purposes in the U.S. D) In terms of most short-run decisions, they are irrelevant. E) They are usually considered a sunk cost associated with one or more decision alternatives.

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71) The Blade Division of Dana Company produces hardened steel blades. Approximately one-

third of the Blade Division's output is sold to the Lawn Products Division of Dana; the remainder is sold to outside customers. Blade Division's estimated sales and cost data for the year ending June 30th are as follows:

Revenue Variable costs Fixed costs Gross margin Unit sales

Sales to Lawn Products Division $ 45,000 30,000 7,800 $ 7,200 30,000

Sales to Outsiders $ 120,000 60,000 42,000 $ 18,000 60,000

The Lawn Products Division has an opportunity to purchase, on a continual basis, 30,000 blades (of identical quality) from an outside supplier, at a cost of $1.95 per unit. Assume that the Blade Division cannot sell any additional products to outside customers. Assume, too, that there are no short-term avoidable fixed costs. Based solely on short-term financial considerations, should Dana allow its Lawn Products Division to purchase the blades from the outside supplier, and why? A) Yes, because buying the blades would save Dana Company $21,300. B) No, because making the blades would save Dana Company $21,900. C) Yes, because buying the blades would save Dana Company $28,500. D) No, because making the blades would save Dana Company $28,500. E) No, because making the blades would save Dana Company $49,800.

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72) The Blade Division of Dana Company produces hardened steel blades. Approximately one-

Revenue Variable costs Fixed costs Gross margin Unit sales

Sales to Lawn Products Division $ 15,000 10,000 3,000 $ 2,000 10,000

Sales to Outsiders $ 40,000 20,000 6,000 $ 14,000 20,000

The Lawn Products Division has an opportunity to purchase, on a continual basis, 10,000 blades (of identical quality) from an outside supplier, at a cost of $1.25 per unit. Assume that the Blade Division cannot sell any additional products to outside customers. Assume, too, that there are no short-term avoidable fixed costs. Based solely on short-term financial considerations, should Dana allow its Lawn Products Division to purchase the blades from the outside supplier, and why? A) Yes, because buying the blades would save Dana Company $500. B) No, because making the blades would save Dana Company $1,500. C) Yes, because buying the blades would save Dana Company $2,500. D) No, because making the blades would save Dana Company $2,500. E) No, because making the blades would save Dana Company $3,000.

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73) Plainfield Company manufactures part G for use in its production cycle. The full cost per unit

for each of 10,000 units of part G manufactured per year by Plainfield are as follows: Direct materials Direct labor Variable overhead Fixed overhead

$ 2 22 5 14 $ 43

Verona Company has offered to sell Plainfield 10,000 units of part G for $40 per unit. If Plainfield accepts Verona's offer, the released facilities could be used to save $54,000 in relevant costs in the manufacture of part H. In addition, $11 per unit of the fixed overhead applied to part G would be eliminated. Based solely on a short-term financial analysis, which alternative is more desirable and by what amount? Alternative A) B) C) D) E) A) B) C) D) E)

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Manufacture Manufacture Buy Buy Buy

Amount $ 10,000 $ 34,000 $ 54,000 $ 84,000 $ 10,000

Option A Option B Option C Option D Option E

74) Plainfield Company manufactures part G for use in its production cycle. The full cost per unit

for each of 10,000 units of part G manufactured per year by Plainfield are as follows: Direct materials Direct labor Variable overhead Fixed overhead

$ 3 15 6 8 $ 32

Verona Company has offered to sell Plainfield 10,000 units of part G for $30 per unit. If Plainfield accepts Verona's offer, the released facilities could be used to save $45,000 in relevant costs in the manufacture of part H. In addition, $5 per unit of the fixed overhead applied to part G would be eliminated. Based solely on a short-term financial analysis, which alternative is more desirable and by what amount? Option A) B) C) D) E) A) B) C) D) E)

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Alternative Manufacture Manufacture Buy Buy Buy

Amount $ 10,000 $ 15,000 $ 35,000 $ 65,000 $ 10,000

Option A Option B Option C Option D Option E

75) A company owns equipment that is used to manufacture important parts for its production

process. Because the equipment is repeatedly breaking down, the company plans to sell the equipment for $14,000 and select one of the following alternatives: (1) acquire new equipment for $74,000 and continue to manufacture the part at the same variable cost, or (2) purchase the parts from an outside company at $4 per part. In the short run, the company should analyze the two decision alternatives by comparing the variable cost of manufacturing the parts: A) Plus $74,000, to the cost of buying the parts. B) To the cost of buying the parts less $14,000. C) Less $14,000, to the cost of buying the parts. D) To the cost of buying the parts. E) Plus $60,000, to the cost of buying the parts.

76) A company owns equipment that is used to manufacture important parts for its production

process. Because the equipment is repeatedly breaking down, the company plans to sell the equipment for $10,000 and select one of the following alternatives: (1) acquire new equipment for $80,000 and continue to manufacture the part at the same variable cost, or (2) purchase the parts from an outside company at $4 per part. In the short run, the company should analyze the two decision alternatives by comparing the variable cost of manufacturing the parts: A) B) C) D) E)

Plus $80,000, to the cost of buying the parts. To the cost of buying the parts less $10,000. Less $10,000, to the cost of buying the parts. To the cost of buying the parts. Plus $70,000, to the cost of buying the parts.

77) In deciding whether to accept or reject a "special sales order," which of the following costs

are likely relevant to the decision? A) Depreciation expense on existing manufacturing equipment. B) A portion of facility-level costs. C) A portion of batch-level costs. D) Total batch-level costs. E) An allocated share of fixed manufacturing support (i.e., fixed factory overhead) costs.

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78) Management accountants are frequently asked to analyze various decision situations

including the following: 1. (1) Alternative uses of plant space, to be considered in a make/buy decision. 2. (2) Joint production costs incurred, to be considered in a sell-at-split-off-point-versus-

process-further decision. 3. (3) Research and development (R&D) costs incurred in prior months, to be considered in a new-product-introduction decision. 4. (4) The cost of a special device that is necessary if a special sales order is accepted. 5. (5) The cost of obsolete inventory to be considered in a keep-versus-disposal decision. The costs described in situations 1 and 4 above are: B) Prime costs. C) Sunk costs. D) Discretionary costs. E) Relevant costs. F) Fully-absorbed costs.

79) Management accountants are frequently asked to analyze various decision situations

including the following: 1. (1) Alternative uses of plant space, to be considered in a make/buy decision. 2. (2) Joint production costs incurred, to be considered in a sell-at-split-off-versus-process-

further decision. 3. (3) Research and development (R&D) costs incurred in prior months, to be considered in a product-introduction decision. 4. (4) The cost of a special device that is necessary if a special sales order is accepted. 5. (5) The cost of obsolete inventory to be considered in a keep-versus-disposal decision. The costs described in situations 2, 3, and 5 above are: B) Prime costs. C) Sunk costs. D) Discretionary costs. E) Relevant costs. F) Differential costs.

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80) Smith Company has the opportunity to increase annual credit sales $138,000 by selling to a

new, riskier group of customers. The expenses of collecting credit sales are expected to be 18 percent of credit sales. The company's manufacturing and selling expenses are projected at 65% of sales, and its effective income tax rate is 40%. If Smith accepts this sales opportunity, its after-tax profits would increase by an estimated: A) $14,076. B) $15,076. C) $15,276. D) $19,476. E) Some amount other than these choices.

81) Smith Company has the opportunity to increase annual credit sales $100,000 by selling to a

new, riskier group of customers. The expenses of collecting credit sales are expected to be 15 percent of credit sales. The company's manufacturing and selling expenses are projected at 70% of sales, and its effective income tax rate is 40%. If Smith accepts this sales opportunity, its after-tax profits would increase by an estimated: A) $9,000. B) $10,000. C) $10,200. D) $14,400. E) Some amount other than these choices.

82) The opportunity cost of making a component part in a factory with no excess capacity is the: A) Variable manufacturing cost of the component. B) Fixed manufacturing cost of the component. C) Total manufacturing cost of the component. D) Cost of the production given up to manufacture the component. E) Net benefit foregone from the best alternative use of the capacity required.

83) Which of the following is not an attribute of strategic cost analysis? A) Customer focus. B) Linked to the firm’s strategy. C) Long-term focus. D) Integrative. E) Product-cost focus.

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84) Ocean and Fish is a takeout food store at a popular beachside resort. Tommy Tillett, owner of

Ocean and Fish, is deciding how much refrigerator space to devote to each of four different beverages. Appropriate data on the four beverages follow:

Sales price per case Variable manufacturing costs per case Variable selling cost per case Cases sold per foot of shelf space per day

Limeade

Lemonade

Grape Juice

13.50

Ginger Ale $ 21.60 12.50

$ 21.50 12.10

$ 27.00

4.00

2.00

3.00

$ 45.30 32.80

Ocean and Fish has a maximum 19 feet of front shelf space to devote to the four beverages combined. Tommy wants to use a minimum of two feet and a maximum of seven feet of front shelf space for each beverage. The contribution margin per case for Limeade is: A) $5.50. B) $6.40. C) $5.40. D) $16.20. E) $9.40.

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85) Ocean and Fish is a takeout food store at a popular beachside resort. Tommy Tillett, owner of

Ocean and Fish, is deciding how much refrigerator space to devote to each of four different beverages. Appropriate data on the four beverages follow: Limeade Sales price per case Variable manufacturing costs per case Variable selling cost per case Cases sold per foot of shelf space per day

Lemonade

$ 21.60

$ 23.00

12.20

14.20

Ginger Ale $ 21.60 12.10

Grape Juice

4.00

$ 46.10 32.20

Ocean and Fish has a maximum 14 feet of front shelf space to devote to the four beverages combined. Tommy wants to use a minimum of two feet and a maximum of seven feet of front shelf space for each beverage. The contribution margin per case for Limeade is: A) $5.50. B) $6.40. C) $5.40. D) $16.20. E) $9.40.

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86) The Wave Runner is a takeout food store at a popular beachside resort. Teresa Texton, owner

of The Wave Runner, was deciding how much refrigerator space to devote to four different beverages. Appropriate data on the four beverages follow:

Sales price per case Variable cost per case Cases sold per foot of shelf space per day

Limeade

Lemonade

$22.10 16.10 28

$22.00 18.90 26

Ginger Ale $21.70 16.30 4

Grape Juice $45.80 36.60 6

The contribution margin per case for Lemonade is: A) $3.80. B) $4.70. C) $3.70. D) $3.10. E) $8.20.

87) The Wave Runner is a takeout food store at a popular beachside resort. Teresa Texton, owner

of the The Wave Runner, was deciding how much refrigerator space to devote to four different beverages. Appropriate data on the four beverages follow:

Sales price per case Variable cost per case Cases sold per foot of shelf space per day

Limeade

Lemonade

$ 21.60 16.20 30

$ 23.00 18.20 28

Ginger Ale $ 21.60 16.10 5

Grape Juice $ 46.10 36.20 6

The contribution margin per case for Lemonade is: A) $5.50. B) $6.40. C) $5.40. D) $4.80. E) $9.90.

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88) The Wave Runner is a takeout food store at a popular beachside resort. Teresa Texton, owner

of The Wave Runner, was deciding how much refrigerator space to devote to four different beverages. Appropriate data on the four beverages follow:

Sales price per case Variable cost per case Cases sold per foot of shelf space per day

Limeade

Lemonade

Ginger Ale

Grape Juice

$ 21.20 16.50

$ 25.00

$ 22.20

$ 45.30

18.40

15.90

36.60

The contribution per foot of shelf space per day for Limeade is: A) $153.40. B) $150.40. C) $142.40. D) $122.80. E) $142.30.

89) The Wave Runner is a takeout food store at a popular beachside resort. Teresa Texton, owner

of The Wave Runner, was deciding how much refrigerator space to devote to four different beverages. Appropriate data on the four beverages follow:

Sales price per case Variable cost per case Cases sold per foot of shelf space per day

Limeade

Lemonade

$ 21.60 16.20 30

$ 23.00 18.20 28

Ginger Ale $ 21.60 16.10 5

Grape Juice $ 46.10 36.20 6

The contribution per foot of shelf space per day for Limeade is: A) $165.00. B) $162.00. C) $154.00. D) $134.40. E) $153.90.

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90) For short-run product-mix decisions, what is included in the relevant costs for the seller? A) fixed costs plus sunk costs B) short-run out-of-pocket costs plus opportunity costs. C) support costs plus opportunity costs D) variable costs minus the contribution margin E) short-run out-of-pocket costs plus sunk costs

91) Opportunity costs: A) Result in a cash outlay. B) Unless they are zero are always relevant for decision making. C) Can sometimes be deductible for U.S. federal income tax purposes. D) Are recorded in the accounting records. E) Are the result of a completed event or transaction.

92) The contribution margin per machine hour for a given product is calculated as: A) Full cost per unit divided by the number of machine-hours per unit. B) Number of machine-hours per unit divided by the full-cost per unit. C) Selling price per unit less variable manufacturing cost per unit. D) Selling price per unit less variable manufacturing cost per unit less variable selling

cost per unit for the product. E) Selling price per unit less total variable cost per unit divided by the number of machine-hours per unit.

93) Which of the following describes special-order decisions? A) Frequent and a large part of business. B) Infrequent and a large part of business. C) Important to stay ahead of the competition. D) Infrequent and a small part of business. E) Frequent and a small part of business.

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94) When a firm has surplus capacity (that is, no resource constraints), relevant costs for

decision-making (for example, determining short-term product mix) will, relative to the situation where the firm faces one or more resource constraints, be: A) Lower. B) The same. C) Greater. D) It varies—that is, it is impossible to tell without further information.

95) In the situation where a firm produces multiple products and has a single resource constraint

(e.g., machine hours), the most profitable use of available capacity (machine hours) requires that we assess: A) The contribution margin per unit of each product. B) The selling price per unit for each product. C) Non-production-related costs (e.g., selling costs) associated with each product. D) The contribution margin of each product per machine hour. E) The gross profit per unit of each product per machine hour.

96) The practice of setting prices below average variable cost and with accompanying plans to

raise prices later to recover the losses from the lower prices is referred to as: A) Marginal cost pricing. B) Activity-based pricing. C) Menu-based pricing. D) Cost-plus pricing. E) Predatory pricing.

97) Relevant costs for deciding to purchase a new cutting machine or continue using an existing

machine, include all of the following except the: A) Original cost of the old machine. B) Cost (purchase price) of the new machine. C) Disposal (salvage) value of the old (existing) machine. D) Annual savings in operating costs if the new machine is purchased. E) Maintenance costs, if expected to be less under the new machine.

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98) Relevant costs for a make-or-buy decision for a component part include all the following

except: A) B) C) D) E)

Fixed salaries that will not be incurred if the part is outsourced. Payroll tax (unemployment insurance cost), because of outsourcing. Material-handling costs that can be eliminated if the part is outsourced. Fixed overhead currently being allocated to the part. Current direct material costs for the part.

99) When deciding whether to discontinue a segment of a business, managers should focus on: A) The amount of operating income per unit produced by the segment. B) The amount of contribution margin per direct labor hour in the segment. C) How corporate-level administrative costs would be redistributed if the segment were

eliminated. D) The cost of equipment from the segment that could go idle if the segment were discontinued. E) The total contribution margin generated by the segment relative to any traceable (avoidable) fixed costs associated with the segment.

100)

In deciding whether to drop or keep a product line, all the following are relevant to the decision except: A) The level of unavoidable fixed costs. B) The segment margin generated by the product line. C) Demand interdependencies across product lines of the company. D) Effect of the decision on overall company morale. E) Whether dropping the product line today would eliminate future options for growth and expansion.

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101)

The Fairway is a golf shop inside the clubhouse of a North Carolina golf course. Derek Dunlop, owner of the Fairway, is deciding how much shelf space to devote to each of four different golf ball types. Derek has a maximum front shelf space of 15 feet to devote to golf balls. He wants a minimum of three feet and a maximum of seven feet of front shelf space for each golf ball type. Appropriate per-case data on the four ball types follow:

Sales price per case Variable costs per case Cases sold per foot of front shelf space per day

Distance

Spin

Straight

$ 23.90 15.70 34

$ 23.60 16.10 29

$ 23.50 17.10 29

Durable $ 21.30 15.30 34

The daily contribution per foot of front shelf space for Straight is: A) $205.60 B) $155.60 C) $135.60 D) $145.60 E) $185.60

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102)

Sales price per case Variable costs per case Cases sold per foot of front shelf space per day

Distance

Spin

Straight

Durable

$ 24.20 15.80 32

$ 22.90 16.20 26

$ 23.60 16.80 25

$ 21.10 15.10 38

The daily contribution per foot of front shelf space for Straight is: A) $190.00 B) $140.00 C) $120.00 D) $130.00 E) $170.00

103)

What two factors make up a relevant cost? A) The cost differs among options and is discretionary. B) The cost differs among options and is committed. C) Costs do not differ among options and are committed. D) Costs do not differ among options and are discretionary. E) Costs are sunk and discretionary.

104)

Which of the following items should not be considered when evaluating a make-or-buy decision? A) The reliability of the supplier's delivery schedule. B) Quality of the supplier's product. C) Net book value (NBV) of the production equipment currently used to make the item in question. D) Contribution margin generated by an alternative use of the production equipment. E) Financial stability of the supplier.

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105)

Relevant costs in a make-vs.-buy decision of a part include: A) Corporate headquarter costs that will be allocated differently depending on the decision option chosen. B) Setup overhead costs for the manufacture of the product using the outsourced part. C) The cost of currently used manufacturing capacity that has alternative uses if the part is outsourced. D) Factory-related insurance cost. E) Corporate (i.e., headquarter) salaries.

106)

Lift Incorporated is considering whether to repair a five-year-old fork lift or to purchase a used one as a replacement. The company estimates that it would take $3,000 to repair the existing fork lift, which is the same amount needed to purchase the used fork lift. Costrelated information for both assets is as follows:

Acquisition cost Repairs cost Annual operating costs (gas, etc.)

Existing Fork Lift $ 15,000 $ 3,000 $ 2,280

Used Fork Lift $ 3,000 $ 2,100

A cost that is not relevant for this asset-replacement decision is: A) The acquisition cost of the used fork lift. B) The acquisition cost of the existing fork lift. C) The repair cost for the existing fork lift. D) The annual operating cost for the existing fork lift. E) The annual operating cost for the used fork lift.

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107)

Acquisition cost Repairs cost Annual operating costs (gas, etc.)

Existing Fork Lift $ 15,000 $ 3,000 $ 2,280

Used Fork Lift $ 3,000 $ 2,100

Under the assumption that the company would like to minimize total cost, what should the company do, and what are the total cost savings in the first year? Decision A) B) C) D) A) B) C) D)

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Buy the used fork lift Repair the existing fork lift Buy the used fork lift Repair the existing fork lift

First-Year Cost Savings $ 9,780 $ 5,518 $ 180 $ 5,280

Option A Option B Option C Option D

108)

The Parking Space is a New York car dealership located in a highly visible area along a prominent highway. Fred Barns, owner of The Parking Space, is trying to decide how much front-row space along the highway to devote to each of four different car models. Fred has a maximum front-row space of 200 feet to devote to the four car models. He wants a minimum of 20 feet and a maximum of 80 feet of front-row space for each car model. Appropriate data on the four car models follow:

Sales price per unit Variable costs per unit Units sold per 10 feet of front-row space per month

Convertible

Truck

Sedan

SUV

$ 37,000

$ 37,000 18,000 10

$ 70,000 38,000 12

$ 35,000 10,000 24

31,000 10

The convertible model's monthly contribution per 10 feet of front-row space is: A) $50,000. B) $40,000. C) $70,000. D) $60,000. E) $10,000.

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109)

Sales price per unit Variable costs per unit UNITS sold per 10 feet of front-row space per month

Convertible

Truck

Sedan

SUV

$ 40,000

$ 30,000 23,000 18

$ 60,000 45,000 6

$ 25,000 16,000 25

32,000 10

The convertible model's monthly contribution per 10 feet of front-row space is: A) $70,000. B) $60,000. C) $90,000. D) $80,000. E) $30,000.

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110)

Rain Incorporated currently manufactures part QX100, which is used in several products produced by the company. Monthly production costs for 10,000 units of QX100 are as follows: Direct materials Direct labor Variable overhead costs Fixed overhead costs Total manufacturing costs

$ 79,000 $ 28,000 $ 40,000 $ 50,000 $ 197,000

Accounting has estimated that 20% of the fixed overhead costs currently assigned to QX100 would not be needed if the company chose to purchase the part from an outside supplier. Rain currently has the option of purchasing the part from an outside supplier at $16.00 per unit. If the company accepts the offer from the outside supplier, the monthly avoidable costs (that is, costs that would no longer be incurred) would be: A) $31,000 B) $81,000 C) $157,000 D) $189,000 E) $109,000

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111)

$ 80,000 $ 20,000 $ 50,000 $ 40,000 $ 190,000

Accounting has estimated that 20% of the fixed overhead costs currently assigned to QX100 would not be needed if the company chose to purchase the part from an outside supplier. Rain currently has the option of purchasing the part from an outside supplier at $16.00 per unit. If the company accepts the offer from the outside supplier, the monthly avoidable costs (that is, costs that would no longer be incurred) would be: A) $32,000 B) $82,000 C) $158,000 D) $190,000 E) $110,000

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112)

$ 85,000 $ 10,000 $ 50,000 $ 36,000 $ 181,000

Accounting has estimated that 20% of the fixed overhead costs currently assigned to QX100 would not be needed if the company chose to purchase the part from an outside supplier. Rain currently has the option of purchasing the part from an outside supplier at $16.00 per unit. Based solely on a short-run financial analysis, the maximum price that Rain should be willing to pay the outside vendor for each unit of QX100 is: A) $9.42 B) $10.42 C) $14.42 D) $15.22 E) $15.42

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113)

$ 80,000 $ 20,000 $ 50,000 $ 40,000 $ 190,000

Accounting has estimated that 20% of the fixed overhead costs currently assigned to QX100 would not be needed if the company chose to purchase the part from an outside supplier. Rain currently has the option of purchasing the part from an outside supplier at $16.00 per unit. Based solely on a short-run financial analysis, the maximum price that Rain should be willing to pay the outside vendor for each unit of QX100 is: A) $10.00 B) $11.00 C) $15.00 D) $15.80 E) $16.00

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114)

Rings Company has three product lines, A, B, and C. The following financial information is available: Item Sales Variable costs Contribution margin Fixed costs: Avoidable Unavoidable Pre-tax operating income

Product Line A Product Line B Product Line C $ 44,000 $ 80,000 $ 19,000 $ 26,400 $ 43,000 $ 11,875 $ 17,600 $ 37,000 $ 7,125

$ 5,000 $ 3,700

$ 12,500 $ 8,000

$ 5,100 $ 2,700

$ 8,900

$ 16,500

$ (675)

Rings is thinking of dropping Product Line C because it is reporting an operating loss. Assuming the company drops Product Line C and does not replace it, pretax operating income for the firm will likely: A) Be unchanged B) Increase by $1,725 C) Increase by $2,025 D) Decrease by $2,025 E) Decrease by $3,750

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115)

Product Line A Product Line B Product Line C $ 30,000 $ 45,000 $ 12,000 $ 18,000 $ 24,000 $ 7,500 $ 12,000 $ 21,000 $ 4,500

$ 4,500 $ 3,000

$ 9,000 $ 4,500

$ 3,000 $ 2,000

$ 4,500

$ 7,500

$ (500)

Rings is thinking of dropping Product Line C because it is reporting an operating loss. Assuming the company drops Product Line C and does not replace it, pre-tax operating income for the firm will likely: A) Be unchanged B) Increase by $1,200 C) Increase by $1,500 D) Decrease by $1,500 E) Decrease by $2,700

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116)

Product Line A Product Line B Product Line C $ 32,000 $ 50,000 $ 13,000 $ 19,200 $ 27,000 $ 8,125 $ 12,800 $ 23,000 $ 4,875

$ 4,400 $ 3,100

$ 9,500 $ 5,000

$ 3,300 $ 2,100

$ 5,300

$ 8,500

$ (525)

If Product Line C is discontinued and the manufacturing space formerly devoted to this line is rented for $6,000 per year, pre-tax operating income for the company will likely: A) Be unchanged—the two effects cancel each other out. B) Increase by $3,225. C) Increase by $4,425. D) Increase by $7,125. E) Increase by some other amount.

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117)

Product Line A Product Line B Product Line C $ 30,000 $ 45,000 $ 12,000 $ 18,000 $ 24,000 $ 7,500 $ 12,000 $ 21,000 $ 4,500

$ 4,500 $ 3,000

$ 9,000 $ 4,500

$ 3,000 $ 2,000

$ 4,500

$ 7,500

$ (500)

If Product Line C is discontinued and the manufacturing space formerly devoted to this line is rented for $6,000 per year, pre-tax operating income for the company will likely: A) Be unchanged—the two effects cancel each other out. B) Increase by $3,300. C) Increase by $4,500. D) Increase by $7,200. E) Increase by some other amount.

118)

Sunshine Company, maker of high-quality eyewear, incurs fixed costs of $17 and variable costs of $34 in making one unit of its matrix line of sunglasses, based on current demand of 100,000 units per year. Sunshine Company's major supplier has offered to make all 100,000 matrix sunglasses for $43 each. If Smith accepts the offer of the supplier, it will save $4 per unit in fixed costs. Based solely on this information, what is the recommended decision and how much will be saved based on this decision? A) Sunshine Company should buy the sunglasses in order to save $300,000. B) Sunshine Company should buy the sunglasses in order to save $600,000. C) Sunshine Company should make the sunglasses in order to save $500,000. D) Sunshine Company should make the sunglasses in order to save $400,000. E) Sunshine Company should make the sunglasses in order to save $300,000.

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119)

Sunshine Company, maker of high-quality eyewear, incurs fixed costs of $18 and variable costs of $36 in making one unit of its matrix line of sunglasses, based on current demand of 100,000 units per year. Sunshine Company's major supplier has offered to make all 100,000 matrix sunglasses for $44 each. If Smith accepts the offer of the supplier, it will save $4 per unit in fixed costs. Based solely on this information, what is the recommended decision and how much will be saved based on this decision? A) Sunshine Company should buy the sunglasses in order to save $200,000. B) Sunshine Company should buy the sunglasses in order to save $500,000. C) Sunshine Company should make the sunglasses in order to save $400,000. D) Sunshine Company should make the sunglasses in order to save $300,000. E) Sunshine Company should make the sunglasses in order to save $200,000.

120)

New Computer Company is quickly becoming a major player in the personal computer market. The company currently has multiple companies producing products that go into a new computer. This practice of having an outside firm provide a function for New Computer Company is called: A) Outsourcing. B) Opportunity costing. C) Profit diversification. D) Strategic positioning. E) Competitive sourcing.

121)

One of the key management functions is to perform a regular review of product profitability. Which question below would not typically be asked when performing such an analysis? A) Are the products priced properly? B) Which products are the most profitable? C) Which products should be advertised more aggressively? D) Should any product manager be rewarded, based on product-line results? E) What was the product manager paid last year?

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122)

What is a situation in which value streams can be useful? A) When products are not related to each other. B) When it is costly to group products together. C) When preparing profitability reports as part of lean accounting. D) When dividing a company into different divisions. E) When a company only has one product.

123)

Desk Company has a product that it currently sells in the market for $60 per unit. Desk has developed a new feature that, if added to the existing product, will allow Desk to receive a price of $75 per unit. The total cost of adding this new feature is $38,000 and Desk expects to sell 2,400 units in the coming year. What is the net effect on next-year's operating income of adding the feature to the product? A) $2,000 increase in operating income. B) $3,000 decrease in operating income. C) $3,500 increase in operating income. D) $4,000 decrease in operating income. E) $2,000 decrease in operating income.

124)

Desk Company has a product that it currently sells in the market for $50 per unit. Desk has developed a new feature that, if added to the existing product, will allow Desk to receive a price of $65 per unit. The total cost of adding this new feature is $26,000 and Desk expects to sell 1,600 units in the coming year. What is the net effect on next-year's operating income of adding the feature to the product? A) $2,000 increase in operating income. B) $3,000 decrease in operating income. C) $3,500 increase in operating income. D) $4,000 decrease in operating income. E) $2,000 decrease in operating income.

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125)

The Robinson-Patman Act, administered by the U.S. Federal Trade Commission, addresses pricing that could substantially damage the level of competition in an industry. This type of pricing is called: A) Competitive pricing. B) Predatory pricing. C) Cost-benefit pricing. D) Peak-load pricing. E) Threshold pricing.

126)

Triad Children's Center (TCC), a non-profit organization, uses relevant cost analysis to determine whether new services are desirable. TCC is looking at adding a new educational program for grade school children who are having difficulty with their reading and math skills. The following relevant costs are expected if the program is accepted: Costs (per year) Program Director salary Part-time Assistants Variable cost per child

$ 37,000 $ 26,000 $ 900

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$ 39,000 $ 28,000 $ 900

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128)

$ 39,000 $ 28,000 $ 900

TCC estimates that a maximum of 40 children will participate in this program in the first year. If TCC decides to implement this program, funding will be received from the City Chamber of Commerce ($50,000) and a local Private University Endowment Fund ($35,000). In deciding between alternative choices for a given situation (such as the above new-program evaluation), TCC may employ a five-step decision process. Which of the following is not a recommended step in this decision-making process? A) Evaluate performance. B) Specify the criteria and identify the alternative actions. C) Select and implement the best course of action. D) Perform relevant and strategic cost analysis. E) Review the completed financial audit report.

129)

Maxwell Manufacturing is contemplating the purchase of a new machine to replace a machine that has been in use for seven years. The old machine has a net book value (NBV) of $53,000 and still has five years of useful life remaining. The old machine has a current market value of $5,300, but is expected to have no market value after five years. The variable operating costs and depreciation expenses (straight-line basis) are $125,000 per year. The new machine will cost $94,000, has an estimated useful life of five years with zero disposal value after five years, and an annual operating expense of $103,000 (including straight-line depreciation). Considering the five years in total and ignoring the time value of money and income taxes, what is the difference in total relevant costs for the two decision alternatives (keep vs. replace)? A) $0. B) $47,300. C) $57,300. D) $62,300. E) $72,300.

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130)

Maxwell Manufacturing is contemplating the purchase of a new machine to replace a machine that has been in use for seven years. The old machine has a net book value (NBV) of $50,000 and still has five years of useful life remaining. The old machine has a current market value of $5,000, but is expected to have no market value after five years. The variable operating costs and depreciation expenses (straight-line basis) are $135,000 per year. The new machine will cost $90,000, has an estimated useful life of five years with zero disposal value after five years, and an annual operating expense of $118,000 (including straight-line depreciation). Considering the five years in total and ignoring the time value of money and income taxes, what is the difference in total relevant costs for the two decision alternatives (keep vs. replace)? A) $0. B) $25,000. C) $35,000. D) $40,000. E) $50,000.

131)

You just bought a new luxury sports car for $132,000. Before you had time to get insurance, the car was wrecked. Weird Wally offers to take it off your hands for $10,000. You can then purchase a similar model for $121,000. A body-shop (with an excellent reputation) offers to rebuild the wrecked car for $84,000 and loan you a similar model while the vehicle is being rebuilt. Once rebuilt, the body-shop claims, it will "run like a new car and nobody will be able to tell the difference." What is the preferred course of action, from a financial point of view? A) Rebuild to save $12,000. B) Rebuild to save $27,000. C) Rebuild to save $37,000. D) Sell to Weird Wally and save $6,000.

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132)

You just bought a new luxury sports car for $125,000. Before you had time to get insurance, the car was wrecked. Weird Wally offers to take it off your hands for $10,000. You can then purchase a similar model for $128,000. A body-shop (with an excellent reputation) offers to rebuild the wrecked car for $90,000 and loan you a similar model while the vehicle is being rebuilt. Once rebuilt, the body-shop claims, it will "run like a new car and nobody will be able to tell the difference." What is the preferred course of action, from a financial point of view? A) Rebuild to save $13,000. B) Rebuild to save $28,000. C) Rebuild to save $38,000. D) Sell to Weird Wally and save $7,000.

133)

A truck, costing $22,000 and uninsured, was wrecked the very first day it was used. The truck can either be disposed for $5,000 cash and replaced with a similar truck costing $46,000, or rebuilt for $21,000 and be "new" as far as operating characteristics and looks are concerned. The net relevant cost of the replacing option is: A) $24,000. B) $39,000. C) $41,000. D) $44,000. E) $46,000.

134)

A truck, costing $25,000 and uninsured, was wrecked the very first day it was used. The truck can either be disposed for $5,000 cash and replaced with a similar truck costing $27,000, or rebuilt for $20,000 and be "new" as far as operating characteristics and looks are concerned. The net relevant cost of the replacing option is: A) $5,000. B) $20,000. C) $22,000. D) $25,000. E) $27,000.

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135)

A truck, costing $21,000 and uninsured, was wrecked the very first day it was used. It can either be disposed for $5,000 cash and replaced with a similar truck costing $35,000, or it can be rebuilt for $26,000 and be brand new as far as operating characteristics and looks are concerned. The preferred decision alternative provides a net cost savings of: A) $4,000. B) $7,000. C) $9,000. D) $14,000. E) Some amount other than these choices.

136)

A truck, costing $25,000 and uninsured, was wrecked the very first day it was used. It can either be disposed for $5,000 cash and replaced with a similar truck costing $27,000, or it can be rebuilt for $20,000 and be brand new as far as operating characteristics and looks are concerned. The preferred decision alternative provides a net cost savings of: A) $2,000. B) $5,000. C) $7,000. D) $12,000. E) Some amount other than these choices.

137)

The mathematical tool used to determine the optimum short-term product (or service) mix is: A) Linear regression (i.e., ordinary least-squares) analysis. B) Linear programming. C) Linear ratio analysis. D) Pareto optimality analysis. E) Nonlinear cost-benefit analysis.

138)

What is outsourcing? A) The practice of producing everything in your supply chain. B) The practice of expanding your company into other countries. C) The practice of creating different divisions in your company based on product type. D) The practice of moving your company headquarters to a different location. E) The practice of choosing to have an outside firm provide a basic service function.

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139)

What is the purpose of antidumping laws in the U.S.? A) Reduce the waste created from production processes. B) Stop companies from selling their products at anticompetitive prices. C) Stop companies from exporting their products out of the U.S. D) Encourage the use of predatory pricing so that consumers get the best deal. E) None of these answer choices are correct.

140)

In a sell-or-process-further decision, joint production costs: A) Are irrelevant to the decision. B) Should be allocated to outputs based on relative sales dollars. C) Should be allocated to outputs based on relative physical units. D) Cannot be allocated to products for financial reporting purposes. E) Usually are traceable to individual products/outputs.

141)

In a manufacturing environment, the short-term profit-maximizing decision would be to: A) Maximize gross profit. B) Minimize total variable cost of all units produced. C) Minimize fixed overhead (i.e., fixed manufacturing support) cost per unit by producing to capacity. D) Maximize total contribution margin for units produced/sold. E) Maximize total sales revenue for units produced/sold.

142)

A company's approach to a make-or-buy decision: A) Depends on whether the company is operating at or below the breakeven point. B) Depends on whether the company is operating at or below normal volume. C) Involves an analysis of avoidable costs. D) Should utilize absorption (i.e., full) costing for inventory purposes. E) Should consider an allocation of corporate headquarter expenses to the item in question.

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143)

What is the definition of a sunk cost? A) Cost that if incurred will make a company go bankrupt. B) Costs that have been incurred in the past or committed for the future. C) Costs that have been incurred in the past only. D) Costs that are committed for the future only. E) Costs that are relevant to decision making.

144)

Outlet Company manufactures plugs at a cost of $35 per unit, which includes $7 of fixed overhead. Outlet needs 30,000 of these plugs annually (as part of a larger product it produces). Wire Company has offered to sell these units to Outlet at $32 per unit. If Outlet decides to purchase the plugs, $60,000 of the annual fixed overhead cost will be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs. If Outlet Company purchases the plugs but does not rent the unused facility, the company would: A) Save $2.00 per unit. B) Lose $5.00 per unit. C) Save $1.00 per unit. D) Lose $2.00 per unit. E) Save $0.00 per unit.

145)

Outlet Company manufactures plugs at a cost of $36 per unit, which includes $8 of fixed overhead. Outlet needs 30,000 of these plugs annually (as part of a larger product it produces). Wire Company has offered to sell these units to Outlet at $33 per unit. If Outlet decides to purchase the plugs, $60,000 of the annual fixed overhead cost will be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs. If Outlet Company purchases the plugs but does not rent the unused facility, the company would: A) Save $3.00 per unit. B) Lose $6.00 per unit. C) Save $2.00 per unit. D) Lose $3.00 per unit. E) Save $1.00 per unit.

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146)

Outlet Company manufactures plugs at a cost of $40 per unit, which includes $8 of fixed overhead. Outlet needs 30,000 of these plugs annually (as part of a larger product it produces). Wire Company has offered to sell these units to Outlet at $40 per unit. If Outlet decides to purchase the plugs, $60,000 of the annual fixed overhead cost will be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs. If the plugs are purchased and the facility rented, Outlet Company wishes to realize $100,000 in net savings annually. To achieve this goal, the minimum annual rent on the facility must be: A) $100,000. B) $130,000. C) $160,000. D) $280,000. E) $370,000.

147)

Outlet Company manufactures plugs at a cost of $36 per unit, which includes $8 of fixed overhead. Outlet needs 30,000 of these plugs annually (as part of a larger product it produces). Wire Company has offered to sell these units to Outlet at $33 per unit. If Outlet decides to purchase the plugs, $60,000 of the annual fixed overhead cost will be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs. If the plugs are purchased and the facility rented, Outlet Company wishes to realize $100,000 in net savings annually. To achieve this goal, the minimum annual rent on the facility must be: A) $10,000. B) $40,000. C) $70,000. D) $190,000. E) $280,000.

148)

Costs relevant to a make-versus-buy decision typically include variable manufacturing costs as well as: A) Avoidable fixed costs. B) Factory depreciation. C) Unavoidable costs, both production and marketing. D) Property taxes on the manufacturing facility. E) Factory administrative costs (e.g., salaries).

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149)

Opportunity costs are: A) If significant in amount, deductible for U.S. federal income tax purposes. B) Usually variable costs. C) Equal to historical costs. D) Recorded in accounting records at estimated fair value. E) Relevant for decision making.

150)

Relevant (i.e., differential) cost analysis: A) Takes all variable and fixed costs into account to analyze decision alternatives. B) Considers only variable costs as these are the costs that change with each decision alternative. C) Considers only nonfinancial and strategic factors associated with each decision alternative. D) Considers all variable and fixed future costs that change with each decision alternative. E) Allows the decision maker to group all types of costs together to facilitate decision making.

151)

Smooth Enterprises manufactures two products, boat wax (B) and car wax (C), in two departments, Mixing and Packaging. The Mixing Department (M) has 700 hours per month available while the Packaging Department (P) has 1,200 hours per month available. Production of the two products cannot exceed 44,000 pounds. Data on the two products follow: Product

Boat wax (B) Car wax (C)

Contribution Margin (per 100 pounds) $ 110 $ 160

Hours per 100 Hours per 100 pounds of Output: Pounds of Output: Mixing (M) Packaging (P) 5.0 2.8 2.3 3.0

The objective function for the linear program Smooth would use to determine the optimum monthly product mix (where B and C are expressed in 100-pound units of output) would be: A) Z = $160B + $110C. B) 1.1B + 1.6C ≤ 44000 C) 1.1B + 1.6C ≥ 44000 D) Z = $110B + $160C. E) Z = 7.8B + 5.3B.

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152)

Smooth Enterprises manufactures two products, boat wax (B) and car wax (C), in two departments, Mixing and Packaging. The Mixing Department (M) has 800 hours per month available while the Packaging Department (P) has 1,200 hours per month available. Production of the two products cannot exceed 36,000 pounds. Data on the two products follow: Product

Boat wax (B) Car wax (C)

Contribution Margin (per 100 pounds) $ 200 $ 150

Hours per 100 pounds of Output: Mixing (M) 5.0 2.4

Hours per 100 Pounds of Output: Packaging (P) 3.6 6.0

The objective function for the linear program Smooth would use to determine the optimum monthly product mix (where B and C are expressed in 100-pound units of output) would be: A) Z = $150B + $200C. B) 2B + 1.5C ≥ 36,000. C) 2B + 1.5C ≤ 36,000. D) Z = $200B + $150C. E) Z = 8.6B + 8.4B.

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153)

Smooth Enterprises manufactures two products, boat wax and car wax, in two departments, Mixing and Packaging. The Mixing Department has 900 hours per month available while the Packaging Department has 1,000 hours per month available. Production of the two products cannot exceed 35,000 pounds. Data on the two products follow: Product

Boat wax (B) Car wax (C)

Contribution Hours per 100 Hours per 100 Margin (per 100 pounds of Output: Pounds of Output: pounds) Mixing (M) Packaging (P) $ 280 6.0 4.8 $190 2.1 2.0

The Mixing Department (M) constraint for the Smooth linear program would be (where B and C are expressed in 100-pound units of output): A) 2.1M + 2P ≤ 35,000. B) 6B + 2.1C ≥ 900. C) 6B + 2.1C ≤ 900. D) 6B + 2.1C = 900. E) 8.1M + 6.8P ≤ 35,000.

154)

Smooth Enterprises manufactures two products, boat wax and car wax, in two departments, Mixing and Packaging. The Mixing Department has 800 hours per month available while the Packaging Department has 1,200 hours per month available. Production of the two products cannot exceed 36,000 pounds. Data on the two products follow: Product

Boat wax (B) Car wax (C)

Contribution Margin (per 100 pounds) $ 200 $ 150

Hours per 100 pounds of Output: Mixing (M) 5.0 2.4

Hours per 100 Pounds of Output: Packaging (P) 3.6 6.0

The Mixing Department (M) constraint for the Smooth linear program would be (where B and C are expressed in 100-pound units of output): A) 2.4M + 6P ≤ 36,000. B) 5B + 2.4C ≥ 800. C) 5B + 2.4C ≤ 800. D) 5B + 2.4C = 800. E) 7.4M + 9.6P ≤ 36,000.

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Which of the following costs would be relevant in short-term decision making (evaluating "special sales orders," make-vs.-buy decisions, etc.)? A) Incremental fixed costs. B) All product-related costs. C) Total variable costs that are the same in the considered alternatives. D) Cost of fixed assets to be used in the alternatives. E) Total fixed costs that are the same in the considered alternatives.

156)

When a decision is made in an organization, it is selected from a group of alternative courses of action (i.e., decision alternatives). The loss associated with not choosing a given decision alternative is referred to as a(n): A) Sunk cost. B) Discretionary. C) Opportunity cost. D) Committed cost. E) Outlay cost.

157)

The best way to allocate scare resources to attain a specific objective, such as the maximization of operating income, is to use: A) Relevant costing. B) A value-stream analysis of the decision alternatives. C) Simple regression (OLS) analysis. D) Activity-based costing (ABC). E) Linear programming (i.e., constrained optimization analysis).

158)

Sensitivity analysis in linear programming is used to: A) Determine the degree that the constraints vary. B) Test the accuracy of the parameters in a model. C) Develop the technical matrix used to determine the optimal solution. D) Determine whether and how the optimal decision would change in response to changes in the parameters in the model. E) Develop objective function coefficients.

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159)

What is linear programming? A) A theoretical equation that solves make versus buy decisions. B) An analytical tool available on the Data tab in Excel. C) A mathematical technique that can be used to solve constrained optimization problems. D) A tool to help graph productions costs. E) None of these answer choices are correct.

160)

Locks Corporation produces three products, A, B, and C. Pertinent information on these products is as follows: Product A B C

Selling Price per Unit $ 8.00 $ 3.50 $ 5.00

Variable Cost per Unit $ 1.00 $ 0.50 $ 2.00

Fixed Cost DL Hours per Unit per Unit $ 2.00 2 $ 4.00 2 $ 2.00 1

The objective function for a linear program to maximize contribution margin from the set of three products is: A) Z = $7A + $3B + $3C. B) Z = $3A + $4.5B + $4C. C) Z = $8A + $3.5B + $5C. D) Z = $1A + $2B + $2C. E) Z = $1A + $0.5B + $2C.

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161)

Locks Corporation produces three products, A, B, and C. Pertinent information on these products is as follows: Product A B C

Selling Price per Unit $ 4.00 $ 3.50 $ 6.00

Variable Cost per Unit $ 1.00 $ 0.50 $ 2.00

Fixed Cost per Unit $ 2.00 $ 2.00 $ 3.00

DL Hours per Unit 2 2 3

The objective function for a linear program to maximize contribution margin from the set of three products is: A) Z = $3A + $3B + $4C. B) Z = $3A + $2.50B + $5C. C) Z = $4A + $3.50B + $6C. D) Z = A + B + C. E) Z = A + $0.50B + $2C.

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162)

Locks Corporation produces three products, A, B, and C. Pertinent information on these products is as follows: Product A (Anchor bolts) B (Bearings) C (Castings)

Selling Price per Variable Cost per Fixed Cost DL Hours Unit Unit per Unit per Unit $ 4.00 $ 2.00 $ 3.00 3 $ 4.50

$ 1.50

$ 2.00

$ 7.00

$ 1.00

$ 3.00

There are 150 direct labor hours available. Machine-hour capacity allows 100 anchor bolts, only; 50 bearings, only; 40 casters, only; or any combination of the three that does not exceed the capacity. The direct labor hour constraint for Locks' linear programming model is: A) 1A + 2B + 3C ≤ 150. B) Min Z = 3A + 1B + 1C. C) Max Z = 3A + 1B + 1C − 150. D) 100A + 50B + 40C ≤ 1,050. E) 3A + 1B + 1C ≤ 150.

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163)

Locks Corporation produces three products, A, B, and C. Pertinent information on these products is as follows: Product A (Anchor bolts) B (Bearings) C (Castings)

Selling Price Variable Cost Fixed Cost per Unit per Unit per Unit $ 4.00 $ 1.00 $ 2.00 $ 3.50 $ 0.50 $ 2.00 $ 6.00 $ 2.00 $ 3.00

DL Hours per Unit 2 2 3

There are 150 direct labor hours available. Machine-hour capacity allows 100 anchor bolts, only; 50 bearings, only; 40 casters, only; or any combination of the three that does not exceed the capacity. The direct labor hour constraint for Locks’ linear programming model is: A) A + B + C ≤ 150. B) Min Z = 2A + 2B + 3C. C) Max Z = 2A + 2B + 3C − 150. D) 100A + 50B + 40C ≤ 1,050. E) 2A + 2B + 3C ≤ 150.

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164)

Locks Corporation produces three products, A, B, and C. Pertinent information on these products is as follows: Product A (Anchor bolts) B (Bearings) C (Castings)

Selling Price Variable Cost Fixed Cost per Unit per Unit per Unit $ 8.00 $ 1.00 $ 1.00 $ 3.80 $ 2.40 $ 2.00 $ 5.00 $ 4.00 $ 3.00

DL Hours per Unit 2 2 5

There are 180 direct labor hours available. Machine-hour capacity allows 70 anchor bolts, only; 40 bearings, only; 50 casters, only; or any combination of the three that does not exceed the capacity. The machine-hour constraint for Locks' linear programming model is: A) The same as the labor-hour constraint. B) 1A + 1.75B + 1.40C ≤ 70. C) Indeterminable from the data given. D) A + B + C ≤ 160. E) 70A + 40B + 50C ≤ 11,200.

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165)

Locks Corporation produces three products, A, B, and C. Pertinent information on these products is as follows: Product A (Anchor bolts) B (Bearings) C (Castings)

Selling Price Variable Cost Fixed Cost per Unit per Unit per Unit $ 4.00 $ 1.00 $ 2.00 $ 3.50 $ 0.50 $ 2.00 $ 6.00 $ 2.00 $ 3.00

DL Hours per Unit 2 2 3

There are 150 direct labor hours available. Machine-hour capacity allows 100 anchor bolts, only; 50 bearings, only; 40 casters, only; or any combination of the three that does not exceed the capacity. The machine-hour constraint for Locks’ linear programming model is: A) The same as the labor-hour constraint. B) A + 2B + 2.5C ≤ 100. C) Indeterminable from the data given. D) A + B + C ≤ 190. E) 100A + 50B + 40C ≤ 19,000.

166)

Which one of the following is most relevant to an equipment-replacement decision (assume no tax effects) used in a trade or business? A) Original cost of the old equipment. B) Current disposal (salvage) value of the old equipment. C) Gain or loss on the disposal of the old equipment. D) Original cost less accumulated depreciation of the old equipment. E) A lump-sum write-off amount from the disposal of the old equipment.

167)

In situations when management must decide on accepting or rejecting one-time-only special orders, where there is sufficient capacity, which one of the following would not be relevant to the decision? A) Absorption (that is, full product) cost. B) Differential costs. C) Direct costs. D) Variable costs. E) Incremental costs.

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168)

Canning Company packages and sells nuts in cans. Pecans, cashews, Brazil nuts, hazelnuts, and peanuts are packaged individually as well in combinations and mixtures. Canning wants to package the nuts so that it can maximize its operating profit while considering market demand. In addition, there are limited supplies for some types of nuts. The technique that Canning should employ to address this decision problem is: A) Statistical analysis. B) Correlation and regression analysis. C) Discounted cash flow (DCF) analysis. D) Transportation algorithms. E) Linear programming.

169)

A small company makes only two products (X and Y), with the following production constraints representing two machines and their maximum availability: 2X + 3Y ≤ 90 2X + 1Y ≤ 66 X ≥ 0, Y ≥ 0 where: X = units of the first product, Y = units of the second product If the profit equation is Z = $4X + $2Y, the maximum possible profit is: A) $132 B) $133 C) $90 D) $136 E) $70

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170)

A small company makes only two products (X and Y), with the following production constraints representing two machines and their maximum availability: 2X + 3Y ≤ 18 2X + Y ≤ 10 X ≥ 0, Y ≥ 0 where: X = units of the first product, Y = units of the second product If the profit equation is Z = $4X + $2Y, the maximum possible profit is: A) $20 B) $21 C) $18 D) $24 E) $14

171)

Divided Industries manufactures three products in its highly automated factory. The products are all popular, with demand far exceeding the company's ability to supply the marketplace (as measured in machine hours). To maximize (short-term) operating income, management should focus on each product's: A) Gross margin per unit. B) Gross margin ratio. C) Contribution margin per unit. D) Contribution margin ratio. E) Contribution margin per machine hour.

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172)

Park Incorporated produces product X-547 in a joint manufacturing process. The company is studying whether to sell X-547 at the split-off point or upgrade (i.e., further process) the product to become Xylene. The following information has been gathered: 1. 2. 3. 4. 5.

(1) Selling price per pound of X-547. (2) Variable manufacturing costs of the upgrade process. (3) Avoidable fixed costs of the upgrade process. (4) Selling price per pound of Xylene. (5) Joint manufacturing costs to produce X-547.

Which of the items should be reviewed when making the upgrade decision? B) 1, 2, and 4 C) 1, 2, 3, and 4 D) 1, 2, 3, 4, and 5 E) 1, 2, 4, and 5 F) 2, 3

173)

Management accountants are frequently asked to analyze various decision situations including the following: 1. The cost of a special device that is necessary if a special order is accepted. 2. The cost proposed annually for the plant service for the grounds at corporate

headquarters. 3. Joint production costs incurred, to be considered in a sell-or-process-further decision. 4. The costs associated with alternative uses of plant space, to be considered in a make/buy decision. 5. The cost of obsolete inventory acquired several years ago, to be considered in a keepversus-disposal decision. The costs described in situations I and IV above are examples of: B) Prime costs. C) Sunk costs. D) Discretionary costs. E) Relevant costs. F) Opportunity costs.

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174)

headquarters. 3. Joint production costs incurred, to be considered in a sell-or-process-further decision. 4. The costs associated with alternative uses of plant space, to be considered in a make/buy decision. 5. The cost of obsolete inventory acquired several years ago, to be considered in a keepversus-disposal decision. The costs described in situations III and V above are examples of: B) Prime costs. C) Sunk costs. D) Discretionary costs. E) Relevant costs. F) Opportunity costs.

175)

Uptown Manufacturing Corporation uses the following model to determine an optimal short-term product mix for its two products, metal (M) and scrap metal (S): Max Z = $30M + $70S Where: 3M + 2S ≤ 15 2M + 4S ≤ 18 The above mathematical functions together constitute a(n): A) Simulation model. B) Linear programming model. C) Economic order quantity model. D) Multivariate regression model. E) Nonlinear optimization model.

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176)

Uptown Manufacturing Corporation uses the following model to determine an optimal short-term product mix for its two products, metal (M) and scrap metal (S): Max Z = $30M + $70S Where: 3M + 2S ≤ 15 2M + 4S ≤ 18 The two inequality functions in the above set of items represent: A) Contribution margin functions. B) Shadow points. C) Objective function coefficients. D) Resource constraints. E) Sensitivity functions.

177)

Uptown Manufacturing Corporation uses the following model to determine an optimal short-term product mix for its two products, metal (M) and scrap metal (S): Max Z = $30M + $70S Where: 3M + 2S ≤ 15 2M + 4S ≤ 18 The point where M = 2 and S = 3 would: A) Minimize total cost. B) Minimize total variable cost. C) Lie in a corner of a graphical representation of the model. D) Be a feasible point. E) Be the optimal solution point.

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178)

The Multi Resource Company manufactures two lines of washing machines, Regular and Deluxe. The contribution margin per unit of a Regular model is $110 and for Deluxe Model is $175. The company has two departments, Assembly and Testing. The Regular Model requires 3 hours to assemble, while a Deluxe Model requires 4 hours. The total time available in Assembly is 12,216 hours. In the Testing Department, it requires 2.5 hours to test a Regular Model and 1.5 hours to test a Deluxe Model. A total of 6,180 hours of testing time is available. Based on this information, the optimum production plan for Multi Resource is: A) 2,472 Regular Models B) 3,054 Deluxe Models C) 1,163 Regular Models and 2,182 Deluxe Models D) 4,072 Deluxe Models E) 4,120 Regular Models

179)

The Multi Resource Company manufactures two lines of washing machines, Regular and Deluxe. The contribution margin per unit of a Regular model is $110 and for Deluxe Model is $175. The company has two departments, Assembly and Testing. The Regular Model requires 3 hours to assemble, while a Deluxe Model requires 4 hours. The total time available in Assembly is 12,000 hours. In the Testing Department, it requires 2.5 hours to test a Regular Model and 1.5 hours to test a Deluxe Model. A total of 6,000 hours of testing time is available. Based on this information, the optimum production plan for Multi Resource is: A) 2,400 Regular Models B) 3,000 Deluxe Models C) 1,091 Regular Models and 2,182 Deluxe Models D) 4,000 Deluxe Models E) 4,000 Regular Models

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Answer Key Test name: chapter 11 1) Essay 2) Essay 3) Essay 4) Essay 5) Essay 6) Essay 7) Essay 8) Essay 9) Essay 10) Essay 11) Essay 12) Essay 13) Essay 14) Essay 15) Essay 16) Essay 17) Essay 18) Essay 19) Essay 20) Essay 21) Essay 22) Essay 23) Essay 24) A 25) C 26) C 27) C 28) B 29) D 30) E 31) B 32) C 33) A 34) B 35) C 36) E 37) B

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38) A 39) D 40) A 41) B 42) C 43) B 44) A 45) A 46) C 47) C 48) C 49) C 50) D 51) D 52) A 53) A 54) D 55) B 56) B 57) D 58) D 59) C 60) C 61) E 62) E 63) D 64) D 65) B 66) B 67) D 68) B 69) B 70) B 71) D 72) D 73) C 74) C 75) A 76) A 77) C

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78) D 79) B 80) A 81) A 82) E 83) E 84) C 85) C 86) D 87) D 88) B 89) B 90) B 91) B 92) E 93) D 94) A 95) D 96) E 97) A 98) D 99) E 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

A E E A C C B C D D C C D D D D C C

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118) 119) 120) 121) 122) 123) 124) 125) 126) 127) 128) 129) 130) 131) 132) 133) 134) 135) 136) 137) 138) 139) 140) 141) 142) 143) 144) 145) 146) 147) 148) 149) 150) 151) 152) 153) 154) 155) 156) 157)

C C A E C E E B D D E D D B B C C A A B E B A D C B D D D D A E D D D C C A C E

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158) 159) 160) 161) 162) 163) 164) 165) 166) 167) 168) 169) 170) 171) 172) 173) 174) 175) 176) 177) 178) 179)

D C A A E E B B B A E A A E B D B B D D B B

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Chapter 12 1) Jason Company provides weather and climate forecasts to almost 100 firms in the

northwestern states of Washington, Oregon, and Idaho. New technology is available that should improve forecast accuracy anywhere from 10 to 15 percentage points. Required: 1. What information is likely to be most difficult to estimate in conjunction with this investment decision? 2. Which capital budgeting decision model is the most appropriate for making this decision? Why?

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2) Acorn Corporation designs and installs fire-suppression systems in commercial buildings.

Over 90 percent of Acorn's business is in new construction, with the remainder in upgrade installations in remodeled buildings. For planning and control purposes, Acorn's controller (Jane Reid) is considering purchasing cost and financial accounting software from Constructor Solutions, Incorporated Costs for the software modules are shown below: Module 1: Bidding and estimation Module 2: Job cost accounting Module 3: General ledger package Module 4: Accounts Receivable Module 5: Accounts Payable Module 6: Financial statement preparation Or, the entire set of six modules at a 10% discount based on individual module purchases

$ 3750.00 3,250.00 2,875.00 1,840.00 1,660.00 1,440.00 $ 13,333.50

Required: 1. Jane uses value-chain analysis in evaluation of capital investments. She asks you which method, internal rate of return (IRR) or net present value (NPV), would be best in selecting individual software modules, and your reason(s) for the choice of method. 2. Jane says, "If we buy the entire set of six modules, we will get the equivalent of Module 6 free." Why might this savings of almost $1,500 be illusory? 3. The present value of the cost savings generated by the set of six modules, based on a fiveyear life and discount rate of 18 percent, is estimated as $13,844.50. Should the set of six modules be purchased? Explain. How would your decision be affected if Acorn's minimum rate of return were 24 percent? (No calculations are necessary to answer this question.)

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3) Jason Kirby is the leader of the capital budget group charged with reviewing capital

investment opportunities for Archer Construction Corporation. Jason is an advocate of a short payback period requirement for accepted capital investments, since "cash flow is the bottom line in this company." Required: Do you agree or not? Why?

4) Paulsen Incorporated is considering the purchase of a $700,000 machine to manufacture a

specialty tap for electrical equipment. The tap is in high demand and Paulsen is expected to be able to sell all that it can manufacture for the next five years. The government exempted taxes on profits from new investments to encourage capital investments. This legislation is not expected to be altered in the foreseeable future. The equipment is expected to have five years of useful life with no salvage value. The company employs straight-line depreciation. The net cash inflows are expected to be $180,000 each year for five years. Burn uses a rate of 9% in evaluating its capital investment projects. Required: Round all answers to 2 decimal places (e.g., 0.12338 = 12.34%; 0.12333 = 12.33%). 1. Calculate the estimated payback period for this proposed investment. (Assume that cash inflows occur evenly throughout the year.) 2. Calculate the project's accounting rate of return (ARR) based on the initial investment. 3. Calculate the accounting rate of return (ARR) based on average investment, where the latter is defined as a simple average of beginning-of-project net book value and end-ofproject net book value. 4. Calculate the internal rate of return (IRR) of this proposed investment. (Note: To answer this question, students need access either to Appendix C, Table 2 or to Excel.)

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5) Harris Corporation provides the following data on a proposed capital project: Initial investment outlay Expected useful life Increase in annual net cash inflow (before taxes) Required rate of return (i.e., discount rate) Income tax rate, t

$ 200,000 4 years $ 66,000 12% 25%

Harris uses straight-line depreciation method with no salvage value. Required: Compute for the proposed investment project: 1. The project’s estimated NPV (the PV annuity factor for 12%, 4 years is 3.037). Round your answer to nearest whole number (dollar). 2. The project’s IRR (to the nearest tenth of a percent). Note: PV annuity factors for 4 years: @ 8% = 3.312; @ 9% = 3.240; @ 10% = 3.170; @ 11% = 3.102; @ 12% = 3.037; and, @ 13% = 2.974). 3. Payback period (assume that cash inflows occur evenly throughout the year); round answer to two decimal places (e.g., 4.459 years = 4.46 years, rounded). 4. Accounting rate of return (ARR) on the net initial investment, rounded to two decimal places (e.g., 10.4233% = 10.42%). 5. Discounted payback period (assume that the cash inflows occur evenly throughout the year; round your answer to 2 decimal places). The appropriate PV factors for 12% are as follows: year 1 = 0.893; year 2 = 0.797; year 3 = 0.712; year 4 = 0.636.

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6) The Zone Company is considering the purchase of a new machine at a cost of $1,040,000.

The machine is expected to improve productivity and thereby increase cash inflows by $250,000 per year for 7 years. It will have no salvage value. The company requires a minimum rate of return of 12 percent on this type of capital investment. (Ignore income taxes for this problem.) Required: 1. Determine the net present value (NPV) of the proposed investment. (The PV annuity factor for 12%, 7 years is 4.564.). 2. Determine the project’s estimated internal rate of return (IRR), rounded to the nearest tenth of a percent. (Note: PV annuity factors for 7 years: @ 10% = 4.868; @ 11% = 4.712; @ 12% = 4.564; @ 13% = 4.423; @ 14% = 4.288; @ 15% = 4.160; and, @ 20% = 3.605.) 3. What is the estimated payback period for the proposed investment, under the assumption that cash inflows occur evenly throughout the year? Round your answer to 2 decimal places. 4. What is the present value payback period for the proposed investment (rounded to two decimal places)? 5. What is the estimated accounting rate of return (ARR) (on initial investment) for the proposed project? Round your answer to 1 decimal place, e.g., 0.1224 = 12.2%.

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7) Said Company is considering the purchase of a new piece of equipment for $45,000. The

projected after-tax net income associated with this investment is $3,000 for each of the next three years. The company uses straight-line depreciation. The machine has a useful life of 3 years and no salvage value. Management of the company considers a 12% return on investment to be satisfactory. Required: 1. What is the discounted payback period (in years) for this investment (rounded to one decimal place)? (The appropriate discount factors for 12% are as follows: Year 1 = 0.893; Year 2 = 0.797; and Year 3 = 0.712.) 2. What is the estimated net present value (NPV) of this proposed investment, rounded to the nearest whole number?

8) George's Garage is considering purchasing a machine for $75,000. The machine is expected

to generate a net after-tax income of $11,250 per year. This machine is to be depreciated over a 10-year period with no residual value.

Required: What is the payback period, in years, for this machine (round answer to one decimal place)? (Assume that the cash inflows from this investment occur evenly throughout the year.)

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9) National Rodeo Association, a not-for-profit organization, is considering purchasing a new

enterprise software system for $90,000. This investment is projected to have an eight-year useful life, and a salvage value of $8,800; the investment is projected to save the organization approximately $18,000 each year in operating costs. In addition to the cost of the software system, the association needs an increase of $5,000 in net working capital (other than cash) in the first year, which will not be released (that is, converted back to cash) until the end of eight years. Required: 1. What is the payback period for this proposed investment? (Assume that the cash flows, other than salvage value, occur evenly throughout the year. Round your answer to 2 decimal places, e.g., 2.452 years = 2.45 years.) 2. If the Association has a required rate of return of 10 percent, what is the net present value (NPV) of the proposed investment? Round your calculation to whole dollars (i.e., zero decimal points). (The PV annuity factor for 10%, 8 years is 5.335, while the PV $1 factor for 10%, 8 years is 0.467.) 3. What is the estimated internal rate of return (IRR) on this project (to the nearest whole percent)? (Note: The following present value factors are taken from the present value tables in Appendix C of Chapter 12, for an 8-year period.)

PV $1 discount factor PV annuity factor

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@10%

@11%

@12%

@13%

0.467 5.335

0.434 5.146

0.404 4.968

0.376 4.799

10) Megan Incorporated has a policy of not accepting any investment proposal that requires more

than three years to payback. The company is considering the purchase of new drafting equipment for $630,000. The equipment has an estimated useful life of seven years. Megan will use straight-line depreciation for this asset, with no salvage value. Megan's income tax rate, t, is approximately 25%. Required: Determine the required before-tax savings per year (rounded to nearest whole number) for the drafting equipment to meet the company's three-year payback requirement.

11) Durable Incorporated is considering replacing an old drilling machine that cost $200,000 six

years ago with a new one that costs $450,000. Shipping and installation cost an additional $60,000. The old machine has been depreciated using the straight-line (SL) method with no salvage value over an estimated 8-year useful life. The old machine can be sold for $40,000 now or $10,000 in two years. Management expects increases in inventories of $10,000, accounts receivable of $32,000, and accounts payable of $12,000 if the new machine is acquired. Durable's income tax rate is expected to be 30 percent over the years affected by the investment. Required: What is Durable's net initial investment (i.e., its after-tax initial cash outlay for the machine)? Round answer to nearest whole dollar.

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12) Fieldgard Incorporated invested $800,000 in a project nine years ago. This project has

generated $320,000 cash revenues per year and incurred $250,000 cash operating costs each year. The project qualified as 7-year property under MACRS (modified accelerated cost recovery system). Salvage value of this project (at the end of the tenth, and final, year of the project's life) is expected to be $200,000. The project required $80,000 net additional working capital at its inception and another $60,000 at the end of year 5. The combined increased working capital commitment is expected to be fully recoverable when the project terminates. The company is subject to a combined 40% income tax rate, t.

Required: What is the expected total after-tax cash flow expected from this project next year (i.e., during the 10th and final year of the project's life)? Round answer to nearest whole number.

13) Six years ago, Nebrow Incorporated purchased a polishing machine for $600,000. The

company expected to use the machine for 10 years with no residual value at the end of the tenth year. The machine has been generating annual cash revenue of $460,000 and incurring annual cash operating costs of $210,000. Nebrow is considering the purchase of a new digital polishing machine for $800,000, which will have annual cash revenues of $690,000 and annual cash operating costs of $180,000. The new machine is expected to have a useful life of four years. The company uses the straight-line depreciation method with no salvage value to depreciate all its assets. Assume, for purposes of analysis, that Nebrow is subject to a combined 40% tax rate. Required: What is the annual incremental after-tax cash flow from the new polishing machine, rounded to the nearest whole number?

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14) Solich Company is evaluating a new tractor that costs $1,350,000 to replace the tractor

purchased years earlier, which currently has no salvage value; the new tractor has an estimated useful life of five years with no disposal value or anticipated cost of disposal. For all its equipment, the company uses straight-line depreciation with no residual value. Solich is subject to a 40% income tax rate, t. The company uses a 12% hurdle rate for evaluating capital investment projects. The PV of an annuity of $1 at 12% for 5 years is 3.605, and the PV of $1 at 12% in 5 years is 0.567. Required: 1. Compute the amount of annual before-tax savings (rounded to nearest whole number) that must be generated by the new tractor to have a payback period of 3.0 years. 2. Compute the amount of annual before-tax savings that must be generated by the new tractor to have an NPV of $500,000 at a discount rate of 12%. (Round your answer to the nearest whole dollar amount.) 3. Compute the amount of annual before-tax savings that must be generated by the new tractor to have an IRR of 12%. (Round your answer to the nearest whole dollar.)

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15) Grey Incorporated is considering purchasing a machine for $50,000, which is expected to

generate an annual after-tax income of $10,000; this machine is to be depreciated over 5 years with no residual value. Required: 1. Under the assumption that cash inflows occur evenly throughout the year, what is the payback period for this machine? (Round answer to one decimal place.) 2. Based on the initial investment outlay, what is the anticipated accounting rate of return (ARR) on this investment, rounded to one decimal place? 3. What is the anticipated internal rate of return (IRR) on this investment? (Note: To answer this question, you will need to have access to Excel or the present value tables presented as Appendix C to Chapter 12.) 4. Assume a discount rate (i.e., cost of capital) of 15%: (a) What is the modified rate of return (MIRR) on this investment, under the assumption that the interim cash inflows can be reinvested at an estimated rate of 15%? (Note: To answer this question, you will need access to Excel.) Round answer to nearest whole number. (b) What is the MIRR of the project under the assumption that the interim cash flows can be reinvested at a rate of 28.65%? (Note: To answer this question, you will need access to Excel.)

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16) Green Leaf Incorporated is considering the purchase of a new piece of equipment for

$30,000. The projected after-tax net income per year on this investment is estimated to be $5,000. The firm uses straight-line depreciation. This asset is expected to have a useful life of 5 years and no salvage value at the end of its useful life. Management of the company estimates that the company’s weighted-average cost of capital (WACC) is 10%. The present value factor for 10%, 5 years = 0.621, while the present value annuity factor for 5 years at 10% is 3.791. Required: 1. What is the estimated net present value (NPV) of the machine, rounded to nearest whole dollar? 2. What is the profitability index (PI) for this proposed investment, rounded to two decimal places (e.g., 0.4412 = 0.44)? 3. For what purpose is the profitability index (PI) useful, in a capital budgeting context? 4. Use the built-in function in Excel to estimate this project's internal rate of return (IRR), to two decimal places (e.g., 13.568% = 13.57%). 5. Use the built-in function in Excel to estimate the project's modified internal rate of return (MIRR), to two decimal places, under the assumption that the interim cash flows from the investment generate a rate of return of: (a) 10%, and (b) 20%. 6. How does the MIRR measure differ from the conventional IRR calculation?

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17) HHR Construction, Incorporated is considering developing, on a piece of land currently held

by the company, a new courtyard motel. This project would provide a single payoff from a buyer in one year (after construction was completed). The concept of a courtyard motel is relatively new, so there is a certain amount of risk associated with this project. The company's management feels that in approximately a year from now new information regarding potential consumer demand would be revealed, that is, whether in the chosen geographic location a courtyard motel would be popular (i.e., "good news") or unpopular (i.e., "bad news"). In the former case, you anticipate a selling price of $13 million, while in the latter case only $9 million. At the present, these two outcomes are considered equally likely. For projects of this sort, the company uses a WACC (discount rate) of 10% after tax. The company estimates that total construction costs for this project would, in today's dollars, be approximately $9.7 million. Required: 1. Based on the given probabilities for the two possible outcomes (states of nature), what is the expected NPV of the proposed investment, rounded to the nearest whole dollar? (At 10%, PV factor for one year = 0.909.) 2. What is the primary deficiency of the traditional DCF analysis you conducted above in Requirement (1)? 3. Suppose now that management has an option to wait a year before deciding whether to construct the motel in question. The question the company is grappling with is whether it should delay the investment decision for one year. Given the information above, what do you recommend, and why? That is, what is the expected NPV of the proposed investment (today) if we waited one year? (For simplicity, assume that one year from now the investment cost would be $9.7 million and that the return one year later would be $13 million.) Round your answer to the nearest whole number. 4. Define the term "real option." Compare real options with financial options. 5. This problem deals with what is called an investment-timing option, one of four general classes of real options. What other types of real options can be embedded in a capital investment proposal? How do these classes relate to put options and call options?

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18) Omaha Plating Corporation is considering purchasing a machine for $1,500,000. The

machine is expected to generate a constant after-tax income of $100,000 per year for 15 years. The firm will use straight-line (SL) depreciation for the new machine over 10 years with no residual value. Its estimated weighted-average cost of capital (WACC) for evaluating capital expenditure proposals is 10%. Note: the PV $1 factor for 10 years, 10% is 0.386; the PV annuity factor for 10%, 10 years is 6.145; and, the PV annuity factor for 10%, 5 years is 3.791. Required: Using a discount rate of 10%, what is the estimated net present value (NPV) of the proposed investment (rounded to the nearest thousand)?

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19) Cash Corporation wants to purchase a new machine for $400,000. Management predicts that

the machine can produce sales of $275,000 each year for 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The company uses MACRS for depreciation. The machine is considered 3year property and is not expected to have any significant residual value at the end of its useful life. The company is subject to a 40% combined income tax rate, t. Management uses a 10% weighted-average cost of capital (WACC) to evaluate proposed capital expenditures. A partial MACRS depreciation table is reproduced below. Year 1 2 3 4 5 6

3-year property 5-year property 33.33 20.00 44.45 32.00 14.81 19.20 7.41 11.52 11.52 5.76

Required: 1. What is the payback period for the new machine (rounded to the nearest tenth of a year)? Assume for purposes of this calculation that the cash inflows occur evenly throughout the year. 2. What is the accounting (book) rate of return (ARR) (rounded to two decimal places) based on the initial investment and on average after-tax income over the five-year period? 3. What is the accounting (book) rate of return (ARR) (rounded to two decimal places), based on the average investment, where the latter is determined as a simple average of beginningof-project and end-of-project book value of the asset?

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20) Cash Corporation wants to purchase a new machine for $400,000. Management predicts that

the machine can produce sales of $275,000 each year for next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The company uses MACRS (modified accelerated cost recovery system) for depreciation. The machine is considered 3-year property and is not expected to have any significant residual at the end of its useful life. Cash's income tax rate, t, is 40%. Management estimates that the weighted-average cost of capital (WACC) is 10%. A partial MACRS depreciation table is reproduced below. Year 1 2 3 4 5 6

3-year property 5-year property 33.33 20.00 44.45 32.00 14.81 19.20 7.41 11.52 11.52 5.76

Required: 1. What is the estimated net present value (NPV) of the investment (rounded to the nearest whole dollar)? (Note: PV $1 factors for 10% are as follows: year 1 = 0.909; year 2 = 0.826; year 3 = 0.751; year 4 = 0.683; year 5 = 0.621; the PV annuity factor for 10%, 5 years = 3.791.) Assume that all estimated cash flows occur at year-end. 2. What is the present value payback period (rounded to two decimal places)?

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21) Nelson Incorporated is considering the purchase of a $600,000 machine to manufacture a

specialty tap for electrical equipment. The tap is in high demand and Nelson can sell all that it can manufacture each year for the next 10 years. To spur economic growth, the government currently exempts taxes on profits from investments like the equipment under consideration. This legislation will most likely remain in effect in the foreseeable future. The equipment is expected to have 10 years of useful life with no salvage value. The firm uses the double-declining-balance (DDB) depreciation method and switches to the straight-line depreciation method in the last four years of the asset's 10-year life. Nelson uses a rate of 10% (weighted-average cost of capital) in evaluating its capital investments. The net cash inflows are expected to be as follows: Year 1 2 3 4 5 6 7 8 9 10

Cash Inflow $ 40,000 70,000 100,000 170,000 200,000 250,000 230,000 200,000 100,000 40,000

Required: 1. Under the assumption that cash inflows occur evenly throughout the year, what is the estimated payback period for this investment (rounded to two decimal places, e.g., 4.781 years = 4.78 years)? 2. What is the estimated accounting (book) rate of return (ARR) based on initial investment (rounded to two decimal places, e.g., 12.348% = 12.35%)? 3. What is the estimated accounting (book) rate of return (ARR) based on average investment, where "average investment" is defined as a simple average of the beginning-ofproject book value and the end-of-project book value of the asset? Round your answer to two decimal places.

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22) Nelson Incorporated is considering the purchase of a $600,000 machine to manufacture a

specialty tap for electrical equipment. The tap is in high demand and Nelson can sell all that it could manufacture each year for the next 10 years; the government currently exempts taxes on profits from new investments (including the investment being considered here). This legislation will most likely remain in effect in the foreseeable future. The equipment is expected to have a 10-year useful life with no salvage value. The firm uses the doubledeclining-balance (DDB) depreciation method, with a switch to the straight-line depreciation method in the last four years of the asset's 10-year life. Nelson uses a 10% weighted-average cost of capital (WACC) in evaluating its capital investment proposals. The net cash inflows are expected to be as follows: Year 1 2 3 4 5 6 7 8 9 10

Cash Inflow $ 40,000 70,000 100,000 170,000 200,000 250,000 230,000 200,000 100,000 40,000

Note: PV $1 factors, at 10%: year 1 = 0.909; year 2 = 0.826; year 3 = 0.751; year 4 = 0.683; year 5 = 0.621; year 6 = 0.564; year 7 = 0.513; year 8 = 0.467; year 9 = 0.424; year 10 = 0.386. The PV annuity factor for 10 years, 10% = 6.145. Required: 1. What is the estimated net present value (NPV) of this proposed investment, rounded to the nearest thousand (e.g., $34,480 = $34,000)? 2. What is the estimated internal rate of return (IRR) on this project, rounded to the nearest whole % (e.g., 20.34% = 20%; 20.52% = 21%, etc.)? (Note: Students would have to have access to Excel to answer this question.) 3. What is the present value payback period for this proposed investment, in years (rounded to one decimal place)?

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23) Fritz Company is planning to acquire a $250,000 machine to improve manufacturing

efficiencies, thereby reducing annual cash operating costs (before taxes) by a projected $80,000 for each of the next five years. The company requires a minimum rate of return of 8% on all capital investments. The machine will be depreciated using straight-line method over a five-year period with no salvage value at the end of five years. Fritz is subject to a combined 40% income tax rate. Required: 1. What is the machine's payback period, in years (rounded to one decimal place, e.g., 4.2483 years = 4.2 years), under the assumption that cash flows occur evenly throughout the year? 2. What is the accounting (book) rate of return (ARR), based on the initial investment amount (rounded to one decimal place, that is, rounded to the nearest one-tenth of a percent, e.g., 12.342% = 12.3%)?

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24) Fritz Company is planning to acquire a $250,000 machine to improve manufacturing

efficiencies, thereby reducing annual cash operating costs (before taxes) by an estimated $80,000 for each of the next five years. The company's estimated weighted-average cost of capital (WACC) is 8%. The machine will be depreciated using straight-line method over a five-year period with no salvage value. Fritz is subject to a combined 40% income tax rate, t. Note: at 8%, the PV annuity factor for five years is 3.993; at 8%, PV $1 factors are as follows: for year 1 = 0.926; for year 2 = 0.857; for year 3 = 0.794; for year 4 = 0.735; and, for year 5 = 0.681. Required: 1. What is the estimated net present value (NPV) of the proposed investment, rounded to the nearest whole number? 2. What is the present value payback period, in years (rounded to one decimal place, that is, to tenth of a year, e.g., 4.085 years = 4.1 years)? 3. What is the estimated internal rate of return (IRR) on the proposed investment? Round your answer to one decimal place (i.e., tenth of a percent, e.g., 13.4%). (Note: to answer this question, you will need access to the tables presented in Chapter 12, Appendix C or to Excel.)

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25) Slumber Company is considering two mutually exclusive investment alternatives. Its

estimated weighted-average cost of capital (WACC), used as the discount rate for capital budgeting purposes, is 10%. Following is information regarding each of the two projects:

Required investment outlay After-tax cash inflows/year Estimated project life (in years) Estimated salvage value (end of life)

Alternative 1

Alternative 2

$ 170,000 $ 50,000 5 $ 0

$ 100,000 $ 30,000 5 $ 0

Required: 1. Compute the estimated net present value (NPV) of each project (rounded to nearest whole number) and determine which alternative, based on NPV, is more desirable. (The PV annuity factor for 10%, 5 years, is 3.7908.) 2. Compute the profitability index (PI) for each alternative (each rounded to two decimal places) and state which alternative, based on PI, is more desirable. 3. Why do the project rankings differ under the two methods of analysis? Which alternative would you recommend, and why?

26) Especially for projects with long lives, estimation of revenues (or benefits), costs, and cash

flows is a difficult task principally because of: A) The lack of good data. B) Uncertainty about future events. C) The large dollar amounts involved. D) Income tax effects. E) Lack of available forecasting tools.

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27) What are the two principal types of investment projects? A) Short-term and long-term projects. B) Profitable and unprofitable projects. C) Small and large projects. D) Independent and dependent projects. E) Revenue-increasing and cost-reducing projects.

28) Which of the following methods is potentially useful for helping an organization align its

capital expenditures with its strategy? A) Multiproduct cost-volume-profit (CVP) analysis. B) The analytic hierarchy process (AHP). C) Multiple regression and correlation analysis. D) Linear optimization (that is, linear programming models). E) Six-Sigma techniques.

29) Which of the following statements regarding capital investment analysis isfalse? A) A long-term planning horizon is assumed. B) Benefits of potential investment projects are conceptually expressed in terms of

accounting income (or reduction in costs) rather than after-tax cash flows. C) Project acceptance decisions are based partially on the extent to which these projects and expenditures support the strategy of the organization. D) Need to incorporate income-tax effects in the analysis, for both revenues (and gains) as well as expenses (and losses). E) Discounted cash flow (DCF) decision models are used by most large organizations.

30) For a typical capital investment project, the bulk of the investment-related cash outflow

occurs: A) B) C) D) E)

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During the initiation stage of the project (i.e., at time period 0). During the operation stage of the project (i.e., after time period 0). Either during the initiation stage or the operation stage. During neither the initiation stage nor the operation stage. Evenly during all three stages: initiation, operation, and final disposal.

31) Accounting makes all the following contributions to the capital budgeting processexcept: A) The theoretical development of appropriate decision models. B) Linkage of capital investment projects to the organization's Balanced Scorecard

(BSC). C) Conducting post-audits of capital investment decisions. D) Generation of relevant (i.e., cash flow) data for investment-analysis purposes. E) Performing sensitivity or "what-if" analysis of proposed capital investments.

32) Which of the following isnot an example of a capital investment? A) The implementation of a new manufacturing technology. B) The purchase of raw materials for inventory. C) The installation of a computer-based record-keeping system. D) The expansion of a business into new territories. E) The purchase of new manufacturing equipment.

33) In making sound capital budgeting decisions, the principal focus is on: A) After-tax cash flows only. B) Timing of the cash flows only. C) After-tax cash flows and the timing of these cash flows. D) Accounting-based measures of revenues and expenses. E) Nonfinancial performance indicators of various projects under consideration.

34) The process of identifying, evaluating, selecting, and controlling capital investments is

referred to as: A) Investment discounting. B) Capital rationing. C) Capital investing. D) Capital budgeting. E) Post-audit analysis.

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35) The tax impact of a capital investment project (such as the replacement of a major piece of

machinery) is present during: A) The project initiation stage (i.e., time period 0) and final disposal stage only. B) All stages (initiation, operation, and final disposal) of the project. C) Only the project initiation stage and the operation stage. D) The project operation stage only. E) The project disposal stage only.

36) What is a multicriteria decision technique that can combine qualitative and quantitative

factors? A) strategic control system. B) analytic hierarchy process. C) post audit process. D) Linear programming process. E) capital budget.

37) Which of the following can a cash flow analysis of the final disposal of a capital asset (for

example, machinery used in the operation of a business)not produce? A) A net cash outflow. B) A net cash inflow. C) An income tax consequence. D) An operating gain or loss. E) An after-tax cash outflow.

38) Which of the following isnot a characteristic of the payback method for making capital

budgeting decisions? A) It is easy to calculate and comprehend. B) It focuses primarily on liquidity, rather than profitability, of an investment project. C) It can be considered a rough measure of risk. D) It considers returns over the entire life of the project. E) It requires estimates of after-tax cash inflows and after-tax cash outflows.

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39) The capital budgeting method(s) that is(are) most likely to provide consistency between data

for capital budgeting and data for subsequent performance evaluation is(are) the: A) Payback period method. B) Discounted cash flow (DCF) methods. C) Book (i.e., accounting) rate of return method. D) Discounted payback period method. E) Cash-flow proxy method.

40) The time value of money is explicitly considered in which one of the following capital

budgeting method(s)? A) Payback method. B) Net present value (NPV) method. C) Operating cash-flow method. D) Book (accounting) rate of return method. E) Residual income method.

41) Results from the net present value (NPV) method and the internal rate of return (IRR)

method may differ between projects if the projects differ in all the followingexcept: A) Required initial investment. B) Cash-flow pattern. C) Cost of capital (i.e., discount rate). D) Length of useful life of the two projects. E) Book (accounting) rate of return on the two projects.

42) Which of the following statements regarding cost of capital isnot true? A) It reflects the perceived level of risk for which investors in debt and equity securities

expect to be compensated. B) It is another term for "required rate of return." C) It is typically defined as a weighted-average of all sources of capital for the company. D) It is used to calculate the present value of anticipated after-tax cash flows for a project. E) It is used when calculating the internal rate of return (IRR) of a proposed investment.

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43) Given two projects with the same total (i.e., project lifetime) cash flow returns (CFRs), the

internal rate of return (IRR) method of capital budgeting would favor a proposal having yearly CFRs that were: A) Even. B) Uneven. C) Heavier towards the end of a proposal's life. D) Heavier towards the beginning of a proposal's life. E) Heavier towards the middle of a proposal's life.

44) In what situation would using the internal rate of return (IRR) break down? A) When there are non-normal cash flows in the project. B) When the project is longer than 10 years. C) When the weighted average cost of capital is small relative to other companies. D) The internal rate of return always works for any project. E) When the the net present value of the project is negative.

45) What is the hurdle rate for average-risk projects? A) weighted-average cost of capital (WACC) B) It is determined by the industry a company is in. C) The prevailing interest rate in the market at that time. D) 5% E) Never above 15%.

46) Research has shown that in framing capital investment decisions past (i.e., "sunk") costs or

losses tend to: A) Have no discernible impact on decisions by managers. B) Have a slight impact on the decision-making process. C) Have an impact only when capital funds are limited. D) Escalate commitment in making capital budgeting decisions. E) Have a significant impact, but only when dealing with independent investment projects.

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47) Intolerance of uncertainty is a behavioral effect that often motivates managers to: A) Invest heavily in strategic-related investments. B) Choose projects with short payback periods. C) Invest in a few large, sequential investments. D) Invest in projects with relatively long payback periods. E) Favor projects that are mutually exclusive.

48) Which one of the following capital budgeting decision models consists of dividing the total

initial investment outlay by annual after-tax cash inflows (when such inflows are assumed equal over time)? A) Profitability index (PI). B) Payback period. C) Book (accounting) rate of return (ARR). D) Internal rate of return (IRR). E) Adjusted payback period.

49) Which one of the following is calculated by dividing average annual net operating income of

a proposed project by the average investment associated with the project? A) Profitability index (PI). B) Payback period. C) Accounting (book) rate of return (ARR). D) Internal rate of return (IRR). E) Net present value (NPV).

50) The internal rate of return (IRR) for an investment: A) Frequently results in positive net present values on attractive projects. B) Is generally greater than the company's desired rate of return. C) Ignores the time value of money. D) May produce different results than the net present value method (NPV) in evaluating

projects with different useful lives. E) Would tend to be reduced if a company used an accelerated method of depreciation for tax purposes.

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51) Which one of the following is the estimated rate (i.e., percentage) that makes the discounted

present value of future after-tax cash inflows of a project equal to the initial investment outlay for the project? A) Weighted-average cost of capital (WACC). B) Payback period, in years. C) Book (accounting) rate of return. D) Internal rate of return (IRR). E) Accounting rate of return (ARR), after tax.

52) Which one of the following is an advantage of the payback method of evaluating capital

investment proposals? A) It provides a (rough) measure of project risk. B) It is linearly related to the net present value (NPV) of a proposed project. C) It considers all possible future cash flows of the project. D) It applies conventional discounting procedures to anticipated future cash flows. E) It allows managers to choose between competing projects with different useful lives.

53) Which one of the following is an advantage of the accounting (book) rate of return (ARR)

method for analyzing capital investment proposals? A) It is not affected by different accounting methods. B) It is precise and objective. C) Data for calculating the return are typically readily available. D) The method explicitly adjusts for the time value of money. E) ARR is generally approximately equal to a project's internal rate of return (IRR).

54) What two things make up the capital structure of a firm? A) Equity and revenue. B) Debt and equity. C) Debt and the weighted-average cost of capital. D) Capital and expenses. E) The discount rate and debt.

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55) The difference between the present value of future after-tax cash inflows and the present

value of future cash outflows of an investment project is the: A) Internal rate of return (IRR) of the project. B) Modified internal rate of return (MIRR) on the project. C) Book (accounting) rate of return for the project. D) Net present value (NPV) of the project. E) Modified internal rate of return (MIRR) of the project.

56) A capital budgeting model that accounts for an assumed rate of return on interim-period cash

inflows from an investment is the: A) Internal rate of return (IRR) model. B) Present-value payback period model. C) Net present value (NPV) model. D) Accounting rate of return (ARR) model. E) Modified internal rate of return (MIRR) model.

57) Under conditions of capital rationing (i.e., limited capital funds are available), the optimal

allocation of funds to capital investment projects occurs when management uses which one of the following decision models? A) Discounted payback. B) Profitability index (PI). C) Modified internal rate of return (MIRR). D) Internal rate of return (IRR). E) Discounted accounting rate of return.

58) Which one of the following methods assumes (inherently, according to some) that all interim

cash inflows generated by an investment earn a return equal to the internal rate of return (IRR) of the investment? A) Modified internal rate of return (MIRR). B) Payback. C) Net present value (NPV). D) Present value index (PI). E) Internal rate of return method (IRR).

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59) For a capital investment project, a net present value (NPV) of $500 indicates that the: A) Project's true or economic rate of return exceeds the hurdle (discount) rate. B) Project's internal rate of return (IRR) is likely unacceptable. C) Present value of cash outflows exceeds the present value of after-tax cash inflows. D) Total cash outflows for the project are expected to be $500. E) Internal rate of return (IRR) exceeds the accounting rate of return (ARR) on the

project.

60) A 15% internal rate of return (IRR) on a proposed capital investment indicates all of the

followingexcept: A) The economic rate of return on the project is expected to be 15%. B) Use of a 15% discount rate would result in an estimated project net present value (NPV) of zero. C) An acceptable capital project if the cost of capital is 16 percent or higher. D) A positive net present value (NPV) if the cost of capital is less than 15%. E) An acceptable project, in a present value sense, if the discount rate is less than 15%.

61) Which one of the following istrue for the internal rate of return (IRR) method? A) It assumes cash proceeds during the life of a project can be reinvested to earn the

same rate of return as the weighted-average cost of capital. B) Depending on the pattern of after-tax cash flows, multiple IRRs for a given proposed investment are possible. C) IRRs of multiple projects are additive (that is, can be added together). D) It can be used to make optimal decisions regarding independent investment projects. E) It makes it easy to incorporate multiple costs of capital.

62) Which one of the following statements concerning capital budgeting isnot true? A) A basic objective underlying capital budgeting is to select assets that will earn a

satisfactory return. B) Capital budgeting is the process of identifying, evaluating, selecting, and controlling long-term investment projects. C) Because of the existence of advanced forecasting techniques, capital budgeting is based on precise estimates of future events. D) Capital budgeting involves estimating the revenues and costs of each proposed project, evaluating their merits, and choosing those worthy of investment. E) Capital budgeting uses after-tax cash flows in the analysis of proposed investments.

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63) Which of the following methods can be used to deal formally with uncertainty in the capital-

budgeting process? A) Real options analysis. B) Net present value (NPV) analysis. C) Capital rationing analysis. D) Linear programming optimization. E) Equivalent annual annuity (EAA) analysis.

64) Two investments have the same total cash inflows and the same payback period. Therefore: A) These two investments are equally desirable. B) These two investments must be identical in terms of the present value of the cash

inflows. C) The payback period method can help decision makers choose between these two investments. D) One pattern of cash inflows may, in a present value sense, be preferable to the other investment's pattern of cash inflows. E) Most likely, these two investments required approximately the same initial investment.

65) Which of the following gives the capital asset pricing model (CAPM) equation in words? A) The expected rate of return on a stock is equal to the market risk premium plus the

stock’s beta coefficient times the risk free rate. B) The market risk premium is equal to the expected rate of return on a stock plus the specific stock’s beta coefficient times the risk-free rate. C) The specific stock’s beta coefficient is equal to the risk-free rate plus the expected rate of return on a stock times the market risk premium. D) The capital asset pricing model is not an equation; it is a guideline for capital investment. E) The expected rate of return on a stock is equal to the risk-free rate plus the specific stock’s beta coefficient times the market risk premium.

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66) Which of the following is alwaystrue regarding the net present value (NPV) decision model? A) If a project is found to be acceptable under the NPV approach, it would also be

acceptable under the internal rate of return (IRR) approach. B) The net present value (NPV) and the IRR approaches will always rank two projects in the same order of preference. C) If a project is found to be acceptable under the net present value (NPV) approach, it would also be acceptable under the payback approach. D) If a project is found to be acceptable under the net present value (NPV) approach, it would also be acceptable under the book (accounting) rate of return approach. E) If a project is rejected under the net present value (NPV) approach, it would also be rejected under the payback approach.

67) If a company is in the situation of having unlimited capital funds, the best decision rule,

considering only financial factors, is for the company to invest in all projects in which: A) The payback period is short. B) The accounting (book) rate of return (ARR) is greater than its current return on invested capital (ROI). C) The net present value (NPV) is greater than the cost of capital. D) The internal rate of return (IRR) is greater than zero. E) The net present value (NPV) is greater than zero.

68) When the net present value (NPV) of a project is calculated based on the assumption that the

after-tax cash inflows occur at the end of the year when they actually occur uniformly throughout each year, the net present value (NPV) will: A) Not be in error. B) Be slightly overstated. C) Be unusable for actual decision-making. D) Be slightly understated but probably usable. E) Produce an error the direction of which is undeterminable.

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69) Without knowing the required rate of return (i.e., discount rate) used for capital investment

projects, a company will be able to calculate and evaluate a project's: A) Payback period, book rate of return, net present value, and internal rate of return. B) Net present value, and internal rate of return. C) Book rate of return, and internal rate of return. D) Payback period, and book rate of return. E) Payback period only.

70) When the internal rate of return (IRR) method and the net present value (NPV) method do

not yield the same recommendation for two mutually exclusive investment projects, the project-selection decision should normally be based on: A) IRR, because all reinvestment of funds occurs at the rate of the cost of capital and because it takes into consideration the relative size of the initial investment. B) NPV, because it takes into consideration the relative size of the initial investment. C) IRR, because all reinvestment of funds occurs at the discount rate that will make the net present value (NPV) of the project equal to zero. D) NPV, because all reinvestment of funds occurs at the discount rate that will make the net present value (NPV) of the project equal to zero. E) IRR, because all reinvestment of funds occurs at the rate the project generates and because it takes into consideration the relative size of the initial investment.

71) Cash-flow analysis: If an existing asset is sold at a gain, and the gain is taxable, then the

after-tax proceeds from this transaction would be equal to: A) Net proceeds from the sale plus the after-tax gain on the sale. B) Net proceeds from the sale less the after-tax gain on the sale. C) Net proceeds from the sale plus the taxes paid on the gain. D) Net proceeds from the sale less the taxes paid on the gain. E) The pre-tax proceeds plus taxes on the gain.

72) For a given income tax rate, t, after-tax cash operating receipts are calculated as follows: A) Taxable cash receipts times (1 −t). B) C) D) E)

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Taxable cash receipts times t. Taxable cash receipts times (1 + t). Taxable cash receipts divided by (1 − t). Taxable cash receipts divided by t.

73) Which of the following statements regarding the determination of the weighted-average cost

of capital (WACC) isnot true? A) The capital asset pricing model (CAPM) cannot be used to estimate the cost of debt for a company. B) The capital asset pricing model (CAPM) can be used to estimate the cost of equity for a non-public company. C) It is a calculation of the firm’s cost of capital in which each source of funds is proportionately weighted. D) Market, not book, values of the components of capital are preferable in terms of determining weights for the weighted-average calculation. E) The cost of preferred stock is included in the estimation process.

74) Which of the following isnot used to deal with uncertainty in the capital budgeting process? A) What-if analysis. B) Sensitivity analysis. C) Monte Carlo simulation. D) Real options analysis. E) Linear programming analysis.

75) What is the definition of scenario analysis? A) The minimum annual after-tax cash inflows needed for an investment project to be

acceptable. B) The name for a variety of methods that examine how an amount changes if factors involved in predicting that amount change. C) A form of sensitivity analysis that combines the best- and worst-case scenario to analyze if a project will do well. D) Flexibilities and/or growth opportunities embedded in capital investment projects. E) A special form of sensitivity analysis that is appropriate when the variables in a decision model are interrelated

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76) Chicken Company has a pre-tax net cash inflow of $1,500,000. The company can claim

depreciation expense of $600,000 this year, and is subject to a combined income tax rate of 24%. What is the after-tax cash inflow for the year? A) $900,000. B) $1,284,000. C) $216,000. D) $636,000. E) $1,500,000.

77) Chicken Company has a pre-tax net cash inflow of $1,200,000. The company can claim

depreciation expense of $500,000 this year, and is subject to a combined income tax rate of 26%. What is the after-tax cash inflow for the year? A) $700,000. B) $1,018,000. C) $182,000. D) $370,000. E) $1,200,000.

78) What is the present value of $1 received three years from now (rounded to two decimal

places) if the discount rate is 18%? A) $2.66. B) $0.61. C) $1.00. D) $2.38. E) $0.83.

79) What is the present value of $1 received five years from now (rounded to two decimal

places) if the discount rate is 12%? A) $1.76. B) $0.57. C) $1.00. D) $1.60. E) $0.89.

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80) Food Harvesting Corporation is considering purchasing a machine for $2,094,750. The

machine is expected to generate a constant after-tax income of $105,525 per year for 15 years. The firm will use straight-line (SL) depreciation for the new machine over 10 years with no residual value. What is the payback period for the new machine? (Round your answer to two decimal places.) A) 4.65 years. B) 5.65 years. C) 6.65 years. D) 10.65 years. E) 15.65 years.

81) Food Harvesting Corporation is considering purchasing a machine for $1,500,000. The

82) Food Harvesting Corporation is considering purchasing a machine for $3,500,000. The

machine is expected to generate a constant after-tax income of $80,000 per year for 14 years. The firm will use straight-line (SL) depreciation for the new machine over 15 years with no residual value. What is the estimated accounting (book) rate of return (rounded to two decimal places) on the initial investment? A) 2.29%. B) 4.00%. C) 4.57%. D) 6.29%. E) 8.57%.

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83) Food Harvesting Corporation is considering purchasing a machine for $1,500,000. The

machine is expected to generate a constant after-tax income of $100,000 per year for 15 years. The firm will use straight-line (SL) depreciation for the new machine over 10 years with no residual value. What is the estimated accounting (book) rate of return (rounded to two decimal places) on the initial investment? A) 6.67%. B) 10.00%. C) 13.33%. D) 16.67%. E) 23.33%.

84) All of the following capital budgeting decision models, except for this one, use cash flows as

the primary basis for the calculation. A) Net present value (NPV) B) Internal rate of return (IRR) C) Payback period D) Discounted payback period E) Accounting (book) rate of return (ARR)

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85) Bear Company is analyzing several proposed investment projects. The firm has resources

only for one project. Project P Project Q Project R Project S Project T Cost of investment Net cash inflows: Year 1 Year 2 Year 3 Year 4 Year 5

$ 30,000

$ 36,000

$ 54,000

$ 45,000

$ 50,000

12,000 12,000 12,000 -0-0-

3,000 14,000 14,000 18,000 -0-

4,000 16,000 20,000 30,000 50,000

24,000 8,000 6,000 4,000 2,000

15,000 15,000 15,000 10,000 10,000

The company uses the payback period method for making capital investment decisions. Based on this decision model, which project should be selected? (Ignore taxes and assume that cash inflows occur evenly throughout the year. Carry calculations out to two decimal places.) A) Project P. B) Project Q. C) Project R. D) Project S. E) Project T.

86) Build Corporation wants to purchase a new machine for $298,000. Management predicts that

the machine can produce sales of $205,000 each year for the next 4 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $72,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 50%. Management requires a minimum after-tax rate of return of 15% on all investments. What is the net after-tax cash inflow in Year 1 from the investment? A) $79,750. B) $103,750. C) $115,750. D) $119,750. E) $127,750.

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87) Build Corporation wants to purchase a new machine for $300,000. Management predicts that

88) Build Corporation wants to purchase a new machine for $286,000. Management predicts that

the machine can produce sales of $206,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $81,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 30%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the amount of net income (after taxes) in Year 2 of the investment? Round to the nearest whole number. A) $35,460. B) $47,460. C) $59,460. D) $71,460. E) $131,460.

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89) Build Corporation wants to purchase a new machine for $300,000. Management predicts that

the machine can produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 40%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the amount of net income (after taxes) in Year 2 of the investment? Round to the nearest whole number. A) $24,000. B) $36,000. C) $48,000. D) $60,000. E) $120,000.

90) Build Corporation wants to purchase a new machine for $316,000. Management predicts that

the machine can produce sales of $205,000 each year for the next 4 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $88,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 30%. Management requires a minimum after-tax rate of return of 11% on all investments. What is the payback period for the new machine (rounded to nearest one-tenth of a year)? (Assume that the cash inflows occur evenly throughout the year.) A) 2.4 years. B) 2.6 years. C) 3.0 years. D) 3.5 years. E) 4.1 years.

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91) Build Corporation wants to purchase a new machine for $300,000. Management predicts that

the machine can produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 40%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the payback period for the new machine (rounded to nearest one-tenth of a year)? (Assume that the cash inflows occur evenly throughout the year.) A) 2.5 years. B) 2.7 years. C) 3.1 years. D) 3.6 years. E) 4.2 years.

92) Build Corporation wants to purchase a new machine for $315,000. Management predicts that

the machine can produce sales of $213,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $71,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 50%. Management requires a minimum after-tax rate of return of 13% on all investments. Rounded to the nearest whole percentage (e.g., 31.349% = 31%), what is the annual accounting (book) rate of return (ARR) based on the initial investment? A) 13%. B) 21%. C) 25%. D) 37%. E) 41%.

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93) Build Corporation wants to purchase a new machine for $300,000. Management predicts that

the machine can produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 40%. Management requires a minimum after-tax rate of return of 10% on all investments. Rounded to the nearest whole percentage (e.g., 31.349% = 31%), what is the annual accounting (book) rate of return (ARR) based on the initial investment? A) 12%. B) 20%. C) 32%. D) 36%. E) 40%.

94) Build Corporation wants to purchase a new machine for $284,000. Management predicts that

the machine can produce sales of $187,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $78,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 20%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the net present value (NPV) of the investment, rounded to the nearest whole dollar? (The PV annuity factor for 5 years, 10% is 3.791.) Assume that the cash inflows occur at year-end. A) ($296,185). B) $89,641. C) $135,133. D) $180,625. E) None of these.

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95) Build Corporation wants to purchase a new machine for $300,000. Management predicts that

the machine can produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 40%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the net present value (NPV) of the investment, rounded to the nearest whole dollar? (The PV annuity factor for 5 years, 10% is 3.791.) Assume that the cash inflows occur at year-end. A) ($270,480). B) $63,936. C) $109,428. D) $154,920. E) None of these.

96) Build Corporation wants to purchase a new machine for $306,000. Management predicts that

the machine can produce sales of $203,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $76,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 30%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the approximate internal rate of return (IRR) of the investment? (NOTE: To answer this question, students must have access to Table 2 from Appendix C, Chapter 12.) Assume that annual after-tax cash flows occur at year-end. A) Less than 17%. B) Somewhere between 17% and 19%. C) Somewhere between 20% and 25%. D) Somewhere between 25% and 30%. E) Over 30%.

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97) Build Corporation wants to purchase a new machine for $300,000. Management predicts that

the machine can produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 40%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the approximate internal rate of return (IRR) of the investment? (NOTE: To answer this question, students must have access to Table 2 from Appendix C, Chapter 12.) Assume that annual after-tax cash flows occur at year-end. A) Less than 12%. B) Somewhere between 12% and 14%. C) Somewhere between 15% and 20%. D) Somewhere between 20% and 25%. E) Over 25%.

98) Build Corporation wants to purchase a new machine for $408,000. Management predicts that

the machine can produce sales of $236,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $74,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 40%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the present value payback period, rounded to one-tenth of a year? (Note: PV factors for 10% are as follows: year 1 = 0.909; year 2 = 0.826; year 3 = 0.751; year 4 = 0.683; year 5 = 0.621; the PV annuity factor for 10%, 5 years = 3.791. Assume that annual after-tax cash inflows occur at year-end.) A) 2.5 years. B) 3.0 years. C) 3.3 years. D) 3.6 years. E) 4.0 years.

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99) Build Corporation wants to purchase a new machine for $300,000. Management predicts that

the machine can produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 40%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the present value payback period, rounded to one-tenth of a year? (Note: PV factors for 10% are as follows: year 1 = 0.909; year 2 = 0.826; year 3 = 0.751; year 4 = 0.683; year 5 = 0.621; the PV annuity factor for 10%, 5 years = 3.791. Assume that annual after-tax cash inflows occur at year-end.) A) 2.5 years. B) 3.0 years. C) 3.3 years. D) 3.6 years. E) 3.9 years.

100)

Hammer Corporation wants to purchase a new machine for $294,000. Management predicts that the machine will produce sales of $203,000 each year for the next 4 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $68,000 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000. Hammer's combined income tax rate, t, is 20%. What is the net after-tax cash inflow in Year 1 from the proposed investment, rounded to the nearest whole dollar? A) $100,200. B) $120,200. C) $124,200. D) $130,200. E) $148,200.

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101)

102)

Hammer Corporation wants to purchase a new machine for $297,000. Management predicts that the machine will produce sales of $212,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $78,000 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000. Hammer's combined income tax rate, t, is 50%. What is the expected net income (after tax) in Year 3 if the proposed investment is undertaken? Round answer to nearest whole dollar. A) $28,300. B) $36,300. C) $42,300. D) $70,300. E) $72,300.

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103)

104)

Hammer Corporation wants to purchase a new machine for $280,000. Management predicts that the machine will produce sales of $180,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $81,000 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000. Hammer's combined income tax rate, t, is 50%. What is the payback period for the new machine (rounded to the nearest one-tenth of a year)? Assume that the after-tax cash inflows occur evenly throughout the year. A) 3.3 years. B) 3.6 years. C) 3.9 years. D) 4.2 years. E) 4.8 years.

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105)

Hammer Corporation wants to purchase a new machine for $300,000. Management predicts that the machine will produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000. Hammer's combined income tax rate,t, is 40%. What is the payback period for the new machine (rounded to the nearest one-tenth of a year)? Assume that the after-tax cash inflows occur evenly throughout the year. A) 2.7 years. B) 3.0 years. C) 3.3 years. D) 3.6 years. E) 4.2 years.

106)

Hammer Corporation wants to purchase a new machine for $298,000. Management predicts that the machine will produce sales of $205,000 each year for the next 4 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $72,000 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000. Hammer's combined income tax rate, t, is 50%. What is the annual accounting (book) rate of return (ARR) for the proposed investment, based on the initial investment? (Round answer to nearest whole percentage.) A) 10%. B) 12%. C) 15%. D) 18%. E) 22%.

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107)

Hammer Corporation wants to purchase a new machine for $300,000. Management predicts that the machine will produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000. Hammer's combined income tax rate,t, is 40%. What is the annual accounting (book) rate of return (ARR) for the proposed investment, based on the initial investment? (Round answer to nearest whole percentage.) A) 12%. B) 14%. C) 17%. D) 20%. E) 24%.

108)

Hammer Corporation wants to purchase a new machine for $285,000. Management predicts that the machine will produce sales of $290,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $89,000 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000. Hammer's combined income tax rate, t, is 40%. What is the estimated accounting (book) rate of return (ARR) for the proposed investment, based on average investment? (Round answer to nearest whole number/percentage.) A) 43%. B) 45%. C) 48%. D) 55%. E) 65%.

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109)

Hammer Corporation wants to purchase a new machine for $300,000. Management predicts that the machine will produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000. Hammer's combined income tax rate,t, is 40%. What is the estimated accounting (book) rate of return (ARR) for the proposed investment, based on average investment? (Round answer to nearest whole number/percentage.) A) 12%. B) 14%. C) 17%. D) 24%. E) 34%.

110)

Hammer Corporation wants to purchase a new machine for $286,000. Management predicts that the machine will produce sales of $206,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $81,000 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000. Hammer's combined income tax rate, t, is 30%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the estimated net present value (NPV) of the proposed investment (rounded to the nearest hundred dollars)? (The PV annuity factor for 10%, 5 years, is 3.791 and for 4 years it is 3.17. The present value $1 factor for 10%, 5 years, is 0.621.) Assume that after-tax cash inflows occur at year-end. A) $99,400. B) $130,400. C) $149,600. D) $162,600. E) $120,600.

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111)

Hammer Corporation wants to purchase a new machine for $300,000. Management predicts that the machine will produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000. Hammer's combined income tax rate,t, is 40%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the estimated net present value (NPV) of the proposed investment (rounded to the nearest hundred dollars)? (The PV annuity factor for 10%, 5 years, is 3.791 and for 4 years it is 3.17. The present value $1 factor for 10%, 5 years, is 0.621.) Assume that after-tax cash inflows occur at year-end. A) $48,800. B) $79,800. C) $99,000. D) $112,000. E) $70,000.

112)

Hammer Corporation wants to purchase a new machine for $385,000. Management predicts that the machine will produce sales of $290,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $89,000 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000. Hammer's combined income tax rate, t, is 40%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the approximate internal rate of return (IRR) of the proposed investment? (Note: To answer this question, students should use Table 2 from Appendix C, Chapter 12.) Assume that all cash flows occur at year-end. A) Less than 22%. B) Somewhere between 22% and 24%. C) Somewhere between 24% and 25%. D) Somewhere between 25% and 30%. E) Over 30%.

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113)

Hammer Corporation wants to purchase a new machine for $300,000. Management predicts that the machine will produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000. Hammer's combined income tax rate,t, is 40%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the approximate internal rate of return (IRR) of the proposed investment? (Note: To answer this question, students must have access toTable 2 from Appendix C, Chapter 12.) Assume that all cash flows occur at year-end. A) Less than 12%. B) Somewhere between 12% and 14%. C) Somewhere between 14% and 15%. D) Somewhere between 15% and 20%. E) Over 20%.

114)

Hammer Corporation wants to purchase a new machine for $398,000. Management predicts that the machine will produce sales of $248,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $99,200 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000. Hammer's combined income tax rate, t, is 40%. Management requires a minimum of 10% return on all investments. What is the approximate present value payback period, rounded to one-tenth of a year? (Note: PV $1 factors for 10% are as follows: year 1 = 0.909; year 2 = 0.826; year 3 = 0.751; year 4 = 0.683; year 5 = 0.621; the PV annuity factor for 10%, 5 years = 3.791.) Assume that annual after-tax cash inflows occur evenly throughout the year. A) 2.8 years. B) 3.3 years. C) 3.9 years. D) 4.4 years. E) 5.1 years.

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115)

Hammer Corporation wants to purchase a new machine for $300,000. Management predicts that the machine will produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000. Hammer's combined income tax rate,t, is 40%. Management requires a minimum of 10% return on all investments. What is the approximate present value payback period, rounded to one-tenth of a year? (Note: PV $1 factors for 10% are as follows: year 1 = 0.909; year 2 = 0.826; year 3 = 0.751; year 4 = 0.683; year 5 = 0.621; the PV annuity factor for 10%, 5 years = 3.791.) Assume that annual after-tax cash inflows occur evenly throughout the year. A) 2.5 years. B) 3.0 years. C) 3.6 years. D) 4.1 years. E) 4.8 years.

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116)

Cash Corporation wants to purchase a new machine for $500,000. Management predicts that the machine will produce sales of $291,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $71,000 per year. The company uses MACRS for depreciation. The machine is considered to be a 3-year property and is not expected to have any significant residual value at the end of its useful life. Cash's combined income tax rate, t, is 40%. Management requires a minimum after-tax rate of return of 10% on all investments. A partial MACRS depreciation table is reproduced below. Year 1 2 3 4 5 6

3-year property 33.33 44.45 14.81 7.41

5-year property 20.00 32.00 19.20 11.52 11.52 5.76

What is the after-tax cash inflow in Year 1 from the proposed investment (rounded to the nearest thousand)? A) $91,000. B) $143,000. C) $199,000. D) $269,000. E) $66,000.

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117)

Cash Corporation wants to purchase a new machine for $400,000. Management predicts that the machine will produce sales of $275,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The company uses MACRS for depreciation. The machine is considered to be a 3-year property and is not expected to have any significant residual value at the end of its useful life. Cash's combined income tax rate, t, is 40%. Management requires a minimum after-tax rate of return of 10% on all investments. A partial MACRS depreciation table is reproduced below. Year 1 2 3 4 5 6

3-year property 33.33 44.45 14.81 7.41

5-year property 20.00 32.00 19.20 11.52 11.52 5.76

What is the after-tax cash inflow in Year 1 from the proposed investment (rounded to the nearest thousand)? A) $62,000. B) $114,000. C) $170,000. D) $240,000. E) $37,000.

118)

If the net present value (NPV) of an investment proposal is positive, it would indicate that the: A) PV of after-tax cash outflows exceeds the PV of after-tax cash inflows. B) Payback period is less than one-half the life of the project. C) Internal rate of return (IRR) is equal to the discount percentage used in the net present value (NPV) calculation. D) PV index would be less than 100%. E) Internal rate of return (IRR) for this project is greater than the discount rate used in the NPV computation.

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119)

The payback period for evaluating capital investment projects emphasizes: A) Liquidity. B) Profitability. C) Cost of capital. D) Average net income divided by average investment. E) Average after-tax cash inflow divided by average investment.

120)

Which of the following is not a reason that disincentive to invest may be strong when managers are accepting new projects? A) Compensation is not tied to short-term financial measures. B) The disposal of any existing assets would result in a reported loss. C) The discount rate is high. D) The individual were likely to be transferred out of the division. E) The project life is long and cash flow benefits are not realized quickly.

121)

Income tax effects are associated with all the followingexcept: A) Disposition (i.e., sale) of an existing asset at an amount different from the asset’s net book value (NBV). B) Required increase in net working capital associated with an investment project. C) Sale of an investment asset at the end of the asset's useful life. D) Effect of depreciation expense associated with an investment project. E) Annual net benefits (e.g., reduction in operating expenses) associated with a proposed investment.

122)

Antique Corporation is contemplating the replacement of an existing asset used in the operation of its business. The original cost of this asset was $28,000; since date of acquisition, the company has taken a total of $20,000 of depreciation expense on this asset. The current disposal (market) value of this asset is estimated as $24,000. Antique is subject to a combined income tax rate, t, of 29%. What is the projected after-tax cash flow associated with the sale of the existing asset? A) $22,760. B) $14,760. C) $19,360. D) $12,760. E) $16,160.

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123)

Antique Corporation is contemplating the replacement of an existing asset used in the operation of its business. The original cost of this asset was $28,000; since date of acquisition, the company has taken a total of $20,000 of depreciation expense on this asset. The current disposal (market) value of this asset is estimated as $18,000. Antique is subject to a combined income tax rate, t, of 34%. What is the projected after-tax cash flow associated with the sale of the existing asset? A) $18,000. B) $10,000. C) $14,600. D) $8,000. E) $11,400.

124)

Bar Company is considering an investment in equipment that is expected to generate an after-tax income of $8,000 for each year of its four-year life. The asset has no salvage value. The firm is in the 30% tax bracket. The net book value (NBV) of the investment at the beginning of each year is expected to be as follows: Year 1 Year 2 Year 3 Year 4

$ 40,000 20,000 9,500 4,750

Calculate this asset's accounting (book) rate of return (ARR) on average investment (which is defined as a simple average of the average book value of the asset for each year of its fouryear life). Round the final answer to the nearest whole %. A) 16%. B) 28%. C) 37%. D) 44%. E) 59%.

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125)

Bar Company is considering an investment in equipment that is expected to generate an after-tax income of $6,000 for each year of its four-year life. The asset has no salvage value. The firm is in the 40% tax bracket. The net book value (NBV) of the investment at the beginning of each year is expected to be as follows: Year 1 Year 2 Year 3 Year 4

$ 30,000 15,000 7,500 3,750

126)

Bar Company is considering an investment in equipment that is expected to generate an after-tax income of $9,000 for each year of its four-year life. The asset has no salvage value. The firm is in the 20% tax bracket. The net book value (NBV) of the investment at the beginning of each year will be as follows: Year 1 Year 2 Year 3 Year 4

$ 45,000 22,500 10,500 5,250

The projected after-tax cash inflow generated by the asset in Year 3 is: A) $11,100. B) $12,000. C) $12,600. D) $13,500. E) $14,250.

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127)

$ 30,000 15,000 7,500 3,750

The projected after-tax cash inflow generated by the asset in Year 3 is: A) $6,600. B) $7,500. C) $8,100. D) $9,000. E) $9,750.

128)

Plant Company is contemplating the purchase of a new piece of equipment for $41,000. Plant is in the 30% income tax bracket. Predicted annual after-tax cash inflows from this investment are $12,000, $13,000, $7,000, $11,000 and $1,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years. The payback period in years (rounded to the nearest 10th of a year) for this proposed investment is (assume that the after-tax cash inflows occur evenly throughout the year): A) 2.8 years. B) 3.3 years. C) 3.8 years. D) 4.6 years. E) 4.8 years.

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129)

130)

Plant Company is contemplating the purchase of a new piece of equipment for $58,000. Plant is in the 30% income tax bracket. Predicted annual after-tax cash inflows from this investment are $13,000, $20,000, $12,000, $14,000 and $5,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years. The hurdle rate for accepting new capital investment projects is 4%, after-tax. The estimated accounting rate of return (ARR) on this project (rounded to two decimal points), based on the initial investment is: A) 2.07%. B) 2.73%. C) 6.07%. D) 9.40%. E) 11.40%.

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131)

132)

Plant Company is contemplating the purchase of a new piece of equipment for $42,000. Plant is in the 30% income tax bracket. Predicted annual after-tax cash inflows from this investment are $26,000, $11,000, $1,000, $6,000 and $6,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years. Assume that the hurdle rate for accepting new capital investment projects for the company is 4%, after-tax. (Note: PV $1 factors for 4% are as follows: for year 1 = 0.962, for year 2 = 0.925, for year 3 = 0.889, for year 4 = 0.855, for year 5 = 0.822; the PV annuity factor for 4%, 5 years = 4.452.) At an after-tax discount rate of 4%, the estimated net present value (NPV) of the proposed investment is (rounded to the nearest hundred dollars): A) ($12,700). B) ($10,000). C) ($7,000). D) ($3,700). E) $4,100.

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133)

Plant Company is contemplating the purchase of a new piece of equipment for $45,000. Plant is in the 30% income tax bracket. Predicted annual after-tax cash inflows from this investment are $18,000, $15,000, $9,000, $6,000 and $3,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years. Assume that the hurdle rate for accepting new capital investment projects for the company is 4%, after-tax. (Note: PV $1 factors for 4% are as follows: for year 1 = 0.962, for year 2 = 0.925, for year 3 = 0.889, for year 4 = 0.855, for year 5 = 0.822; the PV annuity factor for 4%, 5 years = 4.452.) At an after-tax discount rate of 4%, the estimated net present value (NPV) of the proposed investment is (rounded to the nearest hundred dollars): A) ($15,000). B) ($12,300). C) ($9,300). D) ($6,000). E) $1,800.

134)

Plant Company is contemplating the purchase of a new piece of equipment for $54,000. Plant is in the 40% income tax bracket. Predicted annual after-tax cash inflows from this investment are $25,000, $17,000, $5,000, $5,000 and $9,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years. Assume that the hurdle rate for accepting new capital investment projects for the company is 4%, after-tax. (Note: PV $1 factors for 4% are as follows: for year 1 = 0.962, for year 2 = 0.925, for year 3 = 0.889, for year 4 = 0.855, for year 5 = 0.822; the PV annuity factor for 4%, 5 years = 4.452.) At an after-tax discount rate of 4%, the estimated PV (present value) payback period, in years (rounded to two decimal places) is: A) 3.36 years. B) 3.97 years. C) 4.36 years. D) 4.74 years. E) More than 5 years.

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135)

Plant Company is contemplating the purchase of a new piece of equipment for $45,000. Plant is in the 30% income tax bracket. Predicted annual after-tax cash inflows from this investment are $18,000, $15,000, $9,000, $6,000 and $3,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years. Assume that the hurdle rate for accepting new capital investment projects for the company is 4%, after-tax. (Note: PV $1 factors for 4% are as follows: for year 1 = 0.962, for year 2 = 0.925, for year 3 = 0.889, for year 4 = 0.855, for year 5 = 0.822; the PV annuity factor for 4%, 5 years = 4.452.) At an after-tax discount rate of 4%, the estimated PV (present value) payback period, in years (rounded to two decimal places) is: A) 2.89 years. B) 3.50 years. C) 3.89 years. D) 4.27 years. E) More than 5 years.

136)

Plant Company is contemplating the purchase of a new piece of equipment for $44,000. Plant is in the 40% income tax bracket. Predicted annual after-tax cash inflows from this investment are $18,000, $14,000, $5,000, $10,000 and $7,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years. Assume that the after-tax hurdle rate for accepting new capital investment projects by the company is 4%, after-tax. (Note: PV $1 factors for 4% are as follows: for year 1 = 0.962, for year 2 = 0.925, for year 3 = 0.889, for year 4 = 0.855, for year 5 = 0.822; the PV annuity factor for 4%, 5 years = 4.452.) The estimated internal rate of return (IRR) on this investment is: A) Less than 4%. B) 4%. C) Slightly above 4%. D) Greater than 6%. E) Undeterminable with only the given information.

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137)

Plant Company is contemplating the purchase of a new piece of equipment for $45,000. Plant is in the 30% income tax bracket. Predicted annual after-tax cash inflows from this investment are $18,000, $15,000, $9,000, $6,000 and $3,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years. Assume that the after-tax hurdle rate for accepting new capital investment projects by the company is 4%, after-tax. (Note: To answer this question, students will have to be provided with the Tables provided in Appendix C, Chapter 12. Alternatively, the instructor can provide students with the following PV $1 factors for 4%: for year 1 = 0.962, for year 2 = 0.925, for year 3 = 0.889, for year 4 = 0.855, for year 5 = 0.822; the PV annuity factor for 4%, 5 years = 4.452.) The estimated internal rate of return (IRR) on this investment is: A) Less than 4%. B) 4%. C) Slightly above 4%. D) Greater than 6%. E) Undeterminable with only the given information.

138)

Burn Incorporated purchased a $510,000 machine to manufacture a specialty tap for electrical equipment. The tap is in high demand and Burn can sell all that it could manufacture for the next 10 years. To encourage capital investments, the government exempts taxes on profits from new investments in this type of machinery. This legislation most likely will remain in effect in the foreseeable future. The equipment is expected to have 10 years of useful life and no salvage value at the end of this 10-year period. The firm uses straight-line depreciation. The net cash inflow is expected to be $137,000 each year. Burn uses a discount rate of 13% in evaluating its capital investments. Assume that after-tax cash inflows occur evenly throughout the year. The estimated payback period for this proposed investment, in years, is (rounded to two decimal places): A) 3.72 years. B) 4.60 years. C) 4.98 years. D) 5.22 years. E) 6.69 years.

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139)

Burn Incorporated purchased a $600,000 machine to manufacture a specialty tap for electrical equipment. The tap is in high demand and Burn can sell all that it could manufacture for the next 10 years. To encourage capital investments, the government exempts taxes on profits from new investments in this type of machinery. This legislation most likely will remain in effect in the foreseeable future. The equipment is expected to have 10 years of useful life and no salvage value at the end of this 10-year period. The firm uses straight-line depreciation. The net cash inflow is expected to be $144,000 each year. Burn uses a discount rate of 10% in evaluating its capital investments. Assume that after-tax cash inflows occur evenly throughout the year. The estimated payback period for this proposed investment, in years, is (rounded to two decimal places): A) 4.17 years. B) 5.05 years. C) 5.43 years. D) 5.67 years. E) 7.14 years.

140)

Burn Incorporated purchased a $510,000 machine to manufacture a specialty tap for electrical equipment. The tap is in high demand and Burn can sell all that it could manufacture for the next 10 years. To encourage capital investments, the government exempts taxes on profits from new investments in this type of machinery. This legislation most likely will remain in effect in the foreseeable future. The equipment is expected to have 10 years of useful life and no salvage value at the end of this 10-year period. The firm uses straight-line depreciation. The net cash inflow is expected to be $137,000 each year. Burn uses a discount rate of 13% in evaluating its capital investments. The accounting (book) rate of return (ARR) based on initial investment for this proposed investment (to two decimal places) is: A) 15.59%. B) 16.86%. C) 28.32%. D) 30.86%. E) 26.86%.

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141)

Burn Incorporated purchased a $600,000 machine to manufacture a specialty tap for electrical equipment. The tap is in high demand and Burn can sell all that it could manufacture for the next 10 years. To encourage capital investments, the government exempts taxes on profits from new investments in this type of machinery. This legislation most likely will remain in effect in the foreseeable future. The equipment is expected to have 10 years of useful life and no salvage value at the end of this 10-year period. The firm uses straight-line depreciation. The net cash inflow is expected to be $144,000 each year. Burn uses a discount rate of 10% in evaluating its capital investments. The accounting (book) rate of return (ARR) based on initial investment for this proposed investment (to two decimal places) is: A) 12.73%. B) 14.00%. C) 25.46%. D) 28.00%. E) 24.00%.

142)

Burn Incorporated purchased a $580,000 machine to manufacture a specialty tap for electrical equipment. The tap is in high demand and Burn can sell all that it could manufacture for the next 10 years. To encourage capital investments, the government exempts taxes on profits from new investments in this type of machinery. This legislation most likely will remain in effect in the foreseeable future. The equipment is expected to have 10 years of useful life and no salvage value at the end of this 10-year period. The firm uses straight-line depreciation. The net cash inflow is expected to be $141,000 each year. Burn uses a discount rate of 13% in evaluating its capital investments. The estimated accounting (book) rate of return (to two decimal places) based on average investment for this proposed investment is: A) 13.35%. B) 14.62%. C) 26.07%. D) 28.62%. E) 51.52%.

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143)

Burn Incorporated purchased a $600,000 machine to manufacture a specialty tap for electrical equipment. The tap is in high demand and Burn can sell all that it could manufacture for the next 10 years. To encourage capital investments, the government exempts taxes on profits from new investments in this type of machinery. This legislation most likely will remain in effect in the foreseeable future. The equipment is expected to have 10 years of useful life and no salvage value at the end of this 10-year period. The firm uses straight-line depreciation. The net cash inflow is expected to be $144,000 each year. Burn uses a discount rate of 10% in evaluating its capital investments. The estimated accounting (book) rate of return (to two decimal places) based on average investment for this proposed investment is: A) 12.73%. B) 14.00%. C) 25.45%. D) 28.00%. E) 50.90%.

144)

Burn Incorporated purchased a $620,000 machine to manufacture a specialty tap for electrical equipment. The tap is in high demand and Burn can sell all that it could manufacture for the next 10 years. To encourage capital investments, the government exempts taxes on profits from new investments in this type of machinery. This legislation most likely will remain in effect in the foreseeable future. The equipment is expected to have 10 years of useful life and no salvage value at the end of this 10-year period. The firm uses straight-line depreciation. The net cash inflow is expected to be $142,000 each year. Burn uses a discount rate of 10% in evaluating its capital investments. The estimated net present value (NPV) of this proposed investment (rounded to the nearest thousand) is: (Note: the PV annuity factor from Table 2, Appendix C, 10%, 10 years is 6.145.) A) ($73,000). B) ($52,000). C) $149,000. D) $216,000. E) $253,000.

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145)

Burn Incorporated purchased a $600,000 machine to manufacture a specialty tap for electrical equipment. The tap is in high demand and Burn can sell all that it could manufacture for the next 10 years. To encourage capital investments, the government exempts taxes on profits from new investments in this type of machinery. This legislation most likely will remain in effect in the foreseeable future. The equipment is expected to have 10 years of useful life and no salvage value at the end of this 10-year period. The firm uses straight-line depreciation. The net cash inflow is expected to be $144,000 each year. Burn uses a discount rate of 10% in evaluating its capital investments. The estimated net present value (NPV) of this proposed investment (rounded to the nearest thousand) is: (Note: the PV annuity factor fromTable 2, Appendix C, 10%, 10 years is 6.145.) A) ($105,000). B) ($84,000). C) $181,000. D) $248,000. E) $285,000.

146)

Burn Incorporated purchased a $460,000 machine to manufacture a specialty tap for electrical equipment. The tap is in high demand and Burn can sell all that it could manufacture for the next 10 years. To encourage capital investments, the government exempts taxes on profits from new investments in this type of machinery. This legislation most likely will remain in effect in the foreseeable future. The equipment is expected to have 10 years of useful life and no salvage value at the end of this 10-year period. The firm uses straight-line depreciation. The net cash inflow is expected to be $131,000 each year. Burn uses a discount rate of 10% in evaluating its capital investments. The estimated internal rate of return (IRR) on this proposed investment is: (Note: the PV annuity factor from Table 2, Appendix C, 10%, 10 years is 6.145.) A) Less than 10%. B) 10%. C) 12%. D) Greater than 12%. E) Indeterminable based on the information provided.

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147)

Burn Incorporated purchased a $600,000 machine to manufacture a specialty tap for electrical equipment. The tap is in high demand and Burn can sell all that it could manufacture for the next 10 years. To encourage capital investments, the government exempts taxes on profits from new investments in this type of machinery. This legislation most likely will remain in effect in the foreseeable future. The equipment is expected to have 10 years of useful life and no salvage value at the end of this 10-year period. The firm uses straight-line depreciation. The net cash inflow is expected to be $144,000 each year. Burn uses a discount rate of 10% in evaluating its capital investments. The estimated internal rate of return (IRR) on this proposed investment is: (Note: the PV annuity factor from Table 2, Appendix C, 10%, 10 years is 6.145.) A) Less than 10%. B) 10%. C) 12%. D) Greater than 12%. E) Indeterminable based on the information provided.

148)

If a company is faced with limited capital funds for investment (i.e., the company faces capital rationing), thebest general method to employ to assess individual project profitability is: A) Cash-flow bailout. B) Net present value (NPV). C) Payback. D) Discounted payback. E) Profitability index (PI).

149)

The case where investment capital for a given accounting period is limited is called: A) Capital hedging. B) Profitability index. C) Capital rationing. D) Non-normal cash flows. E) Normal cash flows.

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150)

A widely used approach that managers use to recognize uncertainty about individual items and to obtain an immediate financial estimate of the financial consequences of possible prediction errors is: A) Expected value analysis. B) Learning curve analysis. C) Capital budgeting analysis. D) Sensitivity analysis. E) Exponential distribution analysis.

151)

Captial Corporation is studying a capital investment proposal in which newly acquired assets will be depreciated using the straight-line (SL) method with no salvage value. Which one of the following statements about the proposal would beincorrect if, instead of SL, the Modified Accelerated Cost Recovery System (MACRS) is used for determining depreciation expense for income tax purposes? (Assume that income tax rates are constant over the life of the assets involved.) A) The estimated net present value (NPV) of the project would increase. B) The internal rate of return (IRR) of the project would likely increase. C) The payback period for the investment would be shortened. D) The total after-tax income from this project, over its life, would normally increase. E) Total tax payments over the life of the project would be unaffected.

152)

Ghost Company has a payback goal of three years on acquisitions of new equipment. A new piece of equipment that costs $330,000 and that has a five-year life is being considered. Straight-line (SL) depreciation will be used, with zero salvage value. Ghost is subject to a 33% combined income tax rate, t. To meet the company's payback goal, the equipment must generate reductions in annual cash operating costs of at least: A) $45,780. B) $88,220. C) $110,000. D) $131,672. E) $219,220.

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153)

Ghost Company has a payback goal of three years on acquisitions of new equipment. A new piece of equipment that costs $450,000 and that has a five-year life is being considered. Straight-line (SL) depreciation will be used, with zero salvage value. Ghost is subject to a 40% combined income tax rate,t. To meet the company's payback goal, the equipment must generate reductions in annual cash operating costs of at least: A) $60,000. B) $114,000. C) $150,000. D) $190,000. E) $285,000.

154)

Amster Corporation has not yet decided on its discount rate for use in the evaluation of capital budgeting proposals. This lack of information will render the company unable to calculate a proposed investment's: A) Accounting rate of return (ARR), net present value (NPV), and internal rate of return (IRR). B) Accounting rate of return (ARR), and internal rate of return (IRR). C) Net present value (NPV), and internal rate of return (IRR). D) Net present value (NPV) only. E) Accounting rate of return (ARR) only.

155)

For dealing with uncertainty in the capital budgeting process, all of the following techniques can be used except: A) What-if analysis. B) Monte Carlo simulation. C) Scenario analysis. D) Linear programming. E) Real options analysis.

156)

Which of the following types of real options are analogous to call options? A) Expansion and Investment-timing options. B) Abandonment and Expansion options. C) Abandonment and Investment-timing options. D) Scale-back and expansion options. E) Abandonment and Scale-back options.

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157)

Which of the following isnot one of the four general classes of real options? A) Expansion option. B) Exercise option. C) Abandonment option. D) Investment-timing option (e.g., delay) E) Scale-back option

158)

Which of the following statements regarding real options istrue? A) The farther away the expiration date, the less valuable the option is. B) They can be incorporated into the capital budgeting decision process using decision trees. C) They allow decision makers to react to unfavorable, but not favorable, future information/news. D) Conventional DCF decision models (e.g., NPV) cannot incorporate the effects of real options. E) It is not possible to handle multiple real options embedded in a proposed investment project.

159)

The estimated value of a real option: A) Is affected by essentially the same set of factors that affect the value of financial options. B) Cannot be incorporated into a conventional DCF analysis of an investment project. C) Is affected by the length of the expiration date of the option. D) Decreases as the underlying risk of a project increases. E) Is inversely related to estimated volatility of returns for a proposed project.

160)

If the present value payback period is less than the life of the project, one may conclude that: A) The project's internal rate of return (IRR) is less than the discount (hurdle) rate. B) The project's accounting (book) rate of return (ARR) exceeds the discount (hurdle) rate. C) The project is not desirable in a present-value sense. D) The project's net present value (NPV) is positive. E) The project's IRR is equal to the weighted-average cost of capital.

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161)

If the net present value is positive, what does that mean for the project? A) The PV of cash inflows is greater than the PV of cash outflows. B) The project is guaranteed to add to shareholder value. C) The internal rate of return is negative. D) The present value of cash outflows is greater than the future value of cash outflows. E) The project is not a good investment until 5 years after it is started.

162)

Pillows Incorporated was considering an investment in the following project:

Required initial investment Net annual after-tax cash inflow Annual depreciation expense (($920,000 − $169,000)/20 years) Estimated salvage value Life of the project in years

$ 920,000 $ 165,000 $ 37,550 $ 169,000 20

Assume that cash inflows occur evenly throughout the year. The estimated payback period in years (rounded to one decimal place) for the proposed project is: A) 3.3 years. B) 4.2 years. C) 5.4 years. D) 5.6 years. E) 7.5 years.

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163)

Pillows Incorporated was considering an investment in the following project:

Required initial investment Net annual after-tax cash inflow Annual depreciation expense ($990,000 − $165,000)/15 years Estimated salvage value Life of the project in years

$ 990,000 $ 165,000 $ 55,000 $ 165,000 15

Assume that cash inflows occur evenly throughout the year. The estimated payback period in years (rounded to one decimal place) for the proposed project is: A) 3.7 years. B) 4.6 years. C) 5.8 years. D) 6.0 years. E) 7.9 years.

164)

Pillows Incorporated was considering an investment in the following project:

Required initial investment Net annual after-tax cash inflow Annual depreciation expense (($970,000 − $160,000)/15 years) Estimated salvage value Life of the project in years

$ 970,000 $ 160,000 $ 54,000 $ 160,000 15

The internal rate of return (IRR) is (Note: to solve this problem students will need access either to Appendix C, Table 2 (Chapter 12) or to Excel): A) Less than 10%. B) Somewhere between 10% and 12%. C) Somewhere between 12% and 14%. D) Somewhere between 14% and 15%. E) Greater than 15%.

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165)

Pillows Incorporated was considering an investment in the following project:

Required initial investment Net annual after-tax cash inflow Annual depreciation expense ($990,000 − $165,000)/15 years Estimated salvage value Life of the project in years

$ 990,000 $ 165,000 $ 55,000 $ 165,000 15

166)

Baller Incorporated has obtained probability estimates from its production and sales departments regarding the costs and selling prices it can anticipate for a new product line. The company is uncertain as to which combination of costs and selling prices will occur. Thebest method for determining the expected outcome of the investment, based on an assumed probability distribution associated both sales and costs, is: A) Monte Carlo simulation (MCS). B) The analytic hierarchy process (AHP). C) Correlation analysis. D) Multiple regression analysis. E) Linear programming.

167)

The decision technique that measures the estimated performance of a capital investment by dividing the project's annual after-tax income by the average investment cost is called the: A) Break-even point for the project. B) Internal rate of return (IRR) on the proposed investment. C) Accounting (book) rate of return (ARR) on the investment. D) Capital asset pricing rate of return. E) Profitability index (PI) for the investment.

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168)

The internal rate of return (IRR) for an investment: A) Frequently results in positive net present value (NPV) on attractive projects. B) Generally coincides with the company's discount rate. C) Disregards discounted cash flows. D) On mutually exclusive projects may produce different project rankings than those produced by using the net present value (NPV) method. E) Would tend to be reduced if a company used an accelerated method of depreciation for tax purposes rather than the straight-line (SL) method.

169)

The net present value (NPV) method and the internal rate of return (IRR) method are used to analyze proposed capital expenditures. The IRR method, as contrasted with the net present value (NPV) method: A) Is considered inferior because it fails to calculate compounded rates of return. B) Incorporates the time value of money, while the net present value (NPV) method does not. C) Almost always gives a different decision that the net present value (NPV) method as to the acceptability ("go" versus "no go") of a given proposed investment. D) Assumes that the rate of return on the reinvestment of the cash proceeds is at the indicated rate of return of the project rather than at the discount rate used. E) Is preferred in practice because it can handle multiple desired rates of return, which is impossible to do with the net present value (NPV) method.

170)

When ranking two mutually exclusive investments with different initial amounts but approximately the same useful life, and assuming no capital rationing, management should give priority to the project: A) That generates cash flows for the longer period of time. B) Whose net after-tax cash flows equal the initial investment outlay. C) That has the greater accounting rate of return (ARR). D) Whose cash flows vary the least. E) That has the higher net present value (NPV).

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171)

Which of the following isnot an important advantage of the net present value (NPV) method over the internal rate of return (IRR) method in evaluating capital investment proposals? A) NPV facilitates comparisons of mutually exclusive projects requiring different amounts of initial investments. B) Net present value (NPV) facilitates comparisons among mutually exclusive projects that have the same useful life but different initial outlays. C) Net present value (NPV) can be used to determine an optimum capital budget under conditions of capital rationing, while IRR cannot. D) Net present value (NPV) is relatively intuitive (compared, for example, to IRR). E) IRR relies on discounted cash-flow analysis, while net present value (NPV) does not.

172)

In situations where a firm specifies different required rates of return (i.e., discount rates) over the years, it is advantageous to use: A) The payback method. B) The book rate of return method. C) The net present value (NPV) method. D) The internal rate of return (IRR) method. E) Sensitivity analysis.

173)

Which of the following isnot one of the four additional measurement issues that need to be considered by accountants for capital expenditures? A) Sunk Costs B) Total Revenue. C) Allocated Overhead Costs. D) Inflation. E) Opportunity Costs.

174)

Which of the following items has no after-tax consequences in the analysis of a capital investment proposal? A) Cash flow from operations. B) Salvage value of an existing asset that would be sold. C) Employee severance compensation. D) Reduction of net working capital at the termination (expiration) of the proposed project. E) Gain or loss on the disposal of the investment at the end of its useful life.

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175)

When we assume in our calculations for capital budgeting decisions that all cash flows occur at the end of individual years during the life of an investment project when, in fact, they flow more or less continuously during those years, which of the following statements is true? A) The internal rate of return (IRR) of the project will likely be overstated. B) The net present value (NPV) of the project will likely be overstated. C) Inconsistent errors will exist in either net present value (NPV) or IRR. D) The stated (i.e., calculated) net present value (NPV) of the project will likely be understated. E) The use of DCF models will produce erratic results.

176)

In addition to a one-million-dollar acquisition cost, an investment requires $200,000 net working capital during its useful life. This investment in net working capital should be: A) Added to the cash outflow each year during the useful life of the investment. B) Disregarded in the capital budgeting decision because working capital is not an expense. C) Treated as an immediate cash outflow that is recovered at the end of the investment's useful life. D) Treated as an immediate expense and a taxable gain at the end of the investment's useful life. E) Treated as an operating expense each year.

177)

Within the context of capital budgeting, a primary goal-congruency problem exists when discounted cash flow (DCF) models are used for decision-making purposes, but accrualbased earnings figures are used for subsequent performance-evaluation purposes. Which of the following items isnot likely to be useful for addressing this goal-congruency problem? A) Monte Carlo simulation. B) Use of EVA® as the financial-performance metric. C) Separating incentive compensation (i.e., "reward") from budgeted performance. D) Conducting post-audits of capital investment decisions. E) None of these answer choices are correct.

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178)

What makes the profitability index useful? A) It eliminates the need to calculate net present value (NPV). B) It ranks projects when capital rationing is required. C) It indicates profitability at the end of a project. D) It uses the internal rate of return to calculate a project’s profitability. E) It does not require the use of a discount rate.

179)

Wonky Electronics (WE) is reviewing the following data relating to a new equipment proposal: Net initial investment outlay After-tax cash inflow from disposal of the asset after 5 years Present value of an annuity of $1 at 12% for 5 years Present value of $1 at 12% in 5 years

$ 40,000 $ 14,000 3.605 0.567

WE expects the net after-tax savings in cash outflows from the investment to be equal in each of the 5 years. What is the minimum amount of after-tax annual savings (including depreciation effects) needed to make the investment yield a 12% return (rounded to the nearest whole dollar)? A) $4,786. B) $7,708. C) $8,894. D) $10,486. E) $12,275.

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180)

$ 50,000 $ 10,000 3.605 0.567

WE expects the net after-tax savings in cash outflows from the investment to be equal in each of the 5 years. What is the minimum amount of after-tax annual savings (including depreciation effects) needed to make the investment yield a 12% return (rounded to the nearest whole dollar)? A) $8,189. B) $11,111. C) $12,297. D) $13,889. E) $15,678.

181)

A profitable company pays $100,000 wages and has depreciation expense of $100,000. The company's income tax rate, t, is 40%. The after-tax cash flows from these two items are calculated as follows: A) An after-tax cash outflow of $40,000 for wages, and a cash inflow of $60,000 for depreciation expense. B) An after-tax cash outflow of $40,000 for wages, and a cash inflow of $40,000 for depreciation expense. C) An after-tax cash outflow of $60,000 for wages, and a cash inflow of $60,000 for depreciation expense. D) An after-tax cash outflow of $60,000 for wages, and a cash inflow of $40,000 for depreciation expense. E) An after-tax cash outflow of $40,000 for wages, and a cash inflow of $100,000 for depreciation expense.

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182)

A profitable company pays $100,000 wages and has depreciation expense of $100,000. The company's income tax rate,t, is 40%. The after-tax cash flows from these two items are calculated as follows: A) An after-tax cash outflow of $40,000 for wages, and a cash inflow of $60,000 for depreciation expense. B) An after-tax cash outflow of $40,000 for wages, and a cash inflow of $40,000 for depreciation expense. C) An after-tax cash outflow of $60,000 for wages, and a cash inflow of $60,000 for depreciation expense. D) An after-tax cash outflow of $60,000 for wages, and a cash inflow of $40,000 for depreciation expense. E) An after-tax cash outflow of $40,000 for wages, and a cash inflow of $100,000 for depreciation expense.

183)

Conceptually, a firm's capital structure is its: A) Mix of debt and equity capital, expressed in book-value terms. B) Mix of debt and equity capital, expressed in market-value terms. C) Equity capital only, expressed in book-value terms. D) Equity capital only, expressed in market-value terms. E) Debt only, expressed in book-value terms.

184)

Consider two projects, A and B. The present value (PV) of after-tax cash inflows for project A is $55,000, while the original investment outlay for this project is $50,000. Project B, on the other hand, has the following characteristics: PV of after-tax cash inflows = $24,000; original investment outlay = $20,000. Assume that these two projects are mutually exclusive and that the company has adequate capital to fund either investment option. All the following statements are true except: A) The net present value (NPV) of Project A is $5,000. B) The IRR of Project A is greater than the cost of capital (discount rate). C) The profitability index (PI) for Project A is 1:1. D) Project A is preferable to Project B (all else held constant). E) The economic rate of return on Project A exceeds the discount rate.

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185)

Jungle Corporation's capital structure consists of 40% debt (with a pretax cost of 10%), and the balance of common equity (with a cost of 15%). The company's income tax rate (federal and state combined), t, is 60%. Jungle's weighted-average cost of capital (WACC), to one decimal point, is: A) 9.4%. B) 10.0%. C) 10.6%. D) 12.4%. E) 13.0%.

186)

Jungle Corporation's capital structure consists of 60% debt (with a pretax cost of 10%), and the balance of common equity (with a cost of 15%). The company's income tax rate (federal and state combined),t, is 40%. Jungle's weighted-average cost of capital (WACC), to one decimal point, is: A) 8.4%. B) 9.0%. C) 9.6%. D) 11.4%. E) 12.0%.

187)

In capital budgeting, the accounting rate of return (ARR) decision model: A) Considers the time value of money. B) Ignores cash outflows after the initial investment. C) Incorporates the timing of cash flows. D) Ignores accounting income generated after the break-even point. E) Does not provide an unambiguous decision criterion (rule) regarding the acceptance of capital investment projects.

188)

All of the following capital budgeting models incorporate the time value of moneyexcept: A) The payback method. B) The modified internal rate of return (MIRR) method. C) The profitability index (PI) method. D) The discounted payback method. E) The internal rate of return (IRR) method.

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189)

The recommended method for determining the optimal capital budget under conditions of capital rationing is called the: A) The net present value (NPV) method. B) Monte Carlo simulation. C) The modified internal rate of return (MIRR) method. D) The profitability index (PI) method. E) The discounted payback method.

190)

Gear Company is planning to acquire a $255,000 machine that will provide increased efficiencies, thereby reducing annual cash operating costs by $88,000. The machine will be depreciated by the straight-line method over a five-year life, with no salvage value at the end of five years. Assuming a 40% income tax rate, t, and that cash flows occur evenly throughout the year, the machine's estimated payback period (rounded to two decimal places) is: A) 2.93 years. B) 3.01 years. C) 3.48 years. D) 4.61 years. E) 5.01 years.

191)

Gear Company is planning to acquire a $250,000 machine that will provide increased efficiencies, thereby reducing annual cash operating costs by $80,000. The machine will be depreciated by the straight-line method over a five-year life, with no salvage value at the end of five years. Assuming a 40% income tax rate,t, and that cash flows occur evenly throughout the year, the machine's estimated payback period (rounded to two decimal places) is: A) 3.13 years. B) 3.21 years. C) 3.68 years. D) 4.81 years. E) 5.21 years.

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192)

Which of the following is not an advantage of the accounting rate of return (ARR)? A) It is useful when a company is concerned about how performance looks to external stakeholders. B) It doesn’t focus on the cash flows after the payback period. C) It uses the same kind of data generated for financial reporting. D) The numbers used are easy for managers to understand. E) It looks at financial returns over the entire life of the project.

193)

On January 1, 2021, Tractor Company will acquire a new asset that costs $490,000 and that is anticipated to have a salvage value of $27,000 at the end of four years. The new asset: qualifies as three-year property under the Modified Accelerated Cost Recovery System (MACRS) will replace an old asset that currently has a tax basis of $66,000 and that can be sold on this date for $74,000 will continue to generate the same operating revenues as the old asset ($250,000 per year). However, it is predicted that savings in cash operating costs will be experienced as follows: a total of $90,000 in each of the first three years, and $88,000 in the fourth year. Tractor is subject to a combined income tax rate, t, of 40% and rounds all computations to the nearest dollar. Tractor's fiscal year coincides with the calendar year. Assume that any gain or loss affects the taxes paid at the end of the year in which the gain or loss occurs. The company uses the net present value (NPV) method to analyze projects and the factors and rates presented below (based on a discount rate of 14%): Year 2021 2022 2023 2024

PV of $1 at 14% 0.877 0.769 0.675 0.592

PV of $1 Annuity at 14% 0.877 1.647 2.322 2.914

MACRS 33% 45% 15% 7%

The present value of the depreciation tax shield for the 2024 MACRS depreciation of the new asset (rounded to the nearest whole dollar) is: A) $0. B) $7,604. C) $8,122. D) $12,692. E) $34,129.

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194)

On January 1, 2021, Tractor Company will acquire a new asset that costs $400,000 and that is anticipated to have a salvage value of $30,000 at the end of four years. The new asset: qualifies as three-year property under the Modified Accelerated Cost Recovery System (MACRS) will replace an old asset that currently has a tax basis of $80,000 and that can be sold on this date for $60,000 will continue to generate the same operating revenues as the old asset ($200,000 per year). However, it is predicted that savings in cash operating costs will be experienced as follows: a total of $120,000 in each of the first three years, and $90,000 in the fourth year. Tractor is subject to a combined income tax rate, t, of 40% and rounds all computations to the nearest dollar. Tractor's fiscal year coincides with the calendar year. Assume that any gain or loss affects the taxes paid at the end of the year in which the gain or loss occurs. The company uses the net present value (NPV) method to analyze projects and the factors and rates presented below (based on a discount rate of 14%): Year 2021 2022 2023 2024

PV of $1 at 14% 0.877 0.769 0.675 0.592

PV of $1 Annuity at 14% 0.877 1.647 2.322 2.914

MACRS 33% 45% 15% 7%

The present value of the depreciation tax shield for the 2024 MACRS depreciation of the new asset (rounded to the nearest whole dollar) is: A) $0. B) $6.112. C) $6,630. D) $11,200. E) $32,637.

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195)

On January 1, 2021 Tractor Company will acquire a new asset that costs $390,000 and that is anticipated to have a salvage value of $34,000 at the end of four years. The new asset: qualifies as three-year property under the Modified Accelerated Cost Recovery System (MACRS) will replace an old asset that currently has a tax basis of $96,000 and that can be sold on this date for $76,000 (net of selling costs) will continue to generate the same operating revenues as the old asset ($130,000 per year). However, it is predicted that savings in cash operating costs will be experienced as follows: a total of $130,000 in each of the first three years, and $91,000 in the fourth year. Tractor is subject to a combined income tax rate, t, of 40% and rounds all computations to the nearest dollar. Tractor's fiscal year coincides with the calendar year. Assume that any gain or loss affects the taxes paid at the end of the year in which the gain or loss occurs. The company uses the net present value (NPV) method to analyze projects using the factors and rates presented below (based on a discount rate of 14%): Year 2021 2022 2023 2024

PV of $1 at 14% 0.877 0.769 0.675 0.592

PV of $1 Annuity at 14% 0.877 1.647 2.322 2.914

MACRS 33% 45% 15% 7%

The discounted net-of-tax amount that should be factored into Tractor Company's analysis for the disposal of the old asset (rounded to the nearest whole dollar) is: A) $56,256. B) $75,840. C) $83,016. D) $84,000. E) $99,312.

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196)

On January 1, 2021 Tractor Company will acquire a new asset that costs $400,000 and that is anticipated to have a salvage value of $30,000 at the end of four years. The new asset: qualifies as three-year property under the Modified Accelerated Cost Recovery System (MACRS) will replace an old asset that currently has a tax basis of $80,000 and that can be sold on this date for $60,000 (net of selling costs) will continue to generate the same operating revenues as the old asset ($200,000 per year). However, it is predicted that savings in cash operating costs will be experienced as follows: a total of $120,000 in each of the first three years, and $90,000 in the fourth year.Tractor is subject to a combined income tax rate, t, of 40% and rounds all computations to the nearest dollar. Tractor's fiscal year coincides with the calendar year. Assume that any gain or loss affects the taxes paid at the end of the year in which the gain or loss occurs. The company uses the net present value (NPV) method to analyze projects using the factors and rates presented below (based on a discount rate of 14%): Year 2021 2022 2023 2024

PV of $1 at 14% 0.877 0.769 0.675 0.592

PV of $1 Annuity at 14% 0.877 1.647 2.322 2.914

MACRS 33% 45% 15% 7%

The discounted net-of-tax amount that should be factored into Tractor Company's analysis for the disposal of the old asset (rounded to the nearest whole dollar) is: A) $40,256. B) $59,840. C) $67,016. D) $68,000. E) $83,312.

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197)

On January 1, 2021 Tractor Company will acquire a new asset that costs $430,000 and that is anticipated to have a salvage value of $35,000 at the end of four years. The new asset: qualifies as three-year property under the Modified Accelerated Cost Recovery System (MACRS) will replace an old asset that currently has a tax basis of $86,000 and that can be sold on this date for $66,000 (net of selling costs) will continue to generate the same operating revenues as the old asset ($330,000 per year). However, it is predicted that savings in cash operating costs will be experienced as follows: a total of $150,000 in each of the first three years, and $99,000 in the fourth year. Tractor is subject to a combined income tax rate, t, of 40% and rounds all computations to the nearest dollar. Tractor's fiscal year coincides with the calendar year. Assume that any gain or loss affects the taxes paid at the end of the year in which the gain or loss occurs. The company uses the net present value (NPV) method to analyze projects using the factors and rates presented below (based on a discount rate of 14%): Year 2021 2022 2023 2024

PV of $1 at 14% 0.877 0.769 0.675 0.592

PV of $1 Annuity at 14% 0.877 1.647 2.322 2.914

MACRS 33% 45% 15% 7%

The relevant discounted operating cash flows (cost savings) that should be factored into Tractor Company's analysis are: A) $35,165. B) $208,980. C) $244,145. D) $251,705. E) $254,873.

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198)

On January 1, 2021 Tractor Company will acquire a new asset that costs $400,000 and that is anticipated to have a salvage value of $30,000 at the end of four years. The new asset: qualifies as three-year property under the Modified Accelerated Cost Recovery System (MACRS) will replace an old asset that currently has a tax basis of $80,000 and that can be sold on this date for $60,000 (net of selling costs) will continue to generate the same operating revenues as the old asset ($200,000 per year). However, it is predicted that savings in cash operating costs will be experienced as follows: a total of $120,000 in each of the first three years, and $90,000 in the fourth year. Tractor is subject to a combined income tax rate, t, of 40% and rounds all computations to the nearest dollar. Tractor's fiscal year coincides with the calendar year. Assume that any gain or loss affects the taxes paid at the end of the year in which the gain or loss occurs. The company uses the net present value (NPV) method to analyze projects using the factors and rates presented below (based on a discount rate of 14%): Year 2021 2022 2023 2024

PV of $1 at 14% 0.877 0.769 0.675 0.592

PV of $1 Annuity at 14% 0.877 1.647 2.322 2.914

MACRS 33% 45% 15% 7%

The relevant discounted operating cash flows (cost savings) that should be factored into Tractor Company's analysis are: A) $31,968. B) $167,112. C) $199,152. D) $206,640. E) $209,808.

199)

The capital budgeting decision technique that reflects the time value of money and is calculated as the net present value of the future after-tax cash inflows divided by the initial cash outlay for the investment is called the: A) Net present value (NPV) method. B) Capital rationing method. C) Average accounting rate of return (ARR) method. D) Profitability index (PI) method. E) Present value payback method.

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200)

The net present value (NPV) model of a capital budgeting project isnot affected by the A) Amount of depreciation expense allowed on the project for income tax purposes. B) Method of funding the cost of the project. C) Amount of net working capital needed for operations during the life of the project. D) Estimated salvage value of the project at the end of the project's useful life. E) Initial cost of the project.

201)

The internal rate of return (IRR) for a project can be determined A) If the IRR is greater than the firm's cost of capital. B) Only if the project's cash flows are constant. C) By finding the discount rate that yields a net present value (NPV) of zero for the project. D) By subtracting the firm's cost of capital from the project's profitability index. E) Only if the project's profitability index is greater than one.

202)

The internal rate of return (IRR) is the A) Rate of interest (%) that equates the present value of after-tax cash outflows and the present value of after-tax cash inflows for a given project. B) Minimum acceptable rate of return for a proposed investment. C) Risk-adjusted rate of return. D) Required rate of return for new investment projects. E) Weighted-average rate of return generated by internally generated funds.

203)

For capital budgeting purposes, a depreciation tax shield A) Is an example of an after-tax cash outflow. B) Results in a reduction in income taxes otherwise due. C) Refers to the expense caused by depreciation. D) Equals the amount of depreciation expense × (1 − t), where t = the income tax rate. E) Is caused by the fact that depreciation does not require a cash outflow.

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204)

What does the modified internal rate of return (MIRR) assume for the duration of the project? A) All positive cash flows are reinvested at a particular rate of return. B) All negative cash flows are discounted by the weighted average cost of capital. C) The project will last longer than 5 years. D) The project will last less than 5 years. E) All positive cash flows are not reinvested but instead given out to shareholders.

205)

Sensitivity analysis is used in capital budgeting to A) Estimate a project's internal rate of return (IRR). B) Determine the optimal contribution margin given a set of resource constraints. C) Determine the amount that a variable in a decision model (e.g., annual after-tax cash inflows) can change without changing the indicated decision (e.g., acceptance of a project). D) Simulate probabilistic customer reactions to a new product. E) Capture income tax consequences.

206)

Which of the following isnot a cash flow during project initiation? A) Installation costs. B) Cash commitments for increases in net working capital. C) After-tax cash outflows for operating expenditures. D) Cash inflow associated with investment tax credits. E) Cash outflows to acquire the investment and to begin operations.

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207)

Ignoring income tax considerations, how is depreciation handled by the following capital budgeting techniques? Internal Rate of Return (IRR) Excluded Included Excluded Included Excluded

A) B) C) D) E) A) B) C) D) E)

Accounting Rate of Return (ARR) Included Excluded Excluded Included Excluded

Payback Excluded Included Included Included Excluded

Option A Option B Option C Option D Option E

208)

In applying the Capital Asset Pricing Model (CAPM) to estimate a firm's cost of equity capital, the beta coefficient (β) in the model represents A) The expected dividend per share divided by the current market price per share of common stock. B) The cost of retained earnings. C) The yield-to-maturity on long-term bonds payable. D) A measure of the sensitivity of the firm's stock return to fluctuations in the returns of the overall market. E) The "market risk premium" for that firm's stock.

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209)

When employing the MACRS (modified accelerated cost recovery system) method of depreciation in a capital budgeting decision, the use of MACRS as compared to the straightline method of depreciation will, for an asset with zero estimated salvage value at the end of its useful life, result in A) Equal total depreciation deductions over the life of the asset. B) MACRS producing less total depreciation than the amount determined under the straight-line method. C) Equal total tax payments, after discounting for the time value of money. D) MACRS producing more total depreciation than deductions based on the straight-line method. E) MACRS producing lower annual depreciation deductions in the early years of the asset's life.

210)

A characteristic of the payback method is that it A) Cannot incorporate the time value of money into the calculation. B) Neglects total project profitability (i.e., profitability over the entire life of the project). C) Uses accrual accounting numbers in the numerator of the calculation. D) Uses the estimated life of the asset in the denominator of the calculation. E) Uses the hurdle (i.e., discount) rate in the calculation.

211)

In capital budgeting, the profitability index (PI) decision model isbest used to A) Evaluate mutually exclusive investments of different sizes. B) Adjust for inflation in the net present value (NPV) calculation. C) Select projects when capital budgeting funds are limited. D) Adjust for risk in capital budgeting decisions. E) Adjust for the difference between the accounting rate of return (ARR) and the internal rate of return (IRR).

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Answer Key Test name: chapter 12 1) Essay 2) Essay 3) Essay 4) Essay 5) Essay 6) Essay 7) Essay 8) Essay 9) Essay 10) Essay 11) Essay 12) Essay 13) Essay 14) Essay 15) Essay 16) Essay 17) Essay 18) Essay 19) Essay 20) Essay 21) Essay 22) Essay 23) Essay 24) Essay 25) Essay 26) B 27) D 28) B 29) B 30) A 31) A 32) B 33) C 34) D 35) B 36) B 37) D

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38) D 39) C 40) B 41) E 42) E 43) D 44) A 45) A 46) D 47) B 48) B 49) C 50) D 51) D 52) A 53) C 54) B 55) D 56) E 57) B 58) E 59) A 60) C 61) B 62) C 63) A 64) D 65) E 66) A 67) E 68) D 69) D 70) B 71) D 72) A 73) B 74) E 75) E 76) B 77) B

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78) B 79) B 80) C 81) C 82) A 83) A 84) E 85) A 86) B 87) B 88) B 89) B 90) C 91) C 92) A 93) A 94) B 95) B 96) C 97) C 98) E 99) E 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

B B C C C C B B D D B B D D D D C C

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118) 119) 120) 121) 122) 123) 124) 125) 126) 127) 128) 129) 130) 131) 132) 133) 134) 135) 136) 137) 138) 139) 140) 141) 142) 143) 144) 145) 146) 147) 148) 149) 150) 151) 152) 153) 154) 155) 156) 157)

E A A B C C E E E E C C A A E E D D C C A A B B D D E E D D E C D D D D D D A B

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158) 159) 160) 161) 162) 163) 164) 165) 166) 167) 168) 169) 170) 171) 172) 173) 174) 175) 176) 177) 178) 179) 180) 181) 182) 183) 184) 185) 186) 187) 188) 189) 190) 191) 192) 193) 194) 195) 196) 197)

B C D A D D D D A C D D E C C B D D C A B C C D D B C C C E A D C C B C C C C C

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198) 199) 200) 201) 202) 203) 204) 205) 206) 207) 208) 209) 210) 211)

C D B C A B A C C A D A B C

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Chapter 13 1) Precision Instruments, Incorporated is a national firm manufacturing a full line of surgical

tools for veterinarians. Recent technological developments have produced a significantly higher grade of steel to make surgical instruments and tools. All of Precision's specialized equipment is designed and calibrated to produce surgical tools using current surgical steel stock. Precision's management wants to begin using the new grade of surgical steel, but recognizes the need to redesign and calibrate existing production equipment and/or purchase newly designed production equipment. Redesign of existing equipment can be done in-house, but requires components from the Swedish manufacturer of the equipment. New equipment will also come from Sweden, but its cost is almost double that paid seven years ago for the existing equipment. Required: Identify the constraints Precision will face as it chooses to upgrade existing equipment or purchase new equipment. There is considerable market pressure to shift to use of the new steel stock for production of surgical tools.

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2) Jared Monsma, Weekend Golfer's vice president for marketing, has concluded from his

market analysis that sales have been dwindling for the standard golf cart because of aggressive pricing by competitors. Weekend Golfers sells these golf carts online for $3,000, whereas the competition sells a comparable cart online in the $2,900 range. Jared has determined that dropping the price to $2,850 would regain the firm's annual market share of 8,000 golf carts. Cost data based on sales of 8,000 gas golf carts follow: Budgeted Amount Direct materials

Actual Quantity

Direct labor hours

$ 4,200,000 100,000 hours

125,000

Machine setups Mechanical assembly

75,000 hours 375,000 hours

75,000 400,000

Input data (from above): On-line selling price per unit = Competitor's on-line selling price per unit = Recommended selling price by Weekend Golfer = Normal sales volume per year by Weekend Golfer =

Actual Cost $ 4,500,000 $ 1,750,000 750,000 $ 5,000,000

$ 3,000 $ 2,900

$ 2,850

8,000

Required: 1. Calculate the current cost and profit per unit. 2. How much of the current cost per unit is attributable to non-value-added activities? 3. Calculate the new target cost per unit for the sales price of $2,850 if the profit per unit is maintained. 4. What strategy do you suggest for Weekend Golfer to attain the target cost calculated in requirement 3?

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3) Activities and Market Characteristics Sales Life-Cycle Stage

Decline in sales ____________________________ Advertising ____________________________ Boost in production ____________________________ Stabilized profits ____________________________ Competitor’s entrance into market ____________________________ Market Research ____________________________ Market Saturation ____________________________ Start Production ____________________________ Product Testing ____________________________ Termination of Product ____________________________ Large Increase in sales ____________________________ Required: Insert the appropriate life-cycle stage in the space provided after each activity.

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4) DualShaft Incorporated manufactures a wide variety of parts for recreational boating,

including boat engines. The component is purchased by OEM (original equipment manufacturers) such as Mercury and Honda, for use in the larger and more powerful outboards. The units sell for $790, and sales volume averages 38,000 units per year. Recently, DualShaft's major competitor lowered the price of the equivalent part to $710. The market was very competitive, and DualShaft realized it had to meet the new price or lose significant market share. The controller assembled the following data for the most recent year. Cost and Usage for Production of 38,000 Units Budgeted Cost Actual Quantity Materials $ 7,980,000

Actual Cost $ 8,550,000

Direct labor

2,736,000

2,622,000

Indirect labor

3,914,000

3,686,000

Inspection (hours) Materials handling (number of purchases) Machine setups Returns and rework (number of times) Total

3,230

646,000

800

494,000

4,560

1,824,000

760

114,000 $ 17,936,000

Required: 1. Calculate the target cost for maintaining current market share and profitability. 2. How should the company attempt to reduce cost to meet the new target cost?

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5) Cling Company produces and sells three products (X, Y, and Z). The following data relate to

the three products. Labor is a fixed cost.

Demand in units Selling price per unit Raw materials costs per unit Labor time in minutes per unit

190 $ 160 $ 80 20

200 $ 190 $ 100 28

210 $ 180 $ 110 12

Required: 1. Which is the most profitable product if there is no labor constraint? 2. Which is the most profitable product if there is a labor constraint?

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6) Pat Baldwin owns and operates Outstanding Quality Rentals (OQR). OQR offers kayak

rentals and shuttle service on the Petaholee River. Customers can rent kayaks at one station and enter the river there. They can then exit at one of two designated locations to catch a shuttle to return them to their vehicles. Following are the costs involved in providing this service each year. Fixed costs Kayak maintenance Licenses and permits Vehicle leases Station lease Advertising Operating costs

$ 3,600 4,800 8,400 10,800 9,400 32,400

Variable costs $ 4.20 0.00 0.00 0.00 0.70 0.80

OQR began business three years ago with a $36,000 expenditure for a fleet of 50 kayaks. These are expected to last seven more years, at which time a new fleet will be purchased. Pat is satisfied with the steady average rentals per year of 9,900. Required: What price should Pat charge per rental for the business to make a thirty percent life cycle profit?

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7) Bell Company produces and sells three products (A, B, C). The following data relate to the

three products. Management considers labor to be a fixed cost.

Demand in units Selling price per unit Raw materials cost/unit Labor time in minutes/unit

120 $ 100 $ 50 12

110 $ 120 $ 60 17

100 $ 105 $ 60 7

Required: 1. Calculate the contribution per labor minute for each product. 2. Determine the best product mix. Assume there are five employees, and given time for breaks, training, and regular meetings, there are a total of 2,200 minutes available per day.

8) The management accountant at the Huang Manufacturing Company has collected the

following data in preparation for a life cycle analysis on one of its products, a leaf blower: Item

Annual sales Unit sales price Unit profit Total profit

This Year

$ 2,000,000 $ 400 $ 180 $ 400,000

Change Over Last Year + 1.5% + 2.0% − 0.8% + 1.0%

Average Annual Change Over the Last Four Years + 19.6% + 6.9% + 2.5% + 25.0%

Required: Determine what stage of the sales life cycle the leaf blower is in and explain your reasoning.

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9) Bakker Industries sells three products (611, 613, and 615) that it manufactures in four

departments. Both labor and machine time are applied to products in each of the four departments. The machine-processing and labor skills required in each department prohibit switching either machines or labor from one department to another. However, Bakker has a good supply of both full-time and part-time labor and does not expect hiring or retention of employees to be a problem. Because of the availability of part-time labor, Bakker considers labor a variable cost and includes it in the calculation of throughput margin. Bakker's management is planning its production schedule for the next several months. Some machines will be out of service for extensive overhauling. Available machine times by department for each of the next six months are as follows:

Normal machine capacity in machine hours Capacity of machines being repaired, in machine hours Available capacity in machinehours

DEPARTMENT 2 3 3,500 3,000

1 3,500

4 3,500

500

400

300

200

3,000

3,100

2,700

3,300

Labor and machine specifications per unit of product are as follows: DEPARTMENT;MACHINE HOURS Product 611

Labor and Machine Time Direct labor-hours Machine-hours

1 2 2

2 3 1

3 3 2

4 1 2

613

Direct labor-hours Machine-hours

1 1

2 1

0 0

2 2

615

Direct labor-hours Machine-hours

2 2

1 1

The Sales Department's forecast of product demand over the next six months is as follows: Product 611 613 615

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Monthly Sales (units) 500 400 1000

Bakker's inventory levels will not increase or decrease during the next six months. The unit price and cost data valid for the coming six months are as follows:

Price Direct materials Direct labor Department 1 Department 2 Department 3 Department 4 Variable overhead Fixed overhead Variable selling

611 $ 196 $ 7

PRODUCT 613 $ 123 $ 13

615 $ 167 $ 17

$ 12 $ 21 $ 24 $ 9 $ 27 $ 15 $ 3

$ 6 $ 14 $ 0 $ 18 $ 20 $ 10 $ 2

$ 12 $ 14 $ 16 $ 9 $ 25 $ 32 $ 4

Required: 1. Determine whether Bakker can meet the monthly sales demand for the three products. What department, if any, is a constraint? 2. What monthly production schedule would be best for Bakker Industries?

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10) Warrenton Industries manufactures hydraulic components for large automated machine tools.

Myles English, the Vice President for Marketing, has concluded from his market analysis that sales are dwindling for one of the firm's products main products, a hydraulic valve, because of aggressive pricing by competitors. Warrenton's product sells for $525 whereas the competition's comparable part is selling in the $425 range. Mr. English has determined that a price drop to $400 is necessary to regain market share and annual sales of 1,000 units. Cost data based on sales of 1,000 valves: Budgeted Quantity Actual Quantity Direct materials (sheet metal) Direct labor Machine setups Mechanical assembly

10,000 square feet 4,600 hours 2,500 hours 3,000 hours

11,000 square feet 5,200 hours 3,000 hours 4,000 hours

Actual Cost $ 55,800 155,000 95,000 140,000

Required: 1. Calculate the current cost and profit per unit. 2. How much of the current cost per unit is attributable to non-value added activities? 3. Calculate the new target cost per unit for a sales price of $400 if the profit per unit is maintained. 4. What strategy do you suggest for Warrenton to attain the target cost calculated in part (3)?

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11) Gail Johnston is the CFO of Lancet Technologies, a manufacturer of parts and supplies for

the cable TV industry. Gail has developed an analysis of the profitability of the firm's two main product lines, cable hardware, and cable supplies. Based on the analysis, she concludes that cable hardware is the most profitable of the firm's product lines.

Sales Cost of goods sold Gross profit Research and development Selling expenses Profit before taxes

Hardware

Supplies

Total

$ 4,000,000 (2,300,000) $ 1,700,000

$ 3,000,000 (1,900,000) $ 1,100,000

$ 7,000,000 (4,200,000) 2,800,000 (1,200,000) (600,000) $ 1,000,000

Required: 1. Explain why Gail may be wrong in her assessment of the relative performances of the two product lines. 2. Suppose that 80 percent of the R & D and selling expenses are traceable to Hardware line. Prepare life-cycle income statements for each product and calculate the return on sales. What does this tell you about the importance of accurate life-cycle costing?

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12) Jamestown Furniture Company is a small, but fast-growing manufacturer of living room

furniture. Its two principal products are end tables and sofas. There are five processes in the manufacturing at Jamestown: Cutting the lumber, cutting the fabric, sanding, staining, and assembly. Jamestown has one employee working in fabric cutting and one employee working in staining. These are relatively skilled workers, and could be replaced only with some difficulty. The cutting and sanding operations are performed by two workers each, and while there is some skill to these operations, it is less critical than for staining and for fabric cutting. Assembly is the least skill-based process, and is currently done by one full-time employee and a group of part timers who provide a total of 175 minutes of working time per week. The other employees work a 40 hour week, with 5 hours off for breaks, training, and personal time. Assume a four week month, and that by prior agreement, any of the employees can be switched from one task to another. The current demand for Jamestown's products and sales prices are provided below. Jamestown expects demand to increase significantly in the coming months (this depends on whether it is able to successfully obtain the order it is negotiating to get from a motel chain). The materials cost for the table is $150 and $275 for the sofa.

Price Current demand (units per month)

End Tables

Sofas

$ 500 250

$ 800 150

The time required for each activity and the total time available are shown below.

Cut Sand Assemble Stain Cut Fabric

Required time for Table 150 100 125 250 0

Required time for Sofa 45 30 225 120 90

Required Total Time 195 130 350 370 90

Hours Available

Slack Time

280 280 700 280 140

85 150 350 (90) 50

Required: What is the most profitable production plan for Jamestown? Explain your answer with supporting calculations.

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13) PureSwing Golf, Incorporated manufactures swing analyzer systems for golf instructors. Two

of its systems, Pure1000 and the Pure5000 have these characteristics: Design Specifications Video Cameras

Pure1000 1

Video Monitors

$ 100 per each

Motion sensors

$ 15 per each

Trajectory Readers

$ 10 per each

Onscreen Writing Pads

$ 20 per each

Wiring Installation

100 feet 12 hours

Pure5000 3

300 feet 16 hours

Cost Data $ 115 per each

$ 0.15 per foot $ 25 per hour

The Pure1000 sells for $1,000 installed and the Pure5000 sells for $1,750 installed. Required: 1. What are the current profit margins on both systems? 2. PureSwing's management believes that it must drop the price on the Pure1000 to $800 and on the Pure5000 to $1,450 to remain competitive in the market. Recalculate profit margins for both products at these price levels. 3. Describe two ways that PureSwing could cut its costs to get the profit margins back to their original levels.

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14) PharmCo Manufacturing operates a contract manufacturing plant in London, England. The

plant produces a variety of pharmaceutical drugs for companies around the world. Cycle time is a critical success factor for PharmCo, which has developed a number of measures of manufacturing speed. The company has studied the matter and found that competitive contract manufacturers have manufacturing cycle efficiency (MCE) time of about 40 percent. When last measured, PharmCo's MCE was 35 percent. At PharmCo, cycle time is defined as beginning at the point when the order taking is complete. Some key measures from the most recent month's production, averaged over all the jobs during the period, are as follows: Activity New product development Materials handling Order setup Machine maintenance Order scheduling Inspection of completed order Packaging and move to storage or ship Manufacturing Order taking and verification Raw materials receipt and stocking Inspection of raw materials

Average Number of Hours 45 4 6 4 2 7 2 21 2 6 2

Required: 1. Determine the MCE time for the most recent month. 2. What can you infer from the MCE time that you calculated?

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15) AirTravel Incorporated manufactures a wide variety of parts for commercial aircraft,

including airplane engines. The component is purchased by OEM (original equipment manufacturers) such as Boeing, for use in the larger and more powerful outboards. The units sell for $10,000, and sales volume averages 2,000 units per year. Recently, AirTravel's major competitor lowered the price of the equivalent part to $9,500. The market was very competitive, and AirTravel realized it had to meet the new price or lose significant market share. The controller assembled the following data for the most recent year: Cost and Usage for Production of 2,000 Units Standard Cost Actual Quantity Materials $ 5,000,000

Actual Cost $ 7,000,000

Direct labor

2,000,000

2,500,000

Indirect labor

3,800,000

3,500,000

Inspection (hours)

1,000

500,000

Materials handling (number of purchases) Machine setups

50,000

400,000

3,000

2,000,000

200

100,000

Returns and rework (number of times) Total

$ 16,000,000

Required: Calculate the target cost for maintaining current market share and profitability.

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16) Amanda Jones owns and operates Motorcycle Rentals Incorporated (MRI). Customers can

rent a motorcycle in one city and then return it at one of three designated cities. Following are the costs involved in providing this service each year: Fixed Maintenance Licenses and permits Vehicle leases Building lease Marketing Operating costs

$ 25,000 4,000 100,000 16,000 32,000 88,000

Variable $ 25.00 1.50 16.00

Motorcycle Rentals Incorporated began business two years ago with a $400,000 expenditure for a fleet of 45 motorcycles. These are expected to last five more years, at which time a new fleet will be purchased. Amanda is satisfied with the steady average rentals per year of 10,000.

Required: 1. What price should Amanda charge per rental for the business to make a twenty percent life cycle profit? 2. What price should Amanda charge per rental for the business to make a before-tax thirty percent return on investment?

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17) Excel Manufacturing is planning to make and sell 5,000 units of its only product, Excel-A.

Excel is considering a variety of methods to determine the price of the order. Some key information about Excel follows: Total Costs Variable Manufacturing Variable Selling and Administrative Plant-level Fixed Manufacturing Overhead Fixed Selling and Administrative Batch-level Fixed Manufacturing Overhead Total Investment in Product Line

$ 650,000 125,000 700,000 200,000 50,000 2,000,000

Required: 1. Determine the price using the markup of 40% of full manufacturing costs. 2. Determine the price using a 20% markup on life cycle costs. 3. Determine the price assuming a desired 50% gross margin percentage. 4. Determine the price assuming a desired 30% return on life cycle costs. 5. Determine the price assuming a desired 20% return on investment.

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18) Marchand's Restaurant had developed an excellent reputation in recent years for its price,

menu, and atmosphere. The restaurant is now completing a strategic analysis to determine whether it should make adjustments in its menu, pricing, or wait service, to better meet customer needs and to become more competitive. Marchand's has chosen to use Quality Function Deployment (QFD) to analyze customer preferences and its cost structure. The analysis focuses on costs that can be managed in the short term, and therefore excludes facility related costs. The data that Marchand's has collected so far includes information about customer preferences (Marchand's surveyed customers regarding their preferences for taste, comfort and atmosphere) and the unit cost of the three key elements of its service: food preparation, wait staff, and food ingredients. First: Customer Criteria and Ranking Importance Taste Comfort Atmosphere

100 50 100

Relative Importance 40.00% 20.00% 40.00%

Total

250

100.00%

Second: Product Components and Cost Cost

Percent of Total

Food Preparation Wait Staff Food Ingredients

$ 5 15 3

21.74% 65.22% 13.04%

Total

$ 23

100.00%

Next, Marchand completed an analysis, using the expertise of its managers, wait staff and kitchen staff, to determine the contribution of each of the three elements of its service to satisfying the three components of customer satisfaction. Third: Determine How Components Contribute to Customer Satisfaction Customer Criteria Components Food Preparation Wait Staff Food Ingredients

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Taste 20% 20% 60%

Comfort 10% 80% 10%

Atmosphere 10% 70% 20%

100%

Required: Determine which of the three cost elements (food preparation, wait staff, and food ingredients) should be given increased or decreased emphasis based on a QFD analysis. Explain your answer with appropriate calculations.

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19) High Point Furniture manufactures a high-quality dining table, which is offered in both oak

and walnut. The demand for the tables is 800 units for the oak table and 1500 for the walnut table. The tables are priced at $495 and $995 for the oak and walnut tables, respectively. The materials cost is $210 for the oak table and $430 for the walnut table. In addition, High Point has the following manufacturing information for the four manufacturing processes (receiving, preparation, assembly, and finishing), showing the amount of time (in minutes) required for each table for each process, and the total minutes of time available for each process. Time Required/unit Name Receiving Preparation Assembly Finishing

Oak 25 80 100 60

Walnut 50 120 250 40

Time Available 100,000 250,000 400,000 120,000

Required: 1. Which process(es), if any, are constraints for the current level of demand? 2. Given any constraints identified in part (1) above, determine the best production and sales plan for the two types of tables. 3. What is the overall contribution from the production plan you determined in part (2) above?

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20) Life Cycle Costing Income Statements

The following revenue and cost data are for Turner Manufacturing's two radial saws. The L40 is for the commercial market and the L50 is for industrial customers. Both products are expected to have three-year life cycles. L40 ($ in thousands) Revenues Costs

2021 $ 800

2022 $ 2,300

2023 $ 3,100

1,400 350 60 60 20 -

50 600 120 770 60

475 130 1,350 85

$ 1,890

$ 1,600

$ 2,040

$ (1,090) 2021 $ 900

$ 700 2022 $ 1,900

$ 1,060 2023 $ 2,200

650 300 124 170 85 -

30 200 200 700 20

10 260 410 770 300

Total cost

$ 1,329

$ 1,150

$ 1,750

Operating profit

$ (429)

$ 750

$ 450

Research and development Prototypes Marketing Distribution Manufacturing Customer service Total cost Operating profit L50 ($ in thousands) Revenues Costs Research and development Prototypes Marketing Distribution Manufacturing Customer service

Required: 1. How would a product life-cycle income statement differ from the above income statements? 2. Prepare a three-year life-cycle income statement for both products. Which product appears to be more profitable and why? 3. Prepare a schedule showing each cost category as a percentage of total annual costs. What do you think this indicates about the profitability of each product over the three-year life cycle?

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21) Which of the following isnot one of the five steps in target costing that manages the trade-

offs between functionality and cost? A) Calculate the target cost as market price less desired profit. B) Determine what new products should be made. C) Determine the desired profit. D) Determine the market price. E) Use kaizen and operational control to further reduce costs.

22) Many firms are finding it is difficult to compete successfully on cost leadership or

differentiation alone, and they must, in fact, compete on both: A) Cost and design. B) Price and functionality. C) Cost and price. D) Design and functionality. E) Cost and functionality.

23) An important first step in value engineering that identifies critical consumer preferences that

will define the product's desired functionality is known as: A) Consumer analysis. B) Sales force analysis. C) Design analysis. D) R&D analysis. E) Market place analysis.

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24) An engineering method that integrates product design with manufacturing and marketing

throughout the product’s life cycle is called: A) Concurrent engineering. B) Target costing. C) Group technology. D) Value engineering. E) Functional analysis

25) Which of the following is a method of reducing cost by identifying parts in different products

that are common and interchangeable? A) Target costing. B) Value chain analysis. C) Concurrent engineering. D) Group technology. E) Theory of constraints.

26) Throughput margin is defined as sales less: A) Direct labor costs. B) Direct material costs. C) Direct labor and material costs. D) Processing costs. E) Manufacturing costs.

27) What is the manufacturing cycle time? A) The time from the start of production to the end of production. B) The time from the start of the design process to the end of production. C) The time from the start of production to the shipment of the order. D) The time from the start of the design process to the shipment of the order. E) The time from the start of production to when the product is sold.

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28) What is the purpose for the theory of constraints (TOC)? A) It is aimed at reducing cycle time by removing bottlenecks from the production

process. B) It is aimed at reducing cycle time by increasing efficiency of all the steps in the manufacturing process except for the constraints. C) It is aimed at reducing costs by adding new technology to the production process. D) It is aimed at getting the customer their product as fast as possible after they buy it. E) It is aimed at increasing the revenue of the company by eliminating the constraints put on the sales team.

29) Activity-based costing (ABC) and the theory of constraints (TOC) are viewed as methods

that are: A) Substitutions for one another. B) Complementary. C) Auxiliary. D) Responsive. E) Parallel.

30) Which of the following is not a critical success factor in the design stage? A) Improved ease of manufacture. B) Reduced product environmental impact. C) Improved customer satisfaction. D) Reduced time to market. E) Process planning and design.

31) Quality function deployment (QFD) is the integration of what three areas to assist in

determining which components of the product should be targeted for redesign? A) Group technology, target costing, design analysis. B) Design analysis, marketing analysis, group technology. C) Value engineering, marketing analysis, design analysis. D) Value engineering, target costing, marketing analysis. E) Target costing, value engineering, group technology.

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32) If a firm sets an initial high price for a product followed by lower prices in the future, what

cost life cycle technique is it using? A) Penetration. B) Skimming. C) Division. D) Maturity. E) Revenue maximization.

33) The sequence of activities within the firm which begins with research and development,

followed by design, and manufacturing, marketing/distribution, and customer service is the: A) Sales life cycle. B) Target life cycle. C) Market life cycle. D) Critical life cycle. E) Cost life cycle.

34) The sequence of phases in the product or service's life in the market - from the introduction

of the product or service to the growth in sales and finally maturity, decline, and withdrawal from the market is the: A) Sales life cycle. B) Target life cycle. C) Market life cycle. D) Critical life cycle. E) Cost life cycle.

35) When a firm determines the desired cost for a product or service, given a competitive market

price, in order to earn a desired profit, the firm is exercising: A) Target costing. B) Life cycle costing. C) Variable costing. D) Absorption costing. E) Competitive costing.

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36) Which one of the following isnot one of the five steps in theory of constraints (TOC)

analysis? A) Identify the binding constraint(s). B) Determine the most efficient utilization for each binding constraint. C) Manage the flow through the binding constraint. D) Identify those responsible for bottlenecks and make adjustments as needed. E) Redesign the manufacturing process for flexibility and fast throughput.

37) The goals of coordinating manufacturing processes, reducing the amount of inventory, and

improving overall productivity is particularly important in a: A) Standard cost system. B) Just-in-time system. C) Normal costing system. D) Activity based costing system. E) Total quality management system.

38) Which one of the following is true concerning the theory of constraints (TOC)? A) It has a short-term focus and uses cost drivers. B) It has a long-term focus but does not use cost drivers. C) It has a short-term focus but does not use cost drivers. D) It has a long-term focus and uses cost drivers. E) It can have either a long-term or short-term focus and may use cost drivers.

39) How did Henry Ford implement target costing in his business? A) He would calculate the cost of the product, and then set the price based on that cost. B) He set a price that would result in more sales, and then would work to force costs

down by finding the highest point of efficiency. C) He would let processes be flexible depending on the individual buying the product so that more people would be willing to buy. D) He only focused on costs and the process of reducing costs. E) He didn’t care how high costs were as long as he was selling a large quantity of product.

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40) During which stage of the sales life cycle of a product do sales continue to increase but at a

decreasing rate, and competition tends to focus on cost? A) Maturity. B) Decline. C) Inflation. D) Growth. E) Introduction.

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41) Float Incorporated manufactures a wide variety of parts for recreational boating, including

boat engines. The component is purchased by OEM (Original Equipment Manufacturers) such as Mercury and Honda, for use in the larger and more powerful outboards. The units sell for $760, and sales volume averages 32,500 units per year. Recently, Float's major competitor lowered the price of the equivalent part to $640. The market was very competitive, and Float realized it had to meet the new price or lose significant market share. The controller assembled the following data for the most recent year: Cost and Usage for Production of 32,500 Units Standard Cost Actual Quantity Materials $ 6,661,000

Actual Cost $ 7,141,000

Direct labor

2,277,000

2,181,000

Indirect labor

3,269,000

3,077,000

Inspection (hours)

3,100

548,500

Materials handling (number of purchases) Machine setups

73,250

401,750

4,850

1,504,700

Returns and rework (number of times)

800

96,400

Total

$ 14,950,350

The target cost for maintaining current market share and profitability is (round to nearest cent): A) $410.01. B) $360.52. C) $340.01. D) $334.01. E) $404.01.

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42) Float Incorporated manufactures a wide variety of parts for recreational boating, including

boat engines. The component is purchased by OEM (Original Equipment Manufacturers) such as Mercury and Honda, for use in the larger and more powerful outboards. The units sell for $660, and sales volume averages 32,000 units per year. Recently, Float's major competitor lowered the price of the equivalent part to $590. The market was very competitive, and Float realized it had to meet the new price or lose significant market share. The controller assembled the following data for the most recent year:

Materials

Cost and Usage for Production of 32,000 Units Standard Cost Actual Actual Cost Quantity $ 6,656,000 $ 7,136,000

Direct labor

2,272,000

2,176,000

Indirect labor

3,264,000

3,072,000

Inspection (hours)

2,600

546,000

Materials handling (number of purchases) Machine setups

73,000

401,500

4,600

1,504,200

Returns and rework (number of times)

700

95,900

Total

$ 14,931,600

The target cost for maintaining current market share and profitability is (round to nearest cent): A) $466.61. B) $417.12. C) $396.61. D) $390.61. E) $460.61.

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43) Lens Care Incorporated (LCI) manufactures specialized equipment for polishing optical

lenses. There are two models - one mainly used for fine eyewear (F-32) and another for lenses used in binoculars, cameras, and similar equipment (B-13). The manufacturing cost of each unit is calculated using activity-based costing, using the following manufacturing cost pools: Cost Pools Materials handling Manufacturing supervision Assembly Machine setup Inspection and testing Packaging

Allocation Base Number of parts Hours of machine time Number of parts Each setup Logged hours Logged hours

Costing Rate $ 2.50 per part $ 14.81 per hour $ 3.35 per part $ 56.55 per setup $ 45.55 per hour $ 19.55 per hour

LCI currently sells the B-13 model for $2,000 and the F-32 model for $1,500. Manufacturing costs and activity usage for the two products are as follows:

Direct materials Number of parts Machine hours Inspection time Packaging time Setups

B-13

F-32

$ 164.55 161 7.95 1.80 0.95 4

$ 75.64 121 4.21 0.90 0.55 3

The product cost for model B-13 is: A) $1,550.90. B) $1,386.40. C) $1,252.42. D) $998.39. E) $1,073.99.

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44) Lens Care Incorporated (LCI) manufactures specialized equipment for polishing optical

Allocation Base Number of parts Hours of machine time Number of parts Each setup Logged hours Logged hours

Costing Rate $ 2.40 per part $ 14.80 per hour $ 3.30 per part $ 56.50 per setup $ 45.50 per hour $ 19.50 per hour

LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing costs and activity usage for the two products are as follows:

Direct materials Number of parts Machine hours Inspection time Packaging time Setups

B-13

F-32

$ 164.50 160 7.90 1.70 0.90 3

$ 75.60 120 4.20 0.80 0.50 2

The product cost for model B-13 is: A) $1,457.82. B) $1,293.32. C) $1,159.34. D) $905.31. E) $980.91.

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45) Lens Care Incorporated (LCI) manufactures specialized equipment for polishing optical

Allocation Base Number of parts Hours of machine time Number of parts Each setup Logged hours Logged hours

Costing Rate $ 3.80 per part $ 14.94 per hour $ 4.00 per part $ 57.20 per setup $ 46.20 per hour $ 20.20 per hour

LCI currently sells the B-13 model for $4,925 and the F-32 model for $5,140. Manufacturing costs and activity usage for the two products are as follows:

Direct materials Number of parts Machine hours Inspection time Packaging time Setups

B-13

F-32

$ 165.20 174 8.60 3.10 1.60 4

$ 76.16 134 4.34 2.20 1.20 3

The product cost for model F-32 is: A) $1,960.59. B) $1,796.09. C) $1,662.11. D) $1,408.08. E) $1,483.68.

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46) Lens Care Incorporated (LCI) manufactures specialized equipment for polishing optical

Allocation Base Number of parts Hours of machine time Number of parts Each setup Logged hours Logged hours

Costing Rate $ 2.40 per part $ 14.80 per hour $ 3.30 per part $ 56.50 per setup $ 45.50 per hour $ 19.50 per hour

LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing costs and activity usage for the two products are as follows:

Direct materials Number of parts Machine hours Inspection time Packaging time Setups

B-13

F-32

$ 164.50 160 7.90 1.70 0.90 3

$ 75.60 120 4.20 0.80 0.50 2

The product cost for model F-32 is: A) $1,457.82. B) $1,293.32. C) $1,159.34. D) $905.31. E) $980.91.

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47) Lens Care Incorporated (LCI) manufactures specialized equipment for polishing optical

Allocation Base Number of parts Hours of machine time Number of parts Each setup Logged hours Logged hours

Costing Rate $ 3.80 per part $ 14.94 per hour $ 4.00 per part $ 57.20 per setup $ 46.20 per hour $ 20.20 per hour

LCI currently sells the B-13 model for $4,925 and the F-32 model for $5,140. Manufacturing costs and activity usage for the two products are as follows:

Direct materials Number of parts Machine hours Inspection time Packaging time Setups

B-13

F-32

$ 165.20 174 8.60 3.10 1.60 4

$ 76.16 134 4.34 2.20 1.20 3

The profit margin based on manufacturing cost for model B-13 is: A) $3,034.28. B) $2,867.29. C) $2,791.69. D) $2,869.78. E) $2,890.76.

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48) Lens Care Incorporated (LCI) manufactures specialized equipment for polishing optical

Allocation Base Number of parts Hours of machine time Number of parts Each setup Logged hours Logged hours

Costing Rate $ 2.40 per part $ 14.80 per hour $ 3.30 per part $ 56.50 per setup $ 45.50 per hour $ 19.50 per hour

LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing costs and activity usage for the two products are as follows:

Direct materials Number of parts Machine hours Inspection time Packaging time Setups

B-13

F-32

$ 164.50 160 7.90 1.70 0.90 3

$ 75.60 120 4.20 0.80 0.50 2

The profit margin based on manufacturing cost for model B-13 is: A) $481.68. B) $314.69. C) $239.09. D) $317.18. E) $338.16.

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49) Lens Care Incorporated (LCI) manufactures specialized equipment for polishing optical

Allocation Base Number of parts Hours of machine time Number of parts Each setup Logged hours Logged hours

Costing Rate $ 3.50 per part $ 14.91 per hour $ 3.85 per part $ 57.05 per setup $ 46.05 per hour $ 20.05 per hour

LCI currently sells the B-13 model for $4,250 and the F-32 model for $4,300. Manufacturing costs and activity usage for the two products are as follows:

Direct materials Number of parts Machine hours Inspection time Packaging time Setups

B-13

F-32

$ 165.05 171 8.45 2.80 1.45 1

$ 76.04 131 4.31 1.90 1.05 0

The profit margin based on manufacturing cost for model F-32 is: A) $3,330.89. B) $3,163.90. C) $3,088.30. D) $3,166.39. E) $3,187.37.

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50) Lens Care Incorporated (LCI) manufactures specialized equipment for polishing optical

Allocation Base Number of parts Hours of machine time Number of parts Each setup Logged hours Logged hours

Costing Rate $ 2.40 per part $ 14.80 per hour $ 3.30 per part $ 56.50 per setup $ 45.50 per hour $ 19.50 per hour

LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing costs and activity usage for the two products are as follows:

Direct materials Number of parts Machine hours Inspection time Packaging time Setups

B-13

F-32

$ 164.50 160 7.90 1.70 0.90 3

$ 75.60 120 4.20 0.80 0.50 2

The profit margin based on manufacturing cost for model F-32 is: A) $481.68. B) $314.69. C) $239.09. D) $317.18. E) $338.16.

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51) Lens Care Incorporated (LCI) manufactures specialized equipment for polishing optical

Allocation Base Number of parts Hours of machine time Number of parts Each setup Logged hours Logged hours

Costing Rate $ 4.00 per part $ 14.96 per hour $ 4.10 per part $ 57.30 per setup $ 46.30 per hour $ 20.30 per hour

LCI currently sells the B-13 model for $5,375 and the F-32 model for $5,700. Manufacturing costs and activity usage for the two products are as follows:

Direct materials Number of parts Machine hours Inspection time Packaging time Setups

B-13

F-32

$ 165.30 176 8.70 3.30 1.70 5

$ 76.24 136 4.36 2.40 1.30 4

If the market price for B-13 and F-32 are reduced to $5,295 and $5,575 respectively, and Lens Care wants to maintain market share and profitability, what is the target cost for B-13 and F-32 (round to nearest whole dollar)?

A) B) C) D) E)

B-13

F-32

$ 817.00 $ 2,115.00 $ 1,055.00 $ 2,115.00 $ 1,055.00

$ 749.00 $ 754.00 $ 1,485.00 $ 1,485.00 $ 1,051.00

A) Option A B) Option B

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C) Option C D) Option D E) Option E

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52) Lens Care Incorporated (LCI) manufactures specialized equipment for polishing optical

Allocation Base Number of parts Hours of machine time Number of parts Each setup Logged hours Logged hours

Costing Rate $ 2.40 per part $ 14.80 per hour $ 3.30 per part $ 56.50 per setup $ 45.50 per hour $ 19.50 per hour

LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing costs and activity usage for the two products are as follows:

Direct materials Number of parts Machine hours Inspection time Packaging time Setups

B-13

F-32

$ 164.50 160 7.90 1.70 0.90 3

$ 75.60 120 4.20 0.80 0.50 2

If the market price for B-13 and F-32 are reduced to $1,695 and $1,095 respectively, and Lens Care wants to maintain market share and profitability, what is the target cost for B-13 and F-32 (round to nearest whole dollar)? B-13 A) B) C) D) E)

$ 80 $ 1,378 $ 318 $ 1,378 $ 318

F-32 $ 120 $ 125 $ 856 $ 856 $ 422

A) Option A B) Option B C) Option C

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D) Option D E) Option E

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53) Lens Care Incorporated (LCI) manufactures specialized equipment for polishing optical

Allocation Base Number of parts Hours of machine time Number of parts Each setup Logged hours Logged hours

Costing Rate $ 2.80 per part $ 14.84 per hour $ 3.50 per part $ 56.70 per setup $ 45.70 per hour $ 19.70 per hour

LCI currently sells the B-13 model for $2,675 and the F-32 model for $2,340. Manufacturing costs and activity usage for the two products are as follows:

Direct materials Number of parts Machine hours Inspection time Packaging time Setups

B-13

F-32

$ 164.70 164 8.10 2.10 1.10 5

$ 75.76 124 4.24 1.20 0.70 4

The market price for B-13 and F-32 are reduced to $2,595 and $2,215 respectively. To achieve the target cost, Lens Care plans to reduce materials handling costs. How many parts must be removed from B-13 in order to achieve the target cost for B-13 (round up to whole units)? A) 13 B) 44 C) 32 D) 23 E) 51

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54) Lens Care Incorporated (LCI) manufactures specialized equipment for polishing optical

Allocation Base Number of parts Hours of machine time Number of parts Each setup Logged hours Logged hours

Costing Rate $ 2.40 per part $ 14.80 per hour $ 3.30 per part $ 56.50 per setup $ 45.50 per hour $ 19.50 per hour

LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing costs and activity usage for the two products are as follows:

Direct materials Number of parts Machine hours Inspection time Packaging time Setups

B-13

F-32

$ 164.50 160 7.90 1.70 0.90 3

$ 75.60 120 4.20 0.80 0.50 2

The market price for B-13 and F-32 are reduced to $1,695 and $1,095 respectively. To achieve the target cost, Lens Care plans to reduce materials handling costs. How many parts must be removed from B-13 in order to achieve the target cost for B-13 (round up to whole units)? A) 15 B) 46 C) 34 D) 25 E) 53

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55) Lens Care Incorporated (LCI) manufactures specialized equipment for polishing optical

Allocation Base Number of parts Hours of machine time Number of parts Each setup Logged hours Logged hours

Costing Rate $ 3.30 per part $ 14.89 per hour $ 3.75 per part $ 56.95 per setup $ 45.95 per hour $ 19.95 per hour

LCI currently sells the B-13 model for $3,800 and the F-32 model for $3,740. Manufacturing costs and activity usage for the two products are as follows:

Direct materials Number of parts Machine hours Inspection time Packaging time Setups

B-13

F-32

$ 164.95 169 8.35 2.60 1.35 6

$ 75.96 129 4.29 1.70 0.95 5

The market price for B-13 and F-32 are reduced to $3,720 and $3,615 respectively. To achieve the target cost, Lens Care plans to reduce materials handling costs. How many parts must be removed from F-32 in order to achieve the target cost for F-32 (round up to whole units)? A) 18 B) 42 C) 30 D) 34 E) 49

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56) Lens Care Incorporated (LCI) manufactures specialized equipment for polishing optical

Allocation Base Number of parts Hours of machine time Number of parts Each setup Logged hours Logged hours

Costing Rate $ 2.40 per part $ 14.80 per hour $ 3.30 per part $ 56.50 per setup $ 45.50 per hour $ 19.50 per hour

LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing costs and activity usage for the two products are as follows:

Direct materials Number of parts Machine hours Inspection time Packaging time Setups

B-13

F-32

$ 164.50 160 7.90 1.70 0.90 3.00

$ 75.60 120 4.20 0.80 0.50 2.00

The market price for B-13 and F-32 are reduced to $1,695 and $1,095 respectively. To achieve the target cost, Lens Care plans to reduce materials handling costs. How many parts must be removed from F-32 in order to achieve the target cost for F-32 (round up to whole units)? A) 22 B) 46 C) 34 D) 38 E) 53

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57) Tool Industries manufactures large workbenches for industrial use. Sam Hartnet, the Vice

President for marketing at Tool Industries, concluded from market analysis that sales were dwindling for Tool's workbenches due to aggressive pricing by competitors. Tool's workbench sells for $1,940 whereas the competition's comparable workbench sells for $1,700. Sam determined that a price drop to $1,700 would be necessary to protect its market share and maintain an annual sales level of 14,600 workbenches. Cost data based on sales of 14,600 workbenches:

Direct materials (pounds) Direct labor (hours) Machine setups (number of setups) Mechanical assembly (machine hours)

Budgeted Quantity 183,000 76,000 1,700

Actual Quantity 176,000 75,500 1,200

Actual Cost

32,900

285,250

3,766,000

$ 3,458,000 829,000 258,000

The current cost per unit is (rounded to the nearest whole dollar): A) $520. B) $455. C) $397. D) $569. E) $377.

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58) Tool Industries manufactures large workbenches for industrial use. Sam Hartnet, the Vice

President for marketing at Tool Industries, concluded from market analysis that sales were dwindling for Tool's workbenches due to aggressive pricing by competitors. Tool's workbench sells for $1,140 whereas the competition's comparable workbench sells for $1,060. Sam determined that a price drop to $1,060 would be necessary to protect its market share and maintain an annual sales level of 13,000 workbenches. Cost data based on sales of 13,000 workbenches:

Direct materials (pounds) Direct labor (hours) Machine setups (number of setups) Mechanical assembly (machine hours)

Budgeted Quantity 175,000 72,800 900

Actual Quantity 168,000 71,500 880

Actual Cost $ 3,450,000 825,000 250,000

273,000

281,250

3,750,000

The current cost per unit is (rounded to the nearest whole dollar): A) $588. B) $523. C) $465. D) $637. E) $445.

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59) Tool Industries manufactures large workbenches for industrial use. Sam Hartnet, the Vice

President for marketing at Tool Industries, concluded from market analysis that sales were dwindling for Tool's workbenches due to aggressive pricing by competitors. Tool's workbench sells for $1,240 whereas the competition's comparable workbench sells for $1,140. Sam determined that a price drop to $1,140 would be necessary to protect its market share and maintain an annual sales level of 13,200 workbenches. Cost data based on sales of 13,200 workbenches:

Direct materials (pounds) Direct labor (hours) Machine setups (number of setups) Mechanical assembly (machine hours)

Budgeted Quantity 176,000 73,200 1,000

Actual Quantity 169,000 72,000 920

Actual Cost

28,000

281,750

3,752,000

$ 3,451,000 825,500 251,000

The current profit per unit is (rounded to the nearest whole dollar): A) $613. B) $784. C) $726. D) $634. E) $804.

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60) Tool Industries manufactures large workbenches for industrial use. Sam Hartnet, the Vice

President for marketing at Tool Industries, concluded from market analysis that sales were dwindling for Tool's workbenches due to aggressive pricing by competitors. Tool's workbench sells for $1,140 whereas the competition's comparable workbench sells for $1,060. Sam determined that a price drop to $1,060 would be necessary to protect its market share and maintain an annual sales level of 13,000 workbenches. Cost data based on sales of 13,000 workbenches:

Direct materials (pounds) Direct labor (hours) Machine setups (number of setups) Mechanical assembly (machine hours)

Budgeted Quantity 175,000 72,800 900

Actual Quantity 168,000 71,500 880

Actual Cost $ 3,450,000 825,000 250,000

273,000

281,250

3,750,000

The current profit per unit is (rounded to the nearest whole dollar): A) $503. B) $674. C) $616. D) $524. E) $694.

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61) Tool Industries manufactures large workbenches for industrial use. Sam Hartnet, the Vice

Direct materials (pounds) Direct labor (hours) Machine setups (number of setups) Mechanical assembly (machine hours)

Budgeted Quantity 183,000 76,000 1,700

Actual Quantity 176,000 75,500 1,200

Actual Cost

32,900

285,250

3,766,000

$ 3,458,000 829,000 258,000

If the profit per unit is maintained, the target cost per unit is (rounded to the nearest whole dollar): A) $261. B) $329. C) $288. D) $196. E) $117.

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62) Tool Industries manufactures large workbenches for industrial use. Sam Hartnet, the Vice

President for marketing at Tool Industries, concluded from market analysis that sales were dwindling for Tool's workbenches due to aggressive pricing by competitors. Tool's workbench sells for $1,140 whereas the competition's comparable workbench sells for $1,060. Sam determined that a price drop to $1,060 would be necessary to protect its market share and maintain an annual sales level of 13,000 workbenches. Cost data based on sales of 13,000 workbenches:

Direct materials (pounds) Direct labor (hours) Machine setups (number of setups) Mechanical assembly (machine hours)

Budgeted Quantity 175,000 72,800 900

Actual Quantity 168,000 71,500 880

Actual Cost $ 3,450,000 825,000 250,000

273,000

281,250

3,750,000

If the profit per unit is maintained, the target cost per unit is (rounded to the nearest whole dollar): A) $489. B) $557. C) $516. D) $424. E) $345.

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63) Tool Industries manufactures large workbenches for industrial use. Sam Hartnet, the Vice

President for marketing at Tool Industries, concluded from market analysis that sales were dwindling for Tool's workbenches due to aggressive pricing by competitors. Tool's workbench sells for $1,140 whereas the competition's comparable workbench sells for $1,060. Sam determined that a price drop to $1,060 would be necessary to retain market share and annual sales of 13,000 workbenches. Cost data based on sales of 13,000 workbenches:

Direct materials (pounds) Direct labor (hours) Machine setups (number of setups) Mechanical assembly (machine hours)

Budgeted Quantity 175,000 72,800 900

Actual Quantity 168,000 71,500 880

Actual Cost $ 3,450,000 825,000 250,000

273,000

281,250

3,750,000

In order to reduce costs so as to reach the desired target cost, Tool Industries should also focus on reducing the cost of: A) Direct materials B) Direct labor C) Machine setups D) Mechanical assembly E) All of these answer choices are correct

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64) Suzy Company produces and sells three products (X, Y, and Z). The following data relate to

the three products:

Demand in units Selling price per unit Raw materials costs per unit Labor time in minutes per unit

160 $ 130 $ 65 10

150 $ 160 $ 80 20

140 $ 150 $ 90 10

Which is the most profitable product if there is no constraint on labor time? A) Product X. B) Product Y. C) Product Z. D) More than one of the products has equal total throughput margin per labor minute. E) There isn't enough information to answer the question.

65) Suzy Company produces and sells three products (X, Y, and Z). The following data relate to

the three products:

Demand in units Selling price per unit Raw materials costs per unit Labor time in minutes per unit

160 $ 130 $ 65 10

150 $ 160 $ 80 20

140 $ 150 $ 90 10

Which is the most profitable product if there is a constraint on labor time, so that total demand for all products cannot be met? A) Product X. B) Product Y. C) Product Z. D) More than one of the products has equal total throughput margin per labor minute. E) There isn't enough information to answer the question.

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66) Ken Yalters, the COO of FreshSkin, asked his cost management team for a product line

profitability analysis for his firm's two products - Askin and Bskin. The two products are skin care products that require a large amount of research and development and advertising. He received the report below. Ken concluded that Askin was the more profitable product, and that perhaps cost-cutting measures should be applied to the Bskin product.

Sales Cost of goods sold Gross profit Research and development Selling expenses

Askin

Bskin

Total

$ 4,014,000 (2,607,000) $ 1,407,000

$ 2,607,000 (2,114,000) $ 493,000

$ 6,621,000 (4,721,000) $ 1,900,000 (1,184,000)

Profit before taxes

(137,000) $ 579,000

Seventy-five percent of the research and development and selling expenses were traceable to Askin. Profit before taxes for the Askin product, per life-cycle income statements, is: A) $166,250. B) $416,250. C) $513,750. D) $198,750. E) $323,750.

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67) Ken Yalters, the COO of FreshSkin, asked his cost management team for a product line

Sales Cost of goods sold Gross profit Research and development Selling expenses Profit before taxes

Askin

Bskin

Total

$ 4,000,000 (2,600,000) $ 1,400,000

$ 2,600,000 (2,100,000) $ 500,000

$ 6,600,000 (4,700,000) $ 1,900,000 (1,170,000) (130,000) $ 600,000

Seventy-five percent of the research and development and selling expenses were traceable to Askin. Profit before taxes for the Askin product, per life-cycle income statements, is: A) $175,000. B) $425,000. C) $522,500. D) $207,500. E) $332,500.

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68) Ken Yalters, the COO of FreshSkin, asked his cost management team for a product line

Sales Cost of goods sold Gross profit Research and development Selling expenses

Askin

Bskin

Total

$ 4,016,000 (2,608,000) $ 1,408,000

$ 2,608,000 (2,116,000) $ 492,000

$ 6,624,000 (4,724,000) $ 1,900,000 (1,186,000)

Profit before taxes

(138,000) $ 576,000

Seventy-five percent of the research and development and selling expenses were traceable to Askin. Profit before taxes for the Bskin product, per life-cycle income statements, is: A) $161,000. B) $411,000. C) $508,500. D) $193,500. E) $318,500.

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69) Ken Yalters, the COO of FreshSkin, asked his cost management team for a product line

Sales Cost of goods sold Gross profit Research and development Selling expenses

Askin

Bskin

Total

$ 4,000,000 (2,600,000) $ 1,400,000

$ 2,600,000 (2,100,000) $ 500,000

$ 6,600,000 (4,700,000) $ 1,900,000 (1,170,000)

Profit before taxes

(130,000) $ 600,000

Seventy-five percent of the research and development and selling expenses were traceable to Askin. Profit before taxes for the Bskin product, per life-cycle income statements, is: A) $175,000. B) $425,000. C) $522,500. D) $207,500. E) $332,500.

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70) The management accountant at Lang Manufacturing Co. collected the following data in

preparation for a life-cycle analysis on one of its products, a leaf blower: Item

This Year

Annual sales Unit sales price Unit profit Total profit

$ 2,700,000 450 100 600,000

Change Over Average Annual Change Last Year Over the Last Four Years + 1.8% + 23.5% + 2.4% + 8.3% − 1.0% − 1.2%

+ 3.0% + 30.0%

The stage of the sales life cycle the product is in is: A) Introduction. B) Growth. C) Maturity. D) Decline. E) Withdrawal.

71) Which of the following is a theory of constraints (TOC) measure of product profitability that

equals price less materials cost, including all purchased components and materials handling costs? A) Takt time. B) Throughput margin. C) Profitability margin. D) Price analysis. E) None of these answer choices is correct.

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72) The management accountant at Jang Manufacturing Company collected the following data in

preparation for a life-cycle analysis on one of its products, a leaf blower: Item

This Year

Change Over Last Year

Annual sales Unit sales price Unit profit Total profit

$ 3,200,000 500

− 2.4% − 2.1%

100 700,000

− 10.0% − 1.2%

Average Annual Change Over the Last Four Years + 3.5% + 3.3% + 2.0% + 3.0%

The stage of the sales life cycle the product is in is: A) Introduction. B) Growth. C) Maturity. D) Decline. E) Withdrawal.

73) Tangy Incorporated produces a specialty top-quality juice machine. The product, the JM50,

requires four processes to be completed. Specifically, these processes are exterior construction, pulp filter insertion, painting, and packaging. Each process is performed at separate workstations with different completion rates: Exterior construction can manufacture 124,000 juicer exteriors per day. Pulp filter insertion can install 31,000 filters every 6 hours. Painting can decorate 3,120 juicers every half hour. Packaging can package 6,500 juicers per hour. The plant operates 24/7, 24 hours a day every day of the week. How many JM50 machines can Tangy Incorporated manufacture per month (assume an average 30-day month)? A) 5,040,000 juicers. B) 4,320,000 juicers. C) 3,720,000 juicers. D) 3,920,000 juicers. E) 3,596,000 juicers.

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74) Tangy Incorporated produces a specialty top-quality juice machine. The product, the JM50,

requires four processes to be completed. Specifically, these processes are exterior construction, pulp filter insertion, painting, and packaging. Each process is performed at separate workstations with different completion rates: Exterior construction can manufacture 100,000 juicer exteriors per day. Pulp filter insertion can install 25,000 filters every 6 hours. Painting can decorate 3,000 juicers every half hour. Packaging can package 5,000 juicers per hour. The plant operates 24/7, 24 hours a day every day of the week. How many JM50 machines can Tangy Incorporated manufacture per month (assume an average 30-day month)? A) 4,320,000 juicers. B) 3,600,000 juicers. C) 3,000,000 juicers. D) 3,200,000 juicers. E) 2,900,000 juicers.

75) Tangy Incorporated produces a specialty top-quality juice machine. The product, the JM50,

requires four processes to be completed. Specifically, these processes are exterior construction, pulp filter insertion, painting, and packaging. Each process is performed at separate workstations with different completion rates: Exterior construction can manufacture 101,200 juicer exteriors per day. Pulp filter insertion can install 25,300 filters every 6 hours. Painting can decorate 3,300 juicers every half hour. Packaging can package 5,300 juicers per hour. The plant operates 24/7, 24 hours a day every day of the week. Which function(s) is/are the bottleneck(s)? (Assume an average 30-day month.) A) Exterior construction. B) Pulp filter insertion. C) Painting. D) Packaging. E) Exterior construction and pulp filter insertion.

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76) Tangy Incorporated produces a specialty top-quality juice machine. The product, the JM50,

requires four processes to be completed. Specifically, these processes are exterior construction, pulp filter insertion, painting, and packaging. Each process is performed at separate workstations with different completion rates: Exterior construction can manufacture 100,000 juicer exteriors per day. Pulp filter insertion can install 25,000 filters every 6 hours. Painting can decorate 3,000 juicers every half hour. Packaging can package 5,000 juicers per hour. The plant operates 24/7, 24 hours a day every day of the week. Which function(s) is/are the bottleneck(s)? (Assume an average 30-day month.) A) Exterior construction. B) Pulp filter insertion. C) Painting. D) Packaging. E) Exterior construction and pulp filter insertion.

77) Tangy Incorporated produces a specialty top-quality juice machine. The product, the JM50,

requires four processes to be completed. Specifically, these processes are exterior construction, pulp filter insertion, painting, and packaging. Each process is performed at separate workstations with different completion rates: Exterior construction can manufacture 100,560 juicer exteriors per day. Pulp filter insertion can install 25,140 filters every 6 hours. Painting can decorate 3,140 juicers every half hour. Packaging can package 5,140 juicers per hour. The plant operates 24/7, 24 hours a day every day of the week. What is the least amount of monthly capacity you would have to add to the bottleneck(s) to shift the bottleneck to a different process? (Assume an average 30-day month.) A) 2,084,001 juicers per month. B) 684,001 juicers per month. C) 1,404,001 juicers per month. D) 134,001 juicers per month. E) 534,281 juicers per month.

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78) Tangy Incorporated produces a specialty top-quality juice machine. The product, the JM50,

requires four processes to be completed. Specifically, these processes are exterior construction, pulp filter insertion, painting, and packaging. Each process is performed at separate workstations with different completion rates: Exterior construction can manufacture 100,000 juicer exteriors per day. Pulp filter insertion can install 25,000 filters every 6 hours. Painting can decorate 3,000 juicers every half hour. Packaging can package 5,000 juicers per hour. The plant operates 24/7, 24 hours a day every day of the week. What is the least amount of monthly capacity you would have to add to the bottleneck(s) to shift the bottleneck to a different process? (Assume an average 30-day month.) A) 2,000,001 juicers per month. B) 600,001 juicers per month. C) 1,320,001 juicers per month. D) 50,001 juicers per month. E) 450,001 juicers per month.

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79) Tangy Incorporated produces a specialty top-quality juice machine. The product, the JM50,

requires four processes to be completed. Specifically, these processes are exterior construction, pulp filter insertion, painting, and packaging. Each process is performed at separate workstations with different completion rates: Exterior construction can manufacture 100,000 juicer exteriors per day. Pulp filter insertion can install 25,000 filters every 6 hours. Painting can decorate 3,000 juicers every half hour. Packaging can package 5,000 juicers per hour. The plant operates 24/7, 24 hours a day every day of the week. What cost management technique does this case illustrate? (Assume an average 30-day month.) A) Target costing. B) Theory of constraints. C) Life-cycle costing. D) ABC analysis. E) None of these answer choices is correct.

80) Place the phases of the cost life cycle (value chain) in the correct order from upstream to

downstream activities. A) Manufacturing, R&D, Design, Customer Service, Marketing & Distribution. B) Design, R&D, Marketing & Distribution, Manufacturing, Customer Service. C) Customer Service, Design, R&D, Manufacturing, Marketing & Distribution. D) R&D, Design, Manufacturing, Marketing & Distribution, Customer Service. E) Marketing & Distribution, Customer Service, Design, R&D, Manufacturing.

81) Which of the following strategies best fits with the cost reduction approach of design

analysis? A) Prices are set by desired customers’ expectations about functionality. B) Primary focus is on cost control rather than redesign or functional analysis. C) There is focus on managing functionality versus customer willingness to pay. D) The target cost is used to find savings, especially from suppliers. E) None of these answer choices is correct.

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82) What is included in a flow diagram designed for the theory of constraints? A) A sequence of the processes and the number of workers needed for each one. B) The number of workers needed for manufacturing and their jobs. C) The sequence of the processes and the amount of time required for each one. D) The number of workers needed for manufacturing and the amount of time required

for each worker. E) The flow of the product and the worker responsible for each process.

83) Electronic Component Company (ECC) is a producer of high-end video and music

equipment. ECC currently sells its top of the line "ECC" video player for a price of $290. It costs ECC $234 to make the player. ECC's main competitor is coming to market with a new video player that will sell for a price of $260. ECC feels that it must reduce its price to $260 in order to compete. The sales and marketing department of ECC believes the reduced price will cause sales to increase by 15%. ECC currently sells 204,000 video players per year. Irrespective of the competitor's price, what is EEC's required selling price if the target profit is 25% of sales and current costs cannot be reduced? A) $312.00. B) $324.50. C) $331.00. D) $340.50. E) $297.00.

84) Electronic Component Company (ECC) is a producer of high-end video and music

equipment. ECC currently sells its top of the line "ECC" video player for a price of $250. It costs ECC $210 to make the player. ECC's main competitor is coming to market with a new video player that will sell for a price of $220. ECC feels that it must reduce its price to $220 in order to compete. The sales and marketing department of ECC believes the reduced price will cause sales to increase by 15%. ECC currently sells 200,000 video players per year. Irrespective of the competitor's price, what is EEC's required selling price if the target profit is 25% of sales and current costs cannot be reduced? A) $280.00. B) $292.50. C) $299.00. D) $308.50. E) $265.00.

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85) Electronic Component Company (ECC) is a producer of high-end video and music

equipment. ECC currently sells its top of the line "ECC" video player for a price of $370. It costs ECC $270 to make the player. ECC's main competitor is coming to market with a new video player that will sell for a price of $340. ECC feels that it must reduce its price to $340 in order to compete. The sales and marketing department of ECC believes the reduced price will cause sales to increase by 19%. ECC currently sells 212,000 video players per year. What is the target cost if target profit is 24% of sales and ECC must meet the competitive price of $340? A) $250.90. B) $258.40. C) $266.65. D) $272.40. E) $224.40.

86) Electronic Component Company (ECC) is a producer of high-end video and music

equipment. ECC currently sells its top of the line "ECC" video player for a price of $250. It costs ECC $210 to make the player. ECC's main competitor is coming to market with a new video player that will sell for a price of $220. ECC feels that it must reduce its price to $220 in order to compete. The sales and marketing department of ECC believes the reduced price will cause sales to increase by 15%. ECC currently sells 200,000 video players per year. What is the target cost if target profit is 20% of sales and ECC must meet the competitive price of $220? A) $168.50. B) $176.00. C) $184.25. D) $190.00. E) $154.00.

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87) Electronic Component Company (ECC) is a producer of high-end video and music

equipment. ECC currently sells its top of the line "ECC" video player for a price of $390. It costs ECC $280 to make the player. ECC's main competitor is coming to market with a new video player that will sell for a price of $360. ECC feels that it must reduce its price to $360 in order to compete. The sales and marketing department of ECC believes the reduced price will cause sales to increase by 15%. ECC currently sells 214,000 video players per year. Assuming sales and marketing are not correct in their estimation and the volume of sales is not changed and ECC meets the competitive price, what is the target cost if ECC wants to maintain its same income level? A) $280. B) $270. C) $260. D) $250. E) $238.

88) Electronic Component Company (ECC) is a producer of high-end video and music

equipment. ECC currently sells its top of the line "ECC" video player for a price of $250. It costs ECC $210 to make the player. ECC's main competitor is coming to market with a new video player that will sell for a price of $220. ECC feels that it must reduce its price to $220 in order to compete. The sales and marketing department of ECC believes the reduced price will cause sales to increase by 15%. ECC currently sells 200,000 video players per year. Assuming sales and marketing are not correct in their estimation and the volume of sales is not changed and ECC meets the competitive price, what is the target cost if ECC wants to maintain its same income level? A) $210. B) $200. C) $190. D) $180. E) $170.

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89) Which of the following phases are included in the sales life cycle? A) Growth, sustainability, and decline. B) Growth and sustainability. C) Growth and decline. D) Sustainability and decline. E) Sustainability and sales.

90) Which of the following is not one of the four methods used in cost life cycle pricing? A) Life-cycle cost plus markup. B) Full cost plus desired return on assets. C) Full manufacturing cost plus markup. D) Production and design costs plus desired return on assets. E) Full cost and desired gross margin percent

91) During the sales life cycle, which is an example of what happens during the growth phase? A) Sales and price decline, as do the number of competitors. B) Sales continue to increase but at a decreasing rate. The number of competitors and

product variety decline. C) Sales increase rapidly along with an increase in product variety. D) Sales rise slowly as customers become aware of the new product or service. Product variety is limited. E) Sales increase but product variety falls.

92) In which two phases of the sales life cycle is competition the lowest? A) Introduction and growth. B) Introduction and decline. C) Growth and maturity. D) Growth and decline. E) Maturity and decline.

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93) When comparing Activity-based costing (ABC) and the Theory of Constraints (TOC), the

approach each method takes toward its main objective is: A) TOC looks at the throughput margin analysis based on materials and ABC looks at all product costs. B) TOC takes a long-term approach and ABC takes a short-term approach. C) Both TOC and ABC look at all product costs. D) Both TOC and ABC look at the throughput margin analysis based on materials. E) Both TOC and ABC take a long-term approach.

94) Place the five steps in implementing a target costing approach in the proper order:

1 - Determine desired profit 2 - Use kaizen costing and operational control to reduce costs 3 - Determine the market price 4 - Use value engineering to identify ways to reduce product costs 5 - Calculate the target cost at market price less desired profit A) 3,2,1,4,5. B) 2,5,4,1,3. C) 4,5,1,3,2. D) 3,1,5,4,2. E) 5,3,2,1,4.

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95) Quality Chairs Incorporated (QC) manufactures chairs for industrial use. Laura Winters, the

Vice President for Marketing at QC, concluded from market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors. QC's chairs sold for $565 whereas the competition's comparable chair was selling for $510. Winters determined that a price drop to $510 would be necessary to regain market share and reach a targeted annual sales level of 10,000 chairs. Cost data based on sales of 10,000 chairs:

Direct materials (board feet) Direct labor (hours) Machine hours (hours) Finishing and packing (hours)

Budgeted Quantity 89,100

Actual Quantity

Actual Cost

80,300

$ 1,265,000

72,600 12,100 7,300

75,050 11,950 7,200

890,000 265,000 140,000

The current cost per unit is: A) $256.00. B) $306.00. C) $406.00. D) $456.00. E) $481.00.

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96) Quality Chairs Incorporated (QC) manufactures chairs for industrial use. Laura Winters, the

Vice President for Marketing at QC, concluded from market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors. QC's chairs sold for $550 whereas the competition's comparable chair was selling for $495. Winters determined that a price drop to $495 would be necessary to regain market share and reach a targeted annual sales level of 10,000 chairs. Cost data based on sales of 10,000 chairs:

Direct materials (board feet) Direct labor (hours) Machine hours (hours) Finishing and packing (hours)

Budgeted Quantity 88,000 71,350 11,400 6,500

Actual Quantity 79,500 73,775 11,250 6,400

Actual Cost $ 1,250,000 875,000 250,000 125,000

The current cost per unit is: A) $250. B) $300. C) $400. D) $450. E) $475.

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97) Quality Chairs Incorporated (QC) manufactures chairs for industrial use. Laura Winters, the

Vice President for Marketing at QC, concluded from market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors. QC's chairs sold for $620 whereas the competition's comparable chair was selling for $565. Winters determined that a price drop to $565 would be necessary to regain market share and reach a targeted annual sales level of 10,000 chairs. Cost data based on sales of 10,000 chairs:

Direct materials (board feet) Direct labor (hours) Machine hours (hours) Finishing and packing (hours)

Budgeted Quantity 93,000

Actual Quantity

Actual Cost

83,800

$ 1,320,000

77,100 14,600 10,100

79,675 14,400 10,000

945,000 320,000 195,000

The current profit per unit is: A) $292.00. B) $342.00. C) $442.00. D) $492.00. E) $517.00.

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98) Quality Chairs Incorporated (QC) manufactures chairs for industrial use. Laura Winters, the

Vice President for Marketing at QC, concluded from market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors. QC's chairs sold for $550 whereas the competition's comparable chair was selling for $495. Winters determined that a price drop to $495 would be necessary to regain market share and reach a targeted annual sales level of 10,000 chairs. Cost data based on sales of 10,000 chairs:

Direct materials (board feet) Direct labor (hours) Machine hours (hours) Finishing and packing (hours)

Budgeted Quantity 88,000 71,350 11,400 6,500

Actual Quantity 79,500 73,775 11,250 6,400

Actual Cost $ 1,250,000 875,000 250,000 125,000

The current profit per unit is: A) $250. B) $300. C) $400. D) $450. E) $475.

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99) Quality Chairs Incorporated (QC) manufactures chairs for industrial use. Laura Winters, the

Vice President for Marketing at QC, concluded from market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors. QC's chairs sold for $595 whereas the competition's comparable chair was selling for $540. Winters determined that a price drop to $540 would be necessary to regain market share and reach a targeted annual sales level of 10,000 chairs. Cost data based on sales of 10,000 chairs:

Direct materials (board feet) Direct labor (hours) Machine hours (hours) Finishing and packing (hours)

Budgeted Quantity 91,200

Actual Quantity

Actual Cost

82,200

$ 1,295,000

75,050 13,500 8,800

77,575 13,300 8,700

920,000 295,000 170,000

If the profit per unit is maintained, the target cost per unit is: A) $123.00. B) $213.00. C) $223.00. D) $318.00. E) $268.00.

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100)

Quality Chairs Incorporated (QC) manufactures chairs for industrial use. Laura Winters, the Vice President for Marketing at QC, concluded from market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors. QC's chairs sold for $550 whereas the competition's comparable chair was selling for $495. Winters determined that a price drop to $495 would be necessary to regain market share and reach a targeted annual sales level of 10,000 chairs. Cost data based on sales of 10,000 chairs:

Direct materials (board feet) Direct labor (hours) Machine hours (hours) Finishing and packing (hours)

Budgeted Quantity 88,000 71,350 11,400 6,500

Actual Quantity 79,500 73,775 11,250 6,400

Actual Cost $ 1,250,000 875,000 250,000 125,000

If the profit per unit is maintained, the target cost per unit is: A) $105. B) $195. C) $205. D) $300. E) $250.

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101)

Direct materials (board feet) Direct labor (hours) Machine hours (hours) Finishing and packing (hours)

Budgeted Quantity 88,000 71,350 11,400 6,500

Actual Quantity 79,500 73,775 11,250 6,400

Actual Cost $ 1,250,000 875,000 250,000 125,000

In order to reduce costs so as to reach the desired target cost, Quality Chairs should also focus on reducing the cost of: A) Direct materials B) Direct labor C) Machine setups D) Mechanical assembly

102)

Which of the following is a common form of value engineering in which the design team prepares several possible designs of the product, each having similar features with different levels of performance and different costs? A) Cost analysis. B) Variable design engineering. C) Cost-based value engineering. D) Functional analysis. E) Design analysis.

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103)

Which of the following is a common type of value engineering in which the performance and cost of each major function or feature of the product is examined? A) Cost analysis. B) Variable design engineering. C) Cost-based value engineering. D) Functional analysis. E) Design analysis.

104)

When does management attention turn to cost control and quality in the sales life cycle? A) Maturity and decline. B) Introduction and growth. C) Growth and maturity. D) Growth and decline. E) Introduction and decline.

105)

Johnson Marine has the following costs and expected sales for the coming year. Johnson is considering a number of different methods to determine the price of its product. Total Costs Variable Manufacturing Variable Selling and Administrative Plant-level Fixed Overhead Fixed Selling and Administrative Batch-level Fixed Overhead Total Investment in Product Line Expected Sales (units)

$ 2,351,000 751,000 1,202,000 601,000 201,000 10,003,000 20,200

If Johnson determines price using a 42% markup of full manufacturing cost, the price is: A) $263.90 B) $307.40 C) $376.40 D) $365.69 E) $331.40

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106)

$ 2,350,000 750,000 1,200,000 600,000 200,000 10,000,000 20,000

If Johnson determines price using a 40% markup of full manufacturing cost, the price is: A) $262.50 B) $306.00 C) $375.00 D) $364.29 E) $330.00

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107)

$ 2,355,000 755,000 1,210,000 605,000 205,000 10,015,000 20,000

If Johnson determines price so as to receive a desired return on assets of 15%, the price is: A) $264.11 B) $307.61 C) $376.61 D) $365.90 E) $331.61

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108)

$ 2,350,000 750,000 1,200,000 600,000 200,000 10,000,000 20,000

If Johnson determines price so as to receive a desired return on assets of 15%, the price is: A) $262.50 B) $306.00 C) $375.00 D) $364.29 E) $330.00

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109)

$ 2,355,500 755,500 1,211,000 605,500 205,500 10,016,500 20,000

If Johnson determines price using a desired gross margin percentage of 54%, the price is: A) $297.50 B) $341.00 C) $410.00 D) $399.29 E) $365.00

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110)

$ 2,350,000 750,000 1,200,000 600,000 200,000 10,000,000 20,000

If Johnson determines price using a desired gross margin percentage of 50%, the price is: A) $262.50 B) $306.00 C) $375.00 D) $364.29 E) $330.00

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111)

$ 2,358,500 758,500 1,217,000 608,500 208,500 10,025,500 20,000

If Johnson determines price using a desired return on life cycle costs of 28%, the price is: A) $255.92 B) $299.42 C) $368.42 D) $357.71 E) $323.42

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112)

$ 2,350,000 750,000 1,200,000 600,000 200,000 10,000,000 20,000

If Johnson determines price using a desired return on life cycle costs of 30%, the price is: A) $262.50 B) $306.00 C) $375.00 D) $364.29 E) $330.00

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113)

$ 2,352,000 752,000 1,204,000 602,000 202,000 10,006,000 20,400

If Johnson determines price using a 24% markup of life cycle cost, the price is: A) $267.23 B) $310.73 C) $379.73 D) $369.02 E) $334.73

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114)

$ 2,350,000 750,000 1,200,000 600,000 200,000 10,000,000 20,000

If Johnson determines price using a 20% markup of life cycle cost, the price is: A) $262.50 B) $306.00 C) $375.00 D) $364.29 E) $330.00

115)

Caldwell Company desires to enter a market with a new product. As part of this process the following tasks will be performed: 1. Determine a desired profit margin. 2. Use Kaizen costing. 3. Design and engineer the product. 4. Determine the product's cost. 5. Determine the suggested selling price. Which task would Caldwell Company perform first if it plans to use target costing? B) Determine a desired profit margin. C) Use Kaizen costing. D) Design and engineer the product. E) Determine the product's cost. F) Determine the suggested selling price.

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116) 1. 2. 3. 4. 5.

The five tasks that follow take place with the concept known as target costing: Use value engineering to identify ways to reduce product cost. Determine the market price. Determine the desired profit. Use kaizen costing and operational control to reduce costs. Calculate the target cost at market price less desired profit. Which of the following choices depicts the correct sequence of these tasks? B) 1, 2, 3, 4, 5 C) 2, 3, 5, 1, 4 D) 3, 2, 5, 4, 1 E) 3, 2, 5, 1, 4 F) 5, 3, 2, 4, 1

117)

Door Corporation manufactures a single product that has a cost of $250. The company uses a 60% markup on manufacturing cost to arrive at a selling price of $400, which results in a price that is higher than that of the leading competitors. If Door adopts the approach known as target costing, the company will first: A) Reduce the 60% markup rate. B) Re-engineer the product. C) Obtain a better understanding of the competitors' prices. D) Reduce the $250 cost. E) Change to a markup on life cycle cost rather than manufacturing cost.

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118)

Baldwin produces bicycles in a highly competitive market. During the past year, the company has added a 20% markup on the $300 manufacturing cost for one of its most popular models. A new competitor recently entered the market with a competitive model that is priced at $320, seriously eroding Baldwin's market share. Management now desires to use a target-costing approach to remain competitive and is willing to accept a 20% return on sales. If target costing is used, which of the following choices correctly denotes (1) Baldwin's selling price and (2) Baldwin's target cost? Selling Price A) B) C) D) E)

Target Cost

$ 360 $ 288 $ 360 $ 256 $ 320 $ 256 $ 320 $ 288 None of these answer choices is correct. A) B) C) D) E)

Option A Option B Option C Option D Option E

119)

The Shine Company, which manufactures projection equipment, is ready to introduce a new line of portable projectors. The following data are available for a proposed model: Variable manufacturing costs Applied fixed manufacturing overhead Variable selling and administrative costs Applied fixed selling and administrative costs

$ 440 220 175 190

What price will the company charge if the firm uses cost-plus pricing based on variable manufacturing cost and a markup percentage of 285%? A) $1,694. B) $1,334. C) $1,424. D) $1,559. E) None of these answer choices is correct.

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120)

$ 270 135 90 105

What price will the company charge if the firm uses cost-plus pricing based on variable manufacturing cost and a markup percentage of 200%? A) $810. B) $450. C) $540. D) $675. E) None of these answer choices is correct.

121)

$ 280 140 95 110

What price will the company charge if the firm uses cost-plus pricing based on total variable cost and a markup percentage of 155%? A) $461.25. B) $596.25. C) $731.25. D) $956.25. E) None of these answer choices is correct.

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122)

$ 270 135 90 105

What price will the company charge if the firm uses cost-plus pricing based on total variable cost and a markup percentage of 150%? A) $405.00. B) $540.00. C) $675.00. D) $900.00. E) None of these answer choices is correct.

123)

$ 390 195 150 165

What price will the company charge if the firm uses cost-plus pricing based on absorption cost and a markup percentage of 170%? A) $1,174.50. B) $1,579.50. C) $1,389.00. D) $1,989.00. E) None of these answer choices is correct.

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124)

$ 270 135 90 105

What price will the company charge if the firm uses cost-plus pricing based on absorption cost and a markup percentage of 110%? A) $445.50. B) $850.50. C) $660.00. D) $1,260.00. E) None of these answer choices is correct.

125)

$ 370 185 140 155

What price will the company charge if the firm uses cost-plus pricing based on total cost and a markup percentage of 50%? A) $675.00. B) $616.50. C) $1,275.00. D) $1,021.50. E) None of these answer choices is correct.

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126)

$ 270 135 90 105

What price will the company charge if the firm uses cost-plus pricing based on total cost and a markup percentage of 30%? A) $180.00. B) $121.50. C) $780.00. D) $526.50. E) None of these answer choices is correct.

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Answer Key Test name: chapter 13 1) Essay 2) Essay 3) Essay 4) Essay 5) Essay 6) Essay 7) Essay 8) Essay 9) Essay 10) Essay 11) Essay 12) Essay 13) Essay 14) Essay 15) Essay 16) Essay 17) Essay 18) Essay 19) Essay 20) Essay 21) B 22) B 23) A 24) A 25) D 26) B 27) C 28) A 29) B 30) C 31) D 32) B 33) E 34) A 35) A 36) D 37) B

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38) C 39) B 40) A 41) C 42) C 43) A 44) A 45) E 46) E 47) D 48) D 49) C 50) C 51) D 52) D 53) A 54) A 55) A 56) A 57) D 58) D 59) A 60) A 61) B 62) B 63) D 64) B 65) A 66) B 67) B 68) A 69) A 70) C 71) B 72) D 73) C 74) C 75) E 76) E 77) B

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78) B 79) B 80) D 81) B 82) C 83) A 84) A 85) B 86) B 87) D 88) D 89) C 90) D 91) C 92) B 93) A 94) D 95) A 96) A 97) B 98) B 99) B 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

B B E D A A A E E C C D D B B E B C

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118) 119) 120) 121) 122) 123) 124) 125) 126)

C A A D D B B C C

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Chapter 14 1) What four variances may be included as a component of the total variable cost flexible-

budget variance for a given period?

2) What is a direct materials usage ratio? For what purpose is this ratio used?

3) What is a direct labor efficiency variance, and what are some of the likely causes of this

variance?

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4) Rachael Hair Products shows the following budgeted and actual data for the first quarter of

the current fiscal year:

Sales Variable costs Fixed costs Operating income

Actual (9,000 Flexible Budget units) (9,000 units) $ 139,500 $ 135,000 64,000 63,000 53,000 50,000 $ 22,500 $ 22,000

Master Budget (10,000 units) $ 150,000 70,000 50,000 $ 30,000

Required: 1. What type of financial control system might the company use to determine whether the company met its short-term financial objectives? 2. For the first quarter of the year, what was the total master budget variance? 3. In general, into what two component variances can the master budget variance be decomposed? What is the meaning of each of these two variances? 4. Comment specifically on the financial performance of this company during the 1st quarter. 5. What are the primary limitations of traditional financial-control models?

5) Ann Jacobson's supervisor has asked her to list any concerns she might have about the

proposed development of standards to measure performance and to reward superior performance in her department. Ann's department handles customer calls, directing customer questions and complaints to the appropriate individuals within the firm. The company has never used any performance measure nor paid any performance-related bonuses. It hopes to install a simple but effective system to achieve its twin goals of cost control and performance measurement. Develop the list for Ann based on the information above.

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6) Within the context of the material covered in Chapter 14 for operational performance

measurement, define the term "sales-volume variance." List some common causes of the sales-volume variance.

7) Discuss some major differences between static and flexible budgets.

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8) Klash Company adopted a standard cost system several years ago. The company uses

standard costs for all its inventories. The standard costs for direct materials and labor for its single product are as follows: Materials (12 kilograms per unit × $7.00 per kilogram) = $84.00 per unit; direct labor (8 hours per unit × $12.00 per hour) = $96.00 per unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for December: In-process beginning inventory

none

In-process ending inventory—60% complete as to labor Units completed during the month Budgeted output Purchases and issuance of materials, in kilograms Total actual labor cost incurred

1,150 units

Actual hours of labor worked (AQ) Direct materials usage variance Total direct materials variance

6,550 units 6,750 units 96,000 $ 706,136 57,880 hours $ 700 favorable $ 6,020 unfavorable

Required: 1. Calculate the standard cost of the actual kilograms of material purchased. 2. Calculate the total standard kilograms (SQ) allowed for the production of the period (that is, for "equivalent units produced with respect to direct materials"). 3. Calculate the total standard cost of materials for the production of the period. 4. Calculate the actual price (AP) per kilogram of material of material purchased this period. 5. Calculate the direct labor rate variance.

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9) Miller has the following information pertaining to its usage of direct labor in a recent period: Total direct labor hours used (AQ) Total units manufactured Actual wage rate per hour (AP) Standard cost data:

22,000 7,200 $ 15.00

Wage rate per hour (SP) Standard hours per unit of output

$ 14.00 3.00

Required: Given the above, determine the company's: 1. Direct labor efficiency variance for the period. 2. Direct labor rate variance for the period. 3. Summary journal entry to record accrued labor costs and associated standard cost variances for the period.

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10) Sarheen, Incorporated maintains no inventories and has collected the following data on one

of its products for the most recent period: Direct material standard (4.0 pounds @ $1.00 per pound) Total direct materials cost variance– unfavorable Actual direct material used (AQ) Actual finished units produced

$ 4.00 /per unit $ 13,750 125,000 pounds 25,000 units

Required: Determine: 1. The direct materials usage (quantity) variance. 2. The actual cost of the direct materials purchased and direct materials used during the period. (Hint: these two amounts are identical.). 3. The direct materials price variance. 4. The correct summary journal entry to record direct material costs for this period's production, including associated standard cost variances. (Note: assume that any price variances are recorded at point of production.)

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11) McElroy Company has prepared the following master budget for 2021. Although McElroy

has the capacity to manufacture 50,000 units, management expected the likely demand for its product to be 40,000 units in 2021; as such, it prepared the master budget to manufacture and sell 40,000 units. In early January 2022, the company was pleasantly surprised to find out that it manufactured and sold 45,000 units in 2021. McElroy Company Master (Static) Budget For Year Ending December 31, 2021 Sales (40,000 units)

$ 2,800,000

Cost of Goods Sold: Direct materials

$ 800,000

Direct labor

300,000

Indirect materials (variable)

24,000

Indirect labor (variable)

36,000

Depreciation

300,000

Salaries

200,000

Utilities (80% fixed)

100,000

Maintenance (40% variable) Gross profit

50,000

1,810,000 $ 990,000

Operating expenses: Commissions (5% of sales)

$ 140,000

Advertising (fixed)

150,000

Wages (variable)

100,000

Rent (fixed)

50,000

Total operating expenses Operating Income

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440,000 $ 550,000

Required: Prepare the flexible budget (FB) for the actual operating level achieved in 2021.

12) Balt Company maintains a standard cost system; as such, all inventories, including materials,

are carried on the books at standard cost. Last period, Balt used 5,000 pounds of Material H to produce 800 units of Product C8. The company has established a standard of 7 pounds of Material H per unit of C8, at a price of $7.50 per pound of material. During the period the inventory for Material H decreased by 2,000 pounds. The company spent $25,000 during the period to purchase material H. Required: 1. Calculate the direct materials purchase-price variance for the period. 2. Calculate the direct materials usage variance for the period. 3. Provide the correct summary journal entry to record the purchase, on credit, of materials during the period. 4. Provide the correct summary journal to record direct materials cost for materials issued to production during the period.

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13) Falcon Company uses a standard cost system; as such, all inventories are carried on the

books at standard cost. During the most recent period the company manufactured 12,000 units. The standard cost sheet indicates that the standard direct labor cost per unit is $1.50. The performance report for the period includes an unfavorable direct labor rate variance of $1,000 and a favorable direct labor efficiency variance of $275.

Required: What was the total actual cost of direct labor incurred during the period?

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14) Balmer Corporation's master budget for the year is presented below: Sales (50,000 units)

$ 1,600,000

Cost of goods sold: Direct materials Direct labor Overhead (Variable overhead applied at 40% of direct labor cost) Gross profit

$ 150,000 450,000 240,000

840,000 $ 760,000

Selling expenses: Sales commissions (all variable)

$ 160,000

Rent (all fixed)

40,000

Insurance (all fixed)

30,000

General expenses: Salaries (all fixed)

92,000

Rent (all fixed)

77,000

Depreciation (all fixed)

51,000

Operating income

450,000 $ 310,000

During the period, the company manufactured and sold 42,000 units.

Required: 1. Prepare a flexible budget (FB) for the actual output level achieved during the period; state each item at nearest whole dollar. 2. What is the definition of a FB? For what managerial purpose is a FB useful? Be specific about the types of information (and variances) that management can generate, at the end of an accounting period, given a flexible budget and its master (static) budget.

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15) Patterson, Incorporated wishes to evaluate, in summary fashion, its financial performance for

the most recent period. Budgeted and actual operating results for this period are presented below. Master Budget Units sold Sales Variable costs Fixed costs

40,000 $ 2,000,000 $ 1,200,000 $ 600,000

Actual Results 36,000 $ 1,900,000 $ 1,152,000 $ 660,000

Required: 1. What was the actual operating income for the period? 2. What is the firm's master budget operating income? 3. What was the flexible-budget operating income for the period? 4. What is the total master budget variance for the period? 5. What was the sales-volume variance, in terms of operating income, for the period? 6. What are the key elements of the traditional financial control model? 7. What are the primary limitations of the traditional financial control model?

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16) Contemporary furniture manufactures office desks. The company budgeted to sell 5,000

desks at $200.00 per desk in 2021. Budgeted costs include $80.00 variable cost per desk, and $200,000 fixed costs/year. In 2021 the company sold 6,000 desks at $190.00, and incurred $78.00 variable cost per desk and $220,000 fixed cost for the year. Required: Prepare, in proper form, a variance analysis report identifying both flexible budget and salesvolume variances. Label all component variances as (F) (favorable) or (U) (unfavorable).

17) Fill in the unknowns, A through S below. A?

Units

Actual Results 225,000

Sales revenues Variable costs Fixed costs Operating income

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Flexible Budget D?

Master Budget 206,250

$ 126,240

$ 135,000

J? $ 16,560

$ 600 U L?

I? $ 18,280

K? M?

$ 66,000 N?

18) James has the following information pertaining to its usage of direct labor in a recent period: Total direct labor hours worked (AQ) Total units manufactured Actual wage rate per hour (AP) Standard cost data: Wage rate per hour (SP) Standard hours per unit

30,000 8,000 $ 16.00

$ 18.00 4.0

Required: 1. Calculate the labor efficiency variance for the period. 2. Calculate the labor rate variance for the period. 3. Prepare, in proper form, the journal entry to record wage expense for the period, including any associated standard cost variances.

19) During the most recent period Appliance, Incorporated manufactured 10,000 units. The

standard cost sheet indicates that the standard direct labor cost per unit is $3.00. The performance report for the period includes a favorable direct labor rate variance of $2,000, and a favorable direct labor efficiency variance of $500. Required: What was the total actual cost of direct labor incurred during the period, rounded to the nearest dollar?

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20) Chen Company uses a standard cost system. As such, all its inventories are carried on the

books at standard, not actual, cost. During the most recent accounting period, the company had the following summary transactions: 1. Purchased, on credit, direct materials; the standard cost of these materials was $30,000, while the actual cost was $32,000. 2. Issued to production direct materials. The standard cost of materials that should have been used for this period's output was $35,000, while the standard cost of materials used in production during the period was $33,000. 3. Actual direct labor cost, which has been incurred but not yet paid, for the period was $75,000. The standard direct labor cost for this period's output was $80,000. The direct labor efficiency variance for the period was $10,000(F). 4. For the units completed during the period, the standard direct labor cost was $78,000, while the standard direct materials cost was $34,000. 5. For the units sold during the period, the standard materials cost was $30,000, while the standard direct labor cost was $76,000. Required: Given the above information, provide the correct journal entries for the following: 1. Purchase of direct materials 2. Issuance of materials to production. 3. Direct labor cost for the period. 4. The labor and materials cost associated with finished production this period. 5. The labor and materials cost associated with items sold during the period.

21) Define what is meant by the term "just in time production" (JIT). As indicated in your text,

management accountants can supply relevant information to management as it considers a move to JIT. In this regard, describe some of the principal advantages of using a JIT system, and then describe some of the incremental costs that would likely be associated with a move to such a system.

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22) Chapter 14 (Operational Performance Measurement) argues that a comprehensive

management accounting and control system would include nonfinancial as well as financial performance indicators. Two such nonfinancial performance indicators were discussed in conjunction with organizations that adopt a just-in-time (JIT) production philosophy: customer-response time (CRT) and process cycle efficiency (PCE). Explain each of these two performance indicators.

23) Explain the calculation and interpretation of a sales price variance for any given period. How

does this variance relate to the total flexible-budget variance for the period?

24) Let "AQ" = actual quantity of direct materials issued to production, AP = actual price paid

per unit of direct material purchased, SP = standard price per unit of direct material, and SP = standard quantity of direct materials allowed based on actual output for the period. Required: Use the above notation to develop a formula (i.e., an equation) for each of the following standard cost variances: 1. 2. 3. 4.

Direct materials price variance (calculated at point of production, not point of purchase). Direct materials usage variance. Flexible-budget (FB) variance for direct materials. Joint price-quantity variance for direct materials.

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25) Chapter 14 introduces you to the concept of operational control systems. Within the context

of this discussion, certain limitations of financial control systems were presented. Provide a summary of the primary limitations of short-term financial performance indicators, such as the variances discussed in the main part of the chapter.

26) Chemical, Incorporated, has set the following standards for direct materials and direct labor

for each 20-pound bag of Weed-Be-Doom: Per Bag Direct materials: 25 pounds of XF-2000 @ $0.08 per pound = Direct labor: 0.05 hour @ $32.00 per hour =

$ 2.00 $ 1.60

The company manufactured 100,000 bags of Weed-Be-Doom in December and used 2,700,000 pounds of XF-2000 and 5,200 direct labor hours. During the month, the company purchased 3,000,000 lbs. of XF-2000 at $0.075 per pound, and incurred a total payroll of $182,000 for direct labor. The company records purchases at standard cost and therefore recognizes material price variances at point of purchase. Required: 1. Compute the price and usage variances for direct materials, and the rate and efficiency variances for direct labor for the month of December. 2. Prepare journal entries to record the preceding events.

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27) What is the focus of operational control? A) Company protection. B) Long-term operating performance. C) The profitability of the company. D) The activities of company executives. E) Short-term operating performance.

28) Operational control systems can be distinguished from financial control systems: A) In the time horizon: financial-control systems have a long-term perspective. B) Because they focus on the control of basic business processes. C) Because such systems rely on the use of flexible, not static, budgets. D) Because they focus on explaining the master budget variance for a period. E) Because they do not include nonfinancial performance indicators.

29) Traditional financial control systems have recently been criticized because: A) They use flexible, not static, budgets. B) They generally lead to goal-congruent behavior on the part of managers. C) They focus more in improving basic business processes than short-term financial

results. D) They fail to incorporate nonfinancial performance indicators into the evaluation process. E) They provide performance data on a real-time basis.

30) One important short-term financial goal for a company is to earn the projected operating

income for the period. The overall extent to which this goal was achieved is measured by comparing the actual operating income for the period to the: A) Flexible-budget operating income for the period. B) Prior period's operating income. C) Income reflected in the company's balanced scorecard. D) Master budget operating income. E) Industry average operating income.

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31) The master budget variance for a period reveals whether a company has achieved: A) The sales level budgeted for the period. B) An adequate return on investment (assets) during the period. C) Control of basic business processes. D) Control of total expenses for the period. E) The master budgeted operating income for the period.

32) What is used to explain the master budget variance for a period? A) Static budgets and flexible budgets. B) Flexible budgets and standard costs. C) Standard costs and sales volume variance. D) Static budgets and standard costs. E) None of these answer choices is correct.

33) Authoritative standards (within the context of a standard cost system) are determined

primarily by: A) A defined subset of the board of directors of a company. B) Employees. C) Negotiation. D) A two-way information flow. E) Managers.

34) The arrival of new manufacturing techniques such as automation, flexible manufacturing

systems, and cluster or cell manufacturing has: A) Emphasized the importance of direct labor variances. B) Not affected the importance of direct labor cost variances. C) Led to a deemphasis of the importance of direct labor cost variances. D) Made direct labor variances obsolete. E) Eliminated the need to calculate and report direct materials variances.

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35) An organization's core performance measurement system includes what two components? A) Evaluation and operation. B) Planning and evaluation. C) Planning and execution. D) Execution and operation. E) Operation and feedback.

36) The "flexible budget" can best be described as a budget that adjusts: A) Revenues for sales-dollar changes. B) Budgeted revenues and expenses for changes in output (such as sales volume). C) Expenses for changes in budgeted output between two periods. D) For efficiency, but not selling price and cost, changes (variances) during a period. E) For selling price and cost variances, but not efficiency variances.

37) Which of the following is different in a flexible budget compared to the master budget for a

period? A) B) C) D) E)

Selling price per unit. Variable cost per unit. Budgeted fixed cost. Sales volume. Budgeted fixed administrative costs.

38) A flexible-budget variance measures the impact on short-term operating profit of: A) Changes in sales volume. B) Changes in output during the period. C) Differences in sales mix—budgeted versus actual. D) Selling price and cost differences—actual versus budgeted. E) Selling price, but not cost, differences—actual versus budgeted.

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39) A "standard cost" is a predetermined amount (e.g., cost) that: A) Should be incurred under relatively efficient operating conditions. B) Will be incurred for an operation or a specific objective. C) Must occur for an operation or a specific objective. D) Cannot be changed once it is established by management. E) Is useful for planning and control, but not for inventory valuation purposes.

40) Firms struggling for survival in intensely competitive industries may choose to use which

type of standard? A) Real standards. B) Ideal standards. C) Currently attainable standards. D) Practical standards. E) Future standards.

41) An organization planned to use $94 of direct materials per unit of output, but it actually used

$92 per unit. During this period, the company planned to make 2,520 units, but produced only 2,200 units. The flexible budget amount for direct materials cost is: A) $202,400. B) $206,800. C) $231,840. D) $236,880. E) $51,165.

42) An organization planned to use $82 of direct materials per unit of output, but it actually used

$80 per unit. During this period, the company planned to make 1,200 units, but produced only 1,000 units. The flexible budget amount for direct materials cost is: A) $80,000. B) $82,000. C) $96,000. D) $98,400. E) $24,000.

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43) A "currently attainable standard" emphasizes or reflects: A) Ideal or theoretical performance. B) Past performance of the organization. C) Future performance of the organization's primary competitors. D) Maximum performance. E) Relatively efficient operating performance.

44) An organization subject to intense competitive pressures would most likely use: A) Ideal standards for its operations. B) Real standards for its operations. C) Caution in even using standard costs at all. D) A mix of types of standards. E) Standards that are not modified over time.

45) For financial control purposes, when is a flexible budget prepared? A) At the end of a period. B) After materials for the period have been purchased. C) At the beginning of a period. D) Flexible budgets can be prepared at any time. E) After the forecasts are prepared and approved.

46) A standard cost system: A) Cannot be used in conjunction with a job-cost system. B) Is not permissible for financial-reporting purposes. C) Is most easily introduced in conjunction with a process-cost system. D) Is useful for planning but not control purposes. E) Is useful for cost control but not planning purposes.

47) Which type of cost flows through the formal accounting records in a standard cost system? A) Actual costs. B) Budgeted costs C) Normal costs D) Flexible-budgeted costs E) Standard costs

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48) Using continuous-improvement standards likely causes (or brings about) all the following

except: A) B) C) D) E)

Reductions in inefficiencies. Reduced product defects. Constantly decreasing standard levels. Improved productivity. Increasing pressure on employees and managers.

49) A total variable cost variance (such as for direct materials) can be broken down into separate

variances that evaluate: A) Price (rate) and efficiency (quantity). B) Units and cost. C) Volume (output) and productivity. D) Sales-volume versus sales-mix effects. E) Efforts versus results.

50) For improved financial control, a standard cost system should be designed to generate and

report cost and revenue variances: A) Coincidental with regular financial-reporting intervals. B) As soon as possible. C) Only when significant in amount. D) Only when negative in impact. E) Only when requested by decision-makers/managers.

51) Which of the following benefits is not typically associated with a move to a just-in-time (JIT)

manufacturing system? A) Raw materials are delivered as close as possible to time of production. B) Existence of long-term contracts with selected suppliers. C) Reduction in employee training and education costs. D) Decreases in manufacturing lead time. E) Improved customer-response time (CRT).

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52) The way managers and employees who are affected by a standard cost system perceive the

system will: A) Be of little consequence on the success of the system if correctly implemented. B) Generally have minimal impact on the implementation of the system. C) Affect the success or failure of implementing the system. D) Be difficult to assess. E) Not matter in the long run (e.g., because of competitive pressures).

53) For control purposes, it is usually preferable to calculate the materials price variance: A) At point of purchase (i.e., when the materials are purchased). B) At point of production (i.e., when the materials are issued to production). C) At the end of the accounting period. D) Only if the materials quantity variance is significant in amount. E) Only if it is controllable by operating managers.

54) The difference between the actual operating income of the period and master budget

operating income for the period is defined as the: A) Total flexible-budget variance. B) Sales volume variance. C) Sales price variance. D) Operating income flexible-budget variance. E) Master budget variance.

55) The difference between the actual sales volume for a period and the flexible-budget sales

volume is equal to: A) The total sales volume variance for the period. B) The total production-volume variance for the period. C) The sales price variance for the period. D) The operating-income sales volume variance for the period. E) Zero—by definition.

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56) How do flexible budgets differ from the master budget? A) The fixed costs are different. B) The per-unit variable costs are different. C) The sales mix changes for each budget. D) The number of units used in the budget. E) There is no difference between the two budgets.

57) The difference between the total actual sales revenue of a period and the total flexible-budget

sales revenue for the units sold during the period is the: A) Total flexible-budget variance. B) Sales volume variance. C) Selling price variance. D) Operating income flexible-budget variance. E) Operating income variance.

58) A standard that assumes perfect implementation and maximum efficiency is called a(n): A) Currently attainable standard. B) Practical standard. C) Efficiency standard. D) Normal standard. E) Ideal standard.

59) Which of the following is a difference between normal costing systems and standard costing

systems? A) The use of variance accounts in standard cost systems. B) The use of variance accounts in normal cost systems. C) The use of a direct materials account. D) The use of an overhead account. E) The flow of manufacturing costs through the accounts.

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60) The total variable cost flexible-budget variance for any given period: A) Is the difference between actual total variable cost incurred and master budgeted total

variable cost. B) Is decomposable into sales-volume and sales-mix components. C) Is decomposable into production-volume and production-mix components. D) Can be broken down into flexible-budget variances for major costs such as materials, labor, variable overhead, and variable selling expenses. E) Is directly affected by the difference between actual sales volume and the sales volume embodied in the flexible budget.

61) The total variable cost flexible-budget variance includes all the following except: A) Direct materials variances. B) The sales price variance. C) Variable selling and administrative expenses variances. D) Direct labor variances. E) Variable overhead variances.

62) Which one of the following is the difference in direct material costs between the actual cost

incurred during the period and the total standard cost in the flexible budget for the units manufactured during the period? A) Direct materials price variance. B) Direct materials mix variance. C) Direct materials usage variance. D) Direct materials flexible-budget variance. E) Direct materials efficiency variance.

63) For a direct material, which one of the following is defined as the difference between the

actual and standard unit price of the direct material multiplied by the actual quantity of the material purchased? A) Direct materials purchase-price variance. B) Direct materials volume variance. C) Direct materials usage variance. D) Direct materials flexible-budget variance. E) Direct materials purchase-mix variance.

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64) Which one of the following, for each direct material used in production, is defined as the

difference between the actual units of material used and the total standard units of the direct material that should have been used for the units of the product manufactured during the period, multiplied by the standard unit price of the direct material? A) Direct materials sales-volume variance. B) Direct materials rate variance. C) Direct materials usage variance. D) Direct materials flexible-budget variance. E) Direct materials mix variance.

65) What does the direct labor rate variance reflect? A) The effect on operating income when the budgeted hourly wage rate during the period

deviates from the standard hourly wage rate. B) The difference in labor variance rates for multiple companies in the same industry. C) The increase in costs that come from a different wage rate. D) The effect on operating income of using a number of direct labor hours during the period that differs from the standard hours allowed during the period. E) The effect on operating income when the actual hourly wage rate during the period deviates from the standard hourly wage rate.

66) Which one of the following is defined as the difference between the actual direct labor hours

worked and the standard direct labor hours allowed for the units manufactured, multiplied by the standard hourly wage rate per hour? A) The direct labor price variance. B) The direct labor efficiency variance. C) The total direct labor standard cost variance. D) The direct labor flexible-budget variance. E) The direct labor operating-income variance.

67) The primary purpose of calculating standard cost variances each period is: A) To achieve financial control regarding operating activities. B) To facilitate the recording of manufacturing costs during a period. C) To adjust reported income to flexible-budget income. D) To diagnose the cause of operating problems as well as what should be done to

correct such problems. E) To minimize income tax liabilities.

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68) A firm uses a Just-in-Time (JIT) inventory system and has an unfavorable selling price

variance for the period just ended. If the proportion of the total variable manufacturing costs to total sales in both the flexible budget and the actual operating results is 70%: A) The firm has an unfavorable total variable manufacturing cost variance. B) The firm has a favorable total variable manufacturing cost variance. C) The firm has an unfavorable total flexible-budget variance. D) The firm has a favorable contribution margin variance. E) The firm has a favorable total flexible-budget variance.

69) What does the direct materials usage variance measure? A) The consistency in using direct materials. B) The efficiency in using direct materials. C) The variance in direct materials used compared to the previous year. D) The total cost of direct materials used. E) None of these answer choices is correct.

70) The difference between actual and standard cost caused by the difference between the actual

number of resource-units used and the standard number of resource-units that should have been used for the output of the period is called the: A) Controllable variance. B) Master budget variance. C) Flexible-budget variance. D) Quantity (or efficiency or usage) variance. E) Price variance.

71) Which of the following is not a plausible cause of a direct labor efficiency variance? A) Poor scheduling of work. B) Inadequate supervision of workers. C) Materials used are different from those specified. D) Failure to update the standard cost to conform to wage provisions in the union

contract. E) Batch sizes during the period were different from standard.

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72) The direct materials usage ratio for a given period is: A) Defined as the ratio of quantity purchased to quantity used. B) Defined as the inverse of the materials quantity variance for the period. C) Entered into its own variance account at the end of the period. D) A useful indicator of performance by the manufacturing department. E) A useful indicator of performance of the purchasing department.

73) A favorable cost variance of significant magnitude: A) Is likely the result of exceptional planning. B) May lead to future improvements in production. C) Is strong evidence of excellent operating performance. D) Indicates tight financial control. E) Does not need to be investigated as to its underlying cause (because it is "favorable").

74) What is the sales volume variance? A) The difference between the flexible budget operating income and the master budget

operating income for the period. B) The difference between the actual operating income and the master budget operating income for the period. C) The difference between the flexible budget operating income and the actual operating income for the period. D) The difference between the total actual sales revenue for a period and the sales revenue in the flexible budget for the period. E) The difference between total variable cost incurred during a period and the total variable cost in the flexible budget for the period.

75) A favorable price variance for direct materials indicates that: A) Lower-quality materials were purchased. B) The materials standard is likely out of date. C) A lower price than expected was paid for the materials. D) Less material was used in production this period than was allowed. E) There will most likely be an unfavorable materials efficiency (quantity) variance.

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76) A manufacturer planned to use $87 of materials per unit produced, but in the most recent

period it actually used $85 of material per unit produced. During this same period, the company planned to produce 1,750 units, but actually produced only 1,500 units. The flexible-budget variance for materials is: A) $3,000 favorable. B) Impossible to determine without additional information. C) $18,250 unfavorable. D) $21,750 unfavorable. E) $3,500 unfavorable.

77) A manufacturer planned to use $82.00 of materials per unit produced, but in the most recent

period it actually used $80.00 of material per unit produced. During this same period, the company planned to produce 1,200 units, but actually produced only 1,000 units. The flexible-budget variance for materials is: A) $2,000 favorable. B) Impossible to determine without additional information. C) $14,000 unfavorable. D) $16,400 unfavorable. E) $2,400 unfavorable.

78) All the following are limitations of short-term financial performance indicators except: A) Employees and managers can take actions that improve short-term financial

performance at the expense of long-term performance. B) Focusing on individual cost variances can result in optimum local but not global (i.e., firm-wide) performance. C) Operating personnel may not readily understand or be able to interpret financialperformance indicators. D) Senior managers typically find non-financial performance indicators more useful than summary financial-performance indicators. E) The construction, application, updating, and use of a standard cost system may incur significant costs.

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79) Which of the following is not a common business process in which many organizations

engage? A) Innovation processes. B) Customer management processes. C) Administrative processes. D) Social/regulatory processes. E) Operating processes.

80) For operational control, a management accounting system should include: A) Performance measures associated with basic business processes. B) Only financial-control measures, such as standard cost variances. C) High-level financial metrics such as return on investment (ROI) or return on sales

(ROS). D) A combination of short-term and strategic financial-performance metrics. E) Only flexible-budget cost and revenue variances.

81) Which of the following is not a resource or action required to implement a just-in-time (JIT)

system? A) Reconfigure the production layout. B) Coordinate activities with customers and suppliers. C) Improve information systems. D) Educate and train employees. E) Set up a standard costing system to track the efficiency of the JIT system.

82) Which of the following is not an anticipated benefit of switching to a Just-in-Time (JIT)

production system? A) Reduction in inventory holding costs. B) Reduction of monitoring costs associated with the production system. C) Reduction in customer-response time. D) Increased sales due to increases in quality and customer satisfaction. E) Reduction in internal failure costs, such as the cost of reworking defective outputs.

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83) Customer-response time (CRT) is usually defined as: A) The time between when a customer places an order and the time when the order is

received by the customer. B) The elapsed time between initial customer contact and the time a customer places an order. C) The time between when a customer places an order and when that order is manufactured. D) The time between when an order is started into production and when that order is completed. E) The time it takes to respond to customer inquiries.

84) The term "manufacturing cycle efficiency" (MCE): A) Like manufacturing cycle time, is a measure of operational efficiency. B) Is defined as the ratio of manufacturing lead time to delivery time. C) Is defined as manufacturing lead time minus delivery time. D) Is defined as the ratio of customer-response time to order-delivery time. E) Is at an optimum level when PCE = 0.

85) Which of the following is not indicated as an advantage of using nonfinancial performance

measures, relative to financial performance measures, as part of an operational control system? A) Nonfinancial performance indicators are readily understandable by operating personnel. B) Nonfinancial performance indicators can be viewed as drivers of future financial performance. C) Nonfinancial performance indicators direct attention to precise problem areas that need attention. D) Nonfinancial performance measures are more reliable than financial performance measures. E) All of these are advantages.

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86) Which of the following statements about manufacturing cycle efficiency (MCE) is not true? A) It is defined as the ratio of processing time to non-processing time. B) It is a measure of operating process efficiency. C) It is based on the relationship between actual processing time and total production

time. D) It incorporates notions of "value-added" and "non-value-added," as discussed in the development of activity-based cost (ABC) systems. E) The optimum value of MCE is 1.0.

87) A flexible-budget variance for any fixed cost: A) Is defined as the difference between flexible-budget fixed cost and the level of fixed

costs reflected in the master (static) budget. B) Is undefined, except when actual output equals budgeted output. C) Is typically zero, because the volume assumed in the flexible budget and the master budget for fixed costs is identical. D) Is the difference between budgeted fixed cost and actual fixed cost. E) Can be broken down into price and efficiency components.

88) Which of the following does not lead to a direct labor efficiency variance? A) Materials are different from those specified. B) Unexpected changes in the price of materials. C) Scheduling is poor. D) Employees or supervisors are new on the job or are inadequately trained. E) Machines or equipment are not in proper working condition.

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89) Information concerning Johnston Company's direct materials costs is as follows: Standard price per pound

$ 8.05

Actual quantity purchased Actual quantity used in production Units of product manufactured

3,450 pounds 3,350 pounds 860

Materials purchase-price variance–favorable

$ 1,015

Budget data for the period: Units to manufacture

1,160

Units of direct materials

4,640 pounds

The actual purchase price per pound of direct materials was: A) $7.72. B) $7.76. C) $8.09. D) $8.34. E) $8.72.

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90) Information concerning Johnston Company's direct materials costs is as follows: Standard price per pound

$ 6.45

Actual quantity purchased Actual quantity used in production Units of product manufactured

2,850 pounds 2,750 pounds 700

Materials purchase-price variance–favorable

$ 855

Budget data for the period: Units to manufacture

1,000

Units of direct materials

4,000 pounds

The actual purchase price per pound of direct materials was: A) $6.12. B) $6.15. C) $6.50. D) $6.75. E) $7.13.

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91) Information concerning Johnston Company's direct materials costs is as follows: Standard price per pound

$ 8.45

Actual quantity purchased Actual quantity used in production Units of product manufactured

3,630 pounds 3,530 pounds 900

Materials purchase-price variance–favorable

$ 1,055

Budget data for the period: Units to manufacture

1,200

Units of direct materials

4,800 pounds

The direct materials usage variance for the period is: A) $496.50 unfavorable. B) $496.50 favorable. C) $591.50 unfavorable. D) $591.50 favorable. E) $801.50 favorable.

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92) Information concerning Johnston Company's direct materials costs is as follows: Standard price per pound

$ 6.45

Actual quantity purchased Actual quantity used in production Units of product manufactured

2,850 pounds 2,750 pounds 700

Materials purchase-price variance–favorable

$ 855

Budget data for the period: Units to manufacture

1,000

Units of direct materials

4,000 pounds

The direct materials usage variance for the period is: A) $307.50 unfavorable. B) $307.50 favorable. C) $322.50 unfavorable. D) $322.50 favorable. E) $532.50 favorable.

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93) Clear Manufacturing uses powdered plastics (PPS) to manufacture a high-pressure board

used in a digital equipment product, Flex 10. Information concerning its operation in June is as follows: Budgeted units of Flex 10 for June

6,300

Budgeted usage of PPS Actual number of units of Flex 10 manufactured PPS purchased and used Total actual cost of PPS used

56,700 pounds 5,300 52,000 pounds $ 309,920

Direct materials usage variance—unfavorable

$ 35,260 unfavorable

Clear does not maintain an inventory of materials, so the amount of materials used is equal to the amount of materials purchased. The actual purchase price per pound of PPS used is: A) $8.79. B) $5.96. C) $7.28. D) $6.41. E) $8.20.

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94) Clear Manufacturing uses powdered plastics (PPS) to manufacture a high-pressure board

used in a digital equipment product, Flex 10. Information concerning its operation in June is as follows: Budgeted units of Flex 10 for June

5,000

Budgeted usage of PPS Actual number of units of Flex 10 manufactured PPS purchased and used Total actual cost of PPS used

45,000 pounds 4,000

Direct materials usage variance— unfavorable

39,000 pounds $ 224,640 $ 21,600 unfavorable

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95) Clear Manufacturing uses powdered plastics (PPS) to manufacture a high-pressure board

used in a digital equipment product, Flex 10. Information concerning its operation in June is as follows: Budgeted units of Flex 10 for June

6,900

Budgeted usage of PPS Actual number of units of Flex 10 manufactured PPS purchased and used Total actual cost of PPS used

62,100 pounds 5,900 58,000 pounds $ 380,480

Direct materials usage variance

$ 40,180 unfavorable

Clear does not maintain an inventory of materials, so the amount of materials used is equal to the amount of materials purchased. The standard cost per pound of PPS (to two decimal places) is: A) $6.56. B) $6.56. C) $7.27. D) $6.55. E) $8.20.

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96) Clear Manufacturing uses powdered plastics (PPS) to manufacture a high-pressure board

used in a digital equipment product, Flex 10. Information concerning its operation in June is as follows: Budgeted units of Flex 10 for June

5,000

Budgeted usage of PPS Actual number of units of Flex 10 manufactured PPS purchased and used Total actual cost of PPS used

45,000 pounds 4,000 39,000 pounds $ 224,640

Direct materials usage variance

$ 21,600 unfavorable

Assume that Clear does not maintain an inventory of materials, so that the amount of materials used is equal to the amount of materials purchased. The standard cost per pound of PPS (to two decimal places) is: A) $5.20. B) $5.76. C) $6.24. D) $6.84. E) $7.20.

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97) Clear Manufacturing uses powdered plastics (PPS) to manufacture a high-pressure board

used in a digital equipment product, Flex 10. Information concerning its operation in June is as follows: Budgeted un its of Flex 10 for June

12,500

Budgeted usage of PPS Actual number of units of Flex 10 manufactured PPS purchased and used Total actual cost of PPS used

112,500 pounds 10,000 97,500 pounds $ 561,600

Direct materials usage variance

$ 54,000 unfavorable

Clear does not maintain an inventory of materials, so the amount of materials used is equal to the amount of materials purchased. The direct materials purchase-price variance is: A) $129,600 favorable. B) $142,500 favorable. C) $140,400 favorable. D) $162,100 favorable. E) $180,000 favorable.

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98) Clear Manufacturing uses powdered plastics (PPS) to manufacture a high-pressure board

used in a digital equipment product, Flex 10. Information concerning its operation in June is as follows: Budgeted units of Flex 10 for June

5,000

Budgeted usage of PPS Actual number of units of Flex 10 manufactured PPS purchased and used Total actual cost of PPS used

45,000 pounds 4,000 39,000 pounds $ 224,640

Direct materials usage variance

$ 21,600 unfavorable

Clear does not maintain an inventory of materials, so the amount of materials used is equal to the amount of materials purchased. The direct materials purchase-price variance is: A) $51,840 favorable. B) $62,208 favorable. C) $56,160 favorable. D) $64,840 favorable. E) $72,000 favorable.

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99) Clear Manufacturing uses powdered plastics (PPS) to manufacture a high-pressure board

used in a digital equipment product, Flex 10. Information concerning its operation in June is as follows: Budgeted units of Flex 10 for June

11,500

Budgeted usage of PPS Actual number of units of Flex 10 manufactured PPS purchased and used Total actual cost of PPS used

103,500 pounds 9,200 89,700 pounds $ 516,672

Direct materials usage variance

$ 49,680 unfavorable

Clear does not maintain an inventory of materials, so the amount of materials used is equal to the amount of materials purchased. The cost of PPS in the flexible budget for the number of units manufactured this period is: A) $596,160. B) $655,500. C) $645,840. D) $745,200. E) $828,000.

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100)

Clear Manufacturing uses powdered plastics (PPS) to manufacture a high-pressure board used in a digital equipment product, Flex 10. Information concerning its operation in June is as follows: Budgeted units of Flex 10 for June

5,000

Budgeted usage of PPS Actual number of units of Flex 10 manufactured PPS purchased and used Total actual cost of PPS used

45,000 pounds 4,000 39,000 pounds $ 224,640

Direct materials usage variance

$ 21,600 unfavorable

Clear does not maintain an inventory of materials, so the amount of materials used is equal to the amount of materials purchased. The cost of PPS in the flexible budget for the number of units manufactured this period is: A) $259,200. B) $280,800. C) $311,040. D) $324,000. E) $360,000.

101) Lucky Company's direct labor information for the month of February is as follows: Actual direct labor hours worked (AQ) 45,000 Standard direct labor hours allowed (SQ) 50,000 Total payroll for direct labor $ 900,000 Direct labor efficiency variance $ 89,000

The actual direct labor rate per hour (AP) for February was: A) $17.80. B) $18.00. C) $20.00. D) $22.20. E) $22.40.

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102)

Lucky Company's direct labor information for the month of February is as follows:

Actual direct labor hours worked (AQ) Standard direct labor hours allowed (SQ) Total payroll for direct labor Direct labor efficiency variance

61,500 63,000 $ 774,900 $ 18,000

The actual direct labor rate per hour (AP) for February was: A) $12.00. B) $12.30. C) $12.60. D) $13.20. E) $13.50.

103)

Lucky Company's direct labor information for the month of February is as follows:

Actual direct labor hours worked (AQ) Standard direct labor hours allowed (SQ) Total payroll for direct labor Direct labor efficiency variance

63,000 70,000 $ 630,000 $ 61,600

The standard direct labor rate per hour (SP) for February was: A) $8.80. B) $9.00. C) $10.00. D) $11.20. E) $12.20.

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104)

Lucky Company's direct labor information for the month of February is as follows:

Actual direct labor hours worked (AQ) Standard direct labor hours allowed (SQ) Total payroll for direct labor Direct labor efficiency variance

61,500 63,000 $ 774,900 $ 18,000

The standard direct labor rate per hour (SP) for February was: A) $12.00. B) $12.30. C) $12.60. D) $13.20. E) $13.50.

105)

Lucky Company's direct labor information for the month of February is as follows:

Actual direct labor hours worked (AQ) Standard direct labor hours allowed (SQ) Total payroll for direct labor Direct labor efficiency variance

60,000 64,000 $ 960,000 $ 58,800

The total standard direct labor cost allowed for February was: A) $882,000. B) $906,000. C) $940,800. D) $964,800. E) $960,000.

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106)

Lucky Company's direct labor information for the month of February is as follows:

Actual direct labor hours worked (AQ) Standard direct labor hours allowed (SQ) Total payroll for direct labor Direct labor efficiency variance

61,500 63,000 $ 774,900 $ 18,000

The total standard direct labor cost allowed for February was: A) $738,000. B) $747,000. C) $756,000. D) $765,000. E) $774,900.

107)

Lucky Company's direct labor information for the month of February is as follows:

Actual direct labor hours worked (AQ) Standard direct labor hours allowed (SQ) Total payroll for direct labor Direct labor efficiency variance

74,880 78,000 $ 936,000 $ 35,880

The direct labor rate variance for February was: A) $74,880 unfavorable. B) $78,000 unfavorable. C) $112,320 unfavorable. D) $117,000 unfavorable. E) $149,760 unfavorable.

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108)

Lucky Company's direct labor information for the month of February is as follows:

Actual direct labor hours worked (AQ) Standard direct labor hours allowed (SQ) Total payroll for direct labor Direct labor efficiency variance

61,500 63,000 $ 774,900 $ 18,000

The direct labor rate variance for February was: A) $36,900 unfavorable. B) $37,800 unfavorable. C) $55,350 unfavorable. D) $56,700 unfavorable. E) $73,800 unfavorable.

109)

Lucky Company's direct labor information for the month of February is as follows:

Actual direct labor hours worked (AQ) Standard direct labor hours allowed (SQ) Total payroll for direct labor Direct labor efficiency variance

57,600 60,000 $ 720,000 $ 27,840

The direct labor flexible-budget variance for February was: A) $24,000 unfavorable. B) $55,200 unfavorable. C) $61,440 unfavorable. D) $59,876 unfavorable. E) $79,680 unfavorable.

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110)

Lucky Company's direct labor information for the month of February is as follows:

Actual direct labor hours worked (AQ) Standard direct labor hours allowed (SQ) Total payroll for direct labor Direct labor efficiency variance

61,500 63,000 $ 774,900 $ 18,000

The direct labor flexible-budget variance for February was: A) $18,900 unfavorable. B) $42,300 unfavorable. C) $46,350 unfavorable. D) $44,500 unfavorable. E) $54,900 unfavorable.

111)

Board Company's direct labor information for February is as follows:

Direct labor hours worked (AQ) Standard direct labor hours for units manufactured (SQ) Unfavorable direct labor rate variance Total payroll for direct labor

34,500 36,500 $ 13,800 $ 469,200

The actual direct labor rate per hour (AP) for February was: A) $12.85. B) $13.20. C) $13.23. D) $13.60. E) $14.00.

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112)

Board Company's direct labor information for February is as follows:

Direct labor hours worked (AQ) Standard direct labor hours for units manufactured (SQ) Unfavorable direct labor rate variance Total payroll for direct labor

33,600 35,000 $ 11,760 $ 470,400

The actual direct labor rate per hour (AP) for February was: A) $13.44. B) $13.65. C) $13.78. D) $14.00. E) $14.35.

113)

Board Company's direct labor information for February is as follows:

Direct labor hours worked (AQ) Standard direct labor hours for units manufactured (SQ) Unfavorable direct labor rate variance Total payroll for direct labor

36,500 38,000 14,600 $ 532,900

The standard direct labor rate per hour (SP) for February was: A) $14.02. B) $14.20. C) $14.41. D) $14.60. E) $15.00.

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114)

Board Company's direct labor information for February is as follows:

Direct labor hours worked (AQ) Standard direct labor hours for units manufactured (SQ) Unfavorable direct labor rate variance Total payroll for direct labor

33,600 35,000 $ 11,760 $ 470,400

The standard direct labor rate per hour (SP) for February was: A) $13.44. B) $13.65. C) $13.78. D) $14.00. E) $14.35.

115)

Board Company's direct labor information for February is as follows:

Direct labor hours worked (AQ) Standard direct labor hours allowed for units manufactured (SQ) Unfavorable direct labor rate variance Total payroll for direct labor

34,500 36,500 $ 13,800 $ 469,200

The total standard direct labor cost for the units manufactured in February was: A) $455,400. B) $469,200. C) $481,800. D) $482,600. E) $496,400.

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116)

Board Company's direct labor information for February is as follows:

Direct labor hours worked (AQ) Standard direct labor hours allowed for units manufactured (SQ) Unfavorable direct labor rate variance Total payroll for direct labor

33,600 35,000 $ 11,760 $ 470,400

The total standard direct labor cost for the units manufactured in February was: A) $458,640. B) $470,400. C) $477,750. D) $478,240. E) $490,000.

117)

Board Company's direct labor information for February is as follows:

Direct labor hours worked (AQ) Standard direct labor hours for units manufactured (SQ) Unfavorable direct labor rate variance Total payroll for direct labor

35,600 38,000 $ 17,800 $ 427,200

The direct labor efficiency variance in February was: A) $17,987 favorable. B) $18,400 favorable. C) $18,737 favorable. D) $19,200 favorable. E) $27,600 favorable.

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118)

Board Company's direct labor information for February is as follows:

Direct labor hours worked (AQ) Standard direct labor hours for units manufactured (SQ) Unfavorable direct labor rate variance Total payroll for direct labor

33,600 35,000 $ 11,760 $ 470,400

The direct labor efficiency variance in February was: A) $13,440 favorable. B) $13,650 favorable. C) $13,776 favorable. D) $14,000 favorable. E) $19,110 favorable.

119) Board Company's direct labor information for February is as follows: Direct labor hours worked (AQ) Standard direct labor hours for units manufactured (SQ) Unfavorable direct labor rate variance Total payroll for direct labor

34,800 36,500 $ 17,400 $ 452,400

The total direct labor flexible-budget variance in February was: A) $3,850 favorable. B) $14,587 favorable. C) $38,650 favorable. D) $38,650 unfavorable. E) $49,387 favorable.

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120) Board Company's direct labor information for February is as follows: Direct labor hours worked (AQ) Standard direct labor hours for units manufactured (SQ) Unfavorable direct labor rate variance Total payroll for direct labor

33,600 35,000 $ 11,760 $ 470,400

The total direct labor flexible-budget variance in February was: A) $7,350 favorable. B) $7,840 favorable. C) $30,870 favorable. D) $30,870 unfavorable. E) $31,360 favorable.

121)

Europa Company manufactures only one product. Presented below is direct labor information for November. Standard direct labor hours per unit of product Number of finished units produced Standard wage rate per direct labor hour (SP) Total direct labor payroll for the period Actual wage rate per direct labor hour worked (AP)

4.50 5,000 $ 20.50 $ 410,010 $ 17.30

The actual direct labor hours worked (AQ) during November was: A) 20,000. B) 21,369. C) 22,500. D) 23,631. E) 23,700.

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122)

3.20 6,500 $ 19.20 $ 359,424 $ 16.00

The actual direct labor hours worked (AQ) during November was: A) 18,720. B) 19,200. C) 20,800. D) 22,400. E) 22,464.

123)

4.30 5,100 $ 20.30 $ 401,850 $ 17.10

The total standard direct labor hours (SQ) in November for the output produced was: A) 19,796. B) 20,428. C) 21,930. D) 23,432. E) 23,500.

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124)

3.20 6,500 $ 19.20 $ 359,424 $ 16.00

The total standard direct labor hours (SQ) in November for the output produced was: A) 18,720. B) 19,200. C) 20,800. D) 22,400. E) 22,464.

125)

4.20 5,200 $ 20.20 $ 397,800 $ 17.00

The direct labor rate variance for November (to the nearest dollar) was: A) $23,400 unfavorable. B) $31,512 unfavorable. C) $43,368 favorable. D) $74,880 favorable. E) $106,392 favorable.

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126)

3.20 6,500 $ 19.20 $ 359,424 $ 16.00

The direct labor rate variance for November (to the nearest dollar) was: A) $26,624 unfavorable. B) $31,949 unfavorable. C) $39,936 favorable. D) $71,885 favorable. E) $103,834 favorable.

127)

3.40 6,200 $ 19.40 $ 366,120 $ 16.20

The direct labor efficiency variance for November (to the nearest dollar) was: A) $22,600 unfavorable. B) $29,488 unfavorable. C) $42,832 favorable. D) $72,320 favorable. E) $101,808 favorable.

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128)

3.20 6,500 $ 19.20 $ 359,424 $ 16.00

The direct labor efficiency variance for November (to the nearest dollar) was: A) $26,624 unfavorable. B) $31,949 unfavorable. C) $39,936 favorable. D) $71,885 favorable. E) $103,834 favorable.

129)

4.80 4,700 $ 20.80 $ 422,400 $ 17.60

The direct labor flexible-budget variance for November was: A) $24,000 unfavorable. B) $29,952 unfavorable. C) $46,848 favorable. D) $76,800 favorable. E) $106,752 favorable.

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130)

3.20 6,500 $ 19.20 $ 359,424 $ 16.00

The direct labor flexible-budget variance for November was: A) $26,624 unfavorable. B) $31,949 unfavorable. C) $39,936 favorable. D) $71,885 favorable. E) $103,834 favorable.

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131)

Shade Company adopted a standard cost system several years ago. The standard costs for direct labor and direct materials for its single product are as follows: Materials (5 kilograms × $12 per kilogram) = $60 per unit; direct labor (3.5 hours per unit × $20 per hour) = $70 per unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for December: In-process beginning inventory

None

In-process ending inventory—80% complete as to labor Units completed during the period Budgeted output Purchases of materials (in kilograms)

1,160 units 7,100 units 7,800 units 50,000

Total actual direct labor cost incurred

$ 562,590

Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in December

28,500 hours $ 12,000 favorable 6,550 kilograms

The actual direct materials purchase price (AP) per kilogram for December was: A) $11.60. B) $11.76. C) $11.84. D) $12.00. E) $12.30.

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132)

Shade Company adopted a standard cost system several years ago. The standard costs for direct labor and direct materials for its single product are as follows: Materials (5 kilograms × $12.00 per kilogram) = $60.00 per unit; direct labor (3.5 hours per unit × $20.00 per hour) = $70.00 per unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for December: In-process beginning inventory

None

In-process ending inventory—80% complete as to labor Units completed during the period Budgeted output Purchases of materials (in kilograms)

960 units

Total actual direct labor cost incurred Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in December

6,700 units 7,200 units 40,000 $ 528,410 26,500 hours $ 1,600 favorable 1,550 kilograms

The actual direct materials purchase price (AP) per kilogram for December was: A) $11.80. B) $11.96. C) $12.04. D) $12.20. E) $12.50.

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133)

None

In-process ending inventory—80% complete as to labor Units completed during the period Budgeted output Purchases of materials (in kilograms)

1,150 units 7,080 units 7,770 units 49,500

Total actual direct labor cost incurred

$ 560,900

Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in December

28,400 hours $ 11,385 favorable 6,300 kilograms

The actual total cost of direct materials used in production during December was: A) $506,670. B) $508,464. C) $509,734. D) $511,540. E) $527,002.

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134)

Shade Company adopted a standard cost system several years ago. The standard costs for direct labor and direct materials for its single product are as follows: Materials (5 kilograms × $12.00 per kilogram) = $60.00 per unit; direct labor (3.5 hours per unit × $20.00 per hour) = $70.00 per unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for December: In-process beginning inventory

None

In-process ending inventory—80% complete as to labor Units completed during the period Budgeted output Purchases of materials (in kilograms)

960 units

Total actual direct labor cost incurred Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in December

6,700 units 7,200 units 40,000 $ 528,410 26,500 hours $ 1,600 favorable 1,550 kilograms

The actual total cost of direct materials used in production during December was: A) $458,068. B) $459,862. C) $461,132. D) $462,938. E) $478,400.

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135)

None

In-process ending inventory—80% complete as to labor Units completed during the period Budgeted output Purchases of materials (in kilograms)

1,120 units

Total actual direct labor cost incurred Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in December

7,020 units 7,680 units 48,000 $ 555,818 28,100 hours $ 9,600 favorable 5,550 kilograms

The direct materials usage variance for December was: A) $21,000 unfavorable. B) $21,000 favorable. C) $78,600 unfavorable. D) $78,600 favorable. E) $21,100 unfavorable.

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136)

Shade Company adopted a standard cost system several years ago. The standard costs for direct labor and direct materials for its single product are as follows: Materials (5 kilograms × $12.00 per kilogram) = $60.00 per unit; direct labor (3.5 hours per unit × $20.00 per hour) = $70.00 per unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for December: In-process beginning inventory

None

In-process ending inventory—80% complete as to labor Units completed during the period Budgeted output Purchases of materials (in kilograms)

960 units

Total actual direct labor cost incurred Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in December

6,700 units 7,200 units 40,000 $ 528,410 26,500 hours $ 1,600 favorable 1,550 kilograms

The direct materials usage variance for December was: A) $1,800 unfavorable. B) $1,800 favorable. C) $59,400 unfavorable. D) $59,400 favorable. E) $1,900 unfavorable.

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137)

None

In-process ending inventory—80% complete as to labor Units completed during the period Budgeted output Purchases of materials (in kilograms)

1,150 units 7,080 units 7,770 units 49,500

Total actual direct labor cost incurred

$ 560,900

Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in December

28,400 hours $ 11,385 favorable 6,300 kilograms

The direct labor rate variance for December was: A) $7,100 favorable. B) $11,160 favorable. C) $13,300 unfavorable. D) $29,920 unfavorable. E) $64,920 unfavorable.

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138)

Shade Company adopted a standard cost system several years ago. The standard costs for direct labor and direct materials for its single product are as follows: Materials (5 kilograms × $12.00 per kilogram) = $60.00 per unit; direct labor (3.5 hours per unit × $20.00 per hour) = $70.00 per unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for December: In-process beginning inventory

None

In-process ending inventory—80% complete as to labor Units completed during the period Budgeted output Purchases of materials (in kilograms)

960 units

Total actual direct labor cost incurred Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in December

6,700 units 7,200 units 40,000 $ 528,410 26,500 hours $ 1,600 favorable 1,550 kilograms

The direct labor rate variance for December was: A) $1,590 favorable. B) $5,650 favorable. C) $7,790 unfavorable. D) $24,410 unfavorable. E) $59,410 unfavorable.

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139)

None

In-process ending inventory—80% complete as to labor Units completed during the period Budgeted output Purchases of materials (in kilograms)

1,150 units 7,080 units 7,770 units 49,500

Total actual direct labor cost incurred

$ 560,900

Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in December

28,400 hours $ 11,385 favorable 6,300 kilograms

The direct labor efficiency variance for December was: A) $7,100 favorable. B) $900 favorable. C) $8,000 unfavorable. D) $60,170 unfavorable. E) $9,186 unfavorable.

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140)

Shade Company adopted a standard cost system several years ago. The standard costs for direct labor and direct materials for its single product are as follows: Materials (5 kilograms × $12.00 per kilogram) = $60.00 per unit; direct labor (3.5 hours per unit × $20.00 per hour) = $70.00 per unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for December: In-process beginning inventory

None

In-process ending inventory—80% complete as to labor Units completed during the period Budgeted output Purchases of materials (in kilograms)

960 units

Total actual direct labor cost incurred Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in December

6,700 units 7,200 units 40,000 $ 528,410 26,500 hours $ 1,600 favorable 1,550 kilograms

The direct labor efficiency variance for December was: A) $1,590 favorable. B) $5,650 favorable. C) $7,240 unfavorable. D) $59,410 unfavorable. E) $8,654 unfavorable.

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141)

None

In-process ending inventory—80% complete as to labor Units completed during the period Budgeted output Purchases of materials (in kilograms)

1,110 units

Total actual direct labor cost incurred Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in December

7,000 units 7,650 units 47,500 $ 554,120 28,000 hours $ 9,025 favorable 5,300 kilograms

The direct labor flexible-budget variance for December was: A) $5,880 favorable. B) $1,960 unfavorable. C) $7,640 unfavorable. D) $14,720 unfavorable. E) $9,148 unfavorable.

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142)

Shade Company adopted a standard cost system several years ago. The standard costs for direct labor and direct materials for its single product are as follows: Materials (5 kilograms × $12.00 per kilogram) = $60.00 per unit; direct labor (3.5 hours per unit × $20.00 per hour) = $70.00 per unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for December: In-process beginning inventory

None

In-process ending inventory—80% complete as to labor Units completed during the period Budgeted output Purchases of materials (in kilograms)

960 units

Total actual direct labor cost incurred Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in December

6,700 units 7,200 units 40,000 $ 528,410 26,500 hours $ 1,600 favorable 1,550 kilograms

The direct labor flexible-budget variance for December was: A) $1,590 favorable. B) $5,650 unfavorable. C) $7,040 unfavorable. D) $9,830 unfavorable. E) $4,258 unfavorable.

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143)

Kennedy Incorporated has the following data for its operation in August:

Increase in direct materials inventory Direct materials purchased (AQ) Finished goods manufactured Direct materials purchase-price variance Budgeted Finished goods to manufacture Direct materials purchases Direct materials per unit of finished goods Direct materials price per set (SP)

250 Sets 4,000 Sets 1,750 units $ 1,240 Favorable

2,000 Units 5,000 Sets 2 Sets $ 4.30

What was the actual purchase price (AP) per set of direct materials purchased? A) $3.99. B) $4.04. C) $4.36. D) $4.44. E) $4.49.

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144) Kennedy Incorporated has the following data for its operation in August: Increase in direct materials inventory 100 Sets Direct materials purchased (AQ) 1,600 Sets Finished goods manufactured 700 units Direct materials purchase-price variance $ 400 Favorable Budgeted Finished goods to manufacture Direct materials purchases Direct materials per unit of finished goods Direct materials price per set (SP)

800 Units 2,000 Sets 2 Sets $ 3.60

What was the actual purchase price (AP) per set of direct materials purchased? A) $3.35. B) $3.40. C) $3.72. D) $3.80. E) $3.85.

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145) Kennedy Incorporated has the following data for its operation in August: Increase in direct materials inventory 100 Sets Direct materials purchased (AQ) 1,600 Sets Finished goods manufactured 700 units Direct materials purchase-price variance $ 448 Favorable Budgeted Finished goods to manufacture Direct materials purchases Direct materials per unit of finished goods Direct materials price per set (SP)

800 Units 2,000 Sets 2 Sets $ 3.90

What was the direct materials usage variance in August? A) $195 unfavorable. B) $390 unfavorable. C) $585 favorable. D) $585 unfavorable. E) $780 unfavorable.

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146) Kennedy Incorporated has the following data for its operation in August: Increase in direct materials inventory 100 Sets Direct materials purchased (AQ) 1,600 Sets Finished goods manufactured 700 units Direct materials purchase-price variance $ 400 Favorable Budgeted Finished goods to manufacture Direct materials purchases Direct materials per unit of finished goods Direct materials price per set (SP)

800 Units 2,000 Sets 2 Sets $ 3.60

What was the direct materials usage variance in August? A) $180 unfavorable. B) $360 unfavorable. C) $540 favorable. D) $540 unfavorable. E) $720 unfavorable.

147)

Empty Company maintains no inventories and has the following data pertaining to one of its direct materials in July: Standard quantity of direct materials for the units manufactured (SQ) Direct materials purchases—actual cost Standard price per unit of direct materials (SP) Direct material efficiency variance—favorable

30,100 $ 93,000 $ 3.00 $ 4,600

All materials purchased during the month were issued to production. What was the direct materials price variance for July? A) $1,900 favorable. B) $2,700 unfavorable. C) $2,700 favorable. D) $7,300 unfavorable. E) $7,300 favorable.

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30,000 $ 63,000 $ 2.00 $ 4,500

All materials purchased during the month were issued to production. What was the direct materials price variance for July? A) $1,500 favorable. B) $3,000 unfavorable. C) $3,000 favorable. D) $7,500 unfavorable. E) $7,500 favorable.

149)

30,600 $ 95,000 $ 3.00 $ 5,100

All materials purchased during the month were issued to production. What was the company's direct materials flexible-budget (FB) variance for July? A) $1,900 favorable. B) $3,200 unfavorable. C) $3,200 favorable. D) $8,300 unfavorable. E) $8,300 favorable.

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30,000 $ 63,000 $ 2.00 $ 4,500

All materials purchased during the month were issued to production. What was the company's direct materials flexible-budget (FB) variance for July? A) $1,500 favorable. B) $3,000 unfavorable. C) $3,000 favorable. D) $7,500 unfavorable. E) $7,500 favorable.

151) Lawn Company's records for April disclosed the following data relating to direct labor: Actual labor cost (payroll) for April $ 23,000 Labor rate variance Labor efficiency variance Actual direct labor hours worked (AQ)

$ 4,000 favorable $ 2,700 unfavorable 1,000

Lawn's standard direct labor rate per hour (SP) in April was: A) $19.00. B) $18.00. C) $23.00. D) $27.00. E) $30.04.

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152) Lawn Company's records for April disclosed the following data relating to direct labor: Actual labor cost (payroll) for April $ 20,000 Labor rate variance Labor efficiency variance Actual direct labor hours worked (AQ)

$ 4,000 favorable $ 2,400 unfavorable 1,000

Lawn's standard direct labor rate per hour (SP) in April was: A) $16.00. B) $18.00. C) $20.00. D) $24.00. E) $26.67.

153)

Lawn Company's records for April disclosed the following data relating to direct labor:

Actual labor cost (payroll) for April

$ 32,000

Labor rate variance Labor efficiency variance Actual direct labor hours worked (AQ)

$ 6,000 favorable $ 3,600 unfavorable 2,000

Lawn's total standard direct labor hours allowed (SQ) for units produced in April were: A) 1,800. B) 1,811. C) 2,000. D) 2,189. E) 2,200.

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154)

Lawn Company's records for April disclosed the following data relating to direct labor:

Actual labor cost (payroll) for April

$ 20,000

Labor rate variance Labor efficiency variance Actual direct labor hours worked (AQ)

$ 4,000 favorable $ 2,400 unfavorable 1,000

Lawn's total standard direct labor hours allowed (SQ) for units produced in April were: A) 890. B) 900. C) 1,000. D) 1,100. E) 1,110.

155) Lawn Company's records for April disclosed the following data relating to direct labor: Actual labor cost (payroll) for April $ 32,000 Labor rate variance Labor efficiency variance Actual direct labor hours worked (AQ)

$ 4,800 favorable $ 2,600 unfavorable 1,600

Lawn's total standard direct labor cost for the output in April was: A) $29,400. B) $34,200. C) $34,600. D) $36,800. E) $39,400.

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156) Lawn Company's records for April disclosed the following data relating to direct labor: Actual labor cost (payroll) for April $ 20,000 Labor rate variance Labor efficiency variance Actual direct labor hours worked (AQ)

$ 4,000 favorable $ 2,400 unfavorable 1,000

Lawn's total standard direct labor cost for the output in April was: A) $17,600. B) $21,600. C) $22,400. D) $24,000. E) $26,400.

157)

Marv Company's direct labor costs for manufacturing its only product were as follows for October: Standard direct labor hours (DLHs) per unit of product Budgeted finished units for the period Actual number of finished units produced Standard wage rate per direct labor hour (SP) Direct labor costs incurred Actual wage rate per direct labor hour (AP)

2 7,400 5,500 $ 23.00 $ 262,500 $ 21.00

The direct labor efficiency variance for October was: A) $3,000 unfavorable. B) $23,500 favorable. C) $25,000 favorable. D) $34,500 unfavorable. E) $58,000 unfavorable.

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2 6,000 5,000 $ 20.00 $ 207,000 $ 18.00

The direct labor efficiency variance for October was: A) $3,000 unfavorable. B) $20,000 favorable. C) $23,000 favorable. D) $30,000 unfavorable. E) $50,000 unfavorable.

159)

2.0 6,400 5,000 $ 24.00 $ 242,000 $ 22.00

The direct labor rate variance for October was: A) $2,000 unfavorable. B) $14,000 favorable. C) $22,000 favorable. D) $24,000 unfavorable. E) $38,000 unfavorable.

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2.0 6,000 5,000 $ 20.00 $ 207,000 $ 18.00

The direct labor rate variance for October was: A) $3,000 unfavorable. B) $20,000 favorable. C) $23,000 favorable. D) $30,000 unfavorable. E) $50,000 unfavorable.

161)

Marv Company's direct labor costs for manufacturing its only product were as follows for October: Standard direct labor hours per unit of product Budgeted finished units for the period Actual number of finished units produced Standard wage rate per direct labor hour (SP) Direct labor costs incurred Actual wage rate per direct labor hour (AP)

2 7,000 5,900 $ 19.00 $ 229,500 $ 17.00

The total direct labor variance for October was: A) $5,300 unfavorable. B) $7,500 favorable. C) $7,500 unfavorable. D) $34,500 favorable. E) $60,400 unfavorable.

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2 6,000 5,000 $ 20.00 $ 207,000 $ 18.00

The total direct labor variance for October was: A) $7,000 unfavorable. B) $9,000 favorable. C) $9,000 unfavorable. D) $32,000 favorable. E) $54,000 unfavorable.

163)

Mandy Company has the following information from last month:

Standard direct labor hours allowed for units produced (SQ) Actual direct labor hours worked (AQ) Direct labor efficiency variance, favorable (F) Total payroll

5,000 4,890 $ 4,400 $ 229,830

What was Mandy'sstandard direct labor rate per hour (SP)? A) $44.55. B) $35.07. C) $40.00. D) $45.97. E) $42.00.

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164)

Mandy Company has the following information from last month:

Standard direct labor hours allowed for units produced (SQ) Actual direct labor hours worked (AQ) Direct labor efficiency variance, favorable (F) Total payroll

3,600 3,480 $ 5,760 $ 187,920

What was Mandy'sstandard direct labor rate per hour (SP)? A) $43.20. B) $45.60. C) $48.00. D) $52.20. E) $50.00.

165) Mandy Company has the following information from last month: Standard direct labor hours for units produced (SQ) Actual direct labor hours worked (AQ) Direct labor efficiency variance, favorable (F) Total payroll

4,600 4,470 $ 7,800 $ 290,550

What was Mandy'sactual direct labor rate per hour (AP)? A) $37.69. B) $58.67. C) $60.00. D) $63.16. E) $65.00.

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166) Mandy Company has the following information from last month: Standard direct labor hours for units produced (SQ) Actual direct labor hours worked (AQ) Direct labor efficiency variance, favorable (F) Total payroll

3,600 3,480 $ 5,760 $ 187,920

What was Mandy'sactual direct labor rate per hour (AP)? A) $43.20. B) $45.60. C) $48.00. D) $52.20. E) $54.00.

167) Mandy Company has the following information from last month: Standard direct labor hours allowed for units produced (SQ) Actual direct labor hours worked (AQ) Direct labor efficiency variance, favorable (F) Total payroll

3,900 3,780 $ 6,960 $ 241,920

What was Mandy's direct labor rate variance for the month? A) $15,720 unfavorable. B) $22,680 unfavorable. C) $8,343 unfavorable. D) $46,080 favorable. E) $46,080 unfavorable.

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168) Mandy Company has the following information from last month: Standard direct labor hours allowed for units produced (SQ) Actual direct labor hours worked (AQ) Direct labor efficiency variance, favorable (F) Total payroll

3,600 3,480 $ 5,760 $ 187,920

What was Mandy's direct labor rate variance for the month? A) $15,120 unfavorable. B) $20,880 unfavorable. C) $23,490 unfavorable. D) $42,480 favorable. E) $17,537 unfavorable.

169)

Mandy Company has the following information from last month:

Standard direct labor hours allowed for units produced (SQ) Actual direct labor hours worked (AQ) Direct labor efficiency variance, favorable (F) Total payroll

5,400 5,300 $ 4,000 $ 238,500

What was Mandy's direct labor flexible-budget variance for the month? A) $22,500 unfavorable. B) $26,500 unfavorable. C) $49,500 favorable. D) $53,500 favorable. E) $103,500 favorable.

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170)

Mandy Company has the following information from last month:

Standard direct labor hours allowed for units produced (SQ) Actual direct labor hours worked (AQ) Direct labor efficiency variance, favorable (F) Total payroll

3,600 3,480 $ 5,760 $ 187,920

What was Mandy's direct labor flexible-budget variance for the month? A) $15,120 unfavorable. B) $20,800 unfavorable. C) $36,720 favorable. D) $42,480 favorable. E) $79,920 favorable.

171)

A company's flexible budget for 15,100 units of production showed sales of $49,000, variable costs of $17,290, and fixed costs of $13,000. The operating income in the master budget for 20,100 units would be:(Do not round intermediate calculations.) A) $8,800. B) $11,480. C) $23,333. D) $29,210. E) $31,710.

172)

A company's flexible budget for 15,000 units of production showed sales of $48,000, variable costs of $18,000, and fixed costs of $12,000. The operating income in the master budget for 20,000 units would be: A) $8,000. B) $13,500. C) $24,000. D) $28,000. E) $30,000.

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173)

A company's master budget for October is to manufacture and sell 31,200 units, for a total sales revenue of $294,000, total variable costs of $162,960, and total fixed costs of $20,000. The company actually manufactured and sold 33,200 units, and generated $57,000 of operating income in October. The flexible-budget operating income in October was: (Do not round intermediate calculations.) A) $62,440. B) $106,678. C) $119,440. D) $120,310. E) $123,278.

174)

A company's master budget for October is to manufacture and sell 30,000 units, for a total sales revenue of $270,000, total variable costs of $180,000, and total fixed costs of $24,000. The company actually manufactured and sold 32,000 units, and generated $45,000 of operating income in October. The flexible-budget operating income in October was: A) $27,000. B) $70,400. C) $72,000. D) $83,520. E) $86,400.

175)

A company's master budget for October is to manufacture and sell 31,300 units, for a total sales revenue of $296,000, total variable costs of $161,410, and total fixed costs of $26,600. The company actually manufactured and sold 33,300 units, and generated $86,600 of operating income in October. The total flexible-budget variance in October was: (Do not round intermediate calculations.) A) $6,825 unfavorable. B) $8,600 unfavorable. C) $51,175 unfavorable. D) $60,000 unfavorable. E) $29,990 unfavorable.

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176)

A company's master budget for October is to manufacture and sell 30,000 units, for a total sales revenue of $270,000, total variable costs of $180,000, and total fixed costs of $24,000. The company actually manufactured and sold 32,000 units, and generated $45,000 of operating income in October. The total flexible-budget variance in October was: A) $3,600 unfavorable. B) $6,000 unfavorable. C) $15,400 unfavorable. D) $21,000 unfavorable. E) $27,000 unfavorable.

177)

A company's master budget for October is to manufacture and sell 30,400 units, for a total sales revenue of $278,000, total variable costs of $174,640, and total fixed costs of $24,800. The company actually manufactured and sold 32,400 units, and generated $49,000 of operating income in October. The sales volume variance, in terms of operating income, for October was: (Do not round intermediate calculations.) A) $4,703 favorable. B) $6,800 favorable. C) $17,497 favorable. D) $24,200 favorable. E) $7,618 favorable.

178)

A company's master budget for October is to manufacture and sell 30,000 units, for a total sales revenue of $270,000, total variable costs of $180,000, and total fixed costs of $24,000. The company actually manufactured and sold 32,000 units, and generated $45,000 of operating income in October. The sales volume variance, in terms of operating income, for October was: A) $3,600 favorable. B) $6,000 favorable. C) $15,400 favorable. D) $21,000 favorable. E) $7,500 favorable.

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179)

In September, Numbers Incorporated sold 40,000 units of its only product for $460,000 and incurred a total cost of $425,000, of which $45,000 was fixed costs. The flexible budget for September showed total sales of $500,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $79,000U; and, sales volume variance, in terms of contribution margin, $47,000U. The actual amount of operating income earned in September was: A) $35,000. B) $40,000. C) $79,000. D) $114,000. E) $161,000.

180)

In September, Numbers Incorporated sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 was fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The actual amount of operating income earned in September was: A) $15,000. B) $40,000. C) $63,000. D) $78,000. E) $105,000.

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181)

In September, Numbers Incorporated sold 40,000 units of its only product for $460,000 and incurred a total cost of $425,000, of which $45,000 was fixed costs. The flexible budget for September showed total sales of $500,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $79,000U; and, sales volume variance, in terms of contribution margin, $47,000U. The total amount of variable costs in the flexible budget for September was: A) $293,000. B) $372,000. C) $380,000. D) $388,000. E) $451,000.

182)

In September, Numbers Incorporated sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 was fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The total amount of variable costs in the flexible budget for September was: A) $129,000. B) $192,000. C) $200,000. D) $208,000. E) $255,000.

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183)

In September, Numbers Incorporated sold 50,000 units of its only product for $328,000, and incurred a total cost of $305,000, of which $33,000 was fixed costs. The flexible budget for September showed total sales of $380,000. Among variances of the period were: total variable cost flexible-budget variance, $7,000U; total flexible-budget variance, $79,000U; and, sales volume variance, in terms of contribution margin, $35,000U. The amount of operating income in the flexible budget (FB) for September was: A) $50,000. B) $57,000. C) $64,000. D) $95,000. E) $102,000.

184)

In September, Numbers Incorporated sold 40,000 units of its only product for $240,000, and incurred a total cost of $225,000, of which $25,000 was fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The amount of operating income in the flexible budget (FB) for September was: A) $40,000. B) $48,000. C) $56,000. D) $70,000. E) $78,000.

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185)

In September, Numbers Incorporated sold 41,000 units of its only product for $350,000, and incurred a total cost of $325,000, of which $35,000 was fixed costs. The flexible budget for September showed total sales of $400,000. Among variances of the period were: total variable cost flexible-budget variance, $8,900U; total flexible-budget variance, $83,000U; and, sales volume variance, in terms of contribution margin, $37,000U. The budgeted fixed cost for September was: A) $10,900. B) $35,900. C) $91,900. D) $108,000. E) $133,000.

186)

In September, Numbers Incorporated sold 40,000 units of its only product for $240,000, and incurred a total cost of $225,000, of which $25,000 was fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The budgeted fixed cost for September was: A) $30,000. B) $45,000. C) $71,000. D) $78,000. E) $93,000.

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187)

In September, Numbers Incorporated sold 40,000 units of its only product for $460,000, and incurred a total cost of $425,000, of which $45,000 was fixed costs. The flexible budget for September showed total sales of $500,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $79,000U; and, sales volume variance, in terms of contribution margin, $47,000U. The sales volume variance, in terms of operating income, for September was: A) $20,000 unfavorable. B) $47,000 unfavorable. C) $32,000 unfavorable. D) $95,000 unfavorable. E) $149,000 unfavorable.

188)

In September, Numbers Incorporated sold 40,000 units of its only product for $240,000, and incurred a total cost of $225,000, of which $25,000 was fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The sales volume variance, in terms of operating income, for September was: A) $20,000 unfavorable. B) $27,000 unfavorable. C) $36,000 unfavorable. D) $75,000 unfavorable. E) $90,000 unfavorable.

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189)

In September, Numbers Incorporated sold 40,500 units of its only product for $295,000, and incurred a total cost of $275,000, of which $30,000 was fixed costs. The flexible budget for September showed total sales of $350,000. Among variances for the period were: total variable cost flexible-budget variance, $8,400U; total flexible-budget variance, $73,000U; and, sales volume variance, in terms of contribution margin, $32,000U. The master budget operating income for September was: A) $93,000. B) $125,000. C) $113,400. D) $115,400. E) $145,400.

190)

In September, Numbers Incorporated sold 40,000 units of its only product for $240,000, and incurred a total cost of $225,000, of which $25,000 was fixed costs. The flexible budget for September showed total sales of $300,000. Among variances for the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The master budget operating income for September was: A) $78,000. B) $105,000. C) $108,000. D) $110,000. E) $135,000.

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191)

In September, Numbers Incorporated sold 45,000 units of its only product for $284,000, and incurred a total cost of $265,000, of which $29,000 were fixed costs. The flexible budget for September showed total sales of $340,000. Among variances of the period were: total variable cost flexible-budget variance, $8,500U; total flexible-budget variance, $71,000U; and, sales volume variance, in terms of contribution margin, $31,000U. The total number of budgeted units reflected in the master budget for September was: A) 40,000 units. B) 45,000 units. C) 51,900 units. D) 53,500 units. E) 57,400 units.

192)

In September, Numbers Incorporated sold 40,000 units of its only product for $240,000, and incurred a total cost of $225,000, of which $25,000 were fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The total number of budgeted units reflected in the master budget for September was: A) 36,000 units. B) 40,000 units. C) 45,000 units. D) 48,000 units. E) 50,000 units.

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193)

In September, Numbers Incorporated sold 50,000 units of its only product for $317,000, and incurred a total cost of $295,000, of which $32,000 were fixed costs. The flexible budget for September showed total sales of $370,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $77,000U; and, sales volume variance, in terms of contribution margin, $46,000U. The total sales revenue in the master budget for September was: A) $370,000. B) $416,000. C) $440,000. D) $518,000. E) $588,000.

194)

In September, Numbers Incorporated sold 40,000 units of its only product for $240,000, and incurred a total cost of $225,000, of which $25,000 were fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The total sales revenue in the master budget for September was: A) $300,000. B) $327,000. C) $350,000. D) $375,000. E) $425,000.

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195)

Shoemaker Perkins Company uses a standard cost system and had 580 pounds of raw material X15 on hand on September 1. The standard cost of X15 is $15 per pound. The production standard calls for 2 pounds of material X15 for each unit of product manufactured. The company manufactured 780 units of the product in September, and had 860 pounds of material X15 in stock on September 30. The actual price for material X15 purchased during the month was $1 per pound below the standard cost. The material usage variance in September was $4,800 unfavorable. What is thepurchase-price variance for material X15 in September? A) $1,300 favorable. B) $1,560 favorable. C) $1,840 favorable. D) $1,880 favorable. E) $2,160 favorable.

196)

Shoemaker Perkins Company uses a standard cost system and had 400 pounds of raw material X15 on hand on September 1. The standard cost of X15 is $10.00 per pound. The production standard calls for 2 pounds of material X15 for each unit of product manufactured. The company manufactured 600 units of the product in September, and had 500 pounds of material X15 in stock on September 30. The actual price for material X15 purchased during the month was $1 per pound below the standard cost. The material usage variance in September was $3,000 unfavorable. What is the purchase-price variance for material X15 in September? A) $1,100 favorable. B) $1,200 favorable. C) $1,300 favorable. D) $1,500 favorable. E) $1,600 favorable.

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197)

Sheldon Company manufactures only one product and uses a standard cost system. During the past month, manufacturing operations for the company had the following variances: direct labor rate variance = $58,500 favorable; direct labor efficiency variance = $78,000 unfavorable. Sheldon allows 5 standard direct labor hours per unit produced, and its standard direct labor hourly pay rate is $50. During the month, the company used 20% more direct labor hours than the standard allowed for the output achieved. What was the direct labor flexible-budget (FB) variance for the month? A) $19,500 unfavorable. B) $23,400 unfavorable. C) $70,200 favorable. D) $93,600 unfavorable. E) $136,500 unfavorable.

198)

Sheldon Company manufactures only one product and uses a standard cost system. During the past month, manufacturing operations for the company had the following variances: direct labor rate variance = $30,000 favorable; direct labor efficiency variance = $50,000 unfavorable. Sheldon allows 5 standard direct labor hours per unit produced, and its standard direct labor hourly pay rate is $50. During the month, the company used 25% more direct labor hours than the standard allowed for the output achieved. What was the direct labor flexible-budget (FB) variance for the month? A) $20,000 unfavorable. B) $25,000 unfavorable. C) $37,500 favorable. D) $62,500 unfavorable. E) $80,000 unfavorable.

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199)

Sheldon Company manufactures only one product and uses a standard cost system. During the past month, manufacturing operations for the company had the following variances: direct labor rate variance = $59,040 favorable; direct labor efficiency variance = $82,000 unfavorable. Sheldon allows 5 standard direct labor hours per unit produced, and its standard direct labor hourly pay rate is $50. During the month, the company used 20% more direct labor hours than the standard allowed. What were the total standard hours allowed (SQ) for the units manufactured during the month? A) 1,640. B) 3,280. C) 8,200. D) 9,840. E) 11,480.

200)

Sheldon Company manufactures only one product and uses a standard cost system. During the past month, manufacturing operations for the company had the following variances: direct labor rate variance = $30,000 favorable; direct labor efficiency variance = $50,000 unfavorable. Sheldon allows 5 standard direct labor hours per unit produced, and its standard direct labor hourly pay rate is $50. During the month, the company used 25% more direct labor hours than the standard allowed. What were the total standard hours allowed (SQ) for the units manufactured during the month? A) 1,000. B) 2,500. C) 4,000. D) 5,000. E) 6,000.

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201)

Sheldon Company manufactures only one product and uses a standard cost system. During the past month, manufacturing operations for the company had the following variances: direct labor rate variance = $37,440 favorable; direct labor efficiency variance = $52,000 unfavorable. Sheldon allows 5 standard direct labor hours per unit produced, and its standard direct labor hourly pay rate is $50. During the month, the company used 20% more direct labor hours than the standard allowed for the output achieved. What were the total actual direct hours worked (AQ)? A) 1,040. B) 4,160. C) 5,200. D) 6,240. E) 7,488.

202)

Sheldon Company manufactures only one product and uses a standard cost system. During the past month, manufacturing operations for the company had the following variances: direct labor rate variance = $30,000 favorable; direct labor efficiency variance = $50,000 unfavorable. Sheldon allows 5 standard direct labor hours per unit produced, and its standard direct labor hourly pay rate is $50. During the month, the company used 25% more direct labor hours than the standard allowed for the output achieved. What were the total actual direct hours worked (AQ)? A) 1,000. B) 3,000. C) 4,000. D) 5,000. E) 6,000.

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203)

Sheldon Company manufactures only one product and uses a standard cost system. During the past month, manufacturing operations for the company had the following variances: direct labor rate variance = $43,500 favorable; direct labor efficiency variance = $58,000 unfavorable. Sheldon allows 4 standard direct labor hours per unit produced, and its standard direct labor hourly pay rate is $50. During the month, the company used 20% more direct labor hours than the standard allowed. What was the actual hourly rate (AP) for direct labor? A) $38. B) $44. C) $44. D) $50. E) $56.

204)

Sheldon Company manufactures only one product and uses a standard cost system. During the past month, manufacturing operations for the company had the following variances: direct labor rate variance = $30,000 favorable; direct labor efficiency variance = $50,000 unfavorable. Sheldon allows 5 standard direct labor hours per unit produced, and its standard direct labor hourly pay rate is $50. During the month, the company used 25% more direct labor hours than the standard allowed. What was the actual hourly rate (AP) for direct labor? A) $30.00. B) $36.00. C) $44.00. D) $50.00. E) $56.00.

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205)

Sheldon Company manufactures only one product and uses a standard cost system. During the past month, manufacturing operations for the company had the following variances: direct labor rate variance = $61,920 favorable (F); direct labor efficiency variance = $86,000 unfavorable. Sheldon allows 5 standard direct labor hours per unit produced, and its standard direct labor hourly pay rate is $50. During the month, the company used 20% more direct labor hours than the standard allowed for the units produced. How many units of the product were produced during the past month? A) 1,720. B) 2,064. C) 2,408. D) 3,440. E) 4,300.

206)

Sheldon Company manufactures only one product and uses a standard cost system. During the past month, manufacturing operations for the company had the following variances: direct labor rate variance = $30,000 favorable (F); direct labor efficiency variance = $50,000 unfavorable. Sheldon allows 5 standard direct labor hours per unit produced, and its standard direct labor hourly pay rate is $50. During the month, the company used 25% more direct labor hours than the standard allowed for the units produced. How many units of the product were produced during the past month? A) 800. B) 1,000. C) 1,200. D) 1,500. E) 2,000.

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207)

Ventura uses a just-in-time (JIT) manufacturing system for all its materials, components, and products. The master budget of the company for June called for use of 11,100 square feet of materials, while the flexible budget for the actual output of the month had 10,100 square feet of materials at a standard cost (SP) of $9.80 per square foot. Company records show that the actual price paid (AP) for the materials used in June was $9.60 per square foot, and that the direct materials purchase-price variance for the month was $2,050. The actual total quantity of materials purchased during the month was: A) 10,100 square feet. B) 10,250 square feet. C) 11,100 square feet. D) 11,570 square feet. E) 13,620 square feet.

208)

Ventura uses a just-in-time (JIT) manufacturing system for all its materials, components, and products. The master budget of the company for June called for use of 11,000 square feet of materials, while the flexible budget for the actual output of the month had 10,000 square feet of materials at a standard cost (SP) of $9.60 per square foot. Company records show that the actual price paid (AP) for the materials used in June was $9.50 per square foot, and that the direct materials purchase-price variance for the month was $1,040. The actual total quantity of materials purchased during the month was: A) 10,000 square feet. B) 10,400 square feet. C) 11,000 square feet. D) 13,840 square feet. E) 14,880 square feet.

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209)

Ventura uses a just-in-time (JIT) manufacturing system for all its materials, components, and products. The master budget of the company for June called for use of 11,900 square feet of materials, while the flexible budget for the actual output of the month had 10,900 square feet of materials at a standard cost (SP) of $11.40 per square foot. Company records show that the actual price paid (AP) for the materials used in June was $11.30 per square foot, and that the direct materials purchase-price variance for the month was $1,130. The materials usage (quantity) variance for June was: A) $4,520 unfavorable. B) $4,560 unfavorable. C) $6,780 unfavorable. D) $6,840 unfavorable. E) $10,360 favorable.

210)

Ventura uses a just-in-time (JIT) manufacturing system for all its materials, components, and products. The master budget of the company for June called for use of 11,000 square feet of materials, while the flexible budget for the actual output of the month had 10,000 square feet of materials at a standard cost (SP) of $9.60 per square foot. Company records show that the actual price paid (AP) for the materials used in June was $9.50 per square foot, and that the direct materials purchase-price variance for the month was $1,040. The materials usage (quantity) variance for June was: A) $3,800 unfavorable. B) $3,840 unfavorable. C) $5,700 unfavorable. D) $5,760 unfavorable. E) $8,560 favorable.

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211)

Pokeman Bunch Incorporated, manufactures Poke Monster figures, and has the following data from its operation for the year just completed. Actual Units

$ 93,000

Variable cost

Operating income

Flexible Budget

$ 18,000 F

1,500

Sales (dollars)

Contribution Margin Fixed cost

$ 60,000 $ 1,500 U

Master Budget 1,200

D $ 5,000

$ 7,500

The column heading identified asA is: A) Selling price variances. B) Total efficiency variances. C) Flexible-budget (FB) variances. D) Sales volume variances. E) Production volume variances.

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212)

Pokeman Bunch Incorporated, manufactures Poke Monster figures and has the following data from its operation for the year just completed. Actual Units

$ 93,000

Variable cost

Operating income

Flexible Budget

$ 18,000 F

1,500

Sales (dollars)

Contribution Margin Fixed cost

$ 60,000 $ 1,500 U

Master Budget 1,200

D $ 5,000

$ 7,500

The column heading identified as B is the: A) Selling price variances. B) Efficiency variances. C) Flexible-budget (FB) variances. D) Sales volume variances. E) Production volume variances.

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213)

Pokeman Bunch Incorporated, manufactures Poke Monster figures and has the following data from its operation for the year just completed. Actual Units Sales (dollars) Variable cost Contribution Margin Fixed cost Operating income

Flexible Budget

1,660 $ 107,000 E

$ 22,200 F $ 68,000

$ 2,000 U F

Master Budget 1,360

D $ 5,140

$ 28,000

The amountC is: A) $100,640. B) $103,360. C) $84,800. D) $122,840. E) $129,200.

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214)

Pokeman Bunch Incorporated, manufactures Poke Monster figures and has the following data from its operation for the year just completed. Actual Units

$ 93,000

Variable cost

Operating income

Flexible Budget

$ 18,000 F

1,500

Sales (dollars)

Contribution Margin Fixed cost

$ 60,000 $ 1,500 U

Master Budget 1,200

D $ 5,000

$ 7,500

The amount C is: A) $72,000. B) $74,400. C) $75,000. D) $90,000. E) $111,000.

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215)

Flexible Budget

$ 21,600 F

1,620 $ 105,000 E

$ 66,000 $ 1,800 U

Master Budget 1,320

D $ 5,120

$ 24,200

The amountD is: A) $29,040. B) $35,640. C) $37,440. D) $21,600. E) $39,000.

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216)

Pokeman Bunch Incorporated, manufactures Poke Monster figures and has the following data from its operation for the year just completed. Actual Units

$ 93,000

Variable cost

Operating income

Flexible Budget

$ 18,000 F

1,500

Sales (dollars)

Contribution Margin Fixed cost

$ 60,000 $ 1,500 U

Master Budget 1,200

D $ 5,000

$ 7,500

The amount D is: A) $12,000. B) $15,000. C) $16,500. D) $18,000. E) $33,000.

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217)

Pokeman Bunch Incorporated, manufactures Poke Monster figures and has the following data from its operation for the year just completed. Actual Units Sales (dollars) Variable cost

Operating income

Flexible Budget

$ 20,100 F

1,520 $ 100,000 E

Contribution Margin Fixed cost

$ 62,220 $ 1,300 U

Master Budget 1,220

D $ 5,070

14,800

The amountE is: A) $63,520. B) $78,820. C) $76,980. D) $96,100. E) $98,700.

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218)

Pokeman Bunch Incorporated, manufactures Poke Monster figures and has the following data from its operation for the year just completed. Actual Units

$ 93,000

Variable cost

Operating income

Flexible Budget

$ 18,000 F

1,500

Sales (dollars)

Contribution Margin Fixed cost

$ 60,000 $ 1,500 U

Master Budget 1,200

D $ 5,000

$ 7,500

The amountE is: A) $61,500. B) $76,500. C) $79,500. D) $88,500. E) $91,500.

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219)

Pokeman Bunch Incorporated, manufactures Poke Monster figures and has the following data from its operation for the year just completed. Actual Units Sales (dollars) Variable cost

Operating income

Flexible Budget

$ 20,400 F

1,540 $ 101,000 E

Contribution Margin Fixed cost

$ 64,480 $ 1,400 U

Master Budget 1,240

D $ 5,080

$ 15,200

The amountF is: A) $12,260. B) $8,040. C) $15,200. D) $16,600. E) $10,160.

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220)

Pokeman Bunch Incorporated, manufactures Poke Monster figures and has the following data from its operation for the year just completed. Actual Units

$ 93,000

Variable cost

Operating income

Flexible Budget

$ 18,000 F

1,500

Sales (dollars)

Contribution Margin Fixed cost

$ 60,000 $ 1,500 U

Master Budget 1,200

D $ 5,000

$ 7,500

The amountF is: A) $4,500. B) $6,000. C) $7,500. D) $9,000. E) $10,000.

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221)

Pokeman Bunch Incorporated, manufactures Poke Monster figures and has the following data from its operation for the year just completed. Actual Units

Flexible Budget

$ 18,900 F

1,440

Sales (dollars)

$ 96,000

Variable cost

Contribution Margin Fixed cost Operating income

$ 60,420 $ 1,200 U

Master Budget 1,140

D $ 5,030

$ 6,800

The master budget variance is: A) $430 favorable. B) $1,200 unfavorable. C) $1,200 favorable. D) $1,970 unfavorable. E) $2,400 favorable.

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222)

Pokeman Bunch Incorporated, manufactures Poke Monster figures and has the following data from its operation for the year just completed. Actual Units

Flexible Budget

$ 18,000 F

1,500

Sales (dollars)

$ 93,000

Variable cost

Contribution Margin Fixed cost Operating income

$ 60,000 $ 1,500 U

Master Budget 1,200

D $ 5,000

$ 7,500

The master budget variance is: A) $500 favorable. B) $1,500 unfavorable. C) $1,500 favorable. D) $2,500 unfavorable. E) $3,000 favorable.

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223)

Pokeman Bunch Incorporated, manufactures Poke Monster figures and has the following data from its operation for the year just completed. Actual Units

$ 98,000

Variable cost

Contribution Margin

Operating income

Flexible Budget

$ 19,500 F

1,480

Sales (dollars)

Fixed cost

$ 57,820 $ 1,100 U

Master Budget 1,180

D $ 5,050

$ 14,100

The sales volume variance in terms of operating income is: A) $11,520 favorable. B) $14,100 unfavorable. C) $15,200 favorable. D) $10,100 unfavorable. E) $4,800 favorable.

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224)

Pokeman Bunch Incorporated, manufactures Poke Monster figures and has the following data from its operation for the year just completed. Actual Units

$ 93,000

Variable cost

Operating income

Flexible Budget

$ 18,000 F

1,500

Sales (dollars)

Contribution Margin Fixed cost

$ 60,000 $ 1,500 U

Master Budget 1,200

D $ 5,000

$ 7,500

The sales volume variance in terms of operating income is: A) $500 favorable. B) $1,500 unfavorable. C) $1,500 favorable. D) $2,500 unfavorable. E) $3,000 favorable.

225)

Kilo Company uses a standard costing system that allows 2 pounds of direct materials for one finished unit of product. During July, the company purchased 44,000 pounds of direct materials for $250,000, and manufactured 12,400 finished units. The standard direct materials cost allowed for the units manufactured is $173,600. The performance report shows that Kilo has an unfavorable direct materials usage variance of $5,400. Also, the company records any price variance for materials at time of purchase. Kilo's standard price per pound of direct materials (SP) is: A) $6.00. B) $7.00. C) $8.00. D) $14.00. E) $16.00.

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226)

Kilo Company uses a standard costing system that allows 2.0 pounds of direct materials for one finished unit of product. During July, the company purchased 40,000 pounds of direct materials for $210,000, and manufactured 12,000 finished units. The standard direct materials cost allowed for the units manufactured is $120,000. The performance report shows that Kilo has an unfavorable direct materials usage variance of $5,000. Also, the company records any price variance for materials at time of purchase. Kilo's standard price per pound of direct materials (SP) is: A) $4.00. B) $5.00. C) $6.00. D) $10.00. E) $12.00.

227)

Kilo Company uses a standard costing system that allows 3 pounds of direct materials for one finished unit of product. During July, the company purchased 57,000 pounds of direct materials for $380,000, and manufactured 13,700 finished units. The standard direct materials cost allowed for the units manufactured is $369,900. The performance report shows that Kilo has an unfavorable direct materials usage variance of $6,300. Also, the company records any price variance for materials at time of purchase. The actual number of pounds (AQ) of direct materials used to produce July's output was: A) 13,700 pounds. B) 19,000 pounds. C) 41,100 pounds. D) 41,800 pounds. E) 57,000 pounds.

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228)

Kilo Company uses a standard costing system that allows 2.0 pounds of direct materials for one finished unit of product. During July, the company purchased 40,000 pounds of direct materials for $210,000, and manufactured 12,000 finished units. The standard direct materials cost allowed for the units manufactured is $120,000. The performance report shows that Kilo has an unfavorable direct materials usage variance of $5,000. Also, the company records any price variance for materials at time of purchase. The actual number of pounds (AQ) of direct materials used to produce July's output was: A) 12,000 pounds. B) 20,000 pounds. C) 24,000 pounds. D) 25,000 pounds. E) 40,000 pounds.

229)

Kilo Company uses a standard costing system that allows 2.0 pounds of direct materials for one finished unit of product. During July, the company purchased 53,000 pounds of direct materials for $381,600, and manufactured 13,300 finished units. The standard direct materials cost allowed for the units manufactured is $186,200. The performance report shows that Kilo has an unfavorable direct materials usage variance of $9,200. Also, the company records any price variance for materials at time of purchase. The direct materials purchase-price variance in July was: A) $10,600 unfavorable. B) $63,600 unfavorable. C) $106,000 unfavorable. D) $112,650 unfavorable. E) $116,600 unfavorable.

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230)

Kilo Company uses a standard costing system that allows 2.0 pounds of direct materials for one finished unit of product. During July, the company purchased 40,000 pounds of direct materials for $210,000, and manufactured 12,000 finished units. The standard direct materials cost allowed for the units manufactured is $120,000. The performance report shows that Kilo has an unfavorable direct materials usage variance of $5,000. Also, the company records any price variance for materials at time of purchase. The direct materials purchase-price variance in July was: A) $10,000 unfavorable. B) $50,000 unfavorable. C) $80,000 unfavorable. D) $86,000 unfavorable. E) $90,000 unfavorable.

231)

Ally Manufacturing uses a standard cost system and its July production of 2,900 units involved actual direct labor costs of $324,500 for 5,900 hours worked (AQ). The budget for July called for production of 3,100 units with 6,200 direct labor hours at $51.00 per hour (SP). Ally's direct labor rate variance for July was: A) $3,100 unfavorable. B) $5,100 unfavorable. C) $20,500 favorable. D) $23,600 unfavorable. E) $28,700 unfavorable.

232)

Ally Manufacturing uses a standard cost system and its July production of 1,800 units involved actual direct labor costs of $242,000 for 5,500 hours worked (AQ). The budget for July called for production of 2,000 units with 6,000 direct labor hours at $40.00 per hour (SP). Ally's direct labor rate variance for July was: A) $2,000 unfavorable. B) $4,000 unfavorable. C) $20,000 favorable. D) $22,000 unfavorable. E) $26,000 unfavorable.

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233)

Ally Manufacturing uses a standard cost system and its July production of 2,000 units involved actual direct labor costs of $285,200 for 6,200 hours worked (AQ). The budget for July called for production of 2,200 units with 6,600 direct labor hours at $42.00 per hour (SP). Ally's direct labor efficiency variance for July was: A) $2,200 unfavorable. B) $8,400 unfavorable. C) $22,600 favorable. D) $24,800 unfavorable. E) $33,200 unfavorable.

234)

Ally Manufacturing uses a standard cost system and its July production of 1,800 units involved actual direct labor costs of $242,000 for 5,500 hours worked (AQ). The budget for July called for production of 2,000 units with 6,000 direct labor hours at $40.00 per hour (SP). Ally's direct labor efficiency variance for July was: A) $2,000 unfavorable. B) $4,000 unfavorable. C) $20,000 favorable. D) $22,000 unfavorable. E) $26,000 unfavorable.

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235)

Roncy Manufacturing uses enhanced powder plastics (EPP) to manufacture a highpressure board, Dura-Plastic. Information concerning its operation in June was as follows: Master Budget units of Dura-Plastic to manufacture Units of Dura-Plastic manufactured in June Budgeted amount of EPP to purchase EPP material purchased EPP material used in production Standard cost of EPP used in production Standard quantity of EPP per unit of DuraPlastic Cost of EPP purchased

8,500 9,500 70,500 ounces 76,500 ounces 72,500 ounces $ 500,250 8.0 ounces $ 579,560

The standard cost per ounce of EPP is: A) $6.46. B) $6.54. C) $6.90. D) $7.10. E) $7.25.

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236)

8,000 9,000 70,000 ounces 76,000 ounces 72,000 ounces $ 478,800 7.5 ounces $ 574,560

The standard cost per ounce of EPP is: A) $6.22. B) $6.30. C) $6.65. D) $6.84. E) $7.00.

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237)

8,900 9,900 84,000 ounces 90,160 ounces 86,160 ounces $ 603,120 8.4 ounces $ 583,560

The direct materials usage (efficiency) variance for June was: A) $15,120 unfavorable. B) $28,000 unfavorable. C) $21,000 unfavorable. D) $37,621 unfavorable. E) $5,880 unfavorable.

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238)

8,000 9,000 70,000 ounces 76,000 ounces 72,000 ounces $ 478,800 7.5 ounces $ 574,560

The direct materials usage (efficiency) variance for June was: A) $13,300 unfavorable. B) $26,600 unfavorable. C) $29,925 unfavorable. D) $34,020 unfavorable. E) $16,625 unfavorable.

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239)

8,800 9,800

Budgeted amount of EPP to purchase EPP material purchased EPP material used in production Standard cost of EPP used in production

84,000 ounces 90,000 ounces 86,340 ounces $ 647,550

Standard quantity of EPP per unit of Dura-Plastic Cost of EPP purchased

7.9 ounces $ 720,000

The direct materials purchase-price variance for June was: A) $42,000 unfavorable. B) $43,170 unfavorable. C) $45,000 unfavorable. D) $72,450 unfavorable. E) $66,900 unfavorable.

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240)

8,000 9,000 70,000 ounces 76,000 ounces 72,000 ounces $ 478,800 7.5 ounces $ 574,560

The direct materials purchase-price variance for June was: A) $63,700 unfavorable. B) $65,520 unfavorable. C) $69,160 unfavorable. D) $95,760 unfavorable. E) $29,925 unfavorable.

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241)

Luanna Incorporated manufactures game consoles. Some of the company's data was misplaced. Use the following information to replace the lost data. Actual Results Units Revenues Variable costs Fixed costs Operating income

Flexible Budget Variance

Flexible Budget

1,780 $ 106,800

Sales Volume Variance

Master Budget 1,710

$ 1,780 U

B $ 49,590

$ 20,800 $ 45,350

$ 26,000

The amount A is: A) $105,020. B) $104,640. C) $108,580. D) $111,220. E) Impossible to determine without further information.

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242)

Luanna Incorporated manufactures game consoles. Some of the company's data was misplaced. Use the following information to replace the lost data. Actual Results Units Revenues

Flexible Budget Variance

Flexible Budget

1,760

Variable costs

$ 103,840 C

Fixed costs

$ 20,700

Operating income

$ 44,350

Sales Volume Variance

Master Budget 1,700

$ 1,760 U

B $ 47,600

$ 25,000

The amount A is: A) $102,080. B) $103,440. C) $105,600. D) $108,000. E) Impossible to determine without further information.

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243)

Luanna Incorporated manufactures game consoles. Some of the company's data was misplaced. Use the following informa tion to replace the lost data. Actual Results Units Revenues Variable costs Fixed costs Operating income

Flexible Budget Variance

Flexible Budget

2,140 $ 166,920

Sales Volume Variance

Master Budget 1,890

$ 2,140 U

B $ 88,830

$ 22,600 $ 47,150

$ 44,000

The amountB is: A) $147,420. B) $149,310. C) $126,240. D) $169,060. E) Impossible to determine without further information.

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244)

Luanna Incorporated manufactures game consoles. Some of the company's data was misplaced. Use the following information to replace the lost data. Actual Results Units Revenues

Flexible Budget Variance

Flexible Budget

1,760

Variable costs

$ 103,840 C

Fixed costs

$ 20,700

Operating income

$ 44,350

Sales Volume Variance

Master Budget 1,700

$ 1,760 U

B $ 47,600

$ 25,000

The amountB is: A) $100,300. B) $102,000. C) $103,440. D) $105,600. E) Impossible to determine without further information.

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245)

Flexible Budget Variance

Flexible Budget

2,140 $ 166,920

Sales Volume Variance

Master Budget 1,890

$ 2,140 U

B $ 88,830

$ 22,600 $ 47,150

$ 44,000

The amount C is: A) $97,170. B) $119,770. C) $69,750. D) $144,320. E) Impossible to determine without further information.

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246)

Luanna Incorporated manufactures game consoles. Some of the company's data was misplaced. Use the following information to replace the lost data. Actual Results Units Revenues

Flexible Budget Variance

Flexible Budget

1,760

Variable costs

$ 103,840 C

Fixed costs

$ 20,700

Operating income

$ 44,350

Sales Volume Variance

Master Budget 1,700

$ 1,760 U

B $ 47,600

$ 25,000

The amount C is: A) $38,790. B) $59,490. C) $65,050. D) $83,140. E) Impossible to determine without further information.

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247)

Flexible Budget Variance

Flexible Budget

1,800 $ 109,800

Sales Volume Variance

Master Budget 1,720

$ 1,800 U

B $ 51,600

$ 20,900 $ 45,450

$ 27,000

The amount D is: A) $29,560. B) $50,460. C) $80,240. D) $88,900. E) Impossible to determine without further information.

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248)

Luanna Incorporated manufactures game consoles. Some of the company's data was misplaced. Use the following information to replace the lost data. Actual Results Units Revenues

Flexible Budget Variance

Flexible Budget

1,760

Variable costs

$ 103,840 C

Fixed costs

$ 20,700

Operating income

$ 44,350

Sales Volume Variance

Master Budget 1,700

$ 1,760 U

B $ 47,600

$ 25,000

The amount D is: A) $26,920. B) $33,720. C) $35,620. D) $42,450. E) Impossible to determine without further information.

249)

Joe Malay received the following report on the Division's operation for the month of August: Direct labor rate variance = $30,000 unfavorable; Direct labor efficiency variance = $111,000 (?). The standard calls for 3.0 direct labor hours per unit of output at $37.00 per labor hour (SP). The standard direct labor hours allowed for the units manufactured (SQ) is 20 percent more than the total direct labor hours worked (AQ) in August. What were the total standard hours allowed (SQ) for the units manufactured in August? A) B) C) D) E)

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12,000. 14,400. 15,000. 18,000. 19,156.

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250)

Joe Malay received the following report on the Division's operation for the month of August: Direct labor rate variance = $25,000 unfavorable; Direct labor efficiency variance = $70,000 (?). The standard calls for 3.0 direct labor hours per unit of output at $28.00 per labor hour (SP). The standard direct labor hours allowed for the units manufactured (SQ) is 20 percent more than the total direct labor hours worked (AQ) in August. What were the total standard hours allowed (SQ) for the units manufactured in August? A) 10,000. B) 12,000. C) 12,500. D) 15,000. E) 15,625.

251)

Joe Malay received the following report on the Division's operation for the month of August: Direct labor rate variance = $32,000 unfavorable; Direct labor efficiency variance = $83,200 (?). The standard calls for 3 direct labor hours per unit of output at $26 per labor hour (SP). The standard direct labor hours allowed for the units manufactured (SQ) is 20 percent more than the total direct labor hours worked (AQ) in August. What was the average direct labor hourly rate (AP) the Division paid in August? A) $22.40. B) $24.40. C) $26.00. D) $28.00. E) $29.25.

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252)

Joe Malay received the following report on the Division's operation for the month of August: Direct labor rate variance = $25,000 unfavorable; Direct labor efficiency variance = $70,000 (?). The standard calls for 3.0 direct labor hours per unit of output at $28.00 per labor hour (SP). The standard direct labor hours allowed for the units manufactured (SQ) is 20 percent more than the total direct labor hours worked (AQ) in August. What was the average direct labor hourly rate (AP) the Division paid in August? A) $24.00. B) $26.00. C) $28.00. D) $30.00. E) $31.25.

253)

Joe Malay received the following report on the Division's operation for the month of August: Direct labor rate variance = $44,000 unfavorable; Direct labor efficiency variance = $77,000 (?). The standard calls for 2 direct labor hours per unit of output at $35 per labor hour (SP). The standard direct labor hours allowed for the units manufactured (SQ) is 10 percent more than the total direct labor hours worked (AQ) in August. How many units of the product were produced in August? A) 10,890. B) 11,330. C) 11,110. D) 11,550. E) 12,100.

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254)

Joe Malay received the following report on the Division's operation for the month of August: Direct labor rate variance = $25,000 unfavorable; Direct labor efficiency variance = $70,000 (?). The standard calls for 3.0 direct labor hours per unit of output at $28.00 per labor hour (SP). The standard direct labor hours allowed for the units manufactured (SQ) is 20 percent more than the total direct labor hours worked (AQ) in August. How many units of the product were produced in August? A) 4,000. B) 4,250. C) 4,500. D) 4,750. E) 5,000.

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255)

Machine Builders Incorporated adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials:(5 kilograms × $13 per kilogram) Labor:(4 hours × $17 per hour)

$ 65 $ 68

All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July: In-process beginning inventory

none

In-process ending inventory—90% complete as to labor Units completed during the month Budgeted output Purchases of materials, in kilograms (AQ)

1,100

units

6,700 7,500 38,000

units units

Total actual labor costs incurred Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in July Beginning inventory of materials

$ 517,000 37,000 $ 3,000 1,400 0

hours unfavorable kilograms kilogram

The actual direct materials purchase price (AP) per kilogram in July (to two decimal places) was:(Round your final calculation to 2 decimal places.) A) $11.78. B) $12.88. C) $12.98. D) $13.08. E) $14.78.

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256)

Machine Builders Incorporated adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials:(4.0 kilograms × $10.00 per kilogram) Labor:(4.0 hours × $18.00 per hour)

$ 40.00 $ 72.00

All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July: In-process beginning inventory

none

In-process ending inventory—90% complete as to labor Units completed during the month Budgeted output Purchases of materials, in kilograms (AQ) Total actual labor costs incurred

1,000 units

Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in July Beginning inventory of materials

7,200 units 8,000 units 30,000 $ 525,000 28,000 hours $ 3,000 unfavorable 1,500 kilograms 0 kilogram

The actual direct materials purchase price (AP) per kilogram in July was: A) $8.80. B) $9.90. C) $10.00. D) $10.10. E) $11.80.

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257)

Machine Builders Incorporated adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials:(8 kilograms × $11 per kilogram) Labor:(8 hours × $24 per hour)

$ 88 $ 192

All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July: In-process beginning inventory

none

In-process ending inventory—90% complete as to labor Units completed during the month Budgeted output Purchases of materials, in kilograms (AQ)

1,300

units

7,200 8,200 24,000

units units

Total actual labor costs incurred Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in July Beginning inventory of materials

$ 515,000 30,000 $ 3,800 1,800 0

hours unfavorable kilograms kilogram

The actual total cost of direct materials used in production during July, to the nearest dollar, was: (Round your final calculation to 2 decimal places.) A) $242,052. B) $247,752. C) $256,902. D) $259,902. E) $262,902.

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258)

Machine Builders Incorporated adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials:(4.0 kilograms × $10.00 per kilogram) Labor:(4.0 hours × $18.00 per hour)

$ 40.00 $ 72.00

All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July: In-process beginning inventory

none

In-process ending inventory—90% complete as to labor Units completed during the month Budgeted output Purchases of materials, in kilograms (AQ) Total actual labor costs incurred

1,000 units

Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in July Beginning inventory of materials

7,200 units 8,000 units 30,000 $ 525,000 28,000 hours $ 3,000 unfavorable 1,500 kilograms 0 kilogram

The actual total cost of direct materials used in production during July was: A) $282,150. B) $287,850. C) $297,000. D) $300,000. E) $303,000.

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259)

Machine Builders Incorporated adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials:(4 kilograms × $10 per kilogram) Labor:(4 hours × $18 per hour)

$ 40 $ 72

All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July: In-process beginning inventory

none

In-process ending inventory—90% complete as to labor Units completed during the month Budgeted output Purchases of materials, in kilograms (AQ)

1,180

units

8,496 9,558 35,400

units units

Total actual labor costs incurred Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in July Beginning inventory of materials

$ 619,500 33,040 $ 3,540 1,770 0

hours unfavorable kilograms kilogram

The direct materials usage variance for July was: A) $3,540 favorable. B) $50,740 favorable. C) $19,740 unfavorable. D) $22,740 unfavorable. E) $47,790 favorable.

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260)

Machine Builders Incorporated adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials:(4.0 kilograms × $10.00 per kilogram) Labor:(4.0 hours × $18.00 per hour)

$ 40.00 $ 72.00

All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July: In-process beginning inventory

none

In-process ending inventory—90% complete as to labor Units completed during the month Budgeted output Purchases of materials, in kilograms (AQ) Total actual labor costs incurred

1,000 units

Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in July Beginning inventory of materials

7,200 units 8,000 units 30,000 $ 525,000 28,000 hours $ 3,000 unfavorable 1,500 kilograms 0 kilogram

The direct materials usage variance for July was: A) $3,000 favorable. B) $43,000 favorable. C) $12,000 unfavorable. D) $15,000 unfavorable. E) $40,500 favorable.

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261)

Machine Builders Incorporated adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials:(7 kilograms × $10 per kilogram) Labor:(4 hours × $19 per hour)

$ 70 $ 76

All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July: In-process beginning inventory

none

In-process ending inventory—90% complete as to labor Units completed during the month Budgeted output Purchases of materials, in kilograms (AQ)

1,500

units

7,700 7,300 26,000

units units

Total actual labor costs incurred Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in July Beginning inventory of materials

$ 524,000 25,000 $ 2,600 1,700 0

hours unfavorable kilograms kilogram

The direct labor rate variance for July is: (Round your intermediate calculations to 2 decimal places.) A) $34,600 favorable. B) $44,600 favorable. C) $49,000 unfavorable. D) $85,600 unfavorable. E) $86,200 unfavorable.

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262)

Machine Builders Incorporated adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials:(4.0 kilograms × $10.00 per kilogram) Labor:(4.0 hours × $18.00 per hour)

$ 40.00 $ 72.00

All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July: In-process beginning inventory

none

In-process ending inventory—90% complete as to labor Units completed during the month Budgeted output Purchases of materials, in kilograms (AQ) Total actual labor costs incurred

1,000 units

Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in July Beginning inventory of materials

7,200 units 8,000 units 30,000 $ 525,000 28,000 hours $ 3,000 unfavorable 1,500 kilograms 0 kilogram

The direct labor rate variance for July is: A) $6,600 favorable. B) $16,600 favorable. C) $21,000 unfavorable. D) $57,600 unfavorable. E) $58,200 unfavorable.

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263)

Machine Builders Incorporated adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials:(4 kilograms × $10 per kilogram) Labor:(4 hours × $18 per hour)

$ 40 $ 72

All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July: In-process beginning inventory

none

In-process ending inventory—90% complete as to labor Units completed during the month Budgeted output Purchases of materials, in kilograms (AQ)

1,700

units

7,830 8,700 34,200

units units

Total actual labor costs incurred Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in July Beginning inventory of materials

$ 598,500 32,900 $ 3,420 1,710 0

hours unfavorable kilograms kilogram

The direct labor efficiency variance for July was: A) $9,120 favorable. B) $9,720 unfavorable. C) $10,520 unfavorable. D) $16,920 favorable. E) $81,720 favorable.

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264)

Machine Builders Incorporated adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials:(4.0 kilograms × $10.00 per kilogram) Labor:(4.0 hours × $18.00 per hour)

$ 40.00 $ 72.00

All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July: In-process beginning inventory

none

In-process ending inventory—90% complete as to labor Units completed during the month Budgeted output Purchases of materials, in kilograms (AQ) Total actual labor costs incurred

1,000 units

Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in July Beginning inventory of materials

7,200 units 8,000 units 30,000 $ 525,000 28,000 hours $ 3,000 unfavorable 1,500 kilograms 0 kilogram

The direct labor efficiency variance for July was: A) $6,600 favorable. B) $7,200 unfavorable. C) $8,000 unfavorable. D) $14,400 favorable. E) $79,200 favorable.

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265)

Machine Builders Incorporated adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials:(4 kilograms × $10 per kilogram) Labor:(4 hours × $18 per hour)

$ 40 $ 72

All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July: In-process beginning inventory

none

In-process ending inventory—90% complete as to labor Units completed during the month Budgeted output Purchases of materials, in kilograms (AQ)

2,100

units

8,190 9,100 36,600

units units

Total actual labor costs incurred Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in July Beginning inventory of materials

$ 662,500 34,160 $ 3,660 1,830 0

hours unfavorable kilograms kilogram

The direct labor flexible-budget variance for July was: A) $11,660 unfavorable. B) $12,260 unfavorable. C) $56,060 favorable. D) $63,260 favorable. E) $70,460 favorable.

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266)

Machine Builders Incorporated adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials:(4.0 kilograms × $10.00 per kilogram) Labor:(4.0 hours × $18.00 per hour)

$ 40.00 $ 72.00

All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July: In-process beginning inventory

none

In-process ending inventory—90% complete as to labor Units completed during the month Budgeted output Purchases of materials, in kilograms (AQ) Total actual labor costs incurred

1,000 units

Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in July Beginning inventory of materials

7,200 units 8,000 units 30,000 $ 525,000 28,000 hours $ 3,000 unfavorable 1,500 kilograms 0 kilogram

The direct labor flexible-budget variance for July was: A) $6,600 unfavorable. B) $7,200 unfavorable. C) $51,000 favorable. D) $58,200 favorable. E) $65,400 favorable.

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152

267)

Machine Builders Incorporated adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials:(7 kilograms × $10 per kilogram) Labor:(4 hours × $19 per hour)

$ 70 $ 76

All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July: In-process beginning inventory

none

In-process ending inventory—90% complete as to labor Units completed during the month Budgeted output Purchases of materials, in kilograms (AQ)

1,500

units

6,570 7,300 26,000

units units

Total actual labor costs incurred Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in July Beginning inventory of materials

$ 524,000 25,000 $ 2,600 1,700 0

hours unfavorable kilograms kilogram

The sales volume variance, measured in terms of direct labor cost, for July was: A) $46,520 favorable. B) $47,120 favorable. C) $90,920 unfavorable. D) $97,520 unfavorable. E) $111,920 unfavorable.

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153

268)

Machine Builders Incorporated adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows: Materials:(4.0 kilograms × $10.00 per kilogram) Labor:(4.0 hours × $18.00 per hour)

$ 40.00 $ 72.00

All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July: In-process beginning inventory

none

In-process ending inventory—90% complete as to labor Units completed during the month Budgeted output Purchases of materials, in kilograms (AQ) Total actual labor costs incurred

1,000 units

Direct labor hours worked (AQ) Materials purchase-price variance Increase in materials inventory in July Beginning inventory of materials

7,200 units 8,000 units 30,000 $ 525,000 28,000 hours $ 3,000 unfavorable 1,500 kilograms 0 kilogram

The sales volume variance, measured in terms of direct labor cost, for July was: A) $6,600 favorable. B) $7,200 favorable. C) $51,000 unfavorable. D) $57,600 unfavorable. E) $72,000 unfavorable.

269)

What are the three major elements of the total customer response time? A) Receipt time, manufacturing lead time, delivery time. B) Wait time, delivery time, cycle time. C) Manufacturing lead time, production cycle time, receipt time. D) Receipt time ,delivery time, order time. E) Receipt time, cycle time, wait time.

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Answer Key Test name: chapter 14 1) Essay 2) Essay 3) Essay 4) Essay 5) Essay 6) Essay 7) Essay 8) Essay 9) Essay 10) Essay 11) Essay 12) Essay 13) Essay 14) Essay 15) Essay 16) Essay 17) Essay 18) Essay 19) Essay 20) Essay 21) Essay 22) Essay 23) Essay 24) Essay 25) Essay 26) Essay 27) E 28) B 29) D 30) D 31) E 32) B 33) E 34) C 35) B 36) B 37) D

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38) D 39) A 40) B 41) B 42) B 43) E 44) A 45) A 46) C 47) E 48) C 49) A 50) B 51) C 52) C 53) A 54) E 55) E 56) D 57) C 58) E 59) A 60) D 61) B 62) D 63) A 64) C 65) E 66) B 67) A 68) B 69) B 70) D 71) D 72) D 73) B 74) A 75) C 76) A 77) A

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78) D 79) C 80) A 81) E 82) B 83) A 84) A 85) D 86) A 87) D 88) B 89) B 90) B 91) D 92) D 93) B 94) B 95) E 96) E 97) C 98) C 99) A 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

A C C A A C C A A A A D D B B C C E

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118) 119) 120) 121) 122) 123) 124) 125) 126) 127) 128) 129) 130) 131) 132) 133) 134) 135) 136) 137) 138) 139) 140) 141) 142) 143) 144) 145) 146) 147) 148) 149) 150) 151) 152) 153) 154) 155) 156) 157)

E A A E E C C D D B B C C B B B B A A A A C C B B A A B B D D B B D D B B B B D

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158) 159) 160) 161) 162) 163) 164) 165) 166) 167) 168) 169) 170) 171) 172) 173) 174) 175) 176) 177) 178) 179) 180) 181) 182) 183) 184) 185) 186) 187) 188) 189) 190) 191) 192) 193) 194) 195) 196) 197)

D C C A A C C E E B B A A D D C C E E B B A A B B E E A A B B B B E E D D E E A

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198) 199) 200) 201) 202) 203) 204) 205) 206) 207) 208) 209) 210) 211) 212) 213) 214) 215) 216) 217) 218) 219) 220) 221) 222) 223) 224) 225) 226) 227) 228) 229) 230) 231) 232) 233) 234) 235) 236) 237)

A C C D D C C A A B B B B C D D D B B C C B B A A E E B B D D A A D D B B C C C

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238) 239) 240) 241) 242) 243) 244) 245) 246) 247) 248) 249) 250) 251) 252) 253) 254) 255) 256) 257) 258) 259) 260) 261) 262) 263) 264) 265) 266) 267) 268) 269)

C C C C C B B A A A A D D D D E E D D B B B B C C E E D D B B A

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Chapter 15 1) What are the three steps in establishing the standard application rate for variable factory

overhead cost? Does this procedure differ for product costing versus cost control purposes? Explain.

2) What are the four (4) steps in determining the standard fixed factory overhead application

rate? Does the procedure differ for product costing versus cost-control purposes? Explain.

3) "Firms need to use the capacity of the equipment or division that is the ‘bottleneck' of the

manufacturing process as the denominator volume in setting the fixed overhead allocation rate. In cases where there is more than one ‘bottleneck,' the denominator should be the smallest capacity among the bottleneck production processes." Required: 1. What type of variance is related to this "denominator?" Explain. 2. Define the terms theoretical capacity, practical capacity, and budgeted capacity utilization. Of the three, which is considered most relevant for setting the predetermined overhead application rate for internal reporting purposes, particularly for fixed overhead costs? Explain.

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4) Erie Company uses machine hours to apply standard overhead cost to production. The

following data pertain to October: Master budget data: Units Total machine hours (denominator volume) Total variable overhead cost Total fixed overhead cost Actual operating results: Variable overhead cost incurred Fixed overhead cost incurred Units manufactured Total machine hours

2,500 100,000 $ 250,000 $ 50,000

$ 265,000 $ 54,000 2,250 96,000

Required: Compute the following variances using machine hours as the activity variable used to assign standard overhead costs to production. Show calculations. 1. Variable overhead spending variance 2. Variable overhead efficiency variance 3. Fixed overhead spending variance 4. Fixed overhead production-volume variance

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5) Bluetop Company uses a standard cost system. For the month of April, the firm budgeted

$160,000 for total factory overhead based on 40,000 machine hours. The standard calls for 4.0 machine hours for each finished unit. During April, the firm used 39,000 machine hours to manufacture 9,500 units, and incurred $159,000 in total factory overhead. Required: 1. Determine the total amount of standard factory overhead cost charged to production in April. 2. Provide the correct journal entry to record the application of standard factory overhead costs to production. (Assume that the company uses a single overhead account, Manufacturing Overhead.)

6) McAllister Company's master budget for the year just completed was based on 100%

capacity and included 40,000 machine hours and $240,000 total factory overhead. Budgeted fixed overhead at 75% of factory capacity would be $160,000 (and 30,000 machine hours). The company operated at 90% capacity for the year, and incurred $252,000 total factory overhead cost. Required: 1. Determine the total overhead flexible budget variance for the year. Show calculations. 2. Calculate the fixed overhead production-volume variance for the year. Show calculations.

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7) Bike Pedals manufactures bicycle seats. The company budgeted to manufacture 25,000 seats

in April, with 0.05 standard machine hours per seat. Total variable factory overhead was budgeted at $30,000 for April. During April, the company manufactured 30,000 seats using 1,600 machine hours. It incurred $34,000 of variable factory overhead (VOH) costs. Required: Determine each of the following variances. 1. Variable overhead spending variance. 2. Variable overhead efficiency variance. 3. Variable overhead flexible budget variance.

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8) Ben Simon Corporation has the following information about its standards and production

activity for the month of November: Total actual factory overhead cost incurred: Variable overhead Fixed overhead

$ 31,350 25,000

Standard factory overhead rate: Variable overhead Fixed overhead Denominator volume (in units)

$ 3.10 per unit $ 2.00 per unit 12,000

Actual units produced during November

9,600

Required: Calculate and show supporting calculations for each of the following variances: 1. Variable overhead flexible budget variance. 2. Fixed overhead spending variance. 3. Fixed overhead production volume variance.

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9) Dillard, Incorporated, has developed the following standard cost data based on a denominator

volume of 60,000 direct labor hours (DLHs). Budgeted fixed overhead is $360,000 and budgeted variable overhead is $180,000 at this level of activity. Direct material (DM): Standard pounds per unit of output Standard cost per pound of material Standard DM cost per unit of output Direct labor (DL):

3.0 $ 2.00 $ 6.00

Standard DLHs per unit of output Standard wage rate (price) per DLH Standard DL cost per unit of output Factory overhead

0.5 $ 8.00 $ 4.00

Standard DLH per unit Standard overhead application rate per DLH Standard overhead cost per unit of output Total standard cost per unit produced

0.50 $ 9.00 $ 4.50 $ 14.50

During the most recent period, the company used 48,000 DLHs to produce 128,000 units. Additional actual results for the period include the following: Direct material: Pounds of materials used Total cost of materials used Direct labor:

380,000 $ 779,000

Number of DLHs worked Total labor cost incurred Variable overhead Fixed overhead

63,000 $ 507,150 $ 220,000 $ 365,000

Required: Determine all variances for direct materials, direct labor, and factory overhead. Use a 4variance breakdown (decomposition) of the total overhead variance for the period. Assume that the direct materials price variance is calculated at point of production, not point of purchase. Note: this problem requires knowledge from Chapter 14.

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10) As was the case with the material presented in text Chapter 14, the cost variances covered in

Chapter 15 are directed at what might be called short-term financial control. These variances are calculated based on standard costs and the use of flexible budgets. Periodic reports containing these variances are but a part of a larger and more comprehensive management accounting and control system. Required: 1. Explain some of the inherent limitations of short-term financial performance measures (such as standard cost variances). 2. Explain how such measures might be supplemented to better meet the planning and control needs of management.

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11) Redtop Company uses a standard cost system and flexible budgets. The following flexible

budget was prepared at the 80% operating level for the year: Standard direct labor hours (DLHs) Budgeted variable factory overhead cost Total factory overhead rate per DLH Standard DLHs per unit of output Excess of actual total overhead cost incurred over the flexible budget (FB) for total overhead based on units produced during the period Excess of actual fixed overhead cost over budgeted (“lump-sum”) fixed overhead cost for the period

28,800 $ 149,760 $ 18.70 4.0 $ 12,000

$ 5,000

For purposes of calculating the standard fixed overhead application rate, the company defined the “denominator volume” as the 90% capacity level. As noted above, the standard calls for four DLHs per unit manufactured. During the year, Redtop worked 33,600 DLHs to manufacture 8,500 units. The actual factory overhead cost incurred was $12,000 greater than the flexible budget amount for the units produced, of which $5,000 was due to fixed factory overhead. Required: Calculate (and provide supporting details for) each of the following variances: 1. The standard variable overhead application rate per DLH. 2. The variable overhead efficiency variance. 3. The total factory overhead spending variance. 4. The fixed overhead production-volume variance. 5. The variable overhead spending variance. 6. Provide a short description (i.e., interpretation) of each of the variances you calculated in requirements 2 through 5.

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12) Carl Jones Company's master budget for the year just completed was based on 100%

capacity and included 50,000 machine hours and $300,000 total factory overhead. (That is, the denominator volume, for purposes of calculating the fixed overhead application rate, is defined as 100% capacity.) Budgeted fixed overhead at 70% factory capacity is $200,000 (and 35,000 machine hours). The company operated at 80% capacity for the year, and incurred $275,000 total factory overhead. At 50,000 machine hours: Percent of capacity Total budgeted overhead cost At 35,000 machine hours:

100% $ 300,000

Percent of capacity Budgeted fixed overhead Actual results for the period:

70% $ 200,000

Percent of capacity Total overhead cost incurred

80% $ 275,000

Required: 1. Determine the total overhead flexible budget variance for the year just completed. Show calculations. 2. Determine the fixed overhead production-volume variance for the year just completed. Show calculations. 3. Provide a short discussion/interpretation of each of the above-two variances.

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13) ABN Corporation has the following information about its standards and production activity

in May: Total factory overhead costs incurred: Variable overhead Fixed overhead

$ 55,000 40,000

Standard factory overhead rate: Variable overhead Fixed overhead Denominator activity level (in units)

$ 4.00 per unit 3.40 per unit 13,700

Actual units produced

14,000

Required: Calculate and show underlying calculations for each of the following variances: 1. Variable overhead flexible budget (FB) variance. 2. Fixed overhead spending variance. 3. Fixed overhead production volume variance. 4. Provide a short discussion/interpretation of each of the above-three variances.

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14) You are provided with the following summary of overhead-related costs for the most recent

accounting period: 1. Actual variable overhead (OH) costs incurred during the month: a. Utilities = $30,000 (incurred, but not yet paid) b. Indirect materials = $10,630 (previously entered in Indirect Materials Inventory) 2. Standard variable OH cost for units produced during the period = $46,800 3. Actual fixed OH costs incurred during the month: a. Supervisory salaries = $30,650 (earned, but not yet paid) b. Depreciation−Plant equipment = $100,000 4. Standard fixed overhead (FOH) cost applied to production during the period = $93,600 5. Total standard cost of units completed during the period = $140,400 6. Standard cost variances for the month: a. Production volume variance = $6,170 favorable b. Total overhead flexible budget variance = $37,050 unfavorable

7. End-of-period overhead variance disposition—assume that after the variances are recorded into separate variance accounts (via the entry associated with (6) above), they are then closed entirely to Cost of Goods Sold. Required: Prepare the appropriate journal entries for each of the above events. Assume that the company uses a single account, Manufacturing Overhead.

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15) You are provided with the following summary of overhead-related costs for the most recent

accounting period for a company that uses a single overhead account, Factory Overhead, into which it records both actual and standard overhead costs during the period: 1. Overhead standard cost variances for the period: a. Fixed overhead (FOH) spending variance = $1,600U b. Fixed overhead production volume variance = $200F c. Variable overhead (VOH) efficiency variance = $1,050U d. Variable overhead (VOH) spending variance = $150U 2. Actual fixed overhead cost incurred (depreciation) = $15,800; actual variable overhead cost incurred (paid in cash) = $4,800 3. Standard overhead cost applied to production (i.e., WIP inventory) during the period = $18,000 4. Standard overhead cost of units transferred to Finished Goods Inventory = $20,000 5. Before closing its accounts at the end of the period, the (standard cost) amounts affecting the inventory and CGS accounts are as follows: Account WIP Inventory Finished Goods Inventory Cost of Goods Sold (CGS)

Debit (total) $ 153,000 $ 134,640 $ 111,690

Credit (total) $ 134,640 $ 111,690

Required: Prepare the proper journal entry for each of the following events: 1. Incurrence of actual fixed overhead (FOH) costs for the period. 2. Incurrence of actual variable overhead (VOH) costs for the period. 3. Application of standard overhead costs to production (i.e., to WIP inventory). 4. Recording of standard overhead costs for units completed during the period. 5. Recording of the four standard cost variances for the period. 6. Closing the standard cost variances, under the assumption that the company closes these variances entirely to Cost of Goods Sold (CGS). 7. Closing the standard cost variances, under the assumption that the company prorates the variances to the CGS and inventory accounts.

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16) When implementing a standard cost system, one of the system-design choices that

management must make is choice of the denominator volume level for calculating the fixed overhead application rate, which is used to determine product costs. Various alternatives exist for the denominator volume.

Required: 1. List and briefly describe the various alternatives that exist for defining the denominator activity level for product costing purposes. 2. What provisions of generally accepted accounting principles (GAAP) and current income tax requirements in the U.S. affect the decision as to choice of the denominator volume level when developing the standard fixed overhead application rate? Provide an overview of the requirements in this regard.

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17) It can be argued that manufacturing overhead analysis under an ABC system is more

informative or useful to management because of the associated richness of the analysis and therefore increased potential for cost control. Of interest under an ABC system is the flexible budget analysis that can be performed when there is a standard batch size for production activity. Required: Explain how the conventional analysis of overhead variances using flexible budgets can be expanded when production is characterized by a standard batch size. Focus specifically on the analysis of batch-related costs, for example, production-related set-up costs. Discuss separately the analysis of fixed setup-related costs and variable setup-related manufacturing support costs.

18) The total variable factory overhead cost variance for a period can be broken down into what

two variances? A) Variable overhead spending variance and variable overhead price variance. B) Variable overhead efficiency variance and variable overhead actual variance. C) Variable overhead price variance and variable overhead actual variance. D) Variable overhead spending variance and variable overhead efficiency variance. E) Variable overhead production variance and variable overhead volume variance.

19) Finding a single cost driver that changes in the same proportion as variable factory overhead

costs is: A) Simplified by breaking out the fixed portion of overhead cost. B) The first step in variable overhead cost assignment. C) Difficult but manageable using advanced statistical techniques. D) An important goal of effective cost system design. E) Difficult, if not impossible, because of the underlying nature of variable overhead cost components.

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20) An activity-based cost (ABC) driver applies factory overhead to products or services

according to the: A) Activity output as measured by the units produced. B) Activity level of hours of direct labor. C) Resource demands/resource consumption of the firm's outputs (goods or services produced). D) Budgeted activity level for the period. E) Standard machine hours allowed for good output produced during the period.

21) A manufacturing company that uses standard costs and flexible budgets can break the total

variable overhead cost variance into: A) Volume and efficiency components. B) Spending and efficiency variances. C) Spending and production volume variances. D) Spending variances only. E) A selling price variance and a sales volume variance.

22) Which of the following factors is not usually important when deciding whether to investigate

a variance? A) Magnitude of the variance. B) Trend of the variance over time. C) Whether the variance is favorable or unfavorable. D) Cost of investigating the variance. E) Likelihood that the variance will recur in the future.

23) A standard costing system will produce the same income as an actual costing system when

end-of-period standard cost variances are assigned: A) Only to work-in-process (WIP) inventory. B) Only to finished goods inventory. C) To work-in-process and finished goods inventories. D) Entirely to cost of goods sold. E) To cost of goods sold and all inventory accounts.

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24) The underlying model for cost control and product costing purposes is the same for what type

of costs? A) Variable factory overhead. B) Fixed factory overhead. C) Both fixed and variable overhead. D) Neither fixed nor variable overhead. E) All product costs – fixed and variable.

25) Because fixed factory overhead cost in total does not vary with changes in output: A) The amount used in the control budget for a period is a "lump-sum" amount. B) There is no way to assign fixed overhead cost to products for product costing

purposes. C) Most companies treat such costs as period, rather than as product costs. D) There is no justification for fixed overhead cost application. E) Generally accepted accounting principles permit companies to use variable rather than absorption (full) costing for external reporting purposes.

26) In a standard cost system, an unfavorable production-volume variance would result if: A) There is an unfavorable labor efficiency variance. B) There is an unfavorable labor rate variance. C) Actual production is less than the "denominator volume" (that is, the volume level

used to establish the fixed overhead application rate). D) There is an unfavorable fixed manufacturing overhead spending variance. E) Actual fixed overhead costs are greater than budgeted fixed overhead costs.

27) The fixed factory overhead production-volume variance represents: A) Money lost or gained because of achieved production levels. B) A result of unitizing fixed overhead costs for product costing purposes. C) Information regarding the effectiveness of the organization in meeting sales targets. D) Information that management can use for cost-control purposes. E) Important information for companies pursuing a just-in-time (JIT) production

philosophy.

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28) Factors contributing to the fixed factory overhead spending variance can include all the

following except: A) Inaccurate budget estimates for these costs. B) Inadequate control of fixed overhead costs. C) Misclassification of cost items by the accounting system. D) Operating inefficiency. E) Unanticipated increases in costs such as factory insurance.

29) What is resource capacity planning used to accomplish? A) Ensure that the company always has enough resources on hand for production. B) Buy the correct amount of materials to use up all available capacity in a factory. C) Plan the right production schedule so that all labor is being used efficiently. D) Ensure adequate but not excessive supply of capacity-related resources. E) None of these answer choices are correct.

30) Manufacturing companies using a standard cost system often can achieve more effective

control when factory overhead variance analysis is done with: A) A two-variance approach. B) A three-variance approach. C) A four-variance approach. D) A single cost driver. E) Multiple cost drivers.

31) If inventories in a business using a standard cost system are insignificant, the firm would be

justified (in a practical sense) by disposing of variances each year: A) As an adjustment to the finished goods inventory only. B) As an adjustment to cost of goods sold only. C) As adjustments to both inventory accounts and the cost of goods sold for the period. D) As a special item (gain or loss) on the income statement for the period. E) As an adjustment to the work-in-process (WIP) inventory only.

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32) Why is the direct materials usage variance allocated only to WIP Inventory, Finished Goods

Inventory, and cost of goods sold (COGS)? A) It occurs before direct materials are issued to production. B) It occurs while direct materials are issued to production. C) These are the only accounts that deal with direct materials. D) It occurs after direct materials are issued to production. E) None of the answer choices are correct.

33) Among characteristics that distinguish service and manufacturing firms are the: A) Absence of output inventory in service firms. B) Existence of labor-intensive products in manufacturing firms. C) Rendering of identical services in a service firm. D) Capital intensiveness of service firms. E) Organizational structure of service firms.

34) Most costs in a service organization are considered what type of cost? A) Short-term fixed costs. B) Long-term fixed costs. C) Short-term variable costs. D) Long-term variable costs. E) Either short- or long-term fixed costs.

35) In firms using activity-based costing (ABC), budgeted total factory overhead varies with

changes in: A) A single cost driver for applying overhead. B) Several cost drivers. C) The selected denominator activity level. D) The quantity of input resources used in operations of the period. E) Only batch-level cost drivers.

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36) Using an activity-based costing system (ABC) enables a firm to calculate overhead variances

for: A) B) C) D) E)

Sales volume and production volume. Spending and selling price. Each activity-based cost driver. Semi-variable overhead costs. Semi-fixed overhead costs.

37) The production-volume variance should generally not be calculated and reported for control

purposes because, unless interpreted properly, it can: A) Distract top management by focusing on operational efficiencies/inefficiencies. B) Give information that only top management should have. C) Distort other variable-cost variances. D) Encourage overproduction by managers to achieve a favorable volume variance. E) Encourage underproduction by managers to avoid an unfavorable variance.

38) If the organization is making good progress toward achieving an ideal standard, its

management may not need to: A) Modify its standards. B) Curtail spending on variable costs. C) Curtail spending on fixed costs. D) Review and revise the management accounting system. E) Take any corrective action when variances are reported.

39) Which of the following statements is correct? A) Random variances are typically large in amount. B) Systematic variances are considered uncontrollable. C) Most standard cost variances call for investigation and corrective action. D) Random variances should typically not be investigated. E) Most variances from ideal standards will, by definition, be favorable.

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40) Causes of random variances are beyond the control of management, and are most often

found in (or are associated with): A) Fixed costs. B) Goods or services exchanged in open markets. C) Wages and salaries. D) Depreciation charges. E) Specialized industries.

41) Management expected a 10% price decrease for a raw material. Instead, the price decrease

was only 5%. What type of error is this? A) modeling error. B) random error. C) prediction error. D) measurement error. E) implementation error.

42) In deciding whether to further investigate a cost variance, managers usually: A) Investigate all variances judged to be systematic in nature. B) Investigate all variances under a prescribed percentage limit. C) Investigate all variances associated with factory overhead spending, since total

overhead for a firm is typically large. D) Investigate all variances over a given dollar amount or percentage. E) Investigate all flexible budget but not volume-related variances.

43) In deciding whether to further investigate a variance, an organization needs to weigh the

costs of investigation against the: A) Ongoing time constraints. B) Size of the variance. C) Nature of the variance. D) Difficulty of the investigation. E) Anticipated benefits from the investigation.

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44) Failure to consider learning-curve effect in estimating product costs is what type of error?: A) Modeling error. B) Implementation error. C) Random error. D) Measurement error. E) Prediction error.

45) A statistical control chart: A) Sets control limits based on managerial intuition and experience with the process. B) Is useful for identifying random versus systematic variances. C) Is useful for identifying in-control but not out-of-control operations. D) Depicts the expected mean (or target) value of a process, but not the allowable range

around that value. E) Determines control limits (both upper and lower) informally, by trial and error.

46) Which of the following is not a plausible cause of a systematic variance? A) Prediction error. B) Modeling error. C) Implementation error. D) Measurement error. E) Random error.

47) The fixed factory overhead application rate (for product costing purposes) is equal to: A) The denominator activity divided by budgeted fixed factory overhead. B) The denominator activity divided by budgeted variable factory overhead. C) Budgeted variable factory overhead divided by denominator activity. D) Budgeted fixed factory overhead divided by budgeted variable factory overhead. E) Budgeted fixed factory overhead divided by denominator activity.

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48) Which of the following statements about the standard variable factory overhead application

rate is true? A) Different rates are used for product costing and cost-control purposes. B) The rate is used for cost-control, but not product costing purposes. C) The rate is used for product costing, but not cost-control purposes. D) The same rate is used for product costing and cost-control purposes. E) Generally speaking, the rate will be independent of the allocation base chosen to apply overhead.

49) Which of the following is not a step involved in “unitizing” fixed overhead costs for product

costing purposes? A) Calculate the actual total fixed factory overhead. B) Choose a denominator activity level. C) Determine budgeted total fixed factory overhead. D) Calculate the predetermined fixed overhead application rate. E) Choose an appropriate activity measure for applying fixed factory overhead.

50) The difference in each period between total variable overhead cost incurred and the standard

variable overhead cost for the period based on the actual quantity of the cost driver used to apply variable overhead cost is the: A) Total variable overhead variance. B) Variable overhead spending variance. C) Variable overhead rate variance. D) Variable overhead efficiency variance. E) Variable overhead flexible budget variance.

51) The difference between the standard variable overhead cost for the actual quantity of the cost

driver used for applying variable overhead and the standard variable overhead cost allowed for the units manufactured during a given period is the: A) Total variable overhead variance. B) Variable overhead spending variance. C) Variable overhead rate variance. D) Variable overhead efficiency variance. E) Variable overhead flexible budget variance.

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52) Which of the following reflects both price (rate) and efficiency (quantity) effects of variable

overhead items? A) Total variable overhead variance. B) Variable overhead rate variance. C) Variable overhead spending variance. D) Variable overhead usage variance. E) Variable overhead efficiency variance.

53) Which one of the following factory overhead variances reflects the effect of deviation in

input quantities only if the cost driver for applying variable overhead is a perfect predictor of variable overhead cost? A) Total variable overhead variance. B) Variable overhead rate variance. C) Variable overhead spending variance. D) Variable overhead flexible budget variance. E) Variable overhead efficiency variance.

54) Determining the standard fixed factory overhead cost applied to production for a period

involves all the following essential elements except: A) The actual amount of fixed overhead cost incurred during the period. B) A cost driver (or drivers) for applying the fixed overhead. C) The standard fixed overhead application rate. D) An assumed output level, as reflected by the quantity of the cost driver for applying the fixed overhead (i.e., the denominator activity level for the period). E) The total budgeted fixed overhead cost for the period.

55) A measure of capacity that assumes 100% efficiency is called: A) Practical capacity. B) Perfect capacity. C) Theoretical capacity. D) Efficient capacity. E) Useful capacity.

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56) The difference between budgeted fixed factory overhead for a period and the amount of fixed

factory overhead applied to production during the period is the: A) Fixed factory overhead efficiency variance. B) Fixed factory overhead production-volume variance. C) Fixed factory overhead spending variance. D) Fixed factory overhead sales-volume variance. E) Fixed factory overhead flexible budget variance.

57) The difference between the total actual overhead cost incurred during a period and budgeted

total factory overhead cost for the actual quantity of the cost driver used to apply overhead is equal to the: A) Total overhead spending variance. B) Total overhead efficiency variance. C) Factory overhead production-volume variance. D) Total overhead rate variance. E) Total overhead variance.

58) In a standard cost system, when production (i.e., actual output) is greater than the

denominator volume level, there will be: A) A favorable labor efficiency variance. B) An unfavorable total spending variance. C) A favorable production-volume variance. D) A favorable sales-volume variance. E) A favorable overhead budget variance.

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59) Which of the following statements about variable overhead costs is true? A) The underlying model for control and product costing purposes is the same for

variable overhead. B) The amount of variable overhead applied to production is a function of the denominator output volume and the actual quantity of the cost-allocation base (cost driver) used to apply overhead. C) The total variable overhead cost variance can be decomposed into a productionvolume variance and a flexible budget variance. D) For control purposes, the actual quantity of the cost-allocation base (cost driver) is used. E) Standard costs for variable overhead can be used for control, but not product costing, purposes.

60) Failure to provide proper training for the task is an example of a(n): A) Prediction error. B) Implementation error. C) Modeling error. D) Random error. E) Measurement error.

61) A deviation from standard because of the failure to include one or more relevant variables, or

the inclusion of the wrong or irrelevant variables in the standard-setting process is an example of a(n): A) Random error. B) Prediction error. C) Implementation error. D) Modeling error. E) Measurement error.

62) A deviation from standard that occurs because of an incorrect number resulting from

improper or inaccurate accounting systems or procedures is an example of a(n): A) Random error. B) Prediction error. C) Implementation error. D) Modeling error. E) Accounting error.

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63) A deviation from standard that occurs during operations because of operator errors is an

example of a(n): A) Random error. B) Prediction error. C) Implementation error. D) Modeling error. E) Accounting error.

64) The difference between the total factory overhead cost in the flexible budget for the actual

units produced and the amount of factory overhead cost applied to products using the standard overhead rate is called what? A) Factory overhead flexible budget variance B) Factory overhead production-volume variance C) Factory overhead total fixed cost variance D) Factory overhead efficiency variance E) Factory overhead controllable variance

65) What is another name for the total variable overhead variance? A) Flexible budget variance. B) Actual variable overhead variance. C) Over- or underapplied variable overhead. D) Variable overhead factory variance. E) Total overhead spending variance

66) For product costing purposes, which of the following statements is true? A) Under the absorption or full-costing approach it is necessary to "unitize" fixed

overhead costs. B) The amount of standard fixed overhead costs for product costing and for control purposes is the same. C) Only standard variable overhead costs are included since these costs change in response to cost drivers. D) Standard costing is not permissible under generally accepted accounting principles (GAAP). E) Total fixed overhead costs are applied to production (output) as a "lump-sum" amount.

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67) What is the fixed overhead spending variance? A) The difference between budgeted (lump-sum) fixed overhead cost for the period and

the standard fixed overhead cost applied to production. B) The difference between budgeted and actual fixed factory overhead costs for a period. C) The output (activity) level used to establish the predetermined fixed overhead application rate. D) The difference between actual fixed overhead costs for the period and the standard fixed overhead costs applied to production based on a standard fixed overhead application rate. E) The difference between the flexible budget for variable overhead based on inputs and the flexible budget for variable overhead based on outputs.

68) In terms of allocating fixed overhead cost to products, generally accepted accounting

principles in the U.S.: A) Require that such allocations be based on normal capacity. B) Allow for the use of either practical capacity or theoretical capacity. C) Don't apply since the resulting data are used only internally (for control purposes). D) Specify only that such costs be "reasonably allocated" to outputs. E) Require that these costs be expensed in the period incurred.

69) For internal reporting purposes, it is recommended that fixed overhead allocation rates in a

standard costing system be based on which of the following denominator volume choices? A) Budgeted capacity usage since this is the most likely output level. B) Theoretical capacity since this is the level required under generally accepted accounting principles. C) Actual capacity utilization. D) Expected capacity usage. E) Practical capacity.

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70) The "death spiral" effect refers to: A) The allocation of fixed overhead costs over time to an increasing volume of output. B) A possible consequence when variable, not full, costing is used. C) A likely consequence when fixed overhead allocation rates are based on practical

capacity. D) The continual raising of prices, in response to decreases in sales volume, in an attempt to recover fixed costs. E) Increases in product demand over time in response to increases in fixed promotional costs.

71) Which one of the following journal entries in a standard cost system is needed to record the

completion of production for the period? A) A debit to Work-in-Process Inventory, at standard cost. B) A debit to Work-in-Process Inventory, at actual cost. C) A credit to Cost of Goods Sold, at standard cost. D) A debit to Finished Goods Inventory, at standard cost. E) A debit to Finished Goods Inventory, at actual cost.

72) Which one of the following journal entries in a standard cost system is needed at the end of

the period to close out to Cost of Goods Sold an unfavorable production-volume variance? A) A credit to Finished Goods Inventory, at standard cost. B) A credit to Cost of Goods sold, at standard cost. C) A credit to Cost of Goods sold, at actual cost. D) A debit to the Production Volume Variance account. E) A debit to Cost of Goods sold.

73) Which one of the following journal entries in a standard cost system would be used to apply

standard factory overhead costs to production? A) A debit to the factory overhead account, at standard cost. B) A credit to the factory overhead account, at standard cost. C) A debit to WIP inventory, at actual cost. D) A credit to Finished Goods Inventory, at standard cost. E) A credit to WIP inventory, at standard cost.

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74) Some accountants would argue that any variances from standard costs, when such standards

are current, should be written off to Cost of Goods Sold (or other income statement account). The principal conceptual rationale for this treatment is: A) This is the treatment required currently under generally accepted accounting principles in the U.S. B) To allocate such variances (as the alternative treatment) implies that asset values on the balance sheet (i.e., inventories) contain the cost of inefficiencies. C) The negligible effect this treatment has on total Cost of Goods Sold (or the Income Statement) for the period. D) The increased information and insight this procedure provides to management, for better managing operations. E) Simplicity of application—this is an expedient method.

75) If the net manufacturing cost variance is considered material in amount, the net variance

should: A) B) C) D) E)

Be allocated to the inventory and Cost of Goods Sold (COGS) accounts. Be disposed of because of the size of the difference. Be allocated to the general and administrative account. Be carried forward on the balance sheet until it is offset by future differences. None of these answer choices are correct.

76) Which of the following statements is true regarding choice of the denominator volume level

in conjunction with the process of allocating fixed manufacturing costs to production? A) The choice typically will affect end-of-period asset values, but not the productionvolume variance for the period. B) The choice is important only if the company in question uses variable costing. C) Under absorption (full) costing, this choice can affect reported profits for the period. D) This choice has no effect on the standard overhead cost-allocation rate. E) The choice affects the standard overhead cost-allocation rate but not product cost.

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77) When a company uses absorption costing, there is the potential for income manipulation

based on choice of the denominator volume for setting the fixed overhead allocation rate. In which case is this manipulation-potential manifested? A) When sales volume > production volume, and the production-volume variance is prorated to inventories and cost of goods sold at the end of the period. B) When sales volume < production volume, and the production-volume variance is prorated to inventories and cost of goods sold at the end of the period. C) When the production-volume variance is written off entirely as an adjustment to cost of goods sold at the end of the period. D) When budgeted output is used to develop the standard overhead cost-allocation rate. E) When production volume for the period equals sales volume.

78) The following budget data pertain to the Machining Department of Grind Company: Maximum capacity Machine hours per unit Variable factory overhead Fixed factory overhead

63,000 units 2.50 $ 3.20 per machine hour $ 435,600

The company prepared the budget at 85% of the maximum capacity level. The department uses machine hours as the basis for applying standard factory overhead costs to production (outputs). The standard fixed overhead application rate for the Machining Department (to two decimal places) is: A) $2.74 per machine hour. B) $3.25 per machine hour. C) $3.32 per machine hour. D) $3.93 per machine hour. E) $8.35 per machine hour.

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79) The following budget data pertain to the Machining Department of Grind Company: Maximum capacity Machine hours per unit Variable factory overhead Fixed factory overhead

60,000 units 2.50 $ 3.60 per machine hour $ 433,500

The company prepared the budget at 85% of the maximum capacity level. The department uses machine hours as the basis for applying standard factory overhead costs to production (outputs). The standard fixed overhead application rate for the Machining Department (to two decimal places) is: A) $2.89 per machine hour. B) $3.40 per machine hour. C) $3.47 per machine hour. D) $4.08 per machine hour. E) $8.50 per machine hour.

80) The following budget data pertain to the Machining Department of Grind Company: Maximum capacity Machine hours per unit Variable factory overhead Fixed factory overhead

55,000 units 2.50 $ 3.00 per machine hour $ 431,800

The company prepared the budget at 75% of the maximum capacity level. The department uses machine hours as the basis for applying standard factory overhead costs to production. The budgeted total factory overhead for the Machining Department is: A) $465,775 B) $723,675. C) $732,175. D) $741,175. E) $898,675.

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81) The following budget data pertain to the Machining Department of Grind Company: Maximum capacity Machine hours per unit Variable factory overhead Fixed factory overhead

60,000 units 2.50 $ 3.60 per machine hour $ 433,500

The company prepared the budget at 85% of the maximum capacity level. The department uses machine hours as the basis for applying standard factory overhead costs to production. The budgeted total factory overhead for the Machining Department is: A) $617,100 B) $875,000. C) $883,500. D) $892,500. E) $1,050,000.

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82) The following budget data pertain to the Machining Department of Grind Company: Maximum capacity Machine hours per unit Variable factory overhead Fixed factory overhead

60,000 units 3.20 $ 3.60 per machine hour $ 432,400

The company prepared the budget at 85% of the maximum capacity level. The department uses machine hours as the basis for applying standard factory overhead costs to production. During the year the Machining Department produced 50,000 units, consuming 163,200 machine hours and incurring $432,400 of fixed overhead. For the current year the department has a fixed overhead production volume variance, rounded to the nearest whole dollar, of: (Round your intermediate calculation to 2 decimal places.) A) $0. B) $20,380 unfavorable. C) $20,580 unfavorable. D) $23,980 unfavorable. E) $8,480 unfavorable.

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83) The following budget data pertain to the Machining Department of Grind Company: Maximum capacity Machine hours per unit Variable factory overhead Fixed factory overhead

60,000 units 2.50 $ 3.60 per machine hour $ 433,500

The company prepared the budget at 85% of the maximum capacity level. The department uses machine hours as the basis for applying standard factory overhead costs to production. During the year the Machining Department produced 50,000 units, consuming 127,500 machine hours and incurring $433,500 of fixed overhead. For the current year the department has a fixed overhead production volume variance of: A) $0. B) $3,400 unfavorable. C) $3,600 unfavorable. D) $7,000 unfavorable. E) $8,500 unfavorable.

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84) The following information for the past year is available from Gas Company, a company that

uses machine hours to apply standard factory overhead cost to outputs: Actual total factory overhead cost incurred Actual fixed overhead cost incurred Budgeted fixed overhead cost Actual machine hours Standard machine hours allowed for the units manufactured Denominator volume—machine hours Standard variable overhead rate per machine hour

$ 32,000 $ 14,000 $ 13,000 6,000 4,400 6,500 $ 3

The total actual variable factory overhead cost incurred during the year was: A) $17,000. B) $18,000. C) $18,100. D) $18,400. E) $19,000.

85) The following information for the past year is available from Gas Company, a company that

$ 24,000 $ 10,000 $ 11,000 5,000 4,800 5,500 $ 3.00

The total actual variable factory overhead cost incurred during the year was: A) $13,000. B) $14,000. C) $14,100. D) $14,400. E) $15,000.

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86) The following information for the past year is available from Gas Company, a company that

$ 31,000 $ 7,000 $ 8,000 6,000 4,100 6,500 $ 3

The standard fixed overhead application rate, to two (2) decimal places, is: A) $0.23 per machine hour. B) $1.23 per machine hour. C) $2.23 per machine hour. D) $3.23 per machine hour. E) $4.23 per machine hour.

87) The following information for the past year is available from Gas Company, a company that

$ 24,000 $ 10,000 $ 11,000 5,000 4,800 5,500 $ 3.00

The standard fixed overhead application rate is: A) $1.00 per machine hour. B) $2.00 per machine hour. C) $3.00 per machine hour. D) $4.00 per machine hour. E) $5.00 per machine hour.

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88) The following information for the past year is available from Gas Company, a company that

$ 28,000 $ 7,000 $ 10,000 8,000 5,500 5,500 $ 3

The variable overhead spending variance is: A) $2,600 unfavorable. B) $3,000 favorable. C) $3,400 unfavorable. D) $3,500 favorable. E) $4,100 favorable.

89) The following information for the past year is available from Gas Company, a company that

$ 24,000 $ 10,000 $ 11,000 5,000 4,800 5,500 $ 3.00

The variable overhead spending variance is: A) $600 unfavorable. B) $1,000 favorable. C) $1,400 unfavorable. D) $1,500 favorable. E) $2,100 favorable.

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90) The following information for the past year is available from Gas Company, a company that

$ 29,000 $ 11,000 $ 8,000 7,000 4,700 4,500 $ 3

The variable factory overhead efficiency variance is: A) $6,900 unfavorable. B) $7,300 favorable. C) $7,700 unfavorable. D) $7,800 favorable. E) $8,400 favorable.

91) The following information for the past year is available from Gas Company, a company that

$ 24,000 $ 10,000 $ 11,000 5,000 4,800 5,500 $ 3.00

The variable factory overhead efficiency variance is: A) $600 unfavorable. B) $1,000 favorable. C) $1,400 unfavorable. D) $1,500 favorable. E) $2,100 favorable.

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92) The following information for the past year is available from Gas Company, a company that

$ 31,000 $ 12,000 $ 14,000 7,000 5,200 5,900 $ 3

The fixed factory overhead production-volume variance, to the nearest whole dollar, is: (Do not round your intermediate calculations; Round your final answer to zero decimal places.) A) $861 unfavorable. B) $1,261 favorable. C) $1,661 unfavorable. D) $1,761 favorable. E) $2,361 favorable.

93) The following information for the past year is available from Gas Company, a company that

$ 24,000 $ 10,000 $ 11,000 5,000 4,800 5,500 $ 3.00

The fixed factory overhead production-volume variance is: A) $600 unfavorable. B) $1,000 favorable. C) $1,400 unfavorable. D) $1,500 favorable. E) $2,100 favorable.

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94) The following information for the past year is available from Gas Company, a company that

$ 31,000 $ 14,000 $ 12,000 8,000 4,900 5,600 $ 3

Under a three-variance breakdown (decomposition) of the total factory overhead variance, the total factory overhead spending variance is: A) $0. B) $3,600 unfavorable. C) $4,400 favorable. D) $4,400 unfavorable. E) $5,000 favorable.

95) The following information for the past year is available from Gas Company, a company that

$ 24,000 $ 10,000 $ 11,000 5,000 4,800 5,500 $ 3.00

Under a three-variance breakdown (decomposition) of the total factory overhead variance, the total factory overhead spending variance is: A) $0. B) $600 unfavorable. C) $1,400 favorable. D) $1,400 unfavorable. E) $2,000 favorable.

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96) The following information for the past year is available from Gas Company, a company that

$ 26,000 $ 13,000 $ 9,000 5,320 5,020 5,720 $ 3

Under a three-variance breakdown (decomposition) of the total factory overhead variance, the factory overhead efficiency variance is: A) $700 favorable. B) $900 unfavorable. C) $1,700 favorable. D) $1,700 unfavorable. E) $2,300 favorable.

97) The following information for the past year is available from Gas Company, a company that

$ 24,000 $ 10,000 $ 11,000 5,000 4,800 5,500 $ 3.00

Under a three-variance breakdown (decomposition) of the total factory overhead variance, the factory overhead efficiency variance is: A) $400 favorable. B) $600 unfavorable. C) $1,400 favorable. D) $1,400 unfavorable. E) $2,000 favorable.

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98) The following information for the past year is available from Gas Company, a company that

$ 36,000 $ 18,000 $ 10,000 8,000 5,500 6,200 $ 3

Under a three-variance breakdown (decomposition) of the total factory overhead variance, the fixed factory overhead production-volume variance (to the nearest whole dollar) is: (Do not round your intermediate calculations; Round your final answer to zero decimal places.) A) $129 favorable. B) $329 unfavorable. C) $1,129 favorable. D) $1,129 unfavorable. E) $1,829 favorable.

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99) The following information for the past year is available from Gas Company, a company that

$ 24,000 $ 10,000 $ 11,000 5,000 4,800 5,500 $ 3.00

Under a three-variance breakdown (decomposition) of the total factory overhead variance, the fixed factory overhead production-volume variance is: A) $400 favorable. B) $600 unfavorable. C) $1,400 favorable. D) $1,400 unfavorable. E) $2,000 favorable.

100)

The following information for the past year is available from Gas Company, a company that uses machine hours to apply standard factory overhead cost to outputs: Actual total factory overhead cost incurred Actual fixed overhead cost incurred Budgeted fixed overhead cost Actual machine hours Standard machine hours allowed for the units manufactured Denominator volume—machine hours Standard variable overhead rate per machine hour

$ 20,000 $ 11,000 $ 10,000 9,000 4,100 4,800 $ 3

Under a two-variance breakdown (decomposition) of the total factory overhead variance, the total flexible budget variance is: A) $1,300 favorable. B) $1,500 unfavorable. C) $2,300 favorable. D) $2,300 unfavorable. E) $2,900 favorable.

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101)

$ 24,000 $ 10,000 $ 11,000 5,000 4,800 5,500 $ 3.00

Under a two-variance breakdown (decomposition) of the total factory overhead variance, the total flexible budget variance is: A) $400 favorable. B) $600 unfavorable. C) $1,400 favorable. D) $1,400 unfavorable. E) $2,000 favorable.

102)

$ 24,000 $ 10,000 $ 11,000 5,000 4,800 5,500 $ 3.00

Under a two-variance breakdown (decomposition) of the total factory overhead variance, the factory overhead efficiency variance (to the nearest whole dollar) is: A) Undefined. B) $400 favorable. C) $600 unfavorable. D) $1,400 favorable. E) $1,400 unfavorable.

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103)

$ 29,000 $ 11,000 $ 8,000 7,000 4,700 5,400 $ 3

Under a two-variance breakdown (decomposition) of the total factory overhead variance, the fixed overhead production volume variance, to the nearest whole dollar, is: (Do not round your intermediate calculations; Round your final answer to zero decimal places.) A) $37 favorable. B) $237 unfavorable. C) $1,037 favorable. D) $1,037 unfavorable. E) $1,637 favorable.

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104)

$ 24,000 $ 10,000 $ 11,000 5,000 4,800 5,500 $ 3.00

Under a two-variance breakdown (decomposition) of the total factory overhead variance, the fixed overhead production volume variance is: A) $400 favorable. B) $600 unfavorable. C) $1,400 favorable. D) $1,400 unfavorable. E) $2,000 favorable.

105)

Helmet Company has the following factory overhead costs for the most recent period:

Standard overhead cost applied to this period’s production Flexible budget for overhead based on output (i.e., units produced) Total budgeted overhead in the master (static) budget Actual total overhead cost incurred during the period

$ 78,000 61,000 96,000 83,000

Under a two-variance analysis (breakdown) of the total overhead variance for the period, the total overhead flexible budget (FB) variance is: A) $15,000 unfavorable. B) $18,000 favorable. C) $21,000 favorable. D) $22,000 unfavorable. E) $25,000 unfavorable.

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106)

Helmet Company has the following factory overhead costs for the most recent period:

$ 72,000 65,000 86,000 76,000

Under a two-variance analysis (breakdown) of the total overhead variance for the period, the total overhead flexible budget (FB) variance is: A) $4,000 unfavorable. B) $7,000 favorable. C) $10,000 favorable. D) $11,000 unfavorable. E) $14,000 unfavorable.

107)

Helmet Company has the following factory overhead costs for the most recent period:

Standard overhead applied to this period’s production Flexible budget for overhead based on output (i.e., units produced) Total budgeted overhead in the master (static) budget Actual total overhead cost incurred during the period

$ 67,000 61,000 79,000 81,000

The fixed overhead production volume variance for Helmet Company this period is: A) $3,000 unfavorable. B) $6,000 favorable. C) $9,000 favorable. D) $10,000 unfavorable. E) $13,000 unfavorable.

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108)

Helmet Company has the following factory overhead costs for the most recent period:

$ 72,000 65,000 86,000 76,000

The fixed overhead production volume variance for Helmet Company this period is: A) $4,000 unfavorable. B) $7,000 favorable. C) $10,000 favorable. D) $11,000 unfavorable. E) $14,000 unfavorable.

109)

Helmet Company has the following factory overhead costs for the most recent period:

$ 74,000 56,000 87,000 78,000

The total underapplied or overapplied factory overhead for Helmet Company for the period is: A) $4,000 underapplied. B) $7,000 overapplied. C) $10,000 overapplied. D) $11,000 underapplied. E) $14,000 underapplied.

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110)

Helmet Company has the following factory overhead costs for the most recent period:

$ 72,000 65,000 86,000 76,000

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111)

Bluecap Company uses a standard cost system and flexible budgets for control purposes. The following budgeted information pertains to 2021: Denominator volume—number of units Denominator volume—percent of capacity Denominator volume—standard direct labor hours (DLHs) Budgeted variable factory overhead cost at denominator volume Total standard factory overhead rate per DLH

9,000 90% 26,000 $ 104,200 $ 15.10

During 2021, Bluecap worked 30,000 DLHs and manufactured 9,800 units. The actual factory overhead cost for the year was $17,000 greater than the flexible budget amount for the units produced, of which $5,000 was due to fixed factory overhead. In preparing a budget for 2022 Bluecap decided to raise the level of operation to 90% of capacity (a level it considers to be "practical capacity"), to manufacture 9,200 units at a budgeted total of 27,600 DLHs. The standard variable overhead application rate per direct labor hour in 2021 for Bluecap Company, to two decimal places, was: A) $4.01. B) $4.21. C) $6.61. D) $9.01. E) $9.31.

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112)

8,000 80% 24,000 $ 103,200 $ 15.10

During 2021, Bluecap worked 28,000 DLHs and manufactured 9,600 units. The actual factory overhead cost for the year was $14,000 greater than the flexible budget amount for the units produced, of which $6,000 was due to fixed factory overhead. In preparing a budget for 2022 Bluecap decided to raise the level of operation to 90% of capacity (a level it considers to be "practical capacity"), to manufacture 9,000 units at a budgeted total of 27,000 DLHs. The standard variable overhead application rate per direct labor hour in 2021 for Bluecap Company was: A) $4.30. B) $4.50. C) $6.90. D) $9.30. E) $9.60.

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113)

7,000 70% 22,000 $ 103,300 $ 15.10

During 2021, Bluecap worked 26,000 DLHs and manufactured 9,600 units. The actual factory overhead cost for the year was $11,000 greater than the flexible budget amount for the units produced, of which $5,000 was due to fixed factory overhead. In preparing a budget for 2022 Bluecap decided to raise the level of operation to 90% of capacity (a level it considers to be "practical capacity"), to manufacture 9,000 units at a budgeted total of 27,000 DLHs.

The total budget for fixed factory overhead in 2021 for Bluecap Company was: (Round your intermediate calculation to 2 decimal places.) A) $200,000. B) $228,800. C) $234,800. D) $246,080. E) $257,600.

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114)

8,000 80% 24,000 $ 103,200 $ 15.10

During 2021, Bluecap worked 28,000 DLHs and manufactured 9,600 units. The actual factory overhead cost for the year was $14,000 greater than the flexible budget amount for the units produced, of which $6,000 was due to fixed factory overhead. In preparing a budget for 2022 Bluecap decided to raise the level of operation to 90% of capacity (a level it considers to be "practical capacity"), to manufacture 9,000 units at a budgeted total of 27,000 DLHs. The total budget for fixed factory overhead in 2021 for Bluecap Company was: A) $230,400. B) $259,200. C) $265,200. D) $276,480. E) $288,000.

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115)

7,000 70% 18,000 $ 103,200 $ 15.10

During 2021, Bluecap worked 22,000 DLHs and manufactured 9,900 units. The actual factory overhead cost for the year was $14,000 greater than the flexible budget amount for the units produced, of which $8,000 was due to fixed factory overhead. In preparing a budget for 2022 Bluecap decided to raise the level of operation to 90% of capacity (a level it considers to be "practical capacity"), to manufacture 9,300 units at a budgeted total of 27,900 DLHs. Under the assumption that the total budgeted fixed overhead for 2022 is the same as it was for 2021, what is the standard fixed overhead application rate per DLH (to two (2) decimal places) for Bluecap Company for 2022? (Round your intermediate calculation to 2 decimal places.) A) $.75. B) $.95. C) $3.35. D) $5.75. E) $6.05.

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116)

8,000 80% 24,000 $ 103,200 $ 15.10

During 2021, Bluecap worked 28,000 DLHs and manufactured 9,600 units. The actual factory overhead cost for the year was $14,000 greater than the flexible budget amount for the units produced, of which $6,000 was due to fixed factory overhead. In preparing a budget for 2022 Bluecap decided to raise the level of operation to 90% of capacity (a level it considers to be "practical capacity"), to manufacture 9,000 units at a budgeted total of 27,000 DLHs. Under the assumption that the total budgeted fixed overhead for 2022 is the same as it was for 2021, what is the standard fixed overhead application rate per DLH for Bluecap Company for 2022? A) $4.30. B) $4.50. C) $6.90. D) $9.30. E) $9.60.

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117)

7,000 70% 28,000 $ 102,800 $ 15.10

During 2021, Bluecap worked 37,000 DLHs and manufactured 9,500 units. The actual factory overhead cost for the year was $18,000 greater than the flexible budget amount for the units produced, of which $7,000 was due to fixed factory overhead. In preparing a budget for 2022 Bluecap decided to raise the level of operation to 90% of capacity (a level it considers to be "practical capacity"), to manufacture 8,900 units at a budgeted total of 26,700 DLHs. The variable overhead efficiency variance in 2021 for Bluecap Company was: (Round your intermediate calculation to 2 decimal places.) A) $3,670 favorable. B) $8,230 unfavorable. C) $9,430 favorable. D) $11,670 unfavorable. E) $17,430 unfavorable.

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118)

8,000 80% 24,000 $ 103,200 $ 15.10

During 2021, Bluecap worked 28,000 DLHs and manufactured 9,600 units. The actual factory overhead cost for the year was $14,000 greater than the flexible budget amount for the units produced, of which $6,000 was due to fixed factory overhead. In preparing a budget for 2022 Bluecap decided to raise the level of operation to 90% of capacity (a level it considers to be "practical capacity"), to manufacture 9,000 units at a budgeted total of 27,000 DLHs. The variable overhead efficiency variance in 2021 for Bluecap Company was: A) $3,440 favorable. B) $8,000 unfavorable. C) $9,200 favorable. D) $11,440 unfavorable. E) $17,200 unfavorable.

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119)

9,000 90% 27,000 $ 104,200 $ 15.10

During 2021, Bluecap worked 28,000 DLHs and manufactured 9,800 units. The actual factory overhead cost for the year was $17,000 greater than the flexible budget amount for the units produced, of which $5,000 was due to fixed factory overhead. In preparing a budget for 2022 Bluecap decided to raise the level of operation to 90% of capacity (a level it considers to be "practical capacity"), to manufacture 9,200 units at a budgeted total of 27,600 DLHs. The total factory overhead spending variance in 2021, based on a three-variance breakdown (decomposition) of the total overhead variance for Bluecap Company, was: (Round your intermediate calculation to 2 decimal places.) A) $8,164 favorable. B) $16,404 unfavorable. C) $20,004 favorable. D) $22,244 favorable. E) $22,404 unfavorable.

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120)

8,000 80% 24,000 $ 103,200 $ 15.10

The total factory overhead spending variance in 2021, based on a three-variance breakdown (decomposition) of the total overhead variance for Bluecap Company, was: A) $3,200 favorable. B) $11,440 unfavorable. C) $15,040 favorable. D) $17,280 favorable. E) $17,440 unfavorable.

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121)

6,000 60% 24,000 $ 103,200 $ 15.10

During 2021, Bluecap worked 37,000 DLHs and manufactured 9,600 units. The actual factory overhead cost for the year was $14,000 greater than the flexible budget amount for the units produced, of which $8,000 was due to fixed factory overhead. In preparing a budget for 2022 Bluecap decided to raise the level of operation to 90% of capacity (a level it considers to be "practical capacity"), to manufacture 9,000 units at a budgeted total of 27,000 DLHs. The variable overhead spending variance in 2021 for Bluecap Company was: (Round your intermediate calculation to 2 decimal places.) A) $8,000 unfavorable. B) $8,580 unfavorable. C) $9,780 favorable. D) $12,020 unfavorable. E) $20,020 unfavorable.

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122)

8,000 80% 24,000 $ 103,200 $ 15.10

During 2021, Bluecap worked 28,000 DLHs and manufactured 9,600 units. The actual factory overhead cost for the year was $14,000 greater than the flexible budget amount for the units produced, of which $6,000 was due to fixed factory overhead. In preparing a budget for 2022 Bluecap decided to raise the level of operation to 90% of capacity (a level it considers to be "practical capacity"), to manufacture 9,000 units at a budgeted total of 27,000 DLHs. The variable overhead spending variance in 2021 for Bluecap Company was: A) $6,000 unfavorable. B) $8,000 unfavorable. C) $9,200 favorable. D) $11,440 unfavorable. E) $17,440 unfavorable.

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123)

6,000 60% 18,000 $ 102,100 $ 15.10

During 2021, Bluecap worked 26,000 DLHs and manufactured 9,100 units. The actual factory overhead cost for the year was $17,000 greater than the flexible budget amount for the units produced, of which $7,000 was due to fixed factory overhead. In preparing a budget for 2022 Bluecap decided to raise the level of operation to 90% of capacity (a level it considers to be "practical capacity"), to manufacture 8,500 units at a budgeted total of 25,500 DLHs. The fixed overhead production volume variance for Bluecap Company in 2021 was: (Round your intermediate calculation to 2 decimal places.) A) $47,139 favorable. B) $53,139 favorable. C) $64,659 unfavorable. D) $70,659 unfavorable. E) $87,699 favorable.

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124)

8,000 80% 24,000 $ 103,200 $ 15.10

The fixed overhead production volume variance for Bluecap Company in 2021 was: A) $11,280 favorable. B) $17,280 favorable. C) $28,800 unfavorable. D) $34,800 unfavorable. E) $51,840 favorable.

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125)

7,000 70% 21,000 $ 103,700 $ 15.10

During 2021, Bluecap worked 27,000 DLHs and manufactured 9,600 units. The actual factory overhead cost for the year was $12,000 greater than the flexible budget amount for the units produced, of which $6,000 was due to fixed factory overhead. In preparing a budget for 2022 Bluecap decided to raise the level of operation to 90% of capacity (a level it considers to be "practical capacity"), to manufacture 9,000 units at a budgeted total of 27,000 DLHs. The total overhead variance in 2021 for Bluecap Company was: (Round your intermediate calculation to 2 decimal places.) A) $12,000 unfavorable. B) $44,448 favorable. C) $46,688 favorable. D) $67,248 favorable. E) $67,248 unfavorable.

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126)

8,000 80% 24,000 $ 103,200 $ 15.10

During 2021, Bluecap worked 28,000 DLHs and manufactured 9,600 units. The actual factory overhead cost for the year was $14,000 greater than the flexible budget amount for the units produced, of which $6,000 was due to fixed factory overhead. In preparing a budget for 2022 Bluecap decided to raise the level of operation to 90% of capacity (a level it considers to be "practical capacity"), to manufacture 9,000 units at a budgeted total of 27,000 DLHs. The total overhead variance in 2021 for Bluecap Company was: A) $14,000 unfavorable. B) $15,040 favorable. C) $17,280 favorable. D) $37,840 favorable. E) $37,840 unfavorable.

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127)

Neptune Incorporated uses a standard cost system and has the following information for the most recent month, April: Actual direct labor hours (DLHs) worked Standard DLHs allowed for good output produced this period Actual total factory overhead costs incurred Budgeted fixed factory overhead costs Denominator activity level, in direct labor hours (DLHs) Total factory overhead application rate per standard DLH

17,000 18,000 $ 45,200 $ 11,200 19,000 $ 2.70

The total underapplied or overapplied factory overhead in April for Neptune, Incorporated was: A) $2,100 underapplied. B) $2,100 overapplied. C) $3,400 underapplied. D) $3,400 overapplied. E) $5,300 overapplied.

128)

17,000 18,000 $ 45,400 $ 10,800 15,000 $ 2.70

The total underapplied or overapplied factory overhead in April for Neptune, Incorporated was: A) $1,900 underapplied. B) $1,900 overapplied. C) $3,200 underapplied. D) $3,200 overapplied. E) $5,100 overapplied.

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129)

12,000 13,000 $ 32,700 $ 11,100 11,000 $ 2.70

The total factory overhead spending variance in April for Neptune, Incorporated was: (Round your intermediate calculation to 2 decimal places.) A) $1,320 unfavorable. B) $1,420 favorable. C) $2,360 favorable. D) $2,540 favorable. E) $3,580 favorable.

130)

17,000 18,000 $ 45,400 $ 10,800 15,000 $ 2.70

The total factory overhead spending variance in April for Neptune, Incorporated was: A) $940 unfavorable. B) $1,040 favorable. C) $1,980 favorable. D) $2,160 favorable. E) $3,200 favorable.

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131)

24,000 25,000 $ 61,000 $ 10,000 16,000 $ 2.70

The fixed overhead production volume variance in April for Neptune, Incorporated was: (Round your intermediate calculation to 2 decimal places.) A) $4,530 unfavorable. B) $4,630 favorable. C) $5,570 favorable. D) $5,750 favorable. E) $6,790 favorable.

132)

17,000 18,000 $ 45,400 $ 10,800 15,000 $ 2.70

The fixed overhead production volume variance in April for Neptune, Incorporated was: A) $940 unfavorable. B) $1,040 favorable. C) $1,980 favorable. D) $2,160 favorable. E) $3,200 favorable.

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133)

24,000 25,000 $ 59,000 $ 10,700 14,000 $ 2.70

The variable factory overhead efficiency variance for Neptune, Incorporated in April was: (Round your intermediate calculation to 2 decimal places.) A) $900 unfavorable. B) $1,000 favorable. C) $1,940 favorable. D) $2,120 favorable. E) $3,160 favorable.

134)

17,000 18,000 $ 45,400 $ 10,800 15,000 $ 2.70

The variable factory overhead efficiency variance for Neptune, Incorporated in April was: A) $940 unfavorable. B) $1,040 favorable. C) $1,980 favorable. D) $2,160 favorable. E) $3,200 favorable.

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135)

11,000 21,000 $ 34,100 $ 10,600 16,000 $ 2.70

The total factory overhead flexible budget variance in April for Neptune, Incorporated was: (Round your intermediate calculation to 2 decimal places.) A) $19,240 unfavorable. B) $19,340 favorable. C) $20,280 favorable. D) $20,460 favorable. E) $10,000 favorable.

136)

17,000 18,000 $ 45,400 $ 10,800 15,000 $ 2.70

The total factory overhead flexible budget variance in April for Neptune, Incorporated was: A) $940 unfavorable. B) $1,040 favorable. C) $1,980 favorable. D) $2,160 favorable. E) $1,000 favorable.

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137)

At the denominator activity level, Norland Company's total overhead budget for 22,000 units of production shows variable overhead costs of $41,000 and fixed overhead costs of $25,000. During the most recent period, the company incurred total overhead costs of $61,200 to manufacture 19,000 units. The total overhead flexible budget variance for Norland Company for the most recent period was: (Round your intermediate calculation to 2 decimal places.) A) $460 favorable. B) $860 unfavorable. C) $6,260 unfavorable. D) $6,860 favorable. E) $7,260 unfavorable.

138)

At the denominator activity level, Norland Company's total overhead budget for 25,000 units of production shows variable overhead costs of $36,000 and fixed overhead costs of $32,000. During the most recent period, the company incurred total overhead costs of $61,400 to manufacture 20,000 units. The total overhead flexible budget variance for Norland Company for the most recent period was: A) $200 favorable. B) $600 unfavorable. C) $6,000 unfavorable. D) $6,600 favorable. E) $7,000 unfavorable.

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139)

At the denominator activity level, Norland Company's total overhead budget for 22,000 units of production shows variable overhead costs of $30,000 and fixed overhead costs of $36,000. During the most recent period, the company incurred total overhead costs of $85,700 to manufacture 26,000 units. The total factory overhead variance for Norland Company for the most recent period was: (Round your intermediate calculation to 2 decimal places.) A) $900 favorable. B) $1,300 unfavorable. C) $6,700 unfavorable. D) $7,300 favorable. E) $7,700 unfavorable.

140)

At the denominator activity level, Norland Company's total overhead budget for 25,000 units of production shows variable overhead costs of $36,000 and fixed overhead costs of $32,000. During the most recent period, the company incurred total overhead costs of $61,400 to manufacture 20,000 units. The total factory overhead variance for Norland Company for the most recent period was: A) $200 favorable. B) $600 unfavorable. C) $6,000 unfavorable. D) $6,600 favorable. E) $7,000 unfavorable.

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141)

Insight Company's standard factory overhead rate is $3.56 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,220, of which $1,310 is fixed overhead. For December, the actual factory overhead cost incurred was $3,650 for 830 actual DLHs, of which $1,350 was fixed factory overhead. What is the fixed overhead production volume variance for Insight Company in December? (Round your intermediate calculation to 2 decimal places.) A) $0. B) $146 unfavorable. C) $221 favorable. D) $421 unfavorable. E) $646 unfavorable.

142)

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$0. $150 unfavorable. $225 favorable. $425 unfavorable. $650 unfavorable.

143)

Insight Company's standard factory overhead application rate is $3.90 per direct labor hour (DLH), calculated at 90% capacity = 700 standard DLHs. In December, the company operated at 80% of capacity, or 622 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,070, of which $1,300 is fixed overhead. For December, the actual factory overhead cost incurred was $3,850 for 820 actual DLHs, of which $1,310 was for fixed factory overhead. If Insight Company uses a two-way breakdown (decomposition) of the total overhead variance, what is the total factory overhead flexible budget variance for December? (Do not round intermediate calculations.) A) $0 B) $355 favorable. C) $555 unfavorable. D) $780 unfavorable. E) $820 unfavorable.

144)

Insight Company's standard factory overhead application rate is $3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,150, of which $1,350 is fixed overhead. For December, the actual factory overhead cost incurred was $3,800 for 840 actual DLHs, of which $1,300 was for fixed factory overhead. If Insight Company uses a two-way breakdown (decomposition) of the total overhead variance, what is the total factory overhead flexible budget variance for December? A) $0 B) $225 favorable. C) $425 unfavorable. D) $650 unfavorable. E) $690 unfavorable.

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145)

Insight Company's standard factory overhead rate is $3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,150, of which $1,350 is fixed overhead. For December, the actual factory overhead cost was $3,800 for 840 actual DLHs, of which $1,300 was for fixed factory overhead. Assuming the use of a two-way breakdown (decomposition) of the total overhead variance, what is the factory overhead efficiency variance for Insight Company in December? A) N/A—this variance does not exist under a two-way breakdown of the total overhead variance. B) $90 unfavorable. C) $150 unfavorable. D) $225 favorable. E) $425 unfavorable.

146)

Insight Company's standard factory overhead rate is $3.73 per direct labor hour (DLH), calculated at 90% capacity = 700 standard DLHs. In December, the company operated at 80% of capacity, or 622 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,020, of which $1,540 is fixed overhead. For December, the actual factory overhead cost was $3,900 for 700 actual DLHs, of which $1,290 was for fixed factory overhead. Under a three-way breakdown (decomposition) of the total overhead variance, what is the total factory overhead spending variance for Insight Company in December? (Round your intermediate calculation to 2 decimal places.) A) $0 B) $359 favorable. C) $559 unfavorable. D) $694 unfavorable. E) $734 unfavorable.

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147)

Insight Company's standard factory overhead rate is $3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,150, of which $1,350 is fixed overhead. For December, the actual factory overhead cost was $3,800 for 840 actual DLHs, of which $1,300 was for fixed factory overhead. Under a three-way breakdown (decomposition) of the total overhead variance, what is the total factory overhead spending variance for Insight Company in December? A) $0 B) $225 favorable. C) $425 unfavorable. D) $560 unfavorable. E) $600 unfavorable.

148)

Insight Company's standard factory overhead rate is $3.72 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,040, of which $1,280 is fixed overhead. For December, the actual factory overhead cost was $4,180 for 900 actual DLHs, of which $1,440 was for fixed factory overhead. Under a four-way breakdown (decomposition) of the total overhead variance, what is the variable factory overhead spending variance for Insight Company for December? (Round your intermediate calculation to 2 decimal places.) A) $200 favorable B) $375 favorable C) $575 unfavorable D) $760 unfavorable E) $800 unfavorable

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149)

Insight Company's standard factory overhead rate is $3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,150, of which $1,350 is fixed overhead. For December, the actual factory overhead cost was $3,800 for 840 actual DLHs, of which $1,300 was for fixed factory overhead. Under a four-way breakdown (decomposition) of the total overhead variance, what is the variable factory overhead spending variance for Insight Company for December? A) $50 favorable. B) $225 favorable. C) $425 unfavorable. D) $610 unfavorable. E) $650 unfavorable.

150)

Insight Company's standard factory overhead rate is $3.62 per direct labor hour (DLH), calculated at 90% capacity = 700 standard DLHs. In December, the company operated at 80% of capacity, or 622 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,170, of which $1,550 is fixed overhead. For December, the actual factory overhead cost was $4,350 for 840 actual DLHs, of which $1,410 was for fixed factory overhead. Assuming the use of a four-way breakdown (decomposition) of the total overhead variance, what is the variable factory overhead efficiency variance for Insight Company in December? (Round your intermediate calculation to 2 decimal places.) A) $567 unfavorable. B) $627 unfavorable. C) $702 favorable. D) $902 unfavorable. E) $1,127 unfavorable.

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151)

Insight Company's standard factory overhead rate is $3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,150, of which $1,350 is fixed overhead. For December, the actual factory overhead cost was $3,800 for 840 actual DLHs, of which $1,300 was for fixed factory overhead. Assuming the use of a four-way breakdown (decomposition) of the total overhead variance, what is the variable factory overhead efficiency variance for Insight Company in December? A) $90 unfavorable. B) $150 unfavorable. C) $225 favorable. D) $425 unfavorable. E) $650 unfavorable.

152)

Insight Company's standard factory overhead rate is $3.76 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,260, of which $1,490 is fixed overhead. For December, the actual factory overhead cost was $3,990 for 840 actual DLHs, of which $1,410 was for fixed factory overhead. What was the fixed factory overhead spending variance for Insight Company in December? A) $80 favorable. B) $255 favorable. C) $455 unfavorable. D) $590 unfavorable. E) $640 unfavorable.

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153)

Insight Company's standard factory overhead rate is $3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,150, of which $1,350 is fixed overhead. For December, the actual factory overhead cost was $3,800 for 840 actual DLHs, of which $1,300 was for fixed factory overhead. What was the fixed factory overhead spending variance for Insight Company in December? A) $50 favorable. B) $225 favorable. C) $425 unfavorable. D) $560 unfavorable. E) $610 unfavorable.

154)

Insight Company's standard factory overhead rate is $3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,150, of which $1,350 is fixed overhead. For December, the actual factory overhead cost was $3,800 for 840 actual DLHs, of which $1,300 was for fixed factory overhead. Assuming a four-variance breakdown (decomposition) of the total overhead variance, what is the fixed factory overhead efficiency variance (to the nearest whole dollar) for the period? A) N/A—this variance does not exist. B) $225 favorable. C) $425 unfavorable. D) $650 unfavorable. E) $150 favorable.

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155)

Bat Company's flexible budget for the units manufactured in May shows $15,800 of total factory overhead; this output level represents 70% of available capacity. During May, the company applied overhead to production at the rate of $3.00 per direct labor hour (DLH), based on a denominator volume level of 5,940 DLHs, which represents 90% of available capacity. The company used 6,000 DLHs and incurred $16,700 of total factory overhead cost during May, including $5,700 of fixed factory overhead. What is the fixed overhead production-volume variance (to the nearest whole dollar) for Bat Company in May? (Round your intermediate calculation to 2 decimal places; Round your final answer to zero decimal places.) A) $760 unfavorable. B) $960 unfavorable. C) $1,260 unfavorable. D) $1,440 unfavorable. E) $1,940 unfavorable.

156)

Bat Company's flexible budget for the units manufactured in May shows $15,640 of total factory overhead; this output level represents 70% of available capacity. During May, the company applied overhead to production at the rate of $3.00 per direct labor hour (DLH), based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company used 5,000 DLHs and incurred $16,500 of total factory overhead cost during May, including $6,800 of fixed factory overhead. What is the fixed overhead production-volume variance for Bat Company in May? A) $180 unfavorable. B) $380 unfavorable. C) $680 unfavorable. D) $860 unfavorable. E) $1,360 unfavorable.

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157)

Bat Company's flexible budget for the units manufactured in May shows $15,800 of total factory overhead; this output level represents 70% of available capacity. During May, the company applied overhead to production at the rate of $3.00 per direct labor hour (DLH), based on a denominator volume level of 5,940 DLHs, which represents 90% of available capacity. The company used 6,000 DLHs and incurred $16,700 of total factory overhead cost during May, including $5,700 for fixed factory overhead. What is the total factory overhead flexible budget variance for Bat Company in May? A) $420 unfavorable. B) $720 unfavorable. C) $900 unfavorable. D) $1,200 unfavorable. E) $1,400 unfavorable.

158)

Bat Company's flexible budget for the units manufactured in May shows $15,640 of total factory overhead; this output level represents 70% of available capacity. During May, the company applied overhead to production at the rate of $3.00 per direct labor hour (DLH), based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company used 5,000 DLHs and incurred $16,500 of total factory overhead cost during May, including $6,800 for fixed factory overhead. What is the total factory overhead flexible budget variance for Bat Company in May? A) $380 unfavorable. B) $680 unfavorable. C) $860 unfavorable. D) $1,160 unfavorable. E) $1,360 unfavorable.

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159)

Bat Company's flexible budget for the units manufactured in May shows $15,640 of total factory overhead; this output level represents 70% of available capacity. During May, the company applied overhead to production at the rate of $3.00 per direct labor hour (DLH), based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company used 5,000 DLHs and incurred $16,500 of total factory overhead cost during May, including $6,800 for fixed factory overhead. What is the factory overhead efficiency variance for Bat Company in May, under the assumption that the company uses a two-variance breakdown (decomposition) of the total overhead variance? A) N/A—this variance does not exist under a two-variance breakdown of the total overhead variance. B) $180 unfavorable. C) $300 favorable. D) $480 unfavorable. E) $680 unfavorable.

160)

Bat Company's flexible budget for the units manufactured in May shows $15,740 of total factory overhead; this output level represents 70% of available capacity. During May, the company applied overhead to production at the rate of $3.00 per direct labor hour (DLH), based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company worked 6,000 DLHs and incurred $18,600 of total factory overhead cost during May, including $7,000 for fixed factory overhead. Under a three-variance breakdown (decomposition) of the total overhead variance, what is the total factory overhead spending variance (to the nearest whole dollar) for May? (Round your intermediate calculations to 2 decimal places; Round your final answer to zero decimal places.) A) N/A—this variance does not exist in a three-variance analysis of the total overhead variance. B) $392 favorable. C) $472 unfavorable. D) $572 unfavorable. E) $1,252 unfavorable.

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161)

Bat Company's flexible budget for the units manufactured in May shows $15,640 of total factory overhead; this output level represents 70% of available capacity. During May, the company applied overhead to production at the rate of $3.00 per direct labor hour (DLH), based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company worked 5,000 DLHs and incurred $16,500 of total factory overhead cost during May, including $6,800 for fixed factory overhead. Under a three-variance breakdown (decomposition) of the total overhead variance, what is the total factory overhead spending variance for May? A) N/A—this variance does not exist in a three-variance analysis of the total overhead variance. B) $300 favorable. C) $380 unfavorable. D) $480 unfavorable. E) $1,160 unfavorable.

162)

Bat Company's flexible budget for the units manufactured in May shows $15,520 of total factory overhead; this output level represents 70% of available capacity. During May, the company applied overhead to production at the rate of $3 per direct labor hour (DLH), based on a denominator volume level of 5,850 DLHs, which represents 90% of available capacity. The company used 5,000 DLHs and incurred $16,600 of total factory overhead cost during May, including $9,100 for fixed factory overhead. What is the variable factory overhead spending variance (to the nearest whole dollar) in May, assuming Bat uses a four-variance breakdown (decomposition) of the total overhead variance? (Round your intermediate calculation to 2 decimal places.) A) $180 unfavorable. B) $300 favorable. C) $380 unfavorable. D) $480 unfavorable. E) N/A—this variance is not defined under the four-way breakdown of the total OVH variance.

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163)

Bat Company's flexible budget for the units manufactured in May shows $15,640 of total factory overhead; this output level represents 70% of available capacity. During May, the company applied overhead to production at the rate of $3.00 per direct labor hour (DLH), based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company used 5,000 DLHs and incurred $16,500 of total factory overhead cost during May, including $6,800 for fixed factory overhead. What is the variable factory overhead spending variance in May, assuming Bat uses a fourvariance breakdown (decomposition) of the total overhead variance? A) $180 unfavorable. B) $300 favorable. C) $380 unfavorable. D) $480 unfavorable. E) N/A—this variance is not defined under the four-way breakdown of the total OVH variance.

164)

Bat Company's flexible budget for the units manufactured in May shows $15,420 of total factory overhead; this output level represents 70% of available capacity. During May, the company applied overhead to production at the rate of $3.00 per direct labor hour (DLH), based on a denominator volume level of 5,940 DLHs, which represents 90% of available capacity. The company used 5,000 DLHs and incurred $16,600 of total factory overhead cost during May, including $7,900 for fixed factory overhead. What is thevariable overhead efficiency variance for May under the assumption that Bat uses a four-variance breakdown (decomposition) of the total overhead variance?(Round your intermediate calculations to 2 decimal places; Round your final answer to zero decimal places.) A) $392 unfavorable. B) $592 favorable. C) $592 unfavorable. D) $692 unfavorable. E) $692 favorable.

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165)

Bat Company's flexible budget for the units manufactured in May shows $15,640 of total factory overhead; this output level represents 70% of available capacity. During May, the company applied overhead to production at the rate of $3.00 per direct labor hour (DLH), based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company used 5,000 DLHs and incurred $16,500 of total factory overhead cost during May, including $6,800 for fixed factory overhead. What is the variable overhead efficiency variance for May under the assumption that Bat uses a four-variance breakdown (decomposition) of the total overhead variance? A) $180 unfavorable. B) $380 favorable. C) $380 unfavorable. D) $480 unfavorable. E) $480 favorable.

166)

Bat Company's flexible budget for the units manufactured in May shows $15,520 of total factory overhead; this output level represents 70% of available capacity. During May, the company applied overhead to production at the rate of $3.00 per direct labor hour (DLH), based on a denominator volume level of 5,850 DLHs, which represents 90% of available capacity. The company used 5,000 DLHs and incurred $16,600 of total factory overhead cost during May, including $9,100 for fixed factory overhead. What is the fixed factory overhead spending variance (to the nearest whole dollar) in May for Bat Company? (Round your intermediate calculations to 2 decimal places; Round your final answer to zero decimal places.) A) $0. B) $176 unfavorable. C) $296 favorable. D) $476 unfavorable. E) $676 unfavorable.

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167)

Bat Company's flexible budget for the units manufactured in May shows $15,640 of total factory overhead; this output level represents 70% of available capacity. During May, the company applied overhead to production at the rate of $3.00 per direct labor hour (DLH), based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company used 5,000 DLHs and incurred $16,500 of total factory overhead cost during May, including $6,800 for fixed factory overhead. What is the fixed factory overhead spending variance in May for Bat Company? A) $0. B) $180 unfavorable. C) $300 favorable. D) $480 unfavorable. E) $680 unfavorable.

168)

Oslund Company manufactures only one product and uses a standard cost system. During the past month, the following variances were observed: Direct labor rate variance Direct labor efficiency variance Variable overhead efficiency variance Standard direct labor hours (DLH) per unit of output

$ 27,000 favorable 53,000 unfavorable 27,000 unfavorable 5

Oslund applies variable overhead using a standard rate of $20 per standard DLH allowed. During the month, Oslund used 20% more DLHs than the total standard hours allowed for the units manufactured. What were the total standard DLHs for the units manufactured by Oslund Company during the past month? A) 2,750. B) 4,250. C) 5,750. D) 6,750. E) 7,750.

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169)

$ 30,000 favorable 50,000 unfavorable 20,000 unfavorable 5.00

Oslund applies variable overhead using a standard rate of $20.00 per standard DLH allowed. During the month, Oslund used 20% more DLHs than the total standard hours allowed for the units manufactured. What were the total standard DLHs for the units manufactured by Oslund Company during the past month? A) 1,000. B) 2,500. C) 4,000. D) 5,000. E) 6,000.

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170)

$ 40,000 favorable 44,000 unfavorable 21,000 unfavorable 5

Oslund applies variable overhead using a standard rate of $20 per standard DLH allowed. During the month, Oslund used 20% more DLHs than the total standard hours for the units manufactured. What were the total actual DLHs worked by Oslund Company during the past month? A) 1,500. B) 3,300. C) 5,100. D) 6,300. E) 7,500.

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171)

$ 30,000 favorable 50,000 unfavorable 20,000 unfavorable 5.00

Oslund applies variable overhead using a standard rate of $20.00 per standard DLH allowed. During the month, Oslund used 20% more DLHs than the total standard hours for the units manufactured. What were the total actual DLHs worked by Oslund Company during the past month? A) 1,200. B) 3,000. C) 4,800. D) 6,000. E) 7,200.

172)

Megan, Incorporated uses the following standard costs per unit for one of its products: Direct labor (2.0 hours @ $5.00 per hour) = $10.00; overhead (2.0 hours @ $2.50 per hour) = $5.00. The flexible budget for overhead is $90,000 plus $1.00 per direct labor hour (DLH). Actual data for the past month show total overhead costs of $226,000, total fixed overhead of $106,000, 79,000 hours worked, and 32,000 units produced. What is the budgeted denominator activity level for Megan, Incorporated, in direct labor hours (DLHs), to the nearest whole number.? A) 4,000. B) 28,000. C) 40,000. D) 60,000. E) 80,000.

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173)

Megan, Incorporated uses the following standard costs per unit for one of its products: Direct labor (2.0 hours @ $5.00 per hour) = $10.00; overhead (2.0 hours @ $2.50 per hour) = $5.00. The flexible budget for overhead is $120,000 plus $1.00 per direct labor hour (DLH). Actual data for the past month show total overhead costs of $225,000, total fixed overhead of $123,000, 85,000 hours worked, and 40,000 units produced. What is the budgeted denominator activity level for Megan, Incorporated, in direct labor hours (DLHs)? A) 24,000. B) 48,000. C) 60,000. D) 80,000. E) 100,000.

174)

Megan, Incorporated uses the following standard costs per unit for one of its products: Direct labor (2.0 hours @ $5.00 per hour) = $10.00; overhead (2.0 hours @ $2.50 per hour) = $5.00. The flexible budget for overhead is $195,000 plus $1.00 per direct labor hour (DLH). Actual data for the past month show total overhead costs of $244,000, total fixed overhead of $129,000, 87,000 hours worked, and 34,000 units produced. Thetotal overhead variance for the past month for Megan, Incorporated was: A) $0. B) $52,000 unfavorable. C) $54,000 unfavorable. D) $69,000 unfavorable. E) $74,000 unfavorable.

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175)

Megan, Incorporated uses the following standard costs per unit for one of its products: Direct labor (2.0 hours @ $5.00 per hour) = $10.00; overhead (2.0 hours @ $2.50 per hour) = $5.00. The flexible budget for overhead is $120,000 plus $1.00 per direct labor hour (DLH). Actual data for the past month show total overhead costs of $225,000, total fixed overhead of $123,000, 85,000 hours worked, and 40,000 units produced. The total overhead variance for the past month for Megan, Incorporated was: A) $0. B) $3,000 unfavorable. C) $5,000 unfavorable. D) $20,000 unfavorable. E) $25,000 unfavorable.

176)

Megan, Incorporated uses the following standard costs per unit for one of its products: Direct labor (2.0 hours @ $5.00 per hour) = $10.00; overhead (2.0 hours @ $2.50 per hour) = $5.00. The flexible budget for overhead is $150,000 plus $1.00 per direct labor hour (DLH). Actual data for the past month show total overhead costs of $229,000, total fixed overhead of $136,000, 81,000 hours worked, and 50,000 units produced. The fixed overhead production volume variance for Megan, Incorporated for the past month was: A) $0. B) $4,000 unfavorable. C) $6,000 unfavorable. D) $24,000 unfavorable. E) $20,000 unfavorable.

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177)

Megan, Incorporated uses the following standard costs per unit for one of its products: Direct labor (2.0 hours @ $5.00 per hour) = $10.00; overhead (2.0 hours @ $2.50 per hour) = $5.00. The flexible budget for overhead is $120,000 plus $1.00 per direct labor hour (DLH). Actual data for the past month show total overhead costs of $225,000, total fixed overhead of $123,000, 85,000 hours worked, and 40,000 units produced. The fixed overhead production volume variance for Megan, Incorporated for the past month was: A) $0. B) $3,000 unfavorable. C) $5,000 unfavorable. D) $20,000 unfavorable. E) $17,000 unfavorable.

178)

Megan, Incorporated uses the following standard costs per unit for one of its products: Direct labor (2.0 hours @ $5.00 per hour) = $10.00; overhead (2.0 hours @ $2.50 per hour) = $5.00. The flexible budget for overhead is $195,000 plus $1.00 per direct labor hour (DLH). Actual data for the past month show total overhead costs of $224,000, total fixed overhead of $129,000, 77,000 hours worked, and 65,000 units produced. Thevariable overhead spending variance for the past month for Megan, Incorporated was: A) $0. B) $4,000 unfavorable. C) $6,000 unfavorable. D) $18,000 unfavorable. E) None of these answers are correct.

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179)

Megan, Incorporated uses the following standard costs per unit for one of its products: Direct labor (2.0 hours @ $5.00 per hour) = $10.00; overhead (2.0 hours @ $2.50 per hour) = $5.00. The flexible budget for overhead is $120,000 plus $1.00 per direct labor hour (DLH). Actual data for the past month show total overhead costs of $225,000, total fixed overhead of $123,000, 85,000 hours worked, and 40,000 units produced. The variable overhead spending variance for the past month for Megan, Incorporated was: A) $0. B) $3,000 unfavorable. C) $5,000 unfavorable. D) $17,000 unfavorable. E) None of these answers are correct.

180)

Megan, Incorporated uses the following standard costs per unit for one of its products: Direct labor (2.0 hours @ $5.00 per hour) = $10.00; overhead (2.0 hours @ $2.50 per hour) = $5.00. The flexible budget for overhead is $192,000 plus $1.00 per direct labor hour (DLH). Actual data for the past month show total overhead costs of $220,000, total fixed overhead of $198,000, 86,000 hours worked, and 64,000 units produced. Thefixed overhead spending variance for Megan, Incorporated for the past month was: A) $0. B) $6,000 unfavorable. C) $8,000 unfavorable. D) $20,000 unfavorable. E) $28,000 unfavorable.

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181)

Megan, Incorporated uses the following standard costs per unit for one of its products: Direct labor (2.0 hours @ $5.00 per hour) = $10.00; overhead (2.0 hours @ $2.50 per hour) = $5.00. The flexible budget for overhead is $120,000 plus $1.00 per direct labor hour (DLH). Actual data for the past month show total overhead costs of $225,000, total fixed overhead of $123,000, 85,000 hours worked, and 40,000 units produced. The fixed overhead spending variance for Megan, Incorporated for the past month was: A) $0. B) $3,000 unfavorable. C) $5,000 unfavorable. D) $17,000 unfavorable. E) $25,000 unfavorable.

182)

Megan, Incorporated uses the following standard costs per unit for one of its products: Direct labor (2.0 hours @ $5.00 per hour) = $10.00; overhead (2.0 hours @ $2.50 per hour) = $5.00. The flexible budget for overhead is $195,000 plus $1.00 per direct labor hour (DLH). Actual data for the past month show total overhead costs of $224,000, total fixed overhead of $129,000, 77,000 hours worked, and 35,000 units produced. The variable factory overhead efficiency variance for Megan, Incorporated for the past month was: A) $0. B) $5,000 unfavorable. C) $7,000 unfavorable. D) $19,000 unfavorable. E) $27,000 unfavorable.

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183)

Megan, Incorporated uses the following standard costs per unit for one of its products: Direct labor (2.0 hours @ $5.00 per hour) = $10.00; overhead (2.0 hours @ $2.50 per hour) = $5.00. The flexible budget for overhead is $120,000 plus $1.00 per direct labor hour (DLH). Actual data for the past month show total overhead costs of $225,000, total fixed overhead of $123,000, 85,000 hours worked, and 40,000 units produced. The variable factory overhead efficiency variance for Megan, Incorporated for the past month was: A) $0. B) $3,000 unfavorable. C) $5,000 unfavorable. D) $17,000 unfavorable. E) $25,000 unfavorable.

184)

The following information is available from the Terry Company:

Actual total factory overhead cost incurred Actual fixed overhead cost incurred Budgeted fixed overhead expenses Actual direct labor hours (DLH) worked Standard DLHs for this period’s production (output) Standard variable overhead rate per DLH Standard fixed overhead rate per DLH

$ 37,000 $ 10,400 $ 21,000 5,200 3,300 $ 3.00 $ 2.50

What is thetotal overhead spending variance for Terry Company for the period? A) $400 unfavorable. B) $600 unfavorable. C) $800 unfavorable. D) $1,000 unfavorable. E) $1,600 unfavorable.

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185)

The following information is available from the Terry Company:

$ 25,000 $ 10,400 $ 11,000 4,400 4,000 $ 3.00 $ 2.50

What is the total overhead spending variance for Terry Company for the period? A) $800 unfavorable. B) $1,000 unfavorable. C) $1,200 unfavorable. D) $1,400 unfavorable. E) $2,000 unfavorable.

186)

The following information is available from the Terry Company:

$ 24,000 $ 11,200 $ 15,000 4,900 4,000 $ 3.00 $ 2.50

What was the variable overhead efficiency variance for the period? A) $2,100 favorable. B) $ 2,300 unfavorable. C) $2,700 unfavorable. D) $2,900 unfavorable. E) $3,500 unfavorable.

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187)

The following information is available from the Terry Company:

$ 25,000 $ 10,400 $ 11,000 4,400 4,000 $ 3.00 $ 2.50

What was the variable overhead efficiency variance for the period? A) $600 favorable. B) $800 unfavorable. C) $1,200 unfavorable. D) $1,400 unfavorable. E) $2,000 unfavorable.

188)

The following information is available from the Terry Company:

$ 36,000 $ 11,600 $ 16,000 6,400 3,300 $ 3.00 $ 2.50

What is the fixed overhead production volume variance for Terry Company for the period? A) $7,350 favorable. B) $7,750 unfavorable. C) $7,950 unfavorable. D) $8,150 favorable. E) $8,150 unfavorable.

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189)

The following information is available from the Terry Company:

$ 25,000 $ 10,400 $ 11,000 4,400 4,000 $ 3.00 $ 2.50

What is the fixed overhead production volume variance for Terry Company for the period? A) $600 favorable. B) $1,000 unfavorable. C) $1,200 unfavorable. D) $1,400 favorable. E) $1,400 unfavorable.

190)

The following information is available from the Terry Company:

$ 34,000 $ 12,300 $ 10,000 4,000 3,300 $ 3.00 $ 2.50

What is the variable overhead (VOH) spending variance for Terry Company for the period? A) $8,900 favorable. B) $9,100 unfavorable. C) $9,300 unfavorable. D) $9,700 favorable. E) $9,700 unfavorable.

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191)

The following information is available from the Terry Company:

$ 25,000 $ 10,400 $ 11,000 4,400 4,000 $ 3.00 $ 2.50

What is the variable overhead (VOH) spending variance for Terry Company for the period? A) $600 favorable. B) $800 unfavorable. C) $1,000 unfavorable. D) $1,400 favorable. E) $1,400 unfavorable.

192)

The following information is available from the Terry Company:

$ 26,000 $ 11,900 $ 14,000 4,000 3,900 $ 3.00 $ 2.50

The fixed overhead spending variance for Terry Company for the period is: A) $2,100 favorable. B) $2,300 unfavorable. C) $2,500 unfavorable. D) $2,700 unfavorable. E) $2,700 favorable.

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193)

The following information is available from the Terry Company:

$ 25,000 $ 10,400 $ 11,000 4,400 4,000 $ 3.00 $ 2.50

The fixed overhead spending variance for Terry Company for the period is: A) $600 favorable. B) $800 unfavorable. C) $1,000 unfavorable. D) $1,200 unfavorable. E) $1,200 favorable.

194)

The following information is available from the Terry Company:

$ 37,000 $ 11,000 $ 17,000 6,800 3,600 $ 3.00 $ 2.50

The total under or overapplied overhead for Terry Company for the period is: A) $15,000 overapplied. B) $15,000 underapplied. C) $16,800 underapplied. D) $17,200 overapplied. E) $17,200 underapplied.

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195)

The following information is available from the Terry Company:

$ 25,000 $ 10,400 $ 11,000 4,400 4,000 $ 3.00 $ 2.50

The total under or overapplied overhead for Terry Company for the period is: A) $800 overapplied. B) $800 underapplied. C) $2,600 underapplied. D) $3,000 overapplied. E) $3,000 underapplied.

196)

The following information is available from the Terry Company:

$ 34,000 $ 11,400 $ 15,000 6,000 4,600 $ 3.00 $ 2.50

The total overhead flexible budget (FB) variance for the period is: A) $4,000 unfavorable. B) $4,600 unfavorable. C) $5,200 unfavorable. D) $5,800 unfavorable. E) $6,200 unfavorable.

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197)

The following information is available from the Terry Company:

$ 25,000 $ 10,400 $ 11,000 4,400 4,000 $ 3.00 $ 2.50

The total overhead flexible budget (FB) variance for the period is: A) $800 unfavorable. B) $1,400 unfavorable. C) $2,000 unfavorable. D) $2,600 unfavorable. E) $3,000 unfavorable.

198)

What is a cause of the variable setup spending variance? A) The price of the materials used in production is different. B) The actual quantity of individual resources per setup hour is different than planned. C) The cost of labor depends on the amount of time the employees have worked for the company. D) The budgeted quantity of individual resources is different than last year’s budget. E) There is no such thing as the variable setup spending variance.

199)

Which of the following is a characteristic of calculating standard cost variances for manufacturing overhead costs under an activity-based cost (ABC) system? A) Only non-volume-related cost drivers are used in the cost-allocation process. B) An ABC system would likely have a greater number of standard cost variances reported each period. C) Fewer variances need to be reported, compared to the number of overhead variances calculated under a traditional cost system. D) Flexible budgets are used for planning but not cost-control purposes. E) The flexible budget variance will be the same under both a traditional cost system and an ABC system.

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200)

Which one of the following characteristics is associated with standard cost variance analysis for manufacturing overhead under a traditional versus an activity-based cost (ABC) system? A) The total manufacturing overhead variance will be the same under either system. B) The traditional cost system does not meet the current International Financial Reporting Standards for internal control and product costing. C) The traditional system, but not the ABC system, is acceptable for income tax purposes. D) Cost variances under an ABC system must be closed to cost of goods sold (CGS), while those calculated under a traditional system can also be prorated (allocated) to CGS and inventory accounts. E) Under both cost systems a flexible budget (FB) is used for control purposes.

201)

When there is a standard batch size for production activity: A) A modification of the traditional approach to constructing the flexible budget for control purposes allows for a more detailed analysis of batch-related overhead costs. B) It is not possible to construct a flexible budget for cost-control purposes. C) Standard cost variances for only the variable portion of batch-related manufacturing overhead costs can be calculated. D) The variable portion of the total flexible budget variance for batch-related costs can be further decomposed into a spending and a volume variance, which leads to better cost control.

202)

Which one of the following standard cost variances is not available when analyzing batch-related manufacturing overhead costs using an activity-based cost (ABC) system? A) Production-volume variance. B) Variable setup spending variance. C) Fixed spending variance. D) Fixed flexible budget variance. E) Sales volume variance.

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203)

Which of the following is not a key business process that is involved in enterprise resource planning? A) Inventory. B) Sales. C) Planning. D) Management. E) Human resources.

204)

A comprehensive management accounting and control system regarding manufacturing overhead costs: A) Includes nonfinancial but not financial performance indicators. B) Relies on direct managerial observation rather than a formal system for cost-control purposes. C) Provides information for strategic but not operational control. D) Provides financial-control information to operating personnel, while both financial and nonfinancial performance indicators to managers. E) Includes both financial performance indicators as well as nonfinancial performance indicators.

205)

The most appropriate end-of-period disposition of underapplied or overapplied factory overhead A) Is to close the amount to cost of goods sold. B) Is to close the amount to finished goods inventory only. C) Is to apportion the amount to finished goods inventory and cost of goods sold. D) Depends on the significance (that is, size) of the variance in question. E) Is to charge the amount as a period cost, e.g., "miscellaneous expense."

206)

What can managers and employees use to identify random versus systematic variances? A) Financial statements. B) Control charts. C) Activity logs. D) Error logs. E) Activity charts.

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207)

The term used to refer to persistent variances (i.e., those that are likely to recur until corrected) is A) Systematic variance. B) Random variance. C) Standard cost variance. D) Non-controllable variance. E) Flexible budget variance.

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Answer Key Test name: chapter 15 1) Essay 2) Essay 3) Essay 4) Essay 5) Essay 6) Essay 7) Essay 8) Essay 9) Essay 10) Essay 11) Essay 12) Essay 13) Essay 14) Essay 15) Essay 16) Essay 17) Essay 18) D 19) E 20) C 21) B 22) C 23) E 24) A 25) A 26) C 27) B 28) D 29) D 30) E 31) B 32) D 33) A 34) A 35) B 36) C 37) D

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38) E 39) D 40) B 41) C 42) D 43) E 44) A 45) B 46) E 47) E 48) D 49) A 50) B 51) D 52) A 53) E 54) A 55) C 56) B 57) A 58) C 59) A 60) B 61) D 62) E 63) C 64) B 65) C 66) A 67) B 68) A 69) E 70) D 71) D 72) E 73) B 74) B 75) A 76) C 77) C

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78) B 79) B 80) D 81) D 82) E 83) E 84) B 85) B 86) B 87) B 88) B 89) B 90) A 91) A 92) C 93) C 94) E 95) E 96) B 97) B 98) D 99) D 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

C C A D D D D B B A A A A B B E E A

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118) 119) 120) 121) 122) 123) 124) 125) 126) 127) 128) 129) 130) 131) 132) 133) 134) 135) 136) 137) 138) 139) 140) 141) 142) 143) 144) 145) 146) 147) 148) 149) 150) 151) 152) 153) 154) 155) 156) 157)

A E E D D E E D D D D A A D D C C B B B B E E B B D D A D D D D A A A A A E E C

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158) 159) 160) 161) 162) 163) 164) 165) 166) 167) 168) 169) 170) 171) 172) 173) 174) 175) 176) 177) 178) 179) 180) 181) 182) 183) 184) 185) 186) 187) 188) 189) 190) 191) 192) 193) 194) 195) 196) 197)

C A C C B B D D E E D D D D D D E E A A D D B B C C A A C C B B E E A A E E C C

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198) 199) 200) 201) 202) 203) 204) 205) 206) 207)

B B E A E D E D B A

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Chapter 15A 1) The Wentworth Company manufactures modular furniture for the home, and uses a monthly

variance-reporting system to control costs of the manufacturing departments. Edward Collins is the supervisor of the Assembly Department and is reviewing the monthly variance analysis for November, which shows a significant cost overrun (i.e., unfavorable cost variance). Collins has gathered the following information to assist him in deciding whether or not to investigate the unfavorable cost variance for the Assembly Department: Estimated cost (I) to investigate the variance $4,000 Estimated probability that the Assembly Department is operating properly, that is, the probability that the observed variance is a random event = (1 − p) = 90% If the Assembly Department is operating out of control (i.e., improperly): Estimated cost (C) to correct the process = $8,000 Estimated loss (L) if the observed variance is the result of a nonrandom cause but the company fails to investigate = $40,000 Required: Recommend whether Wentworth Company should investigate the observed unfavorable cost variance. Support your answer by: 1. Preparing a 2 × 2 payoff table for use in making the decision. Let the rows in your table represent possible managerial actions (Investigate vs. Don’t Investigate) and the columns of your table represent possible states of nature (Random vs. Nonrandom). 2. Computing the expected value (to the nearest whole dollar) of the cost of each of the two actions that management can take: investigate the variance, or do not investigate the variance. (Let p = the probability that the process is out of control, that is, the probability of a nonrandom variance, and (1 − p) = the probability that the process is in control, that is, the probability that the observed variance is due to random causes.)

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2) The Wentworth Company manufactures modular furniture for the home and uses a monthly

variance system to control costs of the manufacturing departments. Edward Collins is the supervisor of the Assembly Department and is reviewing the monthly variance analysis for November, which showed a significant cost overrun (i.e., negative cost variance). Collins has gathered the following information to assist him in deciding whether or not to investigate the unfavorable cost variance for the Assembly Department: Estimated cost (I) to investigate the variance $4,000 Estimated probability that the Assembly Department is operating properly, that is, the probability that the observed variance is a random event = (1 − p) = 90% If the Assembly Department is operating out of control (i.e., improperly): Estimated cost (C) to correct the process = $8,000 Estimated loss (L) if the observed variance is the result of a nonrandom cause but the company fails to investigate = $40,000 Required: Collins is uncertain about the probability estimate of 90% for proper operation of the Assembly Department. Determine the probability estimate (to three (3) decimal places, for example, 0.04691 = 0.047) that would cause Collins to be indifferent between the two possible managerial actions: investigate or don't investigate the variance.

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3) Management is currently deciding whether to investigate a cost variance that was identified

by the accounting system. To help address this question, you have generated the following data: Possible States of Nature: 1. The underlying operation is in control (i.e., it is operating normally). 2. The underlying operation is out of control (and therefore needs an intervention). Possible Decisions/Courses of Action: 1. Investigate the variance (to determine its underlying cause(s)). 2. Do not investigate the variance. Estimated Costs and Probabilities: 1. Cost of investigating the variance = I = $5,000. 2. Cost of correcting an out-of-control process (if the process is found to be out of control) = C = $10,000. 3. Losses from not correcting an out-of-control process = L = $110,000. 4. Probability, p, of the process being out of control = 60% Required: 1. Recast the above information in the form of a payoff table. 2. What is the expected cost (to the nearest dollar) of the decision to investigate the variance? Show calculations. 3. What is the expected cost (to the nearest dollar) of the decision to not investigate the variance? Show calculations. 4. What is the break-even probability of the process being out of control, p, which would make management indifferent between investigating and not investigating the observed variance? Demonstrate that, in fact, this is the break-even probability by showing the expected value of each management action. Show calculations.

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4) Management is currently deciding whether to investigate a cost variance that was identified

by the accounting system. To help address this question, you have generated the following data: Possible States of Nature: 1. The underlying operation is in control (i.e., is operating normally). 2. The underlying operation is out of control (and therefore is in need of an intervention) Possible Decisions/Courses of Action: 1. Investigate the variance (to determine its underlying cause(s)). 2. Do not investigate the variance. Estimated Costs and Probabilities: 1. Cost of investigating the variance = I = $1,500. 2. Cost of correcting an out-of-control process (if the process is found to be out of control) = C = $6,000. 3. Losses from not correcting an out-of-control process = L = $50,000. 4. Probability, p, of the process being out of control = 15% Required: 1. Given the above information, what is the expected value of investigating the reported variance? (Show calculation, and round answer to nearest whole dollar.) 2. Prepare a payoff table that summarizes the states of nature (i.e., possible outcomes) and the decision alternatives (i.e., management actions). Your table should include cells for combinations of management actions and states of nature, plus cells to represent the expected value of each management action. Which decision is recommended based on information in your payoff table? 3. Given the above information, what is the probability level, p, for an out-of-control process (i.e., a nonrandom variance) that would make management indifferent between investigating and not investigating the variance? Round your answer to four (4) decimal places, e.g., 0.0456134 = 0.0456. a. In what sense can this probability be considered a breakeven probability? (Demonstrate this by calculating the expected value of each management action, based on the break-even probability, p, you calculated.) Round final answers to the nearest whole numbers. b. What is the correct management action if the probability of an out-of-control process is greater than the break-even probability, p? Show all calculations.

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5) Which of the following tools is helpful in addressing the variance-investigation problem

under uncertainty? A) Simultaneous equations. B) Payoff tables. C) Regression analysis. D) Sensitivity analysis. E) Run charts.

6) If I = the cost of conducting an investigation, C = the estimated cost to correct the cause of a

variance, and L = loss associated with not investigating a variance, what is the formula for determining the indifference probability, p? A) p = I/(L + C). B) p = (L − C)/I. C) p = (L + C)/I. D) p = I/(L − C).

7) If there is a 90 percent chance that an observed variance is random, the cost of conducting an

investigation is $900, the cost to correct a variance if the investigation reveals a nonrandom cause, and the amount of loss a company expects to incur if it does not investigate a variance that had a nonrandom cause is $45,000, what is the expected cost (to the nearest whole dollar) of not investigating the variance? A) $45,000. B) $3,000. C) $0. D) $5,400. E) $4,500.

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8) If there is a 90 percent chance that an observed variance is random, the cost of conducting an

investigation is $1,000, the cost to correct a variance if the investigation reveals a nonrandom cause, and the amount of loss a company expects to incur if it does not investigate a variance that had a nonrandom cause is $30,000, what is the expected cost (to the nearest whole dollar) of not investigating the variance? A) $30,000. B) $1,500. C) $0. D) $3,900. E) $3,000.

9) A payoff table for variance investigation that measures the cost of two states of nature and

possible alternative actions by management will have: A) Four combinations. B) Three combinations. C) Only two realistic combinations. D) Only idealistic combinations. E) One combination for each probability level.

10) Regarding the investigation of variances under uncertainty, which of the following is not a

positive (i.e., desirable) combination of courses of action and states of nature? A) Investigate; a random fluctuation has occurred. B) Do not investigate; a random fluctuation has occurred. C) Do not investigate; a non-controllable fluctuation has occurred. D) Investigate; a nonrandom fluctuation has occurred.

11) Which of the following items would be useful to management in deciding whether to

investigate the cause of a reported standard cost variance? A) Indifference probability. B) Simultaneous equations. C) Linear regression analysis. D) Cost-volume-profit analysis. E) Iso-profit lines.

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12) In framing the decision whether to investigate the cause of a reported standard cost (or

revenue) variance, which of the following tools would management find most useful? A) Linear regression analysis. B) Payoff table. C) Differential calculus. D) Linear optimization analysis. E) Nonlinear optimization analysis.

13) Based on experience, you observe the following probabilities regarding the underlying cause

of an observed cost or revenue variance: the probability, p, of a random variance equals 0.10, and the probability, 1 − p of a nonrandom variance equals 0.90. If management chooses to investigate, the total cost is $1,000 if it is concluded that the reported variance is a random fluctuation, while the total cost is $6,000 if it is concluded that the variance is the result of a nonrandom (i.e., a systematic) cause (i.e., the incremental cost to correct the variance is $5,000). On the other hand, if an observed variance is not investigated, management expects the following costs: if it is concluded that the variance is due to random causes, the cost would be $0; if it is concluded that the observed variance is due to a nonrandom (i.e., a systematic) cause, the cost would be $20,000. Given this information, what is the expected cost (to the nearest whole dollar) of the decision to investigate the observed variance, E(investigate)? A) $0. B) $1,500. C) $3,000. D) $5,500. E) $6,000.

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14) Based on experience, you observe the following probabilities regarding the underlying cause

of an observed cost or revenue variance: the probability, p, of a random variance equals 0.10, and the probability, 1 − p of a nonrandom variance equals 0.90. If management chooses to investigate, the total cost is $1,000 if it is concluded that the reported variance is a random fluctuation, while the total cost is $6,000 if it is concluded that the variance is the result of a nonrandom (i.e., a systematic) cause (i.e., the incremental cost to correct the variance is $5,000). On the other hand, if an observed variance is not investigated, management expects the following costs: if it is concluded that the variance is due to random causes, the cost would be $0; if it is concluded that the observed variance is due to a nonrandom (i.e., a systematic) cause, the cost would be $30,000. Given this information, what is the expected cost (to the nearest whole dollar) of the decision to investigate the observed variance, E(investigate)? A) $0. B) $1,500. C) $3,000. D) $5,500. E) $6,000.

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15) Based on experience, you observe the following probabilities regarding the underlying cause

of an observed cost or revenue variance: the probability, p, of a random variance equals 0.30, and the probability, 1 − p, of a random variance equals 0.70. If management chooses to investigate, the total cost is $3,000 if it is concluded that the reported variance is a random fluctuation, while the total cost is $8,000 if it is concluded that the variance is the result of a nonrandom (i.e., a systematic) cause (i.e., the incremental cost to correct the variance is $5,000). On the other hand, if an observed variance is not investigated, management expects the following costs: if it is concluded that the variance is due to random causes, the cost would be $0; if it is concluded that the observed variance is due to a nonrandom (i.e., a systematic) cause, the cost would be $28,000. Given this information, what is the indifference probability, p (i.e., the probability of a nonrandom variance that would make management indifferent between investigating and not investigating the variance)? (Round your answer to (1) decimal place, for example, 12.3458% = 12.3%.) A) 12.3% B) 13.0% C) 13.2% D) 19.0% E) 25.7%

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16) Based on experience, you observe the following probabilities regarding the underlying cause

of an observed cost or revenue variance: the probability, p, of a nonrandom variance equals 0.10, and the probability, 1 − p, of a random variance equals 0.90. If management chooses to investigate, the total cost is $1,000 if it is concluded that the reported variance is a random fluctuation, while the total cost is $6,000 if it is concluded that the variance is the result of a nonrandom (i.e., a systematic) cause (i.e., the incremental cost to correct the variance is $5,000). On the other hand, if an observed variance is not investigated, management expects the following costs: if it is concluded that the variance is due to random causes, the cost would be $0; if it is concluded that the observed variance is due to a nonrandom (i.e., a systematic) cause, the cost would be $30,000. Given this information, what is the indifference probability, p (i.e., the probability of a nonrandom variance that would make management indifferent between investigating and not investigating the variance)? (Round your answer to one (1) decimal place, for example, 12.3458% = 12.3%.) A) 3.3% B) 4.0% C) 4.2% D) 10.0% E) 16.7%

17) Which of the following would not likely be useful for addressing the variance-investigation

decision under uncertainty? A) The use of payoff tables. B) Linear optimization analysis. C) Calculating the indifference probability. D) Knowing, or having a good estimate of, the probability of a nonrandom variance. E) The value of perfect information.

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18) Which of the following statements regarding the "expected value of perfect information"

(EVPI) is not true? A) It is useful for addressing the variance-investigation decision under uncertainty. B) It can be used to measure manufacturing cycle efficiency (MCE). C) It represents the maximum amount that a rational decision maker would be willing to pay for information that would reveal the correct decision/course of action to take. D) It is the difference between the expected cost of a decision with perfect information and the expected cost of a decision without perfect information. E) It requires for its calculation knowledge of the best course of action (decision) for each possible state of nature that could occur.

19) In terms of the variance-investigation decision, an "indifference probability," p, of 10% A) Refers to the probability of a non-random (i.e., systematic variance) occurring. B) Means that there is a 10% probability that management will make an incorrect

decision. C) Implies that if the probability of a nonrandom variance is less than 10% the variance should be investigated. D) Implies a 90% probability of not taking corrective action after the variance is investigated. E) Suggests that management a 90% probability that management would be indifferent between investigating and not investigating the variance.

20) In terms of the variance-investigation decision under uncertainty, which of the following

items contains a cross-listing of costs associated with each of two states of nature (random vs. nonrandom variance) and each of two management actions (investigate the variance vs. do not investigate the variance)? A) Indifference probability chart. B) Statistical control chart. C) Run chart. D) Variance control chart. E) Payoff table.

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Answer Key Test name: chapter 15A 1) Essay 2) Essay 3) Essay 4) Essay 5) B 6) D 7) E 8) E 9) A 10) A 11) A 12) B 13) B 14) B 15) B 16) B 17) B 18) B 19) A 20) E

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Chapter 16__ 1)

Julie Hilger started New Treads to combine fashion and sustainability. The original production of sandals made from recycled plastic has expanded to a complete line of casual footwear. Current sales total over $2 million. Julie hired the firm's first controller early this year, and has asked him to detail suggestions for ways to increase profits. Adrian Warring, the new controller, has compiled a list of recommended changes that focus on quality improvements. New Treads customers expect high quality at a low price, a "value" product. So the company must simultaneously watch costs and quality. After receiving his list of suggestions, Julie calls Adrian to her office and says, "I don't see how improving quality can increase productivity. In fact, it seems to me that efforts to improve quality will slow down production and decrease productivity." Required: Using specific examples, help Adrian explain to Julie why efforts to improve quality can also boost productivity. How does productivity play a role in the firm's strategy and competitive environment?

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2) Dr. Howard Abelson is the director of the Wellness House, a residential center for recovering

alcoholics. A typical patient spends 3-4 weeks in an intensive program of rehabilitation. The Wellness House has a staff of 45, including 12 certified therapists, to serve an average patient load of 15. Howard Abelson is attempting to develop some productivity measures for the center, but is not aware of the limitations of productivity measurement in not-for-profit organizations. You have been called in as a consultant to help develop appropriate productivity measures. Required: (a) Identify any major differences/limitations you face in developing performance measures for the Wellness House. (b) Recommend two or three overall measures of productivity that are appropriate for the Wellness House as a not-for-profit organization.

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3) Paquindo Company has two products: X and Y. The firm had the following budget and

operating results for the period just ended. The budgeted total industry sales for both products was 324,800 units and the actual industry sales was 350,000. Master Budget Sales Variable Costs Contribution Margin Fixed costs

Product X $ 324,800 194,880 129,920 162,000

Product Y $ 426,300 213,150 213,150 130,000

Total $ 751,100 408,030 343,070 292,000

Operating income

$ (32,080)

$ 83,150

$ 51,070

$ 160

$ 70

Operating Results Sales Variable Costs Contribution Margin Fixed costs

Product X $ 365,400 243,600 121,800 163,000

Product Y $ 457,500 201,300 256,200 130,000

Total $ 822,900 444,900 378,000 293,000

Operating income

$ (41,200)

$ 126,200

$ 85,000

2,100

4,900

Selling Price per unit

Units sold

Required: (A) Calculate the contribution margin sales volume variance for Product X. (B) Calculate the contribution margin sales volume variance for Product Y. (C) Calculate the sales mix variance for Product X. (D) Calculate the sales quantity variance for Product X. (E) Calculate the sales mix variance for Product Y. (F) Calculate the sales quantity variance for Product Y. (G) Calculate the market share variance for both products. (H) Calculate the market size variance for both products.

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4) Zeller Company had two products named Q and R. The firm had the following budget for the

period just ended: Master Budget Sales Variable Costs Contribution Margin Fixed costs

Product Q $ 100,000 75,000 25,000 10,000

Product R $ 150,000 127,500 22,500 8,000

Total $ 250,000 202,500 47,500 18,000

Operating income

$ 15,000

$ 14,500

$ 29,500

$ 100

Operating Results Actual Results Sales Variable Costs Contribution Margin Fixed costs

Product Q $ 110,000 82,500 27,500 10,000

Product R $ 168,000 112,000 56,000 8,000

Total $ 278,000 194,500 83,500 18,000

Operating income

$ 17,500

$ 48,000

$ 65,500

1,100

1,400

Selling Price per unit

Units sold

Required: (A) Calculate the contribution margin sales volume variance for Product Q. (B) Calculate the contribution margin sales volume variance for Product R. (C) Calculate the sales mix variance for Product Q. (D) Calculate the sales quantity variance for Product Q. (E) Calculate the sales mix variance for Product R. (F) Calculate the sales quantity variance for Product R.

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5) The following information is for the Wetherby Company.

Units manufactured Units of materials used Number of labor hours used Cost of materials per unit Direct labor wage rate per hour

2022

2021

60,000 144,000 200,000 $ 40 $ 50

54,000 124,000 180,000 $ 38 $ 44

Required: 1. Compute the partial operational productivity measures for 2021 and 2022. 2. Compute the partial financial productivity ratios for 2021 and 2022. 3. Separate the changes of the partial financial productivity ratios from 2021 to 2022 into productivity change, input price change, and output change.

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6) The Tempest Company has the following information for the current year. Actual

Budget

Sales Units Product X Product Y Total Sales Mix for each Product Product X Product Y Price Product X Product Y Variable Cost per Unit Product X Product Y

22,000 33,000 55,000

20,000 30,000 50,000

40.0% 60.0%

$ 22.00 $ 35.00

$ 20.00 $ 30.00

$ 15.00 $ 16.00

$ 14.00 $ 18.00

Total fixed cost for Tempest is $500,000. The industry budget is 2 million units and the actual result for the industry is 2.5 million units. Required: 1. Compute the contribution margin sales mix variance for product X. 2. Compute the contribution margin sales mix variance for product Y. 3. Compute the contribution margin sales volume variance for product X. 4. Compute the contribution margin sales volume variance for product Y. 5. Compute the contribution margin sales quantity variance for product X. 6. Compute the contribution margin sales quantity variance for product Y. 7. Compute the market share variance for Tempest. 8. Computer the market size variance for Tempest.

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7) In early 2006, the new CEO of Hewlett-Packard (H-P), Mark Hurd, became aware of a

number of customer complaints about the accessibility of sales support at the company. The complaints referred to a confusing management structure and lack of contact with sales support personnel from H-P. There were 17,000 people working in H-P sales, and customers, particularly the large corporate customers, were frustrated dealing with the complexity of the H-P sales system. Required: What would you propose to Mark Hurd, the CEO at H-P, regarding an overhaul of the sales support systems at H-P?

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8) Triple Delight is a food stand located on a busy corner in the local business district. On

average it sells three cheeseburgers and one fishwich for every four hamburgers sold. The following data were culled from its operation for 2022: Total operating income variance Hamburger Cheeseburger Fishwich Sales quantity variance

$ 18,000 Unfavorable 50,000 Favorable 10,000 Unfavorable

Hamburger Cheeseburger Fishwich Sales mix variance

14,000 Favorable 15,000 Favorable 1,000 Favorable

Hamburger Cheeseburger Fishwich Fixed costs variances

2,240 Unfavorable 4,800 Unfavorable 1,600 Favorable 0

Market share variance Market size variance Change in market share Fixed cost flexible budget variance

$ 96,000 Unfavorable 126,000 Favorable 4% 0

The estimated total volume for the food stands in the region was 2,500,000 units. Consistent good weather pushed the total volume for the year to 4,000,000. Required: Determine the following: 1. Budgeted weighted-average contribution margin. 2. Budgeted and actual market shares. 3. Budget and actual total units sold. 4. Budgeted contribution margin of each product. 5. Actual sales mix of each product. 6. Budget and actual units sold for each product.

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9) Lau & Lau, Limited of Hong Kong manufacture two products for the same market. Its budget

and operating results for the year just completed follow: Budget

Actual

Unit of sales Product A Product B Contribution per unit

30,000 60,000

35,000 65,000

Product A Product B Selling price per unit

$ 4.00 10.00

$ 3.00 12.00

$ 10.00 25.00

$ 12.00 24.00

Product A Product B

At the time of budget preparation, the budgeting department and sales department agreed that the industry volume for the year would likely be 1,500,000 units. Actual industry volume turned out to be 2,000,000 units. Required: 1. What is the average budgeted contribution margin per unit? 2. What is the sales volume contribution margin variance for each product? 3. What is the sales mix contribution margin variance for each product? 4. What is the sales quantity contribution margin variance for each product? 5. What is the market size contribution margin variance? 6. What is the market share contribution margin variance? 7. What is the total flexible budget contribution margin variance? 8. What is the total variable cost price variance if the total contribution margin price variance is $50,000 favorable? 9. What is the total variable cost efficiency variance if the total contribution margin price variance is $50,000 favorable?

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10) Showtime is a group of aspiring musicians and actors who perform in theaters and dinner

clubs. It has a matinee and evening show. These operating data pertain to the month of July: Master budget data Total number of shows Contribution margin per show:

100 (evening 70; matinee 30)

Matinee

$ 240

Evening

$ 600

Actual operating results Number of shows

90 (36 evening, 54 matinee)

Required: 1. Calculate each variance by individual type of show and also show the combined total of each variance for both types of shows: a. Sales mix variances. b. Sales quantity variances. c. Sales volume variances. 2. What strategic implications can you draw from the variances?

11) How do you calculate productivity? A) Input/Output B) Output/Time C) Output/Input D) Time/Inputs E) Net Income/Sales

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12) Which one of the following is a productivity measure that focuses on the relationship

between only one of the inputs and the output attained? A) Financial productivity. B) Total productivity. C) Total financial productivity. D) Productivity. E) Partial productivity.

13) Which of the following is not a benchmark that firms use in assessing productivity? A) Benchmarks established by top management. B) Productivity of another firm in the same industry. C) Productivity measures of firms with similar profits in different industries. D) Industry standard or average. E) Past productivity measures of the firm.

14) Which one of the following measures the relationship between the output attained and the

total input costs of all the required input resources? A) Partial financial productivity. B) Total productivity. C) Partial operational productivity. D) Total financial productivity. E) Partial productivity.

15) What is operational productivity? A) A productivity measure that focuses only on the relationship between one of the

inputs and the output attained. B) The ratio of output to the dollar amount of one or more input factors. C) The ratio of output units to the number of units of an input factor. D) A productivity measure that includes all input resources in computing the ratio of the output attained to the input resources consumed. E) The steps in an organization that guide production processes.

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16) A primary objective in measuring productivity is to improve operations either by using fewer

inputs to produce the same output, or to produce: A) More quickly. B) More effectively. C) With fewer constraints. D) More outputs with the same inputs. E) More outputs with more inputs.

17) Which of the following is not an example of partial productivity? A) Output per dollar of manufacturing costs. B) Output per machine hour. C) Output per person employed. D) Output per labor hour. E) Output per unit of direct material used.

18) A partial operational productivity measure: A) Uses physical units in both the numerator and denominator. B) Is harder to understand than a partial financial productivity measure. C) Is affected by price changes and other factors. D) Is a comprehensive productivity measure. E) Has the advantage of considering the effects of both speed and quantity of a resources

input on productivity.

19) Efforts to improve productivity should be focused only on: A) Quality. B) Non-value-added activities. C) Value-added activities. D) Inputs. E) Outputs.

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20) Which of the following is a key determinant of productivity? A) High revenues. B) Control of waste. C) Low costs. D) Change in process. E) Increased demand.

21) What two variances can be divided into more variances? A) Sales mix variance and market share variance. B) Sales quantity variance and sales mix variance. C) Sales quantity variance and sales volume variance. D) Market size variance and market share variance. E) Sales mix variance and market size variance.

22) The sales volume variance is: A) Further divided into separate sales quantity and sales mix variances. B) Further divided into separate revenue and quantity variances. C) Not further divided. D) Further divided into separate flexible budget and sales volume variances. E) Further divided into separate variable and fixed variances.

23) The two major contributing factors to a sales quantity variance are deviations in: A) Market size and market share. B) Market size and sales quantity. C) Sales mix and selling price. D) Sales mix and sales quantity. E) Sales price and sales quantity.

24) The sales mix variance for a firm is ultimately expressed in terms of: A) Units. B) Ratios. C) Percentages. D) Mixes. E) Dollars.

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25) Market size variance is: A) A comparison of the firm’s actual market share to its budgeted market share. B) The product of the difference between the actual and budgeted sales mix multiplied

by the market size. C) A measure of the effect of changes in the total market size on the firm’s total contribution margin. D) The relative proportion in which a company’s market share grows. E) The number of units sold in the industry and the number of units budgeted to be sold.

26) When the actual sales-mix shifts toward a mix of products with lower contribution margins,

there will be negative effects on a firm's: A) Sales mix and sales quantity variances. B) Sales quantity and sales volume variances. C) Sales volume and market mix variances. D) Market mix and sales mix variance. E) Sales mix and sales volume variances.

27) When the mix of products sold shifts toward the high contribution margin product, the total: A) Sales mix variance is favorable. B) Sales volume variance is favorable. C) Market mix variance is favorable. D) Sales mix variance is unfavorable. E) Sales price variance is favorable.

28) How do you calculate the weighted-average budgeted contribution margin per unit? A) Divide the total units of the firm into the total contribution margin of the firm. B) Divide the total contribution margin of the firm into the total units of the firm. C) Divide the units of one product of the firm into the contribution margin of the firm. D) Multiply the contribution margin of the firm by the percentage of market share. E) Multiply the total units of the firm by the contribution margin of the firm.

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29) Decreasing selling prices in order to secure higher sales volumes or market shares: A) Will always generate higher sales volumes and market shares. B) Can have a negative impact on a firm's profitability. C) Should not usually affect profitability. D) Should not usually affect contribution margins. E) Should not usually affect sales mix.

30) The sales quantity variance of a firm arises when the: A) Mixes of individual products sold differ from the budgeted mixes to be sold. B) Total units of all products sold differ from the budgeted total units to be sold. C) Total units of a product sold differ from the budgeted units of the product to be sold. D) Number of products sold differs from the budgeted number of products to be sold. E) Actual market size differs from the budgeted market size.

31) A firm with a declining market share percentage may still earn a higher operating income if

the: A) B) C) D) E)

Market as a whole is also declining. Market as a whole is stable. Market as a whole is shifting. Market as a whole is growing. Firm does not change operating costs.

32) The market share variance is: A) (Budgeted contribution margin per unit − actual contribution margin per unit) × (units

sold). B) (Actual market size in units − budgeted market size in units) × (weighted-average budgeted contribution margin per unit). C) (Actual market size in units − budgeted market size in units) × (weighted-average budgeted contribution margin per unit) × (the budgeted market share). D) (Actual market share − budgeted market share) × (budgeted total market size) × (weighted average budgeted contribution margin per unit). E) (Actual market share − budgeted market share) × (actual total market size) × (weighted average budgeted contribution margin per unit).

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33) The market share of a firm is a funtion of: A) Competitive environment and total sales. B) Total sales and products offered. C) Total sales and core competencies. D) Core competencies and competitive environment. E) Products offered and competitive environment.

34) (Units sold − budgeted sales units) × (Budgeted contribution margin per unit) equals: A) B) C) D) E)

Sales-mix variance. Market size variance. Sales quantity variance. Sales volume variance. Flexible budget variance.

35) [(Units sold) × (Actual selling price per unit)] − [(Units sold) × (Budgeted selling price per

unit)] equals A) Sales efficiency variance. B) Sales quantity variance. C) Selling price variance. D) Sales mix variance. E) Sales volume variance.

36) (Budgeted contribution margin per unit) × (units sold − units budgeted to be sold) ×

(budgeted sales mix of the product) equals: A) Sales efficiency variance. B) Sales quantity variance. C) Sales price variance. D) Sales mix variance. E) Sales volume variance.

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37) Which one of the following is a result of the difference between the actual sales mix and the

budgeted sales mix? A) Sales efficiency variance. B) Sales quantity variance. C) Sales price variance. D) Sales mix variance. E) Sales volume variance.

38) (Budgeted sales mix − actual sales mix) × (total quantity sold) × (budgeted contribution

margin per unit of the product) equals: A) Sales efficiency variance. B) Sales quantity variance. C) Sales price variance. D) Sales mix variance. E) Sales volume variance.

39) The effect of changes in the total industry sales of the firm's product is measured by: A) Market mix variance. B) Market share variance. C) Market price variance. D) Market quantity variance. E) Market size variance.

40) The effect of changes in a product's proportion of the total market are measured by: A) Market mix variance. B) Market share variance. C) Market price variance. D) Market quantity variance. E) Market size variance.

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41) What is the most common method used to calculate the market share and market size

variances? A) The total sales method. B) The contribution margin method. C) The sales dollars method. D) The market size method. E) The total cost method.

42) Darwin, Incorporated, provided the following information: Budgeted production Actual production Budgeted input Actual input

10,900 units 9,630 units 10,200 gallons 9,000 gallons

What is the actual partial operational productivity ratio? A) 0.98 unit per gallon. B) 1.01 units per gallon. C) 1.03 units per gallon. D) 1.07 units per gallon. E) 1.13 units per gallon.

43) Darwin, Incorporated, provided the following information (round calculations to 2 significant

digits): Budgeted production Actual production Budgeted input Actual input

10,000 units 9,500 units 9,750 gallons 8,950 gallons

What is the actual partial operational productivity ratio? A) 0.97 unit per gallon. B) 1.00 units per gallon. C) 1.02 units per gallon. D) 1.06 units per gallon. E) 1.12 units per gallon.

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44) Erwin Company provided the following information for a selected production factor: Budgeted production 10,500 units Actual production 9,600 units Budgeted input 10,000 gallons Actual input 10,000 gallons

The actual partial operational productivity ratio of the production factor is: A) 0.86 unit per gallon. B) 0.94 unit per gallon. C) 0.95 unit per gallon. D) 0.96 unit per gallon. E) 1.05 units per gallon.

45) Erwin Company provided the following information for a selected production factor: Budgeted production Actual production Budgeted input Actual input

12,000 units 11,000 units 12,000 gallons 10,800 gallons

The actual partial operational productivity ratio of the production factor is: A) 0.92 units per gallon. B) 1.00 units per gallon. C) 1.01 units per gallon. D) 1.02 units per gallon. E) 1.11 units per gallon.

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46) Fast Wire Incorporated manufactures a scrambling device for cellular phones. The main

component of the scrambling device is a very delicate part—DTV-12. DTV-12 requires careful handlings during manufacturing. Once damaged, the part must be discarded. Only skilled laborers are hired to manufacture and install DTV-12. Damages still occur, however. The following are the operating data of Fast Wire Incorporated for 2021 and 2022 relative to the insertion of DTV-12.

Number of phones manufactured Units of DTV-12 used Direct labor hours for DTV-12 insertion Total cost of DTV-12 units Direct labor wage rate per hour

2021

2022

690,000 1,189,655 2,550

789,000 1,080,000 3,425

$ 1,447,500 $ 89.50

$ 2,337,500 $ 112

The partial operational productivity ratio of DTV-12 in 2021 is: A) 0.58 per unit. B) 0.68 per unit. C) 1.87 per unit. D) 2.95 per unit. E) 3.28 per unit.

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47) Fast Wire Incorporated manufactures a scrambling device for cellular phones. The main

2022

600,000 960,000 1,800

780,000 1,072,500 2,600

$ 1,443,750 $ 67

$ 2,333,750 $ 82

The partial operational productivity ratio of DTV-12 in 2021 is: A) 0.63 per unit. B) 0.73 per unit. C) 1.92 per unit. D) 3.00 per unit. E) 3.33 per unit.

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48) Fast Wire Incorporated manufactures a scrambling device for cellular phones. The main

Number of phones manufactured Units of DTV-12 used Direct labor hours for DTV-12 insertion Total cost of DTV-12 units Direct labor wage rate per hour

2021

2022

606,000 960,300 1,850

730,000 1,000,000 2,655

$ 1,444,000 $ 68.50

$ 2,334,000 $ 84

The partial operational productivity ratio of DTV-12 in 2022 is: A) 0.63 per unit. B) 0.73 per unit. C) 1.92 per unit. D) 3.00 per unit. E) 3.33 per unit.

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49) Fast Wire Incorporated manufactures a scrambling device for cellular phones. The main

2022

600,000 960,000 1,800

780,000 1,072,500 2,600

$ 1,443,750 $ 67

$ 2,333,750 $ 82

The partial operational productivity ratio of DTV-12 in 2022 is: A) 0.63 per unit. B) 0.73 per unit. C) 1.92 per unit. D) 3.00 per unit. E) 3.33 per unit.

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50) Fast Wire Incorporated manufactures a scrambling device for cellular phones. The main

Number of phones manufactured Units of DTV-12 used Direct labor hours for DTV-12 insertion Total cost of DTV-12 units Direct labor wage rate per hour

2021

2022

646,800 962,400 2,200

784,800 1,076,500 3,040

$ 1,445,750 $ 79.00

$ 2,335,750 $ 98

The partial direct labor operational productivity ratio for 2021 is: A) 223 units per DLH. B) 130 units per DLH. C) 389 units per DLH. D) 261 units per DLH. E) 294 units per DLH.

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51) Fast Wire Incorporated manufactures a scrambling device for cellular phones. The main

2022

600,000 960,000 1,800

780,000 1,072,500 2,600

$ 1,443,750 $ 67

$ 2,333,750 $ 82

The partial direct labor operational productivity ratio for 2021 is: A) 262 units per DLH. B) 169 units per DLH. C) 428 units per DLH. D) 300 units per DLH. E) 333 units per DLH.

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52) Fast Wire Incorporated manufactures a scrambling device for cellular phones. The main

Number of phones manufactured Units of DTV-12 used Direct labor hours for DTV-12 insertion Total cost of DTV-12 units Direct labor wage rate per hour

2021

2022

654,000 962,700 2,250

783,035 1,077,000 3,095

$ 1,446,000 $ 80.50

$ 2,336,000 $ 100

The partial direct labor operational productivity ratio for 2022 is: A) 215 units per DLH. B) 122 units per DLH. C) 381 units per DLH. D) 253 units per DLH. E) 286 units per DLH.

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53) Fast Wire Incorporated manufactures a scrambling device for cellular phones. The main

2022

600,000 960,000 1,800

780,000 1,072,500 2,600

$ 1,443,750 $ 67

$ 2,333,750 $ 82

The partial direct labor operational productivity ratio for 2022 is: A) 262 units per DLH. B) 169 units per DLH. C) 428 units per DLH. D) 300 units per DLH. E) 333 units per DLH.

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54) Fast Wire Incorporated manufactures a scrambling device for cellular phones. The main

Number of phones manufactured Units of DTV-12 used Direct labor hours for DTV-12 insertion Total cost of DTV-12 units Direct labor wage rate per hour

2021

2022

700,000 963,000 2,300

786,000 1,077,500 3,150

$ 1,346,153 $ 82.00

$ 2,336,250 $ 102

The partial financial productivity ratio of DTV-12 in 2021 is: A) 0.43. B) 0.52. C) 2.45. D) 3.76. E) 5.08.

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55) Fast Wire Incorporated manufactures a scrambling device for cellular phones. The main

2022

600,000 960,000 1,800

780,000 1,072,500 2,600

$ 1,443,750 $ 67

$ 2,333,750 $ 82

The partial financial productivity ratio of DTV-12 in 2021 is: A) 0.33. B) 0.42. C) 2.35. D) 3.66. E) 4.98.

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56) Fast Wire Incorporated manufactures a scrambling device for cellular phones. The main

Number of phones manufactured Units of DTV-12 used Direct labor hours for DTV-12 insertion Total cost of DTV-12 units Direct labor wage rate per hour

2021

2022

720,000 966,000 2,800

820,000 1,082,500 3,700

$ 1,448,750 $ 97.00

$ 1,547,169 $ 122

The partial financial productivity ratio of DTV-12 in 2022 is: A) 0.53. B) 0.62. C) 2.55. D) 3.86. E) 5.18.

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57) Fast Wire Incorporated manufactures a scrambling device for cellular phones. The main

2022

600,000 960,000 1,800

780,000 1,072,500 2,600

$ 1,443,750 $ 67

$ 2,333,750 $ 82

The partial financial productivity ratio of DTV-12 in 2022 is: A) 0.33. B) 0.42. C) 2.35. D) 3.66. E) 4.98.

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58) Fast Wire Incorporated manufactures a scrambling device for cellular phones. The main

Number of phones manufactured Units of DTV-12 used Direct labor hours for DTV-12 insertion Total cost of DTV-12 units Direct labor wage rate per hour

2021

2022

622,296 965,700 1,800

808,984 1,082,000 3,645

$ 1,448,500 $ 67.00

$ 2,338,500 $ 120

The partial direct labor financial productivity ratio for 2021 is: A) 4.27. B) 5.03. C) 2.14. D) 2.52. E) 5.16.

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59) Fast Wire Incorporated manufactures a scrambling device for cellular phones. The main

2022

600,000 960,000 1,800

780,000 1,072,500 2,600

$ 1,443,750 $ 67

$ 2,333,750 $ 82

The partial direct labor financial productivity ratio for 2021 is: A) 0.33. B) 0.42. C) 2.35. D) 3.66. E) 4.98.

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60) Fast Wire Incorporated manufactures a scrambling device for cellular phones. The main

Number of phones manufactured Units of DTV-12 used Direct labor hours for DTV-12 insertion Total cost of DTV-12 units Direct labor wage rate per hour

2021

2022

785,302 963,300 2,350

1,033,292 1,078,000 3,205

$ 1,446,500 $ 83.50

$ 2,336,500 $ 104

The partial direct labor financial productivity ratio for 2022 is: A) 0.28. B) 0.36. C) 1.99. D) 3.10. E) 4.22.

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61) Fast Wire Incorporated manufactures a scrambling device for cellular phones. The main

2022

600,000 960,000 1,800

780,000 1,072,500 2,600

$ 1,443,750 $ 67

$ 2,333,750 $ 82

The partial direct labor financial productivity ratio for 2022 is: A) 0.33. B) 0.42. C) 2.35. D) 3.66. E) 4.98.

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62) Mixing Company manufactured 1,638 units of its only product during 2022. The inputs for

this production are as follows: 450 pounds of Material A at a cost of $2.30 per pound 380 pounds of Material H at a cost of $3.55 per pound 460 direct labor hours at $52 per hour The firm manufactured 3,000 units of the same product in 2021 with the following inputs: 660 pounds of Material A at a cost of $2.00 per pound 520 pounds of Material H at a cost of $3.30 per pound 560 direct labor hours at $50 per hour In 2022, the partial operational productivity of Material A is: A) 3.61 units per pound. B) 2.76 units per pound. C) 2.53 units per pound. D) 3.64 units per pound. E) 5.31 units per pound.

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63) Mixing Company manufactured 1,500 units of its only product during 2022. The inputs for

this production are as follows: 450 pounds of Material A at a cost of $1.50 per pound 300 pounds of Material H at a cost of $2.75 per pound 300 direct labor hours at $20 per hour The firm manufactured 1,800 units of the same product in 2021 with the following inputs: 500 pounds of Material A at a cost of $1.20 per pound 360 pounds of Material H at a cost of $2.50 per pound 400 direct labor hours at $18 per hour In 2022, the partial operational productivity of Material A is: A) 0.30. B) 0.45. C) 2.22. D) 3.33. E) 5.00.

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64) Mixing Company manufactured 2,109 units of its only product during 2022. The inputs for

this production are as follows: 485 pounds of Material A at a cost of $1.85 per pound 370 pounds of Material H at a cost of $3.10 per pound 440 direct labor hours at $34 per hour The firm manufactured 2,325 units of the same product in 2021 with the following inputs: 570 pounds of Material A at a cost of $1.55 per pound 430 pounds of Material H at a cost of $2.85 per pound 470 direct labor hours at $32 per hour In 2022, the partial operational productivity of Material H is: A) 5.65 units per pound. B) 5.60 units per pound. C) 2.07 units per pound. D) 4.76 units per pound. E) 5.70 units per pound.

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65) Mixing Company manufactured 1,500 units of its only product during 2022. The inputs for

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66) Mixing Company manufactured 2,376 units of its only product during 2022. The inputs for

this production are as follows: 510 pounds of Material A at a cost of $2.10 per pound 360 pounds of Material H at a cost of $3.35 per pound 540 direct labor hours at $44 per hour The firm manufactured 2,700 units of the same product in 2021 with the following inputs: 620 pounds of Material A at a cost of $1.80 per pound 480 pounds of Material H at a cost of $3.10 per pound 520 direct labor hours at $42 per hour In 2022, the partial direct labor operational productivity is: A) 4.35 units per DLH. B) 4.30 units per DLH. C) 1.60 units per DLH. D) 3.66 units per DLH. E) 4.40 units per DLH.

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67) Mixing Company manufactured 1,500 units of its only product during 2022. The inputs for

this production are as follows: 450 pounds of Material A at a cost of $1.50 per pound 300 pounds of Material H at a cost of $2.75 per pound 300 direct labor hours at $20 per hour The firm manufactured 1,800 units of the same product in 2021 with the following inputs: 500 pounds of Material A at a cost of $1.20 per pound 360 pounds of Material H at a cost of $2.50 per pound 400 direct labor hours at $18 per hour In 2022, the partial direct labor operational productivity is: A) 0.20. B) 0.25. C) 0.40. D) 4.00. E) 5.00.

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68) Mixing Company manufactured 1,650 units of its only product during 2022. The inputs for

this production are as follows: 500 pounds of Material A at a cost of $1.50 per pound 350 pounds of Material H at a cost of $3.00 per pound 400 direct labor hours at $30 per hour The firm manufactured 2,175 units of the same product in 2021 with the following inputs: 550 pounds of Material A at a cost of $1.45 per pound 410 pounds of Material H at a cost of $2.75 per pound 450 direct labor hours at $28 per hour In 2022, the partial financial productivity of Material A is: A) 2.15. B) 2.10. C) 2.20. D) 0.80. E) 1.81.

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69) Mixing Company manufactured 1,500 units of its only product during 2022. The inputs for

this production are as follows: 450 pounds of Material A at a cost of $1.50 per pound 300 pounds of Material H at a cost of $2.75 per pound 300 direct labor hours at $20 per hour The firm manufactured 1,800 units of the same product in 2021 with the following inputs: 500 pounds of Material A at a cost of $1.20 per pound 360 pounds of Material H at a cost of $2.50 per pound 400 direct labor hours at $18 per hour In 2022, the partial financial productivity of Material A is: A) 0.03. B) 0.05. C) 2.22. D) 3.33. E) 5.00.

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70) Mixing Company manufactured 2,057 units of its only product during 2022. The inputs for

this production are as follows: 475 pounds of Material A at a cost of $1.50 per pound 400 pounds of Material H at a cost of $2.75 per pound 400 direct labor hours at $30 per hour The firm manufactured 2,175 units of the same product in 2021 with the following inputs: 550 pounds of Material A at a cost of $1.45 per pound 410 pounds of Material H at a cost of $2.75 per pound 450 direct labor hours at $28 per hour In 2022, the partial financial productivity of Material H is: A) 0.21. B) 0.57. C) 1.87. D) 3.42. E) 5.14.

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71) Mixing Company manufactured 1,500 units of its only product during 2022. The inputs for

this production are as follows: 450 pounds of Material A at a cost of $1.50 per pound 300 pounds of Material H at a cost of $2.75 per pound 300 direct labor hours at $20 per hour The firm manufactured 1,800 units of the same product in 2021 with the following inputs: 500 pounds of Material A at a cost of $1.20 per pound 360 pounds of Material H at a cost of $2.50 per pound 400 direct labor hours at $18 per hour In 2022, the partial financial productivity of Material H is: A) 0.20. B) 0.55. C) 1.82. D) 3.33. E) 5.00.

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72) Mixing Company manufactured 2,664 units of its only product during 2022. The inputs for

this production are as follows: 510 pounds of Material A at a cost of $2.10 per pound 360 pounds of Material H at a cost of $3.35 per pound 360 direct labor hours at $20 per hour The firm manufactured 2,700 units of the same product in 2021 with the following inputs: 620 pounds of Material A at a cost of $1.80 per pound 480 pounds of Material H at a cost of $3.10 per pound 520 direct labor hours at $42 per hour In 2022, the partial financial productivity of direct labor is: A) 0.30. B) 0.37. C) 0.59. D) 5.92. E) 7.40.

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73) Mixing Company manufactured 1,500 units of its only product during 2022. The inputs for

this production are as follows: 450 pounds of Material A at a cost of $1.50 per pound 300 pounds of Material H at a cost of $2.75 per pound 300 direct labor hours at $20 per hour The firm manufactured 1,800 units of the same product in 2021 with the following inputs: 500 pounds of Material A at a cost of $1.20 per pound 360 pounds of Material H at a cost of $2.50 per pound 400 direct labor hours at $18 per hour In 2022, the partial financial productivity of direct labor is: A) 0.20. B) 0.25. C) 0.40. D) 4.00. E) 5.00.

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74) Mixing Company manufactured 2,661 units of its only product during 2022. The inputs for

this production are as follows: 500 pounds of Material A at a cost of $1.50 per pound 480 pounds of Material H at a cost of $2.75 per pound 340 direct labor hours at $20 per hour The firm manufactured 3,000 units of the same product in 2021 with the following inputs: 660 pounds of Material A at a cost of $2.00 per pound 520 pounds of Material H at a cost of $3.30 per pound 560 direct labor hours at $50 per hour The total productivity ratio in 2022 is: A) 0.30. B) 1.05. C) 1.50. D) 2.15. E) 7.50.

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75) Mixing Company manufactured 1,500 units of its only product during 2022. The inputs for

this production are as follows: 450 pounds of Material A at a cost of $1.50 per pound 300 pounds of Material H at a cost of $2.75 per pound 300 direct labor hours at $20 per hour The firm manufactured 1,800 units of the same product in 2021 with the following inputs: 500 pounds of Material A at a cost of $1.20 per pound 360 pounds of Material H at a cost of $2.50 per pound 400 direct labor hours at $18 per hour The total productivity ratio in 2022 is: A) 0.20. B) 0.70. C) 1.00. D) 1.43. E) 5.00.

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76) Mixing Company manufactured 2,150 units of its only product during 2022. The inputs for

this production are as follows: 515 pounds of Material A at a cost of $2.15 per pound 365 pounds of Material H at a cost of $3.40 per pound 560 direct labor hours at $46 per hour The firm manufactured 3,087 units of the same product in 2021 with the following inputs: 630 pounds of Material A at a cost of $1.85 per pound 490 pounds of Material H at a cost of $3.15 per pound 530 direct labor hours at $44 per hour The partial operational productivity of Material A in 2021 is: A) 0.38 units per pound. B) 0.45 units per pound. C) 4.08 units per pound. D) 4.53 units per pound. E) 4.90 units per pound.

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77) Mixing Company manufactured 1,500 units of its only product during 2022. The inputs for

this production are as follows: 450 pounds of Material A at a cost of $1.50 per pound 300 pounds of Material H at a cost of $2.75 per pound 300 direct labor hours at $20 per hour The firm manufactured 1,800 units of the same product in 2021 with the following inputs: 500 pounds of Material A at a cost of $1.20 per pound 360 pounds of Material H at a cost of $2.50 per pound 400 direct labor hours at $18 per hour The partial operational productivity of Material A in 2021 is: A) 0.28. B) 0.33. C) 3.00. D) 3.33. E) 3.60.

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78) Mixing Company manufactured 2,400 units of its only product during 2022. The inputs for

this production are as follows: 540 pounds of Material A at a cost of $2.40 per pound 390 pounds of Material H at a cost of $3.65 per pound 660 direct labor hours at $56 per hour The firm manufactured 2,772 units of the same product in 2021 with the following inputs: 680 pounds of Material A at a cost of $2.10 per pound 550 pounds of Material H at a cost of $3.40 per pound 580 direct labor hours at $54 per hour The partial operational productivity of Material H in 2021 is: A) 0.20 units per pound. B) 0.50 units per pound. C) 2.02 units per pound. D) 5.04 units per pound. E) 6.05 units per pound.

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79) Mixing Company manufactured 1,500 units of its only product during 2022. The inputs for

this production are as follows: 450 pounds of Material A at a cost of $1.50 per pound 300 pounds of Material H at a cost of $2.75 per pound 300 direct labor hours at $20 per hour The firm manufactured 1,800 units of the same product in 2021 with the following inputs: 500 pounds of Material A at a cost of $1.20 per pound 360 pounds of Material H at a cost of $2.50 per pound 400 direct labor hours at $18 per hour The partial operational productivity of Material H in 2021 is: A) 0.20. B) 0.50. C) 2.00. D) 5.00. E) 6.00.

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80) Mixing Company manufactured 2,250 units of its only product during 2022. The inputs for

this production are as follows: 525 pounds of Material A at a cost of $2.25 per pound 375 pounds of Material H at a cost of $3.50 per pound 600 direct labor hours at $50 per hour The firm manufactured 2,563 units of the same product in 2021 with the following inputs: 650 pounds of Material A at a cost of $1.95 per pound 510 pounds of Material H at a cost of $3.25 per pound 550 direct labor hours at $48 per hour The partial direct labor operational productivity in 2021 is: A) 0.23 units per DLH. B) 0.26 units per DLH. C) 4.14 units per DLH. D) 4.66 units per DLH. E) 5.18 units per DLH.

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81) Mixing Company manufactured 1,500 units of its only product during 2022. The inputs for

this production are as follows: 450 pounds of Material A at a cost of $1.50 per pound 300 pounds of Material H at a cost of $2.75 per pound 300 direct labor hours at $20 per hour The firm manufactured 1,800 units of the same product in 2021 with the following inputs: 500 pounds of Material A at a cost of $1.20 per pound 360 pounds of Material H at a cost of $2.50 per pound 400 direct labor hours at $18 per hour The partial direct labor operational productivity in 2021 is: A) 0.22. B) 0.25. C) 4.00. D) 4.50. E) 5.00.

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82) Mixing Company manufactured 1,700 units of its only product during 2022. The inputs for

this production are as follows: 470 pounds of Material A at a cost of $1.70 per pound 320 pounds of Material H at a cost of $2.95 per pound 380 direct labor hours at $28 per hour The firm manufactured 1,972 units of the same product in 2021 with the following inputs: 580 pounds of Material A at a cost of $1.25 per pound 380 pounds of Material H at a cost of $2.50 per pound 440 direct labor hours at $26 per hour In 2021, the partial financial productivity of Material A is: A) 0.25. B) 0.30. C) 2.72. D) 3.02. E) 3.26.

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83) Mixing Company manufactured 1,500 units of its only product during 2022. The inputs for

this production are as follows: 450 pounds of Material A at a cost of $1.50 per pound 300 pounds of Material H at a cost of $2.75 per pound 300 direct labor hours at $20 per hour The firm manufactured 1,800 units of the same product in 2021 with the following inputs: 500 pounds of Material A at a cost of $1.20 per pound 360 pounds of Material H at a cost of $2.50 per pound 400 direct labor hours at $18 per hour In 2021, the partial financial productivity of Material A is: A) 0.28. B) 0.33. C) 3.00. D) 3.33. E) 3.60.

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84) Mixing Company manufactured 2,450 units of its only product during 2022. The inputs for

this production are as follows: 545 pounds of Material A at a cost of $2.45 per pound 395 pounds of Material H at a cost of $3.70 per pound 680 direct labor hours at $58 per hour The firm manufactured 3,250 units of the same product in 2021 with the following inputs: 660 pounds of Material A at a cost of $1.20 per pound 520 pounds of Material H at a cost of $2.50 per pound 560 direct labor hours at $50 per hour In 2021, the partial financial productivity of Material H is: A) 0.25. B) 0.63. C) 2.50. D) 6.25. E) 7.50.

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85) Mixing Company manufactured 1,500 units of its only product during 2022. The inputs for

this production are as follows: 450 pounds of Material A at a cost of $1.50 per pound 300 pounds of Material H at a cost of $2.75 per pound 300 direct labor hours at $20 per hour The firm manufactured 1,800 units of the same product in 2021 with the following inputs: 500 pounds of Material A at a cost of $1.20 per pound 360 pounds of Material H at a cost of $2.50 per pound 400 direct labor hours at $18 per hour In 2021, the partial financial productivity of Material H is: A) 0.20. B) 0.50. C) 2.00. D) 5.00. E) 6.00.

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86) Mixing Company manufactured 1,900 units of its only product during 2022. The inputs for

this production are as follows: 490 pounds of Material A at a cost of $1.90 per pound 340 pounds of Material H at a cost of $3.15 per pound 460 direct labor hours at $36 per hour The firm manufactured 1,845 units of the same product in 2021 with the following inputs: 510 pounds of Material A at a cost of $1.25 per pound 370 pounds of Material H at a cost of $2.55 per pound 410 direct labor hours at $18 per hour In 2021, the partial financial productivity of direct labor is: A) 0.22. B) 0.25. C) 4.00. D) 4.50. E) 5.00.

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87) Mixing Company manufactured 1,500 units of its only product during 2022. The inputs for

this production are as follows: 450 pounds of Material A at a cost of $1.50 per pound 300 pounds of Material H at a cost of $2.75 per pound 300 direct labor hours at $20 per hour The firm manufactured 1,800 units of the same product in 2021 with the following inputs: 500 pounds of Material A at a cost of $1.20 per pound 360 pounds of Material H at a cost of $2.50 per pound 400 direct labor hours at $18 per hour In 2021, the partial financial productivity of direct labor is: A) 0.22. B) 0.25. C) 4.00. D) 4.50. E) 5.00.

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88) Mixing Company manufactured 1,550 units of its only product during 2022. The inputs for

this production are as follows: 455 pounds of Material A at a cost of $1.55 per pound 305 pounds of Material H at a cost of $2.80 per pound 320 direct labor hours at $22 per hour The firm manufactured 1,875 units of the same product in 2021 with the following inputs: 510 pounds of Material A at a cost of $1.25 per pound 370 pounds of Material H at a cost of $2.55 per pound 410 direct labor hours at $20 per hour The total productivity ratio in 2021 is: A) 0.14. B) 0.19. C) 0.63. D) 1.29. E) 4.37.

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89) Mixing Company manufactured 1,500 units of its only product during 2022. The inputs for

this production are as follows: 450 pounds of Material A at a cost of $1.50 per pound 300 pounds of Material H at a cost of $2.75 per pound 300 direct labor hours at $20 per hour The firm manufactured 1,800 units of the same product in 2021 with the following inputs: 500 pounds of Material A at a cost of $1.20 per pound 360 pounds of Material H at a cost of $2.50 per pound 400 direct labor hours at $18 per hour The total productivity ratio in 2021 is: A) 0.15. B) 0.21. C) 0.70. D) 1.43. E) 4.83.

90) Creepers, Incorporated, manufactures stuffed spiders and mummies. During September the

following information was gathered: Spiders

Mummies

Units sold Budgeted sales (units) Contribution margin per unit:

6,200 6,800

3,800 3,200

Actual Budgeted

$ 3.95 $ 2.95

$ 5.99 $ 5.33

What is the sales mix variance for Spiders? A) $1,207 favorable. B) $1,609 favorable. C) $1,770 unfavorable. D) $5,149 favorable. E) $5,149 unfavorable.

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91) Creepers, Incorporated, manufactures stuffed spiders and mummies. During September the

following information was gathered: Spiders

Mummies

Units sold Budgeted sales (units) Contribution margin per unit:

6,900 7,500

3,100 2,500

Actual Budgeted

$ 3.75 $ 2.75

$ 5.75 $ 5.25

What is the sales mix variance for Spiders? A) $1,125 favorable. B) $1,500 favorable. C) $1,650 unfavorable. D) $4,800 favorable. E) $4,800 unfavorable.

92) Creepers, Incorporated, manufactures stuffed spiders and mummies. During September the

following information was gathered: Spiders

Mummies

Units sold Budgeted sales (units) Contribution margin per unit:

7,150 7,750

3,350 2,750

Actual Budgeted

$ 4.25 $ 3.25

$ 6.35 $ 5.45

What is the sales quantity variance for Spiders? A) $0 B) $1,554 favorable. C) $10,194 favorable. D) $11,655 favorable. E) $16,025 favorable.

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93) Creepers, Incorporated, manufactures stuffed spiders and mummies. During September the

following information was gathered: Spiders

Mummies

Units sold Budgeted sales (units) Contribution margin per unit:

6,900 7,500

3,100 2,500

Actual Budgeted

$ 3.75 $ 2.75

$ 5.75 $ 5.25

What is the sales quantity variance for Spiders? A) $0 B) $1,500 favorable. C) $9,843 favorable. D) $11,250 favorable. E) $15,468 favorable.

94) Creepers, Incorporated, manufactures stuffed spiders and mummies. During September the

following information was gathered: Spiders

Mummies

Units sold Budgeted sales (units) Contribution margin per unit:

6,100 6,700

3,900 3,300

Actual Budgeted

$ 3.90 $ 2.90

$ 5.93 $ 5.31

What is the sales volume variance for Spiders? A) $0. B) $1,215 favorable. C) $1,590 favorable. D) $1,740 unfavorable. E) $12,465 unfavorable.

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95) Creepers, Incorporated, manufactures stuffed spiders and mummies. During September the

following information was gathered: Spiders

Mummies

Units sold Budgeted sales (units) Contribution margin per unit:

6,900 7,500

3,100 2,500

Actual Budgeted

$ 3.75 $ 2.75

$ 5.75 $ 5.25

What is the sales volume variance for Spiders? A) $0. B) $1,125 favorable. C) $1,500 favorable. D) $1,650 unfavorable. E) $12,375 unfavorable.

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96) Pair Company has two products named X and Y. The firm had the following master budget

for the year just completed: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs Operating income (Loss)

$ 234,000 140,400 $ 93,600 130,000 $ (36,400)

$ 334,000 167,000 $ 167,000 108,000 $ 59,000

$ 568,000 307,400 $ 260,600 238,000 $ 22,600

Selling Price per unit

$ 130

$ 60

The following actual operating results were reported after the year was over:

Sales Variable Costs Contribution Margin Fixed costs Operating income (Loss) Units Sold

Product X

Product Y

Total

$ 150,000 67,500 $ 82,500 140,000 $ (57,500)

$ 408,000 142,800 $ 265,200 108,000 $ 157,200

$ 558,000 210,300 $ 347,700 248,000 $ 99,700

1,500

8,500

The contribution margin sales volume variance for Product X is: A) $15,600 unfavorable. B) $15,600 favorable. C) $19,600 unfavorable. D) $29,600 unfavorable. E) $54,600 favorable.

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97) Pair Company has two products named X and Y. The firm had the following master budget

for the year just completed: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 260,000 156,000 $ 104,000 130,000

$ 360,000 180,000 $ 180,000 108,000

$ 620,000 336,000 $ 284,000 238,000

Operating Income (Loss)

$ (26,000)

$ 72,000

$ 46,000

Selling Price per unit

$ 130.00

$ 60.00

The following actual operating results were reported after the year was over: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 202,500 117,000 $ 85,500 140,000

$ 467,500 212,500 $ 255,000 108,000

$ 670,000 329,500 $ 340,500 248,000

Operating Income (Loss)

$ (54,500)

$ 147,000

$ 92,500

1,500

8,500

Units Sold

The contribution margin sales volume variance for Product X is: A) $26,000 unfavorable. B) $26,000 favorable. C) $30,000 unfavorable. D) $40,000 unfavorable. E) $65,000 favorable.

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98) Pair Company has two products named X and Y. The firm had the following master budget

for the year just completed: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs Operating income (Loss)

$ 320,000 192,000 $ 128,000 130,000 $ (2,000)

$ 420,000 210,000 $ 210,000 108,000 $ 102,000

$ 740,000 402,000 $ 338,000 238,000 $ 100,000

Selling Price per unit

$ 130

$ 60

The following actual operating results were reported after the year was over:

Sales Variable Costs Contribution Margin Fixed costs Operating income (Loss)

Product X

Product Y

Total

$ 204,120 117,000 $ 87,120 140,000 $ (52,880)

$ 348,500 155,000 $ 193,500 108,000 $ 85,500

$ 552,620 272,000 $ 280,620 248,000 $ 32,620

1,512

8,500

Units Sold

The selling price variance for Product X is: A) $7,560 favorable. B) $26,060 unfavorable. C) $30,060 unfavorable. D) $40,060 favorable. E) $40,060 unfavorable.

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99) Pair Company has two products named X and Y. The firm had the following master budget

for the year just completed: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 260,000 156,000 $ 104,000 130,000

$ 360,000 180,000 $ 180,000 108,000

$ 620,000 336,000 $ 284,000 238,000

Operating Income (Loss)

$ (26,000)

$ 72,000

$ 46,000

Selling Price per unit

$ 130.00

$ 60.00

The following actual operating results were reported after the year was over: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 202,500 117,000 $ 85,500 140,000

$ 467,500 212,500 $ 255,000 108,000

$ 670,000 329,500 $ 340,500 248,000

Operating Income (Loss)

$ (54,500)

$ 147,000

$ 92,500

1,500

8,500

Units Sold

The selling price variance for Product X is: A) $7,500 favorable. B) $26,000 unfavorable. C) $30,000 unfavorable. D) $40,000 favorable. E) $40,000 unfavorable.

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100)

Pair Company has two products named X and Y. The firm had the following master budget for the year just completed: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs Operating income (Loss)

$ 240,000 144,000 $ 96,000 130,000 $ (34,000)

$ 380,000 152,000 $ 228,000 108,000 $ 120,000

$ 620,000 296,000 $ 324,000 238,000 $ 86,000

Selling Price per unit

$ 100

$ 50

The following actual operating results were reported after the year was over:

Sales Variable Costs Contribution Margin Fixed costs Operating income (Loss) Units Sold

Product X

Product Y

Total

$ 368,000 239,200 $ 128,800 140,000 $ (11,200)

$ 548,000 226,000 $ 322,000 118,000 $ 204,000

$ 916,000 465,200 $ 450,800 258,000 $ 192,800

3,200

10,000

The sales quantity variance for Product X is: (Round your intermediate calculations to 2 decimal places.) A) $9,000 favorable. B) $29,000 favorable. C) $30,720 favorable. D) $53,000 favorable. E) $61,000 unfavorable.

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101)

Pair Company has two products named X and Y. The firm had the following master budget for the year just completed: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 260,000 156,000 $ 104,000 130,000

$ 360,000 180,000 $ 180,000 108,000

$ 620,000 336,000 $ 284,000 238,000

Operating Income (Loss)

$ (26,000)

$ 72,000

$ 46,000

Selling Price per unit

$ 130.00

$ 60.00

The following actual operating results were reported after the year was over: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 202,500 117,000 $ 85,500 140,000

$ 467,500 212,500 $ 255,000 108,000

$ 670,000 329,500 $ 340,500 248,000

Operating Income (Loss)

$ (54,500)

$ 147,000

$ 92,500

1,500

8,500

Units Sold

The sales quantity variance for Product X is: A) $4,000 favorable. B) $25,000 favorable. C) $26,000 favorable. D) $45,000 favorable. E) $52,000 unfavorable.

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102)

Pair Company has two products named X and Y. The firm had the following master budget for the year just completed: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs Operating income (Loss)

$ 280,000 168,000 $ 112,000 124,000 $ (12,000)

$ 380,000 247,000 $ 133,000 102,000 $ 31,000

$ 660,000 415,000 $ 245,000 226,000 $ 19,000

Selling Price per unit

$ 100

$ 50

The following actual operating results were reported after the year was over:

Sales Variable Costs Contribution Margin Fixed costs Operating income (Loss) Units Sold

Product X

Product Y

Total

$ 368,000 239,200 $ 128,800 140,000 $ (11,200)

$ 548,000 226,000 $ 322,000 118,000 $ 204,000

$ 916,000 465,200 $ 450,800 258,000 $ 192,800

3,200

12,400

The contribution margin sales volume variance for Product Y is: (Round your intermediate calculations to 2 decimal places.) A) $8,400 favorable. B) $29,000 favorable. C) $48,000 unfavorable. D) $58,000 unfavorable. E) $84,000 favorable.

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103)

Pair Company has two products named X and Y. The firm had the following master budget for the year just completed: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 260,000 156,000 $ 104,000 130,000

$ 360,000 180,000 $ 180,000 108,000

$ 620,000 336,000 $ 284,000 238,000

Operating Income (Loss)

$ (26,000)

$ 72,000

$ 46,000

Selling Price per unit

$ 130.00

$ 60.00

The following actual operating results were reported after the year was over: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 202,500 117,000 $ 85,500 140,000

$ 467,500 212,500 $ 255,000 108,000

$ 670,000 329,500 $ 340,500 248,000

Operating Income (Loss)

$ (54,500)

$ 147,000

$ 92,500

1,500

8,500

Units Sold

The contribution margin sales volume variance for Product Y is: A) $7,500 favorable. B) $26,000 favorable. C) $42,500 unfavorable. D) $52,000 unfavorable. E) $75,000 favorable.

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104)

Pair Company has two products named X and Y. The firm had the following master budget for the year just completed: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs Operating income (Loss)

$ 249,600 201,608 $ 47,992 130,000 $ (82,008)

$ 344,000 137,600 $ 206,400 108,000 $ 98,400

$ 593,600 339,208 $ 254,392 238,000 $ 16,392

Selling Price per unit

$ 120

$ 65

The following actual operating results were reported after the year was over:

Sales Variable Costs Contribution Margin Fixed costs Operating income (Loss) Units Sold

Product X

Product Y

Total

$ 363,200 236,100 $ 127,100 140,000 $ (12,900)

$ 543,200 220,000 $ 323,200 112,000 $ 211,200

$ 906,400 456,100 $ 450,300 252,000 $ 198,300

1,500

8,500

The selling price variance for Product Y is: (Round your intermediate calculations to 2 decimal places.) A) $1,630 favorable. B) $5,000 unfavorable. C) $9,265 unfavorable. D) $11,000 favorable. E) $16,000 unfavorable.

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105)

Pair Company has two products named X and Y. The firm had the following master budget for the year just completed: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 260,000 156,000 $ 104,000 130,000

$ 360,000 180,000 $ 180,000 108,000

$ 620,000 336,000 $ 284,000 238,000

Operating Income (Loss)

$ (26,000)

$ 72,000

$ 46,000

Selling Price per unit

$ 130.00

$ 60.00

The following actual operating results were reported after the year was over: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 202,500 117,000 $ 85,500 140,000

$ 467,500 212,500 $ 255,000 108,000

$ 670,000 329,500 $ 340,500 248,000

Operating Income (Loss)

$ (54,500)

$ 147,000

$ 92,500

1,500

8,500

Units Sold

The selling price variance for Product Y is: A) $7,500 favorable. B) $25,000 unfavorable. C) $42,500 unfavorable. D) $52,000 favorable. E) $75,000 unfavorable.

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106)

Pair Company has two products named X and Y. The firm had the following master budget for the year just completed: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 246,000 148,000 $ 98,000 130,000

$ 368,000 147,200 $ 220,800 108,000

$ 614,000 295,200 $ 318,800 238,000

Operating Income (Loss)

$ (32,000)

$ 112,800

$ 80,800

$ 100

$ 50

Selling Price per unit

The following actual operating results were reported after the year was over: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 365,600 202,000 $ 163,600 212,200

$ 545,600 223,000 $ 322,600 115,000

$ 911,200 425,000 $ 486,200 327,200

Operating Income (Loss)

$ (48,600)

$ 207,600

$ 159,000

3,140

9,700

Units Sold

The sales quantity variance for Product Y is:(Round your intermediate calculations to 2 decimal places.) A) $6,000 favorable. B) $37,800 favorable. C) $39,300 favorable. D) $67,950 favorable. E) $78,600 unfavorable.

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107)

Pair Company has two products named X and Y. The firm had the following master budget for the year just completed: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 260,000 156,000 $ 104,000 130,000

$ 360,000 180,000 $ 180,000 108,000

$ 620,000 336,000 $ 284,000 238,000

Operating Income (Loss)

$ (26,000)

$ 72,000

$ 46,000

Selling Price per unit

$ 130.00

$ 60.00

The following actual operating results were reported after the year was over: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 202,500 117,000 $ 85,500 140,000

$ 467,500 212,500 $ 255,000 108,000

$ 670,000 329,500 $ 340,500 248,000

Operating Income (Loss)

$ (54,500)

$ 147,000

$ 92,500

1,500

8,500

Units Sold

The sales quantity variance for Product Y is: A) $4,000 favorable. B) $25,000 favorable. C) $26,000 favorable. D) $45,000 favorable. E) $52,000 unfavorable.

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108)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 297,480 195,841 $ 101,639 50,000

$ 544,000 217,600 $ 326,400 108,000

$ 841,480 413,441 $ 428,039 158,000

Operating Income

$ 51,639

$ 218,400

$ 270,039

Selling Price per unit

$ 120

$ 50

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 367,200 204,000 $ 163,200 59,000

$ 547,200 225,000 $ 322,200 117,000

$ 914,400 429,000 $ 485,400 176,000

Operating Income

$ 104,200

$ 205,200

$ 309,400

3,180

9,900

Units Sold

Total industry volume for both products X and Y was estimated to be 139,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 107,200 units. The contribution margin sales volume variance for Product X is: A) $12,800 unfavorable. B) $16,100 favorable. C) $23,700 favorable. D) $23,700 unfavorable. E) $28,741 favorable.

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109)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 286,000 189,800 $ 96,200 50,000

$ 520,000 218,400 $ 301,600 108,000

$ 806,000 408,200 $ 397,800 158,000

Operating Income

$ 46,200

$ 193,600

$ 239,800

Selling Price per unit

$ 110.00

$ 50.00

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 360,000 195,000 $ 165,000 50,000

$ 540,000 216,000 $ 324,000 108,000

$ 900,000 411,000 $ 489,000 158,000

Operating Income

$ 115,000

$ 216,000

$ 331,000

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 130,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The contribution margin sales volume variance for Product X is: A) $6,600 unfavorable. B) $8,300 favorable. C) $12,200 favorable. D) $12,200 unfavorable. E) $14,800 favorable.

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110)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 221,430 147,600 $ 73,830 50,000

$ 402,350 169,000 $ 233,350 108,000

$ 623,780 316,600 $ 307,180 158,000

Operating Income

$ 23,830

$ 125,350

$ 149,180

$ 110

$ 50

Selling Price per unit

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 375,000 187,500 $ 187,500 50,000

$ 414,000 165,600 $ 248,400 108,000

$ 789,000 353,100 $ 435,900 158,000

Operating Income

$ 137,500

$ 140,400

$ 277,900

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 130,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The selling price variance for Product X is: A) $0. B) $45,000 unfavorable. C) $45,000 favorable. D) $22,500 favorable. E) $112,500 unfavorable.

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111)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 286,000 189,800 $ 96,200 50,000

$ 520,000 218,400 $ 301,600 108,000

$ 806,000 408,200 $ 397,800 158,000

Operating Income

$ 46,200

$ 193,600

$ 239,800

Selling Price per unit

$ 110.00

$ 50.00

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 360,000 195,000 $ 165,000 50,000

$ 540,000 216,000 $ 324,000 108,000

$ 900,000 411,000 $ 489,000 158,000

Operating Income

$ 115,000

$ 216,000

$ 331,000

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 130,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The selling price variance for Product X is: A) $0. B) $30,000 unfavorable. C) $30,000 favorable. D) $15,000 favorable. E) $75,000 unfavorable.

Version 1

112)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 160,000 64,000 $ 96,000 20,000

$ 480,000 190,000 $ 290,000 100,000

$ 640,000 254,000 $ 386,000 120,000

Operating Income

$ 76,000

$ 190,000

$ 266,000

Selling Price per unit

$ 100

$ 50

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 234,000 81,900 $ 152,100 20,000

$ 351,000 140,400 $ 210,600 100,000

$ 585,000 222,300 $ 362,700 120,000

Operating Income

$ 132,100

$ 110,600

$ 242,700

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 130,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The sales mix variance for Product X is: (Round your 'sales mix' percentage to the nearest whole percent.) A) $79,200 favorable. B) $155,546 unfavorable. C) $155,546 favorable. D) $26,400 unfavorable. E) $82,768 unfavorable.

Version 1

113)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 286,000 189,800 $ 96,200 50,000

$ 520,000 218,400 $ 301,600 108,000

$ 806,000 408,200 $ 397,800 158,000

Operating Income

$ 46,200

$ 193,600

$ 239,800

Selling Price per unit

$ 110.00

$ 50.00

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 360,000 195,000 $ 165,000 50,000

$ 540,000 216,000 $ 324,000 108,000

$ 900,000 411,000 $ 489,000 158,000

Operating Income

$ 115,000

$ 216,000

$ 331,000

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 130,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The sales mix variance for Product X is: A) $22,200 favorable. B) $43,600 unfavorable. C) $43,600 favorable. D) $7,400 unfavorable. E) $23,200 unfavorable.

Version 1

114)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 310,000 204,600 $ 105,400 10,000

$ 544,000 228,480 $ 315,520 100,000

$ 854,000 433,080 $ 420,920 110,000

Operating Income

$ 95,400

$ 215,520

$ 310,920

$ 100

$ 50

Selling Price per unit

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 267,000 93,450 $ 173,550 10,000

$ 594,000 237,600 $ 356,400 100,000

$ 861,000 331,050 $ 529,950 110,000

Operating Income

$ 163,550

$ 256,400

$ 419,950

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 130,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The sales quantity variance for Product X is: (Round your 'sales mix' percentage to the nearest whole percent.) A) $52,760 favorable. B) $14,810 unfavorable. C) $13,910 favorable. D) $30,610 favorable. E) $50,910 favorable.

Version 1

115)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 286,000 189,800 $ 96,200 50,000

$ 520,000 218,400 $ 301,600 108,000

$ 806,000 408,200 $ 397,800 158,000

Operating Income

$ 46,200

$ 193,600

$ 239,800

Selling Price per unit

$ 110.00

$ 50.00

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 360,000 195,000 $ 165,000 50,000

$ 540,000 216,000 $ 324,000 108,000

$ 900,000 411,000 $ 489,000 158,000

Operating Income

$ 115,000

$ 216,000

$ 331,000

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 130,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The sales quantity variance for Product X is: A) $45,350 favorable. B) $7,400 unfavorable. C) $6,500 favorable. D) $23,200 favorable. E) $43,500 favorable.

Version 1

116)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 160,000 64,000 $ 96,000 20,000

$ 480,000 190,000 $ 290,000 100,000

$ 640,000 254,000 $ 386,000 120,000

Operating Income

$ 76,000

$ 190,000

$ 266,000

Selling Price per unit

$ 100

$ 50

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 234,000 81,900 $ 152,100

$ 351,000 140,400 $ 210,600

$ 585,000 222,300 $ 362,700

20,000

100,000

120,000

Operating Income

$ 132,100

$ 110,600

$ 242,700

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 130,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The contribution margin sales volume variance for Product Y is: (Round your intermediate calculation to 2 decimal places.) A) $9,152 favorable. B) $7,143 favorable. C) $13,661 favorable. D) $18,126 unfavorable. E) $40,627 unfavorable.

Version 1

117)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 286,000 189,800 $ 96,200 50,000

$ 520,000 218,400 $ 301,600 108,000

$ 806,000 408,200 $ 397,800 158,000

Operating Income

$ 46,200

$ 193,600

$ 239,800

Selling Price per unit

$ 110.00

$ 50.00

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 360,000 195,000 $ 165,000 50,000

$ 540,000 216,000 $ 324,000 108,000

$ 900,000 411,000 $ 489,000 158,000

Operating Income

$ 115,000

$ 216,000

$ 331,000

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 130,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The contribution margin sales volume variance for Product Y is: A) $20,500 favorable. B) $16,000 unfavorable. C) $30,600 favorable. D) $40,600 unfavorable. E) $91,000 unfavorable.

Version 1

118)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 200,000 88,000 $ 112,000 12,000

$ 488,000 234,240 $ 253,760 100,000

$ 688,000 322,240 $ 365,760 112,000

Operating Income

$ 100,000

$ 153,760

$ 253,760

$ 100

$ 50

Selling Price per unit

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 362,000 197,500 $ 164,500 12,000

$ 517,500 218,500 $ 299,000 100,000

$ 879,500 416,000 $ 463,500 112,000

Operating Income

$ 152,500

$ 199,000

$ 351,500

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 130,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The selling price variance for Product Y is: A) $67,500 favorable. B) $32,400 unfavorable. C) $67,500 unfavorable. D) $26,000 favorable. E) $38,000 unfavorable.

Version 1

119)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 286,000 189,800 $ 96,200 50,000

$ 520,000 218,400 $ 301,600 108,000

$ 806,000 408,200 $ 397,800 158,000

Operating Income

$ 46,200

$ 193,600

$ 239,800

Selling Price per unit

$ 110.00

$ 50.00

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 360,000 195,000 $ 165,000 50,000

$ 540,000 216,000 $ 324,000 108,000

$ 900,000 411,000 $ 489,000 158,000

Operating Income

$ 115,000

$ 216,000

$ 331,000

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 130,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The selling price variance for Product Y is: A) $90,000 favorable. B) $43,200 unfavorable. C) $90,000 unfavorable. D) $35,000 favorable. E) $50,000 unfavorable.

Version 1

120)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 260,000 156,000 $ 104,000 10,000

$ 500,000 200,000 $ 300,000 100,000

$ 760,000 356,000 $ 404,000 110,000

Operating Income

$ 94,000

$ 200,000

$ 294,000

$ 100

$ 50

Selling Price per unit

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 365,200 201,500 $ 163,700 10,000

$ 526,500 222,500 $ 304,000 100,000

$ 891,700 424,000 $ 467,700 110,000

Operating Income

$ 153,700

$ 204,000

$ 357,700

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 130,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The sales mix variance for Product Y is: (Round your 'sales mix' percentage to the nearest whole percent.) A) $11,900 favorable. B) $13,450 favorable. C) $14,400 unfavorable. D) $15,520 favorable. E) $27,520 unfavorable.

Version 1

121)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 286,000 189,800 $ 96,200 50,000

$ 520,000 218,400 $ 301,600 108,000

$ 806,000 408,200 $ 397,800 158,000

Operating Income

$ 46,200

$ 193,600

$ 239,800

Selling Price per unit

$ 110.00

$ 50.00

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 360,000 195,000 $ 165,000 50,000

$ 540,000 216,000 $ 324,000 108,000

$ 900,000 411,000 $ 489,000 158,000

Operating Income

$ 115,000

$ 216,000

$ 331,000

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 130,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The sales mix variance for Product Y is: A) $14,400 favorable. B) $16,250 favorable. C) $17,400 unfavorable. D) $18,750 favorable. E) $33,250 unfavorable.

Version 1

122)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 318,000 209,880 $ 108,120 14,000

$ 552,000 231,840 $ 320,160 100,000

$ 870,000 441,720 $ 428,280 114,000

Operating Income

$ 94,120

$ 220,160

$ 314,280

$ 100

$ 50

Selling Price per unit

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 366,400 203,000 $ 163,400 14,000

$ 612,000 224,000 $ 388,000 100,000

$ 978,400 427,000 $ 551,400 114,000

Operating Income

$ 149,400

$ 288,000

$ 437,400

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 130,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The sales quantity variance for Product Y is: (Round your 'sales mix' percentage to the nearest whole percent.) A) $14,010 favorable. B) $13,960 favorable. C) $71,960 favorable. D) $50,216 unfavorable. E) $168,830 favorable.

Version 1

123)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 286,000 189,800 $ 96,200 50,000

$ 520,000 218,400 $ 301,600 108,000

$ 806,000 408,200 $ 397,800 158,000

Operating Income

$ 46,200

$ 193,600

$ 239,800

Selling Price per unit

$ 110.00

$ 50.00

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 360,000 195,000 $ 165,000 50,000

$ 540,000 216,000 $ 324,000 108,000

$ 900,000 411,000 $ 489,000 158,000

Operating Income

$ 115,000

$ 216,000

$ 331,000

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 130,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The sales quantity variance for Product Y is: A) $6,465 favorable. B) $6,750 favorable. C) $33,250 favorable. D) $23,200 unfavorable. E) $78,000 favorable.

Version 1

124)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 296,000 198,000 $ 98,000 50,000

$ 480,000 240,000 $ 240,000 108,000

$ 776,000 438,000 $ 338,000 158,000

Operating Income

$ 48,000

$ 132,000

$ 180,000

$ 100

$ 50

Selling Price per unit

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 310,000 171,000 $ 139,000 50,000

$ 500,000 200,000 $ 300,000 108,000

$ 810,000 371,000 $ 439,000 158,000

Operating Income

$ 89,000

$ 192,000

$ 281,000

3,000

9,000

Units Sold

Version 1

125)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 286,000 189,800 $ 96,200 50,000

$ 520,000 218,400 $ 301,600 108,000

$ 806,000 408,200 $ 397,800 158,000

Operating Income

$ 46,200

$ 193,600

$ 239,800

Selling Price per unit

$ 110.00

$ 50.00

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 360,000 195,000 $ 165,000 50,000

$ 540,000 216,000 $ 324,000 108,000

$ 900,000 411,000 $ 489,000 158,000

Operating Income

$ 115,000

$ 216,000

$ 331,000

3,000

9,000

Units Sold

Version 1

126)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 344,500 206,700 $ 137,800 50,000

$ 530,000 265,000 $ 265,000 108,000

$ 874,500 471,700 $ 402,800 158,000

Operating Income

$ 87,800

$ 157,000

$ 244,800

$ 100

$ 50

Selling Price per unit

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 360,000 198,000 $ 162,000 50,000

$ 550,000 220,000 $ 330,000 108,000

$ 910,000 418,000 $ 492,000 158,000

Operating Income

$ 112,000

$ 222,000

$ 334,000

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 130,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The firm's total sales quantity variance for the period is: (Round your intermediate calculations to 2 decimal places.) A) $30,670 unfavorable. B) $66,710 unfavorable. C) $47,270 unfavorable. D) $58,651 unfavorable. E) $127,240 unfavorable.

Version 1

127)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 286,000 189,800 $ 96,200 50,000

$ 520,000 218,400 $ 301,600 108,000

$ 806,000 408,200 $ 397,800 158,000

Operating Income

$ 46,200

$ 193,600

$ 239,800

Selling Price per unit

$ 110.00

$ 50.00

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 360,000 195,000 $ 165,000 50,000

$ 540,000 216,000 $ 324,000 108,000

$ 900,000 411,000 $ 489,000 158,000

Operating Income

$ 115,000

$ 216,000

$ 331,000

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 130,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The firm's total sales quantity variance for the period is: A) $16,000 unfavorable. B) $34,800 unfavorable. C) $24,660 unfavorable. D) $30,600 unfavorable. E) $66,375 unfavorable.

Version 1

128)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 306,000 200,000 $ 106,000 50,000

$ 490,000 245,000 $ 245,000 108,000

$ 796,000 445,000 $ 351,000 158,000

Operating Income

$ 56,000

$ 137,000

$ 193,000

$ 100

$ 50

Selling Price per unit

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 320,000 176,000 $ 144,000 50,000

$ 510,000 204,000 $ 306,000 108,000

$ 830,000 380,000 $ 450,000 158,000

Operating Income

$ 94,000

$ 198,000

$ 292,000

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 128,600 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The firm's market share variance for the period is: (Round your intermediate calculations to 2 decimal places.) A) $5,070 unfavorable. B) $27,360 unfavorable. C) $20,770 favorable. D) $54,580 favorable. E) $81,480 favorable.

Version 1

100

129)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 286,000 189,800 $ 96,200 50,000

$ 520,000 218,400 $ 301,600 108,000

$ 806,000 408,200 $ 397,800 158,000

Operating Income

$ 46,200

$ 193,600

$ 239,800

Selling Price per unit

$ 110.00

$ 50.00

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 360,000 195,000 $ 165,000 50,000

$ 540,000 216,000 $ 324,000 108,000

$ 900,000 411,000 $ 489,000 158,000

Operating Income

$ 115,000

$ 216,000

$ 331,000

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 130,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The firm's market share variance for the period is: A) $5,670 unfavorable. B) $30,600 unfavorable. C) $23,200 favorable. D) $61,200 favorable. E) $91,000 favorable.

Version 1

101

130)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 316,000 202,000 $ 114,000 50,000

$ 500,000 250,000 $ 250,000 108,000

$ 816,000 452,000 $ 364,000 158,000

Operating Income

$ 64,000

$ 142,000

$ 206,000

$ 100

$ 50

Selling Price per unit

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 330,000 182,000 $ 148,000 50,000

$ 520,000 208,000 $ 312,000 108,000

$ 850,000 390,000 $ 460,000 158,000

Operating Income

$ 98,000

$ 204,000

$ 302,000

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 130,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The firm's market size variance for the period is: (Round your intermediate calculations to 2 decimal places. Round your percentages to 4 decimal places. Example: Round .14447 to .1445 or 14.45%.) A) $14,630 favorable. B) $23,770 favorable. C) $55,950 favorable. D) $27,980 unfavorable. E) $83,976 unfavorable.

Version 1

102

131)

Winston Company had two products code named X and Y. The firm had the following budget for August: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 286,000 189,800 $ 96,200 50,000

$ 520,000 218,400 $ 301,600 108,000

$ 806,000 408,200 $ 397,800 158,000

Operating Income

$ 46,200

$ 193,600

$ 239,800

Selling Price per unit

$ 110.00

$ 50.00

On September 1, the following actual operating results for August were reported: Product X

Product Y

Total

Sales Variable Costs Contribution Margin Fixed costs

$ 360,000 195,000 $ 165,000 50,000

$ 540,000 216,000 $ 324,000 108,000

$ 900,000 411,000 $ 489,000 158,000

Operating Income

$ 115,000

$ 216,000

$ 331,000

3,000

9,000

Units Sold

Total industry volume for both products X and Y was estimated to be 130,000 units at the time of the budget. Actual industry volume for the period for products X and Y was 100,000 units. The firm's market size variance for the period is: A) $16,000 favorable. B) $26,000 favorable. C) $61,200 favorable. D) $30,600 unfavorable. E) $91,800 unfavorable.

Version 1

103

132)

Soft Fashions sells a line of women's dresses. The company uses flexible budgets to analyze its performances. The firm's performance report for November is presented below:

Dresses sold Sales Variable costs Contribution margin Fixed costs Operating income

Actual

Budget

5,100 $ 240,000 142,800 $ 97,200 84,000 $ 13,200

6,100 $ 298,900 176,900 $ 122,000 80,000 $ 42,000

The effect of the sales volume variance on November's contribution margin is: A) $15,000 unfavorable. B) $18,000 unfavorable. C) $20,000 unfavorable. D) $30,000 unfavorable. E) $65,000 unfavorable.

133)

Soft Fashions sells a line of women's dresses. The company uses flexible budgets to analyze its performances. The firm's performance report for November is presented below:

Dresses sold Sales Variable costs Contribution margin Fixed costs Operating income

Actual

Budget

5,000 $ 235,000 145,000 $ 90,000 84,000

6,000 $ 300,000 180,000 $ 120,000 80,000

$ 6,000

$ 40,000

The effect of the sales volume variance on November's contribution margin is: A) $15,000 unfavorable. B) $18,000 unfavorable. C) $20,000 unfavorable. D) $30,000 unfavorable. E) $65,000 unfavorable.

Version 1

104

134)

Soft Fashions sells a line of women's dresses. The company uses flexible budgets to analyze its performances. The firm's performance report for November is presented below:

Dresses sold Sales Variable costs Contribution margin Fixed costs Operating income

Actual

Budget

4,200 $ 235,200 142,800 $ 92,400 84,000 $ 8,400

5,000 $ 295,000 175,000 $ 120,000 80,000 $ 40,000

The selling price variance for November is: A) $12,600 unfavorable. B) $15,200 unfavorable. C) $16,800 unfavorable. D) $25,200 unfavorable. E) $54,600 unfavorable.

135)

Soft Fashions sells a line of women's dresses. The company uses flexible budgets to analyze its performances. The firm's performance report for November is presented below:

Dresses sold Sales Variable costs Contribution margin Fixed costs Operating income

Actual

Budget

5,000 $ 235,000 145,000 $ 90,000 84,000

6,000 $ 300,000 180,000 $ 120,000 80,000

$ 6,000

$ 40,000

The selling price variance for November is: A) $15,000 unfavorable. B) $18,000 unfavorable. C) $20,000 unfavorable. D) $30,000 unfavorable. E) $65,000 unfavorable.

Version 1

105

136)

Soft Fashions sells a line of women's dresses. The company uses flexible budgets to analyze its performances. The firm's performance report for November is presented below:

Dresses sold Sales Variable costs Contribution margin Fixed costs Operating income

Actual

Budget

5,000 $ 235,000 145,000 $ 90,000 84,000

6,000 $ 300,000 180,000 $ 120,000 80,000

$ 6,000

$ 40,000

What additional information would be needed for Soft to calculate the dollar impact of changes in market share on November's operating income? A) Soft's budgeted market share and the budgeted total market size. B) Soft's budgeted market share, the budgeted total market size, and average market selling price. C) Soft's budgeted market share and the actual total market size. D) Soft's actual market share and the actual total market size. E) There is no information that would make such a calculation possible.

Version 1

106

137)

Duo, Incorporated, carries two products and has the following year-end income statement (000s omitted):

Units Sales $ Variable costs Fixed Costs Total Costs

Product AR-10 Budget Actual 4,000 5,600 $ 28,000 $ 15,120 3,200 5,600 1,800 1,900 $ 5,000 $ 7,500

Product ZR-7 Budget Actual 10,000 9,300 $ 20,000 $ 19,530 10,000 9,770 2,400 2,400 $ 12,400 $ 12,170

Operating income

$ 23,000

$ 7,600

$ 7,620

$ 7,360

The net effect of AR-10's sales volume variance on profit is: A) $4,960 favorable. B) $5,660 favorable. C) $7,330 favorable. D) $8,030 favorable. E) $9,920 favorable.

138)

Duo, Incorporated, carries two products and has the following year-end income statement (000s omitted):

Units Sales $ Variable costs Fixed Costs Total Costs

Product AR-10 Budget Actual 2,000 2,800 $ 6,000 $ 7,560 2,400 2,800 1,800 1,900 $ 4,200 $ 4,700

Product ZR-7 Budget Actual 6,000 5,600 $ 12,000 $ 11,760 6,000 5,880 2,400 2,400 $ 8,400 $ 8,280

Operating income

$ 1,800

$ 3,600

$ 2,860

$ 3,480

The net effect of AR-10's sales volume variance on profit is: A) $720 favorable. B) $817 favorable. C) $1,060 favorable. D) $1,160 favorable. E) $1,440 favorable.

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139)

Duo, Incorporated, carries two products and has the following year-end income statement (000s omitted):

Units Sales $ Variable costs Fixed Costs Total Costs

Product AR-10 Budget Actual 3,000 4,200 $ 15,000 $ 11,340 3,000 4,200 1,800 1,900 $ 4,800 $ 6,100

Product ZR-7 Budget Actual 8,000 7,400 $ 16,000 $ 15,540 8,000 7,770 2,400 2,400 $ 10,400 $ 10,170

Operating income

$ 10,200

$ 5,600

$ 5,240

$ 5,370

The net effect of ZR-7's selling price variance on profit is: A) $320 favorable. B) $560 unfavorable. C) $580 unfavorable. D) $740 favorable. E) $1,120 unfavorable.

140)

Duo, Incorporated, carries two products and has the following year-end income statement (000s omitted):

Units Sales $ Variable costs Fixed Costs Total Costs

Product AR-10 Budget Actual 2,000 2,800 $ 6,000 $ 7,560 2,400 2,800 1,800 1,900 $ 4,200 $ 4,700

Product ZR-7 Budget Actual 6,000 5,600 $ 12,000 $ 11,760 6,000 5,880 2,400 2,400 $ 8,400 $ 8,280

Operating income

$ 1,800

$ 3,600

$ 2,860

$ 3,480

The net effect of ZR-7's selling price variance on profit is: A) $240 favorable. B) $400 unfavorable. C) $420 unfavorable. D) $560 favorable. E) $800 unfavorable.

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141)

Duo, Incorporated, carries two products and has the following year-end income statement (000s omitted):

Units Sales $ Variable costs Fixed Costs Total Costs

Product AR-10 Budget Actual 16,000 22,400 $ 48,000 $ 60,500 19,200 22,400 14,400 15,200 $ 33,600 $ 37,600

Product ZR-7 Budget Actual 48,000 44,800 $ 96,000 $ 94,100 48,000 47,000 19,200 19,200 $ 67,200 $ 66,200

Operating income

$ 14,400

$ 28,800

$ 22,900

$ 27,900

If products AR-10 and ZR-7 are substitutes for each other, a sales mix and sales volume variation for the combined products can be calculated. If this combination is calculated, the net effect on profit of the change in the unit sales mix is: A) $4,400 favorable. B) $5,600 favorable. C) $4,480 favorable. D) $4,860 favorable. E) $15,680 favorable.

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142)

Duo, Incorporated, carries two products and has the following year-end income statement (000s omitted):

Units Sales $ Variable costs Fixed Costs Total Costs

Product AR-10 Budget Actual 2,000 2,800 $ 6,000 $ 7,560 2,400 2,800 1,800 1,900 $ 4,200 $ 4,700

Product ZR-7 Budget Actual 6,000 5,600 $ 12,000 $ 11,760 6,000 5,880 2,400 2,400 $ 8,400 $ 8,280

Operating income

$ 1,800

$ 3,600

$ 2,860

$ 3,480

If products AR-10 and ZR-7 are substitutes for each other, a sales mix and sales volume variation for the combined products can be calculated. If this combination is calculated, the net effect on profit of the change in the unit sales mix is: A) $480 favorable. B) $700 favorable. C) $560 favorable. D) $940 favorable. E) $1,960 favorable.

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143)

Duo, Incorporated, carries two products and has the following year-end income statement (000s omitted):

Units Sales $ Variable costs Fixed Costs Total Costs

Product AR-10 Budget Actual 3,000 3,900 $ 9,000 $ 10,530 3,600 3,900 2,700 2,800 $ 6,300 $ 6,700

Product ZR-7 Budget Actual 9,000 9,100 $ 18,000 $ 19,110 9,000 9,555 3,600 3,822 $ 12,600 $ 13,377

Operating income

$ 2,700

$ 5,400

$ 3,830

$ 5,733

If products AR-10 and ZR-7 are substitutes for each other, a sales mix and sales volume variation for the combined products can be calculated. If this combination is calculated, the sales quantity variance is: A) $1,200 favorable. B) $1,227 favorable. C) $1,280 favorable. D) $2,400 favorable. E) $2,480 favorable.

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144)

Duo, Incorporated, carries two products and has the following year-end income statement (000s omitted):

Units Sales $ Variable costs Fixed Costs Total Costs

Product AR-10 Budget Actual 2,000 2,800 $ 6,000 $ 7,560 2,400 2,800 1,800 1,900 $ 4,200 $ 4,700

Product ZR-7 Budget Actual 6,000 5,600 $ 12,000 $ 11,760 6,000 5,880 2,400 2,400 $ 8,400 $ 8,280

Operating income

$ 1,800

$ 3,600

$ 2,860

$ 3,480

If products AR-10 and ZR-7 are substitutes for each other, a sales mix and sales volume variation for the combined products can be calculated. If this combination is calculated, the sales quantity variance is: A) $480 favorable. B) $507 favorable. C) $560 favorable. D) $960 favorable. E) $1,040 favorable.

145)

TV Timers, Incorporated, manufactures time control devices for TV's. The firm has the following operating data for its operations in July: Actual market size Budgeted market size Actual market share Budgeted market share Budgeted average contribution margin Actual average contribution margin

10,500 11,800 34% 32% $ 6.00 $ 5.25

What is the company's market share variance? A) $1,110 favorable. B) $1,248 favorable. C) $1,260 favorable. D) $1,430 favorable. E) $2,540 favorable.

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10,000 11,250 34% 32% $ 6.00 $ 5.25

What is the company's market share variance? A) $1,050 favorable. B) $1,181 favorable. C) $1,200 favorable. D) $1,350 favorable. E) $2,400 favorable.

147)

7,500 8,400 34% 32% $ 6.25 $ 5.00

What is the company's market size variance? A) $900 unfavorable. B) $1,600 unfavorable. C) $1,699 unfavorable. D) $1,800 unfavorable. E) $1,940 unfavorable.

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10,000 11,250 34% 32% $ 6.00 $ 5.25

What is the company's market size variance? A) $1,200 unfavorable. B) $2,100 unfavorable. C) $2,231 unfavorable. D) $2,400 unfavorable. E) $2,550 unfavorable.

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149)

Arrow, Incorporated, manufactures two products that it sells to the same market. Excerpted below are its budgeted and actual operating results for the year just completed: Budget

Actual

Unit sales Product X Product Y Unit contribution margin

22,000 87,000

41,000 77,000

Product X Product Y Unit selling price

$ 6.00 $ 13.00

$ 3.90 $ 14.00

$ 13.00 $ 30.00

$ 14.00 $ 29.00

Product X Product Y

Industry volume was estimated to be 1,870,000 units at the time the budget was prepared. Actual industry volume for the period was 2,420,000 units. Arrow measures variances using contribution margin. The weighted-average budgeted contribution margin per unit is: A) $9.08. B) $9.13. C) $10.39. D) $11.59. E) $12.18.

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150)

Arrow, Incorporated, manufactures two products that it sells to the same market. Excerpted below are its budgeted and actual operating results for the year just completed: Budget

Actual

Unit sales Product X Product Y Unit contribution margin

22,500 90,000

42,000 80,000

Product X Product Y Unit selling price

$ 4.80 $ 13.00

$ 3.90 $ 14.00

$ 13.00 $ 30.00

$ 14.00 $ 29.00

Product X Product Y

Industry volume was estimated to be 1,875,000 units at the time the budget was prepared. Actual industry volume for the period was 2,440,000 units. Arrow measures variances using contribution margin. The weighted-average budgeted contribution margin per unit is: A) $8.90. B) $8.95. C) $10.18. D) $11.36. E) $11.94.

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151)

Arrow, Incorporated, manufactures two products that it sells to the same market. Excerpted below are its budgeted and actual operating results for the year just completed: Budget

Actual

Unit sales Product X Product Y Unit contribution margin

32,500 80,000

82,000 40,000

Product X Product Y Unit selling price

$ 4.80 $ 13.00

$ 3.90 $ 14.00

$ 13.00 $ 30.00

$ 14.00 $ 29.00

Product X Product Y

Industry volume was estimated to be 1,375,000 units at the time the budget was prepared. Actual industry volume for the period was 1,640,000 units. Arrow measures variances using contribution margin. The market share variance is: (Round your intermediate calculations to 2 decimal places. Example: Round .147 to .15 or 15%) A) $71,400 unfavorable. B) $87,110 unfavorable. C) $162,700 unfavorable. D) $174,332 unfavorable. E) $212,700 unfavorable.

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117

152)

Arrow, Incorporated, manufactures two products that it sells to the same market. Excerpted below are its budgeted and actual operating results for the year just completed: Budget

Actual

Unit sales Product X Product Y Unit contribution margin

22,500 90,000

42,000 80,000

Product X Product Y Unit selling price

$ 4.80 $ 13.00

$ 3.90 $ 14.00

$ 13.00 $ 30.00

$ 14.00 $ 29.00

Product X Product Y

Industry volume was estimated to be 1,875,000 units at the time the budget was prepared. Actual industry volume for the period was 2,440,000 units. Arrow measures variances using contribution margin. The market share variance is: A) $113,600 unfavorable. B) $138,560 unfavorable. C) $259,200 unfavorable. D) $277,184 unfavorable. E) $338,800 unfavorable.

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153)

Arrow, Incorporated, manufactures two products that it sells to the same market. Excerpted below are its budgeted and actual operating results for the year just completed: Budget

Actual

Unit sales Product X Product Y Unit contribution margin

31,000 81,500

76,000 46,000

Product X Product Y Unit selling price

$ 4.80 $ 13.00

$ 3.90 $ 14.00

$ 13.00 $ 30.00

$ 14.00 $ 29.00

Product X Product Y

Industry volume was estimated to be 1,450,000 units at the time the budget was prepared. Actual industry volume for the period was 1,760,000 units. Arrow measures variances using contribution margin. The market size variance is: (Round your intermediate calculations to 2 decimal places. Example: Round .147 to .15 or 15%) A) $151,100 favorable. B) $23,350 favorable. C) $153,270 favorable. D) $266,352 favorable. E) $296,000 favorable.

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119

154)

Arrow, Incorporated, manufactures two products that it sells to the same market. Excerpted below are its budgeted and actual operating results for the year just completed: Budget

Actual

Unit sales Product X Product Y Unit contribution margin

22,500 90,000

42,000 80,000

Product X Product Y Unit selling price

$ 4.80 $ 13.00

$ 3.90 $ 14.00

$ 13.00 $ 30.00

$ 14.00 $ 29.00

Product X Product Y

Industry volume was estimated to be 1,875,000 units at the time the budget was prepared. Actual industry volume for the period was 2,440,000 units. Arrow measures variances using contribution margin. The market size variance is: A) $218,450 favorable. B) $33,750 favorable. C) $221,520 favorable. D) $385,104 favorable. E) $426,000 favorable.

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120

155)

Arrow, Incorporated, manufactures two products that it sells to the same market. Excerpted below are its budgeted and actual operating results for the year just completed: Budget

Actual

Unit sales Product X Product Y Unit contribution margin

24,200 96,800

76,000 46,000

Product X Product Y Unit selling price

$ 4.80 $ 13.00

$ 3.90 $ 14.00

$ 13.00 $ 30.00

$ 14.00 $ 29.00

Product X Product Y

Industry volume was estimated to be 1,450,000 units at the time the budget was prepared. Actual industry volume for the period was 1,760,000 units. Arrow measures variances using contribution margin. Total sales quantity variance is: (Round your intermediate calculations to 2 decimal places. Example: Round .147 to .15 or 15%) A) $27,600 favorable. B) $64,300 favorable. C) $72,420 favorable. D) $74,010 favorable. E) $81,792 favorable.

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121

156)

Arrow, Incorporated, manufactures two products that it sells to the same market. Excerpted below are its budgeted and actual operating results for the year just completed: Budget

Actual

Unit sales Product X Product Y Unit contribution margin

22,500 90,000

42,000 80,000

Product X Product Y Unit selling price

$ 4.80 $ 13.00

$ 3.90 $ 14.00

$ 13.00 $ 30.00

$ 14.00 $ 29.00

Product X Product Y

Industry volume was estimated to be 1,875,000 units at the time the budget was prepared. Actual industry volume for the period was 2,440,000 units. Arrow measures variances using contribution margin. Total sales quantity variance is: A) $36,400 favorable. B) $84,500 favorable. C) $95,190 favorable. D) $97,280 favorable. E) $107,920 favorable.

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122

157)

Arrow, Incorporated, manufactures two products that it sells to the same market. Excerpted below are its budgeted and actual operating results for the year just completed: Budget

Actual

Unit sales Product X Product Y Unit contribution margin

25,500 88,000

48,500 74,000

Product X Product Y Unit selling price

$ 5.30 $ 13.00

$ 3.60 $ 15.00

$ 13.00 $ 40.00

$ 15.00 $ 34.00

Product X Product Y

Industry volume was estimated to be 1,858,000 units at the time the budget was prepared. Actual industry volume for the period was 2,370,000 units. Arrow measures variances using contribution margin. If fixed costs are budgeted for $500,000 and are actually $500,000, what is the difference between budgeted and actual operating income? A) $2,850 favorable. B) $5,450 favorable. C) $122,150 unfavorable. D) $65,200 favorable. E) $23,105 favorable.

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123

158)

Arrow, Incorporated, manufactures two products that it sells to the same market. Excerpted below are its budgeted and actual operating results for the year just completed: Budget

Actual

Unit sales Product X Product Y Unit contribution margin

22,500 90,000

42,000 80,000

Product X Product Y Unit selling price

$ 4.80 $ 13.00

$ 3.90 $ 14.00

$ 13.00 $ 30.00

$ 14.00 $ 29.00

Product X Product Y

Industry volume was estimated to be 1,875,000 units at the time the budget was prepared. Actual industry volume for the period was 2,440,000 units. Arrow measures variances using contribution margin. If fixed costs are budgeted for $500,000 and are actually $500,000, what is the difference between budgeted and actual operating income? A) $3,200 favorable. B) $5,800 favorable. C) $122,500 unfavorable. D) $65,550 favorable. E) $23,455 favorable.

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124

159)

Arrow, Incorporated, manufactures two products that it sells to the same market. Excerpted below are its budgeted and actual operating results for the year just completed: Budget

Actual

Unit sales Product X Product Y Unit contribution margin

23,800 82,000

31,000 71,000

Product X Product Y Unit selling price

$ 5.00 $ 12.00

$ 2.70 $ 8.00

$ 12.00 $ 20.00

$ 8.00 $ 35.00

Product X Product Y

Industry volume was estimated to be 1,855,000 units at the time the budget was prepared. Actual industry volume for the period was 2,320,000 units. Arrow measures variances using contribution margin. The total contribution margin sales volume variance of the period is: A) $65,400 favorable. B) $96,000 unfavorable. C) $107,600 unfavorable. D) $123,550 unfavorable. E) $167,520 favorable.

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125

160)

Arrow, Incorporated, manufactures two products that it sells to the same market. Excerpted below are its budgeted and actual operating results for the year just completed: Budget

Actual

Unit sales Product X Product Y Unit contribution margin

22,500 90,000

42,000 80,000

Product X Product Y Unit selling price

$ 4.80 $ 13.00

$ 3.90 $ 14.00

$ 13.00 $ 30.00

$ 14.00 $ 29.00

Product X Product Y

Industry volume was estimated to be 1,875,000 units at the time the budget was prepared. Actual industry volume for the period was 2,440,000 units. Arrow measures variances using contribution margin. The total contribution margin sales volume variance of the period is: A) $5,800 favorable. B) $36,400 unfavorable. C) $48,000 unfavorable. D) $63,950 unfavorable. E) $107,920 favorable.

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126

161)

Arrow, Incorporated, manufactures two products that it sells to the same market. Excerpted below are its budgeted and actual operating results for the year just completed: Budget

Actual

Unit sales Product X Product Y Unit contribution margin

22,100 95,000

41,000 86,000

Product X Product Y Unit selling price

$ 3.70 $ 17.00

$ 3.30 $ 9.00

$ 17.00 $ 50.00

$ 18.00 $ 49.00

Product X Product Y

Industry volume was estimated to be 1,870,000 units at the time the budget was prepared. Actual industry volume for the period was 2,300,000 units. Arrow measures variances using contribution margin. The total selling price variance of the period is: A) $0. B) $45,000 unfavorable. C) $74,500 unfavorable. D) $119,500 unfavorable. E) $129,000 unfavorable.

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127

162)

Arrow, Incorporated, manufactures two products that it sells to the same market. Excerpted below are its budgeted and actual operating results for the year just completed: Budget

Actual

Unit sales Product X Product Y Unit contribution margin

22,500 90,000

42,000 80,000

Product X Product Y Unit selling price

$ 4.80 $ 13.00

$ 3.90 $ 14.00

$ 13.00 $ 30.00

$ 14.00 $ 29.00

Product X Product Y

Industry volume was estimated to be 1,875,000 units at the time the budget was prepared. Actual industry volume for the period was 2,440,000 units. Arrow measures variances using contribution margin. The total selling price variance of the period is: A) $0. B) $38,000 unfavorable. C) $67,500 unfavorable. D) $112,500 unfavorable. E) $122,000 unfavorable.

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128

163)

Hollaway Corporation has the following data for the current fiscal year: Actual

Budget

Sales Units Product X Product Y

30,000 130,000

76,000 124,000

Total

160,000

200,000

$ 5.00 $ 8.00

$ 4.00 $ 3.00

Contribution Margin Product X Product Y

The total sales mix variance for both products is: (Round your percentages to one decimal place. Example: Round .1447 to .145 or 14.5%.) A) $14,240 favorable. B) $34,240 favorable. C) $290,240 unfavorable. D) $30,240 unfavorable. E) $134,240 favorable.

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164)

Hollaway Corporation has the following data for the current fiscal year: Actual

Budget

Sales Units Product X Product Y

20,000 140,000

90,000 110,000

Total

160,000

200,000

$ 9.00 $ 6.00

$ 8.00 $ 5.00

Contribution Margin Product X Product Y

The total sales mix variance for both products is: A) $140,000 favorable. B) $160,000 favorable. C) $416,000 unfavorable. D) $156,000 unfavorable. E) $260,000 favorable.

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130

165)

Hollaway Corporation has the following data for the current fiscal year: Actual

Budget

Sales Units Product X Product Y

12,000 148,000

88,000 113,000

Total

160,000

201,000

$ 7.00 $ 5.00

$ 6.00 $ 4.00

Contribution Margin Product X Product Y

The total sales quantity variance for both products is: (Do not round your intermediate calculations) A) $106,080 favorable. B) $90,080 unfavorable. C) $96,080 favorable. D) $56,080 unfavorable. E) $200,080 unfavorable.

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131

166)

Hollaway Corporation has the following data for the current fiscal year: Actual

Budget

Sales Units Product X Product Y

20,000 140,000

90,000 110,000

Total

160,000

200,000

$ 9.00 $ 6.00

$ 8.00 $ 5.00

Contribution Margin Product X Product Y

The total sales quantity variance for both products is: A) $160,000 favorable. B) $144,000 unfavorable. C) $150,000 favorable. D) $110,000 unfavorable. E) $254,000 unfavorable.

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132

167)

Hollaway Corporation has the following data for the current fiscal year: Actual

Budget

Sales Units Product X Product Y

10,000 150,000

76,000 125,000

Total

160,000

201,000

$ 12.00 $ 9.00

$ 11.00 $ 8.00

Contribution Margin Product X Product Y

The weighted-average budgeted contribution margin per unit is: A) $7.93. B) $9.13. C) $9.48. D) $9.58. E) $9.78.

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133

168)

Hollaway Corporation has the following data for the current fiscal year: Actual

Budget

Sales Units Product X Product Y

20,000 140,000

90,000 110,000

Total

160,000

200,000

$ 9.00 $ 6.00

$ 8.00 $ 5.00

Contribution Margin Product X Product Y

The weighted-average budgeted contribution margin per unit is: A) $5.15. B) $6.35. C) $6.70. D) $6.80. E) $7.00.

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134

169)

Hollaway Corporation has the following data for the current fiscal year: Actual

Budget

Sales Units Product X Product Y

39,000 121,000

86,000 114,000

Total

160,000

200,000

$ 10.00 $ 7.00

$ 9.00 $ 6.00

Contribution Margin Product X Product Y

The contribution margin sales volume variance is: A) $171,000 favorable. B) $231,000 unfavorable. C) $311,000 unfavorable. D) $381,000 unfavorable. E) $551,000 unfavorable.

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135

170)

Hollaway Corporation has the following data for the current fiscal year: Actual

Budget

Sales Units Product X Product Y

20,000 140,000

90,000 110,000

Total

160,000

200,000

$ 9.00 $ 6.00

$ 8.00 $ 5.00

Contribution Margin Product X Product Y

The contribution margin sales volume variance is: A) $200,000 favorable. B) $260,000 unfavorable. C) $340,000 unfavorable. D) $410,000 unfavorable. E) $580,000 unfavorable.

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171)

Gourmet Aroma Coffee House has an exclusive contract with Columbia exporters. Two brands of gourmet coffee are imported, Morning Thunder (MT) and Evening Tender (ET). The following data are provided for the current fiscal year: Budgeted

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 50 25 2,860

$ 70 42 2,860

$ 60 27 2,752

$ 65 46 3,648

The total market was estimated to be 80,000 pounds at the time of budget. The actual total market for the year is 75,000 pounds. What is ET's contribution margin sales volume variance? A) $12,464 favorable. B) $12,464 unfavorable. C) $22,064 favorable. D) $29,104 unfavorable. E) $13,744 unfavorable.

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172)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 40 20 4,000

$ 60 36 4,000

$ 50 24 3,960

$ 56 40 5,040

The total market was estimated to be 80,000 pounds at the time of budget. The actual total market for the year is 75,000 pounds. What is ET's contribution margin sales volume variance? A) $15,360 favorable. B) $15,360 unfavorable. C) $24,960 favorable. D) $32,000 unfavorable. E) $16,640 unfavorable.

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173)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 50 25 2,860

$ 70 42 2,860

$ 60 27 2,752

$ 65 46 3,648

The total market was estimated to be 80,000 pounds at the time of budget. The actual total market for the year is 75,000 pounds. What is MT's contribution margin sales volume variance? A) $2,700 unfavorable. B) $2,940 unfavorable. C) $24,860 favorable. D) $25,660 favorable. E) $25,900 favorable.

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139

174)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 40 20 4,000

$ 60 36 4,000

$ 50 24 3,960

$ 56 40 5,040

The total market was estimated to be 80,000 pounds at the time of budget. The actual total market for the year is 75,000 pounds. What is MT's contribution margin sales volume variance? A) $800 unfavorable. B) $1,040 unfavorable. C) $22,960 favorable. D) $23,760 favorable. E) $24,000 favorable.

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140

175)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 30 15 3,500

$ 50 30 3,500

$ 40 18 3,200

$ 45 32 4,800

The total market was estimated to be 82,000 pounds at the time of budget. The actual total market for the year is 77,000 pounds. What is the total contribution margin sales volume variance? A) $6,780 favorable. B) $7,150 unfavorable. C) $13,930 favorable. D) $14,760 unfavorable. E) $21,500 favorable.

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141

176)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 40 20 4,000

$ 60 36 4,000

$ 50 24 3,960

$ 56 40 5,040

The total market was estimated to be 80,000 pounds at the time of budget. The actual total market for the year is 75,000 pounds. What is the total contribution margin sales volume variance? A) $7,600 favorable. B) $8,000 unfavorable. C) $15,600 favorable. D) $16,560 unfavorable. E) $24,160 favorable.

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142

177)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 60 30 4,200

$ 90 54 4,200

$ 70 32 4,100

$ 85 60 5,900

The total market was estimated to be 87,000 pounds at the time of budget. The actual total market for the year is 82,000 pounds. What is MT's sales mix variance? A) $27,000 unfavorable. B) $1,800 unfavorable. C) $25,800 unfavorable. D) $28,680 unfavorable. E) $27,000 unfavorable. F) $30,240 unfavorable. G) $28,680 unfavorable. H) $30,240 unfavorable.

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143

178)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 40 20 4,000

$ 60 36 4,000

$ 50 24 3,960

$ 56 40 5,040

The total market was estimated to be 80,000 pounds at the time of budget. The actual total market for the year is 75,000 pounds. What is MT's sales mix variance? A) $800 unfavorable. B) $9,600 unfavorable. C) $10,800 unfavorable. D) $12,480 unfavorable. E) $14,040 unfavorable.

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144

179)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 50 25 3,300

$ 90 54 3,300

$ 60 27 3,192

$ 85 60 4,408

The total market was estimated to be 75,000 pounds at the time of budget. The actual total market for the year is 68,000 pounds. What is ET's sales mix variance? A) $16,608 favorable. B) $17,568 favorable. C) $20,448 favorable. D) $21,888 favorable. E) $33,888 favorable.

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145

180)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 40 20 4,000

$ 60 36 4,000

$ 50 24 3,960

$ 56 40 5,040

The total market was estimated to be 80,000 pounds at the time of budget. The actual total market for the year is 75,000 pounds. What is ET's sales mix variance? A) $7,680 favorable. B) $8,640 favorable. C) $11,520 favorable. D) $12,960 favorable. E) $24,960 favorable.

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181)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 30 15 3,540

$ 50 30 3,540

$ 40 18 3,432

$ 45 32 4,368

The total market was estimated to be 76,000 pounds at the time of budget. The actual total market for the year is 68,000 pounds. What is the firm's total sales mix variance? A) $1,037 unfavorable. B) $2,340 favorable. C) $2,700 unfavorable. D) $7,060 favorable. E) $11,100 favorable.

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182)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 40 20 4,000

$ 60 36 4,000

$ 50 24 3,960

$ 56 40 5,040

The total market was estimated to be 80,000 pounds at the time of budget. The actual total market for the year is 75,000 pounds. What is the firm's total sales mix variance? A) $960 unfavorable. B) $2,160 favorable. C) $2,520 unfavorable. D) $6,880 favorable. E) $10,920 favorable.

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183)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 40 20 4,600

$ 70 42 4,600

$ 50 23 4,386

$ 65 46 5,814

The total market was estimated to be 76,000 pounds at the time of budget. The actual total market for the year is 71,000 pounds. What is MT's sales quantity variance? A) $800 unfavorable. B) $8,800 favorable. C) $10,000 favorable. D) $11,440 favorable. E) $13,600 favorable.

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184)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 40 20 4,000

$ 60 36 4,000

$ 50 24 3,960

$ 56 40 5,040

The total market was estimated to be 80,000 pounds at the time of budget. The actual total market for the year is 75,000 pounds. What is MT's sales quantity variance? A) $800 unfavorable. B) $8,800 favorable. C) $10,000 favorable. D) $11,440 favorable. E) $13,600 favorable.

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185)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 50 25 3,970

$ 70 42 3,970

$ 60 27 3,864

$ 65 46 4,536

The total market was estimated to be 86,000 pounds at the time of budget. The actual total market for the year is 81,000 pounds. What is ET's sales quantity variance? A) $4,440 favorable. B) $5,400 favorable. C) $6,440 favorable. D) $7,880 favorable. E) $19,400 favorable.

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186)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 40 20 4,000

$ 60 36 4,000

$ 50 24 3,960

$ 56 40 5,040

The total market was estimated to be 80,000 pounds at the time of budget. The actual total market for the year is 75,000 pounds. What is ET's sales quantity variance? A) $8,000 favorable. B) $8,960 favorable. C) $12,000 favorable. D) $13,440 favorable. E) $24,960 favorable.

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187)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 50 25 3,400

$ 80 48 3,400

$ 60 27 3,354

$ 75 53 4,446

The total market was estimated to be 68,000 pounds at the time of budget. The actual total market for the year is 62,400 pounds. What is the firm's total sales quantity variance? A) $9,327 favorable. B) $23,007 favorable. C) $28,500 favorable. D) $31,340 favorable. E) $45,060 favorable.

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188)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 40 20 4,000

$ 60 36 4,000

$ 50 24 3,960

$ 56 40 5,040

The total market was estimated to be 80,000 pounds at the time of budget. The actual total market for the year is 75,000 pounds. What is the firm's total sales quantity variance? A) $7,200 favorable. B) $17,760 favorable. C) $22,000 favorable. D) $24,840 favorable. E) $38,560 favorable.

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189)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 50 25 3,400

$ 80 48 3,400

$ 60 27 3,354

$ 75 53 4,446

The total market was estimated to be 68,000 pounds at the time of budget. The actual total market for the year is 62,400 pounds. What is the firm's market share variance? (Round your percentages to one decimal place. Example: Round .1447 to .145 or 14.5%.) A) $41,950 favorable. B) $43,184 favorable. C) $44,747 favorable. D) $45,240 favorable. E) $48,257 favorable.

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190)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 40 20 4,000

$ 60 36 4,000

$ 50 24 3,960

$ 56 40 5,040

The total market was estimated to be 80,000 pounds at the time of budget. The actual total market for the year is 75,000 pounds. What is the firm's market share variance? A) $30,600 favorable. B) $31,500 favorable. C) $32,640 favorable. D) $33,000 favorable. E) $35,200 favorable.

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191)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 50 25 2,860

$ 70 42 2,860

$ 60 27 2,752

$ 65 46 3,648

The total market was estimated to be 57,200 pounds at the time of budget. The actual total market for the year is 51,200 pounds. What is the firm's market size variance? (Round your intermediate percentage answers to nearest whole percent.) A) $15,100 unfavorable. B) $15,900 unfavorable. C) $17,140 unfavorable. D) $18,100 unfavorable. E) $26,900 unfavorable.

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192)

Price per pound Variable cost per pound Sales (in pounds)

Operating Results

$ 40 20 4,000

$ 60 36 4,000

$ 50 24 3,960

$ 56 40 5,040

The total market was estimated to be 80,000 pounds at the time of budget. The actual total market for the year is 75,000 pounds. What is the firm's market size variance? A) $10,200 unfavorable. B) $11,000 unfavorable. C) $12,240 unfavorable. D) $13,200 unfavorable. E) $22,000 unfavorable.

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193)

View Company manufactures a remote-control device for home theaters. The following data were from the operating period just completed: Actual market size (units) Budgeted market size (units) Actual market share Budgeted market share Budgeted selling price per unit Actual selling price per unit Budgeted variable cost per unit Actual variable cost per unit

15,000 14,000 23% 20% $ 75 $ 70 $ 43 $ 31

What is the firm's market share variance? A) $14,400 favorable. B) $14,800 favorable. C) $16,000 favorable. D) $16,200 favorable. E) $16,800 favorable.

194)

12,000 11,000 15% 12% $ 60 $ 55 $ 30 $ 18

What is the firm's market share variance? A) $10,800 favorable. B) $11,200 favorable. C) $12,4000 favorable. D) $12,600 favorable. E) $13,200 favorable.

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195)

21,000 20,000 10% 7% $ 46 $ 41 $ 21 $ 9

What is the firm's market size variance? A) $590 favorable. B) $1,750 favorable. C) $3,700 favorable. D) $4,150 favorable. E) $4,450 favorable.

196)

12,000 11,000 15% 12% $ 60 $ 55 $ 30 $ 18

What is the firm's market size variance? A) $2,440 favorable. B) $3,600 favorable. C) $5,550 favorable. D) $6,000 favorable. E) $6,300 favorable.

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197)

Wheat Incorporated has an exclusive contract with an exporter. Two brands of wheat are imported, labeled AB and CD. The following data are provided for the current fiscal year: Budgeted Price per bushel Variable cost per bushel Sales (in bushels)

AB $ 19 $ 14 2,000

CD $ 9 $ 4 2,800

Actual Results AB CD $ 33 $ 11 $ 23 $ 7 1,600 2,600

The total market was estimated to 33,000 bushels at the time of budget. The actual total market for the year is 25,000 bushels. What is AB's contribution margin sales volume variance? A) $0. B) $2,000 unfavorable. C) $4,500 favorable. D) $8,000 unfavorable. E) $10,500 unfavorable.

198)

AB $ 20 $ 15 1,500

CD $ 10 $ 5 2,500

Actual Results AB CD $ 25 $ 12 $ 15 $ 8 1,200 3,600

The total market was estimated to 40,000 bushels at the time of budget. The actual total market for the year is 32,000 bushels. What is AB's contribution margin sales volume variance? A) $0. B) $1,500 unfavorable. C) $4,000 favorable. D) $7,500 unfavorable. E) $10,000 unfavorable.

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199)

AB $ 25 $ 20 2,300

CD $ 10 $ 5 2,700

Actual Results AB CD $ 28 $ 18 $ 18 $ 14 1,500 3,900

The total market was estimated to 45,000 bushels at the time of budget. The actual total market for the year is 37,000 bushels. What is CD's contribution margin sales volume variance? A) $1,000 favorable. B) $3,000 favorable. C) $6,000 favorable. D) $13,000 favorable. E) $25,500 favorable.

200)

AB $ 20 $ 15 1,500

CD $ 10 $ 5 2,500

Actual Results AB CD $ 25 $ 12 $ 15 $ 8 1,200 3,600

The total market was estimated to 40,000 bushels at the time of budget. The actual total market for the year is 32,000 bushels. What is CD's contribution margin sales volume variance? A) $500 favorable. B) $2,500 favorable. C) $5,500 favorable. D) $12,500 favorable. E) $25,000 favorable.

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201)

AB $ 32 $ 27 3,300

CD $ 10 $ 5 2,000

Actual Results AB CD $ 32 $ 17 $ 22 $ 13 3,000 3,100

The total market was estimated to 34,000 bushels at the time of budget. The actual total market for the year is 26,000 bushels. What is the total contribution margin sales volume variance? A) $0. B) $1,000 favorable. C) $1,000 unfavorable. D) $4,000 favorable. E) $5,000 unfavorable.

202)

AB $ 20 $ 15 1,500

CD $ 10 $ 5 2,500

Actual Results AB CD $ 25 $ 12 $ 15 $ 8 1,200 3,600

The total market was estimated to 40,000 bushels at the time of budget. The actual total market for the year is 32,000 bushels. What is the total contribution margin sales volume variance? A) $0. B) $1,000 favorable. C) $1,000 unfavorable. D) $4,000 favorable. E) $5,000 unfavorable.

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203)

AB $ 17 $ 12 1,600

CD $ 11 $ 6 1,600

Actual Results AB CD $ 33 $ 8 $ 23 $ 4 1,000 3,000

The total market was estimated to 40,000 bushels at the time of budget. The actual total market for the year is 32,000 bushels. (Do not round intermediate calculations.) What is the firm's total sales mix variance? A) $0. B) $600 favorable. C) $825 unfavorable. D) $5,000 favorable. E) $5,000 unfavorable.

204)

AB $ 20 $ 15 1,500

CD $ 10 $ 5 2,500

Actual Results AB CD $ 25 $ 12 $ 15 $ 8 1,200 3,600

The total market was estimated to 40,000 bushels at the time of budget. The actual total market for the year is 32,000 bushels. What is the firm's total sales mix variance? A) $0. B) $500 favorable. C) $725 unfavorable. D) $3.000 favorable. E) $3,000 unfavorable.

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205)

AB $ 26 $ 21 2,100

CD $ 20 $ 15 2,100

Actual Results AB CD $ 35 $ 6 $ 25 $ 2 2,300 2,700

The total market was estimated to 53,000 bushels at the time of budget. The actual total market for the year is 45,000 bushels. What is the firm's total sales quantity variance? (Do not round intermediate calculations.) A) $0. B) $3,500 unfavorable. C) $4,000 favorable. D) $37,500 favorable. E) $50,000 favorable.

206)

AB $ 20 $ 15 1,500

CD $ 10 $ 5 2,500

Actual Results AB CD $ 25 $ 12 $ 15 $ 8 1,200 3,600

The total market was estimated to 40,000 bushels at the time of budget. The actual total market for the year is 32,000 bushels. What is the firm's total sales quantity variance? A) $0. B) $3,500 unfavorable. C) $4,000 favorable. D) $37,500 favorable. E) $50,000 favorable.

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207)

AB $ 40 $ 35 1,900

CD $ 15 $ 10 2,900

Actual Results AB CD $ 45 $ 12 $ 35 $ 8 1,600 4,000

The total market was estimated to 48,000 bushels at the time of budget. The actual total market for the year is 28,000 bushels. What is the firm's market share variance? A) $0. B) $13,360 favorable. C) $14,000 favorable. D) $14,025 favorable. E) $23,300 favorable.

208)

AB $ 20 $ 15 1,500

CD $ 10 $ 5 2,500

Actual Results AB CD $ 25 $ 12 $ 15 $ 8 1,200 3,600

The total market was estimated to 40,000 bushels at the time of budget. The actual total market for the year is 32,000 bushels. What is the firm's market share variance? A) $0. B) $560 favorable. C) $8,000 favorable. D) $1,225 favorable. E) $10,500 favorable.

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209)

AB $ 40 $ 35 1,900

CD $ 15 $ 10 2,900

Actual Results AB CD $ 45 $ 12 $ 35 $ 8 1,600 4,000

The total market was estimated to 48,000 bushels at the time of budget. The actual total market for the year is 28,000 bushels. What is the firm's market size variance? A) $12,000 unfavorable. B) $6,750 unfavorable. C) $10,000 unfavorable. D) $23,500 unfavorable. E) $0.

210)

AB $ 20 $ 15 1,500

CD $ 10 $ 5 2,500

Actual Results AB CD $ 25 $ 12 $ 15 $ 8 1,200 3,600

The total market was estimated to 40,000 bushels at the time of budget. The actual total market for the year is 32,000 bushels. What is the firm's market size variance? A) $6,000 unfavorable. B) $750 unfavorable. C) $4,000 unfavorable. D) $17,500 unfavorable. E) $0.

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211)

Which of the following is not a main element of the Toyota Production System (TPS)? A) Improvement in product design and manufacturing processes with the objective of eliminating waste. B) Emphasis on balanced, continuous flow manufacturing. C) Enhancements to the production capacity. D) Long-term focus on relationships with suppliers. E) Flexible manufacturing systems.

212)

Total productivity is which kind of productivity measure? A) Financial. B) Partial. C) Operational. D) Efficient. E) Qualitative.

213)

A firm manufactures 4,800 umbrellas per year. The umbrellas cost $20,000 to manufacture. The firm has an annual overhead cost of $4,800. What is the total productivity of manufacturing umbrellas? A) 0.24 umbrellas/dollar B) 0.24 dollars/umbrella C) 4 umbrellas/dollar D) 0.21 dollars/umbrella E) 0.67 umbrellas/dollar

214)

A firm manufactures 5,000 umbrellas per year. The umbrellas cost $25,000 to manufacture. The firm has an annual overhead cost of $5,000. What is the total productivity of manufacturing umbrellas? A) 0.20 umbrellas per dollar B) 0.20 dollars per umbrella C) 5 umbrellas per dollar D) 0.17 dollars per umbrella E) 0.55 umbrellas per dollar

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215)

The sales quantity variance includes which of the following? A) Actual sales mix ratio for the product. B) Actual contribution margin per unit of the product. C) Units budgeted to be sold minus actual units sold. D) Budgeted contribution margin per unit of the product. E) None of these answer choices is correct.

216)

What two components make up the volume variance? A) Market size variance and sales quantity variance. B) Market share variance and market size variance. C) Sales quantity variance and sales mix variance. D) Sales mix variance and market size variance. E) Sales mix variance and sales number variance.

217)

The market share variance measures the effect of the difference in market shares on the firm's total contribution margin and: A) Operating Expenses. B) Operating income. C) Investment income. D) Total sales. E) Gross income.

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Answer Key Test name: chapter 16 1) Essay 2) Essay 3) Essay 4) Essay 5) Essay 6) Essay 7) Essay 8) Essay 9) Essay 10) Essay 11) C 12) E 13) C 14) B 15) C 16) D 17) A 18) A 19) C 20) B 21) C 22) A 23) A 24) E 25) C 26) E 27) A 28) A 29) B 30) B 31) D 32) E 33) D 34) D 35) C 36) B 37) D

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38) D 39) E 40) B 41) B 42) D 43) D 44) D 45) D 46) A 47) A 48) B 49) B 50) E 51) E 52) D 53) D 54) B 55) B 56) A 57) A 58) E 59) E 60) D 61) D 62) D 63) D 64) E 65) E 66) E 67) E 68) C 69) C 70) C 71) C 72) B 73) B 74) A 75) A 76) E 77) E

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78) D 79) D 80) D 81) D 82) C 83) C 84) C 85) C 86) B 87) B 88) B 89) B 90) C 91) C 92) A 93) A 94) D 95) D 96) A 97) A 98) A 99) A 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

C C E E C C D D E E C C A A B B D D

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118) 119) 120) 121) 122) 123) 124) 125) 126) 127) 128) 129) 130) 131) 132) 133) 134) 135) 136) 137) 138) 139) 140) 141) 142) 143) 144) 145) 146) 147) 148) 149) 150) 151) 152) 153) 154) 155) 156) 157)

A A C C D D C C D D D D E E C C A A C E E D D C C A A C C D D D D D D D D E E B

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158) 159) 160) 161) 162) 163) 164) 165) 166) 167) 168) 169) 170) 171) 172) 173) 174) 175) 176) 177) 178) 179) 180) 181) 182) 183) 184) 185) 186) 187) 188) 189) 190) 191) 192) 193) 194) 195) 196) 197)

B B B B B D D E E B B D D C C A A E E AEAE C D D B B C C C C C C D D B B A A B B B

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198) 199) 200) 201) 202) 203) 204) 205) 206) 207) 208) 209) 210) 211) 212) 213) 214) 215) 216) 217)

B C C D D A A C C C C C C C A A A D C B

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Chapter 17 1) ISO certification is a key component of a firm's efforts to improve quality and compete

successfully. Required: What must an organization demonstrate, in terms of its operating processes, to become ISO9000 certified?

2) Chapter 17 presents (as Exhibit 17.3) a framework that can be used as the basis for creating a

comprehensive system for managing and controlling quality. Required: Provide an overview of the key elements of the framework presented in the chapter.

3) List three examples of quality improvement initiatives in a manufacturing facility that would

lead to increased sales productivity.

4) What is the reasoning behind the misconception that quality improvements decrease

productivity?

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5) Kray Company manufactures high-quality knives for use in the meat processing industry, and

operates in an industry that values and rewards consistent production quality. Technical innovation over the past decade has given the industry a good supply of high-quality steel in raw material form. Kray Co. recognizes the need to establish and maintain strong quality controls for labor activities. A company quality team has asked you to assist the company in recommending either a goalpost conformance quality plan or an absolute quality conformance plan to monitor its manufacturing activities. Required: 1. Briefly distinguish between the two approaches to ensuring conformance with production standards. 2. Explain how the Taguchi quality loss function (QLF) operates within the absolute quality conformance plan. 3. Do you think worker reaction to the two plans in Part (1) above might be different? Why or why not?

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6) The four accepted categories of a Cost of Quality (COQ) Report are: prevention, appraisal,

internal failure, and external failure. Assume your cost management instructor has given you an assignment related to COQ. You are to relate each of the cost categories above to the preparation of a class project, which is a study of an actual firm's cost management system. The typical student spends 16 hours researching an identified firm, five hours writing the report, and three hours in revising and presenting the report to the class. Required: 1. Give an example of prevention, appraisal, internal failure, and external failure costs you might encounter in writing and presenting your report. (Example: "Draw up a time budget with necessary deadlines before starting the report" is an example of a prevention cost.) 2. Which of the four category examples you gave for Requirement (1) above has the greatest cost? What has the least cost? What has the greatest benefit? What has the least benefit? (Example: "Not saving word processing on a hard drive or jump drive" is an example of greatest cost in terms of time.)

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7) Jordan Company manufactures doors and maintains a Cost of quality (COQ) reporting

system. Classify each of the following quality-related costs as a prevention cost, an appraisal cost, an internal failure cost, an external failure cost, or none of the above. 1. (a) Retesting of reworked products 2. (b) Downtime due to quality problems 3. (c) Analysis of the cause of defects in production 4. (d) Depreciation of test equipment 5. (e) Warranty repairs 6. (f) Lost sales arising from a reputation for poor quality 7. (g) Quality circles 8. (h) Rework direct manufacturing labor and overhead 9. (i) Net cost of spoilage 10. (j) Technical support provided to suppliers 11. (k) Audits of the effectiveness of the quality system 12. (l) Plant utilities in the inspection area

8) Cari and Jeremy just bought a bed and breakfast inn at a very attractive price. The business

had been doing poorly. Before they reopened the inn for business, they attended a seminar on operating a high-quality business. Now that they are ready to open the inn, they need some advice on quality costs and the management and control of quality. Required: 1. Identify and define each of the four categories in a typical Cost of quality (COQ) reporting system. 2. For the identified business (bed and breakfast) provide three examples of costs within each of the four COQ categories.

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9) Identify the appropriate cost of quality (COQ) category for each of the following items:

1. Engineering time spent to simplify production processes. 2. Engineering time spent on engineering change orders to reduce the number of components used in a current product. 3. Scrap resulting from substandard materials undetected by the receiving personnel. 4. Rework to correct inconsistency caused by machine variability. 5. Preventive maintenance on machinery. 6. Product inspections. 7. Air freight to replace a defective part discovered by a customer. 8. Long-distance call to a customer who has experienced a quality failure.

10) Listed below are 6 items concerned with quality.

Required: Classify each of these items into its appropriate Cost of quality (COQ) category: Prevention Cost; Appraisal Cost; Internal Failure Cost; or External Failure Cost. 1. Establish a 24-hour hot line for customers to report quality failures. 2. Establish a quality-inspection program. 3. Re-design parts and components to simplify manufacturing of the product. 4. Hire additional field service people to provide better services. 5. Extend the warranty period for products from 90 days to one year. 6. Train employees on the importance of zero defects.

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11) List and explain three tools that can be used to identify or detect quality problems in a

process or operation.

12) The Old Army Jean Company has been very proud of the quality of its products. The

company has won industry awards for high quality and trend-setting styles in the last five years. For the last two years, however, both sales volume and market share have been declining. At the latest executive managers' meeting, everyone was blaming everyone else for the decline. Both production and design managers suggested that sales relationships were the cause of most of the problems. Required: As the CEO, how would you determine whether quality of sales relationships, not product design or product quality, is the cause of the financial decline the company is experiencing?

13) Hyland Company manufactures generic products for several major discount chain stores.

Robert Hyland, founder and CEO, has always followed a strategy of producing low-cost standardized products. Hyland now is facing foreign competitors who offer similar products with higher quality and more features (options) than is the case with Hyland's products. Although Hyland still offers the lower prices than its competitors, Hyland's net income has been steadily decreasing over the last three quarters. Required: What should Hyland do?

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14) The following data of causes of absenteeism for a fellow student for the year just completed

were available. Reason Number 1 2 3 4 5 6

Cause of Absenteeism

Number of Occurrences

Personal Illness A child’s illness Car broke down Personal emergency Overslept Unexplained visitor

14 31 10 38 11 13

Required: 1. Use the above information to construct a histogram. 2.Use the information from requirement (1) to prepare a Pareto diagram. (Note: In constructing the above two items, you can use the information in column 1 to describe each of the identified causes. That is, you can use the reference numbers rather than the actual verbal descriptions presented in column 2.) 3. Within the context of managing and control quality, what is the primary purpose played by tools such as histograms and Pareto diagrams?

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15) The Hormosa Company classifies its overall Cost of quality (COQ) into four categories.

COQ components, as a percentage of cost of goods sold for the last three years, are as follows: COQ Component (1) Prevention costs (2) Appraisal costs (3) Internal failure costs (4) External failure costs

2021 2.00% 1.50% 14.50% 12.00%

2022 4.00% 2.50% 24.00% 19.50%

2023 1.00% 3.00% 26.00% 30.00%

Required: 1. Prepare a histogram that shows the COQ trends for each of the four components of COQ as well as total COQ over the period 2021 through 2023. Note: Index numbers (1) through (4) may be used in place of a description key. For example, in labeling your histogram you can use "1" to refer to "Prevention Costs," etc. 2. Of what interpretive or managerial value is the histogram you prepared, both in a general sense and as it relates to the data set at hand?

16) Euromold specializes in manufacturing molded a plastic panel to be fitted on car doors. The

blueprint specification for the thickness of a high-demand model calls for 0.20625 ± 0.00275 inch. It costs an estimated $180 to scrap a part that is outside of specification. The thickness measure for the unit just completed is 0.20823. Required: 1. Calculate the value of k, the cost coefficient in the Taguchi quality loss function (QLF) for the above situation (rounded to nearest whole dollar). 2. Calculate the estimated amount of quality cost (or loss) for the unit in question, L( x) (where x = 0.20823 inches); round final answer to two (2) decimal places.

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17) An electronic component has an output voltage specification of 138.0 ± 5.0 millivolts. The

loss to the firm for a component that is outside of the specifications is estimated as $220. The output voltage for a sample unit, x, is 134.0 millivolts. Required: 1. Calculate (to two decimal places) the value of k, the cost coefficient in the Taguchi quality loss function (QLF) for the above situation. 2. Calculate (to two decimal places) the amount of the estimated loss, L(x), for x = 134 millivolts. 3. Calculate (to two decimal places) the amount of the estimated loss, L(x), for x = 136 millivolts. 4. Calculate (to two decimal places) the amount of the estimated loss, L(x), for x = 138 millivolts. 5. What is the primary insight revealed by the Taguchi quality loss function (QLF)?

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18) The Bulldog Company incurred the following quality-related costs:

Calibration Product design Product liability Product recalls Retesting Rework Testing Training Warranty repairs

2021

2022

$ 190,000 180,000 150,000 480,000 300,000 390,000 60,000 90,000 180,000

$ 120,000 210,000 90,000 240,000 240,000 120,000 180,000 120,000 90,000

Required: 1. Calculate for each of the two years: Total prevention costs Total appraisal costs Total internal failure costs Total external failure costs 2. Provide two recommendations for improving the disclosure of COQ data for the current data set (i.e., providing more informative disclosures). 3. Based on the data in this exercise, and your solution to Requirement 1, what observations can you offer regarding COQ spending over the two-year period?

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19) Design Products is committed to its quality program. It works with all areas of the company

to establish sound quality programs within reasonable budget guidelines. For 2021, it has budgeted $1,000,000 for prevention costs and $800,000 for appraisal costs. Internal failure has a budget of $100 per failed item, while external failure has a total budget of $600,000. Product Testing has proposed to a change in the 2021 budget for a new method of testing products. If management decides to implement the new method, $2.00 per unit of appraisal costs will be saved, up to a level of 200,000 tests. No additional savings are expected past the 200,000-unit level. The new method involves $110,000 in training costs and $60,000 in yearly testing supplies. Traditionally, 3.0 percent of all completed items must be reworked. External failure costs average $120 per failed unit. The company's average external failures are 1.0 percent of units sold. The company carries no ending inventories. Required: 1. What is the adjusted budget for appraisal costs, assuming the new method is implemented and 800,000 units are tested during the manufacturing process in 2021? 2. How much do internal failure costs change, assuming 600,000 units are tested under the new method and that under this new method the number of unacceptable units in the manufacturing process decreases by 40 percent? 3. What would be the change in the external failure cost budget, assuming external failures are reduced by 60 percent, assuming the same facts as in Requirement 2?

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20) White Financial Services Corporation is engaged in mortgage origination and investment

servicing activities with annual revenues of more than $90 million. Roberta White, CEO, recently has discovered that errors are costing the company over $800,000 per year. Jeremy Aiken, Vice President of Sales, dismisses the significance of the errors. Since the cost of errors is less than 1.0% of revenues, he believes the company should ignore the errors and concentrate instead on generating additional revenues. The consulting firm that made the discovery proposed to establish operating procedures for White that would build quality checks into operations. The interviewing, writing, and training activities associated with this project are expected to cost $450,000. Once the procedure is in place, the consultant believes, all errors will be eliminated. Jeremy argues that no system can be error-free and that the procedure is most likely to eliminate 80 percent of the errors. James White, Vice President of Customer Services, suggests that the company can hire 10 additional workers at an average salary of $30,000 (including fringe benefits) to double-check the work of people in sensitive areas. Required: What do you think White Financial Services Company should do? Support your answer with a logical analysis of the three alternatives (hire the consulting firm, hire additional workers, or do nothing about the errors and concentrate on additional revenues).

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21) Fix Manufacturing specifies the quality characteristic of one of its popular products to be

0.50530 ± 0.020. An analysis of company records for the last two years suggests that the average cost for warranty repair or replacement is $125.00 per unit. The customer service manager is of the opinion that the product is likely to fail during the warranty period when the quality characteristic differs from the target by more than 0.020 in either direction. Required: To gain a better understanding of the impact of quality variation, you, the product manager, would like to know the following values in a Taguchi quality loss function (QLF), L( x): 1. Cost coefficient, k. 2. Estimated loss, L( x), when the quality characteristic, x, is 0.505. (Round your answer to four decimal places.) 3. Estimated loss, L( x), when the actual quality characteristic, x, is 0.510. (Round your answer to two decimal places.) 4. The amount of change in the estimated loss (or total quality cost) when the deviation from the quality characteristic doubled. What general principle regarding Taguchi quality loss functions is revealed by this example?

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22) Fix Manufacturing obtained the following measurements on the quality characteristic of the

product from its operations in the last few months: Observed Quality Characteristic, x 0.46 0.47 0.48 0.49 0.50 0.51 0.52 0.53 0.54

Probability 0.05 0.10 0.12 0.15 0.30 0.12 0.10 0.05 0.01

The company has determined that no customer will accept any unit that deviates more than 0.04 from the target quality characteristic, T, of 0.5. The company estimates that each rejection would cost the company $500. Required: 1. Calculate the cost coefficient, k, for the Taguchi quality loss function (QLF) based on the above information. 2. Determine (to two decimal places) the estimated quality loss, L( x), for each of the observed values of the quality characteristic, x, presented in the above table. 3. Based on the data you generate in response to Requirement 2 above, determine the expected loss, EL(x), given the probabilities presented in the above table. Round final answer to three decimal places. 4. Use the formula EL( x) = k ( σ2 + D 2) to verify your answer in (3), where , and D = the deviation of the mean value of the quality characteristic from the target value . Round the calculation for D to four decimal places, and the calculation of EL(x) to three decimal places.

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23) Steel Incorporated specializes in manufacturing ship doors. The blueprint specification for

the thickness of a high-demand model calls for 0.90 ± 0.05 inch. The estimated cost to the firm is $800 to scrap a part that is outside of specification (i.e., for each unit where the thickness exceeds 0.95 inches or is less than 0.85 inches.). The thickness measure, x, for the unit just completed is 0.87. Required: 1. Calculate (to the nearest dollar) the value of k, the cost coefficient in the Taguchi loss function. 2. Calculate the estimated quality loss, L(x), for x = 0.87.

24) An electronic component in a computer has an output voltage specification of 100 ±1.0

millivolts. The loss to the firm for a component that is outside of the specifications is $750. The output voltage for a sample unit is 101 millivolts. Required: 1. Calculate the value of k, the cost coefficient in the Taguchi quality loss function (QLF). 2. Calculate the estimated quality loss, L(x), for x =101.

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25) One of the concerns with moving to lean manufacturing is the fact that conventional

accounting approaches may discourage such a move. These deficiencies relate to the lag in recognizing financial benefits from the move to lean. (This is similar to the problem associated with the use of DCF decision models for capital-budgeting purposes and the use of short-term accounting-based performance indicators, such as ROI, for subsequent evaluation purposes.) Required: According to critics, what are the three primary reasons why improvements in financial results, after adopting lean manufacturing, typically appear later in conventional accounting statements than the operating improvements from implementing lean manufacturing?

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26) Slumberger Manufacturing Company, Incorporated is considering a change in its

manufacturing layout (e.g., to a flexible manufacturing system [FMS] or cellular manufacturing), but it is unsure of the net benefits it should expect in conjunction with such a move. Company management has asked you to estimate both financial and nonfinancial effects of the proposed move. In this regard, you have collected the following information:

Total annual sales Out-of-pocket costs (% of sales): Direct materials Direct labor Factory overhead Work-in-Process Inventory

Current Situation $ 600,000

Revised Layout $ 800,000

23% 9% 18% $ 125,000

20% 7% 13% $ 90,000

Inventory carrying costs are estimated at 10.0% per annum. Required: 1. Because of the change, inventory carrying costs are expected to change by what amount? 2. If the plant layout change is made, what is the projected incremental manufacturing cost for the year, in terms of out-of-pocket costs? 3. What is the projected net change in operating income (per year) associated with the proposed change? Include both out-of-pocket and opportunity costs in your analysis. 4. What are some plausible nonfinancial performance metrics that the company might monitor after implementing the proposed change?

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27) Turbo-Oven, Incorporated is considering a move to cellular manufacturing. Management of

the company has requested that you, as the management accountant for the organization, supply it with information that will help inform the decision as to whether such a move is desirable. Your research into past performance of the company as well as extensive discussion with the manager of operations and the sales manager produced the following information:

Total annual sales Out-of-Pocket costs (% of sales):

Current Manufacturing Process $ 1,400,000

Revised Manufacturing Layout $ 1,700,000

6% 9% 10% $ 400,000

5% 7% 8% $ 240,000

Direct materials Direct labor Factory overhead Work-in-Process Inventory

Inventory carrying costs are estimated at 12.0% per annum. Required: 1. In terms of the above information, provide for management of the company a rationale as to why you included each of the following items: a. increase in total sales revenue b. decrease in direct materials cost as a percentage of sales c. decrease in holdings of Work-in-Process (WIP) inventory 2. Provide an estimate of each of the following financial effects associated with the proposed move to a cellular manufacturing layout: a. change in total (out-of-pocket) manufacturing costs b. reduction in WIP inventory holdings c. net financial effect of the change, per year 3. In general, what types of costs would need to be incurred to reap the benefits outlined above in Requirement 2?

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28) A Cost of quality (COQ) reporting format may be applicable to help support the

sustainability goals of organizations. Indeed, the development of such a reporting framework would likely be viewed as a significant improvement to an organization's management accounting and control system. Required: 1. Use your knowledge of COQ reporting to speculate on an "environmental assessment" reporting framework. This tool should identify each aspect of the organization's activities that affect the environment, in terms of both living and non-living natural systems (ecosystems), including land, water, and air. (That is, what are some of the environmental impacts that the management accounting system could assess and monitor?) 2. In the past, management accountants focused on a traditional approach to environmental risk management, wherein the focus was on ensuring regulatory compliance (EPA, etc.) in order to minimize fines, penalties, and legal costs). In today's business climate, however, more will likely be expected of the management accountant. What type of opportunities, associated with environmental performance, might the management accountant suggest to management?

29) As noted in Chapter 17, one approach to setting quality standards is to use a Six-Sigma

approach. Required: 1. What is meant by the term "Six Sigma"? 2. The overall process of implementing process-improvement projects is referred to as DMAIC (Define, Measure, Analyze, Improve, and Control). Provide an overview of each stage of the DMAIC specifically within the context of a Six Sigma implementation.

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30) Six Sigma is one approach for setting quality expectations for a given process or output. As

pointed out in Chapter 17 of your text, the term "Six Sigma" comes from statistics: in a normal distribution, the area (probability) outside of +/− six (6) standard deviations from the mean value is exceedingly small. You are provided the following values from a standardized normal distribution (i.e., a distribution with a mean of zero and a standard deviation of 1.0): Z 0.00 1.00 1.50 1.75 2.00 2.50 3.00 3.50 4.00

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p 0.50000000 0.15870000 0.06681000 0.04006000 0.02275000 0.00621000 0.00135000 0.00023270 0.00003169

Note: The Z values in the above table refer to the number of sigmas to the right of center (i.e., to the right of Z = 0). The listed probabilities, p, refer to the area to the right of the chosen Z point, as illustrated by the graph below:

Required: 1. Given the above, what is the total probability (area under the curve) corresponding to Z = 0 +/− 1.0 sigma, rounded to two decimal places (e.g., 0.34817 = 34.82%)? How many units (out of 1,000 outputs) would have one or more defects for a process operating at one-sigma performance level? Round your answer to nearest whole number. 2. What is the total probability (area under the curve) corresponding to Z = 0 +/− 3.0 sigma, rounded to two decimal places? How many units (out of 1,000 outputs) would have one or more defects for a process operating at three-sigma performance level? Round your answer to nearest whole number. 3. Under a four-sigma control level, what is the total area in the two tails of the distribution, rounded to six (6) decimal places (e.g., 0.00004169 = 0.00417%). What is the total probability (area under the curve) corresponding to Z = 0 +/− 4.0 sigma, rounded to two decimal places? How many units (out of 100,000 outputs) would have one or more defects for a process operating at four-sigma performance level? Round your answer to nearest whole number. 4. What general conclusion can you draw based on the preceding results?

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31) In an effort to improve its competitive position, J. J. Borden Company recently introduced

Just-in-Time (JIT) production techniques. Its management accountant assembled the following data regarding the recent change: Item

Prior to JIT

Production cycle time Inventory level

68 days $ 160,000

Total sales

After JIT Implementation 30 days $ 40,000

$ 1,260,000

$ 1,700,000

30%

20%

Direct labor

22%

15%

Variable overhead

28%

10%

Fixed overhead

12%

Estimated cost data, % of sales: Direct materials

Inventory carrying cost is estimated as 15.0% per year. Required: 1. Estimate the net financial benefit (expressed in terms of the change in operating income) that the company realized from the switch to JIT manufacturing. 2. List four (4) nonfinancial benefits the company might expect as a result to its move to JIT. 3. List two (2) expected costs of implementing a JIT system?

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32) Because of the need to improve its competitive standing, the XYZ Company has embraced a

JIT production philosophy. To facilitate the transition to JIT, the company is contemplating a change in its production layout. You, as the management accountant for the company, have recently been asked to prepare an analysis of relevant costs and benefits associated with the proposed change in plant layout. After consulting with relevant managers within the company, you have come up with the following pieces of information: 1. (a) Estimated cost to move/reinstall existing machinery and equipment = $100,000. 2. (b) Estimated increase in sales = 20% (to $1,200,000). (This increase is based on an assumed decrease in production cycle time under the new plan layout. Experience shows an average contribution margin of 31% of sales revenue.) 3. (c) Inventory-related costs are predicted to decrease by 25%. Currently, the company holds an average inventory of approximately $200,000. You estimate that inventoryholding costs amount to 15% (on an annual basis). Required: 1. What is the first-year net financial effect (rounded to nearest dollar) associated with the proposed change in plant layout? Based solely on this analysis, should the change be made? 2. What other considerations might be made before a decision regarding the change in factory layout is made?

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33) This question deals with the general topic of nonfinancial performance indicators.

Required: Chapter 17 of the text discusses both financial and nonfinancial performance indicators that can be used to manage and control quality. 1. Provide a description of each of the following two nonfinancial quality indicators: a. Customer response time (CRT) b. Cycle time efficiency 2. Into what three components can CRT be broken down?

34) Explain what is meant by the term "net promoter score" and what relevance this metric has in

terms of the goal of developing a comprehensive framework for managing and controlling quality.

35) As noted in the text, a comprehensive framework for managing and controlling quality

contains both financial and non-financial performance indicators (metrics). Provide four (4) examples of internal quality metrics, and four (4) examples of external (i.e., customer-based) non-financial quality metrics.

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36) Provide four reasons why both internal and external nonfinancial measures of quality are

integral components of a comprehensive system for managing and controlling quality.

37) Provide a definition of the term "quality," as used in Chapter 17 of the text. Into what two

categories (or dimensions) can total quality be divided? Define each of these two dimensions. How, conceptually, can cost management contribute to the management of each of these two dimensions of quality?

38) The Taguchi quality Loss Function (QLF) demonstrates that as the quality measure of a

product declines, the loss due to quality defects: A) Increases as a quadratic function. B) Increases as a linear function. C) Increases at a decreasing rate. D) Decreases as a quadratic function. E) Increases as a step function.

39) Which of the following is not considered a prevention cost? A) Information system costs. B) Equipment maintenance costs. C) Test and inspection costs. D) Supplier assurance costs. E) Quality training costs.

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40) Which of the following is not an expected result of improved quality of operations? A) Decreased inventory turnover. B) Higher product/service selling prices. C) Faster throughput time. D) Lower total manufacturing cost. E) Increased sales volume.

41) ISO 14000: A) Provides a set of quality standards that relate to environmental management. B) Is required under current International Financial Reporting Standards (IFRS). C) Is a requirement for receipt of the Baldrige Quality Award in the U.S. D) Provides general standards for quality assurance by companies and organizations. E) Deals with quality-control principles applied specifically to government and not-for-

profit organizations.

42) Typically, as prevention and appraisal costs increase, other costs of quality: A) Are not affected. B) Change, but the direction cannot be predicted. C) Increase proportionately. D) Decrease. E) Decrease proportionally.

43) Regardless of the differences in format, a common feature that should be present in any cost

of quality (COQ) Report is that the report: A) Promotes the management and control of quality-related costs. B) Classifies costs by product line. C) Classifies costs by cost center or profit center. D) Classifies costs by behavior (e.g., fixed versus variable). E) Classifies costs by the external value stream.

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44) A common characteristic among control charts, histograms, Pareto diagrams, and cause-and-

effect diagrams is that they are all: A) Based on relevant cost and relevant revenue data. B) Based on the same scale. C) Visual representations that allow us to detect quality-related problems. D) Statistically-based models of good-quality and poor-quality outputs. E) Useful tools for preventing quality problems from occurring.

45) The set of international quality-management standards, which provide guidance and tools for

organizations that want to ensure quality outputs of goods and services, is referred to as: A) ISO 14000. B) International Financial Reporting Standard (IFRS) No. 14000. C) International Financial Reporting Standard (IFRS) No. 9000. D) ISO 9000. E) Securities and Exchange Commission (SEC) Release 20-F.

46) Studies have shown that improvements in quality can lead to: A) A higher total cost as additional costs are spent to improve quality. B) Lower productivity because of the need to meet a higher quality standard. C) Increases in throughput time. D) Increases in productivity (e.g., lower manufacturing costs). E) Increased warranty costs.

47) A 6-sigma performance level would translate to how many defects per million? A) 1. B) 1,400. C) 0.001. D) 32. E) 0.05.

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48) Conformance to a quality standard that requires all products or services to meet exactly the

target value with no variation allowed is: A) Control-chart conformance. B) Target conformance. C) Goalpost conformance. D) Absolute quality conformance. E) Benchmark quality conformance.

49) A proper role for accounting in terms of managing and controlling quality includes all the

following except: A) Providing management with relevant financial information for decisions related to quality-oriented initiatives. B) Providing management with relevant nonfinancial information for decisions related to quality-related initiatives. C) Specifying quality-related goals and objectives for the organization. D) Identifying operational constraints. E) Participating in the development of Six-Sigma quality-related goals.

50) What is design failure? A) Customer satisfaction with the total experience of a product or service. B) The difference between the actual features of the product (or service) and the features

that the customer wants. C) An overall measure of quality is the difference between customer expectations and actual performance of the product or service. D) The extent to which the actual performance of the product matches (or is consistent with) design specifications of the product. E) Costs related to meeting customer demands and quality-related expectations.

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51) Which of the following statements regarding the meaning of "quality" is true? A) Total quality can be decomposed conceptually into two broad components: features

and performance. B) "Features," as used in the discussion of quality, refers to actual functionality of a product. C) Another name for product features is performance quality. D) Cost of quality (COQ) reporting is most helpful in managing design quality. E) Quality of design is defined as the difference between design specifications and customer desires.

52) The development and implementation of a comprehensive framework for managing and

controlling quality is best accomplished through which type of company interaction? A) Divisional interaction. B) Executive decision making. C) Market research. D) Board of directors meeting. E) Cross-functional effort.

53) Management accountants can help support the quality initiatives of management by

supplying decision makers with relevant financial information regarding these initiatives. Which of the following statements is true regarding costs that are relevant for decision making within this context? A) Relevant costs are variable costs. B) Relevant costs are fixed costs. C) Relevant costs include out-of-pocket but not opportunity costs because the latter are not recorded by accounting systems. D) Relevant costs are future costs that differ between (or across) decision alternatives. E) Relevant costs would not include estimated losses due to reduced market share.

54) All the following approaches can be used to set quality-related performance expectations

except: A) B) C) D) E)

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Taguchi quality loss function (QLF) analysis. Six Sigma. Goalpost conformance. Absolute conformance. Ideal performance.

55) Which of the following is not an improvement realized by adopting a Six Sigma philosophy? A) Reduction of lead times for product development and scale-up in a pharmaceutical

company. B) Identification and reduction of unnecessary spare parts inventory for a paper cup plant. C) Reduction of sales revenue for service companies. D) Reduction of wait time for loan approval notification. E) Reduction of scrap in a ball-bearing manufacturing plant and capacity assembly plant.

56) Which one of the following is not a category of the cost of quality (COQ) reporting model? A) Value-stream cost. B) External failure cost. C) Internal failure cost. D) Detection cost. E) Prevention cost.

57) In a cost of quality (COQ) reporting framework, costs incurred to keep quality defects from

occurring are classified as: A) Customer-failure costs. B) Appraisal costs. C) Internal failure costs. D) Prevention costs. E) Detection costs.

58) In a Cost of quality (COQ) reporting framework, costs incurred in conjunction with the

measurement and analysis of data to ascertain conformity of products and services to specification are properly classified as: A) External failure costs. B) Appraisal costs. C) Internal failure costs. D) Prevention costs. E) Value-added costs.

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59) Costs incurred because of poor quality found through appraisal prior to delivery of the

product to the customer are, in a cost of quality (COQ) reporting framework, considered: A) External failure costs. B) Appraisal costs. C) Prevention costs. D) Internal failure costs. E) Conformity costs.

60) Which costs are incurred during the production process and prior to delivery to customers? A) Prevention costs. B) Retention costs. C) Appraisal costs. D) Internal failure costs. E) External failure costs.

61) Which of the following is not considered an internal failure cost? A) Costs to restore reputation. B) Reinspection and retest costs. C) Expediting costs. D) Rework and (net) scrap costs. E) Costs of corrective action.

62) In a cost of quality (COQ) reporting framework, scrap costs because of a quality failure

would be classified as: A) Prevention costs. B) Salvage costs. C) Appraisal costs. D) Internal failure costs. E) External failure costs.

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63) In a cost of quality (COQ) report, costs to acquire and install training equipment would be

classified as: A) Prevention costs. B) Retention costs. C) Appraisal costs. D) Internal failure costs. E) External failure costs.

64) In a cost of quality (COQ) report, sales returns and allowances due to quality deficiency

would be classified as: A) Prevention costs. B) Salvage costs. C) Appraisal costs. D) Internal failure costs. E) External failure costs.

65) In a Cost of Quality (COQ) report, maintenance costs for test equipment would be classified

as: A) B) C) D) E)

Prevention costs. Retention costs. Appraisal costs. Internal failure costs. External failure costs.

66) In a typical Cost of Quality (COQ) report, instructor fees for quality training would be

classified as: A) Prevention costs. B) Retention costs. C) Appraisal costs. D) Internal failure costs. E) External failure costs.

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67) For cost of quality (COQ) reporting purposes, contribution margin of canceled sales orders

due to quality deficiency would be classified as: A) Prevention costs. B) Appraisal costs. C) Internal failure costs. D) External failure costs. E) A lost sale, not a cost of quality.

68) For cost of quality (COQ) reporting purposes, materials inspection costs would normally be

classified as: A) Salvage costs. B) Retention costs. C) Appraisal costs. D) Internal failure costs. E) External failure costs.

69) Inspection costs for reworked units would be classified, for cost of quality (COQ) reporting

purposes, as: A) Prevention costs. B) Retention costs. C) Appraisal costs. D) Internal failure costs. E) External failure costs.

70) The cost of conformance in a cost of quality (COQ) reporting system includes: A) Prevention costs and appraisal costs. B) Internal failure costs and external failure costs. C) Prevention costs and internal failure costs. D) Appraisal costs and internal failure costs. E) Prevention costs and external failure costs.

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71) In a cost of quality (COQ) reporting framework, the "cost of nonconformance" includes: A) Prevention costs and appraisal costs. B) Internal failure costs and external failure costs. C) Prevention costs and internal failure costs. D) Appraisal costs, internal failure costs, and external failure costs. E) Prevention costs and external failure costs.

72) All the following are examples of internal nonfinancial quality indicators except: A) Number of customer complaints. B) Process yield (i.e., ratio of good outputs to total output). C) Productivity (i.e., ratio of acceptable output to resource inputs). D) Plant safety record (e.g., days since last major accident). E) Throughput.

73) Cycle time efficiency is: A) Defined as the ratio of time spent on value-added activities to the sum of time spent

on value-added plus non-value-added activities. B) Also referred to as process efficiency. C) Defined as the ratio of throughput to resources used. D) The ratio of throughput to the amount of product in backlog status. E) Not typically part of a comprehensive framework for managing and controlling quality since it is a nonfinancial performance indicator.

74) Production lead time is the: A) Difference between when an order is received by manufacturing and when that order

is completed. B) Demand for a product. C) Years of experience manufacturing the product. D) Number of mistakes made during production. E) Time it takes to manufacture and sell a product.

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75) Which of the following statements about nonfinancial performance indicators of quality is

not true? A) They can be useful predictors of future financial performance. B) Generally speaking, they are costlier to generate than financial measures of quality. C) They are timelier than financial data. D) They are readily interpretable by operating personnel. E) They help to identify precise quality-related problems.

76) A graph that depicts successive observations of an operation taken at constant intervals is

a(n): A) B) C) D) E)

Control chart. Pareto diagram. Histogram. Ishikawa diagram. Cause-and-effect diagram.

77) A graphical representation of the variation in a given set of data is a(n): A) Control chart. B) Pareto diagram. C) Histogram. D) Ishikawa diagram. E) Cause-and-effect diagram.

78) A graphical representation of frequency of occurrence of the factors contributing to an

indicated quality problem, ordered from the most to the least frequent, is a(n): A) Control chart. B) Pareto diagram. C) Histogram. D) Ishikawa diagram. E) Cause-and-effect diagram.

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79) A graphical method that organizes a chain of causes and effects to sort out root causes and

identify relationships between causes or variables is a(n): A) Control chart. B) Pareto diagram. C) Histogram. D) Fish-bone (i.e., Ishikawa) diagram. E) Brainstorm report.

80) Which of the following is a tool that indicates how frequently each type of quality defect

occurs? A) B) C) D) E)

Control chart. Pareto diagram. Cause and effect diagram. Fishbone diagram. Ishikawa diagram.

81) A tool that can be used to identify potential causes of failures or defects is a: A) Control chart. B) Pareto diagram. C) Fishbone (i.e., Ishikawa) diagram. D) Run chart. E) Six Sigma report.

82) What does a run chart show? A) Successive observations of an operation (or cost) taken at constant intervals over a

specified time. B) The frequency of attributes or events in a given set of data. C) The frequency of factors contributing to a quality problem, ordered from the most to the least frequent. D) Trends in observations of a quality characteristic over time. E) A diagram that organizes a chain of causes and effects to sort out root causes of an identified quality problem.

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83) Which of the following statements about product quality is not true? A) In almost all cases detecting and fixing quality problems before delivering to

customers are far less expensive than dealing with quality failures in the field after delivery has been made to the customers. B) In general, designing quality into products is far less expensive than trying to detect quality problems during production. C) Quality failure costs should include the possible opportunity cost of lost future sales. D) The most expensive cost to the firm for a quality failure in the field is most likely the cost of emergency service to fix the problem or to replace the product. E) The cost of fixing quality problems after delivery to the customer is likely to exceed both the cost of designing quality into the product and the cost of detecting quality defects during production.

84) The total cost of quality (COQ) is the sum of what two costs? A) Internal failure cost and prevention costs. B) Conformance and nonconformance costs. C) Prevention and appraisal costs. D) internal failure costs and external failure costs. E) Inspection costs and cost of goods sold.

85) The four categories of cost associated with a cost of quality (COQ) reporting system are: A) External failure, internal failure, prevention, and carrying. B) External failure, internal failure, prevention, and appraisal. C) External failure, internal failure, training, and appraisal. D) Warranty, product liability, training, and appraisal. E) Warranty, product liability, prevention, and appraisal.

86) In a cost of quality (COQ) reporting framework, the cost of scrap, rework, and tooling

changes are categorized as a(n): A) External failure cost. B) Internal failure cost. C) Manufacturing overhead cost. D) Avoidable cost. E) Appraisal cost.

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87) All the following costs are generally included in a cost of quality (COQ) report except: A) Warranty claims. B) Forgone contribution margin on lost sales. C) The cost of making sales calls. D) Design re-engineering costs. E) The cost of implementing a statistical process control (SPC) system.

88) Horizon Manufacturing Company spent $400,000 in 2021 to inspect incoming components.

Of the $400,000, $240,000 is fixed appraisal costs. The variable inspection cost is $0.20 per component. It takes two components for each finished product. Internal failure costs average $80 per failed unit of finished goods. In 2021, five percent of all completed items had to be reworked. External failure costs average $200 per failed unit. The company's average external failures are one percent of units sold. The company manufactures all units as ordered and carries no materials inventories. Seeking to decrease its total cost of quality (COQ), Horizon contracted Quality-is-Free Consultants, Incorporated (QIFC) to study ways to improve product quality and to reduce costs. Upon completion of the study, QIFC recommended automatic inspection equipment that requires a $60,000 annual cost for training and $150,000 for equipment rental and maintenance. The new equipment will eliminate $40,000 of the fixed appraisal costs, reduce the amount of unacceptable product units in the manufacturing process by 10 percent, and cut product failures by half. The company paid the consulting firm $100,000 in early January 2022 for the project. Horizon expects no changes in its operating level in the foreseeable future. The $100,000 payment to the consulting firm for cost of quality (COQ) reporting purposes is best classified as a(n): A) Prevention cost. B) Appraisal cost. C) Internal failure cost. D) External failure cost. E) Administrative cost.

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89) Horizon Manufacturing Company spent $406,000 in 2021 to inspect incoming components.

Of the $406,000, $243,000 is fixed appraisal costs. The variable inspection cost is $0.20 per component. It takes two components for each finished product. Internal failure costs average $86 per failed unit of finished goods. In 2021, eight percent of all completed items had to be reworked. External failure costs average $212 per failed unit. The company's average external failures are one percent of units sold. The company manufactures all units as ordered and carries no materials inventories. Seeking to decrease its total cost of quality (COQ), Horizon contracted Quality-is-Free Consultants, Incorporated (QIFC) to study ways to improve product quality and to reduce costs. Upon completion of the study, QIFC recommended automatic inspection equipment that requires a $63,000 annual cost for training and $156,000 for equipment rental and maintenance. The new equipment will eliminate $43,000 of the fixed appraisal costs, reduce the amount of unacceptable product units in the manufacturing process by 16 percent, and cut product failures by half. The company paid the consulting firm $109,000 in early January 2022 for the project. Horizon expects no changes in its operating level in the foreseeable future. What is the current (i.e., 2021) total cost of quality (COQ)? A) $406,000. B) $2,804,000. C) $3,668,000. D) $4,073,500. E) $6,474,000.

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90) Horizon Manufacturing Company spent $400,000 in 2021 to inspect incoming components.

Of the $400,000, $240,000 is fixed appraisal costs. The variable inspection cost is $0.20 per component. It takes two components for each finished product. Internal failure costs average $80 per failed unit of finished goods. In 2021, five percent of all completed items had to be reworked. External failure costs average $200 per failed unit. The company's average external failures are one percent of units sold. The company manufactures all units as ordered and carries no materials inventories. Seeking to decrease its total cost of quality (COQ), Horizon contracted Quality-is-Free Consultants, Incorporated (QIFC) to study ways to improve product quality and to reduce costs. Upon completion of the study, QIFC recommended automatic inspection equipment that requires a $60,000 annual cost for training and $150,000 for equipment rental and maintenance. The new equipment will eliminate $40,000 of the fixed appraisal costs, reduce the amount of unacceptable product units in the manufacturing process by 10 percent, and cut product failures by half. The company paid the consulting firm $100,000 in early January 2022 for the project. Horizon expects no changes in its operating level in the foreseeable future. What is the current (i.e., 2021) total cost of quality (COQ)? A) $400,000. B) $1,600,000. C) $2,400,000. D) $2,800,000. E) $5,200,000.

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91) Horizon Manufacturing Company spent $400,000 in 2021 to inspect incoming components.

Of the $400,000, $240,000 is fixed appraisal costs. The variable inspection cost is $0.20 per component. It takes two components for each finished product. Internal failure costs average $80 per failed unit of finished goods. In 2021, five percent of all completed items had to be reworked. External failure costs average $200 per failed unit. The company's average external failures are one percent of units sold. The company manufactures all units as ordered and carries no materials inventories. Seeking to decrease its total cost of quality (COQ), Horizon contracted Quality-is-Free Consultants, Incorporated (QIFC) to study ways to improve product quality and to reduce costs. Upon completion of the study, QIFC recommended automatic inspection equipment that requires a $61,000 annual cost for training related to the inspection/appraisal process and $155,000 for inspection equipment rental and maintenance. The new equipment will eliminate $42,500 of the fixed appraisal costs, reduce the amount of unacceptable product units in the manufacturing process by 10 percent, and cut product failures by half. The company paid the consulting firm $107,500 in early January 2022 for the project. Horizon expects no changes in its operating level in the foreseeable future. What effect does the new equipment have on total appraisal costs? A) $13,500 increase. B) $23,500 decrease. C) $173,500 increase. D) $223,500 increase. E) No change.

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92) Horizon Manufacturing Company spent $400,000 in 2021 to inspect incoming components.

Of the $400,000, $240,000 is fixed appraisal costs. The variable inspection cost is $0.20 per component. It takes two components for each finished product. Internal failure costs average $80 per failed unit of finished goods. In 2021, five percent of all completed items had to be reworked. External failure costs average $200 per failed unit. The company's average external failures are one percent of units sold. The company manufactures all units as ordered and carries no materials inventories. Seeking to decrease its total cost of quality (COQ), Horizon contracted Quality-is-Free Consultants, Incorporated (QIFC) to study ways to improve product quality and to reduce costs. Upon completion of the study, QIFC recommended automatic inspection equipment that requires a $60,000 annual cost for training related to the inspection/appraisal process and $150,000 for inspection equipment rental and maintenance. The new equipment will eliminate $40,000 of the fixed appraisal costs, reduce the amount of unacceptable product units in the manufacturing process by 10 percent, and cut product failures by half. The company paid the consulting firm $100,000 in early January 2022 for the project. Horizon expects no changes in its operating level in the foreseeable future. What effect does the new equipment have on total appraisal costs? A) B) C) D) E)

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$10,000 increase. $20,000 decrease. $170,000 increase. $220,000 increase. No change.

93) Horizon Manufacturing Company spent $410,000 in 2021 to inspect incoming components.

Of the $410,000, $250,000 is fixed appraisal costs. The variable inspection cost is $0.20 per component. It takes four components for each finished product. Internal failure costs average $80 per failed unit of finished goods. In 2021, five percent of all completed items had to be reworked. External failure costs average $200 per failed unit. The company's average external failures are one percent of units sold. The company manufactures all units as ordered and carries no materials inventories. Seeking to decrease its total cost of quality (COQ), Horizon contracted Quality-is-Free Consultants, Incorporated (QIFC) to study ways to improve product quality and to reduce costs. Upon completion of the study, QIFC recommended automatic inspection equipment that requires a $61,400 annual cost for training and $157,000 for equipment rental and maintenance. The new equipment will eliminate $43,500 of the fixed appraisal costs, reduce the amount of unacceptable product units in the manufacturing process by 10 percent, and cut product failures by half. The company paid the consulting firm $110,500 in early January 2022 for the project. Horizon expects no changes in its operating level in the foreseeable future. How much are internal failure costs in total projected to change? A) $10,000 decrease. B) $22,000 decrease. C) $40,000 decrease. D) $80,000 decrease. E) $160,000 decrease.

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94) Horizon Manufacturing Company spent $400,000 in 2021 to inspect incoming components.

Of the $400,000, $240,000 is fixed appraisal costs. The variable inspection cost is $0.20 per component. It takes two components for each finished product. Internal failure costs average $80 per failed unit of finished goods. In 2021, five percent of all completed items had to be reworked. External failure costs average $200 per failed unit. The company's average external failures are one percent of units sold. The company manufactures all units as ordered and carries no materials inventories. Seeking to decrease its total cost of quality (COQ), Horizon contracted Quality-is-Free Consultants, Incorporated (QIFC) to study ways to improve product quality and to reduce costs. Upon completion of the study, QIFC recommended automatic inspection equipment that requires a $60,000 annual cost for training and $150,000 for equipment rental and maintenance. The new equipment will eliminate $40,000 of the fixed appraisal costs, reduce the amount of unacceptable product units in the manufacturing process by 10 percent, and cut product failures by half. The company paid the consulting firm $100,000 in early January 2022 for the project. Horizon expects no changes in its operating level in the foreseeable future. How much are internal failure costs in total projected to change? A) $20,000 decrease. B) $45,000 decrease. C) $80,000 decrease. D) $160,000 decrease. E) $320,000 decrease.

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95) Horizon Manufacturing Company spent $410,000 in 2021 to inspect incoming components.

Of the $410,000, $250,000 is fixed appraisal costs. The variable inspection cost is $0.20 per component. It takes four components for each finished product. Internal failure costs average $80 per failed unit of finished goods. In 2021, five percent of all completed items had to be reworked. External failure costs average $200 per failed unit. The company's average external failures are one percent of units sold. The company manufactures all units as ordered and carries no materials inventories. Seeking to decrease its total cost of quality (COQ), Horizon contracted Quality-is-Free Consultants, Incorporated (QIFC) to study ways to improve product quality and to reduce costs. Upon completion of the study, QIFC recommended automatic inspection equipment that requires a $60,400 annual cost for training and $152,000 for equipment rental and maintenance. The new equipment will eliminate $41,000 of the fixed appraisal costs, reduce the amount of unacceptable product units in the manufacturing process by 10 percent, and cut product failures by half. The company paid the consulting firm $103,000 in early January 2022 for the project. Horizon expects no changes in its operating level in the foreseeable future. How much do you expect total external failure costs to change? A) $5,000 increase. B) $100,000 decrease. C) $160,000 decrease. D) $200,000 decrease. E) $400,000 decrease.

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96) Horizon Manufacturing Company spent $400,000 in 2021 to inspect incoming components.

Of the $400,000, $240,000 is fixed appraisal costs. The variable inspection cost is $0.20 per component. It takes two components for each finished product. Internal failure costs average $80 per failed unit of finished goods. In 2021, five percent of all completed items had to be reworked. External failure costs average $200 per failed unit. The company's average external failures are one percent of units sold. The company manufactures all units as ordered and carries no materials inventories. Seeking to decrease its total cost of quality (COQ), Horizon contracted Quality-is-Free Consultants, Incorporated (QIFC) to study ways to improve product quality and to reduce costs. Upon completion of the study, QIFC recommended automatic inspection equipment that requires a $60,000 annual cost for training and $150,000 for equipment rental and maintenance. The new equipment will eliminate $40,000 of the fixed appraisal costs, reduce the amount of unacceptable product units in the manufacturing process by 10 percent, and cut product failures by half. The company paid the consulting firm $100,000 in early January 2022 for the project. Horizon expects no changes in its operating level in the foreseeable future. How much do you expect total external failure costs to change? A) $10,000 increase. B) $200,000 decrease. C) $320,000 decrease. D) $400,000 decrease. E) $800,000 decrease.

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97) Horizon Manufacturing Company spent $415,000 in 2021 to inspect incoming components.

Of the $415,000, $240,000 is fixed appraisal costs. The variable inspection cost is $0.20 per component. It takes five components for each finished product. Internal failure costs average $80 per failed unit of finished goods. In 2021, five percent of all completed items had to be reworked. External failure costs average $200 per failed unit. The company's average external failures are one percent of units sold. The company manufactures all units as ordered and carries no materials inventories. Seeking to decrease its total cost of quality (COQ), Horizon contracted Quality-is-Free Consultants, Inc. (QIFC) to study ways to improve product quality and to reduce costs. Upon completion of the study, QIFC recommended automatic inspection equipment that requires a $60,600 annual cost for training related to the inspection/appraisal process and $153,000 for inspection equipment rental and maintenance. The new equipment will eliminate $41,500 of the fixed appraisal costs, reduce the amount of unacceptable product units in the manufacturing process by 10 percent, and cut product failures by half. The company paid the consulting firm $104,500 in early January 2022 for the project. Horizon expects no changes in its operating level in the foreseeable future. What is the expected net change in total cost of quality (COQ) projected for 2022? A) $415,000 increase. B) $31,600 increase. C) $568,000 increase. D) $590,000 increase. E) $63,200 increase.

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98) Horizon Manufacturing Company spent $400,000 in 2021 to inspect incoming components.

Of the $400,000, $240,000 is fixed appraisal costs. The variable inspection cost is $0.20 per component. It takes two components for each finished product. Internal failure costs average $80 per failed unit of finished goods. In 2021, five percent of all completed items had to be reworked. External failure costs average $200 per failed unit. The company's average external failures are one percent of units sold. The company manufactures all units as ordered and carries no materials inventories. Seeking to decrease its total cost of quality (COQ), Horizon contracted Quality-is-Free Consultants, Incorporated (QIFC) to study ways to improve product quality and to reduce costs. Upon completion of the study, QIFC recommended automatic inspection equipment that requires a $60,000 annual cost for training related to the inspection/appraisal process and $150,000 for inspection equipment rental and maintenance. The new equipment will eliminate $40,000 of the fixed appraisal costs, reduce the amount of unacceptable product units in the manufacturing process by 10 percent, and cut product failures by half. The company paid the consulting firm $100,000 in early January 2022 for the project. Horizon expects no changes in its operating level in the foreseeable future. What is the expected net change in total cost of quality (COQ) projected for 2022? A) $400,000 decrease. B) $290,000 decrease. C) $550,000 decrease. D) $560,000 decrease. E) $580,000 decrease.

99) Fix Manufacturing specifies the quality characteristic of one of its popular products to be

0.61" ± 0.02. An analysis of company records for the last two years suggests that the average cost for warranty repair or replacement is $128 per unit. The customer service manager believes that the product is likely to fail during the warranty period when the quality characteristic exceeds on either side of the target of 0.61 the tolerance of 0.02. What is the cost coefficient, k, in the Taguchi loss function (QLF) for this company? A) $128. B) $6,400. C) $16,000. D) $320,000. E) $800,000.

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100)

Fix Manufacturing specifies the quality characteristic of one of its popular products to be 0.500" ±0.020. An analysis of company records for the last two years suggests that the average cost for warranty repair or replacement is $125.00 per unit. The customer service manager believes that the product is likely to fail during the warranty period when the quality characteristic exceeds on either side of the target of 0.500 the tolerance of 0.020. What is the cost coefficient, k, in the Taguchi loss function (QLF) for this company? A) $125. B) $6,250. C) $15,625. D) $312,500. E) $781,250.

101)

Fix Manufacturing specifies the quality characteristic of one of its popular products to be 0.500" ± 0.020. An analysis of company records for the last two years suggests that the average cost for warranty repair or replacement is $131 per unit. The customer service manager believes that the product is likely to fail during the warranty period when the quality characteristic exceeds on either side of the target of 0.500 the tolerance of 0.020. Using a Taguchi quality loss function (QLF) for this company, what is the amount of the estimated loss (to four (4) decimal places) when the actual quality characteristic, x, is 0.505? A) $0.4093. B) $8.1875. C) $20.4688. D) $131.0000. E) $1,638.0000.

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102)

Fix Manufacturing specifies the quality characteristic of one of its popular products to be 0.500" ±0.020. An analysis of company records for the last two years suggests that the average cost for warranty repair or replacement is $125.00 per unit. The customer service manager believes that the product is likely to fail during the warranty period when the quality characteristic exceeds on either side of the target of 0.500 the tolerance of 0.020. Using a Taguchi quality loss function (QLF) for this company, what is the amount of the estimated loss (to four (4) decimal places) when the actual quality characteristic, x, is 0.505? A) $0.3906. B) $7.8125. C) $19.5313. D) $125.0000. E) $1,562.5000.

103)

Fix Manufacturing specifies the quality characteristic of one of its popular products to be 0.500" ± 0.020. An analysis of company records for the last two years suggests that the average cost for warranty repair or replacement is $142 per unit. The customer service manager believes that the product is likely to fail during the warranty period when the quality characteristic exceeds on either side of the target of 0.500 the tolerance of 0.020. What is the amount of the estimated loss (to three decimal places) using a Taguchi quality loss function (QLF) if the actual quality characteristic, x, is 0.510? A) $8.876. B) $35.500. C) $88.750. D) $3,550.000. E) $8,875.000.

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104)

Fix Manufacturing specifies the quality characteristic of one of its popular products to be 0.500" ± 0.020. An analysis of company records for the last two years suggests that the average cost for warranty repair or replacement is $125.00 per unit. The customer service manager believes that the product is likely to fail during the warranty period when the quality characteristic exceeds on either side of the target of 0.500 the tolerance of 0.020. What is the amount of the estimated loss (to three decimal places) using a Taguchi quality loss function (QLF) if the actual quality characteristic, x, is 0.510? A) $7.813. B) $31.250. C) $78.125. D) $3,125.000. E) $7,812.500.

105)

Oslo Company's target quality characteristic, T, for one of its key components is set at 95. Using the Taguchi quality loss function (QLF) the company has determined the cost coefficient, k, to be $6,650. What is the estimated loss, L(x), if the value of the quality characteristic, x, is 98? A) $7,350. B) $10,350. C) $23,850. D) $48,350. E) $59,850.

106)

Oslo Company's target quality characteristic, T, for one of its key components is set at 82. Using the Taguchi quality loss function (QLF) the company has determined the cost coefficient, k, to be $6,000. What is the estimated loss, L(x), if the value of the quality characteristic, x, is 85? A) $1,500. B) $4,500. C) $18,000. D) $42,500. E) $54,000.

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107)

Mask Manufacturing specifies the quality characteristic for one of its key components to be 158" ± 4. The cost of failure is estimated to be $14,400 per unit. Using the Taguchi quality loss function (QLF) the firm has estimated the loss, L(x), at the quality characteristic that the firm has experienced, x, to be $8,100. What is the estimated loss (to the nearest dollar) if the deviation from the value of the quality characteristic doubled? A) $7,600. B) $16,200. C) $30,400. D) $32,400. E) $60,800.

108)

Mask Manufacturing specifies the quality characteristic for one of its key components to be 154.0" ± 4.0. The cost of failure is estimated to be $8,000 per unit. Using the Taguchi quality loss function (QLF) the firm has estimated the loss, L(x), at the quality characteristic that the firm has experienced, x, to be $4,500. What is the estimated loss if the deviation from the value of the quality characteristic doubled? A) $4,000. B) $9,000. C) $16,000. D) $18,000. E) $32,000.

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109)

The desired target quality characteristic of a product of Hanson Component Manufacturing is 1.90. The customer-service manager knows that customers are likely to complain when the specification is off the desired quality characteristic by more than 0.025. On average, it costs the firm $4,800 to handle and resolve each complaint. The production manager of the Hanson Manufacturing suggests that the company test the product more thoroughly before shipping. The cost of additional testing and adjustments is estimated at $37.00 per unit. For Hanson, what is the value of k, the cost coefficient in the Taguchi quality loss function (QLF)? A) $12. B) $4,800. C) $192,000. D) $3,840,000. E) $7,680,000.

110)

The desired target quality characteristic of a product of Hanson Component Manufacturing is 0.5. The customer-service manager knows that customers are likely to complain when the specification is off the desired quality characteristic by more than 0.025. On average, it costs the firm $2,000 to handle and resolve each complaint. The production manager of the Hanson Manufacturing suggests that the company test the product more thoroughly before shipping. The cost of additional testing and adjustments is estimated at $30.00 per unit. For Hanson, what is the value of k, the cost coefficient in the Taguchi quality loss function (QLF)? A) $5. B) $2,000. C) $80,000. D) $1,600,000. E) $3,200,000.

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111)

The desired target quality characteristic of a product of Hanson Component Manufacturing is 2.10. The customer-service manager knows that customers are likely to complain when the specification is off the desired quality characteristic by more than 0.025. On average, it costs the firm $5,200 to handle and resolve each complaint. The production manager of the Hanson Manufacturing suggests that the company test the product more thoroughly before shipping. The cost of additional testing and adjustments is estimated at $38.00 per unit. Given the company's cost coefficient, k, what should the tolerance be (to five decimal places) before conducting additional testing and adjusting at the factory? (Do not round intermediate calculations.) A) 0.00001. B) 0.00214. C) 0.00044. D) 0.01700. E) 0.17000.

112)

The desired target quality characteristic of a product of Hanson Component Manufacturing is 0.5. The customer-service manager knows that customers are likely to complain when the specification is off the desired quality characteristic by more than 0.025. On average, it costs the firm $2,000 to handle and resolve each complaint. The production manager of the Hanson Manufacturing suggests that the company test the product more thoroughly before shipping. The cost of additional testing and adjustments is estimated at $30.00 per unit. Given the company's cost coefficient, k, what should the tolerance be (to five decimal places) before conducting additional testing and adjusting at the factory? (Do not round intermediate calculations.) A) 0.00001. B) 0.00306. C) 0.00063. D) 0.02500. E) 0.25000.

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113)

The desired target quality characteristic of a product of Hanson Component Manufacturing is 2.000. The customer-service manager knows that customers are likely to complain when the specification is off the desired quality characteristic by more than 0.025. On average, it costs the firm $5,000 to handle and resolve each complaint. The production manager of the Hanson Manufacturing suggests that the company test the product more thoroughly before shipping. The cost of additional testing and adjustments is estimated at $37.50 per unit. Assume that based on the company's cost information, tolerance is set at 0.0009. What should the target specification ("target specs") for the product be? A) 1.525 +/− 0.0300 B) 1.525 +/− 0.0090 C) 2.000 +/− 0.0300 D) 2.000 +/− 0.0009 E) 2.000 +/− 0.0081

114)

The desired target quality characteristic of a product of Hanson Component Manufacturing is 0.500. The customer-service manager knows that customers are likely to complain when the specification is off the desired quality characteristic by more than 0.025. On average, it costs the firm $2,000 to handle and resolve each complaint. The production manager of the Hanson Manufacturing suggests that the company test the product more thoroughly before shipping. The cost of additional testing and adjustments is estimated at $30.00 per unit. Assume that based on the company's cost information, tolerance is set at 0.0009. What should the target specification ("target specs") for the product be? A) 0.025 +/− 0.0300 B) 0.025 +/− 0.0090 C) 0.500 +/− 0.0300 D) 0.500 +/− 0.0009 E) 0.500 +/− 0.0081

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115)

Quality costs for services include: A) Prevention costs and appraisal costs only. B) Prevention costs, appraisal costs and internal failure costs only. C) Appraisal costs and internal failure costs only. D) Prevention costs, appraisal costs, internal failure costs, and external failure costs. E) External failure costs only.

116)

Which of the following is not a nonfinancial quality metric? A) Process yield (i.e., good output/total output). B) Number of defective parts produced (e.g., parts-per-million, ppm). C) Number of machine setups. D) Machine up-time (or, machine down-time). E) Trend in dollar amount of inventory held.

117)

A quality circle: A) Is a large group of employees from the same work area who meet regularly to identify and solve work-related problems and to implement and monitor solutions to these problems. B) Does not implement and monitor solutions to the problems. C) Is a small group of employees from the same work area who meet regularly to identify and solve work-related problems and to implement and monitor solutions to these problems. D) Is a small group of employees from different work areas who meet regularly to identify and solve work-related problems and to implement and monitor solutions to these problems. E) Does not need to meet regularly given the cross-functional nature of the group.

118)

Within the context of managing and controlling quality, the term "tolerance" refers to all of the following except: A) An approach to defining quality expectations for a process or output. B) An acceptable range for a given quality characteristic, such as diameter or thickness. C) An input to defining product specifications (i.e., "product specs"). D) 1 minus the cost coefficient, k, in the Taguchi quality loss function (QLF). E) A term used principally in conjunction with goalpost performance expectations.

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119)

Climb Manufacturing specifies the quality characteristic of one of its popular products to be 0.400" ± 0.010. An analysis of company records for the last two years suggests that the average cost for warranty repair or replacement is $165 per unit. The customer service manager believes that the product is likely to fail during the warranty period when the quality characteristic exceeds on either side of the target of 0.400, by the tolerance of 0.010. What is the cost coefficient, k, for the Taguchi quality loss function (QLF) associated with this situation? A) $17. B) $825. C) $16,500. D) $1,650,000. E) $3,300,000.

120)

Climb Manufacturing specifies the quality characteristic of one of its popular products to be 0.400" ± 0.010. An analysis of company records for the last two years suggests that the average cost for warranty repair or replacement is $100.00 per unit. The customer service manager believes that the product is likely to fail during the warranty period when the quality characteristic exceeds on either side of the target of 0.400, by the tolerance of 0.010. What is the cost coefficient, k, for the Taguchi quality loss function (QLF) associated with this situation? A) $10. B) $500. C) $10,000. D) $1,000,000. E) $2,000,000.

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121)

Climb Manufacturing specifies the quality characteristic of one of its popular products to be 0.400" ± 0.010. An analysis of company records for the last two years suggests that the average cost for warranty repair or replacement is $135 per unit. The customer service manager believes that the product is likely to fail during the warranty period when the quality characteristic exceeds on either side of the target of 0.400, by the tolerance of 0.010. What is the amount of the estimated loss, L(x), using a Taguchi quality loss function (QLF), when the actual quality characteristic, x, is 0.405? A) $34. B) $6,800. C) $13,600. D) $544,000. E) $550,800.

122)

Climb Manufacturing specifies the quality characteristic of one of its popular products to be 0.400" ± 0.010. An analysis of company records for the last two years suggests that the average cost for warranty repair or replacement is $100.00 per unit. The customer service manager believes that the product is likely to fail during the warranty period when the quality characteristic exceeds on either side of the target of 0.400, by the tolerance of 0.010. What is the amount of the estimated loss, L(x), using a Taguchi quality loss function (QLF), when the actual quality characteristic, x, is 0.405? A) $25. B) $5,000. C) $10,000. D) $400,000. E) $405,000.

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123)

Climb Manufacturing specifies the quality characteristic of one of its popular products to be 0.400" ±0.010. An analysis of company records for the last two years suggests that the average cost for warranty repair or replacement is $125 per unit. The customer service manager believes that the product is likely to fail during the warranty period when the quality characteristic exceeds on either side of the target of 0.400, by the tolerance of 0.010. What is the amount of the estimated loss, L( x), using a Taguchi quality loss function (QLF), if the actual quality characteristic, x, is 0.41? A) $31. B) $125. C) $12,500. D) $5,000,000. E) $5,125,000.

124)

Climb Manufacturing specifies the quality characteristic of one of its popular products to be 0.400" ± 0.010. An analysis of company records for the last two years suggests that the average cost for warranty repair or replacement is $100.00 per unit. The customer service manager believes that the product is likely to fail during the warranty period when the quality characteristic exceeds on either side of the target of 0.400, by the tolerance of 0.010. What is the amount of the estimated loss, L( x), using a Taguchi quality loss function (QLF), if the actual quality characteristic, x, is 0.41? A) $25. B) $100. C) $10,000. D) $4,000,000. E) $4,100,000.

125)

Which of the following is not a characteristic of a lean accounting system? A) Calculated costs are used in setting product prices. B) Reporting is done frequently (often weekly, or even daily). C) Product aggregation—product costs are determined at the value-stream level. D) Use of average costs for products in each value stream. E) Includes, in the form of box score report, nonfinancial as well as financial performance results.

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126)

Value stream income statements, which are part of a lean accounting system, have all the following characteristics except: A) They report segment profits in the form of value streams. B) They attempt to separate out the short-term effects of reductions in inventory. C) They separate traceable from non-traceable costs on the income statement. D) They calculate average costs for units in each value stream. E) They eliminate the need to deal with indirect costs.

127)

Which of the following is not a point of difference between lean manufacturing and traditional manufacturing processes? A) Traditional systems focus on cost reduction, while lean emphasizes meeting customer demand with short lead times. B) Traditional systems tend to motivate reductions in inventory holdings, while lean focuses on reducing idle time. C) Lean production systems are characterized by demand-pull, while traditional systems "push" production to meet forecasted demand. D) Lean systems focus on reducing setup times (to maximize manufacturing flexibility), while traditional manufacturing focuses on a reduction in the number of setups (to reduce setup costs). E) All of these are points of difference between lean manufacturing and traditional manufacturing processes.

128)

Lean manufacturing principles are derived in large part from the Toyota Production System (TPS). Which of the following is not associated with the TPS? A) Use of batch processing. B) Development of long-term relationships with key suppliers. C) Emphasis on balanced, continuous-flow manufacturing. D) Continuous improvement and elimination of waste in the system. E) Use of flexible manufacturing systems (FMS).

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129)

One of the key elements of lean accounting is the use of the value stream income statement. Which of the following is not a characteristic of value stream income? A) Reduction in the need for allocations of indirect costs. B) Expansion of the scope of the cost object. C) Decreased use of direct-cost tracing. D) Focus on revealing financial benefits of lean manufacturing. E) Income-effects for individual families of products are revealed.

130)

Which of the following is not one of the five principles of lean manufacturing? A) Demand-push production. B) Value stream accounting. C) Demand-pull production. D) Employee empowerment. E) Perfection and continuous improvement.

131)

Which of the following is not a characteristic of lean manufacturing? A) Increase in product flow (that is, throughput). B) Increase in product quality. C) Increase in inventory holdings. D) Establishment of long-term relationships with suppliers. E) Continuous-improvement perspective.

132)

Which of the following is not a characteristic of a lean accounting system? A) Costs in the system are organized according to value streams. B) The system includes both financial and nonfinancial performance indicators. C) It is most appropriate for firms operating in dynamic and competitive environments. D) The system incorporates the use of standard costs and standard cost variances. E) The overall intent of the system is to more accurately reflect improvements associated with lean manufacturing.

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133)

Which of the following approaches to cost-system design is likely most appropriate for a lean manufacturing context? A) Activity-based costing (ABC). B) Resource-consumption accounting (RCA). C) Value-stream costing. D) Direct costing. E) Full absorption standard costing.

134)

Which of the following is not one of the five principles of lean manufacturing? A) Pull and flow. B) Empowerment. C) Change. D) Value stream. E) Perfection.

135)

Which of the following nonfinancial performance indicators would be least applicable in a lean accounting system? A) Days' supply of inventory on hand. B) On-time delivery rates. C) Manufacturing process cycle time. D) Customer-response time (CRT). E) Percentage of overhead costs absorbed into production.

136)

Regarding manufacturing scheduling, the goal of traditional production is to meet forecasted demand and the goal of lean manufacturing is to: A) Meet a customer order received. B) Stay under budgeted costs. C) Reduce the number of setups. D) Reduce idle time. E) Produce in batches.

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137)

Which of the following terms represents the unyielding and continuous effort by everyone in the organization to understand, meet, and exceed customer expectations? A) Continuous-improvement standards. B) Flexible and contiguous budgeting. C) ISO 9000. D) ISO 14000. E) Total quality management (TQM).

138)

Which of the following is not a likely consequence of improved product quality? A) Increased sales returns. B) Decreased warranty repair costs. C) Reduced total manufacturing costs. D) Increased product selling prices. E) Reductions in rework costs.

139)

Which of the following is not a likely consequence of investments made to improve quality? A) Reduced inventory turnover. B) Lower sales returns and sales allowances. C) Lower holdings of inventory. D) Faster throughput time. E) Reduced field-service costs.

140)

Which of the following statements is not true? A) The term "quality" is generally defined as customer satisfaction with the total experience of a product or service. B) Conceptually, quality consists of two broad components: performance quality and non-performance quality. C) Performance quality represents the difference between the design specifications of a product and the actual performance of the product. D) Quality of design represents the difference between customer expectations and product design. E) Total quality represents the difference between customer expectations and the actual performance of a product or service.

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141)

Six Sigma, absolute versus goalpost, and Taguchi quality loss functions (QLF) all represent ways to: A) Construct a Cost of quality (COQ) report. B) Take corrective action for quality-related problems. C) Set performance expectations regarding the level of quality associated with a product, service, or process. D) Detect poor quality products and services. E) Construct value-stream income statements under "lean manufacturing."

142)

The extent to which the actual performance of the product matches design specifications of the product is called the: A) Performance quality. B) Design quality. C) Quality. D) Performance indicator. E) Quality control.

143)

Which of the following terms refers to a mathematical depiction of estimated quality costs as a function of the level of deviation from a quality target? A) Six Sigma. B) Cost of Quality (COQ) Reporting. C) Taguchi quality loss function (QLF). D) Target costing. E) Goalpost quality conformance.

144)

What is goalpost conformance? A) Conformance that aims for all products or services to meet the quality target value exactly, with no variation. B) Depicts, in the form of a quadratic function, the relationship between quality costs and level of deviation from the target quality level or specification. C) An acceptable range of a quality characteristic, such as thickness. D) Refers to a quality specification expressed as a specified range around a targeted performance level. E) An overall strategy to accelerate improvements and achieve unprecedented performance levels.

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145)

Which of the following is not an external quality metric? A) New product (or service) development time. B) Percentage of products that experience early or excessive failure. C) Customer response time. D) Net promoter score. E) Number of defective units shipped to customers as a percentage of total units shipped.

146)

Which of the following is not true regarding the determination of relevant costs and relevant revenues associated with quality-related initiatives (such as the move to JIT production)? A) Relevant costs are defined as future costs that differ between and among decision alternatives. B) Relevant costs exclude opportunity costs since these costs are not normally recorded by accounting systems. C) Relevant costs include all "avoidable" costs. D) Long-term effects of relevant costs and relevant revenues are usually assessed using discounted cash flow (DCF) capital budgeting decision models. E) Relevant revenues could include the contribution margin associated with increased sales (because of decreased cycle times associated with JIT).

147)

Which of the following items is not a tool that can be used by management to detect poor quality in an operation? A) Taguchi loss function. B) Run chart. C) Control chart. D) Statistical quality control (SQC) chart. E) Statistical process control (SPC) chart.

148)

A fish-bone diagram is also known as what? A) Skeleton diagram. B) Cause-and-effect diagram. C) Scale diagram. D) Pareto diagram. E) Histogram.

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149)

The tool that consists of a histogram of factors contributing to a specified quality problem, ordered from the most to the least frequently occurring factor, is a: A) Pareto diagram. B) Statistical process control histogram. C) Run chart. D) Statistical process control (SPC) chart. E) Cause-and-effect diagram.

150)

The tool that can be used to depict main causes for an identified quality problem, subdivided into categories represented as machines, materials, methods, and manpower, is called a: A) Cause-and-effect diagram. B) Statistical run chart. C) Pareto diagram. D) Histogram. E) Statistical control chart.

151)

All of the following would generally be included in a Cost of quality (COQ) report except: A) Warranty claims. B) Design engineering. C) Direct materials cost. D) Supplier evaluations. E) Quality training.

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152)

Listed below are selected line items from the Cost of Quality (COQ) report for Watson Products for last month: Category Rework Equipment maintenance Product testing Product repair

Amount $ 355 1,194 736 605

What was Watson's total prevention and appraisal cost for last month? A) $736. B) $1,194. C) $1,799. D) $1,930. E) $2,285.

153)

Listed below are selected line items from the Cost of Quality (COQ) report for Watson Products for last month: Category Rework Equipment maintenance Product testing Product repair

Amount $ 725 1,154 786 695

What was Watson's total prevention and appraisal cost for last month? A) $786. B) $1,154. C) $1,849. D) $1,940. E) $2,665.

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154)

Statistical quality control often involves the use of control charts, whose basic purpose is

to: A) B) C) D)

Determine when accounting control procedures are not working. Control labor costs in production operations. Control internal audit confirmation responses. Monitor internal administrative control applications in EDP (electronic data processing) operations. E) Detect performance trends away from normal operations.

155)

Product-quality-related costs are part of a total quality control program. A productquality-related cost incurred in detecting individual products that do not conform to specifications is an example of a(n): A) Prevention cost. B) Appraisal cost. C) Internal failure cost. D) External failure cost. E) Opportunity cost.

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156)

Robot Corporation is a highly automated manufacturing firm. The vice president of finance has decided that traditional standards are inappropriate for performance measures in an automated environment. Labor for this company is insignificant in terms of the total cost of production and tends to be fixed, material quality is considered more important than minimizing material cost, and customer satisfaction is the number one priority. As a result, delivery performance measures have been chosen to evaluate performance. The following information is considered typical of the time involved to complete customer orders. From time order is placed to time order received by manufacturing From time order is received by manufacturing to time production begins Inspection time Process (manufacturing) time Move time

28.0 days 14.0 days 6.0 days 12.0 days 3.0 days

What is the processing cycle efficiency (PCE) for this order? A) 30.0%. B) 19.0%. C) 45.0%. D) 74.6%. E) 38.7%.

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157)

10.0 days 5.0 days 1.5 days 3.0 days 2.5 days

What is the processing cycle efficiency (PCE) for this order? A) 25.0%. B) 13.6%. C) 37.5%. D) 69.2%. E) 33.3%.

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158)

14.0 days 7.0 days 2.5 days 5.0 days 3.5 days

What is the production ( manufacturing) lead time for this order? A) B) C) D) E)

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11 days. 12 days. 21 days. 26 days. 27 days.

159)

10.0 days 5.0 days 1.5 days 3.0 days 2.5 days

What is the production ( manufacturing) lead time for this order? A) 7 days. B) 8 days. C) 15 days. D) 18 days. E) 19 days.

160)

The cost of scrap, rework, and tooling changes in a Cost of Quality (COQ) report are properly categorized as a(n): A) Training cost. B) External failure cost. C) Prevention cost. D) Internal failure cost. E) Appraisal cost.

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161)

The cost of using a statistical quality control system is properly characterized in a Cost of Quality (COQ) report as a(n): A) External failure cost. B) Internal failure cost. C) Training cost. D) Opportunity cost. E) Appraisal cost.

162)

An example of an internal failure cost in a cost of quality (COQ) reporting system is: A) Maintenance. B) Inspection. C) Rework. D) Product recalls. E) Contribution margin foregone in terms of lost sales.

163)

In 2021 a manufacturing company instituted a Total Quality Management (TQM) program and one year later produced the report shown below:

Prevention costs Appraisal costs Internal failure costs External failure costs Total COQ

Summary of Cost of Quality (COQ) Report (in thousands) 2021 2022 % Change $ 200 $ 300 +50 210 315 +50 190 114 −40 1,200 624 −48 $ 1,800

$ 1,353

−25

Based on the above report, which one of the following statements is most likely correct? A) An increase in conformance costs resulted in a higher-quality product, and therefore, resulted in a decrease in non-conformance costs. B) An increase in inspection costs was solely responsible for the decrease in total quality costs. C) Quality costs such as scrap and rework decreased by 48 percent. D) Quality costs such as returns and repairs under warranty decreased by 40 percent. E) Non-conformance costs increased by 50 percent and conformance costs decreased by approximately 47 percent.

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164)

Which of the following items is not considered an external quality (performance) metric? A) On-time delivery rates. B) Customer response time (CRT). C) Number of customer complaints. D) Throughput efficiency (i.e., the ratio of throughput to resources used). E) Percentage of products that experience early or excessive failure.

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Answer Key Test name: chapter 17 1) Essay 2) Essay 3) Essay 4) Essay 5) Essay 6) Essay 7) Essay 8) Essay 9) Essay 10) Essay 11) Essay 12) Essay 13) Essay 14) Essay 15) Essay 16) Essay 17) Essay 18) Essay 19) Essay 20) Essay 21) Essay 22) Essay 23) Essay 24) Essay 25) Essay 26) Essay 27) Essay 28) Essay 29) Essay 30) Essay 31) Essay 32) Essay 33) Essay 34) Essay 35) Essay 36) Essay 37) Essay

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38) A 39) C 40) A 41) A 42) D 43) A 44) C 45) D 46) D 47) C 48) D 49) D 50) B 51) A 52) E 53) D 54) E 55) C 56) A 57) D 58) B 59) D 60) C 61) A 62) D 63) A 64) E 65) C 66) A 67) D 68) C 69) D 70) A 71) B 72) A 73) A 74) A 75) B 76) A 77) C

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78) B 79) D 80) B 81) C 82) D 83) D 84) B 85) B 86) B 87) C 88) A 89) D 90) D 91) C 92) C 93) D 94) D 95) D 96) D 97) B 98) B 99) D 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

D B B B B E E D D E E B B D D D C C

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118) 119) 120) 121) 122) 123) 124) 125) 126) 127) 128) 129) 130) 131) 132) 133) 134) 135) 136) 137) 138) 139) 140) 141) 142) 143) 144) 145) 146) 147) 148) 149) 150) 151) 152) 153) 154) 155) 156) 157)

D D D A A B B A E B A C A C D C C E A E A A B C A C D A B A B A A C D D E B B B

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158) 159) 160) 161) 162) 163) 164)

B B D E C A D

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Chapter 18 1) Tough-Built Corporation produces specialized truck body components, specializing in

hydraulic lifts for dump trucks. Founded 35 years ago by George Halloway, the firm now employs 150 workers and has annual sales of over $10 million. George operates the firm in a highly centralized way, and retains control over all changes in operations. He is a regular visitor to the production area, which helps him "keep his finger on the pulse of the firm." Although George Halloway is now 67 years old, he has no apparent management successor, and has always hand-picked his department heads and staff personnel. He has been generous to those who worked for him, paying substantial bonuses each year to the employees based on his personal evaluation of each worker. Just six weeks ago, a heart attack convinced George to consider retirement, and he decided to sell the firm to his employees. You are assigned the task of recommending a set of strategic performance measures for the firm, assuming that the new worker management wants to operate as a decentralized firm. Required: What major management problems do you foresee in the transition from sole owner to employee ownership?

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2) Harrison Hartwell & Zenith is a successful law firm employing 26 professionals. There is an

internal controversy over allocation of the $104,000 purchase cost of a highly sophisticated electronic law library. Each professional employee of the firm has been assessed $4,000 as a charge against the profit distribution account of each of the 26 members affected. In addition, it is expected to cost about $2,600 per month to update information for the library system, resulting in a monthly $100 assessment against each professional in the firm. Required: (a) As a new junior member of the professional legal group of 26, why might you not like the proposed electronic library cost allocation? (b) Propose an alternate allocation method for both the initial purchase cost and the updating charge that is more equitable (fair). (c) Could one argue for no allocation at all in this case? On what basis?

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3) Brantley Incorporated manufactures calculators that sell at wholesale for $60.00 per unit.

Budgeted production in both 2021 and 2022 was 2,000 units and budgeted fixed overhead was $25,000 in each year. There was no beginning inventory in 2021. The following data summarized the 2021 and 2022 operations: 2021 Units sold Units produced Costs: Variable factory overhead per unit Fixed factory overhead Variable marketing per unit Fixed Selling and Administrative

2022

1,900 2,000

2,100 2,000

$ 20.00 25,000 $ 2.00 $ 10,000

$ 20.00 $ 25,000 $ 2.00 $ 10,000

Required: Determine income under both full costing and variable costing and explain the difference.

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4) The Daniels Tool & Die Corporation has been in existence for a little over three years; its

sales have been increasing each year as it has built a reputation. The company manufactures dies to its customers' specifications; as a consequence, a job order cost system is employed. Factory overhead is applied to the jobs based on direct labor hours. Actual variable overhead is the same as applied variable overhead. Overapplied or underapplied overhead is treated as an adjustment to cost of goods sold. The company's income statements for the last two years are presented below. Daniels Tool & Die Corporation 2021 - 2022 Comparative Income Statement 2021 Sales Cost of goods sold

2022

$ 840,000

$ 1,015,000

Finished goods, 1/1 Cost of goods manufactured Total available Finished goods 12/31 Cost of goods sold before overhead adjustment Underapplied factory overhead

25,000 548,000 573,000 18,000 555,000

18,000 657,600 675,600 14,000 661,600

36,000

14,400

Cost of goods sold

591,000

676,000

Gross profit Selling expenses Administrative expenses

249,000 82,000 70,000

339,000 95,000 75,000

Total operating expenses

152,000

170,000

Operating income

$ 97,000

$ 169,000

Daniels used the same predetermined overhead rate in applying overhead to production orders in both 2021 and 2022. The rate was based on the following estimates: Fixed factory overhead Variable factory overhead Direct labor hours Direct labor costs

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$ 25,000 $ 155,000 25,000 $ 150,000

In 2021 and 2022, actual direct labor hours expended were 20,000 and 23,000, respectively. Raw materials put into production were $292,000 in 2021 and $370,000 in 2022. Actual fixed overhead was $42,300 for 2021 and $37,400 for 2022, and the planned direct labor rate was the direct labor rate achieved. For both years, all of the reported administrative costs were fixed, while the variable portion of the reported selling expenses result from a commission of five percent of sales revenue. Daniels Tool & Die Corporation Inventory Information 1/1/2021 1/1/2022 Raw material Work-in-process Direct labor hours assigned Finished goods Direct labor hours assigned (CMA adapted)

12/31/2022

$ 22,000 $ 40,000 1,335

$ 30,000 $ 48,000 1,600

$ 10,000 $ 64,000 2,100

$ 25,000 1,450

$ 18,000 1,050

$ 14,000 820

Required: (1) For the year December 31, 2022, prepare a revised income statement for Daniels Tool & Die Corporation utilizing the variable costing method. (2) Prepare a numerical reconciliation of the difference in operating income between Daniels Tool & Die Corporation's costing and the revised 2022 income statement prepared on the basis of variable costing. (3) Describe both the advantages and disadvantages of using variable costing.

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5) Red Apple Industries manufactures institutional-use furniture. Department A is responsible

for welding the base of the desk to the chair assembly. The desks are then placed on an automatic conveyer to Department B, where the desktop is riveted to the chair. The desks continue on the conveyer to Department C for further assembly. Wanda, the manager of Department A, is responsible for moving 800 welded desks per hour to Department B. A faulty circuit in Department B causes a delay in processing in the department and prompts Rosie, the Department B manager, to ask Wanda to stop the conveyer. Wanda refuses, necessitating the removal of the welded desks from the conveyer until the riveting can resume. Rosie bills Wanda's department for the costs of this extra work. Wanda disputes the charge, citing her responsibility to convey 800 desks per hour to Department B. Required: How should the managers' dispute be resolved? How could it have been avoided?

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6) Divisional managers of SIU Incorporated have been expressing growing dissatisfaction with

the current methods used to measure divisional performance. Divisional operations are evaluated every quarter by comparison with the static budget prepared during the prior year. Divisional managers claim that many factors are completely out of their control but are included in this comparison. This results in an unfair and misleading performance evaluation. The managers have been particularly critical of the process used to establish standards and budgets. The annual budget, stated by quarters, is prepared six months prior to the beginning of the operating year. Pressure by top management to reflect increased earnings has often caused divisional managers to overstate revenues and/or understate expenses. In addition, once the budget had been established, divisions were required to "live with the budget." Frequently, external factors such as the state of the economy, changes in consumer preferences, and actions of competitors have not been adequately recognized in the budget parameters that top management supplied to the divisions. The credibility of the performance review is curtailed when the budget cannot be adjusted to incorporate these changes. Top management, recognizing the current problems, has agreed to establish a committee to review the situation and to make recommendations for a new performance evaluation system. The committee consists of each division manager, the Corporate Controller, and the Executive Vice President who serves as the chairman. At the first meeting one division manager outlined an Achievement of Objectives System (AOS). In this performance evaluation system, divisional managers would be evaluated according to three criteria: Doing better than last year - Various measures would be compared to the same measures of the prior year. Planning realistically - Actual performance for the current year would be compared to realistic plans and/or goals. Managing current assets - Various measures would be used to evaluate the divisional management's achievements and reactions to changing business and economic conditions.

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A division manager believed this system would overcome many of the inconsistencies of the current system because divisions could be evaluated from three different viewpoints. In addition, managers would have the opportunity to show how they would react and account for changes in uncontrollable external factors. A second division manager was also in favor of the proposed AOS. However, he cautioned that the success of a new performance evaluation system would be limited unless it had the complete support of top management. Further, this support should be visible within all divisions. He believed that the committee should recommend some procedures which would enhance the motivational and competitive spirit of the divisions. Required: (1) Explain whether or not the proposed AOS would be an improvement over the measure of divisional performance now used by SIU Incorporated. (2) Develop specific performance measures for each of the three criteria in the proposed AOS which could be used to evaluate divisional managers. (3) Discuss the motivational and behavioral aspects of the proposed performance system. Also, recommend specific programs which could be instituted to promote morale and give incentives to divisional management.

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7) Chadd Fisher was recently appointed vice president of operations for Cary Corporation. He

has a manufacturing background and previously served as operations manager of Cary's building products division. The business units of Cary Corporation include divisions that manufacture building products, process food, and provide financial services. In a recent conversation with Drew Williams, Cary's chief financial officer, Chadd suggested evaluating unit managers on the basis of the business unit data in Cary's annual financial report. This report presents revenues, earnings, identifiable assets, and depreciation for each business unit for a five-year period. He believes that evaluating business unit managers by criteria similar to that used to evaluate the company's top management is appropriate. Drew has reservations about using information from the annual financial report for this purpose and suggested that Chadd consider other criteria to use in the evaluation. Required: 1. Explain why the business unit information prepared for public reporting purposes might not be appropriate for the evaluation of unit managers' performance. 2. Describe the possible motivational impact on Cary Corporation's unit managers if Chadd's proposal for their evaluation is accepted. 3. Identify and describe several types of financial information that would be more appropriate for Chadd Fisher to use when evaluating the performance of unit managers.

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8) Lawson Company had the following manufacturing information for the current year. Assume

the same per unit costs occurred in the prior year. Units Beginning Inventory units Sold Actual Production Budgeted Production Ending Inventory units Unit Variable Costs

200 475 500 500 225

Manufacturing Selling and Administrative Fixed Costs

$ 125.00 75.00

Manufacturing Selling and Administrative Selling price

120,000 25,000 600.00

Required: Determine operating income under both full costing and variable costing and explain the difference.

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9) Fitzpatrick Incorporated planned and manufactured 500,000 units of its single product in

2022, its first year of operations. Variable manufacturing costs were $40 per unit of production. Planned fixed manufacturing costs were $1,200,000. Marketing and administrative costs (all fixed) were $500,000 in 2022. Fitzpatrick sold 450,000 units of products in 2022 at $50 per unit. Required: 1. Determine Fitzpatrick Incorporated's operating income using full costing. 2. Determine Fitzpatrick Incorporated's operating income using variable costing. 3. Explain the difference between the operating incomes in requirements 1 and 2.

10) Doctors Health Care System has integrated health networks in three different regions:

northern California, southern Florida, and Oklahoma. These three markets have vast regional differences. Because of the increasing penetration of the U.S. health-care market by managed care companies, Doctors Health Care System must create a system that offers continuity of care across the continuum for a set price in order to remain competitive. Its board of directors set the system's goal as being a leader in developing and maintaining integrated health networks that improve the health status of their communities. Required: To meet this goal in the three regions, should the health system's management structure be decentralized or centralized? What are the advantages and disadvantages of each option?

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11) Stultz Manufacturing has the following information for the years ended December 31, 2021,

and December 31, 2022: 2021

2022

Units Beginning Inventory

400

Selling Price Sold Actual Production Budgeted Production Unit Variable Costs

$ 90 1,000 1,200 1,200

$ 90 1,900 1,500 1,500

Manufacturing Selling and Administrative Fixed Costs

$ 30 $ 5

Manufacturing Selling and Administrative

24,000 10,000

30,000 10,000

The 2020 cost per unit was the same as in the year 2021. Required: 1. Prepare the variable-cost and full-cost income statements for 2021 and 2022. 2. Prepare a reconciliation and explanation for the differences between full-cost and variable-cost operating income for both years.

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12) Performance evaluation in most firms is applied at: A) Many different levels from top management down to individual production and sales

employees. B) All levels of production, but only top levels of sales. C) Top and mid-management levels only. D) Lower and mid-management levels only. E) The mid-management level only.

13) The process by which managers at all levels in the firm gain information about the

performance of tasks within the firm and judge that performance against pre-established criteria is: A) Performance measurement. B) Employee inspection. C) Goal congruence. D) Managerial evaluation. E) Management control.

14) Operational control has a management-by-exception approach in contrast to management

control, which is more consistent with: A) A management-by-incentives approach. B) A management-by-objectives approach. C) A "hands off" approach. D) A non-quantitative set of measures. E) A non-qualitative set of measures.

15) What is not a term used for a strategic business unit (SBU)? A) Business unit e. B) Division. C) Center. D) Function. E) Unit.

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16) The objectives of management control of the manager include: A) Cost, quality, and functionality. B) Management by objectives. C) Management by exception. D) Motivation, incentive and fairness. E) Identification, response and performance.

17) The principal-agent economic model applied to employment contracts includes two of the

following management performance aspects: A) Rights and duties. B) Uncertainty and lack of observability. C) Performance and reward. D) Controllability and responsibility. E) Risk and motivation.

18) The "risk-averse" manager will be improperly biased to: A) Seek out decisions with uncertain outcomes. B) Make risky decisions. C) Avoid decisions with uncertain outcomes. D) Maximize his or her own risk and minimize the company's risk. E) Use resources beyond his/her control.

19) In properly developing formal systems at the team level that will have the desired impact on

employees' performance, the management accountant should recognize any existing informal systems and: A) Make plans to eliminate these informal systems. B) Simply formalize them into the system being developed. C) Try to eliminate them prior to system development. D) Not let cultural aspects affect system development. E) Consider cultural aspects in development of the formal system.

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20) The common factor among control systems in hiring practices, promotion policies, and

strategic performance measurement is: A) Management sets expectations for desired employee performance. B) Employee-determined expectations for desired employee performance. C) Coordination of activities. D) Communication of results. E) A path to promotion for employees.

21) Among the benefits of centralized management in a firm is(are): A) Effective goal congruence. B) Utilization of expertise of top management. C) Effective participation by all levels of management. D) A higher level of motivation for divisional managers. E) More detailed information to run local operations.

22) Which of the following is not an advantage of a decentralized firm? A) Motivates managers. B) Offers objective method of performance evaluation. C) Uses local knowledge. D) Can hinder coordination among managers. E) Allows for timely and effective response to customers.

23) The need for coordination between the production and the selling function will impact the

choice of: A) Profit, cost, or revenue center. B) Manager for the firm. C) Formal or informal control systems. D) Profitability goal for the firm. E) Control measures to prevent fraud.

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24) By not distinguishing between direct and indirect costs in their performance reporting, many

companies: A) Generate more useful control potential for managers. B) Can make poor decisions C) Focus on long-term results. D) Focus on short-term results. E) Clearly distinguish between controllable and non-controllable costs.

25) As a strategic issue, "budget slack" could represent a: A) Very minor issue in most firms. B) Self-correcting problem over several operating periods. C) Problem only in a decentralized management environment. D) Lower overall level of expected performance than is achievable. E) Significant increase in the relative risk aversion of managers.

26) "Outsourcing" a cost center is often done to: A) Reduce cost and obtain improved focus. B) Increase control over a strategic resource. C) Reduce the firm's contractual relationships. D) Shift costs within remaining cost centers. E) Increase revenues in the new area.

27) Cost allocation of service department costs to production departments makes the evaluation

and control processes in the production departments: A) Simpler. B) More complex. C) Forthright and fair. D) Less efficient. E) Counter-productive.

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28) From a strategic standpoint, profit centers tend to: A) Free the center manager from concerns about markets. B) Place more cost emphasis on rush orders. C) Provide incentive for coordination among managers of different functional units. D) Focus managers on cost control rather than revenue generation. E) All of these answer choices are correct.

29) The contribution by profit center (CPC) expands the contribution margin income statement

by distinguishing: A) Variable and fixed costs. B) Short-term and long-term fixed costs. C) Controllable and noncontrollable fixed costs. D) Noncontrollable and untraceable fixed costs. E) Controllable, noncontrollable, and untraceable fixed costs.

30) What is a common characteristic of Strategic business units (SBU) in practice? A) They rely on nonfinancial information. B) They use little or no nonfinancial information. C) They rely on management expertise. D) They cost millions of dollars to implement. E) They assume the company is in the growth stage.

31) In a not-for-profit organization, you are more likely to see A) Cost centers. B) Revenue centers. C) Profit centers. D) Investment centers. E) None of the answer choices is correct.

32) The evaluation by upper-level managers of the performance of mid-level managers is: A) Performance evaluation. B) Operational control. C) Goal congruence. D) Principal-agent model. E) Management control.

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33) The evaluation of operating level employees by mid-level managers is: A) Performance evaluation. B) Operational control. C) Goal congruence. D) Principal-agent model. E) Management control.

34) The manager acting independently in such a way as to simultaneously achieve top

management's objectives is exhibiting: A) Performance evaluation. B) Operational control. C) Goal congruence. D) Principal-agent model. E) Management control.

35) A model that has been used to better understand the key elements that contracts must have in

order to achieve the desired objectives is: A) Performance evaluation. B) Operational control. C) Goal congruence. D) Principal-agent model. E) Management control.

36) What is the manager of a profit center not responsible for? A) Costs. B) Revenues. C) Invested capital. D) Operating profit. E) None of the answer choices is correct.

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37) Controllable margin is determined by subtracting short-term controllable fixed costs from

the: A) B) C) D) E)

Long-term controllable fixed cost. Contribution margin. Variable costs. Fixed costs. Variable costs and fixed costs.

38) Which of the following is not an objective of management control? A) Create a work environment in which everyone knows their roles. B) Provide the right incentives for managers to make decisions consistent with the goals

set by top management. C) Determine fair rewards to be earned by managers. D) Motivate managers to exert a high level of effort. E) Create goal congruence.

39) The least common type of strategic business unit (SBU) in a retail firm is the: A) Profit center. B) Cost center. C) Revenue center. D) Investment center. E) Control center.

40) Which one of the following is a drawback of decentralization? A) Uses local knowledge only. B) May hinder coordination among independent strategic business units (SBU). C) Provides less effective operational control. D) May affect goal congruence. E) Offers an inefficient method of performance evaluation.

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41) Production or support strategic business units (SBU) within the firm that have the goal of

providing the best quality product or service at the lowest cost are: A) Revenue centers. B) Contribution centers. C) Profit centers. D) Cost centers. E) Investment centers.

42) Strategic business units (SBU) that generate revenues and incur the major portion of the cost

for producing those revenues are: A) Revenue centers. B) Contribution centers. C) Profit centers. D) Cost centers. E) Investment centers.

43) Which method is used when costs are considered largely uncontrollable? A) Engineered-cost approach. B) Variable-cost method. C) Fixed-cost method. D) Operating method. E) Discretionary-cost method.

44) The replacing of controllable costs with non-controllable costs by a department is: A) Budget slack. B) Cost shifting. C) Outsourcing. D) Discretionary-cost method. E) Engineered-cost approach.

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45) For production and support departments, a method of implementing cost centers that is input-

oriented is the: A) Budget slack method. B) Cost shifting method. C) Outsourcing method. D) Discretionary-cost method. E) Engineered-cost method.

46) For production and support departments, a method of implementing cost centers that is

output-oriented is the: A) Budget slack method. B) Cost shifting method. C) Outsourcing method. D) Discretionary-cost method. E) Engineered-cost method.

47) Expenditures made in revenue centers usually include: A) Order-purchasing costs. B) Order-getting costs. C) Order-producing costs. D) Order-scheduling costs. E) Order-delivering costs.

48) The balanced scorecard measures the strategic business unit (SBU)'s performance in all of

the following areas except: A) Learning and growth. B) Managerial performance. C) Customer satisfaction. D) Internal business processes. E) Accounting and tax compliance.

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49) Bradbo owned two adjoining restaurants, the Pork Palace and the Chicken Hut. Each

restaurant was treated as a profit center for performance evaluation purposes. Although the restaurants had separate kitchens, they shared a central baking facility. The principal costs of the baking area included materials, supplies, labor, and depreciation and maintenance on the equipment. Bradbo allocated the monthly costs of the baking facility to the two restaurants based on the number of tables served in each restaurant during the month using dual allocation and equal sharing of fixed costs. In April, the costs were $43,000, of which $22,500 were fixed. The Pork Palace served 4,400 tables, while the Chicken Hut served 3,600 tables. The amount of joint cost that should have been allocated to the Pork Palace in April is calculated to be: A) $11,500. B) $20,500. C) $22,525. D) $25,800. E) $31,600.

50) Bradbo owned two adjoining restaurants, the Pork Palace and the Chicken Hut. Each

restaurant was treated as a profit center for performance evaluation purposes. Although the restaurants had separate kitchens, they shared a central baking facility. The principal costs of the baking area included materials, supplies, labor, and depreciation and maintenance on the equipment. Bradbo allocated the monthly costs of the baking facility to the two restaurants based on the number of tables served in each restaurant during the month using dual allocation and equal sharing of fixed costs. In April, the costs were $30,000, of which $16,000 were fixed. The Pork Palace served 4,400 tables, while the Chicken Hut served 3,600 tables. The amount of joint cost that should have been allocated to the Pork Palace in April is calculated to be: A) $8,000. B) $14,300. C) $15,700. D) $18,000. E) $22,000.

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51) Bradbo owned two adjoining restaurants, the Pork Palace and the Chicken Hut. Each

restaurant was treated as a profit center for performance evaluation purposes. Although the restaurants had separate kitchens, they shared a central baking facility. The principal costs of the baking area included materials, supplies, labor, and depreciation and maintenance on the equipment. Bradbo allocated the monthly costs of the baking facility to the two restaurants based on the number of tables served in each restaurant during the month using dual allocation and equal sharing of fixed costs. In April, the costs were $39,000, of which $20,500 were fixed. The Pork Palace served 3,830 tables, while the Chicken Hut served 5,745 tables. The amount of the joint cost that should have been allocated to the Chicken Hut in April is calculated to be: A) $10,250. B) $21,350. C) $23,400. D) $26,900. E) $32,800.

52) Bradbo owned two adjoining restaurants, the Pork Palace and the Chicken Hut. Each

restaurant was treated as a profit center for performance evaluation purposes. Although the restaurants had separate kitchens, they shared a central baking facility. The principal costs of the baking area included materials, supplies, labor, and depreciation and maintenance on the equipment. Bradbo allocated the monthly costs of the baking facility to the two restaurants based on the number of tables served in each restaurant during the month using dual allocation and equal sharing of fixed costs. In April, the costs were $30,000, of which $16,000 were fixed. The Pork Palace served 4,400 tables, while the Chicken Hut served 3,600 tables. The amount of the joint cost that should have been allocated to the Chicken Hut in April is calculated to be: A) $8,000. B) $14,300. C) $15,700. D) $18,000. E) $22,000.

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53) Red Company allocates research and development costs to its three research facilities based

on each facility's total annual revenue from new product developments: Facility location New product revenue Research & Development

Kentucky

Arizona

$ 52,817,600

$ 100,040,000

Illinois

Total

$ $ 240,080,000 87,222,400 $ 60,040,000

Using revenue as an allocation base, the amount of costs allocated to the Kentucky research facility is calculated to be: A) $24,008,000. B) $18,004,000. C) $9,002,000. D) $13,208,800. E) $268,072,000.

54) Red Company allocates research and development costs to its three research facilities based

on each facility's total annual revenue from new product developments: Facility location New product revenue Research & Development

Kentucky

Arizona

Illinois

Total

$ 56,000,000

$ 100,000,000

$ 84,000,000

$ 240,000,000 $ 60,000,000

Using revenue as an allocation base, the amount of costs allocated to the Kentucky research facility is calculated to be: A) $24,000,000. B) $18,000,000. C) $9,000,000. D) $14,000,000. E) $26,000,000.

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55) Red Company allocates research and development costs to its three research facilities based

on each facility's total annual revenue from new product developments: Facility location New product revenue Research & Development

Kentucky

Arizona

$ 50,000,000

$ 100,000,000

Illinois

Total

$ $ 200,000,000 50,000,000 $ 50,000,000

Using revenue as an allocation base, the amount of costs allocated to the Arizona research facility is calculated to be: A) $25,000,000. B) $31,000,000. C) $44,000,000. D) $19,000,000. E) $30,000,000.

56) Red Company allocates research and development costs to its three research facilities based

on each facility's total annual revenue from new product developments: Facility location New product revenue Research & Development

Kentucky

Arizona

Illinois

Total

$ 56,000,000

$ 100,000,000

$ 84,000,000

$ 240,000,000 $ 60,000,000

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57) Red Company allocates research and development costs to its three research facilities based

on each facility's total annual revenue from new product developments: Facility location New product revenue Research & Development

Kentucky

Arizona

$ 40,000,000

$ 100,000,000

Illinois

Total

$ $ 200,000,000 60,000,000 $ 80,000,000

Using revenue as an allocation base, the amount of costs allocated to the Illinois research facility is calculated to be: A) $11,000,000. B) $36,000,000. C) $17,000,000. D) $31,000,000. E) $24,000,000.

58) Red Company allocates research and development costs to its three research facilities based

on each facility's total annual revenue from new product developments: Facility location New product revenue Research & Development

Kentucky

Arizona

Illinois

Total

$ 56,000,000

$ 100,000,000

$ 84,000,000

$ 240,000,000 $ 60,000,000

Using revenue as an allocation base, the amount of costs allocated to the Illinois research facility is calculated to be: A) $17,000,000. B) $33,000,000. C) $14,000,000. D) $28,000,000. E) $21,000,000.

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59) Washington Arts allocates marketing and administrative costs to its three schools based on

total annual tuition revenue for the schools: School

Longview Campus

Tuition revenue

$ 1,340,000

Springhill Campus School $ 1,140,000

Marketing and administrative

Center Total Saint Campus $ $ 3,850,000 1,370,000 $ 1,540,000

Using revenue as an allocation base, the amount of costs allocated to the Longview Campus is calculated to be: A) $376,000. B) $456,000. C) $536,000. D) $616,000. E) $736,000.

60) Washington Arts allocates marketing and administrative costs to its three schools based on

total annual tuition revenue for the schools: School

Longview Campus

Tuition revenue

$ 1,000,000

Marketing and administrative

Springhill Campus School $ 800,000

Center Total Saint Campus $ $ 3,000,000 1,200,000 $ 1,200,000

Using revenue as an allocation base, the amount of costs allocated to the Longview Campus is calculated to be: A) $240,000. B) $320,000. C) $400,000. D) $480,000. E) $600,000.

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61) Washington Arts allocates marketing and administrative costs to its three schools based on

total annual tuition revenue for the schools: School

Tuition revenue

Longview Campus

Springhill Campus

$ 1,080,000

$ 880,000

Marketing and administrative

Center Total Saint Campus $ $ 3,200,000 1,240,000 $ 1,280,000

Using revenue as an allocation base, the amount of costs allocated to the Springhill Campus is calculated to be: A) $272,000. B) $352,000. C) $432,000. D) $512,000. E) $632,000.

62) Washington Arts allocates marketing and administrative costs to its three schools based on

total annual tuition revenue for the schools: School

Longview Campus

Tuitio n revenue

$ 1,000,000

Marketing and administrative

Springhill Campus School $ 800,000

Center Total Saint Campus $ $ 3,000,000 1,200,000 $ 1,200,000

Using revenue as an allocation base, the amount of costs allocated to the Springhill Campus is calculated to be: A) $240,000. B) $320,000. C) $400,000. D) $480,000. E) $600,000.

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63) Washington Arts allocates marketing and administrative costs to its three schools based on

total annual tuition revenue for the schools: School

Longview Campus

Springhill Campus

Tuition revenue

$ 1,040,000

$ 840,000

Marketing and administrative

Center Total Saint Campus $ $ 3,100,000 1,220,000 $ 1,240,000

Using revenue as an allocation base, the amount of costs allocated to the Center St. Campus is calculated to be: A) $248,000. B) $368,000. C) $408,000. D) $488,000. E) $608,000.

64) Washington Arts allocates marketing and administrative costs to its three schools based on

total annual tuition revenue for the schools: School

Longview Campus

Tuition revenue

$ 1,000,000

Marketing and administrative

Springhill Campus School $ 800,000

Center Total Saint Campus $ $ 3,000,000 1,200,000 $ 1,200,000

Using revenue as an allocation base, the amount of costs allocated to the Center St. Campus is calculated to be: A) $240,000. B) $360,000. C) $400,000. D) $480,000. E) $600,000.

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65) Smooth Incorporated manufactures hair brushes that sell at wholesale for $2.60 per unit.

Budgeted production in both 2021 and 2022 was 7,000 units. There was no beginning inventory in 2021. The following data summarized the 2021 and 2022 operations:

Units sold Units produced Costs: Variable factory overhead per unit Fixed factory overhead Variable marketing per unit Fixed Selling and Administrative

2021

2022

4,500 7,000

7,200 7,000

$ 0.55 $ 3,150 $ 0.75 $ 650

$ 0.65 $ 3,150 $ 1.00 $ 650

Full costing operating income for 2021 is calculated to be: (Do not round intermediate calculations. Round your final answers to whole dollar amounts.) A) $2,050. B) $3,175. C) $3,825. D) $2,282. E) $2,354.

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66) Smooth Incorporated manufactures hair brushes that sell at wholesale for $2.60 per unit.

Budgeted production in both 2021 and 2022 was 3,000 units. There was no beginning inventory in 2021. The following data summarized the 2021 and 2022 operations:

Units sold Units produced Costs: Variable factory overhead per unit Fixed factory overhead Variable marketing per unit Fixed Selling and Administrative

2021

2022

2,500 3,000

3,200 3,000

$ 0.65 $ 1,290 $ 0.80 $ 650

Full costing operating income for 2021 is calculated to be: A) $935. B) $1,150. C) $1,200. D) $1,352. E) $1,395.

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67) Smooth Incorporated manufactures hair brushes that sell at wholesale for $2.60 per unit.

Budgeted production in both 2021 and 2022 was 6,200 units. There was no beginning inventory in 2021. The following data summarized the 2021 and 2022 operations:

Units sold Units produced Costs: Variable factory overhead per unit Fixed factory overhead Variable marketing per unit Fixed Selling and Administrative

2021

2022

4,100 6,200

6,400 6,200

$ 0.65 $ 2,790 $ 0.75 $ 650

$ 0.65 $ 2,790 $ 0.80 $ 650

Full costing operating income for 2022 is calculated to be: (Do not round intermediate calculations. Round your final answers to whole dollar amounts.) A) $1,394. B) $3,294. C) $2,795. D) $3,830. E) $3,920.

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68) Smooth Incorporated manufactures hair brushes that sell at wholesale for $2.60 per unit.

Budgeted production in both 2021 and 2022 was 3,000 units. There was no beginning inventory in 2021. The following data summarized the 2021 and 2022 operations:

Units sold Units produced Costs: Variable factory overhead per unit Fixed factory overhead Variable marketing per unit Fixed Selling and Administrative

2021

2022

2,500 3,000

3,200 3,000

$ 0.65 $ 1,290 $ 0.80 $ 650

Full costing operating income for 2022 is calculated to be: A) $850. B) $1,150. C) $1,295. D) $1,654. E) $1,740.

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69) Smooth Incorporated manufactures hair brushes that sell at wholesale for $2.60 per unit.

Budgeted production in both 2021 and 2022 was 4,400 units. There was no beginning inventory in 2021. The following data summarized the 2021 and 2022 operations:

Units sold Units produced Costs: Variable factory overhead per unit Fixed factory overhead Variable marketing per unit Fixed Selling and Administrative

2021

2022

3,200 4,400

4,600 4,400

$ 0.55 $ 1,980 $ 0.75 $ 650

$ 0.65 $ 1,980 $ 0.80 $ 650

Variable costing operating income for 2021 is calculated to be: (Do not round intermediate calculations. Round your final answers to whole dollar amounts.) A) $1,530. B) $2,070. C) $2,200. D) $1,622. E) $1,674.

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70) Smooth Incorporated manufactures hair brushes that sell at wholesale for $2.60 per unit.

Budgeted production in both 2021 and 2022 was 3,000 units. There was no beginning inventory in 2021. The following data summarized the 2021 and 2022 operations: 2021

2022

2,500 3,000

3,200 3,000

$ 0.65 $ 1,290 $ 0.80 $ 650

Units sold Units produced Costs: Variable factory overhead per unit Fixed factory overhead Variable marketing per unit Fixed Selling and Administrative

Variable costing operating income for 2021 is calculated to be: A) $935. B) $1,150. C) $1,200. D) $1,352. E) $1,395.

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71) Smooth Incorporated manufactures hair brushes that sell at wholesale for $2.50 per unit.

Budgeted production in both 2021 and 2022 was 3,200 units. There was no beginning inventory in 2021. The following data summarized the 2021 and 2022 operations:

Units sold Units produced Costs: Variable factory overhead per unit Fixed factory overhead Variable marketing per unit Fixed Selling and Administrative

2021

2022

2,600 3,200

3,400 3,200

$ 0.65 $ 1,376 $ 0.75 $ 650

$ 0.65 $ 1,440 $ 0.80 $ 650

Variable costing operating income for 2022 is calculated to be: (Do not round intermediate calculations. Round your final answers to whole dollar amounts.) A) $884. B) $1,284. C) $1,445. D) $1,658. E) $1,480.

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72) Smooth Incorporated manufactures hair brushes that sell at wholesale for $2.60 per unit.

Budgeted production in both 2021 and 2022 was 3,000 units. There was no beginning inventory in 2021. The following data summarized the 2021 and 2022 operations: 2021

2022

2,500 3,000

3,200 3,000

$ 0.65 $ 1,290 $ 0.80 $ 650

Units sold Units produced Costs: Variable factory overhead per unit Fixed factory overhead Variable marketing per unit Fixed Selling and Administrative

Variable costing operating income for 2022 is calculated to be: A) $850. B) $1,150. C) $1,295. D) $1,654. E) $1,740.

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73) Cap Incorporated manufactures ball point pens that sell at wholesale for $0.80 per unit.

Budgeted production in both 2021 and 2022 was 7,000 units. There was no beginning inventory in 2021. The following data summarized the 2021 and 2022 operations:

Units sold Units produced Costs: Variable factory overhead per unit Fixed factory overhead Variable marketing per unit Fixed Selling and Administrative

2021

2022

5,500 7,000

3,000 4,000

$ 0.15 $ 1,400 $ 0.30 $ 320

$ 0.15 $ 800 $ 0.30 $ 320

Full costing operating income for 2021 is calculated to be: (Do not round intermediate calculations. Round your final answers to whole dollar amounts.) A) $115. B) $2,150. C) $505. D) $880. E) $1,030.

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74) Cap Incorporated manufactures ball point pens that sell at wholesale for $0.80 per unit.

Budgeted production in both 2021 and 2022 was 8,000 units. There was no beginning inventory in 2021. The following data summarized the 2021 and 2022 operations:

Units sold Units produced Costs: Variable factory overhead per unit Fixed factory overhead Variable marketing per unit Fixed Selling and Administrative

2021

2022

6,500 8,000

9,000 8,000

$ 0.20 $ 1,200 $ 0.30 $ 320

Full costing operating income for 2021 is calculated to be: A) $149. B) $430. C) $655. D) $1,030. E) $1,180.

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75) Cap Incorporated manufactures ball point pens that sell at wholesale for $0.80 per unit.

Budgeted production in both 2021 and 2022 was 14,500 units. There was no beginning inventory in 2021. The following data summarized the 2021 and 2022 operations: 2021

2022

Units sold Units produced Costs:

13,000 14,500

13,500 14,500

Variable factory overhead per unit Fixed factory overhead Variable marketing per unit Fixed Selling and Administrative

$ 0.15 $ 2,900 $ 0.30 $ 320

Full costing operating income for 2022 is calculated to be: (Do not round intermediate calculations. Round your final answers to whole dollar amounts.) A) $247. B) $2,150. C) $1,743. D) $1,705. E) $1,950.

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76) Cap Incorporated manufactures ball point pens that sell at wholesale for $0.80 per unit.

Budgeted production in both 2021 and 2022 was 8,000 units. There was no beginning inventory in 2021. The following data summarized the 2021 and 2022 operations:

Units sold Units produced Costs: Variable factory overhead per unit Fixed factory overhead Variable marketing per unit Fixed Selling and Administrative

2021

2022

6,500 8,000

9,000 8,000

$ 0.20 $ 1,200 $ 0.30 $ 320

Full costing operating income for 2022 is calculated to be: A) $149. B) $430. C) $655. D) $1,030. E) $1,180.

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77) Cap Incorporated manufactures ball point pens that sell at wholesale for $0.80 per unit.

Budgeted production in both 2021 and 2022 was 13,000 units. There was no beginning inventory in 2021. The following data summarized the 2021 and 2022 operations: 2021

2022

Units sold Units produced Costs:

11,500 13,000

11,000 12,000

Variable factory overhead per unit Fixed factory overhead Variable marketing per unit Fixed Selling and Administrative

$ 0.15 $ 2,600 $ 0.30 $ 320

$ 0.15 $ 2,400 $ 0.30 $ 320

Variable costing operating income for 2021 is calculated to be: A) $320. B) $1,105. C) $2,150. D) $1,780. E) $1,930.

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78) Cap Incorporated manufactures ball point pens that sell at wholesale for $0.80 per unit.

Budgeted production in both 2021 and 2022 was 8,000 units. There was no beginning inventory in 2021. The following data summarized the 2021 and 2022 operations:

Units sold Units produced Costs: Variable factory overhead per unit Fixed factory overhead Variable marketing per unit Fixed Selling and Administrative

2021

2022

6,500 8,000

9,000 8,000

$ 0.20 $ 1,200 $ 0.30 $ 320

Variable costing operating income for 2021 is calculated to be: A) $149. B) $430. C) $655. D) $1,030. E) $1,180.

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79) Cap Incorporated manufactures ball point pens that sell at wholesale for $0.80 per unit.

Budgeted production in both 2021 and 2022 was 16,000 units. There was no beginning inventory in 2021. The following data summarized the 2021 and 2022 operations: 2021

2022

Units sold Units produced Costs:

14,500 16,000

15,000 16,000

Variable factory overhead per unit Fixed factory overhead Variable marketing per unit Fixed Selling and Administrative

$ 0.15 $ 3,200 $ 0.30 $ 320

Variable costing operating income for 2022 is calculated to be: (Do not round intermediate calculations. Round your final answers to whole dollar amounts.) A) $218. B) $2,150. C) $960. D) $1,930. E) $1,730.

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80) Cap Incorporated manufactures ball point pens that sell at wholesale for $0.80 per unit.

Budgeted production in both 2021 and 2022 was 8,000 units. There was no beginning inventory in 2021. The following data summarized the 2021 and 2022 operations:

Units sold Units produced Costs: Variable factory overhead per unit Fixed factory overhead Variable marketing per unit Fixed Selling and Administrative

2021

2022

6,500 8,000

9,000 8,000

$ 0.20 $ 1,200 $ 0.30 $ 320

Variable costing operating income for 2022 is calculated to be: A) $149. B) $430. C) $655. D) $1,030. E) $1,180.

81) The value stream income statement can be compared to: A) Value chain analysis. B) The contribution income statement. C) A streamlined production process. D) A streamlined accounting system. E) The static budget.

82) The six steps Ittner and Larcker propose for maximizing the value of nonfinancial measures

when using a balanced scorecard include all of the following except: A) Continually refine the model. B) Assess outcomes. C) Gather data. D) Base actions on the data. E) Base actions on the findings of the model.

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83) The balanced scorecard is particularly important in difficult economic times because: A) Financial measures are even more important. B) Nonfinancial measures are even more important. C) Financial measures may be distorted. D) Nonfinancial measures may be distorted. E) Financial measures are more accurate.

84) The value stream income statement provides the following information not usually contained

in the contribution income statement: A) Allocated fixed costs. B) Contribution by profit center. C) A separate accounting for the effect of inventory change on profit. D) A separate accounting for the effect of productivity change on profit. E) Variable costs.

85) Lighter Incorporated planned and manufactured 455,000 units of its single product in 2022,

its first year of operations. Variable manufacturing costs were $61 per unit of production. Planned and fixed manufacturing costs were $855,000. Marketing and administrative costs (all fixed) were $655,000 in 2022. Lighter Incorporated sold 206,000 units of product in 2022 at $76 per unit. Sales for 2022 are calculated to be: A) $12,566,000. B) $15,656,000. C) $14,210,000. D) $15,110,000. E) $27,755,000.

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86) Lighter Incorporated planned and manufactured 400,000 units of its single product in 2022,

its first year of operations. Variable manufacturing costs were $50 per unit of production. Planned and fixed manufacturing costs were $800,000. Marketing and administrative costs (all fixed) were $600,000 in 2022. Lighter Incorporated sold 195,000 units of product in 2022 at $65 per unit. Sales for 2022 are calculated to be: A) $9,750,000. B) $12,675,000. C) $13,000,000. D) $13,900,000. E) $20,000,000.

87) Lighter Incorporated planned and manufactured 445,000 units of its single product in 2022,

its first year of operations. Variable manufacturing costs were $59 per unit of production. Planned and fixed manufacturing costs were $845,000. Marketing and administrative costs (all fixed) were $645,000 in 2022. Lighter Incorporated sold 204,000 units of product in 2022 at $74 per unit. Full costing operating income for 2022 is calculated to be: (Do not round intermediate calculations. Round your final answers to whole dollar amounts.) A) $1,570,000. B) $1,942,629. C) $2,027,629. D) $2,352,629. E) $2,842,629.

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88) Lighter Incorporated planned and manufactured 400,000 units of its single product in 2022,

its first year of operations. Variable manufacturing costs were $50 per unit of production. Planned and fixed manufacturing costs were $800,000. Marketing and administrative costs (all fixed) were $600,000 in 2022. Lighter Incorporated sold 195,000 units of product in 2022 at $65 per unit. Full costing operating income for 2022 is calculated to be: A) $1,525,000. B) $1,850,000. C) $1,935,000. D) $2,260,000. E) $2,750,000.

89) Lighter Incorporated planned and manufactured 455,000 units of its single product in 2022,

its first year of operations. Variable manufacturing costs were $61 per unit of production. Planned and fixed manufacturing costs were $855,000. Marketing and administrative costs (all fixed) were $655,000 in 2022. Lighter Incorporated sold 206,000 units of product in 2022 at $76 per unit. Variable costing operating income for 2022 is calculated to be: (Do not round intermediate calculations. Round your final answers to whole dollar amounts.) A) $1,580,000. B) $1,905,000. C) $2,047,720. D) $2,315,000. E) $2,805,000.

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90) Lighter Incorporated planned and manufactured 400,000 units of its single product in 2022,

its first year of operations. Variable manufacturing costs were $50 per unit of production. Planned and fixed manufacturing costs were $800,000. Marketing and administrative costs (all fixed) were $600,000 in 2022. Lighter Incorporated sold 195,000 units of product in 2022 at $65 per unit. Variable costing operating income for 2022 is calculated to be: A) $1,525,000. B) $1,850,000. C) $1,935,000. D) $2,260,000. E) $2,750,000.

91) Profit center income statements are most meaningful to managers when they are prepared: A) On a full cost basis. B) On a variable cost basis. C) On a cash basis. D) In a single-step format. E) In a multiple-step format.

92) A unit of an organization is referred to as a profit center if it has: A) Authority to make decisions affecting the major determinants of profit, including the

power to choose its markets and sources of supply. B) Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply, and significant control over the amount of invested capital. C) Authority to make decisions over the most significant costs of operations, including the power to choose the sources of supply. D) Authority to provide specialized support to other units within the organization. E) Responsibility for combining material, labor, and other factors of production into a final output.

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93) A unit of an organization is referred to as an investment center if it has: A) Authority to make decisions affecting the major determinants of profit, including the

power to choose its markets and sources of supply. B) Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply and significant control over the amount of invested capital. C) Authority to make decisions over the most significant costs of operations, including the power to choose the sources of supply. D) Authority to provide specialized support to other units within the organization. E) Responsibility for developing markets for and selling the output of the organization.

94) The most relevant factor in deciding how or which costs should be assigned to an strategic

business unit (SBU) is the degree of: A) Avoidability. B) Causality. C) Controllability. D) Reliability. E) Consistency.

95) A significant problem in comparing profitability measures among companies is the: A) Lack of general agreement over which profitability measure is best. B) Lack of agreement on how to measure the size of the companies. C) Differences in the accounting methods used by the companies. D) Differences in the dividend policies of the companies. E) Effect of interest rates on net income.

96) Operational control focuses on: A) Higher-level managers and long-term, strategic issues. B) Detailed short-term performance measures. C) Costs incurred during operations. D) The control system around finished products. E) The power executives have in operational decisions.

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97) Which costing system is required by GAAP? A) Variable costing. B) Full costing. C) Fixed costing. D) Dual costing. E) Spread costing.

98) Inventory under the variable costing method includes: A) Direct materials cost, direct labor cost, but no factory overhead cost. B) Direct materials cost, direct labor cost, and variable factory overhead cost. C) Prime cost but not conversion cost. D) Prime cost and all conversion cost. E) Direct materials cost and direct labor cost.

99) In an income statement prepared using the variable costing method, which of the following

terms should appear?

A) B) C) D) A) B) C) D) E)

Gross Profit (margin)

Net income

Yes Yes No No

Yes No No Yes

Option A Option B Option C Option D Not enough information is given to make a determination.

100)

Other things being equal, income computed by the variable costing method will exceed that computed by the full costing method if: A) Units produced exceed units sold. B) Units sold exceed units produced. C) Fixed manufacturing costs increase. D) Variable manufacturing costs increase. E) Units produced exceeds units started.

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101)

Home Products Incorporated has failed to reach its planned activity level during its first two years of operation. The following table shows the relationship between units produced, sales, and normal activity for these years and the projected relationship for Year 3. All prices and costs have remained the same for the last two years and are expected to do so in Year 3. Income has been positive in both Year 1 and Year 2.

Year 1 Year 2 Year 3

Units Produced

Sales

Planned Production

90,000 95,000 95,000

90,000 95,000 90,000

100,000 100,000 100,000

Because Home Products uses a full costing system, one would predict operating income for Year 3 to be: A) Greater than operating income under variable costing. B) Less than year 2. C) The same as operating income under variable costing. D) Less than the operating income under variable costing. E) None of these answer choices is correct.

102)

A company's operating income was $70,500 using variable costing for a given period. Beginning and ending inventories for that period were 45,100 units and 50,100 units, respectively. Ignoring income taxes, if the fixed factory overhead application rate was $8.01 per unit, what would operating income have been using full costing? A) $30,225. B) $141,000. C) $110,550. D) $100,200. E) Cannot be determined from the information given.

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103)

A company's operating income was $70,000 using variable costing for a given period. Beginning and ending inventories for that period were 45,000 units and 50,000 units, respectively. Ignoring income taxes, if the fixed factory overhead application rate was $8.00 per unit, what would operating income have been using full costing? A) $30,000. B) $140,000. C) $110,000. D) $100,000. E) Cannot be determined from the information given.

104)

A company had income of $52,500 using variable costing for a given period. Beginning and ending inventories for that period were 80,500 units and 90,500 units, respectively. If the fixed overhead application rate were $10.05 per unit, what would operating income have been using full costing? A) ($52,500). B) $171,000. C) $153,000. D) $0. E) Cannot be determined from the information given.

105)

A company had income of $50,000 using variable costing for a given period. Beginning and ending inventories for that period were 80,000 units and 90,000 units, respectively. If the fixed overhead application rate were $10.00 per unit, what would operating income have been using full costing? A) ($50,000). B) $170,000. C) $150,000. D) $0. E) Cannot be determined from the information given.

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106)

Operating income reported under full costing will exceed operating income reported under variable costing for a given period if: A) Production equals sales for that period. B) Production exceeds sales for that period. C) Sales exceed production for that period. D) The variable overhead exceeds the fixed overhead. E) The fixed overhead exceeds the variable overhead.

107)

A company's operating income recently increased by 30% while its inventory increased in a given year. Which of the following accounting methods would produce the most favorable income results? A) Full costing. B) Direct costing. C) Variable costing. D) Standard direct costing. E) Activity-based costing.

108)

During January, Lang, Incorporated produced 11,500 units of product with costs as follows: Direct materials Direct labor Variable overhead Fixed overhead

$ 47,500 25,750 18,175 105,000 $ 196,425

What is Lang's unit cost for January, calculated on the variable costing basis? A) $6.95. B) $7.95. C) $8.30. D) $9.30. E) $10.30.

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109)

During January, Lang, Incorporated produced 10,000 units of product with costs as follows: Direct materials Direct labor Variable overhead Fixed overhead

$ 40,000 22,000 10,000 90,000 $ 162,000

What is Lang's unit cost for January, calculated on the variable costing basis? A) $6.20. B) $7.20. C) $7.50. D) $8.50. E) $9.50.

110)

What does the principle-agent model assume about managers? A) Managers have extensive experience in the field. B) Managers will pursue their own self-interest before the interests of anyone else. C) Managers know exactly what is asked of them. D) Managers put the interest of the company in front of their own. E) Managers don’t have any decision making authority.

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111)

During October, Rover Industries produced 35,600 units of product with costs as follows:

Direct materials Direct labor Variable overhead Fixed overhead

$ 87,000 44,500 16,000 153,000 $ 300,500

What is Rover's unit cost for October, calculated on the variable costing basis? A) $3.39. B) $3.89. C) $4.14. D) $4.60. E) $5.10.

112)

During October, Rover Industries produced 35,000 units of product with costs as follows:

Direct materials Direct labor Variable overhead Fixed overhead

$ 84,000 43,000 13,000 147,000 $ 287,000

What is Rover's unit cost for October, calculated on the variable costing basis? A) $3.25. B) $3.75. C) $4.00. D) $4.50. E) $5.00.

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113)

Under variable costing, fixed manufacturing overhead costs would be classified as: A) Period costs. B) Product costs. C) Selling costs. D) Inventory costs. E) Annual costs.

114)

Under full costing, fixed manufacturing overhead costs would be classified as: A) Period costs. B) Product costs. C) Selling costs. D) Inventory costs. E) Annual costs.

115)

Under the principal-agent model of contract relationships, situations such as machine breakdowns or a decrease in market demand would be classified under: A) Lack of observability. B) Lack of responsibility. C) Uncertainty. D) Decentralization. E) Risk aversion.

116)

In a formal management control system, top management sets expectations for desired manager performance. Which of the following is not one of the areas in which a formal individual management control system would be used? A) Hiring practices. B) Promotion policies. C) Operations. D) Sales. E) Organizational culture.

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117)

The type of strategic business unit (SBU) where the focus is on the selling function of a specific product line or by a geographical location is referred to as a(n): A) Profit center. B) Cost center. C) Revenue center. D) Investment center. E) All of these.

118)

What does an employment contract accomplish? A) It helps expand a company. B) It locks down employees for a specific period of time. C) It is useful in outlining the company’s mission statement. D) It is a common mechanism for achieving the objectives of top management. E) None of these answers is correct.

119)

Quick Technology Company is a supplier of high-end research equipment for the pharmaceutical industry. Quick currently has a variety of different firms producing computer chips for increased memory and improved processing speeds which are installed in Quick's equipment. In this case, having another firm provide supplies for Quick's equipment is an example of: A) Strategic positioning. B) Opportunity costing. C) Profitability maximization. D) Outsourcing. E) Value chain analysis.

120)

What does outsourcing mean? A) To have a service or product supplied by an internal support department instead of an outside firm. B) To have a service or product supplied by an outside firm instead of an internal support department. C) To place company headquarters in a foreign country. D) To hire employees from competitors. E) To export a product or service to another country to be sold.

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121)

Which one of the following is not an order-filling cost? A) Freight. B) Warehousing. C) Inspection. D) Collections. E) Packaging.

122)

Controllable fixed costs: A) Are those costs that the profit center manager can influence in approximately a year or less. B) Are those costs that the profit center manager can influence in approximately a year or more. C) Include variable costs. D) Have no effect on operating income. E) Can only increase over time.

123)

Companies use the balanced scorecard to describe strategy in detail through the use of a cause-and-effect diagram which is also known as a(n): A) Status Diagram. B) Strategy Map. C) Performance Flowchart. D) Organizational Diagram. E) Operational Work-through.

124)

The cost method that is input-oriented and considers costs largely uncontrollable at the planning stage is called the: A) Engineered-cost method. B) ABC costing. C) Discretionary-cost method. D) Job costing. E) Standard costing.

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125)

Costs such as depreciation, taxes and insurance usually extending beyond one year are considered: A) Controllable fixed costs. B) Noncontrollable fixed costs. C) Noncontrollable variable costs. D) Controllable variable costs. E) Controllable margin costs.

126)

Which of the following is not a revenue driver factor which affects sales volume for a manufacturing firm? A) Price changes. B) Customer service. C) Delivery dates. D) Discounts. E) Productivity.

127)

Which of the following can be inferred as an argument against the use of variable costing? A) Full costing overstates the balance sheet value of inventories. B) Variable factory overhead is a period cost. C) Fixed factory overhead is difficult to allocate properly. D) Fixed factory overhead is necessary for the production of a product. E) Fixed factory overhead is unnecessary for the production of a product.

128)

Music Incorporated planned and manufactured 253,500 units of its single product in 2022, its first year of operations. Variable manufacturing costs were $37 per unit of production. Planned and actual fixed manufacturing costs were $607,000. Marketing and administrative costs (all fixed) were $303,500 in 2022. Music Incorporated sold 203,500 units of product in 2022 at $67 per unit. Sales for 2022 are calculated to be: A) $1,136,000. B) $5,681,000. C) $8,522,000. D) $11,362,000. E) $13,634,500.

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129)

Music Incorporated planned and manufactured 250,000 units of its single product in 2022, its first year of operations. Variable manufacturing costs were $30 per unit of production. Planned and actual fixed manufacturing costs were $600,000. Marketing and administrative costs (all fixed) were $300,000 in 2022. Music Incorporated sold 200,000 units of product in 2022 at $60 per unit. Sales for 2022 are calculated to be: A) $1,000,000. B) $5,000,000. C) $7,500,000. D) $10,000,000. E) $12,000,000.

130)

Music Incorporated planned and manufactured 252,500 units of its single product in 2022, its first year of operations. Variable manufacturing costs were $35 per unit of production. Planned and actual fixed manufacturing costs were $605,000. Marketing and administrative costs (all fixed) were $302,500 in 2022. Music Incorporated sold 202,500 units of product in 2022 at $65 per unit. Full costing operating income for 2022 is calculated to be: (Do not round intermediate calculations. Round your final answers to whole dollar amounts.) A) $4,052,000. B) $4,254,000. C) $5,167,500. D) $5,287,302. E) $5,368,000.

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131)

Music Incorporated planned and manufactured 250,000 units of its single product in 2022, its first year of operations. Variable manufacturing costs were $30 per unit of production. Planned and actual fixed manufacturing costs were $600,000. Marketing and administrative costs (all fixed) were $300,000 in 2022. Music Incorporated sold 200,000 units of product in 2022 at $60 per unit. Full costing operating income for 2022 is calculated to be: A) $4,000,000. B) $4,200,000. C) $5,100,000. D) $5,220,000. E) $5,300,000.

132)

Music Incorporated planned and manufactured 259,500 units of its single product in 2022, its first year of operations. Variable manufacturing costs were $49 per unit of production. Planned and actual fixed manufacturing costs were $619,000. Marketing and administrative costs (all fixed) were $309,500 in 2022. Music Incorporated sold 209,500 units of product in 2022 at $79 per unit. Variable costing operating income for 2022 is calculated to be: (Do not round intermediate calculations. Round your final answers to whole dollar amounts.) A) $4,201,000. B) $4,411,000. C) $5,356,500. D) $5,474,795. E) $6,302,000.

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133)

Music Incorporated planned and manufactured 250,000 units of its single product in 2022, its first year of operations. Variable manufacturing costs were $30 per unit of production. Planned and actual fixed manufacturing costs were $600,000. Marketing and administrative costs (all fixed) were $300,000 in 2022. Music Incorporated sold 200,000 units of product in 2022 at $60 per unit. Variable costing operating income for 2022 is calculated to be: A) $4,000,000. B) $4,200,000. C) $5,100,000. D) $5,220,000. E) $5,300,000.

134)

Strategic performance measurement is a(n): A) Accounting system used by top management for the evaluation of managers. B) System of shared responsibility. C) Accounting system for determining strategy. D) System to design and implement the balanced scorecard. E) System that tracks the operating costs of a division.

135)

Managers who are risk averse: A) Seek to accept options with low risk and would choose an option with lower expected value if it had more risk. B) Seek to avoid options with low risk and would choose an option with higher expected value if it had more risk. C) Seek to avoid options with high risk and would choose an option with lower expected value if it had less risk. D) Seek to accept options with high risk and would choose an option with lower expected value if it had less risk. E) Seek to accept options with low risk and would choose an option with higher expected value if it had more risk.

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136)

Managers who are risk-seeking: A) Seek risky projects that promise some chance of a benefit. B) Seek risky projects that promise some chance of a high benefit, although the projects may have a risk of low benefit. C) Seek risky projects. D) Seek high risk projects that promise some chance of a high benefit, although the projects may have a very significant risk of no benefit. E) Seek risky projects that have low chance of success but high reward.

137)

Risk plays a critical role in the decision-making process. However, numerous studies have shown that it is common for executives, managers, and individuals to be considered: A) Risk neutral. B) Risk prone. C) Risk averse. D) Risk seekers. E) Risk takers.

138)

A value stream income statement is best associated with: A) Value chain analysis. B) Activity-based costing. C) The theory of constraints. D) Lean manufacturing. E) Push manufacturing.

139)

A value stream is: A) A set of value-adding activities. B) A sequence of efficient processes. C) A group of related products. D) A strategy map with a focus on value-adding activities. E) The process of creating a new product.

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140)

Reasons for failure to implement the balanced scorecard effectively include all of the following except: A) Failure to link nonfinancial measures to strategy. B) Failure to validate the assumptions in the strategy map. C) Setting the wrong performance targets. D) Failure to include SEC reporting responsibilities. E) Measuring the results incorrectly.

141)

The sales life cycle has three phases: early, growth, and maturity. The appropriate performance measures for the growth phase include: A) Profitability, market penetration. B) Profitability, strategy. C) Revenue, strategy. D) Profitability, asset management. E) Revenue, asset management.

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142)

Sand and Sea Resorts owns and operates two resorts in a coastal town. Both resorts are located on a barrier island that is connected to the mainland by a high bridge. One resort is located on the beach and is called the Crystal Coast Resort. The other resort is located on the inland waterway which passes between the town and the mainland; it is called the Harborview Resort. Some key information about the two resorts for the current year is shown below.

Revenue (000s) Square feet Rooms Assets (000s)

Harborview

Crystal Coast

Total

$ 3,825 80,000 66 $ 110,000

$ 6,175 250,000 150 $ 440,000

$ 10,000 330,000 216 $ 550,000

The nontraceable operating costs of the resort amount to $4,000,000. By careful study, the management accountant at Sand and Sea has determined that, while the costs are not directly traceable, the total of $4 million could be fairly allocated to the four cost drivers as follows. Cost Driver Revenue Square feet Rooms Assets (000s)

Amount Allocated $ 185,000 115,000 580,000 3,120,000

Determine the amount of nontraceable cost to be allocated to the Harborview Resort using revenue as an allocation base. A) $1,148,000. B) $2,131,000. C) $1,530,000. D) $2,841,000. E) $1,836,000.

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143)

Revenue (000s) Square feet Rooms Assets (000s)

Harborview

Crystal Coast

Total

$ 3,500 75,000 60 $ 100,000

$ 6,500 225,000 140 $ 400,000

$ 10,000 300,000 200 $ 500,000

Amount Allocated $ 200,000 100,000 600,000 3,100,000

Determine the amount of nontraceable cost to be allocated to the Harborview Resort using revenue as an allocation base. A) $1,050,000. B) $1,950,000. C) $1,400,000. D) $2,600,000. E) $1,680,000.

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144)

Revenue (000s) Square feet Rooms Assets (000s)

Harborview

Crystal Coast

Total

$ 3,675 80,000 63 $ 110,000

$ 6,325 240,000 150 $ 420,000

$ 10,000 320,000 213 $ 530,000

Amount Allocated $ 200,000 100,000 530,000 3,170,000

What is the operating profit of the Crystal Coast Resort, using revenue as an allocation base? A) $2,141,000. B) $1,606,000. C) $3,406,000. D) $4,428,000. E) $3,795,000.

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145)

Revenue (000s) Square feet Rooms Assets (000s)

Harborview

Crystal Coast

Total

$ 3,500 75,000 60 $ 100,000

$ 6,500 225,000 140 $ 400,000

$ 10,000 300,000 200 $ 500,000

Amount Allocated $ 200,000 100,000 600,000 3,100,000

What is the operating profit of the Crystal Coast Resort, using revenue as an allocation base? A) $2,200,000. B) $1,650,000. C) $3,500,000. D) $4,550,000. E) $3,900,000.

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146)

Revenue (000s) Square feet Rooms Assets (000s)

Harborview

Crystal Coast

Total

$ 3,500 75,000 60 $ 184,000

$ 6,500 225,000 140 $ 736,000

$ 10,000 300,000 200 $ 920,000

Amount Allocated $ 200,000 170,000 600,000 3,030,000

Using the information regarding the allocation of the $4 million to the four cost drivers, determine the amount of cost to be allocated to the Harborview Resort. A) $1,054,000. B) $898,500. C) $1,506,000. D) $718,000. E) $1,687,000.

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147)

Revenue (000s) Square feet Rooms Assets (000s)

Harborview

Crystal Coast

Total

$ 3,500 75,000 60 $ 100,000

$ 6,500 225,000 140 $ 400,000

$ 10,000 300,000 200 $ 500,000

Amount Allocated $ 200,000 100,000 600,000 3,100,000

Using the information regarding the allocation of the $4 million to the four cost drivers, determine the amount of cost to be allocated to the Harborview Resort. A) $1,050,000. B) $895,000. C) $1,500,000. D) $715,000. E) $1,680,000.

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148)

Revenue (000s) Square feet Rooms Assets (000s)

Harborview

Crystal Coast

Total

$ 3,500 75,000 60 $ 142,000

$ 6,500 225,000 140 $ 568,000

$ 10,000 300,000 200 $ 710,000

Amount Allocated $ 200,000 135,000 600,000 3,065,000

Using the information regarding the allocation of the $4 million to the four cost drivers, determine the operating profit of the Crystal Coast Resort. A) $1,501,000. B) $2,051,000. C) $2,786,000. D) $3,396,750. E) $4,217,000.

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149)

Revenue (000s) Square feet Rooms Assets (000s)

Harborview

Crystal Coast

Total

$ 3,500 75,000 60 $ 100,000

$ 6,500 225,000 140 $ 400,000

$ 10,000 300,000 200 $ 500,000

Amount Allocated $ 200,000 100,000 600,000 3,100,000

Using the information regarding the allocation of the $4 million to the four cost drivers, determine the operating profit of the Crystal Coast Resort. A) $1,500,000. B) $2,050,000. C) $2,785,000. D) $3,395,000. E) $4,215,000.

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150)

Revenue (000s) Square feet Rooms Assets (000s)

Harborview

Crystal Coast

Total

$ 3,500 75,000 60 $ 100,000

$ 6,500 225,000 140 $ 400,000

$ 10,000 300,000 200 $ 500,000

Amount Allocated $ 200,000 100,000 600,000 3,100,000

The Crystal Coast resort is likely to be favored in terms of a lower cost allocation under: A) Revenue-based allocation. B) Cost-driver based allocation. C) Cannot be determined from the information. D) Would be the same for both allocation methods.

151)

What is an example of information asymmetry? A) The efforts and decisions made by the manager are often observable by top management. B) Top management receives incorrect financial statements for the period. C) Managers don’t share cost advantages with other managers. D) The manager generally possesses information that top management does not have. E) The manager and top management share information openly.

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152)

Leadership development would fall under what two categories in the management control system? A) Individual and informal systems. B) Individual and formal systems. C) Teams and formal systems. D) Teams and informal systems. E) Individual and teams systems.

153)

What is an appropriate performance evaluation measure for the mature stage of a product's life cycle? A) Revenue. B) Market penetration. C) Asset management. D) Profitability. E) Costs.

154)

What is an appropriate performance evaluation measure for the early stage of a product's life cycle? A) Revenue. B) Strategy. C) Asset management. D) Profitability. E) Costs.

155)

Who does not receive performance reports? A) The firm’s creditors. B) The firm’s competitors. C) The community or governmental units affected by its operations. D) The firm’s owners, directors, or shareholders. E) The firm’s employees.

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156)

Which of the following is an advantage of decentralization? A) Promote coordination among strategic business units (SBU). B) Limits conflicts among strategic business units (SBU). C) Motivates managers. D) Offers qualitative method of performance evaluation. E) Uses top management more effectively.

157)

Which of the following is not a characteristic of the discretionary-cost approach? A) Costs are mainly fixed. B) Outputs are not controllable. C) The focus is on planning. D) Firms use an output-oriented evaluation focus. E) Used when costs are considered uncontrollable.

158)

Which of the following is not a criterion for choosing the cost allocation method? A) Motivate managers. B) Provide an incentive for managers. C) Profitability focus. D) Basis for fair evaluation. E) None of the answer choices is correct.

159)

Which of the following is not a step to maximize the value of nonfinancial measures, as suggested by Ittner and Larcker? A) Benchmark with similar firms. B) Base actions on findings. C) Develop a causal model. D) Assess outcomes. E) Turn the data into information.

160)

Which of the following is not an objective of management control? A) Waste control. B) Motivation. C) Goal congruence. D) Fairly determine rewards earned by managers. E) Long-term, strategic issues.

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Answer Key Test name: chapter 18 1) Essay 2) Essay 3) Essay 4) Essay 5) Essay 6) Essay 7) Essay 8) Essay 9) Essay 10) Essay 11) Essay 12) A 13) A 14) B 15) D 16) D 17) B 18) C 19) E 20) A 21) B 22) D 23) A 24) B 25) D 26) A 27) B 28) C 29) E 30) B 31) A 32) E 33) B 34) C 35) D 36) C 37) B

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38) A 39) B 40) B 41) D 42) C 43) E 44) B 45) D 46) E 47) B 48) E 49) C 50) C 51) B 52) B 53) D 54) D 55) A 56) A 57) E 58) E 59) C 60) C 61) B 62) B 63) D 64) D 65) B 66) B 67) D 68) D 69) A 70) A 71) E 72) E 73) C 74) C 75) D 76) D 77) B

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78) B 79) E 80) E 81) B 82) D 83) C 84) C 85) B 86) B 87) C 88) C 89) A 90) A 91) B 92) A 93) B 94) C 95) C 96) B 97) B 98) B 99) D 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

B A C C C C B A B B B C C A B C E C

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118) 119) 120) 121) 122) 123) 124) 125) 126) 127) 128) 129) 130) 131) 132) 133) 134) 135) 136) 137) 138) 139) 140) 141) 142) 143) 144) 145) 146) 147) 148) 149) 150) 151) 152) 153) 154) 155) 156) 157)

D D B C A B C B E D E E D D C C A C B C D C D D C C E E B B D D A D B D A B C D

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158) 159) 160)

C A A

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Chapter 19 1) Alice and Jon Harrison operate two full-service dry cleaning outlets in the St. Louis

metropolitan area. One of the outlets generates over $800,000 revenue per year and has more than a million dollar investment in state-of-the-art equipment. The other outlet is older, generates $20,000 revenue per month, and has 20-25 year-old equipment currently worth approximately $85,000. Both outlets are profitable with growing market bases. (The ratio between operating income and sales for each unit, based on historical-cost accounting numbers, is roughly the same.) Managers at each location are currently paid a base salary, and receive a year-end bonus which is five percent of total operating profit produced by both outlets combined. Alice has just finished a workshop on investment center performance evaluation, and wants to change the evaluation and reward structure, hoping to motivate the two managers to produce greater revenue and profit. Required: What type of evaluation mechanisms should she propose for the two managers?

2) Ellie Jackson is upset by the new transfer pricing system recently implemented at Monson

Company. As manager of the first of three sequential production departments, she can't see the value of a transfer pricing system for her department. "We can't sell what we produce to any outside buyer. And we're never pushed for capacity, so I don't think transfer pricing will do anything but make my life more complicated." You are Ellie's boss. Required: Explain how transfer pricing can help Ellie evaluate her department's operations and allow you to more effectively evaluate her management abilities.

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3) Consider the following data for three divisions of a company, X, Y, and Z: Divisional: Sales Operating Income Investment (assets)

X $ 2,200,000 330,000 750,000

Y $ 1,100,000 143,000 572,000

Z $ 5,800,000 580,000 2,900,000

Required: Calculate return on investment (ROI), return on sales (ROS), and asset turnover (AT) for each division. Round your answers to two decimal places where appropriate.

4) Selected data from an investment center's accounting records reveal the following: Sales Average investment Operating income Minimum rate of return

$ 700,000 $ 350,000 $ 50,000 12%

Required: 1. Calculate return on investment (ROI) for this investment center (show separately the two major components of the ROI calculation). Round all computations to two decimal places. 2. Calculate residual income (RI) for this investment center.

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5) Accounting records from Division A, Alpha Manufacturing Company indicate the following: Divisional Sales Average investment Divisional operating income Minimum rate of return

$ 1,500,000 $ 1,000,000 $ 169,500 14%

Required: 1. Compute the return on sales (ROS) for Division A. (Round answer to one decimal place.) 2. Compute the asset turnover (AT) for Division A. 3. Compute return on investment (ROI) for this division, using answers to parts (1) and (2). (Round answer to two decimal places.) 4. Compute residual income (RI) for Division A. 5. Describe how Alpha Manufacturing would determine whether or not to invest in any particular project in the future.

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6) When the Bronx Company formed three divisions a year ago, the president told the division

managers an annual bonus would be given to the most profitable division. The bonus would be based on either the return on investment (ROI) or residual income (RI) of the division. Investment, for both calculations, is to be measured using either gross book value (GBV) or net book value (NBV) of divisional assets. The following data are available: Division A B C

Gross Book Value (GBV) $ 500,000 $ 480,000 $ 300,000

Operating Income $ 53,500 $ 52,000 $ 33,300

All the assets are long-lived assets that were purchased 15 years ago and have 15 years of useful life remaining. A zero terminal (disposal) value is predicted. Bronx's minimum rate of return (cost of capital) used for computing RI, for all three divisions, is 10%. Required: Which method for computing profitability would each manager likely choose? Show supporting calculations. Round percentage answers to 2 decimal places (e.g., 0.12344 = 12.34%). Where applicable, assume straight-line depreciation.

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7) T-shirts R Us Incorporated operates two divisions that each manufactures t-shirts for

universities. Each division has its own manufacturing facility. The historical-cost accounting system reports the following financial data for 2022. Atlantic Coast Division Condensed Income Statement Data (000s) Revenues Operating Costs

$ 600 470

Operating Income

$ 130

Big-10 Division Condensed Income Statement Data (000s) Revenues Operating Costs

$ 600 400

Operating Income

$ 200

T-shirts R Us Incorporated estimates the useful life of each manufacturing facility to be 15 years. The company uses straight line depreciation, with a depreciation charge of $70,000 per year for each division and no salvage value at the end of 15 years. The manufacturing facility is the only long-lived asset of either division. Current assets are $300,000 in each division. At the end of 2022 the Atlantic Coast Division is 4 years old and the Big-10 Division is 6 years old. An index of construction costs, replacement cost, and liquidation values for manufacturing facilities used in the production of t-shirts for the 7-year period that T-shirts R Us Incorporated has been operating, are as follows:

Year 2016 2017 2018 2019 2020 2021 2022

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Cost Index 80 82 84 89 94 96 100

Liquidation Value Replacement Cost Atlantic Coast $ 1,000,000 $ 800,000 1,000,000 800,000 1,100,000 700,000 1,150,000 700,000 1,200,000 800,000 1,250,000 900,000 1,300,000 1,000,000

Big 10 $ 800,000 800,000 700,000 600,000 600,000 600,000 500,000

Required: Round answers to 2 decimal places where appropriate. 1. Compute return on investment (ROI) for each division using net book value (NBV). Interpret the results. 2. Compute return on investment (ROI) for each division, incorporating current-cost estimates as follows, using: (a) Gross book values (GBV) under historical cost; (b) GBV at historical cost restated to current cost using the index of construction costs; (c) NBV of long-lived assets restated at current cost using the index of construction costs (the facility was constructed the year before the first year of use); (d) Current replacement cost; and (e) Current liquidation value. 3. Which of the measures calculated in (2) above would you choose for (a) performance evaluation of each division manager, and (b) deciding which division is most profitable for the overall firm? What are the strategic advantages and disadvantages to the firm of each measure for both (a) and (b)?

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8) Domi Products, a multi-divisional manufacturing company, measures performance and

awards bonuses to division managers based upon divisional operating income. Under the current bonus plan, common company-wide operating expenses are allocated evenly to all five of its divisions. For example, if rent were $50,000, each division would be charged $10,000. In planning next year's budget, corporate management has requested that the division managers recommend how common expenses should be distributed to the divisions. The division managers met and jointly developed an incentive plan that would more equitably distribute common expenses on the basis of resources used and that would measure each division manager's performance based on return on assets (ROI), with divisional bonuses based on a target ROI. They jointly presented their recommendation to corporate management. Required: 1. Describe at least three problems that Domi Products could encounter when using return on investment (ROI) as the basis of performance measurement. 2a. Define the residual income (RI) approach to segment performance measurement. 2b. Determine if Domi Products should implement this approach instead of the ROI approach. 3. Discuss the behavioral implications of the division managers' involvement in the corporate budgeting process, and the decision to more equitably allocate common costs.

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9) Eikelberry, Incorporated has the following financial results for 2022 for its three regional

divisions: Current Cost Region FINANCIAL DATA North Atlantic Mid Atlantic South Atlantic

Income

Net Book Value

Gross Book Value

Replacement Liquidation Cost Value

$ 45,000 33,000

$ 225,000 289,000

$ 450,600 310,000

$ 990,000

$ 350,000

380,000

445,000

22,000

115,000

166,000

650,000

980,000

Required: Calculate return on investment (ROI), asset turnover (AT), and return on sales (ROS) for each of the three divisions for 2022. The sales in the North, Mid and South Atlantic regions are $2,350,000, $1,450,000, and $500,000, respectively. Calculate ROI and asset turnover (AT) for each of the four measures of investment (i.e., for each of four possible denominators in determining ROI and AT). Round all answers except ROI to 2 decimal places, e.g., round 0.12487 to 12.49%. Round ROI to whole percentage amounts, e.g., 0.1998 to 20%.

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10) Edwards Incorporated manufactures electronics. It consists of several divisions classified as

investment centers for performance evaluation purposes. Division A desires to purchase materials from Division B at a price of $85 per unit. Division B can produce 25,000 units at full capacity, and is currently operating at 90% capacity with a variable cost of $80 per unit. Division B currently sells only to outside customers who pay $115 per unit. Division A pays an outside company $110 per unit. If purchased from Division B, B's variable costs per unit would be $10 less because the division would save on marketing expenses for these internal transfers. Division A requires 10,000 units. Required: 1. How would Division B selling to Division A affect Division A's purchasing costs? 2. How would intercompany sales affect Division B? 3. What solution would be best for Edwards Incorporated, assuming Division B has the ability to operate at full capacity?

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11) Max Limited produces kitchen tools, and operates several divisions as investment centers.

Division M produces a product that it sells to other companies for $16 per unit. It is currently operating at full capacity of 45,000 units per year. Variable manufacturing cost is $9 per unit, and variable marketing cost is $3 per unit. The company wishes to create a new division, Division N, to produce an innovative new tool that requires the use of Division B's product (or one very similar). Division N will produce 30,000 units per year. Currently, Division N can purchase a product equivalent to Division M's from Company X for $15 per unit. However, Max Limited is considering transferring the necessary product from Division M. Required: 1. Assume the transfer price is $12 per unit: a. How would this price affect the purchasing costs of Division N? b. How would this price affect the profits of Division M? c. How would this price affect Max Limited as a whole? 2. What if the transfer price were $13 per unit?

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12) Pearl Incorporated has the following financial results for 2022 for its three regional divisions: Historical Cost Region Northeast

Operating Income $ 50,000

Midwest

$ 80,000

Southeast

$ 90,000

NBV

GBV

$ 100,000 $ 300,000 $ 400,000

$ 150,000 $ 400,000 $ 500,000

Estimated Current Cost Replacement Liquidation Cost Value $ 750,000 $ 500,000 $ 500,000

300,000

$ 900,000

950,000

Required: Calculate return on investment (ROI), asset turnover (AT), and return on sales (ROS) for each division for 2022. The sales in the Northeast, Midwest, and Southeast regions are $700,000, $800,000, and $990,000, respectively. Calculate ROI and AT for each of the four measures of investment (i.e., NBV (net book value), GBV (gross book value), Replacement Cost, and Liquidation Value). Round all answers except ROI to 2 decimal places (e.g., 0.12522 becomes 12.52%); round ROI to whole percentage amounts, e.g., 0.1998 becomes 20%.

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13) Selected data from one of the investment centers from Jones Company are as follows: Sales Average divisional assets Divisional operating income Minimum rate of return

$ 400,000 $ 320,000 $ 40,000 11%

Required: 1. Calculate return on investment (ROI), including each of the two component measures of ROI. 2. Calculate residual income (RI).

14) Brown's Mill has two operating units, each of which is considered an investment center for

evaluation purposes. The Cutting Division of the mill prepares timber at its sawmills. Afterwards, the Assembly Division prepares the cut lumber into finished wood, to be sold to furniture manufacturers. During the most recent year, the Cutting Division produced 120,000 cords of wood, at a total cost of $1,320,000. The entire output was transferred to the Assembly Division, where additional costs of $6 per cord were incurred. The 1,200,000 board-feet of finished wood were then sold in the open market for $5,000,000. Required: 1. Determine the operating income for each division if the transfer price from the Cutting Division to the Assembly Division is set at full production cost, $11 per cord. 2. Determine the operating income for each division if the transfer price is set at $9 per cord. 3. Since the Cutting Division sells all of its output internally, does the manager care about what price is charged? Why? Should the Cutting Division in this case be considered a cost center or a(n) profit/investment center?

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15) Simmons Bedding Company manufactures an array of bedding-related products, including

pillows. The Cover Division of Simmons makes covers, while the Assembly Division of the company produces finished pillows. The covers can be sold separately for $10.00 a piece, while the pillows sell for $12.00 per unit. For performance evaluation purposes, these two divisions are treated as investment centers. Financial results from the most recent accounting period are as follows:

Traceable manufacturing costs

Cover Assembly Division Division $ 6,000,000 $ 1,500,000

External sales

$ 4,000,000 $ 7,200,000

Market value of output transferred from Cover Division to the Assembly Division

$ 6,000,000

Required: 1. What is the operating income for each of the two divisions and for the company as a whole? (Use market value as the transfer price.) 2. Do you think each of the two divisional managers is happy with this transfer pricing method? Explain.

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16) The manager of the processing division of XYZ Corporation is considering the purchase of

new equipment, which would modernize an aging plant. Currently, the division has an asset base of $8,000,000 and net operating income of $1,200,000. The new equipment is expected to cost $1,000,000; it supports the corporate strategy of competing on the basis of quality and customer response time (CRT). The new investment is also expected to increase operating income by $100,000 next year, which is an acceptable return on investment (ROI) from the standpoint of corporate management. Required: 1. What is the current ROI for the processing division of XYZ Corporation? (Show calculations.) 2. What will be the divisional ROI if the new investment is undertaken? 3. Suppose that the compensation contract for the manager of the processing division consists of a base salary plus a bonus that is proportional to the ROI earned by the division. Is this manager's total compensation higher with or without the new investment? 4. What changes to the divisional manager's compensation contract might corporate management make that would better align divisional manager's compensation (and performance evaluation) with overall corporate goals?

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17) The following questions pertain to the process of transfer pricing.

Required: 1. Define the term transfer price. 2. What are the three general alternatives for setting domestic transfer prices? 3. What is meant by the term dual pricing, as used within the context of the transfer pricing decision? Give one example of dual pricing. 4. What criteria can be used to judge a particular transfer pricing alternative? ( Hint: think about the different objectives of transfer pricing, including objectives in an international setting.) 5. What is meant by the term "advance pricing agreement" (APA)? What is the essential purpose of an APA?

18) The text presents what it calls a general transfer pricing rule that can be used to help set an

appropriate transfer price. The following questions pertain to this general rule. Required: 1. Present, in equation form, the general transfer pricing rule presented in the chapter. Briefly describe the elements of the model. 2. In what sense is the model presented in the chapter a general transfer pricing rule? 3. Evaluate the general transfer pricing rule in light of the objectives for transfer pricing that are presented in the chapter. 4. What are some of the major implementation issues associated with applying the general transfer pricing rule in practice?

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19) What special problems and opportunities arise in setting transfer prices in an international

setting (i.e., for transfers between subunits that operate in different countries)? Hint: In terms of special problems, make sure you reference OECD requirements and practical implementation alternatives for general OECD requirements.)

20) What are the principal advantages and disadvantages of using cost-based transfer prices?

(Give a short explanation of each item you list.)

21) The text notes that there are various objectives of transfer pricing. This raises the possibility

of using multiple transfer pricing alternatives. For example, an organization could use one transfer pricing alternative for domestic transfers and another alternative for transnational transfers. Required: 1. Provide a reason why an organization might choose a particular transfer pricing alternative for domestic transfers and a different transfer pricing alternative for international transfers. 2. Provide a reason why an organization may not want to use two different transfer pricing systems, one for domestic transfers and another for international transfers.

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22) As noted in the text, the use of market price can be used to set the transfer price associated

with interdivisional transfers of goods and services. Required: 1. What are the primary advantages of using market price as the transfer price? 2. What are the primary disadvantages of using market price as the transfer price?

23) Assume the following facts regarding a product that Division P can sell internally (to

Division B) or externally on the open market. Incremental (i.e., out-of-pocket) cost to Division P for each unit produced = $12. External purchase price, to be paid by Division B = $13.50. Total units needed (annually) by Division B = 1,000. Required: 1. Assume that there are no alternative uses for Division P's facilities. Determine whether the company as a whole will benefit if Division B purchases the product externally. At what amount should the transfer price be set such that each divisional manager, acting in the best interest of his or her own division, take actions that are in the best interest of the company as a whole? 2. Assume that Division P's facilities would not otherwise be idle if it didn't produce the product for Division B. By not producing the product for Division B, the freed-up facilities would be used to generate a net cash benefit of $1,800. Should Division B purchase from suppliers? (Show calculations.) 3. Assume that for the foreseeable future there are no alternative uses for Division P's facilities, and that the outside supplier's cost to Division B drops by $2. Under this circumstance, should Division B purchase externally? At what amount should the transfer price be set such that each divisional manager, acting in the best interest of his or her division, would take actions that are in the best interest of the company as a whole?

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24) Assume two divisions, P (producing) and B (buying) of a company are both treated as

investment centers for performance evaluation purposes. Division B requires 1,000 units of product that it can either purchase externally on the open market for $13.50 per unit, or obtain internally from Division P. The incremental (i.e., out-of-pocket) costs to Division P are estimated at $12.00 per unit. Because of spot shortages of this product in the open market, it is sometimes possible for Division P to sell at a price higher than the normal market price. Such is currently the case: Division P has an offer to sell 1,000 units at a gross selling price of $15.50 per unit. In addition to the normal incremental production costs, Division P would have to pay a $0.50 sales commission cost for each unit sold externally. Required: 1. If Division B purchased the units externally, would the firm as a whole benefit or lose (in terms of a short-term financial impact)? Show calculations. 2. Apply the general transfer pricing model to this situation. What is the minimum transfer price indicated for each of the 1,000 units in question? Show calculations. 3. What is the likely consequence, from a decision standpoint, if the transfer price is set at the amount stipulated by the general transfer pricing rule?

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25) Assume two divisions of a company, P (producing) and B (buying), that are treated as

investment centers for performance evaluation purposes. As the management accountant, you've been asked to provide input to the determination of the appropriate transfer price for an exchange of product between these two divisions. In case #1, Division P is experiencing a capacity constraint, while in case #2 it is assumed that Division P has excess capacity. The incremental production cost incurred by Division P, to the point of transfer, is $80.00 per unit. Division P can sell its output externally for $120.00 per unit, less a sales commission charge of $5.00 per unit. Currently, Division B is purchasing the product from an external supplier at $120.00 per unit, plus a $3.00 transportation charge per unit. Required: 1. Assume that Division P has limited capacity. Thus, for each unit it sells internally, it loses the opportunity to sell that unit externally. Use the general transfer pricing rule to determine the minimum transfer price for internal transfers of units, that Division P would charge Division B. From the standpoint of Division P, why is the figure you calculated considered an acceptable transfer price? 2. What is the maximum transfer price that Division B would be willing to pay per unit on any internal transfers? 3. If top management of the company allows the managers of Divisions P and B to negotiate a transfer price, what is the likely range of possible transfer prices? 4. Assume now that Division P has excess capacity. Use the general transfer pricing rule to determine the minimum transfer price that Division P would be willing to accept from Division B for any internal transfers. Would this transfer price motivate the correct economic decision (internal versus external transfer) from the standpoint of the company as a whole? Explain. 5. Given the situation described above in (4), would top management of the company want the transfer to take place internally? Why? (Show calculations, if appropriate.) How could top management ensure that an internal transfer would take place?

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26) This question deals with summary financial performance indicators for investment centers.

Required: 1. Discuss the similarities among ROI, residual income (RI), and EVA®. 2. In what sense is EVA® similar to and in what sense is it distinct from residual income (RI)? 3. Present the equation for calculating EVA® and provide a brief discussion of the elements that go into the calculation of EVA®. 4. What are the two approaches that can be used to estimate the two major components of EVA®? Which of these two approaches is superior?

27) A fellow student of yours who has just completed a course in management accounting

recently made the following comment to you regarding the establishment of transfer prices for transnational transfers of goods and services within the same company: "In the process of preparing consolidated financial statements, all profit and loss attributable to internal transfers of goods and services are removed. The amount of profit a company reports is therefore affected only by transactions with external parties. Therefore, the subject of transfer pricing may be important for motivational purposes or some other managerial objective, but the choice of a transfer pricing system has no effect on the bottom line, even when transfers are made between units of a company operating in different countries." Required: Critically analyze and respond to the above assertion.

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28) Michael Cianci, manager of Division C of the FX Corporation, is considering a new

investment for his division. The division currently has an investment base (i.e., assets) of $4,000,000, and operating income of approximately $600,000 per year. The new investment of $500,000 supports corporate strategy and is expected to increase operating income by $50,000 next year, an acceptable level of return from the standpoint of the corporation as a whole. Required: 1. What is the current return on investment (ROI) for Division C? 2. What will be the ROI of the division if the new investment is undertaken? 3. Suppose the manager's compensation consists of a salary plus a bonus proportional to divisional ROI. Would the manager's compensation be higher with, or without, the new investment? 4. Suggest changes to corporate management that will better align performance evaluation and compensation with corporate goals.

29) This question pertains to the use of market-based transfer prices.

Required: What is the primary advantage and what is the primary difficulty in using market-based transfer prices?

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30) Pacific Mill consists of two operating divisions, a Cutting division and the Assembly

division. The Cutting division prepares cords of timber at its sawmills, while the Assembly division prepares the cut cords of lumber into board-feet of finished wood (which is sold to various furniture manufacturers). During the most recent year the Cutting division prepared 60,000 cords of wood at a cost of $1,320,000. All of this lumber was transferred to the Assembly division, where incremental costs of $12 per cord were added. Pacific Mill sold the 600,000 board-feet of finished wood for $5,000,000. Required: 1. What would the operating income for each of the two divisions be if the transfer price from Cutting to Assembly was set at the cord cost of $22 per cord? (Show calculations.) 2. What would the operating income for each of the two divisions be if the transfer price is set at $18 per cord? (Show calculations.) 3. Since Cutting transfers all of its output internally (to Assembly), does the manager of Cutting care what price is selected? Why? Should Cutting be treated as a cost center under the circumstances (rather than a profit center or investment center)? Explain.

31) This question pertains to factors affecting the setting of transfer prices in an international

setting. Required: What are the primary factors affecting the setting of transfer prices between divisions of a company that operates in different countries?

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32) The microprocessor division of Zenith Systems Company sells a computer module to the

company's Assembly Division, which puts together the finished product (viz., guidance systems). The Microprocessor Division is currently working at capacity. The computer module costs $10,000 to manufacture, and it can be sold externally to companies for approximately $13,500 per unit. Required: 1. Use the general transfer pricing rule to compute a transfer price for the computer module. 2. Explain the underlying logic of the general transfer pricing rule discussed in the chapter.

33) The Division A of Standard Products is planning its 2022 operating budget. Average

operating assets of $1,500,000 will be used in the division during the year and per-unit selling prices are expected to average $100. Variable costs of the division are budgeted at $400,000, while fixed costs are set at $250,000. The company's required rate of return for purposes of calculating residual income (RI) is 18%. Required: 1. Compute the sales volume (in units) necessary for Division A to achieve a 20% ROI in 2022. 2. The division manager receives a bonus of 50% of residual income (RI). What is the anticipated bonus for 2022 for the division manager, assuming the 20% ROI target specified in part (1) is achieved?

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34) The major operating divisions of Grey Company are organized as investment centers for

performance evaluation purposes. The division managers are evaluated, in part, on the basis of the change in the return on investment (ROI) of their units. Operating results for the Division A for the coming year, 2022, based on its existing assets are budgeted as follows: Sales Less variable costs Contribution margin Less fixed expenses Operating income

$ 5,000,000 2,500,000 2,500,000 1,800,000 $ 700,000

Operating assets for the Division A are currently $3,600,000. For 2022, the division can add a new product line for an investment of $600,000. The new product line is expected to generate sales of $1,600,000 and will incur fixed expenses of $600,000 annually. Variable costs of the new product are expected to average 60% of the selling price. Required: 1. What is the effect on ROI of accepting the new product line? 2. If the company's required rate of return is 6% and residual income is used to evaluate managers, would this encourage the division to accept the new product line? Explain and show computations.

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35) Meridian Investments has three divisions (A, B, C) organized for performance evaluation

purposes as investment centers. Each division's required rate of return for purposes of calculating residual income (RI) is 15%. Budgeted operating results for 2022 for each of the three divisions are as follows: Division A B C

Operating income $ 15,000,000 $ 25,000,000 $ 11,000,000

Investment $ 100,000,000 $ 125,000,000 $ 50,000,000

The company is planning an expansion, which will require each division to increase its investments by $25,000,000 and its operating income by $4,500,000. Required: 1. Compute the current ROI for each division. 2. Compute the current residual income (RI) for each division. 3. Rank the divisions according to their current ROIs and in terms of their residual incomes. 4. Determine the effects after adding the new project to each division's ROI and residual income (RI). 5. Assuming the managers are evaluated on either ROI or residual income (RI). Which divisions are pleased with the expansion and which ones are unhappy? Explain briefly.

36) Under the notion of controllability, it is most appropriate for top management to evaluate the

profitability of an investment center in terms of: A) Profits generated in relation to the amount of capital invested in the unit. B) Returns expressed as a percentage. C) Profits expressed in absolute terms. D) Operating profit generated. E) Returns expressed in actual dollar amounts.

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37) Which of the following is the most appropriate and comprehensive short-term financial-

performance indicator for an investment center that is a division of a larger business entity? A) Residual income (RI). B) Operating income, pre-tax. C) Return on equity (ROE). D) Operating income, after-tax. E) Return on sales (ROS).

38) The conventional return on investment (ROI) performance measure calculates "profit" and

"investment" based on: A) American Accounting Association (AAA) recommendations. B) U.S. Generally Accepted Accounting Principles (GAAP). C) The American Institute of Certified Public Accountants (AICPA) regulations. D) The legal and business professions' practices. E) Requirements specified by the U.S. Securities and Exchange Commission (SEC).

39) What is a key criterion for including an asset in the return on investment (ROI) calculation? A) The useful life of the asset. B) If the asset is current. C) The degree to which the business unit controls the asset. D) If the asset is long term. E) Assets are not included in the return on investment calculation.

40) Determination of the useful life of an asset and choice of a depreciation method will affect all

of the following except: A) The amount of operating income earned by an investment center for any given period. B) The investment base for purposes of calculating ROI. C) Amount of depreciation expense recorded for any given period. D) Net book value (NBV) of an asset as of any point in time. E) The opportunity cost of lost sales on alternative projects.

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41) The choice of valuation method for inventories would normally not affect which item(s) used

in calculating Return on Investment (ROI)? A) The valuation of fixed assets (e.g., Plant, Property, and Equipment) used by an investment center. B) The amount of operating income earned by an investment center in a given period. C) Both the investment base and the level of operating income reported by an investment center. D) The estimated value of current assets of a business entity, such as an investment center. E) The return on sales (ROS) of an investment center for the period.

42) As a general rule, leased assets should be included as part of the calculation of "investment"

(for calculating ROI and residual income) since they represent assets used: A) As collateral to borrow funds. B) To generate operating income. C) To offset current operating expenses. D) To reduce taxes. E) To estimate earnings per share for a given period.

43) If a relatively small historical cost value is used to measure the level of investment for

purposes of calculating return on investment (ROI), then ROI: A) can be significantly understated. B) can be slightly overstated. C) can be significantly overstated. D) will be the same no matter the historical cost. E) will be more accurate.

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44) Which one of the following is an advantage of both Return on Investment (ROI) and

Residual Income (RI)? A) They both measure all elements important for measuring short-term financial performance of investment centers: revenues, costs, and investment. B) They are both very widely used in practice today. C) They both can use the minimum rate of return to adjust for differences in risk across different investment centers. D) They are both comparable to interest rates and to rates of return on alternate investments. E) They can both use a different minimum rate of return for different types of assets used by an investment center.

45) When investments in facilities are shared by different subunits in a firm, allocation of the

cost of these common facilities to sharing units should be determined by: A) Reference to Generally Accepted Accounting Principles (GAAP). B) Relative sales dollars generated by the various units. C) The relative amount of use of the facilities, or demand for the facilities, by the various investment centers in the organization. D) Special techniques prescribed by the American Institute of Certified Public Accountants (AICPA). E) Some measure of current value (e.g., replacement cost).

46) The difference between the historical cost and the net book value (NBV) of a plant asset is

the: A) B) C) D) E)

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Residual value of the asset. Depreciation expense for the current period. Estimate of the remaining useful life of the asset. Accumulated depreciation on the asset. Estimated replacement cost of the asset.

47) Why use the current value of assets as opposed to the historical cost net book value? A) It is an easier calculation for companies. B) All companies report current value and not historical cost. C) Historical cost net book value is always inaccurate. D) The historical cost net book value will generally understate the return on investment. E) Current value helps reduce the unfairness when comparing business units with

different aged assets.

48) The use of gross book value (GBV) for measuring the level of investment in depreciable

assets (for purposes of calculating return on investment, ROI) is preferred by those who value the objectivity of: A) An historical cost number. B) The depreciation process. C) Price-level adjusted data. D) The cost-allocation process. E) Current-cost information.

49) The use of replacement cost of assets for purposes of calculating return on investment (ROI)

has the advantage of: A) Historical accuracy. B) Being a relevant measure of the level of investment in a continuing business. C) Objectivity. D) Consistency with generally accepted accounting principles (GAAP). E) Avoiding the need for developing estimates of current cost.

50) A primary limitation of return on investment (ROI) as a performance evaluation metric for

investment centers is that ROI: A) Is a long-term, not short-term, performance indicator. B) Understates the level of investment for organizations operating in the so-called knowledge-based economy. C) Excludes the level of investment from the performance metric. D) Cannot handle current-value estimates of assets. E) Is not a relative performance indicator.

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51) Return on investment (ROI) encourages business units—such as investment centers— to

invest only in projects that earn: A) A rate of return greater than borrowing costs. B) An amount greater than the amount of EVA® currently being generated. C) A rate of return greater than the amount of residual income currently being earned. D) A rate of return less than the unit's current ROI. E) A rate of return higher than the unit's current ROI.

52) Because residual income (RI) is a dollar amount, in contrast to a percentage (like return on

investment, ROI), RI: A) Allows, through different discount rates, adjustment for differing levels of risk across investment centers within an organization. B) Cannot be used to evaluate the financial performance of a given investment center over time. C) Is less useful than ROI for performance evaluation purposes. D) Allows for differing investment amounts for different investment centers. E) Is less useful to stockholders of the company.

53) Since residual income (RI) is not a percentage, it is not very useful for: A) Comparing business units of significantly different size. B) Evaluating the performance of subunits with high ROIs. C) Motivating goal-congruent behavior on the part of divisional managers. D) Evaluating the short-term financial performance of small divisions. E) Evaluating the short-term financial performance of larger divisions.

54) In contrast to residual income (RI), economic value added (EVA®) uses in its calculation: A) B) C) D) E)

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The firm's cost of capital rather than its minimum rate of return. A measure (or estimate) of economic, not accounting, income. A required rate of return in estimating the amount of profit generated. Values determined by using conventional accounting policies (i.e., GAAP). Accounting, not economic, measures of income and investment.

55) Put simply, transfer pricing is a management tool for assigning a "price" to internally

transferred goods (or services) in order to simulate the marketplace, thus encouraging managers to make decisions that are in the best interest of the: A) Operating managers. B) Producing (i.e., selling) unit within the firm. C) Firm as a whole. D) Manager of the buying (i.e., purchasing) unit. E) Operating units in the short run, and the firm in the long-run.

56) Because the full-cost method of transfer pricing includes fixed cost, it can: A) Pass strict accounting requirements for determining transfer prices. B) Pass current income tax requirements in the U.S. for determining transfer prices. C) Establish consistency across state and national borders. D) Violate OECD agreements. E) Cause sub-optimal short-term decision making.

57) Use of the market-price method (when such prices exist) satisfies a key objective of transfer

pricing, namely: A) Objectivity. B) Selectivity. C) Usability. D) Transportability. E) Reliability.

58) One of the most important international tax issues faced by multinational corporations is: A) Return on sales. B) Fraud. C) Transfer pricing. D) Open marketability. E) Capital investments.

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59) The biggest problem with cost-based transfer prices is: A) The fact that their use may result in sub-optimal decisions from the standpoint of the

organization as a whole. B) Too much negotiation is involved in determining the transfer price. C) Data unavailability. D) They are difficult to put into place. E) They may lead to goal congruence within the firm.

60) If after-tax income of Grey Division, adjusted for economic value, is 15% of sales, capital

employed is $5,000,000 (adjusted for equity-equivalents), the divisional cost of capital (discount rate) is 8%, and sales are $12,000,000, then Economic Value Added (EVA®) is: A) $1,800,000 B) $400,000 C) $1,400,000 D) $3,200,000 E) Undeterminable given the information provided.

61) Return on sales (ROS) multiplied by asset turnover (AT) equals what? A) Residual income (RI). B) Return on equity (ROE). C) Return on investment (ROI). D) Return on Assets (ROA). E) Sales turnover (ST).

62) A measure of the manager's ability to produce increased sales from a given level of

investment is: A) Residual income (RI) divided by level of invested capital. B) Return on equity (ROE). C) Return on investment (ROI). D) Return on sales (ROS). E) Asset turnover (AT).

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63) The historical cost of an asset less its accumulated depreciation is: A) Net book value (NBV). B) Return on equity (ROE). C) Return on investment (ROI). D) A rough measure of current replacement cost of the asset. E) An estimate of liquidation value of the asset.

64) Which estimate(s) of the current value of assets represent a sales price? A) Gross book value (GBV). B) Replacement cost. C) Liquidation value. D) Liquidation value and replacement cost. E) Gross book value and liquidation value.

65) Which one of the following is not a limitation shared by residual income (RI) and return on

investment (ROI) divisional performance measures? A) They are both short-term performance indicators. B) They both may fail to capture significant value-creating activities of the organization. C) They are both subject to short-term manipulation on the part of divisional managers. D) Both are subject to a number of measurement issues that complicate their use in practice. E) They both relate, in percentage terms, earnings to the level of investment in each division.

66) The estimated cost to replicate assets of an investment center at the current level of service

and functionality of these assets is defined as: A) Gross book value. B) Historical cost, plus accumulated depreciation to date. C) Liquidation value. D) Replacement cost. E) Price-level adjusted original cost.

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67) The estimated price that could be received for the sale of divisional assets is referred to as: A) Gross book value (GBV), plus accumulated depreciation to date. B) Gross book value (GBV). C) Price-level adjusted cost. D) Replacement cost. E) Liquidation value.

68) What is an advantage of residual income? A) A firm can use it to forecast operating profit. B) It ties business units together to show company health. C) A firm can use it to build up its supply of cash for future investments. D) It only requires one rate of return across all business units. E) A firm can adjust the required rates of return for differences in risk.

69) Which of the following is a limitation of both return on investment and residual income? A) Favors large units. B) Can lead to goal congruence problems. C) There is disincentive for high return on investment units to invest. D) Measurement issues. E) Not easily understood by managers.

70) Return on Investment (ROI), though widely used, is subject to which one of the following

limitations? A) ROI cannot incorporate differences in risk across different divisions. B) ROI ignores the amount of capital invested in a division. C) ROI may not capture value-creation for firms operating in capital-intensive industries. D) ROI may motivate managers to take suboptimal decisions from the standpoint of the organization as a whole. E) ROI cannot be used to judge the performance of units of different size.

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71) All of the following are possible transfer pricing methods used in practice except: A) Market price. B) Variable cost. C) Fixed cost. D) Full cost. E) Negotiated price.

72) Which one of the following establishes an "arm's-length price" by using the sales prices of

similar products made by unrelated firms? A) Wholesale-price method. B) Retail-price method. C) Related-products method. D) Cost-plus method. E) Comparable-price method.

73) Which one of the following transfer pricing alternatives is based on determining an

appropriate markup, where the markup is based on gross profits of unrelated firms selling similar products? A) Wholesale-price method. B) Resale price method. C) Net-price method. D) Cost-plus method. E) Comparable-price method.

74) Which of the following is not a consideration to the transfer price decision in an international

context? A) Minimizing customs charges. B) Using transfer prices to deal with currency restrictions of foreign countries. C) Dealing with the risk of expropriation of assets. D) The return on investment. E) The effect on income taxes.

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75) Consider the following data for three divisions of a company, X, Y, and Z: Divisional: Sales Operating Income Investment in assets

X $ 1,405,000 166,900 434,700

Y $ 999,000 105,100 421,700

Z $ 4,610,000 301,800 3,634,700

The return on investment (ROI) for Division X is: (Round your percentages to one decimal place.) A) 8.3%. B) 10.5%. C) 24.9%. D) 31.5%. E) 38.4%.

76) Consider the following data for three divisions of a company, X, Y, and Z: Divisional: Sales Operating Income Investment in assets

X $ 1,800,000 252,000 630,000

Y $ 900,000 108,000 540,000

Z $ 4,800,000 240,000 3,000,000

The return on investment (ROI) for Division X is: A) 8.0%. B) 12.0%. C) 20.0%. D) 25.0%. E) 40.0%.

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77) Consider the following data for three divisions of a company, X, Y, and Z: Divisional: Sales Operating Income Investment in assets

X $ 1,483,000 207,300 610,200

Y $ 828,000 85,900 418,600

Z $ 4,476,000 216,500 2,616,300

The return on investment (ROI) for Division Y is: (Round your percentages to one decimal place.) A) 8.3%. B) 10.4%. C) 20.5%. D) 25.4%. E) 34.0%.

78) Consider the following data for three divisions of a company, X, Y, and Z: Divisional: Sales Operating Income Investment in assets

X $ 1,800,000 252,000 630,000

Y $ 900,000 108,000 540,000

Z $ 4,800,000 240,000 3,000,000

The return on investment (ROI) for Division Y is: A) 8.0%. B) 12.0%. C) 20.0%. D) 25.0%. E) 40.0%.

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79) Consider the following data for three divisions of a company, X, Y, and Z: Divisional: Sales Operating Income Investment in assets

X $ 1,347,000 173,500 453,900

Y $ 894,000 103,600 576,200

Z $ 5,033,000 264,400 3,503,400

The return on investment (ROI) for Division Z is: (Round your percentages to one decimal place.) A) 7.5%. B) 11.6%. C) 18.0%. D) 23.2%. E) 38.2%.

80) Consider the following data for three divisions of a company, X, Y, and Z: Divisional: Sales Operating Income Investment in assets

X $ 1,800,000 252,000 630,000

Y $ 900,000 108,000 540,000

Z $ 4,800,000 240,000 3,000,000

The return on investment (ROI) for Division Z is: A) 8.0%. B) 12.0%. C) 20.0%. D) 25.0%. E) 40.0%.

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81) Consider the following data for three divisions of a company, X, Y, and Z: Divisional: Sales Operating Income Investment in assets

X $ 1,416,000 197,400 380,600

Y $ 831,000 102,700 498,600

Z $ 5,294,000 275,600 3,618,400

The return on sales (ROS) for Division X is: (Round your percentages to one decimal place.) A) 5.2%. B) 7.6%. C) 12.4%. D) 13.9%. E) 20.6%.

82) Consider the following data for three divisions of a company, X, Y, and Z: Divisional: Sales Operating Income Investment in assets

X $ 1,800,000 252,000 630,000

Y $ 900,000 108,000 540,000

Z $ 4,800,000 240,000 3,000,000

The return on sales (ROS) for Division X is: A) 5.0%. B) 8.0%. C) 12.0%. D) 14.0%. E) 20.0%.

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83) Consider the following data for three divisions of a company, X, Y, and Z: Divisional: Sales Operating Income Investment in assets

X $ 1,323,000 153,900 390,200

Y $ 845,000 139,800 499,100

Z $ 5,074,000 215,500 2,614,400

The return on sales (ROS) for Division Y is: (Round your percentages to one decimal place.) A) 4.2%. B) 8.2%. C) 16.5%. D) 11.6%. E) 28.0%.

84) Consider the following data for three divisions of a company, X, Y, and Z: Divisional: Sales Operating Income Investment in assets

X $ 1,800,000 252,000 630,000

Y $ 900,000 108,000 540,000

Z $ 4,800,000 240,000 3,000,000

The return on sales (ROS) for Division Y is: A) 5.0%. B) 8.0%. C) 12.0%. D) 14.0%. E) 20.0%.

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85) Consider the following data for three divisions of a company, X, Y, and Z: Divisional: Sales Operating Income Investment in assets

X $ 1,453,000 187,000 500,500

Y $ 997,000 100,200 505,100

Z $ 5,323,000 254,700 2,812,900

The return on sales (ROS) for Division Z is: (Round your percentages to one decimal place.) A) 4.8%. B) 9.1%. C) 10.1%. D) 12.9%. E) 19.8%.

86) Consider the following data for three divisions of a company, X, Y, and Z: Divisional: Sales Operating Income Investment in assets

X $ 1,800,000 252,000 630,000

Y $ 900,000 108,000 540,000

Z $ 4,800,000 240,000 3,000,000

The return on sales (ROS) for Division Z is: A) 5.0%. B) 8.0%. C) 12.0%. D) 14.0%. E) 20.0%.

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87) Consider the following data for three divisions of a company, X, Y, and Z: Divisional: Sales Operating Income Investment in assets

X $ 1,461,000 242,000 540,200

Y $ 885,000 190,900 531,000

Z $ 5,491,000 321,500 3,635,700

The asset turnover (AT) for Division X is (rounded): A) 2.55. B) 1.51. C) 1.67. D) 2.70. E) 1.04.

88) Consider the following data for three divisions of a company, X, Y, and Z: Divisional: Sales Operating Income Investment in assets

X $ 1,800,000 252,000 630,000

Y $ 900,000 108,000 540,000

Z $ 4,800,000 240,000 3,000,000

The asset turnover (AT) for Division X is (rounded): A) 1.43. B) 1.60. C) 1.67. D) 2.86. E) 3.33.

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89) Consider the following data for three divisions of a company, X, Y, and Z: Divisional: Sales Operating Income Investment in assets

X $ 1,358,000 152,400 354,200

Y $ 914,000 86,800 259,800

Z $ 4,832,000 275,000 4,701,000

The asset turnover (AT) for Division Y is calculated to be (rounded): A) 3.58. B) 3.72. C) 3.52. D) 3.83. E) 4.96.

90) Consider the following data for three divisions of a company, X, Y, and Z: Divisional: Sales Operating Income Investment in assets

X $ 1,800,000 252,000 630,000

Y $ 900,000 108,000 540,000

Z $ 4,800,000 240,000 3,000,000

The asset turnover (AT) for Division Y is calculated to be (rounded): A) 1.43. B) 1.60. C) 1.67. D) 2.86. E) 3.33.

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91) Consider the following data for three divisions of a company, X, Y, and Z: Divisional: Sales Operating Income Investment in assets

X $ 1,306,000 176,900 414,400

Y $ 890,000 84,700 366,600

Z $ 4,446,000 167,100 2,148,800

The asset turnover (AT) for Division Z is (rounded): A) 1.91. B) 2.07. C) 2.43. D) 3.15. E) 3.98.

92) Consider the following data for three divisions of a company, X, Y, and Z: Divisional: Sales Operating Income Investment in assets

X $ 1,800,000 252,000 630,000

Y $ 900,000 108,000 540,000

Z $ 4,800,000 240,000 3,000,000

The asset turnover (AT) for Division Z is (rounded): A) 1.43. B) 1.60. C) 1.67. D) 2.86. E) 3.33.

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93) Consider the following data from two divisions of a company, P and Q: Divisional Sales Operating Income Investment

P $ 1,100,000 $ 440,000 $ 1,870,000

Q $ 1,600,000 $ 960,000 $ 3,040,000

If the minimum rate of return is 12%, what is Division P's residual income (RI)? A) $215,600. B) $664,400. C) $875,600. D) $1,047,200. E) $1,817,200.

94) Consider the following data from two divisions of a company, P and Q: Divisional Sales Operating Income Investment

P $ 1,500,000 $ 600,000 $ 4,000,000

Q $ 1,000,000 $ 450,000 $ 2,750,000

If the minimum rate of return is 11%, what is Division P's residual income (RI)? A) $160,000. B) $1,040,000. C) $1,060,000. D) $1,434,000. E) $3,934,000.

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95) Consider the following data from two divisions of a company, P and Q: Divisional Sales Operating Income Investment

P $ 1,400,000 $ 840,000 $ 2,800,000

Q $ 1,000,000 $ 600,000 $ 1,900,000

If the minimum rate of return is 8%, what is Division Q's residual income (RI)? A) $448,000. B) $1,148,000. C) $752,000. D) $2,813,600. E) $3,261,600.

96) Consider the following data from two divisions of a company, P and Q: Divisional Sales Operating Income Investment

P $ 1,500,000 $ 600,000 $ 4,000,000

Q $ 1,000,000 $ 450,000 $ 2,750,000

If the minimum rate of return is 11%, what is Division Q's residual income (RI)? A) $147,500. B) $490,000. C) $752,000. D) $950,000. E) $1,049,500.

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97) Consider the following data from two divisions of a company, P and Q: Divisional Sales Operating Income Investment

P $ 915,200 $ 572,000 $ 4,400,000

Q $ 823,200 $ 392,000 $ 2,800,000

If both divisions were presented with an opportunity to invest in a project that is estimated to achieve an ROI of 13%, what will the units likely decide? A) Division P will invest; Division Q will not invest. B) Division P will invest; Division Q will be indifferent. C) Division P will not invest; Division Q will invest. D) Division P will be indifferent; Division Q will not invest. E) Neither unit will invest in the projects.

98) Consider the following data from two divisions of a company, P and Q: Divisional Sales Operating Income Investment

P $ 1,500,000 $ 600,000 $ 4,000,000

Q $ 1,000,000 $ 450,000 $ 2,750,000

If both divisions were presented with an opportunity to invest in a project that is estimated to achieve an ROI of 15%, what will the units likely decide? A) Division P will invest; Division Q will not invest. B) Division P will invest; Division Q will be indifferent. C) Division P will not invest; Division Q will invest. D) Division P will be indifferent; Division Q will not invest. E) Neither unit will invest in the projects.

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99) Selected data from Box Division's accounting records revealed the following: Sales Average investment Net operating income Minimum rate of return (divisional cost of capital)

$ 603,260 $ 247,300 $ 43,400 17%

Box Division's return on investment (ROI) is: (Round your percentages to one decimal place.) A) 9.4%. B) 7.2%. C) 16.5%. D) 17.5%. E) 24.7%.

100)

Selected data from Box Division's accounting records revealed the following:

Sales Average investment Net operating income Minimum rate of return (divisional cost of capital)

$ 825,000 $ 440,000 $ 66,000 14%

Box Division's return on investment (ROI) is: A) 6.0%. B) 8.0%. C) 14.0%. D) 15.0%. E) 20.0%.

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101)

Selected data from Box Division's accounting records revealed the following:

Sales Average investment Net operating income Minimum rate of return (divisional cost of capital)

$ 654,900 $ 301,300 $ 55,500 17%

Box Division's return on sales (ROS) is: (Round your percentages to one decimal place.) A) 8.9%. B) 8.5%. C) 17.4%. D) 18.4%. E) 26.9%.

102)

Selected data from Box Division's accounting records revealed the following:

Sales Average investment Net operating income Minimum rate of return (divisional cost of capital)

$ 825,000 $ 440,000 $ 66,000 14%

Box Division's return on sales (ROS) is: A) 6.0%. B) 8.0%. C) 14.0%. D) 15.0%. E) 20.0%.

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103)

Selected data from Box Division's accounting records revealed the following:

Sales Average investment Net operating income Minimum rate of return (divisional cost of capital)

$ 372,600 $ 193,800 $ 34,500 20%

Box Division's asset turnover (AT) is calculated to be: (Round your answer to three decimal places.) A) 5.617. B) 2.160. C) 1.923. D) 3.695. E) 10.800.

104)

Selected data from Box Division's accounting records revealed the following:

Sales Average investment Net operating income Minimum rate of return (divisional cost of capital)

$ 825,000 $ 440,000 $ 66,000 14%

Box Division's asset turnover (AT) is calculated to be: (Round your answer to three decimal places.) A) 1.070. B) 1.625. C) 1.875. D) 4.270. E) 12.500.

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105)

Selected data from Box Division's accounting records revealed the following:

Sales Average investment Net operating income Minimum rate of return (divisional cost of capital)

$ 612,000 $ 255,000 $ 45,600 15%

Box Division's residual income (RI) is: A) $7,350. B) $14,700. C) $6,840. D) $15,710. E) $46,200.

106)

Selected data from Box Division's accounting records revealed the following:

Sales Average investment Net operating income Minimum rate of return (divisional cost of capital)

$ 825,000 $ 440,000 $ 66,000 14%

Box Division's residual income (RI) is: A) $4,400. B) $8,800. C) $9,240. D) $22,380. E) $49,500.

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107)

Selected data from Box Division's accounting records revealed the following:

Sales Average investment Net operating income Minimum rate of return (divisional cost of capital)

$ 333,600 $ 139,000 $ 26,400 17%

If the minimum rate of return (i.e., cost of capital) was 16% (instead of the percentage shown above), Box Division's residual income (RI) would calculate to be: A) $4,220. B) $4,160. C) $26,976. D) $8,320. E) $9,010.

108)

Selected data from Box Division's accounting records revealed the following:

Sales Average investment Net operating income Minimum rate of return (divisional cost of capital)

$ 825,000 $ 440,000 $ 66,000 14%

If the minimum rate of return (i.e., cost of capital) was 13% (instead of the percentage shown above), Box Division's residual income (RI) would calculate to be: A) $4,400. B) $8,800. C) $9,240. D) $22,380. E) $49,500.

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109)

An investment center's return on investment (ROI) is affected by a change in:

(A) (B) (C) (D) (E) A) B) C) D) E)

110)

Asset Turnover

Return on Sales

Yes Yes No No Yes

Yes No No Yes Not likely

Option A Option B Option C Option D Option E

Firms with low asset turnover and high return on sales generally have: A) Low return on investment. B) High return on investment. C) High operating leverage. D) Low operating income. E) More current assets than long-term assets.

111)

Return on investment (ROI) is a term often used to express income earned on capital invested in a division (investment center). A division's ROI would increase if: A) Sales increased by the same dollar amount as expenses and total assets increased. B) Sales remained the same and expenses were reduced by the same dollar amount that total assets increased. C) Sales decreased by the same dollar amount that expenses increased. D) Sales and expenses increased by the same percentage that total assets increased. E) Net profit margin on sales increased by the same percentage that total assets increased.

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112)

Residual income (RI) is: A) Contribution margin of an investment center, less the imputed interest on the invested capital used by the center. B) Operating income of an investment center divided by average total assets. C) Another name for Economic Value Added (EVA®) D) Operating income of an investment center, less the imputed interest on the capital used by the center. E) Operating income of an investment center, plus the imputed interest on the capital used by the center.

113)

The following results pertain to an investment center.

Sales Variable costs Traceable fixed costs Average investment Divisional cost of capital (discount rate)

$ 1,456,600 760,000 95,000 940,000 10%

How much is the residual income (RI) for this investment center? A) $94,000. B) $507,600. C) $601,600. D) $695,600. E) $790,600.

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114)

The following results pertain to an investment center.

Sales Variable costs Traceable fixed costs Average investment Divisional cost of capital (discount rate)

$ 1,500,000 800,000 100,000 1,000,000 10%

How much is the residual income (RI) for this investment center? A) $100,000. B) $500,000. C) $600,000. D) $700,000. E) $800,000.

115)

The following results pertain to an investment center.

Sales Variable costs Traceable fixed costs Average investment Divisional cost of capital (discount rate)

$ 1,651,600 850,000 108,000 1,020,000 8%

How much is the return on investment (ROI) for this investment center? A) 2%. B) 19%. C) 68%. D) 79%. E) 81%.

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116)

The following results pertain to an investment center.

Sales Variable costs Traceable fixed costs Average investment Divisional cost of capital (discount rate)

$ 1,500,000 800,000 100,000 1,000,000 10%

How much is the return on investment (ROI) for this investment center? A) 5%. B) 50%. C) 60%. D) 70%. E) 75%.

117)

Residual income (RI) may be a better measure for performance evaluation of an investment center than return on investment (ROI) because: A) Problems associated with measuring the asset base are eliminated. B) Desirable investment decisions will not be discouraged by high-rate-of-return divisions. C) Only the gross book value (GBV) of assets needs to be calculated. D) Returns do not increase as assets are depreciated. E) The arguments over the appropriate discount rate to use in the calculations are eliminated.

118)

Given a competitive outside market for identical intermediate goods, what is generally considered the best transfer price, assuming all relevant information is readily available? A) Average cost of production. B) Average cost of production, plus average production department allocated profit. C) Market price of the intermediate goods. D) Market price of the intermediate goods, less average production department allocated profit. E) Full cost, plus a mark-up for profit.

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119)

What can variable costs be defined as? A) Standard or budgeted costs. B) Actual or standard costs. C) Budgeted or mark up costs. D) Mark up or actual costs. E) Discounted or standard costs.

120)

The primary limitation of a full-cost based transfer pricing system is that: A) The supplying and purchasing divisions are more likely to make decisions that are inconsistent with the goals of the organization as a whole. B) There will be little incentive on the part of the supplying manager to supply goods and services efficiently. C) Managers may spend too much time negotiating the transfer price. D) Managers may find that the transfer price is difficult to compute. E) Such transfer prices are not currently allowed for federal income tax purposes.

121)

A company has two divisions, X and Y, each operated as an investment center. X charges Y $55 per unit for each unit transferred to Y. Other data are: X’s variable cost per unit X’s fixed costs X’s annual sales to Y X’s sales to outsiders

$ 40 $ 100,000 5,000 units 10,000 units

X is planning to raise its transfer price to $65 per unit. Division Y can purchase units at $50 each from outsiders, but doing so would idle X's facilities now committed to producing units for Y. Division X cannot increase its sales to outsiders. From the perspective of the shortterm profit position of the company as a whole, from which source should Division Y acquire the units? A) Outside vendors. B) Division X, but only at the variable cost per unit. C) Division X, but only until fixed costs are covered, then should purchase from outside vendors. D) Division X, in spite of the increased transfer price. E) It is not possible to tell without additional information.

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122)

Division A, which is operating at capacity, produces a component that currently sells in a competitive market for $33 per unit. At the current level of production, the fixed cost of producing this component is $9 per unit and the variable cost is $11 per unit. Division B would like to purchase this component from Division A. The price that Division A should charge Division B for this component is: A) $11 per unit. B) $20 per unit. C) $28 per unit. D) $33 per unit. E) $44 per unit.

123)

Division A, which is operating at capacity, produces a component that currently sells in a competitive market for $25 per unit. At the current level of production, the fixed cost of producing this component is $8 per unit and the variable cost is $10 per unit. Division B would like to purchase this component from Division A. The price that Division A should charge Division B for this component is: A) $10 per unit. B) $18 per unit. C) $20 per unit. D) $25 per unit. E) $35 per unit.

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124)

A company established a branch to sell automobile seat covers. The company purchases these covers and stores them in a warehouse. The covers are then shipped from the warehouse to both the home office and the new branch, FOB (Free On Board) destination. Home office management is responsible for setting the transfer price of the covers charged to the branch. Per-unit costs of the covers are: $ 40.00 $ 2.50 $ 4.00 $ 4.00

purchase price shipping cost to warehouse handling cost, including $1.00 allocated administrative overhead shipping cost to branch, paid by home office

According to the general transfer pricing formula given in the text, the minimum transfer price that home office should charge the branch is: A) $42.50. B) $44.00. C) $46.50. D) $49.50. E) $50.50.

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125)

purchase price shipping cost to warehouse handling cost, including $1 allocated administrative overhead shipping cost to branch, paid by home office

According to the general transfer pricing formula given in the text, the minimum transfer price that home office should charge the branch is: A) $62.50. B) $63.50. C) $66.00. D) $68.00. E) $69.00.

126)

Selected data from Division A of Green Company are as follows:

Sales Average investment Operating income Minimum rate of return

$ 504,680 $ 292,700 $ 55,613 13%

Division A's return on investment (ROI) is: A) 3.6%. B) 6.5%. C) 11.0%. D) 19.0%. E) 43.0%.

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127)

Selected data from Division A of Green Company are as follows:

Sales Average investment Operating income Minimum rate of return

$ 500,000 $ 300,000 $ 60,000 15%

Division A's return on investment (ROI) is: A) 1.8%. B) 7.5%. C) 12.0%. D) 20.0%. E) 48.0%.

128)

Selected data from Division A of Green Company are as follows:

Sales Average investment Operating income Minimum rate of return

$ 580,000 $ 301,600 $ 75,400 18%

Division A's return on sales (ROS) is: A) 1.9%. B) 9.0%. C) 13.0%. D) 25.0%. E) 39.0%.

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129)

Selected data from Division A of Green Company are as follows:

Sales Average investment Operating income Minimum rate of return

$ 500,000 $ 300,000 $ 60,000 15%

Division A's return on sales (ROS) is: A) 1.8%. B) 7.5%. C) 12.0%. D) 20.0%. E) 48.0%.

130)

Selected data from Division A of Green Company are as follows:

Sales Average investment Operating income Minimum rate of return

$ 580,000 $ 290,000 $ 116,000 11%

Division A's asset turnover (AT) is (rounded to two decimal places): A) 20.00. B) 0.30. C) 5.50. D) 2.00. E) 40.00.

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131)

Selected data from Division A of Green Company are as follows:

Sales Average investment Operating income Minimum rate of return

$ 500,000 $ 300,000 $ 60,000 15%

Division A's asset turnover (AT) is (rounded to two decimal places): A) 0.72. B) 1.00. C) 1.58. D) 1.67. E) 2.08.

132)

Selected data from Division A of Green Company are as follows:

Sales Average investment Operating income Minimum rate of return

$ 580,000 $ 261,000 $ 58,000 11%

Division A's residual income (RI) is: A) $29,290. B) $46,864. C) $58,580. D) $64,580. E) $121,160.

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133)

Selected data from Division A of Green Company are as follows:

Sales Average investment Operating income Minimum rate of return

$ 500,000 $ 300,000 $ 60,000 15%

Division A's residual income (RI) is: A) $15,000. B) $24,000. C) $30,000. D) $36,000. E) $54,000.

134)

Selected data from Division A of Green Company are as follows:

Sales Average investment Operating income Minimum rate of return

$ 590,000 $ 637,200 $ 106,200 15%

If the minimum rate of return was 11% (instead of the percentage shown above), Division A's residual income (RI) would be: A) $10,620. B) $1,770. C) $36,108. D) $79,650. E) $95,580.

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135)

Selected data from Division A of Green Company are as follows:

Sales Average investment Operating income Minimum rate of return

$ 500,000 $ 300,000 $ 60,000 15%

If the minimum rate of return was 10% (instead of the percentage shown above), Division A's residual income (RI) would be: A) $15,000. B) $24,000. C) $30,000. D) $36,000. E) $45,000.

136)

What is an advantage of market price transfer pricing method? A) Appropriate for long-term decision making. B) Helps to preserve division autonomy. C) Easy to implement. D) Preferred by tax authorities over variable cost. E) Can be the most practical approach when significant conflict exists.

137)

Expropriation occurs when the government in which a foreign company's investment assets are located: A) Takes ownership and control of those assets. B) Charges additional taxes for the use of those assets. C) Uses domestic currency to purchase those assets. D) Uses foreign currency to purchase those assets. E) Does not allow transnational transfers of currency.

138)

One advantage of the return on investment (ROI) metric is that it: A) Can use the minimum rate of return to adjust for differences in risk. B) Can use a different minimum rate of return for different types of assets. C) Eliminates goal congruency problems, particularly for better-performing divisions. D) Requires disclosure under current international financial reporting standards. E) Can be compared to interest rates and to rates of return on alternative investments.

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139)

One approach to measuring the short-term financial performance of a business unit considered an investment center is return on investment (ROI). ROI is expressed as operating income of the investment center: A) Divided by the current year's capital expenditures plus cost of capital. B) Minus imputed interest charged for the use of invested capital by the investment center. C) Divided by fixed assets. D) Divided by the assets used by the investment center. E) Minus the asset turnover (AT) of the investment center.

140)

The two approaches for estimating Economic Value Added (EVA®) are: A) The operating approach and the capital approach. B) The financing approach and the operating approach. C) The discounted approach and the financing approach. D) The operating approach and the discounted approach. E) The residual income approach and the operating-income approach.

141)

A fully-owned subsidiary of a multinational company reports its return on investment (ROI) periodically during the year. This unit of the company, for performance evaluation purposes, is likely considered a(n): A) Profit center. B) Revenue center. C) Cost center. D) Operating center. E) Investment center.

142)

A limitation to negotiated price in transfer pricing is: A) Irrelevance of fixed costs in short-term decision making. B) Unfair to seller if seller is profit or investment center. C) Intermediate products often have no market price. D) Potential tax problems. E) Should be adjusted for any cost savings associated with an internal transfer.

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143)

All of the following are true of market-based transfer prices except: A) They generally motivate the correct economic decision. B) They can be determined for all goods and services transferred internally. C) They may lead to goods and services purchased externally by the purchasing unit. D) To the extent they exist, they are objective. E) They provide an independent valuation for internal transfers.

144)

All of the following are true of cost-based transfer prices except: A) They generally promote optimal decision-making from the standpoint of the organization as a whole. B) They may be based either on actual costs or standard (i.e., budgeted) costs. C) Their use may not provide proper motivation for cost control on the part of the producing division. D) They may not provide proper guidance when opportunity costs exist. E) Generally speaking, such cost data are readily available.

145)

The greatest advantage of using a negotiated transfer price is: A) It is generally the most efficient method of determining transfer prices. B) This may be the most practical approach when conflicts exist between selling and buying divisions. C) The method produces transfer prices that are acceptable under international financial reporting standards. D) Tax problems are avoided because the method is considered "arm's-length." E) It is required for federal income tax purposes.

146)

The most likely result of using a negotiated transfer price is that: A) The resulting decision reflects purely economic considerations. B) More than the optimum number of units will be transferred between divisions. C) Fewer than the optimum number of units will be transferred between divisions. D) It takes away from the buying and selling units the ultimate responsibility for determining the transfer price. E) The end result might reflect the relative bargaining skills of the negotiating managers.

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147)

The manager’s ability to control expenses and increase revenues to improve profitability is measured in: A) Return on equity (ROE). B) Residual income (RI). C) Return on sales (ROS). D) Return on investment (ROI). E) Operating income.

148)

The primary limitation of using Economic Value Added (EVA®) to evaluate the financial performance of investment centers is: A) Complexity of the calculation. B) Dysfunctional long-term investment decisions that can be motivated by focusing on EVA®. C) Failure to include a measure of invested capital. D) Inability to use EVA® to benchmark against competitor organizations. E) Inability to align managerial incentives with ownership interests.

149)

EVA® (economic value added): A) Is another name for return on investment (ROI). B) Is generally synonymous with residual income (RI). C) Is calculated as operating income less interest and taxes plus the gains from invested capital. D) Is based on accounting data consistent with generally accepted accounting principles. E) Is calculated as net operating profit after taxes (adjusted for accounting “distortions”) less an imputed charge based on the level of invested capital.

150)

Which of the following specifications for calculating EVA® is correct? A) EVA® = accounting income/investment. B) EVA® = economic profit/equity equivalents. C) EVA® = NOPAT/investment, where NOPAT = net operating profit after (cash) taxes. D) EVA® = NOPAT − Imputed charge on EVA® capital, where NOPAT = net operating profit after (cash) taxes. E) EVA® = reported operating profit, after tax − imputed charge on average investment in the subunit.

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151)

Which of the following statements regarding the calculation of Economic Value Added (EVA®) is not true? A) Adjusted accounting data are used to estimate EVA®. B) The operating approach and the financing approach lead to identical estimates of EVA®. C) EVA® NOPAT represents after-tax cash operating income, after depreciation. D) EVA® NOPAT represents after-tax cash operating income, before depreciation. E) The divisional cost of capital (minimum rate of return) is used to impute a charge on capital invested in the division during the period.

152)

A segment of an organization is referred to as an investment center if it has: A) Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply. B) Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply and significant control over the amount of invested capital. C) Authority to make decisions over the most significant costs of operations, including the power to choose sources of supply. D) Authority to provide specialized support to other units within the organization. E) Responsibility for developing markets for and selling the output of the organization.

153)

A company currently earning a profit can increase its return on investment (ROI) by: A) Increasing sales revenue and operating expenses by the same dollar amount. B) Decreasing sales revenues and operating expenses by the same percentage. C) Increasing investment and operating expenses by the same dollar amount. D) Increasing sales revenues and operating expenses by the same percentage. E) Decreasing investment and sales by the same percentage.

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154)

Which one of the following statements pertaining to the return on investment (ROI) as a performance measure is incorrect? A) When average age of assets differs substantially across segments of a business, the use of ROI may not be appropriate. B) ROI relies on financial measures that are capable of being independently verified while other forms of performance measures are subject to manipulation. C) The use of ROI may lead managers to reject capital investment projects that can be justified using discounted cash flow (DCF) decision models. D) The use of ROI can make it undesirable for a skillful manager to take on troubleshooting assignments such as those involving turning around unprofitable divisions. E) The use of ROI can lead managers to emphasize the ROI of a division over the profitability of the parent organization.

155)

Which of the following are both considered short-term indicators of financial performance? A) Return on investment and return on assets. B) Residual income and return on equity. C) Operating income and return on sales. D) Return on investment and operating income. E) Residual income and return on investment.

156)

Under the notion of controllability, it is appropriate to evaluate the profitability of each investment center based on each center's: A) Operating income before tax. B) Operating income after tax. C) Return on sales (ROS). D) Profit earned in relation to the amount of capital invested in the subunit. E) Return on equity (ROE).

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157)

Compared to return on investment (ROI), residual income (RI) may be a better measure of the financial performance of an investment center because: A) Problems associated with measuring the investment base are eliminated. B) Of the fact that desirable investment opportunities will not be neglected by divisions currently earning high rates of return. C) Only the gross book value of assets needs to be calculated. D) Returns do not increase as assets are depreciated. E) The arguments over the implicit cost of capital (discount rate) are largely eliminated.

158)

A primary characteristic of a negotiated transfer price is that it: A) Takes away the ultimate responsibility of the resulting transfer price from the two parties. B) Decreases sub-unit (i.e., divisional) autonomy. C) Can be costly and time-consuming to implement. D) Generally results in transferring more than the optimum number of units between the buying and selling divisions of the organization. E) Provides performance indicators that are independent of the negotiating skills of divisional managers.

159)

Return on investment (ROI) can be directly increased by: A) Increasing sales. B) Increasing the minimum desired rate of return (i.e., divisional cost of capital). C) Decreasing operating assets. D) Decreasing operating income. E) Decreasing asset turnover (AT).

160)

The major criticism of using return on investment (ROI) for evaluating the financial performance of business units considered investment centers is that ROI: A) Gives managers of profitable business units an incentive to reject some projects that would benefit the organization as a whole. B) Is not easily understood by managers. C) Usually uses a blended rate of capital as the required rate of return. D) Has a long-term (strategic) focus and therefore is not useful in terms of evaluating short-term performance. E) Favors large units (investment centers).

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161)

Assume that an organization's weighted-average cost of capital (minimum rate of return) is 8% and that Division A currently has a 12% return on investment (ROI). The manager of Department A, who is evaluated on the basis of divisional ROI, would most likely accept an investment that is expected to return: A) More than 8%. B) More than 12%. C) More than 8% but less than 12%. D) Less than 12%. E) Impossible to tell without further information.

162)

Which of the following is an advantage of residual income? A) Easily understood by managers. B) Comparable to interest rates and rates of return on alternative investments. C) Can use a different minimum rate of return for different types of assets. D) Widely used. E) Favors large units.

163)

An appropriate transfer price between two divisions of The Stark Company can be determined from the following data: Fabricating Division: Market price of the subassembly Variable cost of the subassembly Excess capacity (in units) Assembly Division:

$ 50 $ 20 1,000

Number of units needed

900

What is the natural bargaining range for the two divisions? A) Between $20 and $50. B) Between $50 and $70. C) Any amount less than $50. D) $50 is the only acceptable price. E) $20 is the only acceptable price.

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164)

Decentralized firms can delegate authority and yet retain control and monitor managers' performances by structuring the organization into so-called "responsibility centers." Which one of the following business segments/responsibility centers is most like an independent business? A) Revenue center. B) Profit center. C) Cost center. D) Profit and loss center. E) Investment center.

165)

Managerial performance can be measured in various ways, including return on investment (ROI) and residual income (RI). A good reason for using RI rather than ROI is: A) RI can be computed without regard to identifying an investment base. B) Goal congruence is more likely to be promoted by using RI. C) RI is well understood and often used and discussed in the financial press. D) ROI does not take into consideration both the asset turnover (AT) ratio and the returnon-sales (ROS) percentage. E) An imputed interest rate (minimum rate of return) does not have to be specified.

166)

Return on investment (ROI), residual income (RI), and Economic Value Added (EVA®) all have in common which one of the following characteristics? A) They all lead to goal-congruency problems when used to evaluate subunit performance. B) They all incorporate nonfinancial performance measures into the metric. C) They all rely on the use of data used in the preparation of financial statements (for external reporting). D) They are all relative (rather than absolute) performance indicators. E) They all incorporate in the financial performance metric some measure of investment.

167)

Residual income can be defined as: A) Operating income minus current period investment. B) Current period investment less operating expenses. C) Income left over after interest and tax. D) Money available for investment. E) The income of a business unit less an imputed charge for the level of investment in the division.

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168)

Which of the following items would most likely not be incorporated into the calculation of a division's investment base when using the residual income (RI) or the return on investment (ROI) approach for performance measurement and evaluation? A) Fixed assets used in divisional operations. B) Land being held by the division as a site for a new plant in the future. C) Division inventories when division management exercises control over the inventory levels. D) Division accounts payable when division management exercises control over the amount of short-term credit utilized. E) Division accounts receivable with division management exercises control over credit policy and credit terms.

169)

Which of the following is true about return on investment (ROI)? A) It is generally used to evaluate the short-term financial performance of profit centers. B) Its use can motivate suboptimal decision making on the part of subunit managers. C) It is defined as the difference between some measure of "profit" and an imputed charge for use of assets by the subunit whose performance is being evaluated. D) When inflation is low, it approximates the amount of economic income that a subunit generates. E) It generally cannot be used to compare the financial performance of one unit in an organization to other units in that organization.

170)

Residual income (RI) may be a better measure for performance evaluation of an investment center manager than return on investment (ROI) because: A) Problems associated with measuring the asset base are eliminated. B) Desirable investment decisions will not likely be neglected by high-return divisions of the company. C) Only the gross book value (GBV) of assets needs to be calculated. D) Returns do not increase as assets are depreciated. E) Arguments over the implicit cost of capital are eliminated.

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171)

Which of the following is not a criticism of using return on investment (ROI) for divisional performance evaluation? A) ROI may not capture and reflect value creation in the "new economy." B) ROI does not take into consideration the amount of capital invested in the division whose performance is being evaluated. C) The ROI metric has a short-term focus/orientation. D) ROI fails to capture broader elements of "performance," beyond financial performance. E) There is a disconnect between models used for the analysis of long-term capital investment projects and subsequent evaluation of the financial results of those projects using ROI.

172)

Listed below is selected financial information for the Western Division of the Grass Company for last year: Account Average working capital General and administrative expenses Net sales Average plant and equipment Cost of goods sold

Amount (thousands) $ 625 75 4,000 1,775 3,525

If Grass treats the Western Division as an investment center for performance evaluation purposes, what is the before-tax return on investment (ROI) for last year? (Round your answer to two decimal places.) A) 34.68%. B) 26.76%. C) 22.54%. D) 19.79%. E) 16.67%.

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173)

James Webb is the general manager of the Industrial Product Division, and his performance is measured using the residual income (RI) method. Webb is reviewing the following forecasted information for his division for the coming year: Category Current assets (e.g., inventory) Revenue Plant and equipment (net book value)

Amount (thousands) $ 1,800 30,000 17,200

If the imputed interest charge (i.e., divisional cost of capital) is 15% and Webb wants to achieve an RI target of $2 million, what will costs have to be in order to achieve the target? A) $9,000,000. B) $10,800,000. C) $23,620,000. D) $25,150,000. E) $25,690,000.

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174)

Code Incorporated has three divisions (Entertainment, Plastics, and Video Card), each of which is considered an investment center for performance evaluation purposes. The Entertainment Division manufactures video arcade equipment using products produced by the other two divisions, as follows: 1. The Entertainment Division purchases plastic components from the Plastics Division that are considered unique (i.e., they are made exclusively for the Entertainment Division). In addition, the Plastics Division makes less-complex plastic components that it sells externally, to other producers. 2. The Entertainment Division purchases, for each unit it produces, a video card from Code's Video Card Division, which also sells this video card externally (to other producers). The per-unit manufacturing costs associated with each of the above two items, as incurred by the Plastic Components Division and the Video Card Division, respectively, are: Plastic Components Direct material Direct labor Variable overhead Fixed overhead Total cost

$ 1.25 2.35 1.00 0.40 $ 5.00

Video Cards $ 2.40 3.00 1.50 2.25 $ 9.15

The Plastics Division sells its commercial products at full cost plus a 25% markup and believes the proprietary plastic component made for the Entertainment Division would sell for $6.25 per unit on the open market. The market price of the video card used by the Entertainment Division is $10.98 per unit. A per-unit transfer price from the Video Cards Division to the Entertainment Division at full cost, $9.15, would: A) Allow evaluation of both divisions on a competitive basis. B) Satisfy the Video Cards Division profit desire by allowing recovery of opportunity costs. C) Demotivate the Entertainment Division and cause mediocre performance. D) Provide no profit incentive for the Video Cards Division to control or reduce costs. E) Encourage the Entertainment Division to purchase video cards from an outside source.

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175)

$ 1.25 2.35 1.00 0.40 $ 5.00

Video Cards $ 2.40 3.00 1.50 2.25 $ 9.15

Assume that the Entertainment Division is able to purchase a large quantity of video cards from an outside source at $8.70 per unit. The Video Cards Division, having excess capacity, agrees to lower its transfer price to $8.70 per unit. This action would likely: A) Optimize the profit goals of the Entertainment Division while subverting the profit goals of Code Incorporated B) Allow evaluation of both divisions on the same basis. C) Subvert the profit goals of the Video Cards Division while optimizing the profit goals of the Entertainment Division. D) Cause mediocre behavior in the Video Cards Division as lost opportunity costs increase. E) Optimize the overall profit goals of Code Incorporated

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176)

$ 1.25 2.35 1.00 0.40 $ 5.00

Video Cards $ 2.40 3.00 1.50 2.25 $ 9.15

Assume that the Plastics Division has excess capacity and has negotiated a transfer price of $5.60 per plastic component with the Entertainment Division. This price will likely: A) Cause the Plastics Division to reduce the number of commercial plastic components it manufactures. B) Motivate both divisions because estimated profits will be shared. C) Encourage the Entertainment Division to seek an outside source for plastic components. D) Demotivate the Plastics Division, causing mediocre performance. E) Motivate the Plastics Division to increase the portion of its manufacturing devoted to the Entertainment Division.

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Answer Key Test name: chapter 19 1) Essay 2) Essay 3) Essay 4) Essay 5) Essay 6) Essay 7) Essay 8) Essay 9) Essay 10) Essay 11) Essay 12) Essay 13) Essay 14) Essay 15) Essay 16) Essay 17) Essay 18) Essay 19) Essay 20) Essay 21) Essay 22) Essay 23) Essay 24) Essay 25) Essay 26) Essay 27) Essay 28) Essay 29) Essay 30) Essay 31) Essay 32) Essay 33) Essay 34) Essay 35) Essay 36) A 37) A

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38) B 39) C 40) E 41) A 42) B 43) C 44) A 45) C 46) D 47) E 48) A 49) B 50) B 51) E 52) A 53) A 54) B 55) C 56) E 57) A 58) C 59) A 60) C 61) C 62) E 63) A 64) C 65) E 66) D 67) E 68) E 69) D 70) D 71) C 72) E 73) B 74) D 75) E 76) E 77) C

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78) C 79) A 80) A 81) D 82) D 83) C 84) C 85) A 86) A 87) D 88) D 89) C 90) C 91) B 92) B 93) A 94) A 95) A 96) A 97) D 98) D 99) D 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

D B B C C A A B B A C B D B B C C B

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118) 119) 120) 121) 122) 123) 124) 125) 126) 127) 128) 129) 130) 131) 132) 133) 134) 135) 136) 137) 138) 139) 140) 141) 142) 143) 144) 145) 146) 147) 148) 149) 150) 151) 152) 153) 154) 155) 156) 157)

C B A D D D D D D D C C D D A A C C B A E D B E D B A B E C A E D D B D B E D B

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158) 159) 160) 161) 162) 163) 164) 165) 166) 167) 168) 169) 170) 171) 172) 173) 174) 175) 176)

C C A B C A E B E E B B B B E D D E B

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Chapter 20 1) Performance of divisional managers at Leakproof Faucet Corporation is evaluated based on

the operating incomes of the divisions. Abbreviated income statements for the year ending 2022 are shown below for the three divisions of Leakproof Faucet Corporation:

Revenues (in thousands) COGS Gross Margin Division Overhead Corporate Overhead* Operating Incomes

Newton

Granite

Longview

Totals

$ 2,500

$ 1,250

$ 1,500

$ 5,250

1,300 1,200 250 524 426

575 675 125 262 288

600 900 150 314 436

2,475 2,775 525 1,100 1,150

*Total Corporate Overhead is allocated to each division based on the division's proportion of total revenues. The manager of the Newton division, through increases in manufacturing efficiency, created some additional capacity in 2022. The only way he could have utilized this capacity would have been to manufacture a model J-5 faucet, which would have had the following impact on the Newton division: Increase in annual revenues (in thousands) of $750. Increase in cost of goods sold of $600. Increase in division overhead of $100. Mr. Garrett, the Newton division manager, chose not to manufacture the J-5 faucets; therefore, the additional capacity went unused. Required: (1) Prepare revised income statements for the three divisions for 2022 assuming that Mr. Garrett had chosen instead to utilize the additional capacity to manufacture the model J-5. (2) Calculate the contribution margin of the Newton division if J-5 is manufactured and if it is not manufactured. (3) Why did Mr. Garrett choose not to manufacture the J-5? (4) Would Leakproof Faucets have benefited from the manufacture of the J-5? (5) Identify an advantage and a disadvantage of not allocating any corporate overhead to the divisions.

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2) Brogdon is a ski instructor looking for employment in the Oregon mountains. He has

received full-time job offers from two ski lodges, and must choose between them. The two jobs seem equally attractive, so Brogdon wants to choose the lodge which will pay him the higher compensation. Running Elk Lodge offers a wage of $8.00 per hour for a 40 hour week, plus 30% of the fees paid by walk-on pupils desiring private lessons, plus 40% of fees from pupils who specifically request a private lesson from Brogdon. Blustery Ridge Lodge offers a wage of only $6.00 per hour, plus 25% of walk-on privates lesson fees, 45% of request privates lesson fees, and 15% of the fees paid by walk-on groups. Both lodges charge skiers $50 for private lessons and $100 per 5-person group for group lessons. Brogdon's previous experience leads him to expect weekly volume of 15 walk-on privates, 6 request privates, and 20 walk-on groups. Required: Which job should Brogdon accept? What factors should Brogdon consider in making his choice?

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3) Products Incorporated manufactures furniture and is organized into three large divisions:

bedroom, living room, and dining room furniture. The following information presents operating revenues, operating incomes and invested assets of the company over the last three years. (all figures in 000s) Operating Revenue

Operating Income

Invested Assets

$ 8,000 16,000 16,000

$ 2,500 4,100 1,800

$ 12,000 12,500 12,500

2020 2021 2022 Bedroom

4,500 4,600 2,400

450 800 600

2,500 2,400 2,200

2020 2021 2022

8,800 8,600 6,600

1,200 1,800 1,600

4,500 4,700 4,900

Dining Room 2020 2021 2022 Living Room

The following table shows the number of managers covered by the current compensation package of Products Incorporated: Number of Executives 2020 2021 2022

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Dining Room 300 350 375

Living Room

Bedroom

Total

40 40 37

120 140 175

460 530 587

The current compensation package is an annual bonus award. The managers share in the bonus pool. The pool is calculated as 12% of the annual residual income of the company. The residual income is defined as operating income minus an interest charge of 10% of invested assets. Required: (1) Use investment turnover, return on sales, and ROI to explain the differences in profitability of the three divisions for 2020, 2021 and 2022. (2) Compute the bonus amount to be paid during each year. Also, compute the average individual executive bonus amounts (round to even dollar). (3) If the bonus were calculated by divisional residual income what would be the bonus amounts for each division? (4) Discuss the benefits and problems of basing the bonus on firm-wide residual income of a company compared to using divisional residual income.

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4) Mobile Business Incorporated (MBI) is a worldwide manufacturing company that specializes

in high technology products for the aerospace, automotive and plastics industries. The stateof-the-art technology and business innovation have been key to MBI's success over the last ten years. After a meeting of the board of directors, there was some feeling that the company was moving away from its goal of striving to maintain and expand its global position through innovative management teams. One area of concern was with the company's bonus compensation package. The company's current bonus plan focuses on giving rewards based on the utilization of capital within the company, i.e. management of inventory, collection of receivables and use of physical assets. Even with such a state of the art bonus plan, the board of directors is concerned with the short-term focus of the compensation package. MBI's basis in current financial standards suggests that the future period consequences of managerial actions will not be reflected when presenting bonus compensation. Required: Help MBI solve the problem of basing bonuses on short-term decisions. Develop a bonus package that takes into consideration the long-term financial position of MBI.

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5) Harold Small joined Morton Electric Company eight months ago as Vice President of

Personnel Administration. Morton Electric Company is a small regional public utility serving 50,000 customers in three communities and the surrounding rural area. Electricity is generated at a central plant, but each community has a substation and its own work crew. The total labor force at the central plant and three substations, exclusive of administrative and clerical personnel, numbers 180 people. Small designed and introduced a Performance Evaluation and Review System (PERS) shortly after joining Morton. This system was based upon a similar system he had developed and administered in his prior position with a small company. He thought the system had worked well and that it could be easily adapted for use at Morton. The purpose of PERS, as conceived by Small, is to provide a positive feedback system for evaluating employees that would be uniform for each class of employees. Thus, the system would indicate to employees how they were performing on the job and help them correct any shortcomings. The Plant Supervisors and Field Supervisors are responsible for administering the system for the plant workers and the substation crew workers respectively. The General Supervisors are responsible for the Plant/Field Supervisors. Employees get personal PERS Reports monthly informing them of their current status, and there is a review and evaluation every six months. PERS is based on a point system in an attempt to make it uniform for all workers. There are eight categories for evaluation with a maximum number of points for each category and a total of 100 points for the system. The eight categories for the plant and crew workers and the maximum number of points in each category are as follows. Categories

Points

Quality of work Points are deducted if the job must be redone within 48 hours of completion. 2. Productivity Points are deducted if the work was not completed within the time specified for the type of job. 3. Safety on the job Points are deducted if the employee does not use safe work habits on the job to protect him/herself and others. 4. Neatness of work area or repair truck Points are deducted if the work area or truck is not clean and neat 5. Cooperation with fellow workers Points are deducted if an employee does not work well with others.

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Courtesy on the job and with the public Points are deducted if an employee is rude and unpleasant when there is contact with the public. 7. Appearance Points are deducted if an employee does not wear standard work clothing or if the clothing is sloppy and/or dirty at the beginning of each day. 8. Tardiness/excess absenteeism Points are deducted if an employee arrives late or is absent for causes other than illness or death in the immediate family.

100

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The list of categories to evaluate the Plant/Field Supervisors is slightly different. Each employee begins the year with 100 points. If an infraction in any of the categories is observed, one to five penalty points can be assessed for each infraction. Notification is given to the employee indicating the infraction and the points to be deducted. A worker who is assessed 25 points in any one month or loses all the points in any category in one month is subject to immediate review. Likewise, anytime an employee drops below 40 points, a review is scheduled. The General Supervisor meets with the individual employee and the employee's Plant/Field Supervisor at this review. If an employee has no infractions during the month, up to 12 points can be restored to the employee's point total - two points each for Categories 1-4 and one point each for Categories 5-8. However, at no time can a worker have more than the maximum allowed in each category or more than 100 points in total. When Small first introduced PERS to the General Supervisors, they were not sure they liked the system. Small told them how well it had worked where he had used it before. Small's enthusiasm for the system and his likeable personality convinced the General Supervisors that the system had merit. There were a few isolated problems with the system in the first two months. However, Ray Meyers, a crew worker, is very unhappy with the new system as evidenced by his conversation with Dan Jenkins, a fellow crew worker. Meyers: "Look at this notice of infraction - I have lost 22 points! I can't believe it!" Jenkins: "How did your supervisor get you for that many points in such a short period?" Required: (1) What are the strengths and weaknesses of the Performance Evaluation and Review system (PERS) in terms of the design for a review and evaluation system and for the expected motivational effects? (2) What problems might occur in the administration of the PERS system?

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6) Axeltronics is a manufacturer of electronic components and accessories with total assets of

$20,000,000. Selected financial ratios for Axeltronics and the industry averages for firms of similar size are presented below.

Current ratio Quick ratio Inventory turnover Return on Equity

Axeltronics 2020 2021 2022 2.09 2.27 2.51 1.15 1.12 1.19 2.40 2.18 2.02 0.14 0.15 0.17

2021 Industry Average 2.24 1.22 3.50 0.11

Axeltronics is being reviewed by several entities whose interests vary, and the company's financial ratios are a part of the data being considered. Each of the parties listed below must recommend an action based on its evaluation of Axeltronics’ financial position. Mid Coastal Bank. The bank is processing Axeltronics’ application for the new five-year term note. Mid Coastal has been Axeltronics’ banker for several years, but must reevaluate the company's financial position for each major transaction. Ozawa Company. Ozawa is a new supplier to Axeltronics, and must decide on the appropriate credit terms to extend to the company. Drucker & Denon. A brokerage firm specializing in the stock of electronics firms that are sold over-the-counter, Drucker & Denon must decide if it will include Axeltronics in a new fund being established for sale to Drucker & Denon's clients. Working Capital Management Committee. This is a committee of Axeltronics’ management personnel chaired by the chief operating officer. The committee is charged with the responsibility of periodically reviewing the company's working capital position, comparing actual data against budgets, and recommending changes in strategy as needed. Required: (1) Describe the analytical use of each of the four ratios presented above. (2) For each of the four entities described above, identify one or two financial ratios, from those ratios presented, that would be most valuable as a basis for its decision regarding Axeltronics. (3) Discuss what the financial ratios presented in the question reveal about Axeltronics. Support your answer by citing specific ratio levels and trends as well as the interrelationships between these ratios.

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7) Wilson & Associates is a medium-size marketing organization specializing in professional

promotion and publicity services. The firm's top management believes that it provides quality service as evidenced by the high level of customer satisfaction. The organization consists of three departments: print media, audio media, and visual media, each of which has a senior director in charge. The company employs 80 clerical staff who are paid on an hourly basis and 30 professional staff who are salaried. A large majority of the employees have an excellent rating in their job skills, and all employees demonstrate above average performance in their job responsibilities. The employees take pride in their achievements, and morale is very good. Salary ranges are established for different job classifications within the clerical staff (i.e., clerk, clerk typist, secretary, and administrative assistant) and the professional staff (i.e., analyst, manager, and director). A fixed-rate structure is used for all salaries. The company offers no commissions because it does not want its professional staff applying undue sales pressure on its customers. Company management is proud that it does not have to resort to a salary plus commission structure for its professionals to generate sales. Employees are recognized for superior performances through salary increases and promotions. Management believes that salary increases should be based on merit, and open positions are filled from within whenever possible. Top management contends that highly skilled and motivated employees will improve productivity if they are rewarded with annual merit pay raises and if promotions are based on performance. Top management announced in November 2021 that the amount available for pay increases in 2022 would be 10 percent of the actual total salary expenditures for 2021. All salary increases would be effective January 1, 2022. The print media department consists of 20 clerical and eight professional employees on January 1, 2021. Six clerical employees were added during the year at the rate of about one every two months. Two professionals were added, one on March 1 and one on August 1. Three employees were promoted during the year: two secretaries to administrative assistants and one manager to director. The total actual salary expense for the department without regard for employee benefits and employer tax contributions was $548,000. Therefore, the total amount allocated for wage increases for the print media department in 2022 is designated to be $54,800. Shortly after the merit pay program was announced, the print media department employees received their year-end evaluation conducted by the employee's supervisor. The senior director met with each supervisor, received all performance reports, and then announced the

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merit pay increase for each employee. Upon completion of this entire process, several employees complained individually about the inequities of the merit pay program. The senior director was concerned about the employee discontent because the people complaining were some of the highest achievers on the staff. They tended to be at the lower classification levels and were relatively new employees, having been with the company for one to two years. The individuals showed potential and were highly motivated, often working extra hours and assuming additional responsibilities. The new employees' behavior differed slightly from the employees who had been with the department for a longer period of time. Although highly skilled and competent in their jobs, the veteran employees tended to be reluctant to accept additional responsibility or to work extra hours on a regular basis. Required: 1) Review Wilson and Associates' wage and compensation plan. a. Identify and discuss the general strengths of the wage and compensation plan. b. Identify and explain the shortcomings in the administration of the merit pay increases that are to become effective in 2022, and discuss what effect these shortcomings could have on the group of discontent employees in the print media department. 2) Explain how this compensation program should be revised, if at all.

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8) Topaz Industries operates several large plants that provide the packaging for many consumer

products. The company has a progressive compensation system that is market-based and competitive with that of similar companies. Every position within Topaz is assigned a grade level from 1 to 30, with 30 being the company's chairman and 1 the lowest-level unskilled position. In assigning the grade levels, Topaz uses the following methodology: 1. The higher-level positions are classified according to the exact titles used by similar 2.

3. 4. 5. 6. 7. b. c. d. e. f.

firms. The lower-level positions are classified on the following factors: Formal education attained. Amount of responsibility. Complexity of tasks. Effects of mistakes. Physical difficulty or amount of effort. Formal education attained. Amount of responsibility. Complexity of tasks. Effects of mistakes. Physical difficulty or amount of effort. Formal education attained. Amount of responsibility. Complexity of tasks. Effects of mistakes. Physical difficulty or amount of effort.

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9) Boating Incorporated manufactures water vessels and is organized into three large divisions:

jet skis, fishing boats, and yachts. The following information presents operating revenues, operating incomes and invested assets of the company over the last three years: (All figures in 000s.) Operating Revenues

Operating Income

Invested Assets

Jet Skis 2020 2021 2022 Fishing Boats

$ 2,000 3,000 4,000

$ 500 700 1,000

$ 1,200 1,500 2,000

2020 2021 2022 Yachts

5,000 5,000 4,000

3,000 2,500 2,000

2,000 1,500 1,500

2020 2021 2022

8,000 7,000 8,000

4,000 3,000 3,500

3,000 2,500 3,000

The following table shows the number of managers covered by the current compensation package of Boating Incorporated: Number of Executives 2020 2021 2022

Jet Skis

Fishing Yachts Boats 50 200 250 60 180 200 70 160 250

The current compensation package is an annual bonus award. The managers share in the bonus pool. The pool is calculated as 10% of the annual residual income of the company. The residual income is defined as operating income minus an interest charge of 14% of invested assets. Required: (1) Compute the bonus amount to be paid during each year. Also, compute (average) individual executive bonus amounts. (2) If the bonus were calculated by divisional residual income, what would be the bonus amounts?

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10) Ginyard Company has the following financial statements for the year ended December 31,

2022. Balance Sheet, 12/31/2022 Cash Accounts Receivable Inventory Current Assets Long-lived Assets Total Assets

$ 1,600,000 3,000,000 2,500,000 $ 7,100,000 14,500,000 $ 21,600,000

Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

$ 1,200,000 $ 2,400,000 18,000,000 $ 21,600,000

Income Statement For the year ended December 31, 2022 Sales Cost of Sales Gross Margin Operating Expenses Operating Income Taxes Net Income

$ 20,000,000 15,000,000 5,000,000 2,500,000 2,500,000 1,000,000 $ 1,500,000

Cash Flow From Operations For the year ended December 31, 2022 Net Income Plus Depreciation Expense +Decrease (-Increase) in Accounts Receivable and Inventory +Increase (-Decrease) in Current Liabilities Cash Flow from Operations

$ 1,500,000 1,000,000 $ 2,500,000

Some additional information about 2022 includes: Ginyard Year End Stock Price Number of Outstanding Shares Sales Multiplier

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Industry Data

$ 23.00 1,800,000 2.10

Free Cash Flow Multiplier

22.00

Earnings Multiplier

18.00

Cost of Capital

5.0%

Accounts Receivable Turnover

6.60

Inventory Turnover

5.80

Current Ratio

2.20

Quick Ratio

1.50

Cash Flow from Operations Ratio

1.50

Free Cash Flow Ratio

1.00

Gross Margin Percentage

30.0%

Return on Assets (Net Book Value)

18.0%

Return on Equity

22.0%

Training Expense

500,000

Income Tax Rate

40%

Depreciation Expense

1,000,000

Dividends

Required: 1. Complete a business analysis of Ginyard Company for 2022. 2. Complete a business valuation for Ginyard Company for 2022.

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11) Jackson Manufacturing has the following operating results for the two years ended December

31, 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 489,350 $ 315,000 $ 225,000 $ 1,029,350 2,345,000

$ 125,000 $ 400,000 $ 375,000 $ 900,000 2,350,000

$ 3,374,350

$ 3,250,000

$ 285,000 600,000 2,489,350

$ 315,000 800,000 2,135,000

$ 3,374,350

$ 3,250,000

Income Statement, for year ended December 31, 2022 Sales Cost of Sales Gross Margin Operating Expenses Operating Income Taxes Net Income Cash Flow From Operations Net Income Plus Depreciation Expense + Decrease (-increase) in Accounts Receivable and Inventory + Increase (-decrease) in Current Liabilities Cash Flow from Operations

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2021

$ 3,775,000 2,554,000 1,221,000 522,000 699,000 244,650

$ 3,555,000 2,445,000 1,110,000 445,000 665,000 232,750

$ 454,350

$ 432,250

2022 $ 454,350 50,000 235,000

2021 $ 432,250 50,000 0

(30,000)

$ 709,350

$ 482,250

In addition, the company paid dividends in both 2021 and 2022 of $100,000 per year and made capital expenditures in both years of $45,000 per year. The company's stock price in 2021 was $10 and $12 in 2022. The industry average earnings multiple for the industry was 10 in 2022 and the free cash flow and sales multiples were 20 and 2, respectively. The company is publicly owned and has 1,050,000 shares of outstanding stock at the end of both years. The industry average ratios for Jackson's industry were as follows in the most recent year. Exhibit A: Industry Ratios for Jackson Manufacturing Accounts Receivable Turnover Inventory Turnover Current Ratio Quick Ratio Cash Flow from Operations Ratio Free Cash Flow Ratio Gross Margin Percentage Return on Assets (Net Book Value) Return on Equity

11.10 11.30 2.80 2.00 1.20 1.10 30.0% 20.0% 30.0%

Required: 1. Calculate the ratios In Exhibit A for Jackson Company for 2021 and 2022, group them by category (liquidity, profitability) and develop a brief overview for the liquidity and profitability of Jackson Manufacturing at the end of 2022. (Use averages for 2022 ratios where applicable.) 2. Complete a Business Valuation for Jackson Manufacturing based on 2022 financial statement information.

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12) Ruth's Chris Steak House is a chain of restaurants that began 43 years ago as a single location

in New Orleans and has grown to more than 90 restaurants. RCSH went public, with an initial public offering of stock (IPO) in August 2005. A question at the time of the IPO was how to value the company, given available information. Ruth's had sales of $192.2 million in 2004, earnings of $23.3 million, and net debt less cash of $117 million. One analyst chose to use the enterprise value of comparable companies, noting that Smith and Wollensky Restaurant Group (another chain of steak restaurants) had a ratio of enterprise value to sales of 70 percent. Another restaurant chain, Morton's, had recently gone private and, in the last year as a public company, had an enterprise ratio to sales of 80 percent. Required: Develop an estimate of the market capitalization (market value of equity) of RCSH in August 2005 and explain your reasoning.

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13) Fancy is a privately held high-end luxury retailer that operates stores in the wealthiest cities

and suburbs in the United States. The corporate headquarters is located in New York City. The company has a long history of profitability and a strong national image as the pinnacle of luxury. However, in the past two years Fancy's profitability has begun to drop off and many of the top executives fear that the company's most important asset, its brand image, might come into jeopardy if it cannot regain its past profitability. Bernard Starnes, Fancy's long-time CEO, wonders if the company's aged compensation plan might be at least partially responsible for Fancy's tough times. He remembers a time when the company was rapidly expanding by creating several new divisions and aggressively promoting its brand image. It seemed like he was attending a new store opening every week. During those times divisional managers worked hard for their bonuses. It was almost as if there was a competition between divisions as to which could beat their sales plans by the widest margin because that would mean the largest bonuses. This was due to the fact that a significant portion of the managers' compensation was tied to their bonuses. Now the company is not expanding as rapidly and its focus has shifted to promoting current products and growing same-store sales. Furthermore, Mr. Starnes has noticed several troubling trends within the company. First, he has noticed a steady decline in cross-divisional cooperation and coordination. Second, there have been several recent occasions where Mr. Starnes had to become personally involved in situations where divisional managers were making decisions that were beneficial to their individual divisions but not strategically aligned with the firm as a whole. Finally, management turnover is becoming somewhat of a problem, especially right after bonuses are awarded at the end of each fiscal year. Required: Suggest a new compensation plan that would help solve the problems Mr. Starnes has noticed at Fancy. Show how your answer effectively addresses the strategic goals of the company.

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14) A leading author in accounting and finance, Alfred Rappaport focuses in his work on the

importance of a firm's management continually taking steps that increase shareholder value. In a recent article he set out his "Ten Ways to Create Shareholder Value:" 1. Do not manage earnings or provide earnings guidance; do not focus on earnings as it

reflects neither the company's value or the change in value over the reporting period. 2. Make the strategic decisions that maximize expected value, even at the expense of lowering near-term earnings; this may mean divesting units that do not contribute to the company's long-term strategic goals though they do contribute to current profits. 3. Make acquisitions that maximize expected value, even at the expense of lowering nearterm earnings; do not make acquisitions that improve only current earnings per share, but those that are expected to contribute to long-term value. 4. Carry only assets that maximize value; continually review assets and be prepared to sell units, brands, real estate, or other assets that can be sold for a price that is greater than their value to the company. 5. Return cash to shareholders when there are no credible value-creating opportunities to invest in the business; through cash dividends and stock buybacks. 6. Reward CEOs and other senior executives for delivering superior long-term returns. 7. Reward operating unit managers for adding superior multiyear value. 8. Reward middle managers and frontline employees for delivering superior performance on the key value drivers that they influence directly. 9. Require senior executives to bear risks of ownership just as shareholders do. 10. Provide investors with value relevant information. Required: A key topic in management accounting is the valuation of a company. Focusing on public companies, Rappaport explains how to increase business value to shareholders. Summarize his 10 recommendations and show how they can be related to cost management, management compensation, and business valuation.

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15) A bonus plan differs from a salary in terms of: A) Amount and timing. B) Base, timing, and financial statement effect. C) Tax implications. D) Motivation effects. E) Base, pool, and payment terms.

16) Which compensation is generally paid currently? A) Salary and bonus. B) Salary and benefits. C) Benefits and bonus. D) Bonus and stock options. E) Stock options and salary.

17) As a firm's strategy changes to respond to different stages of a product's life cycle,

compensation: A) Can be affected. B) Is affected, but only to a very limited extent. C) Should change in response to the new strategy. D) Should increase. E) Should decrease.

18) Risk aversion by managers should be recognized when revising compensation plans because: A) Compensation mix (salary, bonus) can influence a manager's risk aversion. B) Most companies want risk averse managers. C) Most companies want risk taking managers. D) It costs less to pay risk averse managers. E) It is the difference between good and bad managers.

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19) Rules recently established by the Securities and Exchange Commission include a "say on

pay" rule that requires: A) Audit committee review of executive compensation. B) Nonbinding shareholder votes on executive pay. C) Compensation committees as a part of corporate boards. D) Detailed disclosures of executive compensation. E) Shareholder votes on dividends declared.

20) Any system of compensation: A) May encourage unethical behavior. B) Must be approved by the appropriate regulatory authority. C) Should be designed by top management. D) Must be approved by the auditor. E) Must include bonuses.

21) The objectives of management compensation, when compared to the objectives used to

develop performance measurement systems, are: A) More numerous. B) Less specific. C) Consistent. D) Significantly broader in scope. E) More specific.

22) In developing compensation plans, the management accountant works to achieve fairness by

making the plan: A) Precise, comprehensive and directive. B) Simple, clear and consistent. C) Attractive. D) Rewarding. E) Selective.

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23) What is a disadvantage of a unit-based pool for bonuses? A) Provides the incentive for individual managers not to cooperate with other units. B) It is difficult to calculate for each unit at the end of the period. C) It leads to unethical behavior in every unit of the company. D) Provides incentive to managers of economically weaker firms. E) Effort of the overall firm is awarded instead of individual effort.

24) When strategic performance measures or critical success factors are used to determine bonus

compensation, the bonus will usually depend either on the amount of improvement in the measure or on: A) Maintaining the current level. B) Achieving a predetermined goal. C) Quality of work completed. D) Intensity of effort expended. E) Exceeding expectations.

25) Bonus plans should be tied to variable cost income, which is less subject to manipulation

because is not affected by inventory level changes, rather than the conventional: A) Tax-based net income. B) Marginal cost income. C) Full cost income. D) Operating income. E) Fixed cost income.

26) The balanced scorecard critical success factors (CSFs) provide strong motivation in bonus

compensation plans if noncontrollable factors are: A) Emphasized. B) Separated. C) Recognized. D) Excluded. E) Controlled.

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27) If fairness only is considered, if a unit manager's unit is doing well, the unit manager prefers: A) Not to be evaluated. B) A subjective measure. C) An informal evaluation. D) A firm-wide pool over a unit-based pool. E) A unit-based pool over a firm-wide pool.

28) Generally, the current and deferred types of bonus payment options currently in use tend to

focus the manager's attention on short-term performance measures, most commonly: A) Division profit. B) After tax corporate profit. C) Cash flow. D) Growth in firm value. E) Stock price.

29) The stock option form of bonus payments to managers usually: A) Motivates well even in extended market downturns. B) Can lose some motivation because of the delay in reward. C) Focuses on the short-term. D) Is not consistent with shareholder interests. E) Has less risk than other types of bonus payment plans.

30) The ideal compensation plan would make all company contributions to the plan immediately

tax-deductible and all tax consequences for managers: A) Insignificant. B) Deferred or avoidable. C) Limited, but current. D) Limited, but pre-paid. E) Current.

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31) In management compensation, the use of the balanced scorecard achieves: A) Fairness. B) Alignment of manager's incentives and the organization's strategy. C) The desired ethical environment. D) Revenue generation and cost control. E) A specific non-financial measurement.

32) The balanced scorecard evaluation of the firm is an especially strong financial tool because

of its: A) B) C) D) E)

Use of qualitative measures. Use of quantitative measures. Simplicity in use. Ability to predict change. Use of multiple critical success factors (CSFs).

33) The receivables turnover ratio is a measure of: A) Asset value. B) Leverage. C) Sales performance. D) Profitability. E) Liquidity.

34) Market value of equity is an objective measure which clearly shows what: A) The firm's financial statements show the firm's value to be. B) Investors think is the firm's value. C) Stock analysts calculate as the firm's value. D) Is the sales value of the firm. E) Is the liquidation value of the firm.

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35) The price-earnings ratio for firms in the Standard & Poor's 500 Index has averaged

__________ over the last 110 years. A) 11 B) 16 C) 17 D) 23 E) 30

36) The discounted cash flow (DCF) method of valuation uses the discounted present value of

cash flow so it is not subject to the bias of different: A) Discount rates. B) Internal rates of return. C) Monetary systems. D) Accounting policies for determining total assets and net income. E) None of the answer choices is correct.

37) If an earnings multiplier is not available for a given firm, the multiplier used in an earnings-

based method of valuation of a firm is often estimated from comparable: A) Taxable entities. B) Industries. C) Firms. D) For-profit firms. E) Publicly-held firms.

38) Which one of the following items is not a measure of a company's liquidity? A) Accounts receivable turnover. B) Return on equity. C) Quick ratio. D) Cash flow ratio. E) Day's sales in inventory.

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39) Which one of the following forms of compensation is a based upon the achievement of

performance goals for a period? A) Perk. B) Stock option. C) Performance shares. D) Bonus. E) Salary.

40) Which one of the following forms of compensation includes special services and benefits for

the employee? A) Perk. B) Stock option. C) Performance shares. D) Bonus. E) Salary.

41) A method for determining a bonus based upon the performance of the unit is a(n): A) Segment-based pool. B) Unit-based pool. C) Firm-based pool. D) Activity-based pool. E) Function-based pool.

42) A method for determining a bonus based upon the performance of the firm is a(n): A) Segment-based pool. B) Unit-based pool. C) Firm-based pool. D) Activity-based pool. E) Volume-based pool.

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43) All of the following are common payment options for bonus compensation plans except: A) Performance shares. B) Current bonus. C) Deferred bonus. D) Preferred bonus. E) Stock options.

44) The profit multiplier used by service firms measures: A) Efficiency of direct labor. B) Effectiveness of program services. C) Net revenue per direct labor dollar. D) Ability to collect accounts. E) Ability to account for net profits.

45) The method for directly measuring the value of a firm's equity is: A) The discounted cash flow method. B) Market value. C) Sales multiple. D) Earnings-based multiple. E) Enterprise value.

46) Which one of the following refers to the firm's ability to pay its current operating expenses

and maturing debt? A) Discounted cash flow. B) Liquidity. C) Earnings base. D) Profitability. E) Purchasing power.

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47) Which one of the following develops the value of the firm as the present value of the firm's

net free cash flows? A) Discounted cash flow method. B) Cash flow liquidity method. C) Multiples-based method. D) Profitability method. E) Purchasing power method.

48) What is the tax effect of retirement plans on the firm? A) Current deduction. B) No deduction. C) Deferred deduction. D) Deduction when expensed. E) Deferred tax.

49) Which one of the following computes value based on recent annual earnings? A) Discounted cash flow method. B) Cash flow liquidity method. C) Multiples-based method. D) Book value method. E) Purchasing power method.

50) How can a person perform business valuation? A) Use total assets. B) Use total assets minus total liabilities. C) Look to the market value of comparable firms. D) Find the average net income of the last three years. E) Look to the market value of comparable industries.

51) Fringe benefits include all of the following except: A) Travel. B) Life insurance. C) Medical benefits. D) Membership in a fitness club. E) Performance shares.

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52) A current bonus can consist of: A) Cash only. B) Stock only. C) Cash and/or stock. D) Membership in a fitness club. E) Membership in a country club.

53) Business analysis can be done using which method? A) Cost method. B) Revenue method. C) Income method. D) Financial ratio analysis. E) Economic value gained.

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54) Household Brands Incorporated (HBI) manufactures household goods in the United States.

The company made two acquisitions in previous years to diversify their product lines. In 2011, HBI acquired cosmetics and consumer electronics companies. HBI is now, in 2022, comprised of three divisions: cosmetics, household, and consumer electronics. The following information (in thousands of dollars) presents operating revenues, operating income, and invested assets of the company over the last three years: Revenue

Operating Income

Assets

2020 2021 2022 Household

$ 26,800 19,600 20,000

$ 2,800 1,900 1,800

$ 9,600 9,300 9,250

2020 2021 2022 Electronics

16,000 15,300 10,400

1,600 1,100 870

7,560 8,140 6,500

2020 2021 2022 Household Brands Total

14,000 9,540 8,960

1,400 1,600 1,040

4,350 4,640 4,320

2020 2021 2022

56,800 44,440 39,360

5,800 4,600 3,710

21,510 22,080 20,070

Cosmetics

The current compensation package is an annual bonus award. The senior executives share in the bonus pool. The pool is calculated as 20% of the annual residual income of the company. The residual income is defined as operating income minus a cost of capital charge of 15% of invested assets. The total amount of the bonus pool for 2020 is: A) $257,600. B) $139,900. C) $372,700. D) $328,700. E) $514,700.

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55) Household Brands Incorporated (HBI) manufactures household goods in the United States.

Operating Income

Assets

2020 2021 2022 Household

$ 24,500 22,500 19,600

$ 2,300 1,900 1,800

$ 10,000 10,000 9,500

2020 2021 2022 Electronics

17,400 15,300 12,500

1,300 1,100 900

7,500 8,000 6,500

2020 2021 2022 Household Brands Total

13,500 9,500 8,700

1,500 1,100 1,050

4,500 4,500 4,300

2020 2021 2022

55,400 47,300 40,800

5,100 4,100 3,750

22,000 22,500 20,300

Cosmetics

The current compensation package is an annual bonus award. The senior executives share in the bonus pool. The pool is calculated as 20% of the annual residual income of the company. The residual income is defined as operating income minus a cost of capital charge of 15% of invested assets. The total amount of the bonus pool for 2020 is: A) $145,000. B) $218,000. C) $141,000. D) $174,000. E) $360,000.

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56) Household Brands Incorporated (HBI) manufactures household goods in the United States.

Operating Income

Assets

2020 2021 2022 Household

$ 23,200 24,500 18,300

$ 2,900 1,500 2,000

$ 11,500 9,100 9,260

2020 2021 2022 Electronics

19,400 14,500 14,000

1,300 1,600 940

7,360 7,880 6,510

2020 2021 2022 Household Brands Total

15,000 9,530 8,550

1,400 1,400 1,160

4,280 4,550 4,330

2020 2021 2022

57,600 48,530 40,850

5,600 4,500 4,100

23,140 21,530 20,100

Cosmetics

The current compensation package is an annual bonus award. The senior executives share in the bonus pool. The pool is calculated as 20% of the annual residual income of the company. The residual income is defined as operating income minus a cost of capital charge of 15% of invested assets. The total amount of the bonus pool for 2021 is: A) $254,100. B) $239,800. C) $217,000. D) $425,800. E) $283,800. Version 1

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57) Household Brands Incorporated (HBI) manufactures household goods in the United States.

Operating Income

Assets

2020 2021 2022 Household

$ 24,500 22,500 19,600

$ 2,300 1,900 1,800

$ 10,000 10,000 9,500

2020 2021 2022 Electronics

17,400 15,300 12,500

1,300 1,100 900

7,500 8,000 6,500

2020 2021 2022 Household Brands Total

13,500 9,500 8,700

1,500 1,100 1,050

4,500 4,500 4,300

2020 2021 2022

55,400 47,300 40,800

5,100 4,100 3,750

22,000 22,500 20,300

Cosmetics

The current compensation package is an annual bonus award. The senior executives share in the bonus pool. The pool is calculated as 20% of the annual residual income of the company. The residual income is defined as operating income minus a cost of capital charge of 15% of invested assets. The total amount of the bonus pool for 2021 is: A) $145,000. B) $218,000. C) $141,000. D) $174,000. E) $360,000.

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58) Household Brands Incorporated (HBI) manufactures household goods in the United States.

Operating Income

Assets

2020 2021 2022 Household

$ 24,800 23,400 21,200

$ 1,500 2,700 1,900

$ 9,700 10,700 9,380

2020 2021 2022 Electronics

17,600 12,600 12,200

1,800 700 900

7,310 7,890 6,750

2020 2021 2022 Household Brands Total

11,600 9,580 8,990

1,100 600 1,130

4,360 4,240 4,590

2020 2021 2022

54,000 45,580 42,390

4,400 4,000 3,930

21,370 22,830 20,720

Cosmetics

The current compensation package is an annual bonus award. The senior executives share in the bonus pool. The pool is calculated as 20% of the annual residual income of the company. The residual income is defined as operating income minus a cost of capital charge of 15% of invested assets. The total amount of the bonus pool for 2022 is: A) $115,100. B) $96,900. C) $164,400. D) $52,900. E) $238,900.

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59) Household Brands Incorporated (HBI) manufactures household goods in the United States.

Operating Income

Assets

2020 2021 2022 Household

$ 24,500 22,500 19,600

$ 2,300 1,900 1,800

$ 10,000 10,000 9,500

2020 2021 2022 Electronics

17,400 15,300 12,500

1,300 1,100 900

7,500 8,000 6,500

2020 2021 2022 Household Brands Total

13,500 9,500 8,700

1,500 1,100 1,050

4,500 4,500 4,300

2020 2021 2022

55,400 47,300 40,800

5,100 4,100 3,750

22,000 22,500 20,300

Cosmetics

The current compensation package is an annual bonus award. The senior executives share in the bonus pool. The pool is calculated as 20% of the annual residual income of the company. The residual income is defined as operating income minus a cost of capital charge of 15% of invested assets. The total amount of the bonus pool for 2022 is: A) $145,000. B) $218,000. C) $141,000. D) $174,000. E) $360,000.

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60) Household Brands Incorporated (HBI) manufactures household goods in the United States.

Operating Income

Assets

2020 2021 2022 Household

$ 21,700 23,900 18,700

$ 1,800 1,200 1,500

$ 10,000 9,000 9,290

2020 2021 2022 Electronics

17,700 18,000 13,200

800 900 850

7,600 7,900 6,640

2020 2021 2022 Household Brands Total

13,300 9,450 8,790

1,400 1,400 920

4,250 4,690 4,500

2020 2021 2022

52,700 51,350 40,690

4,000 3,500 3,270

21,850 21,590 20,430

Cosmetics

The current compensation package is an annual bonus award. The senior executives share in the bonus pool. The pool is calculated as 20% of the annual residual income of the company. The residual income is defined as operating income minus a cost of capital charge of 15% of invested assets. Return on assets for the cosmetics division in 2020 is: A) 14.00% B) 17.00% C) 18.00% D) 13.00% E) 20.00%

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61) Household Brands Incorporated (HBI) manufactures household goods in the United States.

Operating Income

Assets

2020 2021 2022 Household

$ 24,500 22,500 19,600

$ 2,300 1,900 1,800

$ 10,000 10,000 9,500

2020 2021 2022 Electronics

17,400 15,300 12,500

1,300 1,100 900

7,500 8,000 6,500

2020 2021 2022 Household Brands Total

13,500 9,500 8,700

1,500 1,100 1,050

4,500 4,500 4,300

2020 2021 2022

55,400 47,300 40,800

5,100 4,100 3,750

22,000 22,500 20,300

Cosmetics

The current compensation package is an annual bonus award. The senior executives share in the bonus pool. The pool is calculated as 20% of the annual residual income of the company. The residual income is defined as operating income minus a cost of capital charge of 15% of invested assets. Return on assets for the cosmetics division in 2020 is: A) 19.00% B) 22.00% C) 23.00% D) 18.00% E) 25.00%

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62) Household Brands Incorporated (HBI) manufactures household goods in the United States.

Operating Income

Assets

2020 2021 2022 Household

$ 23,200 22,600 22,100

$ 3,200 2,300 1,400

$ 9,600 10,200 9,800

2020 2021 2022 Electronics

15,400 13,900 9,600

1,800 1,100 930

7,740 8,010 6,350

2020 2021 2022 Household Brands Total

15,400 9,590 8,600

1,100 900 1,080

4,600 4,240 4,140

2020 2021 2022

54,000 46,090 40,300

6,100 4,300 3,410

21,940 22,450 20,290

Cosmetics

The current compensation package is an annual bonus award. The senior executives share in the bonus pool. The pool is calculated as 20% of the annual residual income of the company. The residual income is defined as operating income minus a cost of capital charge of 15% of invested assets. Return on sales in the household division in 2021 is (rounded): A) 7.06% B) 7.91% C) 8.60% D) 9.26% E) 7.64%

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63) Household Brands Incorporated (HBI) manufactures household goods in the United States.

Operating Income

Assets

2020 2021 2022 Household

$ 24,500 22,500 19,600

$ 2,300 1,900 1,800

$ 10,000 10,000 9,500

2020 2021 2022 Electronics

17,400 15,300 12,500

1,300 1,100 900

7,500 8,000 6,500

2020 2021 2022 Household Brands Total

13,500 9,500 8,700

1,500 1,100 1,050

4,500 4,500 4,300

2020 2021 2022

55,400 47,300 40,800

5,100 4,100 3,750

22,000 22,500 20,300

Cosmetics

The current compensation package is an annual bonus award. The senior executives share in the bonus pool. The pool is calculated as 20% of the annual residual income of the company. The residual income is defined as operating income minus a cost of capital charge of 15% of invested assets. Return on sales in the household division in 2021 is (rounded): A) 6.34% B) 7.19% C) 7.88% D) 8.54% E) 6.92%

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64) Household Brands Incorporated (HBI) manufactures household goods in the United States.

Operating Income

Assets

2020 2021 2022 Household

$ 25,400 19,800 20,000

$ 2,500 1,300 1,400

$ 9,200 8,100 9,770

2020 2021 2022 Electronics

15,900 16,100 12,300

1,700 1,000 880

7,260 7,210 6,680

2020 2021 2022 Household Brands Total

13,300 9,560 8,700

1,700 1,000 1,180

4,330 4,130 4,150

2020 2021 2022

54,600 45,460 41,000

5,900 3,300 3,460

20,790 19,440 20,600

Cosmetics

The current compensation package is an annual bonus award. The senior executives share in the bonus pool. The pool is calculated as 20% of the annual residual income of the company. The residual income is defined as operating income minus a cost of capital charge of 15% of invested assets. Asset turnover in the electronics division in 2022 is (rounded): A) 1.90 B) 2.10 C) 0.81 D) 2.39 E) 2.23

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65) Household Brands Incorporated (HBI) manufactures household goods in the United States.

Operating Income

Assets

2020 2021 2022 Household

$ 24,500 22,500 19,600

$ 2,300 1,900 1,800

$ 10,000 10,000 9,500

2020 2021 2022 Electronics

17,400 15,300 12,500

1,300 1,100 900

7,500 8,000 6,500

2020 2021 2022 Household Brands Total

13,500 9,500 8,700

1,500 1,100 1,050

4,500 4,500 4,300

2020 2021 2022

55,400 47,300 40,800

5,100 4,100 3,750

22,000 22,500 20,300

Cosmetics

The current compensation package is an annual bonus award. The senior executives share in the bonus pool. The pool is calculated as 20% of the annual residual income of the company. The residual income is defined as operating income minus a cost of capital charge of 15% of invested assets. Asset turnover in the electronics division in 2022 is (rounded): A) 1.82 B) 2.02 C) 0.73 D) 2.31 E) 2.15

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66) An increase in the market price of a company's common stock will immediately affect its: A) Stock return. B) Debt to equity ratio. C) Earnings per share. D) Economic value added. E) Return on equity.

67) A compensation plan with high salary, low bonus, and competitive benefits is in what phase

of the product sales life-cycle? A) Product introduction. B) Growth. C) Peak. D) Decline. E) Maturity.

68) What is an advantage of the multiples-based valuation? A) It is the most accurate. B) It gives you the enterprise value. C) It uses all financial statements. D) It is common and easy-to-apply. E) It considers market information.

69) Which bonus compensation base might lack controllability? A) Strategic performance measures. B) Balanced scorecard. C) Stock price. D) Critical success factors. E) Revenues and costs.

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70) Which one of the following has been the most common payment option for bonus

compensation in recent years? A) Vacation time. B) Stock options. C) Increased benefits. D) Salary increase. E) More perks.

71) Common bases of bonus compensation include: Choice Stock price Balanced scorecard A. No No B. Yes Yes C. Yes No D. Yes Yes E. No Yes A) B) C) D) E)

Strategic performance measure Yes Yes No No Yes

Option A Option B Option C Option D Option E

72) Which of the following would explain why a manager would elect to defer bonus

compensation to future years? A) Interest rates are expected to decrease. B) The firm will be issuing an initial public offering in the near future. C) To show dedication to the company. D) To avoid or defer taxes. E) To increase this year’s net income.

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73) Firms typically provide benefits (perks) to employees to enhance motivation. Which of the

following would not be an example of a perk? A) Company car. B) Country club membership. C) Stock options. D) Executive life insurance. E) Medical benefits.

74) The commonly used approaches for business valuation include: Financial Analysis Yes Yes No No Yes

A) B) C) D) E) A) B) C) D) E)

Profitability & Efficiency Analysis Yes No Yes No No

Discounted Cash Flow No No Yes Yes Yes

Option A Option B Option C Option D Option E

75) Which of the following is a liquidity ratio? A) Gross margin ratio. B) Return on assets ratio. C) Quick ratio. D) Earnings per share. E) Profit ratio.

76) Which of the following is not an approach to measuring the value of the shareholder equity? A) Book value method. B) Market value method. C) Discounted cash flow method. D) Financial ratio method. E) Multiples-based method.

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77) EVA is calculated as: A) EVA Net Income − (Cost of Capital × EVA Invested Capital). B) Total Net Income − (Cost of Capital × Invested Capital). C) Gross Income − Cost of Capital. D) Total Net Income − EVA Net Income. E) Accounting earnings adjusted for EVA.

78) Methods for directly valuing a firm include:

A) B) C) D) E) A) B) C) D) E)

Earnings Multiple Discounted Cash Flow Yes Yes No Yes No No Yes Yes Yes No

Financial Ratios Yes Yes Yes No Yes

Option A Option B Option C Option D Option E

79) There is a common concern today that executive compensation in the U.S. is: A) Not adequately linked to strategic performance measures. B) Ineffective as a performance incentive. C) Not properly disclosed to the IRS. D) Too diverse among industries. E) Too low for the value added.

80) To reduce the effect of risk aversion, management compensation plans should: A) include a relatively large proportion of bonus, with a smaller portion in salary. B) be 100% salary based. C) be evenly divided between salary and bonus. D) include a relatively large proportion of salary, with a smaller portion in bonus. E) be 100% bonus based.

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81) Economic value added is calculated from: A) Average total assets, current liabilities, net income, and the cost of capital. B) EVA net income and EVA invested capital. C) Net income, cost of capital, and net assets. D) Net income and the cost of capital. E) EVA net income, the cost of capital, and EVA invested capital.

82) Performance shares grant stock for achieving certain performance goals: A) In the following year. B) In two years or more. C) In the current period. D) When stock prices improve. E) Anytime the manger wants.

83) There is always a current tax deduction for the firm for which of the following types of

compensation? A) Qualified stock options. B) Nonqualified stock options. C) Deferred bonus. D) Current bonus. E) Performance shares.

84) There is a current taxable event for the manager when which of the following types of

compensation is received? A) Qualified stock options. B) Nonqualified stock options. C) Deferred bonus. D) Current bonus. E) Performance shares.

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85) Which of the following types of compensation does not provide a deduction to the firm for

tax purposes? A) Perks. B) Qualified stock options. C) Retirement plans. D) Current bonus. E) Performance shares.

86) Bonus payment options include all of the following except: A) Perks. B) Current bonus. C) Deferred bonus. D) Stock options. E) Performance shares.

87) Which two bonus compensation bases are strongly motivating if non controllable factors are

excluded? A) Stock price and lump sum. B) Strategic performance measures and balanced scorecard. C) Balanced scorecard and stock price. D) Strategic performance measures and stock price. E) Balanced scorecard and lump sum.

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88) The Sleep Company had the following operating results for 2021-2022. In addition, the

company paid dividends in both 2021 and 2022 of $72,000 per year and made capital expenditures in both years of $30,000 per year. The company's stock price in 2021 was $8 and $7 in 2022. The industry average earnings multiple for the mattress industry was 9 in 2022 and the free cash flow and sales multiples were 18 and 1.5, respectively. The company is publicly owned and has 1,100,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 380,000 $ 390,000 $ 290,000 $ 1,060,000 1,480,000

$ 140,000 $ 440,000 $ 340,000 $ 920,000 1,500,000

$ 2,540,000

$ 2,420,000

$ 240,000 640,000 1,660,000

$ 340,000 540,000 1,540,000

$ 2,540,000

$ 2,420,000

2021

$ 4,950,000 4,260,000 690,000 370,000 320,000 128,000

$ 4,700,000 4,160,000 540,000 420,000 120,000 48,000

$ 192,000

$ 72,000

2022 $ 192,000 50,000 100,000

2021 $ 72,000 50,000 -

(-100,000)

$ 242,000

$ 122,000

The accounts receivable turnover ratio for 2022 is (rounded):

Version 1

A) B) C) D) E)

Version 1

10.4 11.9 12.9 14.1 12.7

89) The Sleep Company had the following operating results for 2021-2022. In addition, the

company paid dividends in both 2021 and 2022 of $60,000 per year and made capital expenditures in both years of $30,000 per year. The company's stock price in 2021 was $8 and $7 in 2022. The industry average earnings multiple for the mattress industry was 9 in 2022 and the free cash flow and sales multiples were 18 and 1.5, respectively. The company is publicly owned and has 1,200,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 340,000 $ 350,000 $ 250,000 $ 940,000 1,080,000

$ 100,000 $ 400,000 $ 300,000 $ 800,000 1,100,000

$ 2,020,000

$ 1,900,000

$ 200,000 600,000 1,220,000

$ 300,000 500,000 1,100,000

$ 2,020,000

$ 1,900,000

2021

$ 4,750,000 4,100,000 650,000 350,000 300,000 120,000

$ 4,500,000 4,000,000 500,000 400,000 100,000 40,000

$ 180,000

$ 60,000

2022 $ 180,000 50,000 100,000

2021 $ 60,000 50,000 0

(100,000)

$ 230,000

$ 110,000

The accounts receivable turnover ratio for 2022 is (rounded):

Version 1

A) B) C) D) E)

Version 1

11.2 12.7 13.7 14.9 13.5

90) The Sleep Company had the following operating results for 2021-2022. In addition, the

company paid dividends in both 2021 and 2022 of $65,400 per year and made capital expenditures in both years of $30,000 per year. The company's stock price in 2021 was $8 and $7 in 2022. The industry average earnings multiple for the mattress industry was 9 in 2022 and the free cash flow and sales multiples were 18 and 1.5, respectively. The company is publicly owned and has 1,000,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 358,000 $ 368,000 $ 268,000 $ 994,000 1,260,000

$ 118,000 $ 418,000 $ 318,000 $ 854,000 1,280,000

$ 2,254,000

$ 2,134,000

$ 218,000 618,000 1,418,000

$ 318,000 518,000 1,298,000

$ 2,254,000

$ 2,134,000

2021

$ 4,840,000 4,172,000 668,000 359,000 309,000 123,600

$ 4,590,000 4,072,000 518,000 409,000 109,000 43,600

$ 185,400

$ 65,400

2022 $ 185,400 50,000 100,000

2021 $ 65,400 50,000 -

(-100,000)

$ 235,400

$ 115,400

The inventory turnover ratio for 2022 is (rounded):

Version 1

A) B) C) D) E)

Version 1

10.5 12.0 13.0 14.2 12.8

91) The Sleep Company had the following operating results for 2021-2022. In addition, the

2021

$ 340,000 $ 350,000 $ 250,000 $ 940,000 1,080,000

$ 100,000 $ 400,000 $ 300,000 $ 800,000 1,100,000

$ 2,020,000

$ 1,900,000

$ 200,000 600,000 1,220,000

$ 300,000 500,000 1,100,000

$ 2,020,000

$ 1,900,000

2021

$ 4,750,000 4,100,000 650,000 350,000 300,000 120,000

$ 4,500,000 4,000,000 500,000 400,000 100,000 40,000

$ 180,000

$ 60,000

2022 $ 180,000 50,000 100,000

2021 $ 60,000 50,000 0

(100,000)

$ 230,000

$ 110,000

The inventory turnover ratio for 2022 is (rounded):

Version 1

A) B) C) D) E)

Version 1

11.2 12.7 13.7 14.9 13.5

92) The Sleep Company had the following operating results for 2021-2022. In addition, the

company paid dividends in both 2021 and 2022 of $61,800 per year and made capital expenditures in both years of $30,000 per year. The company's stock price in 2021 was $8 and $7 in 2022. The industry average earnings multiple for the mattress industry was 9 in 2022 and the free cash flow and sales multiples were 18 and 1.5, respectively. The company is publicly owned and has 1,000,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 346,000 $ 356,000 $ 256,000 $ 958,000 1,140,000

$ 106,000 $ 406,000 $ 306,000 $ 818,000 1,160,000

$ 2,098,000

$ 1,978,000

$ 206,000 606,000 1,286,000

$ 306,000 506,000 1,166,000

$ 2,098,000

$ 1,978,000

2021

$ 4,780,000 4,124,000 656,000 353,000 303,000 121,200

$ 4,530,000 4,024,000 506,000 403,000 103,000 41,200

$ 181,800

$ 61,800

2022 $ 181,800 50,000 100,000

2021 $ 61,800 50,000 0

(-100,000)

$ 231,800

$ 111,800

The current ratio for 2022 is (rounded):

Version 1

A) B) C) D) E)

Version 1

1.8 2.0 3.9 4.7 2.5

93) The Sleep Company had the following operating results for 2021-2022. In addition, the

2021

$ 340,000 $ 350,000 $ 250,000 $ 940,000 1,080,000

$ 100,000 $ 400,000 $ 300,000 $ 800,000 1,100,000

$ 2,020,000

$ 1,900,000

$ 200,000 600,000 1,220,000

$ 300,000 500,000 1,100,000

$ 2,020,000

$ 1,900,000

2021

$ 4,750,000 4,100,000 650,000 350,000 300,000 120,000

$ 4,500,000 4,000,000 500,000 400,000 100,000 40,000

$ 180,000

$ 60,000

2022 $ 180,000 50,000 100,000

2021 $ 60,000 50,000 0

(100,000)

$ 230,000

$ 110,000

The current ratio for 2022 is:

Version 1

A) B) C) D) E)

Version 1

1.8 2.0 3.9 4.7 2.5

94) The Sleep Company had the following operating results for 2021-2022. In addition, the

company paid dividends in both 2021 and 2022 of $60,600 per year and made capital expenditures in both years of $30,000 per year. The company's stock price in 2021 was $8 and $7 in 2022. The industry average earnings multiple for the mattress industry was 9 in 2022 and the free cash flow and sales multiples were 18 and 1.5, respectively. The company is publicly owned and has 1,800,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 342,000 $ 352,000 $ 252,000 $ 946,000 1,100,000

$ 102,000 $ 402,000 $ 302,000 $ 806,000 1,120,000

$ 2,046,000

$ 1,926,000

$ 202,000 602,000 1,242,000

$ 302,000 502,000 1,122,000

$ 2,046,000

$ 1,926,000

2021

$ 4,760,000 4,108,000 652,000 351,000 301,000 120,400

$ 4,510,000 4,008,000 502,000 401,000 101,000 40,400

$ 180,600

$ 60,600

2022 $ 180,600 50,000 100,000

2021 $ 60,600 50,000 0

(-100,000)

$ 230,600

$ 110,600

The gross margin percentage for 2022 is (rounded):

Version 1

A) B) C) D) E)

Version 1

11.2% 12.7% 13.7% 14.9% 13.5%

95) The Sleep Company had the following operating results for 2021-2022. In addition, the

2021

$ 340,000 $ 350,000 $ 250,000 $ 940,000 1,080,000

$ 100,000 $ 400,000 $ 300,000 $ 800,000 1,100,000

$ 2,020,000

$ 1,900,000

$ 200,000 600,000 1,220,000

$ 300,000 500,000 1,100,000

$ 2,020,000

$ 1,900,000

2021

$ 4,750,000 4,100,000 650,000 350,000 300,000 120,000

$ 4,500,000 4,000,000 500,000 400,000 100,000 40,000

$ 180,000

$ 60,000

2022 $ 180,000 50,000 100,000

2021 $ 60,000 50,000 0

(100,000)

$ 230,000

$ 110,000

The gross margin percentage for 2022 is (rounded):

Version 1

A) B) C) D) E)

Version 1

11.2% 12.7% 13.7% 14.9% 13.5%

96) The Sleep Company had the following operating results for 2021-2022 . In addition, the

2021

$ 358,000 $ 368,000 $ 268,000 $ 994,000 1,260,000

$ 118,000 $ 418,000 $ 318,000 $ 854,000 1,280,000

$ 2,254,000

$ 2,134,000

$ 218,000 618,000 1,418,000

$ 318,000 518,000 1,298,000

$ 2,254,000

$ 2,134,000

2021

$ 4,840,000 4,172,000 668,000 359,000 309,000 123,600

$ 4,590,000 4,072,000 518,000 409,000 109,000 43,600

$ 185,400

$ 65,400

2022 $ 185,400 50,000 100,000

2021 $ 65,400 50,000 0

(-100,000)

$ 235,400

$ 115,400

Return on assets for 2022 is (rounded):

Version 1

A) B) C) D) E)

Version 1

8.5% 15.7% 13.0% 18.5% 10.6%

97) The Sleep Company had the following operating results for 2021-2022. In addition, the

2021

$ 340,000 $ 350,000 $ 250,000 $ 940,000 1,080,000

$ 100,000 $ 400,000 $ 300,000 $ 800,000 1,100,000

$ 2,020,000

$ 1,900,000

$ 200,000 600,000 1,220,000

$ 300,000 500,000 1,100,000

$ 2,020,000

$ 1,900,000

2021

$ 4,750,000 4,100,000 650,000 350,000 300,000 120,000

$ 4,500,000 4,000,000 500,000 400,000 100,000 40,000

$ 180,000

$ 60,000

2022 $ 180,000 50,000 100,000

2021 $ 60,000 50,000 0

(100,000)

$ 230,000

$ 110,000

Return on assets for 2022 is (rounded):

Version 1

A) B) C) D) E)

Version 1

9.2% 16.4% 13.7% 19.2% 11.3%

98) The Sleep Company had the following operating results for 2021-2022. In addition, the

company paid dividends in both 2021 and 2022 of $61,200 per year and made capital expenditures in both years of $30,000 per year. The company's stock price in 2021 was $8 and $7 in 2022. The industry average earnings multiple for the mattress industry was 9 in 2022 and the free cash flow and sales multiples were 18 and 1.5, respectively. The company is publicly owned and has 1,500,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 344,000 $ 354,000 $ 254,000 $ 952,000 1,120,000

$ 104,000 $ 404,000 $ 304,000 $ 812,000 1,140,000

$ 2,072,000

$ 1,952,000

$ 204,000 604,000 1,264,000

$ 304,000 504,000 1,144,000

$ 2,072,000

$ 1,952,000

2021

$ 4,770,000 4,116,000 654,000 352,000 302,000 120,800

$ 4,520,000 4,016,000 504,000 402,000 102,000 40,800

$ 181,200

$ 61,200

2022 $ 181,200 50,000 100,000

2021 $ 61,200 50,000 0

(-100,000)

$ 231,200

$ 111,200

Return on equity for 2022 is (rounded):

Version 1

A) B) C) D) E)

Version 1

11.1% 14.1% 15.0% 18.4% 13.0%

99) The Sleep Company had the following operating results for 2021-2022. In addition, the

2021

$ 340,000 $ 350,000 $ 250,000 $ 940,000 1,080,000

$ 100,000 $ 400,000 $ 300,000 $ 800,000 1,100,000

$ 2,020,000

$ 1,900,000

$ 200,000 600,000 1,220,000

$ 300,000 500,000 1,100,000

$ 2,020,000

$ 1,900,000

2021

$ 4,750,000 4,100,000 650,000 350,000 300,000 120,000

$ 4,500,000 4,000,000 500,000 400,000 100,000 40,000

$ 180,000

$ 60,000

2022 $ 180,000 50,000 100,000

2021 $ 60,000 50,000 0

(100,000)

$ 230,000

$ 110,000

Return on equity for 2022 is (rounded):

Version 1

A) B) C) D)

Version 1

11.6% 14.6% 15.5% 18.9%

100)

The Sleep Company had the following operating results for 2021-2022. In addition, the company paid dividends in both 2021 and 2022 of $61,200 per year and made capital expenditures in both years of $30,000 per year. The company's stock price in 2021 was $8 and $7 in 2022. The industry average earnings multiple for the mattress industry was 9 in 2022 and the free cash flow and sales multiples were 18 and 1.5, respectively. The company is publicly owned and has 1,500,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 344,000 $ 354,000 $ 254,000 $ 952,000 1,120,000

$ 104,000 $ 404,000 $ 304,000 $ 812,000 1,140,000

$ 2,072,000

$ 1,952,000

$ 204,000 604,000 1,264,000

$ 304,000 504,000 1,144,000

$ 2,072,000

$ 1,952,000

2021

$ 4,770,000 4,116,000 654,000 352,000 302,000 120,800

$ 4,520,000 4,016,000 504,000 402,000 102,000 40,800

$ 181,200

$ 61,200

2022 $ 181,200 50,000 100,000

2021 $ 61,200 50,000 0

(-100,000)

$ 231,200

$ 111,200

The value of the company, calculated using the earnings multiple for 2022 is:

Version 1

A) B) C) D) E)

Version 1

$1,230,800 $1,630,800 $2,530,800 $8,345,800 $5,494,000

101)

The Sleep Company had the following operating results for 2021-2022. In addition, the company paid dividends in both 2021 and 2022 of $60,000 per year and made capital expenditures in both years of $30,000 per year. The company's stock price in 2021 was $8 and $7 in 2022. The industry average earnings multiple for the mattress industry was 9 in 2022 and the free cash flow and sales multiples were 18 and 1.5, respectively. The company is publicly owned and has 1,200,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 340,000 $ 350,000 $ 250,000 $ 940,000 1,080,000

$ 100,000 $ 400,000 $ 300,000 $ 800,000 1,100,000

$ 2,020,000

$ 1,900,000

$ 200,000 600,000 1,220,000

$ 300,000 500,000 1,100,000

$ 2,020,000

$ 1,900,000

2021

$ 4,750,000 4,100,000 650,000 350,000 300,000 120,000

$ 4,500,000 4,000,000 500,000 400,000 100,000 40,000

$ 180,000

$ 60,000

2022 $ 180,000 50,000 100,000

2021 $ 60,000 50,000 0

(100,000)

$ 230,000

$ 110,000

The value of the company, calculated using the earnings multiple for 2022 is:

Version 1

A) B) C) D) E)

Version 1

$1,220,000 $1,620,000 $2,520,000 $8,335,000 $5,458,000

102)

The Sleep Company had the following operating results for 2021-2022. In addition, the company paid dividends in both 2021 and 2022 of $69,600 per year and made capital expenditures in both years of $33,200 per year. The company's stock price in 2021 was $8 and $7 in 2022. The industry average earnings multiple for the mattress industry was 9 in 2022 and the free cash flow and sales multiples were 18 and 1.5, respectively. The company is publicly owned and has 1,900,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 372,000 $ 382,000 $ 282,000 $ 1,036,000 1,400,000

$ 132,000 $ 432,000 $ 332,000 $ 896,000 1,420,000

$ 2,436,000

$ 2,316,000

$ 232,000 632,000 1,572,000

$ 332,000 532,000 1,452,000

$ 2,436,000

$ 2,316,000

2021

$ 4,910,000 4,228,000 682,000 366,000 316,000 126,400

$ 4,660,000 4,128,000 532,000 416,000 116,000 46,400

$ 189,600

$ 69,600

2022 $ 189,600 50,000 100,000

2021 $ 69,600 50,000 0

(-100,000)

$ 239,600

$ 119,600

The value of the company, calculated using the free cash flow multiple for 2022 is:

Version 1

A) B) C) D) E)

Version 1

$1,162,400 $1,562,400 $2,462,400 $8,342,400 $5,472,000

103)

2021

$ 340,000 $ 350,000 $ 250,000 $ 940,000 1,080,000

$ 100,000 $ 400,000 $ 300,000 $ 800,000 1,100,000

$ 2,020,000

$ 1,900,000

$ 200,000 600,000 1,220,000

$ 300,000 500,000 1,100,000

$ 2,020,000

$ 1,900,000

2021

$ 4,750,000 4,100,000 650,000 350,000 300,000 120,000

$ 4,500,000 4,000,000 500,000 400,000 100,000 40,000

$ 180,000

$ 60,000

2022 $ 180,000 50,000 100,000

2021 $ 60,000 50,000 0

(100,000)

$ 230,000

$ 110,000

The value of the company, calculated using the free cash flow multiple for 2022 is:

Version 1

A) B) C) D) E)

Version 1

$1,220,000 $1,620,000 $2,520,000 $8,400,000 $5,600,000

104)

The Sleep Company had the following operating results for 2021-2022. In addition, the company paid dividends in both 2021 and 2022 of $63,000 per year and made capital expenditures in both years of $30,000 per year. The company's stock price in 2021 was $8 and $7 in 2022. The industry average earnings multiple for the mattress industry was 9 in 2022 and the free cash flow and sales multiples were 18 and 1.5, respectively. The company is publicly owned and has 1,500,000 shares of outstanding stock at the end of 2022.

Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 350,000 $ 360,000 $ 260,000 $ 970,000 1,180,000

$ 110,000 $ 410,000 $ 310,000 $ 830,000 1,200,000

$ 2,150,000

$ 2,030,000

$ 210,000 610,000 1,330,000

$ 310,000 510,000 1,210,000

$ 2,150,000

$ 2,030,000

Version 1

2021

$ 4,800,000 4,140,000 660,000 355,000 305,000 122,000

$ 4,550,000 4,040,000 510,000 405,000 105,000 42,000

$ 183,000

$ 63,000

2022 $ 183,000 50,000 100,000

2021 $ 63,000 50,000 0

(100,000)

$ 233,000

$ 113,000

The value of the company, calculated using the sales multiple for 2022 is: A) $1,295,000 B) $1,695,000 C) $2,595,000 D) $8,475,000 E) $7,200,000

Version 1

105)

2021

$ 340,000 $ 350,000 $ 250,000 $ 940,000 1,080,000

$ 100,000 $ 400,000 $ 300,000 $ 800,000 1,100,000

$ 2,020,000

$ 1,900,000

$ 200,000 600,000 1,220,000

$ 300,000 500,000 1,100,000

$ 2,020,000

$ 1,900,000

2021

$ 4,750,000 4,100,000 650,000 350,000 300,000 120,000

$ 4,500,000 4,000,000 500,000 400,000 100,000 40,000

$ 180,000

$ 60,000

2022 $ 180,000 50,000 100,000

2021 $ 60,000 50,000 0

(100,000)

$ 230,000

$ 110,000

The value of the company, calculated using the sales multiple for 2022 is:

Version 1

A) B) C) D) E)

Version 1

$1,220,000 $1,620,000 $2,520,000 $8,400,000 $7,125,000

106)

The Sleep Company had the following operating results for 2021-2022. In addition, the company paid dividends in both 2021 and 2022 of $67,800 per year and made capital expenditures in both years of $30,000 per year. The company's stock price in 2021 was $8 and $7 in 2022. The industry average earnings multiple for the mattress industry was 9 in 2022 and the free cash flow and sales multiples were 18 and 1.5, respectively. The company is publicly owned and has 1,900,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 366,000 $ 376,000 $ 276,000 $ 1,018,000 1,340,000

$ 126,000 $ 426,000 $ 326,000 $ 878,000 1,360,000

$ 2,358,000

$ 2,238,000

$ 226,000 626,000 1,506,000

$ 326,000 526,000 1,386,000

$ 2,358,000

$ 2,238,000

2021

$ 4,880,000 4,204,000 676,000 363,000 313,000 125,200

$ 4,630,000 4,104,000 526,000 413,000 113,000 45,200

$ 187,800

$ 67,800

2022 $ 187,800 50,000 100,000

2021 $ 67,800 50,000 0

(100,000)

$ 237,800

$ 117,800

The market value of the company's equity for 2022 is:

Version 1

A) B) C) D) E)

Version 1

$6,520,000 $7,795,000 $7,420,000 $13,300,000 $12,025,000

107)

2021

$ 340,000 $ 350,000 $ 250,000 $ 940,000 1,080,000

$ 100,000 $ 400,000 $ 300,000 $ 800,000 1,100,000

$ 2,020,000

$ 1,900,000

$ 200,000 600,000 1,220,000

$ 300,000 500,000 1,100,000

$ 2,020,000

$ 1,900,000

2021

$ 4,750,000 4,100,000 650,000 350,000 300,000 120,000

$ 4,500,000 4,000,000 500,000 400,000 100,000 40,000

$ 180,000

$ 60,000

2022 $ 180,000 50,000 100,000

2021 $ 60,000 50,000 0

(100,000)

$ 230,000

$ 110,000

The market value of the company's equity for 2022 is:

Version 1

A) B) C) D) E)

Version 1

$1,220,000 $1,620,000 $2,520,000 $8,400,000 $7,125,000

108)

The Harrison Bicycle Company had the following operating results for 2021-2022. In addition, the company paid dividends in both 2021 and 2022 of $160,000 per year and made capital expenditures in both years of $230,000 per year. The company's stock price in 2021 was $14.20 and $12.50 in 2022. Also in 2022, the industry average earnings multiple for the bicycle industry was 8 and the free cash flow and sales multiples were 16 and 1.35, respectively. The company is publicly owned and has 1,100,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 274,000 $ 532,000 $ 457,000 $ 1,263,000 1,240,000

$ 107,000 $ 407,000 $ 307,000 $ 821,000 1,135,000

$ 2,503,000

$ 1,956,000

$ 507,000 670,000 1,326,000

$ 307,000 570,000 1,079,000

$ 2,503,000

$ 1,956,000

Income Statement, for year ended December 31, 2022 Sales Cost of Sales Gross Margin Operating Expenses Operating Income Taxes Net Income Cash Flow From Operations Net Income Plus Depreciation Expense + Decrease (-increase) in Account Receivable and Inventory + Increase (-decrease) in Current Liabilities Cash Flow from Operations

Version 1

2021

$ 6,300,000 5,205,000 1,095,000 450,000 645,000 238,000

$ 5,540,000 4,420,000 1,120,000 610,000 510,000 196,000

$ 407,000

$ 314,000

2022 $ 407,000 125,000 (-275,000)

2021 $ 314,000 125,000 0

200,000

$ 457,000

$ 439,000

100

The accounts receivable turnover ratio for 2022 is (rounded): A) 11.1 B) 13.4 C) 13.6 D) 14.8 E) 12.5

Version 1

101

109)

The Harrison Bicycle Company had the following operating results for 2021-2022. In addition, the company paid dividends in both 2021 and 2022 of $80,000 per year and made capital expenditures in both years of $230,000 per year. The company's stock price in 2021 was $14.20 and $12.50 in 2022. Also in 2022, the industry average earnings multiple for the bicycle industry was 8 and the free cash flow and sales multiples were 16 and 1.35, respectively. The company is publicly owned and has 1,400,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 267,000 $ 525,000 $ 450,000 $ 1,242,000 1,205,000

$ 100,000 $ 400,000 $ 300,000 $ 800,000 1,100,000

$ 2,447,000

$ 1,900,000

$ 500,000 600,000 1,347,000

$ 300,000 500,000 1,100,000

$ 2,447,000

$ 1,900,000

Version 1

2021

$ 6,250,000 5,125,000 1,125,000 580,000 545,000 218,000

$ 5,450,000 4,400,000 1,050,000 550,000 500,000 200,000

$ 327,000

$ 300,000

2022 $ 327,000 125,000 (275,000)

2021 $ 300,000 125,000 0

200,000

$ 377,000

$ 425,000

102

The accounts receivable turnover ratio for 2022 is (rounded): A) 11.2 B) 13.5 C) 13.7 D) 14.9 E) 12.6

Version 1

103

110)

The Harrison Bicycle Company had the following operating results for 2021-2022. In addition, the company paid dividends in both 2021 and 2022 of $130,000 per year and made capital expenditures in both years of $230,000 per year. The company's stock price in 2021 was $14.20 and $12.50 in 2022. Also in 2022, the industry average earnings multiple for the bicycle industry was 8 and the free cash flow and sales multiples were 16 and 1.35, respectively. The company is publicly owned and has 1,400,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 284,000 $ 542,000 $ 467,000 $ 1,293,000 1,290,000

$ 117,000 $ 417,000 $ 317,000 $ 851,000 1,185,000

$ 2,583,000

$ 2,036,000

$ 517,000 770,000 1,296,000

$ 317,000 670,000 1,049,000

$ 2,583,000

$ 2,036,000

Income Statement, for year ended December 31, 2022 Sales Cost of Sales Gross Margin Operating Expenses Operating Income Taxes Net Income Cash Flow From Operations Net Income Plus Depreciation Expense + Decrease (-increase) in Account Receivable and Inventory + Increase (-decrease) in Current Liabilities Cash Flow from Operations

Version 1

2021

$ 6,210,000 5,205,000 1,005,000 440,000 565,000 188,000

$ 5,420,000 4,480,000 940,000 480,000 460,000 204,000

$ 377,000

$ 256,000

2022 $ 377,000 125,000 (275,000)

2021 $ 256,000 125,000 0

200,000

$ 427,000

$ 381,000

104

The inventory turnover ratio for 2022 is (rounded): A) 10.8 B) 13.1 C) 13.3 D) 14.5 E) 11.9

Version 1

105

111)

2021

$ 267,000 $ 525,000 $ 450,000 $ 1,242,000 1,205,000

$ 100,000 $ 400,000 $ 300,000 $ 800,000 1,100,000

$ 2,447,000

$ 1,900,000

$ 500,000 600,000 1,347,000

$ 300,000 500,000 1,100,000

$ 2,447,000

$ 1,900,000

Version 1

2021

$ 6,250,000 5,125,000 1,125,000 580,000 545,000 218,000

$ 5,450,000 4,400,000 1,050,000 550,000 500,000 200,000

$ 327,000

$ 300,000

2022 $ 327,000 125,000 (275,000)

2021 $ 300,000 125,000 0

200,000

$ 377,000

$ 425,000

106

The inventory turnover ratio for 2022 is (rounded): A) 11.2 B) 13.5 C) 13.7 D) 14.9 E) 12.3

Version 1

107

112)

The Harrison Bicycle Company had the following operating results for 2021-2022. In addition, the company paid dividends in both 2021 and 2022 of $270,000 per year and made capital expenditures in both years of $230,000 per year. The company's stock price in 2021 was $14.20 and $12.50 in 2022. Also in 2022, the industry average earnings multiple for the bicycle industry was 8 and the free cash flow and sales multiples were 16 and 1.35, respectively. The company is publicly owned and has 1,800,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 277,000 $ 535,000 $ 460,000 $ 1,272,000 1,255,000

$ 110,000 $ 410,000 $ 310,000 $ 830,000 1,150,000

$ 2,527,000

$ 1,980,000

$ 510,000 700,000 1,317,000

$ 310,000 600,000 1,070,000

$ 2,527,000

$ 1,980,000

Income Statement, for year ended December 31, 2022 Sales Cost of Sales Gross Margin Operating Expenses Operating Income Taxes Net Income Cash Flow From Operations Net Income Plus Depreciation Expense + Decrease (-increase) in Account Receivable and Inventory + Increase (-decrease) in Current Liabilities Cash Flow from Operations

Version 1

2021

$ 6,300,000 5,045,000 1,255,000 480,000 775,000 258,000

$ 5,540,000 4,460,000 1,080,000 470,000 610,000 196,000

$ 517,000

$ 414,000

2022 $ 517,000 125,000 (-275,000)

2021 $ 414,000 125,000 0

200,000

$ 567,000

$ 539,000

108

The current ratio for 2022 (rounded) is: A) 1.8 B) 2.5 C) 3.6 D) 4.1 E) 2.9

Version 1

109

113)

2021

$ 267,000 $ 525,000 $ 450,000 $ 1,242,000 1,205,000

$ 100,000 $ 400,000 $ 300,000 $ 800,000 1,100,000

$ 2,447,000

$ 1,900,000

$ 500,000 600,000 1,347,000

$ 300,000 500,000 1,100,000

$ 2,447,000

$ 1,900,000

Version 1

2021

$ 6,250,000 5,125,000 1,125,000 580,000 545,000 218,000

$ 5,450,000 4,400,000 1,050,000 550,000 500,000 200,000

$ 327,000

$ 300,000

2022 $ 327,000 125,000 (275,000)

2021 $ 300,000 125,000 0

200,000

$ 377,000

$ 425,000

110

The current ratio for 2022 (rounded) is: A) 1.8 B) 2.5 C) 3.6 D) 4.1 E) 2.9

Version 1

111

114)

The Harrison Bicycle Company had the following operating results for 2021-2022. In addition, the company paid dividends in both 2021 and 2022 of $1,921,400 per year and made capital expenditures in both years of $230,000 per year. The company's stock price in 2021 was $14.20 and $12.50 in 2022. Also in 2022, the industry average earnings multiple for the bicycle industry was 8 and the free cash flow and sales multiples were 16 and 1.35, respectively. The company is publicly owned and has 1,600,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 285,000 $ 543,000 $ 468,000 $ 1,296,000 1,295,000

$ 118,000 $ 418,000 $ 318,000 $ 854,000 1,190,000

$ 2,591,000

$ 2,044,000

$ 518,000 780,000 1,293,000

$ 318,000 680,000 1,046,000

$ 2,591,000

$ 2,044,000

Income Statement, for year ended December 31, 2022 Sales Cost of Sales Gross Margin Operating Expenses Operating Income Taxes Net Income Cash Flow From Operations Net Income Plus Depreciation Expense + Decrease (-increase) in Account Receivable and Inventory + Increase (-decrease) in Current Liabilities Cash Flow from Operations

Version 1

2021

$ 6,340,000 3,423,600 2,916,400 450,000 2,466,400 298,000

$ 5,370,000 4,430,000 940,000 480,000 460,000 193,000

$ 2,168,400

$ 267,000

2022 $ 2,168,400 125,000 (275,000)

2021 $ 267,000 125,000 0

200,000

$ 2,218,400

$ 392,000

112

The gross margin percentage for 2022 is (rounded): A) 39.1% B) 40.0% C) 41.5% D) 46.0% E) 43.0%

Version 1

113

115)

2021

$ 267,000 $ 525,000 $ 450,000 $ 1,242,000 1,205,000

$ 100,000 $ 400,000 $ 300,000 $ 800,000 1,100,000

$ 2,447,000

$ 1,900,000

$ 500,000 600,000 1,347,000

$ 300,000 500,000 1,100,000

$ 2,447,000

$ 1,900,000

Version 1

2021

$ 6,250,000 5,125,000 1,125,000 580,000 545,000 218,000

$ 5,450,000 4,400,000 1,050,000 550,000 500,000 200,000

$ 327,000

$ 300,000

2022 $ 327,000 125,000 (275,000)

2021 $ 300,000 125,000 0

200,000

$ 377,000

$ 425,000

114

The gross margin percentage for 2022 is (rounded): A) 11.1% B) 12.0% C) 13.5% D) 18.0% E) 15.0%

Version 1

115

116)

The Harrison Bicycle Company had the following operating results for 2021-2022. In addition, the company paid dividends in both 2021 and 2022 of $210,000 per year and made capital expenditures in both years of $230,000 per year. The company's stock price in 2021 was $14.20 and $12.50 in 2022. Also in 2022, the industry average earnings multiple for the bicycle industry was 8 and the free cash flow and sales multiples were 16 and 1.35, respectively. The company is publicly owned and has 1,500,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 269,000 $ 527,000 $ 452,000 $ 1,248,000 1,215,000

$ 102,000 $ 402,000 $ 302,000 $ 806,000 1,110,000

$ 2,463,000

$ 1,916,000

$ 502,000 620,000 1,341,000

$ 302,000 520,000 1,094,000

$ 2,463,000

$ 1,916,000

Income Statement, for year ended December 31, 2022 Sales Cost of Sales Gross Margin Operating Expenses Operating Income Taxes Net Income Cash Flow From Operations Net Income Plus Depreciation Expense + Decrease (-increase) in Account Receivable and Inventory + Increase (-decrease) in Current Liabilities Cash Flow from Operations

Version 1

2021

$ 6,300,000 5,055,000 1,245,000 540,000 705,000 248,000

$ 5,450,000 4,480,000 970,000 460,000 510,000 208,000

$ 457,000

$ 302,000

2022 $ 457,000 125,000 (-275,000)

2021 $ 302,000 125,000 0

200,000

$ 507,000

$ 427,000

116

Return on assets for 2022 is (rounded): A) 15.0% B) 20.9% C) 22.6% D) 23.8% E) 21.5%

Version 1

117

117)

2021

$ 267,000 $ 525,000 $ 450,000 $ 1,242,000 1,205,000

$ 100,000 $ 400,000 $ 300,000 $ 800,000 1,100,000

$ 2,447,000

$ 1,900,000

$ 500,000 600,000 1,347,000

$ 300,000 500,000 1,100,000

$ 2,447,000

$ 1,900,000

Version 1

2021

$ 6,250,000 5,125,000 1,125,000 580,000 545,000 218,000

$ 5,450,000 4,400,000 1,050,000 550,000 500,000 200,000

$ 327,000

$ 300,000

2022 $ 327,000 125,000 (275,000)

2021 $ 300,000 125,000 0

200,000

$ 377,000

$ 425,000

118

Return on assets for 2022 is (rounded): A) 9.1% B) 15.0% C) 16.7% D) 17.9% E) 15.6%

Version 1

119

118)

The Harrison Bicycle Company had the following operating results for 2021-2022. In addition, the company paid dividends in both 2021 and 2022 of $130,000 per year and made capital expenditures in both years of $230,000 per year. The company's stock price in 2021 was $14.20 and $12.50 in 2022. Also in 2022, the industry average earnings multiple for the bicycle industry was 8 and the free cash flow and sales multiples were 16 and 1.35, respectively. The company is publicly owned and has 1,800,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 268,000 $ 526,000 $ 451,000 $ 1,245,000 1,210,000

$ 101,000 $ 401,000 $ 301,000 $ 803,000 1,105,000

$ 2,455,000

$ 1,908,000

$ 501,000 610,000 1,344,000

$ 301,000 510,000 1,097,000

$ 2,455,000

$ 1,908,000

Income Statement, for year ended December 31, 2022 Sales Cost of Sales Gross Margin Operating Expenses Operating Income Taxes Net Income Cash Flow From Operations Net Income Plus Depreciation Expense + Decrease (-increase) in Account Receivable and Inventory + Increase (-decrease) in Current Liabilities Cash Flow from Operations

Version 1

2021

$ 6,260,000 5,225,000 1,035,000 440,000 595,000 218,000

$ 5,400,000 4,450,000 950,000 460,000 490,000 210,000

$ 377,000

$ 280,000

2022 $ 377,000 125,000 (-275,000)

2021 $ 280,000 125,000 0

200,000

$ 427,000

$ 405,000

120

Return on equity for 2022 is (rounded): A) 15.8% B) 19.2% C) 19.7% D) 30.9% E) 22.0%

Version 1

121

119)

2021

$ 267,000 $ 525,000 $ 450,000 $ 1,242,000 1,205,000

$ 100,000 $ 400,000 $ 300,000 $ 800,000 1,100,000

$ 2,447,000

$ 1,900,000

$ 500,000 600,000 1,347,000

$ 300,000 500,000 1,100,000

$ 2,447,000

$ 1,900,000

Version 1

2021

$ 6,250,000 5,125,000 1,125,000 580,000 545,000 218,000

$ 5,450,000 4,400,000 1,050,000 550,000 500,000 200,000

$ 327,000

$ 300,000

2022 $ 327,000 125,000 (275,000)

2021 $ 300,000 125,000 0

200,000

$ 377,000

$ 425,000

122

Return on equity for 2022 is (rounded): A) 11.6% B) 15.0% C) 15.5% D) 26.7% E) 17.8%

Version 1

123

120)

The Harrison Bicycle Company had the following operating results for 2021-2022. In addition, the company paid dividends in both 2021 and 2022 of $170,000 per year and made capital expenditures in both years of $230,000 per year. The company's stock price in 2021 was $14.20 and $12.50 in 2022. Also in 2022, the industry average earnings multiple for the bicycle industry was 8 and the free cash flow and sales multiples were 16 and 1.35, respectively. The company is publicly owned and has 1,600,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 285,000 $ 543,000 $ 468,000 $ 1,296,000 1,295,000

$ 118,000 $ 418,000 $ 318,000 $ 854,000 1,190,000

$ 2,591,000

$ 2,044,000

$ 518,000 780,000 1,293,000

$ 318,000 680,000 1,046,000

$ 2,591,000

$ 2,044,000

Income Statement, for year ended December 31, 2022 Sales Cost of Sales Gross Margin Operating Expenses Operating Income Taxes Net Income Cash Flow From Operations Net Income Plus Depreciation Expense + Decrease (-increase) in Account Receivable and Inventory + Increase (-decrease) in Current Liabilities Cash Flow from Operations

Version 1

2021

$ 6,300,000 5,135,000 1,165,000 450,000 715,000 298,000

$ 5,370,000 4,430,000 940,000 480,000 460,000 193,000

$ 417,000

$ 267,000

2022 $ 417,000 125,000 (275,000)

2021 $ 267,000 125,000 0

200,000

$ 467,000

$ 392,000

124

The value of the company, calculated using the earnings multiple for 2022 is: A) $1,792,000 B) $2,067,000 C) $3,336,000 D) $3,240,000 E) $9,157,500

Version 1

125

121)

2021

$ 267,000 $ 525,000 $ 450,000 $ 1,242,000 1,205,000

$ 100,000 $ 400,000 $ 300,000 $ 800,000 1,100,000

$ 2,447,000

$ 1,900,000

$ 500,000 600,000 1,347,000

$ 300,000 500,000 1,100,000

$ 2,447,000

$ 1,900,000

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2021

$ 6,250,000 5,125,000 1,125,000 580,000 545,000 218,000

$ 5,450,000 4,400,000 1,050,000 550,000 500,000 200,000

$ 327,000

$ 300,000

2022 $ 327,000 125,000 (275,000)

2021 $ 300,000 125,000 0

200,000

$ 377,000

$ 425,000

126

The value of the company, calculated using the earnings multiple for 2022 is: A) $1,072,000 B) $1,347,000 C) $2,616,000 D) $2,520,000 E) $8,437,500

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122)

2021

$ 285,000 $ 543,000 $ 468,000 $ 1,296,000 1,295,000

$ 118,000 $ 418,000 $ 318,000 $ 854,000 1,190,000

$ 2,591,000

$ 2,044,000

$ 518,000 780,000 1,293,000

$ 318,000 680,000 1,046,000

$ 2,591,000

$ 2,044,000

Income Statement, for year ended December 31, 2022 Sales Cost of Sales Gross Margin Operating Expenses Operating Income Taxes Net Income Cash Flow From Operations Net Income Plus Depreciation Expense + Decrease (-increase) in Account Receivable and Inventory + Increase (-decrease) in Current Liabilities Cash Flow from Operations

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2021

$ 6,300,000 5,135,000 1,165,000 450,000 715,000 298,000

$ 5,370,000 4,430,000 940,000 480,000 460,000 193,000

$ 417,000

$ 267,000

2022 $ 417,000 125,000 (275,000)

2021 $ 267,000 125,000 0

200,000

$ 467,000

$ 392,000

128

The value of the company, calculated using the free cash flow multiple for 2022 is: A) $1,072,000 B) $1,347,000 C) $2,616,000 D) $2,520,000 E) $8,437,500

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123)

2021

$ 267,000 $ 525,000 $ 450,000 $ 1,242,000 1,205,000

$ 100,000 $ 400,000 $ 300,000 $ 800,000 1,100,000

$ 2,447,000

$ 1,900,000

$ 500,000 600,000 1,347,000

$ 300,000 500,000 1,100,000

$ 2,447,000

$ 1,900,000

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2021

$ 6,250,000 5,125,000 1,125,000 580,000 545,000 218,000

$ 5,450,000 4,400,000 1,050,000 550,000 500,000 200,000

$ 327,000

$ 300,000

2022 $ 327,000 125,000 (275,000)

2021 $ 300,000 125,000 0

200,000

$ 377,000

$ 425,000

130

The value of the company, calculated using the free cash flow multiple for 2022 is: A) $1,072,000 B) $1,347,000 C) $2,616,000 D) $2,520,000 E) $8,437,500

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124)

The Harrison Bicycle Company had the following operating results for 2021-2022. In addition, the company paid dividends in both 2021 and 2022 of $270,000 per year and made capital expenditures in both years of $230,000 per year. The company's stock price in 2021 was $14.20 and $12.50 in 2022. Also in 2022, the industry average earnings multiple for the bicycle industry was 8 and the free cash flow and sales multiples were 16 and 1.35, respectively. The company is publicly owned and has 1,600,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 282,000 $ 540,000 $ 465,000 $ 1,287,000 1,280,000

$ 115,000 $ 415,000 $ 315,000 $ 845,000 1,175,000

$ 2,567,000

$ 2,020,000

$ 515,000 750,000 1,302,000

$ 315,000 650,000 1,055,000

$ 2,567,000

$ 2,020,000

Income Statement, for year ended December 31, 2022 Sales Cost of Sales Gross Margin Operating Expenses Operating Income Taxes Net Income Cash Flow From Operations Net Income Plus Depreciation Expense + Decrease (-increase) in Account Receivable and Inventory + Increase (-decrease) in Current Liabilities Cash Flow from Operations

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2021

$ 6,310,000 5,035,000 1,275,000 490,000 785,000 268,000

$ 5,360,000 4,300,000 1,060,000 550,000 510,000 202,000

$ 517,000

$ 308,000

2022 $ 517,000 125,000 (275,000)

2021 $ 308,000 125,000 0

200,000

$ 567,000

$ 433,000

132

The value of the company, calculated using the sales multiple for 2022 is: A) $1,153,000 B) $1,428,000 C) $1,701,000 D) $2,601,000 E) $8,518,500

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125)

2021

$ 267,000 $ 525,000 $ 450,000 $ 1,242,000 1,205,000

$ 100,000 $ 400,000 $ 300,000 $ 800,000 1,100,000

$ 2,447,000

$ 1,900,000

$ 500,000 600,000 1,347,000

$ 300,000 500,000 1,100,000

$ 2,447,000

$ 1,900,000

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2021

$ 6,250,000 5,125,000 1,125,000 580,000 545,000 218,000

$ 5,450,000 4,400,000 1,050,000 550,000 500,000 200,000

$ 327,000

$ 300,000

2022 $ 327,000 125,000 (275,000)

2021 $ 300,000 125,000 0

200,000

$ 377,000

$ 425,000

134

The value of the company, calculated using the sales multiple for 2022 is: A) $1,072,000 B) $1,347,000 C) $1,620,000 D) $2,520,000 E) $8,437,500

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126)

The Harrison Bicycle Company had the following operating results for 2021-2022. In addition, the company paid dividends in both 2021 and 2022 of $160,000 per year and made capital expenditures in both years of $230,000 per year. The company's stock price in 2021 was $14.20 and $12.50 in 2022. Also in 2022, the industry average earnings multiple for the bicycle industry was 8 and the free cash flow and sales multiples were 16 and 1.35, respectively. The company is publicly owned and has 1,400,000 shares of outstanding stock at the end of 2022. Balance Sheet, December 31, 2022 Cash Accounts Receivable Inventory Total Current Assets Long-lived Assets Total Assets Current Liabilities Long-term Debt Shareholder Equity Total Debt and Equity

2021

$ 278,000 $ 536,000 $ 461,000 $ 1,275,000 1,260,000

$ 111,000 $ 411,000 $ 311,000 $ 833,000 1,155,000

$ 2,535,000

$ 1,988,000

$ 511,000 710,000 1,314,000

$ 311,000 610,000 1,067,000

$ 2,535,000

$ 1,988,000

Income Statement, for year ended December 31, 2022 Sales Cost of Sales Gross Margin Operating Expenses Operating Income Taxes Net Income Cash Flow From Operations Net Income Plus Depreciation Expense + Decrease (-increase) in Account Receivable and Inventory + Increase (-decrease) in Current Liabilities Cash Flow from Operations

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2021

$ 6,270,000 5,195,000 1,075,000 430,000 645,000 238,000

$ 5,380,000 4,340,000 1,040,000 560,000 480,000 209,000

$ 407,000

$ 271,000

2022 $ 407,000 125,000 (275,000)

2021 $ 271,000 125,000 0

200,000

$ 457,000

$ 396,000

136

The book value of the company's equity for 2022 is: A) $1,039,000 B) $1,314,000 C) $1,587,000 D) $2,487,000 E) $8,338,500

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127)

2021

$ 267,000 $ 525,000 $ 450,000 $ 1,242,000 1,205,000

$ 100,000 $ 400,000 $ 300,000 $ 800,000 1,100,000

$ 2,447,000

$ 1,900,000

$ 500,000 600,000 1,347,000

$ 300,000 500,000 1,100,000

$ 2,447,000

$ 1,900,000

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2021

$ 6,250,000 5,125,000 1,125,000 580,000 545,000 218,000

$ 5,450,000 4,400,000 1,050,000 550,000 500,000 200,000

$ 327,000

$ 300,000

2022 $ 327,000 125,000 (275,000)

2021 $ 300,000 125,000 0

200,000

$ 377,000

$ 425,000

138

The book value of the company's equity for 2022 is: A) $1,072,000 B) $1,347,000 C) $1,620,000 D) $2,520,000 E) $8,437,500

128)

Which of the following compensation plans would be tailored for a manager in a "growth" product sales life cycle phase? A) High salary, low bonus, low benefits B) Low salary, high bonus, competitive benefits C) Competitive salary, competitive bonus, low benefits D) High salary, low bonus, competitive benefits

129)

Current and deferred bonus plans generally focus the manager’s attention on: A) Long-term performance measures. B) Fixed costs. C) Variable costs. D) Short-term performance measures. E) Profits.

130)

Which of the following is one of the most comprehensive bases of compensation? A) Balanced scorecard. B) Unit-based compensation pool. C) Firm-wide compensation pool. D) Salary. E) Bonuses.

131)

Relative to compensation objectives, short term focus is a disadvantage associated with: A) Current bonus. B) Deferred bonus. C) Stock options. D) Performance shares. E) None of the answers choices is correct.

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132)

Which of the following is a bonus payment option? A) Increased health coverage. B) Increased SBU funding. C) Stock options. D) Membership in a fitness club. E) Life insurance.

133)

How do you calculate enterprise value? A) Market capitalization + Debt − Cash. B) Debt + Market capitalization − Cash. C) Debt + Cash − Market capitalization. D) Cash + Debt – Market capitalization. E) Market capitalization + Cash − Debt.

134)

Enterprise value can be used for: A) Private companies only B) Public companies only C) Public and private companies D) Companies that have been acquired previously E) S-corps.

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Answer Key Test name: chapter 20 1) Essay 2) Essay 3) Essay 4) Essay 5) Essay 6) Essay 7) Essay 8) Essay 9) Essay 10) Essay 11) Essay 12) Essay 13) Essay 14) Essay 15) E 16) B 17) C 18) A 19) B 20) A 21) C 22) B 23) A 24) B 25) C 26) D 27) E 28) A 29) B 30) B 31) B 32) E 33) E 34) B 35) C 36) D 37) C

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38) B 39) D 40) A 41) B 42) C 43) D 44) C 45) E 46) B 47) A 48) C 49) C 50) C 51) E 52) C 53) D 54) E 55) E 56) A 57) A 58) C 59) C 60) C 61) C 62) B 63) B 64) B 65) B 66) A 67) D 68) D 69) C 70) B 71) B 72) D 73) C 74) D 75) C 76) D 77) A

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78) D 79) A 80) D 81) E 82) B 83) D 84) D 85) B 86) A 87) B 88) B 89) B 90) D 91) D 92) D 93) D 94) C 95) C 96) A 97) A 98) C 99) C 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

B B C C E E D D B B C C B B D D B B

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118) 119) 120) 121) 122) 123) 124) 125) 126) 127) 128) 129) 130) 131) 132) 133) 134)

D D C C A A E E B B B D A A C A B

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