1. Which of the following is an example of an activity cost driver?
A) Designing components of a product so they can fit together only in the correct manner
B) Determining the best location for a manufacturing facility
C) Receiving raw materials into the warehouse
D) Deciding how to arrange raw materials inventory within a warehouse
E) None of the above
2. Which of the following phrases is primarily relevant to financial accounting as opposed to managerial accounting?
A) Conforming to external standards
B) Analyzing cost drivers
C) Helping managers to make decisions
D) Evaluating a company's strategic position
3. The following information pertains to Cutter Company's weekly activity and total costs:
Volume of Activity Total Cost
110 units $1,400
120 units $1,500
130 units $1,600
What are Cutter's weekly fixed costs?
A) $ 200
B) $ 300
C) $1,600
D) $ -0-
4. Number of invoices is most appropriate as a cost driver for which of the following types of
activity costs?
A) Assembly
B) Payroll
C) Purchasing
D) Machining
5. Mary French uses gas to heat her home. She has accumulated the following information
regarding her monthly gas bill and monthly heating degree-days. The heating degree-days
value for a month is found by first subtracting the average temperature for each day from
65 degrees and then summing these daily amounts together for the month.
Month Heating Degree-Days Gas Bill
February 1,900 $195
April 600 $78
The equation representing the relationship between the gas bill (Y) and heating
degree-days (X) is:
A) Y = $120 + $0.09X
B) Y = $36 + $0.09X
C) Y = $0.09X
D) Y = $24 + $0.09X
6. As volume increases, which of the following statements is not correct?
A) Total fixed will remain the same.
B) Total variable costs will increase.
C) Variable cost per unit will remain the same.
D) Average cost per unit will increase.
7. Rozella's income statement is as follows:
Sales (10,000 units) $120,000
Less variable costs - 48,000
Contribution margin $72,000
Less fixed costs - 24,000
Net income $ 48,000
What is the unit contribution margin?
A) $ 2.40
B) $ 4.80
C) $12.00
D) $ 7.20
8. Rozella's income statement is as follows:
Sales (10,000 units) $80,000
Less variable costs - 48,000
Contribution margin $32,000
Less fixed costs - 24,000
Net income $ 8,000
If sales increase by $15,000, profits will
A) increase by $6,000.
B) increase by $1,000.
C) increase by $15,000.
D) increase by $4,000.
9. The following information pertains to Manning, Inc:
Selling price per unit $100
Variable costs per unit $70
Total fixed costs $420,000
Tax rate 40%
The sales volume required to obtain a target after-tax profit of $108,000 is
A) 8,572 units.
B) 20,000 units.
C) 6,000 units.
D) 14,000 units.
10. Marlin Company sells three different products that are similar, but are differentiated by various product features. Budgeted sales by product and in total for the coming year are shown below:
Product
Standard Deluxe Premium
Percentage of total sales 48% 20% 32%
Sales $240,000 $100,000 $160,000 $500,000
Less: variable costs 72,000 80,000 88,000
Contribution margin $168,000 $ 20,000 $ 72,000 $260,000
Less: fixed expenses $223,600
Net operating income $ 36,400
If the actual percentage of sales for the year were Standard, 40%; Deluxe, 50%; and Premium, 10%, than
A) the overall contribution margin would decrease and break-even sales would decrease.
B) the overall contribution margin would decrease and break-even sales would increase.
C) the overall contribution margin would increase and break-even sales would decrease.
D) the overall contribution margin would increase and break-even sales would increase.
11. Which of the following statements about sunk costs is true?A) Sunk costs are never relevant to decisions (except for tax considerations).
B) Sunk costs do not vary between decision alternatives.
C) Sunk costs are the result of past decisions.
D) All of the above.
12. Lasso Corporation manufactures a product with the following full unit costs at a volume of 4,000 units:
Direct materials $ 200
Direct labor 80
Manufacturing overhead (30% variable) 150
Selling expenses (50% variable) 50
Administrative expenses (10% variable) 80
Total per unit $560
A company recently approached Lasso's management with an offer to purchase 400 units for $500 each. Lasso currently sells the product to dealers for $800 each. Lasso's capacity is sufficient to produce the extra 400 units. No selling expenses would be incurred on the special order. If Lasso's management accepts the offer, profits will
A) increase by $133,200.
B) decrease by $120,000.
C) decrease by $24,000.
D) increase by $66,800.
13. Elvira Corporation sells 2,000 units of product Y per day at $2.00 per unit. Elvira has the option of processing the product further for additional costs of $1,000 per day to produce product Z, which sells for $2.80 per unit. If Elvira processes product Y further to
produce product Z, the company's net income will
A) increase by $1,600 per day.
B) decrease by $600 per day.
C) decrease by $1,000 per day.
D) increase by $600 per day.
14. The Chat Company manufactures 5,000 telephones per year. The full manufacturing costs per telephone are as follows:
Direct materials $ 4
Direct labor 16
Variable manufacturing overhead 12
Average fixed manufacturing overhead 10
Total $42
The Electric Assembly Company has offered to sell Chat 5,000 telephones for $31 per unit. If Chat accepts the offer, $20,000 of fixed overhead will be eliminated. Chat should
A) buy the telephones; the savings is $25,000.
B) make the telephones; the savings is $5,000.
C) make the telephones; the savings is $25,000.
D) buy the telephones; the savings is $35,000.
15. Which of the following results in an increase in work-in-process inventory?
A) Selling finished goods inventory
B) Finishing a job in process
C) Purchasing raw materials
D) Using direct manufacturing labor hours
16. Park Corp. obtained the following information from its absorption costing accounting records:
Operating Income $48,000
Total Product Costs incurred during the period $32,000
Value of Beginning Work-in-Process and Finished Goods Inventories
Value of Ending Work-in-Process and Finished Goods Inventories
Sales $100,000
The total Period Costs incurred this period equals
A) $68,000.
B) $48,000.
C) $16,000.
D) $20,000.
17. Damen Corp. obtained the following information from its accounting records:
Sales $36,000
Beginning Finished Goods Inventory $21,000
Ending Finished Goods Inventory $17,000
Cost of Goods Sold $16,000
The Cost of Goods Manufactured this period equals
A) $12,000.
B) $23,000.
C) $18,000.
D) $16,000.
18. Which of the following is one of the three major components of product costs?
A) Manufacturing overhead
B) Marketing costs related to specific products
C) Selling, general and administrative expenses
D) Research and development expenses
19. Nashville, Inc. has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows:
Maintenance $600,000
Inspection 400,000
The following data have been assembled for use in developing a bid for a proposed job:
Direct materials $6,000
Direct labor $16,000
Machine-hours 400
Number of inspections 4
Direct labor-hours 800
The practical capacity of machine-hours for all jobs during the year is 25,000, and for inspections is 800. These are the cost drivers for maintenance and inspection costs, respectively.
Using the appropriate cost drivers, the total cost of the potential job is
A) $33,600.
B) $22,000.
C) $30,000.
D) $14,400.
20. Assume that total costs assigned to the setup activity cost pool in March are $80,000 and 100 setups were completed in March. Further, assume that during March machines were setup 20 times to make product X5.
The total setup cost that would be assigned to product X5 would be
A) $160,000.
B) $ 1,600.
C) $ 16,000.
D) Cannot be determined
21. Activity-based costing's primary benefit is that it provides
A) data for external financial reporting purposes.
B) more precise cost data for internal decision-making purposes.
C) absolutely accurate product costing information.
D) all of the above.
22. Which of the following tasks is not required when using a two-stage activity-based costing model?
A) Determining how much direct labor each cost objective consumes
B) Identifying activities
C) Determining the cost per unit of activity
D) Assigning costs to activities
23. Gems Company has a sales budget for next month of $400,000. Cost of goods sold is expected to be 40 percent of sales. All goods are paid for in the month following purchase. The beginning inventory of merchandise is $20,000, and an ending inventory of $24,000 is desired. Beginning accounts payable is $152,000.
The cost of goods sold for next month is expected to be
A) $356,000.
B) $360,000.
C) $160,000.
D) $240,000.
24. Wallace Corporation has a sales budget for next month of $400,000. Cost of goods sold is expected to be $200,000. All goods are paid for in the month following their purchase. The beginning inventory of merchandise is $16,000, and an ending inventory of $12,000
is desired. Beginning accounts payable is $52,000.
How much merchandise inventory will Wallace need to purchase next month?
A) $204,000
B) $400,000
C) $196,000
D) $200,000
25. Grace Manufacturing Company needs to know its anticipated cash inflows for the next quarter by month. Cash sales are 20 percent of total sales each month. Historically, sales on account have been collected as follows: 50 percent in the month of the sale, 30 percent in the month after the sale, and the remaining 20 percent two months after the sale. Gross sales for the quarter are projected as follows: January, $40,000; February, $20,000; and March, $60,000. Accounts receivable on December 31 were $30,000.
Grace's expected cash collections for March would be
A) $47,200.
B) $60,000.
C) $76,400.
D) $46,400.