Response to the following multiple choice questions:
1. Activity-based costing systems assume that:
A) All of these are correct
B) Activities consume overhead costs
C) Overhead costs are insignificant
D) Products consume overhead costs
2. Which of the following is the correct sequence of the five steps of implementing and using an activity-based costing system?
A) Identify overhead cost activities, identify measurable cost drivers, assign overhead, analyze individual overhead costs in terms of those cost activities, and use the cost data to make decisions
B) Use the cost data to make decisions, analyze individual overhead costs in terms of those cost activities, identify measurable cost drivers, assign overhead, and identify overhead cost activities
C) Identify overhead cost activities, analyze individual overhead costs in terms of those cost activities, identify measurable cost drivers, assign overhead, and use the cost data to make decisions
D) Identify measurable cost drivers, assign overhead, identify overhead cost activities, analyze individual overhead costs in terms of those cost activities, and use the cost data to make decision
3. Which of the following is a management philosophy on increasing profitability by improving the quality of products and processes?
A) Balanced scorecard management
B) Process management
C) Costs of quality measurement
D) Total quality management
4. Which of the following is the income statement formula for the absorption costing method?
A) Sales Revenue - Variable Manufacturing Costs = Contribution Margin - Fixed Manufacturing Costs = Operating Income
B) Sales Revenue - Cost of Goods Sold = Gross Margin - Selling and Administrative Expenses = Operating Income
C) Sales Revenue - Cost of Goods Sold = Gross Margin - All Fixed Expenses = Operating Income
D) Sales Revenue - All Variable Costs = Contribution Margin - All Fixed Expenses = Operating Income
5. Which of the following is the income statement formula for the variable costing method?
A) Sales Revenue - All Variable Costs = Contribution Margin - All Fixed Expenses = Operating Income
B) Sales Revenue - Variable Manufacturing Costs = Contribution Margin - Fixed Manufacturing Costs = Operating Income
C) Sales Revenue - Cost of Goods Sold = Gross Margin - All Fixed Expenses = Operating Income
D) Sales Revenue - Cost of Goods Sold = Gross Margin - Selling and Administrative Expenses = Operating Income
Exhibit 1 :
6. Barron Company manufactured 150,000 units during the year but only sold 130,000 of these units. At the beginning of the year, Barron had no beginning finished goods inventory. The following unit costs were incurred during the year:
Variable manufacturing cost $3.00
Variable selling cost $0.50
Fixed manufacturing cost $4.00
Fixed selling cost ($300,000 total) $2.00
Refer to Exhibit 1. Using absorption costing, what is the value of Barron's finished goods inventory at the end of the year?
A) $60,000
B) $80,000
C) $120,000
D) $140,000
7. Refer to Exhibit 1. Using variable costing, what is the value of Barron's finished goods inventory at the end of the year?
A) $80,000
B) $140,000
C) $60,000
D) $120,000
8. Refer to Exhibit 1. If Barron Company sold each unit for $13, what is Barron's net income for the year using absorption costing?
A) $335,000
B) $295,000
C) $415,000
D) $780,000
9. Refer to Exhibit 1. If Barron Company sold each unit for $13, what is Barron's net income for the year using variable costing?
A) $780,000
B) $295,000
C) $335,000
D) $415,000
10. Last year, Racine Company's income under absorption costing was $15,000 lower than its income under variable costing. The company had total production costs of $24 per unit, of which $14 was variable costs. No selling expenses were incurred this year. Racine sold 25,000 units during the year. How many units were produced during the year?
A) 25,000
B) 26,500
C) 24,000
D) 23,500