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BUS 435 Midterm

Test Bank Questions for Midterm
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Which of the following statements is (are) true? (1). An asset is a cost that will be matched with revenues in a future accounting period.
(2). Opportunity costs are recorded as intangible assets in the current accounting period.
A. Only (1) is true.
Which of the following statements is (are) false?
(1). In general, the term expense is used for managerial purposes, while the term cost refers to external financial reports.
(2). An opportunity cost is the benefit forgone by selecting one alternative over another.
A. Only (1) is false.
Which of the following best distinguishes an opportunity cost from an outlay cost?
D. Opportunity costs are sacrifices from foregone alternative uses of resources, whereas outlay costs are cash outflows.
Which of the following accounts would be a period cost rather than a product cost?
E. Freight out.
A company which manufactures custom-made machinery routinely incurs sizable telephone costs in the process of taking sales orders from customers. Which of the following is a proper classification of this cost?
B. Period cost
For a manufacturing company, which of the following is an example of a period cost rather than a product cost?
A. Wages of salespersons.
XYZ Company manufactures a single product. The product's prime costs consist of
A. direct material and direct labor.
Which of the following costs is both a prime cost and a conversion cost?
B. direct labor
Marketing costs include all of the following except:
D. Legal and accounting fees.
Property taxes on the manufacturing facility are an element of
C. Option C
Classifying a cost as either direct or indirect depends upon
D. the cost object to which the cost is being related.
The beginning Work-in-Process inventory plus the total of the manufacturing costs equals
C. total work-in-process during the period.
The cost of the direct labor will be treated as an expense on the income statement when the resulting:
D. products are sold.
Inventoriable costs:
D. are regarded as assets until the units are sold.
A product cost is deducted from revenue when
A. the finished goods are sold.
The amount of direct materials issued to production is found by
C. subtracting ending direct materials from direct materials available for production.
The beginning Finished Goods Inventory plus the cost of goods manufactured equals
E. cost of goods available for sale for the period.
Direct labor would be part of the cost of the ending inventory for which of these accounts?
D. Work-in-Process and Finished Goods.
The Work-in-Process Inventory of the Rapid Fabricating Corp. was $3,000 higher on December 31, 2010 than it was on January 1, 2010. This implies that in 2010
B. cost of goods manufactured was less than total manufacturing costs.
Which of the following is not a product cost under full-absorption costing?
C. Salaries paid to the top management in the company
The term "gross margin" for a manufacturing firm refers to the excess of sales over:
C. cost of goods sold, including fixed indirect manufacturing costs.
How would property taxes paid on a factory building be classified in a manufacturing company?
B. Fixed, product cost.
How would miscellaneous supplies used in assembling a product be classified for a manufacturing company?
D. Variable, product cost.
How would a 5% sales commission paid to sales personnel be classified in a manufacturing company?
C. Variable, period cost.
The student health center employs one doctor, three nurses, and several other employees. How would you classify (1) the nurses' salary and (2) film and other materials used in radiology to give X-rays to students? Assume the activity is the number of students visiting the health center.
B. Option B
Pete's Pizza Place has four pizza makers and ten other employees who take orders from customers and perform other tasks. The four pizza makers and the other employees are paid an hourly wage. How would one classify (1) the wages paid to the pizza makers and other employees and (2) materials (e.g., cheeses, sauce, etc.) used to make the pizza? Assume the activity is the number of pizzas made.
D. Option D
Which of the following statements is (are) true?
(1). The term full cost refers to the cost of manufacturing and selling a unit of product and includes both fixed and variable costs.
(2). The fixed cost per unit is considered constant despite changes in volume of activity within the relevant range.
A. Only (1) is true.
Given the following information for a retail company, what is the total cost of goods purchased for the period?
A. $298,800
A company had beginning inventories as follows: Direct Materials, $300; Work-in-Process, $500; Finished Goods, $700. It had ending inventories as follows: Direct Materials, $400; Work-in-Process, $600; Finished Goods, $800. Material Purchases (net including freight) were $1,400, Direct Labor $1,500, and Manufacturing Overhead $1,600. What is the Cost of Goods Sold for the period?
B. $4,200.
Compute the Cost of Goods Sold for 2008 using the following information:
B. $234,000
Seiler Company has the following information:

What was the direct labor for the period?
A. $5,500.
Seiler Company has the following information:

What was the cost of goods available for sale for the period?
B. $16,500
The estimated unit costs for a company to produce and sell a product at a level of 12,000 units per month are as follows:

What are the estimated conversion costs per unit?
B. $41
The estimated unit costs for a company to produce and sell a product at a level of 12,000 units per month are as follows:

What are the estimated prime costs per unit?
D. $52
The estimated unit costs for a company to produce and sell a product at a level of 12,000 units per month are as follows:

What are the estimated variable costs per unit?
A. $70
Calculate the conversion costs from the following information:
C. $4,500
During the year, a manufacturing company had the following operating results:

What is the cost of goods manufactured for the year?
A. $1,011,000
During April, the CJG Manufacturing Company had the following operating results:

What is the cost of goods manufactured for April?
B. $875,000
Laner Company has the following data for the production and sale of 2,000 units.

What is the variable manufacturing cost per unit?
A. $380
Laner Company has the following data for the production and sale of 2,000 units.

What is the total manufacturing cost per unit?
C. $480
Laner Company has the following data for the production and sale of 2,000 units.

What is the full cost per unit of making and selling the product?
D. $730
Laner Company has the following data for the production and sale of 2,000 units.

What is the contribution margin per unit?
C. $370
Laner Company has the following data for the production and sale of 2,000 units.

What is the conversion cost per unit?
C. $280
Laner Company has the following data for the production and sale of 2,000 units.

What is the prime cost per unit?
C. $300
The following information was collected from the accounting records of the CJG 65 for 3,000 units:

What is CJG's total cost per unit?
D. $250.
The difference between variable costs and fixed costs is (CMA adapted)
B. Unit variable costs are fixed over the relevant range and unit fixed costs are variable.
Which one of the following costs is classified as a period cost? (CIA adapted)
A. The wages of the workers on the shipping docks who load completed products onto outgoing trucks.
The following cost data for the month of May were taken from the records of the Paducah Manufacturing Company: (CIA adapted)

Based upon this information, the manufacturing cost incurred during the month was:
B. $80,000.
Sarasota Company, (a merchandising Co.) has the following data pertaining to the year ended December 31, 2006: (CPA adapted)

What is the cost of goods sold for the year?
B. $460,000
The Southeastern Company's manufacturing costs for the third quarter of 2008 were as follows: (CPA adapted)

What amount should be considered product costs for external reporting purposes?
D. $898,000
For Makwa's Product L, the costs for direct material, machining labor, and assembly labor represent
C. Prime costs.
The difference between the $100 estimated selling price for Product W and its total cost of $88 represents
B. Gross margin per unit.
The total overhead cost of $27 for Makwa's Product W is a
D. Mixed cost.
Research and development costs for Makwa's two new products are
D. Sunk costs.
The advertising costs for the product selected by Makwa will be
C. Period costs.
An opportunity cost is
the foregone benefit from the best alternative course of action.
The process of assigning indirect costs to products, services, people, business units, etc., is
C. cost allocation.
A ___________________ is any end to which a cost is assigned.
A. cost object
A cost allocation rule is the method or process used to assign the costs in the _________ to the ______________.
D. cost pool; cost object
Under full absorption costing, which of the following are included in product costs?
D. All fixed and variable manufacturing costs.
Waupun Company has the following unit costs:

What cost per unit would be used for product costing under full absorption costing?
C. $52
Waupun Company has the following unit costs:

What cost per unit would be used for product costing under variable costing?
B. $42
Cheboygan Company has the following unit costs:

Cheboygan produced and sold 10,000 units. If the product sells for $100, what is the gross margin?
B. $240,000
Cheboygan produced and sold 10,000 units. If the product sells for $100, what is the contribution margin?
C. $290,000
Cheboygan Company has the following unit costs:

Cheboygan produced and sold 10,000 units. If the product sells for $100, what is the operating profit under full absorption costing?
B. $240,000
Cheboygan Company has the following unit costs:

Cheboygan produced and sold 10,000 units. If the product sells for $100, what is the operating profit using a contribution margin income statement?
A. $170,000
Cost-volume-profit (CVP) analysis is a simple but powerful tool to assist management make operating decisions. Which of the following does not represent a potential use of CVP analysis?
C. Aids in evaluating tax planning alternatives.
Which of the following would not cause the break-even point to change?
C. Sales volume decreases.
If the fixed costs for a product decrease and the variable costs (as a percentage of sales dollars) decrease, what will be the effect on the contribution margin ratio and the break-even point respectively?
B. b
The Blue Company is currently selling its single product for $15. Variable costs are estimated to remain at 70% of the current selling price and fixed costs are estimated to be $4,800 per month. If Blue increases its selling price by 10%, its variable cost ratio will
B. decrease
Expense A is a fixed cost expense, B is a variable cost. During the current year the volume of output has decreased. In terms of cost per unit of output, we would expect that
D. expense B has remained unchanged.
If both the variable cost per unit and the selling price per unit decrease, the new contribution margin ratio in relation to the old contribution margin ratio will be:
D. Not enough information to tell.
A company's break-even point will not be increased by:
E. an increase in the number of units produced and sold.
Which of the following changes to a company's contribution income statement will always lower the break-even point (either in units or in dollars)?
A. Sales price increases by 10%.
Operating leverage refers to the extent to which an organization's cost structure is made up of:
C. fixed costs.
A decrease in the margin of safety would be caused by a(n):
A. increase in the total fixed costs.
At a break-even point of 400 units, variable costs were $400 and fixed costs were $200. What will the 401st unit sold contribute to operating profits before income taxes?
A. $.50
Barnes Corporation manufactures skateboards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.



The break-even point (rounded to the nearest dollar) for Barnes Corporation for the current year is
B. $636,364.
Barnes Corporation manufactures skateboards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.



For the coming year, the management of Barnes Corporation anticipates a 10 percent increase in sales, a 12 percent increase in variable costs, and a $45,000 increase in fixed expenses.
The break-even point for next year would be
A. $729,027.
You have been provided with the following information:



If sales decrease by 500 units, how much will fixed expenses have to be reduced by to maintain the current operating profit of $6,000?
D. $3,000.
XYZ Company's sales are $750,000 with operating profits of $130,000. If the contribution margin ratio is 40%, what did the fixed costs amount to?
D. $170,000.
The following costs have been estimated based on sales of 30,000 units:



What selling price will yield a contribution margin of 40%?
C. $39.58
Fowler Manufacturing Company has a fixed cost of $225,000 for the production of tubes. Estimated sales are 150,000 units. A before tax profit of $125,000 is desired by the controller. If the tubes sell for $5 each, what unit contribution margin is required to attain the profit target?
B. $2.33.
JJ Motors Inc. employs 45 sales personnel to market their line of luxury automobiles. The average car sells for $23,000, and a 6 percent commission is paid to the salesperson. JJ Motors is considering a change to the commission arrangement where the company would pay each salesperson a salary of $2,000 per month plus a commission of 2 percent of the sales made by that salesperson. The amount of total monthly car sales at which JJ Motors would be indifferent as to which plan to select is
A. $2,250,000.
Given the following information:



What would expected net income be if the company experienced a 10 percent increase in fixed costs and 10 percent increase in sales volume?
D. $1,375.
Given the following data:



If sales decrease by 500 units, by what % would fixed expenses have to be reduced by to maintain current net income?
C. 25.0%.
The Dooley Co. manufactures two products, Baubles and Trinkets. The following are projections for the coming year:



How many Baubles will be sold at the break-even point, assuming that the facilities are jointly used and the sales mix will remain constant?
C. 6,600
Breakeven analysis assumes that over the relevant range (CPA adapted):
C. Unit Variable Costs are unchanged.
At the break-even point the total contribution margin equals total: (CPA adapted)
D. Fixed costs
On January 1, 2006, Lake Co. increased its direct labor wage rates. All other budgeted costs and revenues were unchanged. How did this increase affect Lake's budgeted break-even point and budgeted margin of safety? (CPA adapted)
B. b
During 2006, Thor Lab supplied hospitals with a comprehensive diagnostic kit for $120. At a volume of 80,000 kits, Thor had fixed costs of $1,000,000 and a profit before income taxes of $200,000. Due to an adverse legal decision, Thor's 2007 liability insurance increased by $1,200,000 over 2006. Assuming the volume and other costs are unchanged, what should the 2007 price be if Thor is to make the same $200,000 profit before income taxes? (CPA adapted)
B. $135.00
The following information pertains to Syl Co.:



What is Syl's break-even point in sales dollars? (CPA adapted)
C. $50,000
The following pertains to Clove Co. for the year ending December 31, 2008:



Clove's margin of safety is: (CPA adapted)
A. $300,000
Kator Inc. manufactures industrial components. One of its products used as a subcomponent in auto manufacturing is KB-96. The selling price and cost per unit data for 9,000 units of KB-96 is as follows.



During the next year, sales of KB-96 are expected to be 10,000 units. All costs will remain the same except for fixed manufacturing overhead, which will increase 20%, and material, which will increase 10%. The selling price per unit for next year will be $160. Based on this data, Kator Inc.'s total contribution margin for next year will be: (CMA adapted)
D. $1,080,000
The selling price that would maintain the same contribution margin ratio as last year is
C. $10.00.
The number of T-shirts Donnelly Corporation must sell to break even in the coming year is
B. 19,250 units.
Sales for the coming year are expected to exceed last year's by 1,000 units. If this occurs, Donnelly's sales volume in the coming year will be
A. 22,600 units.
If Donnelly Corporation wishes to earn $22,500 in after tax net income for the coming year, the company's sales volume in dollars must be
D. $229,500.
Sanfran has the following data:



How many units must Sanfran produce and sell in order to break-even?
D. 22,500 units
Sanfran has the following data:



How many units must Sanfran produce and sell in order to achieve a profit of $30,000 per month?
C. 25,000 units
Sanfran has the following data:



If Sanfran produces and sells 30,000 units, what is the margin of safety?
B. 7,500 units
RedTail Mfg has the following data:



What dollar sales volume does RedTail need to break-even?
D. $1,233,333
RedTail Mfg has the following data:



What dollar sales volume does RedTail need to achieve a $50,000 operating profit per month?
A. $1,400,000
RedTail Mfg has the following data:



If RedTail has actual monthly sales of $1,500,000 and desires an operating profit of $50,000 per month, what is the margin of safety?
B. $266,667
KR Sales had $1,200,000 in sales last month. The variable cost ratio was 60% and operating profits were $80,000. What is KR's break-even sales volume?
B. $1,000,000
KR Sales had $1,200,000 in sales last month. The variable cost ratio was 60% and operating profits were $80,000. What sales volume does KR's need to yield a $200,000 operating profit?
C. $1,500,000
KR Sales had $1,200,000 in sales last month. The variable cost ratio was 60% and operating profits were $80,000. What is KR's margin of safety?
A. $200,000
Acme Sales has two store locations. Store A has fixed costs of $125,000 per month and a variable cost ratio of 60%. Store B has fixed costs of $200,000 per month and a variable cost ratio of 30%. At what sales volume would the two stores have equal profits?
A. $250,000
Acme Sales has two store locations. Store A has fixed costs of $125,000 per month and a variable cost ratio of 60%. Store B has fixed costs of $200,000 per month and a variable cost ratio of 30%. What is the break-even sales volume for Store B?
C. $285,714
Acme Sales has two store locations. Store A has fixed costs of $125,000 per month and a variable cost ratio of 60%. Store B has fixed costs of $200,000 per month and a variable cost ratio of 30%. What is the break-even sales volume for Store A?
B. $312,500
Genco Sales has two store locations. Carslberg has fixed costs of $250,000 per month and a contribution margin ratio of 35%. Tuborg has fixed costs of $400,000 per month and a contribution margin ratio of 65%. At what sales volume would the two stores have equal profits?
A. $500,000
Which of the following would not cause the break-even point to change?
B. Sales volume increases.
Which of the following would not cause the break-even point to change?
D. Sales volume decreases.
If the fixed costs for a product increase and the variable costs (as a percentage of sales dollars) increase, what will be the effect on the contribution margin ratio and the break-even point respectively?
A. a
A company's break-even point will not be increased by:
an increase in the number of units produced and sold.
A company's break-even point will not be changed by:
E. a change in the income tax rate.
A company's break-even point will not be changed by:
B. a change in the number of units produced and sold.
If both the variable cost per unit and the selling price per unit increase, the new contribution margin ratio in relation to the old contribution margin ratio will be:
D. Not enough information to tell.
Misa Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.



The contribution margin ratio for the current year is
B. 49.3%
Misa Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.



The break-even point (rounded to the nearest dollar) for Misa Corporation for the current year is
C. $1,724,138.
Misa Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.



For the coming year, the management of Misa Corporation anticipates a 5 percent decrease in sales, a 10 percent increase in all variable costs, and a $45,000 increase in fixed expenses.
The operating profit for next year would be
A. $477,500.
Misa Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.



For the coming year, the management of Misa Corporation anticipates a 5 percent decrease in sales, a 10 percent increase in variable costs, and a $45,000 increase in fixed expenses.
The break-even point for next year would be
D. $2,168,225.
You have been provided with the following information:



If unit sales decrease by 10%, how much will fixed expenses have to be reduced by to maintain the current operating profit?
D. $1,800.
You have been provided with the following information:



If sales decrease by 10%, what level of fixed expenses will maintain the current operating profit?
B. $20,400.
You have been provided with the following information:



If sales increase by 10%, what level of fixed expenses will yield a 20% increase in profits?
C. $25,200.
EM Sales had $2,200,000 in sales last month. The contribution margin ratio was 30% and operating profits were $180,000. What is EM's break-even sales volume?
C. $1,600,000
EM Sales had $2,200,000 in sales last month. The contribution margin ratio was 30% and operating profits were $180,000. What sales volume does EM's need to yield a $240,000 operating profit?
C. $2,400,000
EM Sales had $2,200,000 in sales last month. The contribution margin ratio was 30% and operating profits were $180,000. What is EM's margin of safety?
B. $600,000
Kanmore produces and sells three products. Last month's results are as follows:



Fixed costs total $200,000. What is Kanmore's break-even sales volume? (Assume the current product mix)
B. $416,667
Kanmore produces and sells three products. Last month's results are as follows:



Fixed costs total $200,000. What is Kanmore's margin of safety? (Assume the current product mix)
A. $83,333
Kanmore produces and sells three products. Last month's results are as follows:



Fixed costs total $200,000. What sales volume would generate an operating profit of $150,000? (Assume the current prodcut mix)
C. $729,167
The relevance of a particular cost to a decision is determined by the: (CMA adapted)
D. potential effect on the decision.
In a decision analysis situation, which one of the following costs is not likely to contain a variable cost component? (CMA adapted)
C. Straight-line Depreciation
Which of the following statements regarding differential costs is (are) false?
(A) The full cost fallacy occurs when a decision-maker fails to include fixed manufacturing overhead in the product's cost.
(B) When deciding whether or not to accept a special order, a decision-maker should focus on differential costs instead of full costs.
A. Only A.
Which of the following costs are irrelevant for a special order that will allow an organization to utilize some of its present idle capacity?
D. Unavoidable fixed overhead
Which of the following statements regarding special orders is (are) true?
(A) The primary decision for special orders is determining whether the differential revenue is greater than the differential costs associated with the order.
(B) The differential analysis approach to pricing for special orders could lead to underpricing in the long-run because fixed costs are not included in the analysis.
D. Both A and B are true.
Which of the following costs are not considered in a differential analysis for a make-or-buy decision?
E. Fixed overhead that will continue if the item is purchased
For the past five years, the RS Company has produced and sold electronic magnets to chemistry labs throughout the United States. Recently, a strong competitor has entered the market and RS is considering whether it should continue to produce and sell the electronic magnets. The following information has been gathered to assist management in their decision:
A) The machinery used to produce the magnet was purchased five-years ago for $500,000.
B) Four of the employees who produce magnets would be reassigned to the magnifying glass division.
C) The space now used to produce the magnets would be used to eliminate the need to rent warehouse space.
D) Sales volume (units) is estimated to drop by 50% once the competitor becomes fully operational.
Which of the items listed above is (are) relevant to the decision to continue the production and sale of the electronic magnets?
C. C and D.
Which of the following statements about the theory of constraints is (are) true?
(A) The theory of constraints focuses on determining the optimal product mix when one or more resources restrict the attainment of a goal or objective.
(B) The theory of constraints focuses on maximizing the rate of throughput contribution while minimizing investment and other operating costs.
D. Both A and B are true.
The theory of constraints focuses on maximizing throughput contribution margin while minimizing all of the following except
A. selling expenses per unit sold.
The AZ Company manufactures kitchen utensils. The company is currently producing well below its full capacity. The BV Company has approached AZ with an offer to buy 20,000 utensils at $0.75 each. AZ sells its utensils wholesale for $0.85 each; the average cost per unit is $0.83, of which $0.12 is fixed costs. If AZ were to accept BV's offer, what would be the increase in AZ's operating profits?
B. $800
The MNK Company has gathered the following information for a unit of its most popular product:



The above cost information is based on 4,000 units. A foreign distributor has offered to buy 1,000 units at a price of $16 per unit. This special order would not disturb regular sales. Variable shipping and other selling expenses would be an additional $1 per unit for the special order. If the special order is accepted, MNK's operating profits will increase by:
D. $4,000.
The following information relates to the Tram Company for the upcoming year.



The cost of goods sold includes $1,200,000 of fixed manufacturing overhead; the operating expenses include $100,000 of fixed marketing expenses. A special order offering to buy 50,000 units for $7.50 per unit has been made to Tram. Fortunately, there will be no additional operating expenses associated with the order and Tram has sufficient capacity to handle the order. How much will operate profits be increased if Tram accepts the special order?
C. $100,000
The Regal Baking Company is considering the expansion of its business into door-to-door delivery service. This would require an additional $12,500 in labor costs per month. Company-owned vehicles now used to make morning deliveries to restaurants could be used in the afternoons to make the home deliveries. However, it is estimated that an additional $5,000 would be required per month for gas, oil, and maintenance. It is further estimated that the home delivery use of the trucks would be allocated 45% of the existing $6,500 fixed vehicle costs. What is the differential delivery cost per month for expanding into the home delivery market?
B. $17,500
The Blade Division of Axe Company produces hardened steel blades. One-third of Blade's output is sold to the Forestry Products Division of Axe; the remainder is sold to outside customers. Blades' estimated operating profit for the year is:



The Forestry Division has an opportunity to purchase 10,000 blades of the same quality from an outside supplier on a continuing basis. The Blade Division cannot sell any additional products to outside customers. Should the Axe Company allow its Forestry Division to purchase the blades from the outside supplier at $1.25 per unit?
C. No; making the blades will save Axe $2,500.
The Blade Division of Axe Company produces hardened steel blades. One-third of Blade's 30,000 unit output is sold to the Forestry Products Division of Axe; the remainder is sold to outside customers. Blades' estimated operating profit for the year is:



The Forestry Division has an opportunity to purchase 10,000 blades of the same quality from an outside supplier on a continuing basis. The purchase price would be $1.25. If the Blade Division is now operating at full capacity and can sell all its units to outside customers at the present selling price, what is the differential cost to Axe of requiring that the blades be made internally and sold to the Forestry Division?
C. $7,500
The CJP Company produces 10,000 units of item S10 annually at a total cost of $190,000.



The XYZ Company has offered to supply 10,000 units of S10 per year for $18 per unit. If CJP accepts the offer, $4 per unit of the fixed overhead would be saved. In addition, some of CJP's facilities could be rented to a third party for $15,000 per year. What are the relevant costs for the "make" alternative?
C. $175,000
The CJP Company produces 10,000 units of item S10 annually at a total cost of $190,000.



The XYZ Company has offered to supply 10,000 units of S10 per year for $18 per unit. If CJP accepts the offer, $4 per unit of the fixed overhead would be saved. In addition, some of CJP's facilities could be rented to a third party for $15,000 per year. At what price would CJP be indifferent to XYZ's offer?
B. $17.50
Differential costs are (CMA adapted)
A. the difference in total costs that result from selecting one choice instead of another.
The period of time over which capacity will be unchanged is
C. short run
The time from initial research and development to the time that support to the customer ends is the
A. product life cycle
The price based on customers' perceived value for the product and the price that competitors charge:
B. target price
The practice of setting price below cost with the intent to drive competitors out of business:
A. predatory pricing
The practice of setting prices highest when the quantity demanded for the product approaches capacity:
C. peak-load pricing
Agreement among business competitors to set prices at a particular level:
D. price fixing
Exporting a product to another country at a price below domestic cost:
A. dumping
A target cost is computed as
D. market willingness to pay - desired profit
The operations of Blink Corporation are divided into the Will Division and the Aloy Division. Projections for the next year are as follows:



Operating income for Blink Corporation as a whole if the Carter Division were dropped would be
D. $49,000
Bryon Industries manufactures 20,000 components per year. The manufacturing cost of the components was determined as follows:



An outside supplier has offered to sell the component for $17. If Bryon purchases the component from the outside supplier, the manufacturing facilities would be unused and could be rented out for $10,000. If Bryon purchases the component from the supplier instead of manufacturing it, the effect on income would be:
C. a $10,000 decrease
Albany Industries produces two products. Information about the products is as follows:



The company's fixed costs totaled $70,000, of which $15,000 can be directly traced to Product 1 and $40,000 can be directly traced to Product 2. The effect on the firm's profits if Product 2 is dropped would be a
D. $10,000 decrease
Which of the following costs would continue to be incurred even if a segment is eliminated?
C. Common fixed costs
NorWest Shoe Company has two retail stores, one in Albertville and the other in Bloomer. The Albertville store had sales of $100,000, a contribution margin of 35 percent, and a segment margin of $14,000. The company's two stores have total sales of $250,000, contribution margin of 32 percent, and a total segment margin of $31,000. The contribution margin for the Bloomer store must have been
D. $45,000
Miller Industries has two divisions: the West Division and the East Division. Information relating to the divisions for the year just ended is as follows:



Common fixed expenses have been allocated equally to each of the two divisions. Miller's segment margin for the West Division is
B. $102,000
Chetek Industries manufactures 15,000 components per year. The manufacturing cost of the components was determined to be as follows:



Assume that the fixed manufacturing overhead reflects the cost of Chetek's manufacturing facility. This facility cannot be used for any other purpose. An outside supplier has offered to sell the component to Chetek for $34. If Chetek Industries purchases the component from the outside supplier, the effect on income would be a
A. $30,000 decrease
Chetek Industries manufactures 15,000 components per year. The manufacturing cost of the components was determined to be as follows:



Assume Chetek Industries could avoid $40,000 of fixed manufacturing overhead if it purchases the component from an outside supplier. An outside supplier has offered to sell the component for $34. If Chetek purchases the component from the supplier instead of manufacturing it, the effect on income would be a
B. $10,000 increase
The operations of Superior Corporation are divided into the Northrup Division and the Hawley Division. Projections for the next year are as follows:



Operating income for Superior Corporation, as a whole, if the Hawley Division were dropped would be
A. $45,000
The following information relates to a product produced by Ashland Company:



Fixed selling costs are $1,000,000 per year. Variable selling costs of $4 per unit sold are added to cover the transportation cost. Although production capacity is 500,000 units per year, Ashland expects to produce only 400,000 units next year. The product normally sells for $40 each. A customer has offered to buy 60,000 units for $30 each. The customer will pay the transportation charge on the units purchased. If Ashland accepts the special order, the effect on income would be a
C. $420,000 increase
If there is excess capacity, the minimum acceptable price for a special order must cover
C. variable and incremental fixed costs associated with the special order.
The Winwood Company manufactures two products: Q and T. The costs and revenues are as follows:



Total demand for Product Q is 14,000 units and for Product T is 9,000 units. Machine time is a scarce resource. During the year, 54,000 machine hours are available. Product Q requires 5 machine hours per unit, while Product T requires 3 machine hours per unit.
How many units of Products Q and T should Winwood produce?
D. d
Roswell Inc has 5,400 machine hours available each month. The following information on the company's three products is available:



If market demand exceeds the available capacity, in what sequence should orders be filled to maximize the company's profits?
B. Product 2 first, product 3 second, and product 1 third
Lerner Inc has 6,600 machine hours available each month. The following information on the company's three products is available:



If market demand exceeds the available capacity, in what sequence should orders be filled to maximize the company's profits?
A. Product X first, product Z second, and product Y third
The Clapton Company manufactures two products: Alpha and Beta. The costs and revenues are as follows:



Total demand for Alpha is 10,000 units and for Beta is 6,000 units. Machine hours is a scarce resource. During the year, 50,000 machine hours are available. Alpha requires 4 machine hours per unit, while Beta requires 2.5 machine hours per unit.

How many units of Alpha and Beta should Clapton produce?
C. c
The Clapton Company manufactures two products: Alpha and Beta. The costs and revenues are as follows:



Total demand for Alpha is 10,000 units and for Beta is 6,000 units. Machine time is a scarce resource. During the year, 50,000 machine hours are available. Alpha requires 4 machine hours per unit, while Beta requires 2.5 machine hours per unit.
What is the maximum contribution margin Clapton can achieve during a year?
A. $444,250
Zurek Inc has 5,400 machine hours available each month. The following information on the company's three products is available:



The market demand is limited to 2,000 units of each of the three products. How many units of each should Zurek produce and sell?
C. c
Zurek Inc has 5,400 machine hours available each month. The following information on the company's three products is available:



The market demand is limited to 2,000 units of each of the three products. What is the maximum possible contribution margin that Zurek could make in any month?
B. $46,500
Winton Inc has 12,000 machine hours available each month. The following information on the company's four products is available:



If market demand exceeds the available capacity, in what sequence should orders be filled to maximize the company's profits?
A. Product W first, product X second, product Z third, and product Y last.
The Axle Division of Becker Company produces axles for off-road sport vehicles. One-third of Axle's output is sold to an internal division of Becker; the remainder is sold to outside customers. Axle's estimated operating profit for the year is:



The internal division has an opportunity to purchase 10,000 axles of the same quality from an outside supplier on a continuing basis. The Axle Division cannot sell any additional products to outside customers. Should the Becker Company allow its internal division to purchase the axles from the outside supplier at $13.00 per unit?
C. No; making the axles will save Becker $30,000.
The Axle Division of Becker Company produces axles for off-road sport vehicles. One-third of Axle's 30,000 unit output is sold to an internal division of Becker; the remainder is sold to outside customers. Axles' estimated operating profit for the year is:



The internal division has an opportunity to purchase 10,000 axles of the same quality from an outside supplier on a continuing basis. The purchase price would be $13.00. If the Axle Division is now operating at full capacity and can sell all its units to outside customers at the present selling price, what is the differential cost to Becker of requiring that the axles be made internally and sold to the internal division?
C. $70,000
The Axle Division of Becker Company produces axles for off-road sport vehicles. One-third of Axle's 30,000 unit output is sold to an internal division of Becker; the remainder is sold to outside customers. Axles' estimated operating profit for the year is:



The internal division has an opportunity to purchase 10,000 axles of the same quality from an outside supplier on a continuing basis. The purchase price would be $13.00. If the Axle Division is now operating at full capacity and can sell all its units to outside customers at the present selling price, what is the minimum selling price that Axle should accept from the internal division?
D. $20.00
The Axle Division of Becker Company produces axles for off-road sport vehicles. One-third of Axle's output is sold to an internal division of Becker; the remainder is sold to outside customers. Axle's estimated operating profit for the year is:



The internal division has an opportunity to purchase 10,000 axles of the same quality from an outside supplier on a continuing basis. The Axle Division cannot sell any additional products to outside customers. What is the minimum selling price that Axle should accept from the internal division?
A. $10.00
The Bremmer Company produces 5,000 units of item ZQ98 annually at a total cost of $200,000.



The Daisy Company has offered to supply all 5,000 units of ZQ98 per year for $35 per unit. If Bremmer accepts the offer, $8 per unit of the fixed overhead would be saved. In addition, some of Bremmer's leased facilities could be vacated, reducing lease payments by $30,000 per year. What are the relevant costs for the "make" alternative?
C. $190,000
The Bremmer Company produces 5,000 units of item ZQ98 annually at a total cost of $200,000.



The Daisy Company has offered to supply all 5,000 units of ZQ98 per year for $35 per unit. If Bremmer accepts the offer, $8 per unit of the fixed overhead would be saved. In addition, some of Bremmer's leased facilities could be vacated, reducing lease payments by $30,000 per year. At what price would Bremmer be indifferent to Daisy's offer?
B. $38
The Speedy Delivery Service is considering the expansion of its business into afternoon retail delivery service. This would require an additional $25,000 in labor costs per month. Company-owned vehicles now used to make morning deliveries to local manufacturers could be used in the afternoons to make retail deliveries. However, it is estimated that an additional $10,000 would be required per month for gas, oil, and maintenance. It is further estimated that the retail delivery use of the trucks would be allocated 45% of the existing $13,000 fixed vehicle costs. What is the differential delivery cost per month for expanding into the retail delivery market?
B. $35,000
The Lemaire Company manufactures wiring tools. The company is currently producing well below its full capacity. The Boisvert Company has approached Lemaire with an offer to buy 10,000 tools at $1.75 each. Lemaire sells its tools wholesale for $1.85 each; the average cost per unit is $1.83, of which $0.27 is fixed costs. If Lemaire were to accept Boisvert's offer, what would be the increase in Lemaire's operating profits?
C. $1,900
The Buchanan Company has gathered the following information for a unit of its most popular product:



The above cost information is based on 10,000 units. A distributor has offered to buy 2,000 units at a price of $32 per unit. This special order would not disturb regular sales. Special packaging and other selling expenses would be an additional $0.50 per unit for the special order. If the special order is accepted, Buchanan's operating profits will increase by:
D. $19,000.
The Buchanan Company has gathered the following information for a unit of its most popular product:



The above cost information is based on 10,000 units. A distributor has offered to buy 2,000 units at a price of $32 per unit. The distributor claims this special order would not disturb regular sales at $42. Special packaging and other selling expenses would be an additional $0.50 per unit for the special order. How many units of regular sales could be lost before this contract is not profitable?
B. 950 units.
The following information relates to the Jax Company for the upcoming year.



The cost of goods sold includes $2,400,000 of fixed manufacturing overhead; the operating expenses include $200,000 of fixed marketing expenses. A special order offering to buy 50,000 units for $15.00 per unit has been made to Jax. Fortunately, there will be no additional operating expenses associated with the order and Jax has sufficient capacity to handle the order. How much will operating profits increase if Jax accepts the special order?
C. $200,000
The following information relates to the Jax Company for the upcoming year.



The cost of goods sold includes $2,400,000 of fixed manufacturing overhead; the operating expenses include $200,000 of fixed marketing expenses. A special order offering to buy 50,000 units for $15.00 per unit has been made to Jax. Fortunately, there will be no additional operating expenses associated with the order; however, Jax is operating at full capacity. How much will operating profits increase if Jax accepts the special order?
A. $50,000
E. Operating profits will not increase as a result of accepting the special order.
The following information relates to a product produced by Ashland Company:



Fixed selling costs are $1,000,000 per year. Although production capacity is 500,000 units per year, Ashland expects to produce only 400,000 units next year. The product normally sells for $80 each. A customer has offered to buy 60,000 units for $60 each. The customer will pay the transportation charge on the units purchased. If Ashland accepts the special order, the effect on income would be a
C. $840,000 increase
The operations of Gadwell Corporation are divided into the Blink Division and the Blur Division. Projections for the next year are as follows:



Operating income for Gadwell Corporation as a whole if the Blur Division were dropped would be
D. $24,500
The operations of Gadwell Corporation are divided into the Blink Division and the Blur Division. Projections for the next year are as follows:



If the Blur Division were dropped, Blink Division's sales would increase by 30%. If this happened, the operating income for Gadwell Corporation as a whole would be
C. $79,100
Which of the following statements regarding differential costs is (are) true?
(A) The full cost fallacy occurs when a decision-maker includes fixed manufacturing overhead in the product's cost.
(B) When deciding whether or not to accept a special order, a decision-maker should focus on differential costs instead of full costs.
D. Both A and B are true.
Which of the following statements regarding special orders is (are) false?
(A) The primary decision for special orders is determining whether the differential revenue is greater than the differential costs associated with the order.
(B) The differential analysis approach to pricing for special orders will always lead to underpricing in the long-run because fixed costs are not included in the analysis.
B. Only B.
Which of the following costs are not considered in a differential analysis for a make-or-buy decision?
D. Fixed overhead that will continue if the item is purchased
For the past five years, the Selin Company has produced and sold frequency meters to genetics labs throughout the United States. Recently, a strong competitor has entered the market and Selin is considering whether it should continue to produce and sell the frequency meters. The following information has been gathered to assist management in their decision:
A) Sales volume (units) is estimated to drop by 25% once the competitor becomes fully operational.
B) The equipment used to produce the meters was purchased five-years ago for $1,500,000.
C) The space now used to produce the meters would be reallocated to eliminate the need to rent warehouse space.
D) Three of the employees who produce meters would be reassigned to the oscillator division.
Which of the items listed above is (are) relevant to the decision to continue the production and sale of the frequency meters?
A. A and C.
Which of the following statements about the theory of constraints is (are) true?
(A) The theory of constraints focuses on determining the optimal product mix when two or more resources restrict the attainment of a goal or objective.
(B) The theory of constraints focuses on maximizing the rate of throughput contribution while maximizing investment and other operating costs.
C. Neither A nor B is true.
Which of the following statements is (are) true regarding product costing?
(A) Individual product costs are relevant for managerial decision-making but irrelevant for preparing the financial statements.
(B) A common decision facing managers is determining the price at which to sell their product or provide their services.
B. Only B is true.
Which of the following statements is (are) false regarding cost allocations and product costing?
(A) It is easier to determine the individual product cost for a manufacturer than it is for a wholesaler.
(B) In general, indirect costs are assigned, while direct costs are allocated.
C. Both A and B are false.
The Cost Flow Diagram for product costing includes all of the following costs except:
A. Selling expenses
Which of the following statements does not reflect one of the fundamental themes underlying the design of cost systems for managerial purposes?
D. The primary purpose of cost systems is to gather information to value inventory.
The basic cost flow model is:
EB = BB + TI - TO
When a manufacturing company has a highly automated manufacturing plant producing many different products, what is probably the most appropriate basis of applying overhead costs to work-in-process?
C. Machine hours.
Beal Company uses direct labor cost as a basis for computing its predetermined overhead rate. In computing the predetermined overhead rate for 2010, the company misclassified a portion of direct labor cost as indirect labor. The effect of this misclassification will be to
B. overstate the predetermined overhead rate.
In a labor intensive company in which more overhead is used by the more highly skilled and paid employees, which activity base would be most appropriate for applying overhead to production?
A. Direct labor cost.
A company is considering the use of a single-stage cost allocation process. Under what conditions would this choice be justified?
B. The company produces a few products with similar characteristics in a few departments.
Which of the following statements regarding the two-stage cost allocation process is (are) false?
(A) If a company has three cost pools, then it should also have three different cost allocation bases.
(B) The selection of an appropriate cost allocation base is more important for single-stage cost allocation systems than for two-stage cost allocation systems.
B. Only B is false.
Cost pools are:
A. costs that are accumulated before being allocated to cost objects on some common basis.
A system that provides information about the costs of processes, products, and services used and produced by an organization is a
B. cost management system.
The process of first allocating costs to intermediate cost pools and then to the individual cost objects using different allocation bases is:
C. two-stage allocation system.
A system that mass-produces a single, homogenous output in a continuous process is:
A. continuous flow process.
A hybrid costing system that is often used when manufacturing goods that have some common characteristics plus some individual characteristics is called:
D. operations cost.
Which of the following statements is true?
D. Process costing does not separately record the costs for each unit.
Which of the following would be the least appropriate allocation base for allocating overhead in a highly automated (i.e., capital-intensive) manufacturing company?
C. direct labor hours
For which of the following businesses would the job order cost system be appropriate?
A. law office
The loan department of a financial corporation makes loans to businesses. The costs of processing these loans are often several thousand dollars. All loans are initially evaluated using the same financial analysis software, but some require outside services such as appraisals and legal services. Which is the most appropriate costing system for the loan department?
C. operation costing
The UVW Manufacturing Company produces a single uniform product throughout the year. Which of the following product costing systems should be used by UVW?
B. process costing
For Case (A) above, what is the Beginning Balance (BB)?
B. $82,000
For Case (B) above, what is the amount Transferred Out (TO)?
B. $101,500
For Case (C) above, what is the amount Transferred In (TI)?
C. $21,500
The following information has been gathered for the GHI Manufacturing Company for its fiscal year ending December 31:



What is the predetermined manufacturing overhead rate per direct labor hour?
D. $3.75
The following information has been gathered for the GHI Manufacturing Company for its fiscal year ending December 31:



What is the predetermined manufacturing overhead rate assuming direct labor cost is used as the activity base?
A. 48.4%
The predetermined manufacturing overhead rate for 2010 was $4.00 per direct labor hour; employees were paid $5.00 per hour. If the estimated direct labor cost was $75,000, what was the estimated manufacturing overhead?
B. $60,000
The Silver Company uses a predetermined overhead rate in applying overhead to production orders on a labor cost basis in Department A and on a machine hours basis in Department B. At the beginning of the year, the company made the following estimates:



What predetermined overhead rate would be used in Department A and Department B respectively?
B. 150% and $3.00.
Techniques, Inc. uses a predetermined manufacturing overhead rate based on direct labor hours to apply its indirect product costs to jobs. The following information has been collected for the previous year:



Techniques used 25,000 direct labor hours and 50,000 machine hours during the previous year. What is the predetermined overhead rate per direct labor hour?
D. $10.00
Lexie Lou Industries applies manufacturing overhead to its cost objects on the basis of 75% of direct material cost. If Job 17X had $72,000 of manufacturing overhead applied to it during May, the direct materials assigned to Job 17X was:
C. $96,000
The Super Supply Company manufactures cleaning spray for public schools. During 2010, the company spent $600,000 on prime costs and $800,000 on conversion costs. Overhead is applied at a rate of 150% of direct labor costs. How much did the company allocate for manufacturing overhead during 2010?
A. $480,000
Fab Co. manufactures textiles. Among Fab's 2010 manufacturing costs were the following salaries and wages:



What was the amount of Fab's 2010 direct labor? (CPA adapted)
D. $120,000
Fab Co. manufactures textiles. Among Fab's 2010 manufacturing costs were the following salaries and wages:



What was the amount of Fab's 2010 indirect labor? (CPA adapted)
A. $75,000
The following direct labor information pertains to the manufacture of product Glu:



What is the standard direct labor cost per unit of product Glu? (CPA adapted)
A. $30
The following direct labor information pertains to the manufacture of product Frez:



What is the standard direct labor cost per unit of product Frez? (CPA adapted)
D. $75.83
The cost per unit of the allocation base used to charge overhead to products is the
B. predetermined overhead rate.
Acme, Inc. has estimated overhead to be $300,000 and labor hours to be 30,000. Actual overhead turned out to be $310,000 when 30,500 labor hours were worked. The predetermined overhead rate would be:
B. $10.00
Acme, Inc. had overhead of $310,000 during the year when $260,000 in labor costs were incurred. Estimates at the start of the year for overhead and labor costs were $300,000 for overhead and $250,000 for labor costs. The predetermined overhead rate would be:
C. 120.00%
For Case (A) above, what is the Ending Balance (EB)?
D. $38,320
For Case (B) above, what is the Transferred-In (IT)?
C. $89,500
For Case (C) above, what is the Transferred-Out (TO)?
B. $61,800
For Case (A) above, what is the Beginning Balance (BB)?
B. $32,560
For Case (B) above, what is the Ending Balance (EB)?
A. $4,730
For Case (C) above, what is the Transferred-In (TI)?
D. $185,400
For Case (A) above, what is the Transferred-Out (TO)?
B. $192,600
For Case (B) above, what is the Ending Balance (EB)?
C. $62,950
For Case (C) above, what is the Beginning Balance (BB)?
A. $15,900
The following information has been gathered for Cheatham Law Offices for its fiscal year ending December 31:



What is the predetermined office overhead rate per billable labor hour?
C. $22.50
The following information has been gathered for Cheatham Law Offices for its fiscal year ending December 31:



What is the predetermined office overhead rate per billable labor dollar?
B. 25.00%
The following information has been gathered for Roswell Machining for its fiscal year ending December 31:



What is the predetermined factory overhead rate per labor dollar?
D. 198.41%
The following information has been gathered for Roswell Machining for its fiscal year ending December 31:



What is the predetermined factory overhead rate per labor hour?
B. $31.25
The following information has been gathered for Roswell Machining for its fiscal year ending December 31:



What is the predetermined factory overhead rate per machine hour?
A. $15.625
Slurpy produces soft drinks and sodas. Production of 100,000 liters was started in February, 85,000 liters were completed. Material costs were $38,220 for the month while conversion costs were $16,380. There was no beginning work-in-process; the ending work-in-process was 40% complete. What is the cost of the product that was completed and transferred to finished goods?
B. $51,000
Slurpy produces soft drinks and sodas. Production of 100,000 liters was started in February, 85,000 liters were completed. Material costs were $38,220 for the month while conversion costs were $16,380. There was no beginning work-in-process; the ending work-in-process was 40% complete. What is the cost of the product that remains in work-in-process?
C. $3,600
Lo-crete produces quick setting concrete mix. Production of 200,000 tons was started in April, 190,000 tons were completed. Material costs were $3,152,000 for the month while conversion costs were $591,000. There was no beginning work-in-process; the ending work-in-process was 70% complete. What is the cost of the product that was completed and transferred to finished goods?
A. $3,610,000
Lo-crete produces quick setting concrete mix. Production of 200,000 tons was started in April, 190,000 tons were completed. Material costs were $3,152,000 for the month while conversion costs were $591,000. There was no beginning work-in-process; the ending work-in-process was 70% complete. What is the cost of the product that remains in work-in-process?
D. $133,000
Lo-crete produces quick setting concrete mix. Production of 200,000 tons was started in April, 190,000 tons were completed. Material costs were $3,152,000 for the month while conversion costs were $591,000. There was no beginning work-in-process; the ending work-in-process was 70% complete. What is the material cost of the product that remains in work-in-process?
C. $112,000
Trans-X processes credit card receipts for local banks. Trans-X processed 1,400,000 receipts in October. All receipts are processed the same day they are received. October costs were labor of $14,000 and overhead of $28,000. What is the cost to process 1,000 receipts?
B. $30.00
Mounder processes rebate requests for a large building supply firm. Mounder processed 420,000 rebates in March. All rebates are processed the same day they are received. March costs were labor of $28,000 and overhead of $14,000. What is the cost to process 1,000 rebates?
B. $100.00
Sweet Lu Industries applies manufacturing overhead to its products on the basis of 50% of direct material cost. If a job had $35,000 of manufacturing overhead applied to it during May, the direct materials assigned to the job was:
C. $70,000
Zeppo Supply Company manufactures cleaning products. During the year, the company spent $600,000 on chemicals and $728,000 on conversion costs. Overhead is applied at a rate of 180% of direct labor costs. How much did the company spend on manufacturing overhead during the year?
B. $468,000
The predetermined manufacturing overhead rate for the year was $14.00 per direct labor hour; employees were paid $17.50 per hour. If the estimated direct labor cost was $315,000, what was the estimated manufacturing overhead?
C. $252,000
The predetermined manufacturing overhead rate for the year was 140% of direct labor cost; employees were paid $17.50 per hour. If the estimated direct labor hours were 15,000, what was the estimated manufacturing overhead?
D. $367,500
Which of the following statements is (are) true regarding product costing?
(A) A job is a cost object that can be easily and conveniently distinguished from other cost objects.
(B) Job cost sheets are used in accounting systems as a subsidiary ledger for the Work-in-Process account.
C. Both A and B are true.
For which of the following businesses would the job order cost system be appropriate?
A. Auto repair shop
Which of the following is not a characteristic of job costing?
B. Identical units are produced on an ongoing basis.
Which of the following companies would most likely use job costing?
D. Advertising agency
The journal entry to record the completion of a job in a job order cost system is
D. d
The journal entry to record requisitions of material for new jobs started during the period is
A. a
Which of the following documents is used as the basis for posting to the direct materials section of the job cost sheet?
B. Materials requisition.
Which of the following documents is used as the basis for posting to the direct labor section of the job cost sheet?
E. Time card.
Which of the following accounts is used to accumulate the actual manufacturing overhead costs incurred during a period?
C. Manufacturing Overhead Control
The journal entry to record the actual manufacturing overhead costs for indirect material is
A. a
What are the transfers-out from the Finished Goods Inventory called?
D. Cost of Goods Sold
In a job costing system, the dollar amount in the journal entry that transfers the costs of jobs from Work-in-Process Inventory to Finished Goods Inventory is the sum of the costs charged to all jobs
B. completed during the period.
Which of the following events or transactions will not result in manufacturing overhead being applied to production?
D. Preparing financial statements when there is no work in process at the end of the period
The journal entry to record the completion of a job in a job costing system is
D. d
It is possible that the total cost of a job started in April and completed in May will not include:
E. direct material purchased in May.
Underapplied overhead occurs when the balance in the Manufacturing Overhead Control account is:
A. greater than the balance in the Applied Manufacturing Overhead account.
Which of the following statements is (are) true regarding the application of manufacturing overhead?
(A) Manufacturing overhead is only recorded on the job cost sheets when (a) financial statements are prepared or a job is completed.
(B) Overapplied overhead occurs when the actual overhead costs incurred during a period are greater than the overhead costs applied during the period.
A. Only A is true.
The journal entry to write-off an insignificant underapplied overhead balance at the end of an accounting period is
A. a
The journal entry to write-off a significant underapplied overhead balance at the end of an accounting period is
C. c
If a company multiplies its predetermined overhead rate by the actual activity level of its allocation base, it is using
B. normal costing.
If a company multiplies its actual overhead rate by the actual activity level of its allocation base, it is using
C. actual costing.
One of the primary differences between job costing for service and manufacturing companies is service firms generally
A. use fewer direct materials.
Which of the following is not a difference between job costing for service firms and job costing for manufacturing companies?
D. Service firms' costs are immediately expensed since all work is completed during a period.
The journal entry to record the completion of a contract in a job costing system for a service firm is
C. c
The journal entry to write-off an insignificant overapplied overhead balance at the end of an accounting period for a service firm is
B. b
Complex jobs that take multiple time periods and require the work of many different departments, divisions, or subcontractors are called
B. projects.
Manufacturing overhead applied on the basis of direct labor hours was $120,000, while actual manufacturing overhead incurred was $124,000 for the month of April. Which of the following is always true given the statement above?
B. Overhead was underapplied by $4,000.
The predetermined overhead rate for manufacturing overhead for 2008 is $4.00 per direct labor hour. Employees are expected to earn $5.00 per hour and the company is planning on paying its employees $100,000 during the year. However, only 75% of the employees are classified as "direct labor." What was the estimated manufacturing overhead for 2008?
A. $60,000
Before prorating the manufacturing overhead costs at the end of 2008, the Cost of Goods Sold and Finished Goods Inventory had applied overhead costs of $57,500 and $20,000 in them, respectively. There was no Work-in-Process at the beginning or end of 2008. During the year, manufacturing overhead costs of $74,000 were actually incurred. The balance in the Applied Manufacturing Overhead was $77,500 at the end of 2008. If the under or overapplied overhead is prorated between Cost of Goods Sold and the inventory accounts, how much will be allocated to the Finished Goods Inventory?
A. $903
Before prorating the manufacturing overhead costs at the end of 2008, the Cost of Goods Sold and Finished Goods Inventory had applied overhead costs of $57,500 and $20,000 in them, respectively. There was no work in process at the beginning or end of 2008. During the year, manufacturing overhead costs of $74,000 were actually incurred. The balance in the Applied Manufacturing Overhead was $77,500 at the end of 2008. If the under- or overapplied overhead is prorated between Cost of Goods Sold and the inventory accounts, how much will be the Cost of Goods Sold after the proration?
D. $54,903
The Work-in-Process Inventory account of a manufacturing firm has a balance of $2,400 at the end of an accounting period. The job cost sheets of two uncompleted jobs show charges of $400 and $200 for materials used, and charges of $300 and $500 for direct labor used. Overhead is applied as a percentage of direct labor costs. The predetermined rate is
C. 125.0%.
The general journal entry to record the issuance of the materials represented by the following materials requisitions for the month includes:
C. a debit to Work in Process Inventory, $15,945.
Tillman Corporation uses job costing and has two production departments, M and A. Budgeted manufacturing costs for the year are as follows:



The actual direct material and direct labor costs charged to Job. No. 432 during the year were as follows:



Tillman applies manufacturing overhead to production orders on the basis of direct labor cost using departmental rates predetermined at the beginning of the year based on the annual budget. The total cost associated with Job. No. 432 for the year should be
D. $75,000.
If Job 406 were sold on account for $41,500 how much gross profit would be recognized for the job?
B. $5,900
The end of the month Work-in-Process Inventory balance would be
B. $24,850.
The balance in the factory overhead account would represent the fact that overhead was
A. $1,050 underapplied
Compute the Work-in-Process transferred to the finished goods warehouse on April 30 using the following information:
C. $700
What is the company's Cost of Goods Sold?
B. $139,561.50
What is the value of the ending Work-in-Process Inventory?
C. $88,410.00
What is the journal entry to record the direct labor costs for the period?
B. b
What is the value of the ending Finished Goods Inventory?
B. $24,628.50
Two jobs were worked on during the year: Job A-101 and Job A-102. The number of direct labor hours spent on Job A-101 and Job A-102 were 1,200 and 1,000, respectively. The actual manufacturing overhead was $37,000.

62. What is the predetermined manufacturing overhead rate per direct labor hour for the year?
A. $15
What was the amount of manufacturing overhead applied to Job A-101?
B. $18,000
What is the amount of the under- or overapplied manufacturing overhead?
C. $4,000 underapplied
What is the ending balance in the Work-in-Process Inventory on June 30?
B. $5,300
What is the amount of direct materials purchased during June?
C. $42,000
What is the Cost of Goods Manufactured for June?
A. $89,000
How much manufacturing overhead was applied to the Work-in-Process Inventory during June?
B. $15,600
What is the ending balance in the Direct Materials Inventory on June 30?
C. $11,000
What is the amount of the materials purchased?
B. $16,400
What is the value of the ending Work-in-Process inventory balance?
C. $7,500
What is the value of the beginning Finished Goods Inventory?
D. $21,700
Birk Co. uses a job order costing system. The following debits (credits) appeared in Birk's work-in-process account for the month of April:


Birk applies overhead to production at a predetermined rate of 80% of direct labor cost. Job No. 5, the only job still in process on April 30 has been charged with direct labor of $2,000. What was the amount of direct material charged to Job No.5? (CPA adapted)
B. $5,200
The following are Mill Co.'s production costs for October:



What amount of costs should be traced to specific products in the production process? (CPA adapted)
B. $190,000
Under Pick Co.'s job order costing system manufacturing overhead is applied to work in process using a predetermined annual overhead rate. During January, Pick's transactions included the following:



Pick had neither beginning nor ending inventory in Work-in-Process Inventory. What was the cost of jobs completed in January? (CPA adapted)
B. $310,000
In a traditional job order costing system, the issue of indirect materials to a production department increases: (CPA adapted)
C. Factory overhead control.
Which of the following actions do not cause an impropriety in job costing?
B. Choosing to use normal costing rather than actual costing.
Which of the following approaches allocates overhead by multiplying a predetermined overhead rate × actual activity?
B. Normal costing
Which of the following approaches allocates overhead by multiplying an actual overhead rate × actual activity?
A. Actual costing
Which of the following approaches allocates overhead by multiplying a predetermined rate × standard activity?
D. Standard costing
Scottso Corporation applies overhead using a normal costing approach based upon machine-hours. Budgeted factory overhead was $266,400, budgeted machine-hours were 18,500. Actual factory overhead was $287,920, actual machine-hours were 19,050. How much overhead would be applied to production?
B. $274,320.
Scottso Corporation applies overhead using a normal costing approach based upon machine-hours. Budgeted factory overhead was $266,400, budgeted machine-hours were 18,500. Actual factory overhead was $287,920, actual machine-hours were 19,050. How much is the over- or underapplied overhead?
B. $13,600 underapplied
Scottso Corporation applies overhead using an actual costing approach. Budgeted factory overhead was $266,400, budgeted machine-hours were 18,500. Actual factory overhead was $287,920, actual machine-hours were 19,050. How much overhead would be applied to production?
D. $287,920.
Scottso Corporation applies overhead using an actual costing approach. Budgeted factory overhead was $266,400, budgeted machine-hours were 18,500. Actual factory overhead was $287,920, actual machine-hours were 19,050. How much is the over- or underapplied overhead?
D. $0
Scottso Corporation applies overhead using a normal costing approach based upon machine-hours. Budgeted factory overhead was $232,750, budgeted machine-hours were 17,500. Actual factory overhead was $227,830, actual machine-hours were 16,150. How much overhead would be applied to production?
A. $214,795
Scottso Corporation applies overhead using a normal costing approach based upon machine-hours. Budgeted factory overhead was $232,750, budgeted machine-hours were 17,500. Actual factory overhead was $227,830, actual machine-hours were 16,150. How much is the over- or underapplied overhead?
B. $13,035 underapplied
Which of the following statements is (are) true regarding product costing?
(A) Twenty cans of paint that are 25% full are equivalent to four cans of paint that are completely full.
(B) The equivalent unit concept
B. Only B is true.
Which of the following organizations would most likely use a process costing system?
A. Gasoline refinery
The following examples briefly describe the manufacture of two different products. Which costing method (job-order or process) would be the best method to use for each project?
C. c
An equivalent unit of conversion costs is equal to the amount of conversion costs required to
B. start and complete a unit.
Which of the following statements concerning a process cost accounting system is false?
A. The units in beginning inventory plus the units transferred out during the month should equal the units in the ending inventory plus the units transferred in during the month.
In the computation of the manufacturing cost per equivalent unit, the weighted average method of process costing considers
B. current costs plus cost of beginning Work-in-Process Inventory.
In order to compute equivalent units of production using the FIFO method of process costing, work for the period must be broken down to units
C. completed from beginning inventory, started and completed during the month, and units in ending inventory.
Blue Company has beginning and ending Work-in-Process Inventories that are 45% and 10% complete, respectively. Materials are added at the beginning of the process. If first-in, first-out (FIFO) process costing is used, the total equivalent units for materials will equal the number of units
C. started into the process during the period.
Red Company had Work-in-Process Inventories that were 45% complete at the start of the month. Work-in-Process at the end of the month was 10% complete. Materials were added at the beginning of the process. If weighted-average process costing is used, the total equivalent units for materials will equal the number of units
D. transferred out during the process plus the units in the ending inventory.
A form prepared periodically for each processing department summarizing (1) the units for which the department is accountable and the disposition of these units and (2) the costs charged to the department and the allocation of these costs is called a
B. production cost report.
Materials are added at the beginning of a process in a process costing system. The beginning Work-in-Process Inventory was 30% complete as to conversion costs. Using first-in, first-out (FIFO) process costing, the total equivalent units for material are
B. units started this period in this process.
An error was made by ROC Company in computing the percentage-of-completion of the current year's ending Work-in-Process Inventory. The error resulted in the assignment of a lower percentage of completion to each component of the inventory than actually was the case. There was no beginning Work-in-Process Inventory. What is the effect of this error on (1) cost assigned to cost of goods completed for the period and (2) the computation of costs per equivalent unit?
D. Overstated Overstated
Which of the following statements regarding first-in, first-out (FIFO) process costing is/are true?
(A) First-in, first-out (FIFO) process costing transfers out the costs in beginning inventory before transferring out the costs associated with units started and completed.
(B) First-in, first-out process costing requires one additional step in assigning costs to the units transferred out and the ending Work-in-Process Inventory.
A. A only.
In a production-cost report using process costing, transferred-in costs are most similar to
A. material added at the beginning of the process.
Additional materials are added in the second department of a four-department production process. However, this addition does not increase the number of units being produced in the second department, but will
B. increase the total cost per unit.
Under which of the following conditions will the FIFO method produce the same cost of goods manufactured as the weighted-average method?
B. There is no beginning inventory.
Which of the following statements is (are) true?
I. For cost control, the FIFO method of process costing is better than the weighted-average method.
II. The weighted-average method of process costing assigns more cost to units completed (transferred out) than the FIFO method.
A. I only.
Which of the following statements is (are) false?
(A) Operations costing accounts for material costs like job costing and conversion costs like process costing.
(B) An automobile manufacturer is more likely to use an operations costing system than a process costing system.
D. Neither A nor B.
Operations costing systems are used when the products have
E. some common characteristics and some individual characteristics
An operations costing system is
B. the same as a process costing system except that materials are allocated on the basis of batches of production.
Predetermined manufacturing overhead rates can be used in all of the following costing systems except
D. actual costing.
The Blue Corporation started and completed 4,800 units during February. Blue started the month with 700 units in process (40% complete) and ended the month with 400 units in process (40% complete). How many units were transferred to the Finished Goods Inventory during February?
C. 5,100.
The ALG Manufacturing Company has gathered the following information for the month of September:
• 6,000 units in the beginning Work-in-Process Inventory (75% complete as to materials, 1/3 complete with respect to the conversion costs)
• 60,000 units were started into production
• 50,000 units were completed and transferred to the next department
• The ending Work-in-Process Inventory is complete as to materials but only 3/8 complete with respect to conversion costs.
What are the equivalent units of production (EUP) for materials in the month of September assuming ALG uses weighted-average process costing?
C. 66,000
The ALG Manufacturing Company has gathered the following information for the month of September:
• 6,000 units in the beginning Work-in-Process Inventory (75% complete as to materials, 1/3 complete with respect to the conversion costs)
• 60,000 units were started into production
• 50,000 units were completed and transferred to the next department
• The ending Work-in-Process Inventory is complete as to materials but only 3/8 complete with respect to conversion costs.
What are the equivalent units of production (EUP) for the conversion costs in the month of September assuming ALG uses weighted-average process costing?
B. 56,000
ABC Company has a beginning Work-in-Process Inventory of 25,000 units (40% complete). During the period, 110,000 units were started and the ending Work-in-Process Inventory consisted of 20,000 units (80%). What are the equivalent units for conversion costs using weighted-average process costing?
D. 131,000
The Wisco Company has a process cost system. All materials are placed in process when the process is first begun. At the beginning of September, there were no units of product in process. During September 50,000 units were started; 5,000 of these were still in process at the end of September and were 3/5 finished. The equivalent units of material in September were
D. 50,000
The Wisco Company has a process cost system. All materials are placed in process when the process is first begun. At the beginning of September, there were no units of product in process. During September 50,000 units were started; 5,000 of these were still in process at the end of September and were 3/5 finished. The equivalent units for the conversion costs in September were
C. 48,000
Department B had a beginning inventory of 400 units, 1/4 completed; an ending inventory of 300 units, 2/3 completed, and received 900 units during the period from Department A. What was the equivalent unit production of Department B, assuming weighted-average process costing?
D. 1,200 units.
Sussex Corporation's production cycle starts in the Mixing Department. The following information is available for April:



Materials are added at the beginning of the process in the Mixing Department. What are the equivalent units of production for the month of April, assuming Sussex uses the weighted average method?
C. c
Department A had no Work-in-Process at the beginning of the period, 1,000 units were completed during the period, 200 units were 50% completed at the end of the period, and the following manufacturing costs were debited to the departmental Work-in-Process account during the period



Assuming that all direct materials are placed in process at the beginning of production and Department A uses weighted-average process costing, what is the total cost of the departmental Work-in-Process Inventory at the end of the period?
B. $2,900
Read, Inc. instituted a new process in October 2008. During October, 10,000 units were started in Department A. Of the units started, 8,000 were transferred to Department B, and 2,000 remained in Work-in-Process at October 31, 2008. The Work-in-Process at October 31, 2008, was 100% complete as to material costs and 50% complete as to conversion costs. Material costs of $27,000 and conversion costs of $36,000 were charged to Department A in October. What were the total costs transferred to Department B assuming Department A uses weighted-average process costing?
B. $53,600
The Viva Company had 20,000 units in process on December 31, 2008 which was 80% complete as to materials but only 40% complete as to conversion costs. The company's records show 40,000 units were transferred to the Finished Goods Inventory during January 2009. On January 31, 2009, 15,000 units were on hand which were 30% complete as to conversion costs and 60% complete as to materials. What are the equivalent units of production for the conversion costs in January, assuming Viva uses first-in, first-out (FIFO)?
C. 36,500
RST Company incurred $126,000 in material costs during July. Additionally, the 12,000 units in the Work-in-Process Inventory on July 1 had materials assigned to them of $32,000, even though they were only 5% complete as to materials. No additional units were started during July, and there were no unfinished units on hand on July 31. What is the material cost per unit for July, assuming RST uses weighted-average process costing?
C. $13.17
Beattie Company completed and transferred out 2,300 units in May 2008. There were 200 units in the Work-in-Process Inventory on May 31, 2008, 30% complete as to conversion costs and 100% complete as to materials. The month's charges for conversion costs and material costs were $9,440 and $6,250, respectively. There was no beginning inventory on May 1, 2008. What is the cost of the work transferred-out during May?
B. $14,950
Sussex Corporation's production cycle starts in the Mixing Department. The following information is available for April:



Materials are added at the beginning of the process in the Mixing Department. What are the equivalent units of production for the month of April, assuming Sussex uses first-in, first-out (FIFO), process costing.
B. b
Equivalent units of production for material are
D. 20,000.
Equivalent units of production for labor and overhead are
B. 17,000.
Total cost of the 16,000 units finished is
A. $63,360.
Total cost of the 4,000 units of the ending inventory
C. $9,240.
How many units were transferred-out during the period?
C. 18,000
The How many units were started and completed during the period?
B. 13,000
What are the equivalent units of production for materials during the period?
C. 14,000
What are the equivalent units of production for the conversion costs during the period?
D. 17,100
What are the total costs to be accounted for on the production cost report for Department #2 for the period?
B. $17,600
Determine the equivalent units of production for conversion costs.
D. 6,400
The conversion costs per equivalent units is
C. $2.00
The unit cost of Product X started in the prior period and completed in the current period is
B. $2.50
The unit cost of Product X started and completed in the current period is
D. $2.60
The cost of goods transferred to finished goods is
B. $16,000
The cost of the ending Work-in-Process Inventory is
B. $1,600
In process 2, material G is added when a batch is 60% complete. Ending work-in-process units, which are 50% complete, would be included in the computation of equivalent units for: (CPA adapted)
A. a
A process costing system was used for a department that began operations in January 2008. Approximately the same number of physical units, at the same degree of completion, were in work-in-process at the end of both January and February. Monthly conversion costs are allocated between ending work-in-process and units completed. Compared to the FIFO method, would the weighted average method use the same or a greater number of equivalent units to calculate the monthly allocations? (CPA adapted, 5/91)
D. d
In a process costing system, the application of factory overhead usually would be recorded as an increase in: (CPA adapted)
D. Work-in-process inventory control
Yarn Co.'s inventories in process were at the following stages of completion at April 30:



Equivalent units of production in ending inventory amounted to: (CPA adapted)
A. 150
The following information pertains to Lap Co.'s Palo Division for the month of April:



All materials are added at the beginning of the process. Using the weighted-average method, the cost per equivalent unit of materials is: (CPA adapted)
D. $0.43
In computing the current period's manufacturing cost per equivalent unit, the FIFO method of process costing considers: (CPA adapted)
A. only current period costs.
What is the equivalent unit cost for materials assuming Kimbeth uses first-in, first-out (FIFO) process costing?
B. $4.50
What is the equivalent unit cost for the conversion costs assuming Kimbeth uses first-in, first-out (FIFO) process costing?
B. $5.83
What are the total costs in the ending Work-in-Process Inventory assuming Kimbeth uses first-in, first-out (FIFO) process costing?
A. $153,168
What is the equivalent unit cost for materials assuming Kimbeth uses weighted-average process costing?
C. $4.60
What is the equivalent unit cost for the conversion costs assuming Kimbeth uses weighted-average process costing?
C. $6.00
What are the total costs in the ending Work-in-Process Inventory assuming Kimbeth uses weighted-average process costing?
E. $156,960
Which of the following statements is (are) true regarding the potential effects of using reported product costs for decision making?
(A) Traditional product costing systems (e.g., job and process costing) are designed primarily to accumulate cost information for financial reporting.
(B) If a single cost driver is used as the allocation base, applied manufacturing overhead for product costing purposes may lead to inappropriate managerial decisions.
C. Both A and B are true.
Which of the following statements is (are) false regarding first-stage and second-stage cost allocation methods?
(A) The basic difference between a first-stage cost allocation and a second-stage cost allocation is that cost pools are not used in first-stage cost allocations.
(B) Predetermined overhead rates are used in first-stage cost allocations but not in second-stage cost allocations.
D. Both A and B are false.
Activity-based costing (ABC) is a costing technique that uses a two stage allocation process. Which of the following statements best describes these two stages?
A. The costs are assigned to activities, and then to the products based upon their use of the activities.
Which of the following statements is true?
C. A problem with activity-based costing (ABC) is that it requires more recordkeeping than other methods.
Cost pools are used with
D. d
Which of the following should not be used as the allocation base in a company that appropriately uses a single plant wide rate?
A. Sales volume
The electricity used for production machinery would be classified as a
A. volume-related activity.
The number of services provided by an accounting firm would be classified as a(n)
C. product-related activity.
Which of the following costs is not related to a batch-related activity?
D. Compliance costs
Which of the following would NOT be a batch-related activity?
B. Performing 100% inspection
Which of the following measures is used by traditional costing systems as an allocation base for allocating overhead costs to the units produced?
A. Volume-related activities
Which of the following measures is used by activity-based costing (ABC) systems as an allocation base for allocating overhead costs to the units produced?
E. All of these are used by ABC systems
Which of the following statements is (are) true?
(1) Activity-based costs per unit are always greater than volume-based costs per unit.
(2) Volume-based costing has typically resulted in lower gross margins for high volume products and higher gross margins for low volume products.
B. Only (2) is true.
Volume-based costing allocates indirect product costs based on the volume of output, using such allocation bases as direct labor hours, machine hours, or the amount of direct material used in the production process. Activity-based costing (ABC) has consistently shown that Volume-based costing ___________ the cost of high volume products and ______________ the cost of low volume products.
B. b
Which one of the following accounts is not used in an activity-based costing (ABC) system?
E. Allocations Incurred
If Smelly changes its allocation basis to machine hours, what is the total product cost per case for Product P?
D. $117.15
If Smelly changes its allocation basis to machine hours, what is the total product cost per case for Product J?
B. $169.30
If Smelly changes its allocation basis to machine hours, what is the total product cost per case for Product X?
A. $80.48
If Smelly changes its overhead allocation to departmental rates, what is the product cost per case for Product X assuming Departments C and D use direct labor hours and machine hours as their respective allocation bases?
D. $78.50
If Smelly changes its overhead allocation to departmental rates, what is the product cost per case for Product J assuming Departments C and D use direct labor hours and machine hours as their respective allocation bases?
C. $166.00
If Smelly changes its overhead allocation to departmental rates, what is the product cost per case for Product P assuming Departments C and D use direct labor hours and machine hours as their respective allocation bases?
C. $121.50
Department D has recently purchased and installed new computerized equipment for Product X. This equipment will increase the overhead costs by $2,700 and decrease labor costs (due to time savings) in Department D by $3.00 per case. Machine hours will not change. If Smelly uses a plantwide rate based on direct labor hours, what is the revised product cost per case for Product X?
D. $69.50
Department D has recently purchased and installed new computerized equipment for Product X. This equipment will increase the overhead costs by $2,700 and decrease labor costs (due to time savings) in Department D by $3.00 per case. Machine hours will not change. If Smelly uses a plantwide rate based on direct labor hours, what is the revised product cost per case for Product J?
A. $175.33
Department D has recently purchased and installed new computerized equipment for Product X. This equipment will increase the overhead costs by $2,700 and decrease labor costs (due to time savings) in Department D by $3.00 per case. Machine hours will not change. If Smelly uses a plantwide rate based on machine hours, what is the revised product cost per case for Product X?
B. $82.50
Department D has recently purchased and installed new computerized equipment for Product X. This equipment will increase the overhead costs by $2,700 and decrease labor costs (due to time savings) in Department D by $3.00 per case. Machine hours will not change. If Smelly uses a plantwide rate based on machine hours, what is the revised product cost per case for Product J?
C. $172.00
Department D has recently purchased and installed new computerized equipment for Product X. This equipment will increase the overhead costs by $2,700 and decrease labor costs (due to time savings) in Department D by $3.00 per case. Machine hours will not change. If Smelly uses departmental rates, what are the product costs per case for Product X assuming Departments C and D use direct labor hours and machine hours as their respective allocation bases?
A. $80.00
Department D has recently purchased and installed new computerized equipment for Product X. This equipment will increase the overhead costs by $2,700 and decrease labor costs (due to time savings) in Department D by $3.00 per case. Machine hours will not change. If Smelly uses departmental rates, what are the product costs per case for Product J assuming Departments C and D use direct labor hours and machine hours as their respective allocation bases?
C. $171.45
What is the total overhead allocated to Product R using the current system?
D. $160,000
What is the total overhead per unit allocated to Product R using activity-based costing (ABC)?
D. $1.83
What is the total overhead allocated to Product S using the current system?
B. $100,000
What is the total overhead per unit allocated to Product S using activity-based costing (ABC)?
B. $2.27
What is the total cost allocated to the bookkeeping services using activity-based costing?
B. $33,000
Martin wants her hourly fees for the tax services to be 160% of their activity-based costs. What is the fee per hour for tax services in the upcoming year?
C. $110.00
Martin cannot change the hourly fee for the bookkeeping services because of the number of competing firms in the area. If Martin wants to earn $60,000 pre-tax in the upcoming year, how much will she charge per hour for tax services?
C. $95
A major client has requested bookkeeping service. However, Martin is already billing 100% of her capacity (i.e., 2,000 hours per year) and would need to shift 100 hours from her tax services to meet this client's request. What is the minimum fee per hour that Martin could charge this client for bookkeeping services and be no worse off than last year?
D. $90.00
Under a traditional costing system that allocates overhead on the basis of direct labor hours, the materials handling costs allocated to one unit of wall mirrors would be
B. $500
Under a traditional costing system that allocates overhead on the basis of direct labor hours, the materials handling costs allocated to one unit of specialty windows would be
A. $1,500
Under an activity-based costing (ABC) system, the materials handling costs allocated to one unit of wall mirrors would be
B. $312.50
Under an activity-based costing (ABC) system, the materials handling costs allocated to one unit of specialty windows would be
A. $1,875.00
How much overhead costs were applied to the Work-in-Process Inventory during April using activity-based costing?
C. $736,000
How much overhead costs were applied to the Work-in-Process Inventory during April using traditional costing?
B. $720,000
If Muskego uses a bankwide rate based on direct labor hours, what would be the indirect costs allocated to the Consumer Department?
B. $150,000
If Muskego uses a bankwide rate based on direct labor hours, what would be the indirect costs allocated to the Commercial Department?
A. $100,000
If Muskego uses a bankwide rate based on the number of loans processed, what would be the total costs for the Commercial Department?
C. $200,000
If Muskego uses a bankwide rate based on the number of loans processed, what would be the total costs for the Consumer Department?
D. $400,000
Management estimates that it costs $500 to analyze and close a commercial loan. This amount has been included in the $250,000 of indirect costs. How much of the $250,000 indirect costs should be allocated to the Commercial Department?
C. $90,000
Management estimates that it costs $500 to analyze and close a commercial loan. This amount has been included in the $250,000 of indirect costs. How much of the $250,000 indirect costs should be allocated to the Consumer Department?
C. $160,000
Management estimates that it costs $400 to analyze and close a commercial loan. What is the overhead rate if Muskego allocates the remaining indirect costs using direct labor hours?
A. $14.00 per hour
Multiple (departmental) manufacturing overhead rates are considered preferable to a single (plant wide) overhead rate when (CMA adapted)
B. various products are manufactured that do not pass through the same departments or use the same manufacturing techniques.
What is the typical effect on the numbers of cost pools and cost assignment bases when an activity-based costing (ABC) system replaces a traditional costing system? (CPA adapted)
D. d
Which of the following would be a reasonable basis for assigning the materials handling costs to the units produced in an activity-based costing (ABC) system?
B. Number of components per completed unit
Companies using activity-based costing (ABC) have learned that costs are a function of
A. volume and activities.
If the company uses activity-based costing (ABC), how much overhead cost should be assigned to Job 101?
A. $1,300
If the company uses activity-based costing (ABC), what is the cost of each unit of Job 102?
A. $340
If the company uses activity-based costing (ABC), how much overhead cost should be assigned to Job 103?
B. $2,000
The company prices its products at 140% of cost. If the company uses activity-based costing (ABC), the price of each unit of Job 103 would be
A. $98
If the company uses traditional costing and allocates overhead using direct labor cost, how much overhead cost should be assigned to Job 101?
D. $5,600
If the company uses traditional costing and allocates overhead using direct labor cost, what is the cost of each unit of Job 102?
B. $392
If the company uses activity-based costing (ABC), how much overhead cost should be assigned to Job A-15?
A. $2,120
If the company uses activity-based costing (ABC), how much overhead cost should be assigned to Job B-32?
C. $2,960
If the company uses activity-based costing (ABC), what is the cost of each unit of Job A-28?
D. $350.40
The company prices its products at 150% of cost. If the company uses activity-based costing (ABC), the price of each unit of Job B-32 would be
B. $144.80
If the company uses traditional costing and allocates overhead using direct materials cost, how much overhead cost should be assigned to Job A-15?
A. $10,500
If the company uses traditional costing and allocates overhead using direct materials cost, what is the cost of each unit of Job A-28?
B. $516.00
Which of the following is the least practical reason for allocating service department costs to user departments?
D. To provide the best possible service to users.
Service department costs are
C. eventually applied by the user departments to the units produced.
A management purpose for allocating joint costs of a processing center to the various products produced is to
A. establish inventory values for unsold units.
Which of the following service departments could logically use space occupied (square footage) to allocate its costs to user departments?
C. Custodial Services
Which of the following departments is not a service department in a typical manufacturing company?
A. Assembly
Criteria for selecting allocation bases for service department allocations should not include
D. sales dollars generated during the period.
Which of the following statements is (are) false regarding the direct method of allocating service department costs?
(A) The selection of an allocation base in the direct method is easier than the selection of an allocation base in the step method.
(B) Once an allocation is made from a service department using the direct method, no further allocations are made back to that department.
A. Only A is false.
Which of the following methods provides no data for service departments to monitor each other's costs?
A. Direct method.
If two service departments service the same number of departments, which service department's costs should be allocated first when using the step method?
A. The service department that provides the most service to other service departments.
Which of the following is a weakness of the step method of service cost allocations?
D. The order of service department allocation has to be determined.
LaCrescent University has 20 departments. Two of its best departments are the (1) College of UBW (Underwater Basket Weaving) and (2) Testing Services. The College of UBW attempts to teach students the difficult, but useful, skill of weaving baskets underwater. Testing Services grades examinations for professors. How would these two departments be classified?
B. b
Joint products and byproducts are produced simultaneously by a single process or series of processes and
C. the revenue from byproducts may be recognized at the time of production.
Which of the following best describes the objective of joint cost allocation?
A. Inventory valuation.
Allocated joint costs are useful for
E. determining inventory cost for accounting purposes.
Which of the following cost items is not allocable as joint costs when a single manufacturing process produces several main products and several by-products?
E. Freight-out
For purposes of allocating joint costs to joint products, the estimated net realizable value at split-off is equal to
final sales price reduced by cost to complete after split-off.
The method of accounting for joint product costs that will produce the same gross margin percentage for all products is the
C. net realizable value method.
Which of the following statements is false?
The estimated net realizable value for a product is its estimated selling price after processing the product beyond the split-off point.
Net realizable value at the split-off point is used to allocate
B. b
Which of the following is not a physical measure that can be used for allocating joint costs using the physical quantities method?
C. Dollars of labor
Product C is one of several joint products that come out of Department M. The joint costs incurred in Department M total $40,000. Product C can be sold at split-off or processed further and sold as a higher quality item. The decision to process further should be based on the
A. assumption that the $40,000 is irrelevant.
The characteristic that is most often used to distinguish a product as either a main product or a by-product is the amount of
A. sales value of the products produced during the common production process.
Products with a relatively minor sales value are called
C. by-products.
Bagley Company has two service departments and two producing departments. Square footage of space occupied by each department follows:



The department costs of Custodial Services are allocated on a basis of square footage of space. If Custodial Services costs are budgeted at $38,000, the amount of cost allocated to General Administration under the direct method would be
A. $0.
Castle Company has two service departments and two producing departments. The number of employees in each department is



The department costs of the Personnel Department are allocated on a basis of the number of employees. If these costs are budgeted at $37,125 during a given period, the amount of cost allocated to Department B under the direct method would be
D. $18,021.84.
If common computer service costs are allocated using computer time as the allocation basis, what is the computer cost allocated to Division B?
A. $136,190
Using the most appropriate allocation basis, what is the personnel cost allocated to Division A?
B. $74,643
If all common costs are allocated using operating profit as the allocation basis, what is the total cost allocated to Division B?
A. $457,286
Castle Company has two service departments and two user departments. The number of employees in each department is



The fixed costs of the Personnel Department are allocated on a basis of the number of employees. If these costs are budgeted at $37,125 during a given period, the amount of cost allocated to the Cafeteria under the step method would be
B. $1,718.75.
How much rent is allocable to the assembly department using the direct method of allocation?
A. $420,000
How much rent would be charged to S4 using the step method of allocation and a S3-S4-S1-S2 sequence for the allocations?
B. $40,000
Under the step method (Op first), what is the cost of the computer time and the computer programs for sale?
B. b
Under the reciprocal method what is the algebraic solution to the cost allocation problem?
A. Op = 4,500 + .40 P; P = 2,500 + .30 Op.
What is the Maintenance Department's cost allocated to Department A using the direct method?
C. $276,000
What is the Accounting Department's cost allocated to Department B using the direct method?
A. $40,000
What is the Maintenance Department's cost allocated to Department B using the step method and assuming the Maintenance Department's costs are allocated first?
D. $23,810
What is the cost of the Accounting Department's cost allocated to Department A using the stefp method and assuming the Maintenance Department's costs are allocated first?
B. $81,587
Under the step method of allocation, how much Clerical service cost should be allocated to the Septic Service operation for June? (Assume Clerical costs are allocated before Janitorial costs and round all calculations to the nearest whole dollar.)
B. $13,100
Under the direct method of allocation, what is the total amount of service cost allocated to the Legal Advice operation for June? (Round all calculations to the nearest whole dollar.)
C. $8,640
Using the simultaneous solution method, department A's cost allocated to department C is
C. $60,619
Using the simultaneous solution method, department B's cost allocated to department C is
B. $14,021
The equation for department P1 (subassemblies) is
B. P1 = $550,000 + .30S1 + .50S2 + .20S3.
The equation for department P2 (final assembly) is
D. P2 = $775,000 + .25S1 + .50S2 + .30S3.
Products X, Y, and Z are produced from the same process at a cost of $5,200. Five thousand pounds of raw material yields 1,500 X, 2,500 Y, and 1,000 Z. Selling prices are: X $2 per unit, Y $4 per unit, Z valueless. The ending inventory of X is 50 units. What is the value of the ending inventory if joint costs are allocated using net realizable value?
C. $40.00.
Lite Co. manufactures products X and Y from a joint process that also yields a by-product, Z. Revenue from sales of Z is treated as a reduction of joint costs. Additional information is as follows:



Joint costs were allocated using the net realizable value method at split-off approach. The joint costs allocated to product X were
D. $168,000.
Great Falls Company makes two products, G and H. They are initially processed from the same raw material and then, after split-off, further processed separately. Additional information is as follows:



What are the joint costs allocated to products G and H assuming Great Falls uses the estimated net realizable value approach?
C. c
Assuming that joint production costs are allocated using the physical quantities method (units produced), what were the costs allocated to Product X?
D. $30,000.
Assuming that joint product costs are allocated using the net realizable value method, what were the total costs assigned to Product Y?
C. $27,000.
Raymer Corporation produced 3,660 units, consisting of three separate products, in a joint process for the year. The market for these products was so unstable that it was not practical to estimate the selling price of the products. A cost of $425,000 was incurred in the joint process. Product X's production was 80% of product Y's while product Z's production was 125% of product Y's. What is the amount of the joint cost allocable to product X assuming Raymer uses the physical quantities method of allocation?
A. $111,475
Zebra Manufacturing Company incurred a joint cost of $600,000 in the production of R and S in a joint process. Presently, 1,800 of R and 1,400 of S are being produced each month. Management plans to decrease R's production by 300 units in order to increase the production of S by 500 units. Additionally, this change will require minor modifications, which will add $20,000 to the joint cost. This cost is entirely attributable to product S. What is the amount of the joint costs allocable to R and S before changes to existing production assuming Zebra allocates their joint costs according to the proportion of S and R produced?
D. d
Lankip Company produces two main products and a by-product out of a joint process. The ratio of output quantities to input quantities of direct material used in the joint process remains consistent from month to month. Lankip has employed the physical-volume method to allocate joint production costs to the two main products. The net realizable value of the by-product is used to reduce the joint production costs before the joint costs are allocated to the main products. Data regarding Lankip's operations for the current month are presented in the chart below. During the month, Lankip incurred joint production costs of $2,520,000. The main products are not marketable at the split-off point and, thus, have to be processed further.



The amount of joint production cost that Lankip would allocate to the Second Main Product by using the physical quantities method to allocate joint production costs would be
C. $1,500,000
The Moody Company produced three joint products at a joint cost of $100,000. Two of these products were processed further. Production and sales were:



If the estimated net realizable value method is used and product Q is accounted for as a main product, how much of the joint costs would be allocated to product R?
C. $50,000
Assume Q is a by-product and Moody uses the cost reduction method of accounting for by-product cost. If estimated net realizable value is used, how much of the joint costs would be allocated to product R?
B. $43,750
If joint costs are allocated based on relative weight of the outputs and all products are main products, how much of the joint costs would be allocated to product P?
C. $60,000
What is the net income of Moody Company if the estimated net realizable value method of joint cost allocation is used?
B. $50,000
Anchorage Company manufactures three main products, L, M and N, from a joint process. Additional information for June production activity follows:



Assuming that the 10,000 units of N were processed further and sold for $78,000 what was Anchorage's gross profit from this sale? Assume the physical quantities method of allocation is used.
A. $21,000
The Freed Company produces three products, X, Y, and Z from a single raw material input. Product Y can be sold at the split-off point for total revenues of $50,000 or it can be processed further at a total cost of $16,000 and then sold for $68,000. Product Y
D. would increase the company's overall net income by $2,000 if processed further and then sold.
There are several methods for allocating service department costs to production departments. The method which recognizes service provided by one service department to another but does not recognize reciprocal interdepartmental service is called: (CMA adapted)
E. step-down method.
Because this allocation method recognizes that service departments often provide each other with inter-departmental service, it is theoretically considered to be the most accurate method for allocating service department costs to production departments. This method is: (CMA adapted)
D. reciprocal method.
For the purposes of allocating joint costs to joint products, the sales price at the point of sale, reduced by the cost to complete after split-off, is assumed to be equal to the (CPA adapted)
D. relative sales value at split-off.
In joint product costing and analysis, which one of the following costs is relevant when deciding the point at which a product should be sold in order to maximize profits? (CMA adapted)
A. separable costs after the split-off point