CHAPTER 2 QUIZ1. Tanner Co. management desires cost information regarding their Rawhide brand. The Rawhide brand is a(n) a. cost object. b. cost driver. c. cost assignment. d. actual cost. The cost of replacement light bulbs on campus would be a direct cost to a college but would need to be allocated as an indirect cost to a. departments. b. buildings. c. schools. d. individual student instruction. What is the total fixed cost of the shipping department of EZ-Mail Clothing Co. if it has the following information for 2002? Salaries $800,000 75% of employees on guaranteed contracts Packaging $400,000 depending on size of item(s) shipped Postage $500,000 depending on weight of item(s) shipped Rent of warehouse space $250,000 annual lease a. b. c. d. 4. $850,000 $900,000 $1,050,000 $1,950,000

2.

3.

Morton Graphics successfully bid on a job printing standard notebook covers during the year using last years price of $0.27 per cover. This amount was calculated from prior year costs, noting that no changes in any costs had occurred from the past year to the current year. At the end of the year, the company manager was shocked to discover that the company had suffered a loss. How could this be? she exclaimed. We had no increases in cost and our price was the same as last year. Last year we had a healthy income. What could explain the companys loss in income this current year? a. Their costs were all variable costs and the amount produced and sold increased. b. Their costs were mostly fixed costs and the amount produced this year was less than last year. c. They used a different cost object this year than the previous year. d. Their costs last year were actual costs but they used budgeted costs to make their bids. Which type of company converts materials into finished products? a. Not-for-profit b. Service c. Merchandising d. Manufacturing

5.

6.

The three categories of inventories commonly found in many manufacturing companies are: a. Direct materials, direct labor, and indirect manufacturing costs. b. Purchased goods, period costs, and cost of goods sold. c. Direct materials, work in process, and finished goods. d. LIFO, FIFO, and weighted average. Inventoriable costs are a. only purchased goods for resale. b. a category of costs used only for manufacturing companies. c. recorded as expenses when incurred and later reclassified as assets. d. recorded as assets when incurred. Period costs are a. all costs in the income statement other than cost of goods sold. b. defined as manufacturing costs incurred this period on the schedule of cost of goods manufactured. c. always recorded as assets when first incurred. d. those costs that benefit future periods. The cost of a product can be measured as any of the following except as cost a. gathered from all areas of the value chain. b. identified as period cost. c. designated as manufacturing cost only. d. explicitly defined by contract. The primary focus of cost management is to a. help managers make different decisions. b. calculate product costs. c. aid managers in budgeting. d. distinguish between relevant and irrelevant information.

7.

8.

9.

10.

CHAPTER 2 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. a d a b d c d a b a

Quiz Question Calculations 3. Fixed costs = (800,000) 75% + 250,000 = $850,000

CHAPTER 3 QUIZ1. Which of the following is not a factor in cost-volume-profit analysis? a. Units sold b. Selling price c. Total variable costs d. Fixed costs of a product Which of the following is not an assumption of cost-volume-profit analysis? a. The time value of money is incorporated in the analysis. b. Costs can be classified into variable and fixed components. c. The behavior of revenues and expenses is accurately portrayed as linear over the relevant range. d. The number of output units is the only driver. Contribution margin is calculated as a. total revenue total fixed costs. b. total revenue total manufacturing costs (CGS). c. total revenue total variable costs. d. operating income + total variable costs. Questions 4-6 are based on the following data. Tee Times, Inc. produces and sells the finest quality golf clubs in all of Clay County. The company expects the following revenues and costs in 2004 for its Elite Quality golf club sets:

2.

3.

Revenues (400 sets sold @ $600 per set) Variable costs Fixed costs 4.

$240,000 160,000 50,000

How many sets of clubs must be sold for Tee Times, Inc. to reach their breakeven point? a. 400 b. 250 c. 200 d. 150 How many sets of clubs must be sold to earn a target operating income of $90,000? a. 700 b. 500 c. 400 d. 300 What amount of sales must Tee Times, Inc. have to earn a target net income of $63,000 if they have a tax rate of 30%? a. $489,000 b. $429,000 c. $420,000 d. $300,000 One way for managers to cope with uncertainty in profit planning is to a. use CVP analysis because it assumes certainty. b. recommend management hire a futurist whose work is to predict business trends. c. wait to see what does happen and prepare a report based on actual amounts. d. use sensitivity analysis to explore various what-if scenarios in order to analyze changes in revenues or costs or quantities. The Beta Mu Omega Chi (BMOC) fraternity is looking to contract with a local band to perform at its annual mixer. If BMOC expects to sell 250 tickets to the mixer at $10 each, which of the following arrangements with the band will be in the best interest of the fraternity? a. $2500 fixed fee b. $1000 fixed fee plus $5 per person attending c. $10 per person attending d. $25 per couple attending Use the following information for questions 9 and 10. LSB Company has the following income statement: Revenues $100,000 Variable Costs 40,000 Contribution Margin 60,000 Fixed Costs 30,000 Operating Income 30,000 9. What is LSBs DOL? a. 3.33 b. 2.00

5.

6.

7.

8.

c. d. 10.

0.50 1.00

If LSBs sales increase by $20,000, what will be the companys operating profit? a. $42,000 b. $12,000 c. $50,000 d. $30,000 Twin Products Company produces and sells two products. Product M sells for $12 and has variable costs of $6. Product W sells for $15 and has variable costs of $10. Twin predicted sales of 25,000 units of M and 20,000 of W. Fixed costs are $60,000 per month. Assume that Twin achieved its sales goal of $600,000 for September, but fell short of its expected operating income of $190,000. Which of the following descriptions best describes the actual results reported of revenue of $600,000 and operating income of less than $190,000? a. Twin sold 50,000 of M and no product W. b. Twin sold more of both products M and W than expected. c. Twin sold more of product W and less of product M than expected. d. Twin sold more of product M and less of product W than expected. In the situation of multiple cost drivers, CVP analysis can a. be modified so that the various simple formulas can be used by applying them separately to each cost driver. b. apply the same formulas as that used for a single-cost driver. c. be changed by incorporating all of the cost drivers into the breakeven formula to calculate the unique point of output at which the company would break even. d. be adapted by incorporating the cost drivers into the calculation of the variable costs. Which of the following statements is true? a. Gross margin is another term for contribution margin. b. Contribution margin is acceptable for use in external financial statements. c. Contribution margin is used to help managers in decision making. d. Gross margin is revenues minus variable cost.

11.

12.

13.

CHAPTER 3 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. c a c b a c d b b b c b c

Quiz Question Calculations 4. Variable costs per unit = $160,000/400 units sold = $400 Contribution Margin = $600 400 = $200 per unit Breakeven point = $50,000/$200 = 250 units TOI = $50,000 + $90,000/$200 = 700 units TNI = $50,000 + $63,000/(1 .30)/$200 = 700 units $600 = $420,000 Cost of option a: $2,500 Profit = 0 Cost of option b: $1,000 + 5(250) = $2,250 Profit = $250 Cost of option c: $10 (250) = $2,500 Profit = 0 Cost of option d: $25 (125) = $3,125 Loss ($625) DOL = $60,000/$30,000 = 2.0 $20,000/ $100,000 = 20% 20% 2 = 40% 40% $30,000 = $12,000 increase

5. 6. 1.

2. 3.

CHAPTER 4 QUIZ1. A cost-allocation base may be any of the following except a a. cost driver. b. cost pool. c. way to link indirect costs to a cost object. d. nonfinancial quantity. A company that manufactures dentures for use by local dentists would use a. process costing. b. personal costing. c. operations costing. d. job costing. The first step in the seven-step approach to job costing is to a. select the cost-allocation base to use in assigning indirect costs to the job. b. identify the direct costs of the job. c. identify the job that is the chosen cost object. d. identify the indirect-cost pools associated with the job. Using normal costing rather than actual costing requires that the allocating of indirect manufacturing costs to work-in-process be a. done on a more timely basis, such as every two weeks rather than every month. b. journalized only at year end when adjusting entries are normally made. c. calculated by using the budgeted rate times actual quantity of allocation base. d. calculated by using the budgeted rate times the budgeted quantity of allocation base. Manufacturing Overhead Control a. represents actual overhead costs incurred. b. has a normal debit balance. c. is a control account with a subsidiary ledger detailing the components of manufacturing overhead. d. All of the above Which of the following accounts is not classified as an asset? a. Manufacturing Overhead Control b. Materials Control c. Work-in-Process Control d. Finished Goods Control The costs incurred on jobs that are currently in production but are not yet complete would appear in the a. Materials Control account. b. Finished Goods Control account. c. Manufacturing Overhead Control account. d. Work-in-Process Control account. The Precision Widget Company had the following balances in their accounts at the end of the accounting period:

2.

3.

4.

5.

6.

7.

8.

Work-in-Process Finished Goods Cost of Goods Sold

$ 5,000 20,000 200,000

If their manufacturing overhead was overallocated by $8,000 and Precision Widget adjusts their accounts using a proration based on total ending balances, the revised ending balance for Cost of Goods Sold would be a. $192,880. b. $200,00. c. $207,120. d. $208,000. 9. Liberty Box Company calculated an indirect-cost rate of $12.50 per labor hour for fringe benefits for use in their normal costing system. At the end of the year, the actual cost of fringe benefits was $980,000. The total of labor hours worked for the year was the same amount as budgeted, 70,000 hours. If Job #640 required the use of 15 labor hours and the company used the adjusted allocation rate approach, by what amount would the cost of Job #640 change? a. $560.00 b. $281.25 c. $22.50 d. $20.50 If each professional in a service company is paid on an annual salary basis, why might the firm want to use a predetermined or budgeted rate for direct or professional labor? a. A predetermined or budgeted rate is easier to justify to a client who might question a billing rate. b. Professional staff persons do not keep accurate records of the jobs on which they work. c. Professional staff incurs more client costs, such as travel, lodging, and outof-town meals, while working on a job. d. Year-end bonuses paid to the professional staff are difficult to trace to individual jobs.

10.

CHAPTER 4 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. b d c c d a d a c d

Quiz Question Calculations Work in Process $5,000 / 225,000 2.2% $8,000 = 176 Finished Goods $20,000 /225,000 8.9% $8,000 = 712 Cost of Goods Sold $200,000 / 225,000 88.9% $8,000 = 7,120 200,000 7,120 = $192,880 9. 980.000/70,000 = $14.00 (actual rate) $14,000 $12.50 = $1.50 excess of actual over budget 1.50 15 hours $22.50 additional cost

CHAPTER 5 QUIZ1. Production-cost cross-subsidization results from a. allocating indirect costs to multiple products. b. assigning traced costs to each product. c. assigning costs to different products using varied costing systems within the same organization. d. assigning broadly averaged costs across multiple products without recognizing amounts of resources used by which products. In refining a cost system

2.

a.

b. c. d.

total direct costs are unchanged because they can be traced in an economically feasible way to the product and traced costs are more accurate. the costs are grouped in homogeneous pools of the same or similar amounts. the criterion of cause and effect is used to relate indirect costs to a factor that systematically links to a cost object. the organization looks for cost-allocation bases that will provide a uniform spreading of indirect costs to each product.

Question 3 is based on the following data. The average cost data are for In-Sync Fixtures Companys (a retailer) only two product lines, Marblette and Italian Marble. Marblette Purchase volume 20,000 Purchase cost per unit $50 Shipments received 12 Hours used per shipment * 5 * These data were accumulated after a careful activity analysis. Italian Marble 1,000 $50 12 3

Currently, In-Sync Fixtures uses a traditional costing system with indirect costs allocated using purchased cost of goods as a basis. In-Sync Fixtures is considering refining the allocation of their receiving costs of $40,000. They realize that the Italian Marble is heavier and requires more care than the Marblette but that the Marblette comes in larger volume. 3. Which statement can be made using the results of the activity analysis performed by In-Sync Fixtures? a. The use of this refined activity-based costing system will increase the accuracy of the resulting product costs because a more appropriate cost driver will be used as the allocation base. b. The traditional allocation method currently being used is causing product-cost cross-subsidization with the product line Marblette being undercosted. c. The cost allocated to the Italian Marble product line under the current traditional system is more than the activity-based costing allocated cost. d. The use of this refined activity-based costing system will increase the accuracy of the resulting product costs because it probably will cost less to trace the costs to the product lines. Advertising of a specific product is an example of a. unit-level costs. b. batch-level costs. c. product-sustaining costs. d. facility-sustaining costs.

4.

5.

The allocation of indirect costs in an activity-based costing system a. may require other costs to be allocated to activities before the costs of the activities can be allocated to the products. b. is simplified because more costs are identified as direct costs. c. requires the use of heterogeneous cost pools. d. is simplified because a limited number of activities are identified as cost objects.

Information for questions 6 and 7 is given below. Jackson Enterprises manufactures two productsA basic gizmo and an advanced model gizmo. The company is using an activity-based costing system. They have identified three activities for allocation of indirect costs. Activity Materials receiving Production setup Quality inspection Cost Driver Number of parts Number of setups Inspection time Cost-Allocation Rate $2.00 per part $500.00 per setup $90 per hour

A production run for the basic model is 250 units, for the advanced model, 100 units. Each unit of product consumes the following activities: Number of Parts Number of Setups Basic Gizmo 10 50 Advanced Gizmo 15 25 Direct costs for the two products are as follows: Direct Materials Direct Labor Basic Gizmo $50.00 $ 75.00 Advanced Gizmo $95.00 $125.00 6. The amount of overhead allocated to one unit of the basic model would be a. $592. b. $37. c. $162. d. $65. The total cost of an advanced model would be a. $162. b. $65. c. $200. d. $265.

Inspection Time 10 minutes 20 minutes

7.

8.

Evaluating customer reaction of the trade-off of giving up some features of a product for a lower price would best fit which category of management decisions under activity-based management? a. Pricing and product-mix decisions b. Cost reduction decisions c. Design decisions d. Discretionary decisions Which of the following statements is more representative of activity-based costing in comparison to a department-costing system? a. The use of multiple cost-allocation bases b. The use of indirect-cost rates for significant resource use c. The use of activities having a cause-and-effect relationship d. The use of multiple cost pools A significant limitation of activity-based costing is the a. attention given to indirect cost allocation. b. many necessary calculations. c. operations staffs attitude toward the accounting staff. d. use it makes of technology.

9.

10.

CHAPTER 5 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. d c a c a b d c c b

Quiz Question Calculations 6. 7. (2 10) + ($500/250) + ($90/60 10) = $37 $75 + $125 + ($2 15) + ($500/100) + ($90/60 20)

CHAPTER 7 QUIZ1. [CMA Adapted] Flexible budgets a. accommodate changes in the inflation rate. b. accommodate changes in activity levels. c. are used to evaluate capacity utilization. d. are static budgets that have been revised for changes in price(s). [CMA Adapted] The following information is available for the Gabriel Products Company for the month of July: Static Budget Actual Units 5,000 5,100 Sales revenue $60,000 $58,650 Variable manufacturing costs $15,000 $16,320 Fixed manufacturing costs $18,000 $17,000

2.

Variable marketing and administrative expense $10,000 Fixed marketing and administrative expense $12,000 The total sales-volume variance for the month of July would be a. $2,550 unfavorable. b. $1,350 unfavorable. c. $700 favorable. d. $100 favorable. 3.

$10,500 $11,000

[CMA Adapted] Bartholomew Corporations master budget calls for the production of 6,000 units of product monthly. The master budget includes indirect labor of $396,000 annually; Bartholomew considers indirect labor to be a variable cost. During the month of September, 5,600 units of product were produced, and indirect labor costs of $30,970 were incurred. A performance report utilizing flexible budgeting would report a flexible budget variance for indirect labor of a. $170 unfavorable. b. $170 favorable. c. $2,030 unfavorable. d. $2,030 favorable. Which of the following is not an advantage for using standard costs for variance analysis? a. Standards simplify product costing. b. Standards are developed using past costs and are available at a relatively low cost. c. Standards are usually expressed on a per-unit basis. d. Standards can take into account expected changes planned to occur in the budgeted period.

4.

5.

Information on Pruitt Companys direct-material costs for the month of July 2005 was as follows: Actual quantity purchased 30,000 units Actual unit purchase price $2.75 Materials purchase-price variance unfavorable (based on purchases) $1,500 Standard quantity allowed for actual production 24,000 units Actual quantity used 22,000 units [CPA Adapted] For July 2005 there was a favorable direct-materials efficiency variance of a. $7,950. b. $5,500. c. $5,400. d. $5,600.

6.

Information for Garner Companys direct-labor costs for the month of September 2005 was as follows: Actual direct-labor hours Standard direct-labor hours Total direct-labor payroll Direct-labor efficiency variancefavorable 34,500 hours 35,000 hours $241,500 $ 3,200

[CPA Adapted] What is Garners direct-labor price (or rate) variance? a. $21,000 favorable b. $21,000 unfavorable c. $17,250 unfavorable d. $20,700 unfavorable 7. Performance evaluation using variance analysis should guard against a. emphasis on a single performance measure. b. emphasis on total company objectives. c. basing effect of a managers action on total costs of the company as a whole. d. highlighting individual aspects of performance. The basic principles and concepts of variance analysis can be applied to activity-based costing a. by application as to the levels of cost hierarchy. b. through careful classification of costs as direct and indirect as applied to the product or job. c. with use of standard costing systems only.

8.

d.

only through those activities related to individual units of product or service.

9.

Benchmarking is a. relatively easy to do with the amount of available financial information about companies. b. best done with the best in their field regardless of type of company. c. simply reporting the magnitude of differences in costs or revenues across companies. d. making comparisons to direct attention to why differences in costs exist across companies.

CHAPTER 7 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. b c a b c d a a d

Quiz Question Calculations 2. 5,100 5,000 = 100 units $7* = $700F Unit CM = 60,000 15,000 10,000/35,000 = $7 3. Actual DL Flexible budget 5,600 $5.50 Flexible budget variance Actual price 30,000 2.75 $30,970 30,800 170 U 82,500

5.

Minus unfavorable price variance Materials at standard

1,500 81,000

81,000/30,000 = $2.70 standard price per unit Actual quantity Standard quantity Efficiency variance 6. Actual direct labor cost Standard 34,500 6.40 Price variance 22,000 units 24,000 units 2,000 1.70 = $5,400 F $241,500 $220,800 20.700 U

Standard rate = 3,200/(35,000 34,500) = $6.40

FLEXIBLE-BUDGET AND SALES-VOLUME VARIANCE ANALYSIS Actual Results: Actual Units Sold X Actual Sales Mix X Actual CM/unit Flexible Budget: Actual Units Sold X Actual Sales Mix X Budgeted CM/unit Static Budget: Budgeted Units Sold X Budgeted Sales Mix X Budgeted CM/unit

| - - - - Flexible budget variance - - - - | - - - - Sales-volume variance - - - - | | - - - - - - - - - - - - - - - - - - - Static budget variance - - - - - -- - - - - - - - - - | SALES-MIX AND SALES-QUANTITY VARIANCE ANALYSIS Flexible Budget: Actual Units Sold X Actual Sales Mix X Budgeted CM/unit Actual Units Sold X Budgeted Sales Mix X Budgeted CM/unit Static Budget: Budgeted Units Sold X Budgeted Sales Mix X Budgeted CM/unit

| - - - - - - Sales mix variance - - - - - | - - - - Sales-quantity variance - - - - | | - - - - - - - - - - - - - - - - - - - Sales-volume variance - - - - - - - - - - - - - - - | MARKET-SHARE AND MARKET-SIZE VARIANCE ANALYSIS Flexible Budget: Actual Market Size X Actual Market Share X Budgeted CM/unit Actual Market Size X Budgeted Market Share X Budgeted CM/unit Static Budget: Budgeted Market Size X Budgeted Market Share X Budgeted CM/unit

| - - - - - - Market share variance - - - - - | - - - - Market size variance - - - - | | - - - - - - - - - - - - - - - - - - - Sales-quantity variance - - - - - - - - - - - - - - - | INPUT PRICE AND EFFICIENCY VARIANCES Actual Costs: Actual Input output) X Actual Price X Budgeted Price X Budgeted Price | - - - - - - - Price variance - - - - - - - | - - - - - - - Efficiency variance - - - - - - - | | - - - - - - - - - - - - - - - - - - - Flexible budget variance - - - - - -- - - - - - ----- - - - | INPUT YIELD AND MIX VARIANCES Actual Input/Actual Mix : Actual Inputs Used output) X Actual Input Mix X Budgeted Price X Budgeted Input Mix X Budgeted Price X Budgeted Input Mix X Budgeted Price Actual Input Used Flexible Budget: Budgeted Input (for actual Actual Input Flexible Budget: Budgeted Input (for actual

| - - - - - - - - Mix variance - - - - - - - - | - - - - - - - - - Yield variance - - - - - - - |

| - - - - - - - - - - - - - - - - - - - Efficiency variance - - - - - - - - - - - - - - - - - - - - |

CHAPTER 8 QUIZ1. Which of the following pertains primarily to the planning of fixed overhead costs? a. A standard rate per output unit is developed. b. Only essential activities are to be undertaken. c. Activities are to be undertaken in the most efficient method. d. Key decisions are made at the start of the budget period determining the level of costs. In selecting a cost allocation base for variable overhead, what criteria for the base is preferred? a. Ease of acquiring reliable information for accurate allocations b. A cause-and-effect relationship between the cost and the activity level c. A single base that will simplify the allocation process d. One that has been used in the past

2.

The following data apply to questions 39. Sebastian Company, which manufactures electrical switches, uses a standard cost system and carries all inventories at standard. The standard manufacturing overhead costs per switch are based on direct labor hours and are shown below: Variable overhead (5 hours @ $12 per direct manufacturing labor hour) $ 60 Fixed overhead (5 hours @ $15* per direct manufacturing labor hour) 75 Total overhead per switch $135 *Based on capacity of 200,000 direct manufacturing labor hours per month. The following information is available for the month of December: 3. 46,000 switches were produced although 40,000 switches were scheduled to be produced. 225,000 direct manufacturing labor hours were worked at a total cost of $5,625,000. Variable manufacturing overhead costs were $2,750,000. Fixed manufacturing overhead costs were $3,050,000.

[CMA Adapted] The variable overhead spending variance for December was a. $50,000 U.

b. c. d. 4.

$350,000 U. $10,000 F. $60,000 F.

[CMA Adapted] The variable manufacturing overhead efficiency variance for December was a. $50,000 U. b. $350,000 U. c. $10,000 F. d. $60,000 F.

5.

The total variable manufacturing overhead variance was a. $10.000 F. b. $10,000 U. c. $110,000 U. d. $110,000 F. [CMA Adapted] The fixed manufacturing overhead spending variance for December was a. $450,000 F. b. $400,000 F. c. $50,000 U. d. $775,000 F. The fixed overhead production volume variance for December was a. $450,000 F. b. $400,000 F. c. $50,000 U. d. $775,000 F. What amount should be credited to the Allocated Manufacturing Overhead Control account for the month of December? a. $6,210,000 b. $5,800,000 c. $5,760,000 d. $5,700,000 Under the 2-variance method, the flexible-budget variance for December was a. $10,000 F. b. $40,000 U. c. $50,000 U. d. $100,000 U.

6.

7.

8.

9.

10. Under the 3-variance method, the spending variance for December was a. $10,000 F. b. $40,000 U. c. $50,000 U. d. $100,000 U. 11. Which of the following statements is true about overhead cost variance analysis using activity-based costing? a. Overhead cost variances are calculated for output-unit level costs only. b. Overhead cost variances are calculated for variable manufacturing overhead costs only. c. A 4-variance analysis can be conducted.

d.

Activity-based costing uses input measures for all activities, resulting in the inability to do flexible budgets needed for variance analysis.

CHAPTER 8 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. d b a d a c a a b d c

Quiz Question Calculations 3. Standard 225,000 DLH $12 Actual VOH Spending variance = $2,700,000 2,750,000 $ 50,000 U = 230,000 225,000 5,000 $12 = $60,000

4.

Standard 46,000 switches 5 DLH/switch Actual DLH VOH Efficiency variance

F 5. 6. Total variable overhead variance = $50,000 U + $60,000 F = $10,000 F Budgeted fixed OH 200,000 DLH $15/DLH = Actual fixed OH FOH Spending variance Budgeted DLH Allocated 46,000 5 $3,000,000 3,050,000 50,000 U

7.

200,000 230,000 30,000 15 = 450,000 F

230,000 (15 + 12) = $6,210,000 50,000 U 60,000 F + 50,000 U = 40,000 U 50,000 U + 50,000 U = 100,000 U

CHAPTER 15 QUIZ1. The use of a dual-rate cost-allocation method recognizes a. the improvements in technology allowing for use of multiple cost pools. b. the need to use both budgeted and actual cost rates when allocating. c. the need to use both budgeted and actual usage of quantities when allocating. d. the behavior aspect of costs. 2. Managers are affected by risks they have to take and would prefer to use a. actual rates for cost allocation because the rates are calculated from real amounts. b. actual rates for cost allocation because actual rates are easier to justify to users. c. budgeted rates for cost allocation because the rates are known in advance. d. budgeted rates for cost allocation because any variances are transferred to users. The following data apply to questions 35. Billy Stone, Inc. budgets the following amounts for its Buildings & Grounds and Computer Services Departments in servicing each other and the two manufacturing divisions of Signs and Mailers: Used By Supplied By Mailers Buildings & Grounds 0.20 Computer Services 0.55 Building & Grounds 0.15 Computer Services 0.20 Signs 0.60 0.30

The actual results for the time period were as follows: Used By Supplied By Mailers Buildings & Grounds 0.30 Computer Services 0.40 Building & Grounds 0.25 Computer Services 0.10 Signs 0.60 0.35

Actual cost data for each department are: Buildings & Grounds Computer Services Fixed $ 50,000 $100,000 Variable $90,000 $21,000

3. Total fixed costs allocated from Buildings & Grounds to the Signs Department, using the preferred allocation basis, by the direct allocation method are a. $37,500. b. $33,333. c. $30,000. d. $25,000. 4. Total variable costs allocated from Computer Services to Mailers Department, using the preferred allocation basis, by the step-down allocation method (begin with Building & Grounds) are a. $8,400. b. $12,000. c. $16,000. d. $25,235.

5. The equation to determine the total variable costs of Computer Services using the preferred allocation basis for the reciprocal allocation method is a. CS = $21,000 + 0.25 B&G. b. CS = $21,000 + 0.20 B&G. c. CS = $21,000 + 0.15 B&G. d. CS = $21,000 + 0.10 B&G. 6. If a cost is incurred for more than one user, that cost is considered a(n) a. homogeneous cost. b. common cost. c. stand-alone cost. d. incremental cost. 7. Which of the following is often the most basic cause of contract disputes? a. Allowable costs b. Cost-allocation issues c. Use of common costs d. Writing into the contract rules of the game 8. Bundling of products creates the need for revenue allocation for each of the following except when a. selling prices for the bundle are set to recoup the stand-alone prices of each product in the bundle.

b. c. d.

the manager is responsible for profitability on a product-by-product basis. the managers bonus is based upon product profitability. persons involved with product development are compensated by percentage of revenues realized.

Use the following information for questions 9 and 10. Trio Company sells three products, Do, Ra, and Mi, for prices of $8, $7, and $5, respectively. They also offer combinations of the products for reduced overall prices. The following packages are available: (1) a package containing Do and Ra sells for $13.50, (2) a package of Do and Mi sells for $11.50, (3) a package containing Ra and Mi sells for $10.50, and (4) a package of all three products, Do, Ra, and Mi, sells for $17.00. 9. If Trio Company uses the stand-alone method (based on selling prices) to allocate revenues to products, the amount of revenues to be allocated to Do from a package of all three products, as described in (4) above, sold would be a. $8.00. b. $6.80. c. $5.95. d. $4.25. If Trio Company uses the incremental-revenues allocation method and has designated Ra as the primary product, the amount of revenues from a bundled package of all three products to be allocated to Ra would be a. $7.00. b. $6.80. c. $5.95. d. $4.25.

10.

CHAPTER 16 QUIZThe following data apply to questions 15. Brant Corporation manufactures two products out of a joint processScout and Andro. The joint (common) costs incurred are $400,000 for a standard production run that generates 70,000 pounds of Scout and 30,000 pounds of Andro. Scout sells for $9.00 per pound whereas Andro sells for $7.00 per pound. 1. [CMA Adapted] If there are no additional processing costs incurred after the splitoff point, the amount of joint cost of each production run allocated to Scout on a physical-quantity basis is a. $300,000.

b. c. d.

$280,000. $120,000. $100,000.

2. [CMA Adapted] If there are no additional processing costs incurred after the splitoff point, the amount of joint cost of each production run allocated to Andro on a sales value at splitoff basis is a. $300,000. b. $225,000. c. $175,000. d. $100,000. 3. [CMA Adapted] If additional processing costs beyond the splitoff point are $1.00 per pound for Scout and $2.333 per pound for Andro, the amount of joint cost of each production run allocated to Andro on a physical quantity basis is a. $300,000. b. $280,000. c. $120,000. d. $100,000. 4. [CMA Adapted] If additional processing costs beyond the splitoff point are $1.00 per pound for Scout and $2.333 per pound for Andro, the amount of joint cost of each production run allocated to Andro on an estimated net realizable value basis is a. $80,000. b. $147,350. c. $175,000. d. $320,000. 5. Assume the same cost information as in question 4. The amount of joint cost of each production run allocated to Scout using the constant gross-margin percentage NRV method is a. $224,910. b. $260,120. c. $335,090. d. $405,090. 6. [CPA Adapted] For purposes of allocating joint costs to joint products, the sales value at splitoff method could be used in which of the following situations? No costs Cost beyond beyond splitoff splitoff a. Yes No b. Yes Yes c. No Yes

d.

No

No

7. Products G and H are joint products developed from the same process with each being processed further. Joint costs are incurred until splitoff, the separable costs are incurred in further refining each product. Sales values of G and H at splitoff are used to allocate joint costs. If the sales value of G at splitoff increases and all other costs and selling prices remain unchanged, joint costs allocated to: G H a. increases increases b. increases decreases c. decreases decreases d. decreases increases 8. [CPA Adapted] Tanner Company manufactures products Katran and Klare from a joint process. Product Katran has been allocated $7,500 of total joint costs of $30,000 for the 1,500 units produced. Katran can be sold at the splitoff point for $4 per unit, or it can be processed further with additional costs of $2,000 and sold for $7 per unit. If Katran is processed further and sold, the result would be a. a breakeven situation. b. an overall loss of $1,500. c. a gain of $2,500 from further processing. d. a gain of $1,000 from further processing. 9. [CPA Adapted] In accounting for byproducts, the value of the byproduct may be recognized at the time of Production Sale a. Yes No b. Yes Yes c. No No d. No Yes 10. [CPA Adapted] Mohler Corporation manufactures a product that yields the byproduct Jep. The only costs associated with Jep are selling costs of $0.10 for each unit sold. Mohler accounts for sales of Jep by deducting Jeps separable costs from Jeps sales and then deducting this net amount from the major products cost of goods sold. Jeps sales were 200,000 units at $1.00 each. If Mohler changes its method of accounting for Jeps sales of showing the net amount as additional sales revenue, the Mohlers gross margin would a. increase by $180,000. b. increase by $200,000. c. increase by $220,000. d. be unaffected.

CHAPTER 16 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. b d c a c b b c b d

Quiz Question Calculations 1. Scout $400,000 70,000 lbs /100,000 lbs = $280,000 Andro $400,000 30,000 lbs / 100,000 lbs = $120,000 Scout 70,000 lbs $9 Andro 30,000lbs $7 = = $630,000 210,000 $840,000

2.

Scout 630,000/840,000 $400,000 = $300,000 Andro 210,000/840,000 $400,000 = #100,000 3. 4. See answer to #1 Scout Revenues Additional Proc $1 70,000 Andro Revenues Additional Proc $2.33 30,000 $630,000 (70,000) $560,000 $210,000 (70,000) NRV Scout 560,000/700,000 $400,000 = $320,000 Andro 140,000/700,000 $400,000 = $ 80,000 5. Sales Separable Costs Scout Andro Total $630,000 $210,000 $840,000 (70,000) (70,000) (140,000) $560,000 $140,000 $700,000 140,000 $700,000

Joint Costs Gross Profit *Adjusted for rounding 1.

(335,090) 224,910

(65,010) 74,970*

(400,000) 300,000

35.7%**

**300,000/840,000

Katran @ splitoff value $4 x 11500 = $6,000 Process further $7 1500 = 10,500 less separable costs of $2,000 = $8,500 $8,500 $6,000 = $2,000 gain from further processing

10.

Sales of Jep Separable costs Jeb Gross Margin

200,000 $1 = $200,000 20,000 $.10 = 20,000 $180,000

However, this amount is currently being deducted from the cost of the main product, so gross margin remains unchanged.

CHAPTER 17 QUIZUse the following information for questions 110. Top That manufactures baseball-style hats. Material is introduced at the beginning of the process in the Cutting Department. Conversion costs are incurred (and allocated) uniformly throughout the process. As the cutting of material is completed, the pieces are immediately transferred to the Sewing Department. Data for the Cutting Department for the month of February 2009 follow:

Work in process, January 31 50,000 units 100% complete for direct materials; 40% completed for conversion costs actual costs of direct materials, $70,500; actual costs of conversion, $34,050 Units started during February, 225,000 Units completed during February 200,000 Work in process, February 28 75,000 units 100% complete for direct materials; 20% completed for conversion costs Direct materials added during February [actual costs] $342,000 Conversion costs added during February [actual costs] $352,950

1. Assuming Top That uses the weighted-average method to account for inventories, the equivalent units of work for the month of February are Direct Materials Conversion Costs

a. b. c. d.

225,000 200,000 275,000 225,000

225,000 200,000 215,000 200,000

2. Assuming Top That used the weighted-average method to account for inventories, the cost per equivalent whole unit produced during February is a. $3.30. b. $3.55. c. $3.77. d. $4.00. 3. Assuming Top That uses the weighted-average method to account for inventories, the assignment of costs to work in process at the end of February is a. $300,000. b. $266,250. c $166,525. d. $139,500.

4. If Top That uses the first-in, first-out (FIFO) method to account for inventories, the equivalent units of work for the month of February are Direct Materials Conversion Costs a. 225,000 225,000 b. 225,000 195,000 c. 275,000 200,000 d. 200,000 195,000 5. If Top That uses the FIFO method to account for inventories, the costs per equivalent unit for February are Direct Materials Conversion Costs a. $1.50 $1.76 b. $1.83 $1.72 c. $1.71 $1.81 d. $1.52 $1.81 6. Assuming Top That uses the first-in, first-out (FIFO) method to account for inventories, the assignment of costs to units completed and transferred to the Sewing Department during February is a. $658,350.

b. c. d.

$636,450. $666,000. $652,000.

The following additional data apply to questions 79. Standard costs for the Cutting Department: Direct materials: $1.50 per unit; Conversion costs $1.75 per unit 7. The standard costs of units completed and transferred from the Cutting Department during February is a. $731,250. b. $650,000. c. $678,750. d. $600,000. 8. The conversion costs variance for the month of February is a. $40,800 favorable. b. $94,250 favorable. c. $11,700 unfavorable. d. $29,750 unfavorable.

9. The journal entry to record inventory costs and direct-material variances for the month of February is a. Cutting Department Control 342,000 Direct Material Variances 4,500 Work in ProcessCutting Department 337,500 b. Work in ProcessCutting Department Direct Material Variances Cutting Department Control Work in ProcessCutting Department Direct Material Variances Cutting Department Control 337,500 4,500 342,000 342,000 4,500 337,500

c.

d.

Work in ProcessCutting Department Direct Material Variances Cutting Department Control

341,250 750 342,000

10. In the Sewing Department, additional direct materials are added to the product at the end of production. Without prejudice to your answer for questions 19, assume that 200,000 units were transferred from the Cutting Department and that the weightedaverage method is used. Data for February follow: Work in process, January 3170,000 units (30% complete as to conversion) Units completed during February240,000 units Work in process, February 2830,000 units (80% complete as to conversion) For the Sewing Department, the equivalent units of work done in February is Transferred In Direct Materials Conversion Costs a. 200,000 200,000 200,000 b. 200,000 170,000 194,000 c. 240,000 240,000 245,000 d. 270,000 240,000 264,000

CHAPTER 17 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. c a d b d a b c b d

Quiz Question Calculations1. DM = 50,000 + 225,000 = 275,000 EU CC = 200,000 + .20(75,000) = 215,000 EU 342,000 + 70,500/275,000 = $1.50/unit for Materials 352,950 + 34,050/215,000 = $1.80/ unit for Conversion Cost $1.50 + $1.80 = $3.30 3. 75,000 1.50 75,000 .5 1.80 = $112,500 = 27,000 $139,500 = 225,000 EU (number of units started) = 30,000 = 150,000 = 15,000 195,000

2.

4.

Materials Conversion Cost BI 50,000 .6 S&C EI 75,000 .2

5.

342,000/225,000 = $1.52/unit for Materials 352,950/195,000 = $1.81/unit for Conversion Cost

6.

Beginning Work in Process To complete Beginning Work in Process 50,000 .6 1.81 $158,850 Started & Completed 150,000 3.33 Transferred to Sewing

$104,550 54,300

499,500 $658,350

7. 1.

200,000 3.25 = $650,000 Standard cost Actual cost Variance $1.75 1.81 .06 195,000 = 11,700U $337,500 342,000 $ 4,500U

2.

Standard 225,000 $1.50 Actual Variance

Transferred in 200,000 + 70,000 = 270,000 Direct Materials 240,000 (units completed, materials added at end) Conversion Cost 240,000 + .8(30,000) = 264,000

CHAPTER 18 QUIZ1. [CPA Adapted] In manufacturing its products for the month of September 2008, El Dorado Corporation incurred normal spoilage of $7,000 and abnormal spoilage of $3,000. How much spoilage cost should El Dorado charge as inventoriable for the month of September 2005? a. $0 b. $3,000 c. $7,000 d. $10,000 [CPA Adapted] Spoilage from a manufacturing process was discovered during an inspection of work in process. In a process-costing system, the cost of the spoilage would be added to the cost of the good units produced if the spoilage is Normal Abnormal a. Yes Yes b. Yes No c. No No d. No Yes

2.

The following data apply to questions 35. Watkins Company had the following production for the month of June: Units Work in process, June 1 6,000 Started during June 24,000 Completed and transferred to finished goods 18,000 Abnormal spoilage incurred 3,000 Work in process, June 30 9,000

Materials are added at the beginning of the process. As to conversion cost, work in process was 20% complete at the beginning and 70% complete at the end of the month. Spoilage is detected at the end of the process. 3. [CPA Adapted] Using the weighted-average method, the equivalent units for June, with respect to conversion cost, were a. 30,000. b. 24,300. c. 23,700. d. 27,300. Assume the manufacturing cost of the spoiled goods is $6,000. The journal entry to record the spoilage is a. Manufacturing Overhead Control 6,000 Work in Process 6,000 b. Materials Control Work in Process 6,000 6,000

4.

c.

Loss from Abnormal Spoilage Work in Process Finished Goods Work in Process

6,000 6,000 6,000 6,000

d.

5.

Using the first-in, first out (FIFO) method, the equivalent units for June, with respect to conversion cost, were a. 26,100. b. 23,100. c. 22,500. d. 19,500. Under process costing and job costing, the accounting treatment for the normal spoilage (assume related to normal factory operations) is Process costing Job costing a. b. Loss account is charged. Upon transfer, spoilage costs are transferred along with other costs. Upon transfer, spoilage costs are transferred along with other costs. Manufacturing overhead control is charged. Loss account is charged. Loss account is charged.

6.

c.

Manufacturing overhead control is charged. No entry.

d.

7.

[CPA Adapted] During August 2008, Stirtz Company incurred the following costs on Job 924 for the manufacture of 600 scoreboard clocks: Original cost accumulation: Direct materials Direct manufacturing labor Manufacturing overhead (150% of direct manufacturing labor) Direct costs of reworked 15 units: Direct materials Direct manufacturing labor

$2,250 1,800 2,700 $6,750 $150 240 $390

The rework costs were attributable to exacting specifications of Job 924, and the full rework costs were charged to the specific job. The cost per finished unit of Job 924 was a. $12.50. b. $11.25. c. $11.61. d. $11.90.

The following data apply to questions 8 and 9. MedTech, Inc. manufactures surgical instruments to the exacting specifications of various customers. During April 2005, Job 911 for the production of 4,500 instruments was completed at the following costs per unit: Direct materials Direct manufacturing labor Allocated manufacturing overhead $ 60 20 80 $160

Final inspection of Job 911 disclosed 100 defective units and 50 spoiled units. The defective instruments were reworked at a total cost of $12,000, and the spoiled instruments were sold to a jobber for $3,000. 8. [CPA Adapted] What would be the unit cost of the good units produced on Job 911? a. $160 b. $162 c. $164 d. $168 9. If the costs associated with spoilage and reworked units are considered as normal to manufacturing operations, the unit cost of the good units produced on Job 911 is a. $165. b. $164. c. $162. d. $160. 10. [CPA Adapted] The sale of scrap from a manufacturing process usually would be recorded as a(n) a. increase in manufacturing overhead control. b. decrease in manufacturing overhead control. c. increase in finished goods control. d. decrease in finished goods control.

CHAPTER 18 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. c b d c a c a c d b

Quiz Question Calculations 3. Units Completed Abnormal spoilage Work in Process 6/30 (9,000 .70) Equivalent Units Work in Process 6/1 (6,000 .8) Started & Completed (18,000 6000) Abnormal Spoilage Work in Process 6/30 (9,000 .70) Equivalent Units Original Cost Accumulation Direct Costs of Rework Overhead Applied (240 150%) Total Cost $7,500/600 clocks = $12.50 1. Production costs Rework costs $160 4,500 units $720,000 12,000 $732,000 (3,000) $729,000 18,000 3,000 6,300 27,300 4,800 12,000 3,000 6,300 26,100 $ 6,750 390 360 $7,500

5.

7.

Revenue from sale of spoiled units Net Cost 739,000/4450 good units = 163.62 or $164

CHAPTER 20 QUIZ

1. Which of the following categories of costs are important when managing inventories of goods for sale according to the authors of the text? a. Purchasing, ordering, supply, spoilage, and opportunity b. Purchasing, stockout, carrying, ordering, and quality c. Buying, holding, invoicing, opportunity, and investment d. Supply, obsolescence, holding, stockout, and transportation-in

The following data apply to questions 2-6. Liberty Celebrations, Inc. manufactures a line of flags. The annual demand for its flag display is estimated to be 100,000 units. The annual cost of carrying one unit in inventory is $1.60, and the cost to initiate a production run is $50. There are no flag displays on hand but Liberty had scheduled 60 equal production runs of the display sets for the coming year, the first of which is to be run immediately. Liberty Celebrations has 250 business days per year. Assume that sales occur uniformly throughout the year and that production is instantaneous. 2. [CMA Adapted] If Liberty Celebrations does not maintain a safety stock, the estimated total carrying cost for the flag displays for the coming year is a. $2,667. b. $2,000. c. $1,600. d. $1,333. 3. [CMA Adapted] The estimated total set-up cost for the flag displays for the coming year is a. $2,000. b. $3,000. c. $8,000. d. $12,500. 4. [CMA Adapted] If Liberty Celebrations were to schedule 30 equal production runs of the flag display for the coming year, instead of 60 equal runs, the sum of carrying costs and set-up costs for the coming year would increase (decrease) by a. $(166). b. $-0-. c. $166. d. $1,500. 5. [CMA Adapted] The number of production runs per year of the flag displays that would minimize the sum of carrying costs and set-up costs for the coming year is a. 50. b. 40.

c. d.

30. 20.

6. [CMA Adapted] A safety stock of a 3-day supply of flag displays would increase Liberty Celebrations planned average inventory in units by a. 1,200. b. 800. c. 400. d. zero. 7. Which of the following is not a major feature of a just-in-time production system? a. Workers are trained to be multiskilled. b. Emphasis is placed on increasing set-up time and manufacturing lead time. c. Production is organized in manufacturing cells. d. Total quality management is aggressively pursued.

CHAPTER 20 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. b d b a b a b

Quiz Question Calculations 2. Each production run is 100,000/60 = 1666.67 Average inventory is 1666.67/2 = 833.33 Carrying cost is 833.33 1.60 = $1333 60 setups $50 = $3,000 Present $1,333 3,000 $4,333 30 Runs $2,666 1,500 $4,167

3. 4.

Carrying cost Set-up cost Total 30 runs is $166 less 5. 6.

2(100,000)(50)/1.60 =

625,000 = 2,500

100,000/250 days = 40 demand per day 40 3 days = 120

CHAPTER 21 QUIZ1. [CPA Adapted] If the algebraic sum of the present values of all cash flows related to a proposed capital expenditure discounted at the companys required rate of return is positive, it indicates that the a. resultant amount is the maximum that should be paid for the asset. b. discount rate used is not the proper required rate of return for this company. c. investment is the best alternative. d. return on the investment exceeds the companys required rate of return. The following data apply to questions 26.

The Hilltop Corporation is considering (as of 1/1/08) the replacement of an old machine that is currently being used. The old machine is fully depreciated but can be used by the corporation through 2011. If Hilltop decides to replace the old machine, Baker Company has offered to purchase it for $50,000 on the replacement date. The disposal value of the old machine would be zero at the end of 2011. Hilltop uses the straight-line method of depreciation for all classes of machinery. If the replacement occurs, a new machine would be acquired from Busby Industries on January 2, 2008. The purchase price of $500,000 for the new machine would be paid in cash at the time of replacement. Due to the increased efficiency of the new machine, estimated annual cash savings of $150,000 would be generated through 2011, the end of its expected useful life. The new machine is expected to have a zero disposal price at the end of 2011. All operating cash receipts, operating cash expenditures, and applicable tax payments and credits are assumed to occur at the end of the year. Hilltop employs the calendar year for reporting purposes. Discount tables for several different interest (discount) rates that are to be used in any discounting calculations are given below. Assume for questions 26 that Hilltop is not subject to income taxes. Present Value of $1.00 Received at the End of Period Period 6% 8% 10% 12% 14% 1 .94 .93 .91 .89 .88 2 .89 .86 .83 .80 .77 3 .84 .79 .75 .71 .68 4 .79 .74 .68 .64 .59 5 .75 .68 .62 .57 .52 Present Value of an Annuity of $1.00 Received at the End of Each Period Period 6% 8% 10% 12% 14% 1 0.94 0.93 0.91 0.89 0.88 2 1.83 1.78 1.73 1.69 1.65 3 2.67 2.58 2.49 2.40 2.32 4 3.47 3.31 3.17 3.04 2.91 5 4.21 3.99 3.79 3.61 3.43

2. [CMA Adapted] If Hilltop requires investments to earn an 8% return, the net present value for replacing the old machine with the new machine is a. $100,000. b. $50,000.

c. d.

($63,000). $46,500.

3. [CMA Adapted] The internal-rate-of-return, to the nearest percent, to replace the old machine is a. 12%. b. 10%. c. 8%. d. 6%. 4. [CMA Adapted] The payback period to replace the old machine with the new machine is a. 3.3 years. b. 3.0 years. c. 4.0 years. d. 2.5 years. 5. The accrual accounting rate of return on the initial investment to the nearest percent is a. 0%. b. 11.0.%. c. 5.6%. d. 30%. 6. Among the nonfinancial quantitative and qualitative factors that Hilltop should consider in its analysis are: a. lower direct labor cost and less scrap and rework. b. lower hourly support labor cost and reduction in manufacturing cycle time. c. lower product defect rate and faster response to market changes. d. improved competitive position and cost of retraining of personnel. 7. [CPA Adapted] The assumption that cash flows are reinvested at the rate earned by the investment belongs to which of the following capital budgeting methods? Internal rate Net present of return value a. No No b. No Yes c. Yes Yes d. Yes No 8. [CPA Adapted] The payback capital budgeting technique considers: Time value Income over entire of money life of project a. Yes Yes b. Yes No c. No Yes

d.

No

No

9. Refer to data for questions 26. If Hilltop is subject to an income tax rate of 30%, what amount of annual cash savings would be used in a discounted cash flow method or in the payback method? a. $275,000 b. $150,000 c. $142,500 d. $105,000 10. Refer to data for questions 26. If Hilltop is subject to an income tax rate of 30% and a required rate of return of 8%, the net present value for replacing the old machine with the new machine is a. $46,500. b. $21,675. c $71,675. d. ($334,425).

CHAPTER 21 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. d d a b c c d d c e

Quiz Question Calculations 2. PVA4 periods/8% ($150,000) 3.31 = Cost $500,000 Less sale of old machine (50,000) Net present value 450,000/150,000 = 3.0 IRR is approximately 12% $450,000/$150,000 = 3.0 years ($150,000 $125,000)/$450,000 = 5.6% 150,000 .7 = $105,000 after tax cash flow from savings 125,000 .3 = $37,500 tax savings from depreciation $105,000 + $37,500 = $142,500 PVA4 periods/8% ($142,500) 3.31 = Cost $500,000 Less sale of old machine (35,000) Net present value $471,675 465,000 $ 6,675 $496,500 450,000 $ 46,500

3.

4 periods factor @ 12% = 3.04

4. 5. 9.

10.

CHAPTER 22 QUIZ

1. If management decides to pursue an unwise goal, the management control system for that company should a. reinforce this company goal. b. be scrapped because an unwise goal will harm the company and should not be reinforced with a systematic approach. c. not be changed from the previous wise goals to incorporate the current unwise goal. d. not tie the managers reward to the pursuit of an unwise goal. 2. Which of the following is not a benefit associated with decentralization? a. Quicker decision making b. Increased motivation of subunit managers c. Increased competition among managers d. Greater responsiveness to local needs Which of the following is a cost associated with decentralization? a. Not enough time spent in gathering information about different subunits of the organization b. Decreased loyalty toward the organization as a whole c. More management development and learning d. Lack of day-to-day involvement by top management in operating decisions

3.

4. [CPA Adapted] In a decentralized organization in which subunits may buy goods from one another, the transfer-pricing system should be designed primarily to a. allow subunit managers to buy from external parties. b. increase the consolidated value of inventory. c. minimize the degree of autonomy of subunit managers. d. evaluate performance of individual subunits and their managers. 5. [CPA Adapted] In order to motivate subunit managers to exert effort to maximize their own subunits operating income, interdivisional transfers of a product preferably should be made at prices a. equal to fully allocated costs to the producing subunit. b. equal to the market price of the product. c. equal to variable costs of the producing subunit. d. negotiated by top management.

The following data apply to questions 610. The Santa Fe Manufacturing Company has two divisions in Kansas, the Holton Division and the Derby Division. Currently, Derby buys a part (10,000 units) from Holton for $16 per unit. Holton has purchased new equipment and wants to increase the price to Derby to $18 per unit. The controller of Derby claims that she cannot afford to go that high, as it will decrease the divisions profit to near zero. Derby can buy the part from an outside supplier for $16 per unit. The incremental costs per unit that Santa Fe incurs to produce each unit are Holtons variable costs of $12. Fixed costs per unit for Holton with the recent purchase of equipment are $5. 6. Holton has no alternative uses for its facilities. Should Derby continue to buy from Holton or buy from the external supplier? Company as a whole Derby Division only a. Buy from external supplier Buy from external supplier b. Buy from external supplier Buy from Holton Division c. Buy from Holton Division Buy from Holton Division d. Buy from Holton Division Buy from external supplier 7. If Santa Fe would prefer to negotiate a transfer price between the divisions, what range of transfer prices would be used? a. $12$16 b. $12$17 c. $12$18 d. $16$18 8. If Holton could use its facilities for other manufacturing operations, that would result in monthly cash operating savings of $45,000. What would be the advantage (disadvantage) to Santa Fe? a. $(25,000) b. $5,000 c. $20,000 d. $25,000 9. If Holton has no alternative uses for its facilities and the external supplier drops the price to $11 per unit, what should be done from the point of view of Company as a whole Derby Division only a. Buy from Holton Division. Buy from external supplier. b. Buy from external supplier. Buy from Holton Division. c. Buy from external supplier. Buy from external supplier. d. Buy from Holton Division. Buy from Holton Division. 10. Assume the Derby Division is located in England rather than Kansas. The income tax rate used in England is 45%, whereas the effective income tax rate is 30% in

Kansas. Which cost would be the best transfer price for the company as a whole (based upon original data)? a. Full cost of $17 b. Market price of $16 c. Variable cost of $12 d. The price that best promotes goal congruence

CHAPTER 22 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. a c b d b d a b c a

Quiz Question Calculations 8. External Price Incremental cost to make Additional cost to buy $4 1000 units Income from alternative use Advantage to buy $16 12 4 $40,000 additional cost 45,000 $ 5,000

CHAPTER 23 QUIZ1. An example of a performance measure based on external financial information would be a. market share. b. stock prices. c. innovation measures. d. defect rates. 2. Which of the following does not describe the six steps in designing an accounting-based performance measure? a. The issues in each step are interdependent. b. The decision maker will often proceed through the steps several times before deciding on one or more performance measure(s).

c. d.

The answers to the questions raised at each step depend on top managements beliefs about the organization. The steps must be done in sequence.

The following data apply to questions 37. Information pertaining to Piney River Division of MO Corporation for 2004: Revenues Variable costs Traceable fixed costs Average invested capital Imputed interest rate $950,000 575,000 336,500 350,000 10%

3. [CPA Adapted] The return on investment (ROI) was a. 4%. b. 10%. c. 11%. d. 37%. 4. The return on sales (ROS), a component of the DuPont method of profitability analysis, was (rounded to the nearest percent) a. 11%. b. 40%. c. 0.4%. d. 4%. 5. [CPA Adapted] The residual income was a. $3,500. b. $35,000. c. $38,500. d. $0. 6. If top management at MO Corporation adopts a 15% target ROI for the Piney River Division, which combination (while holding other factors constant) will yield this target ROI? a. A 1% increase in sales volume b. A 5% decrease in average invested assets c. A 2% increase in sales prices d. A 3% decrease in fixed costs 7. Which of the following factors would not be needed to calculate EVA from the given information for Piney River Division of MO Corporation? a. Income tax rate

b. c. d.

Weighted-average cost of capital Current liabilities Current assets

8. When calculating performance measures, it is best to use a. steady improvement against targets. b. gross book value asset measurement. c. historical cost asset measurement. d. current cost asset measurement. 9. James Jessmore is a manager at a local bank. Jamess management style is best described as entrepreneurialhe is risk neutral. Wynetta George is a customer service representative who reports to James. Wynetta is risk averse. In designing a compensation package for James and Wynetta, which type of compensation arrangement should be emphasized more? James Jessmore Wynetta George a. Performance-based Performance-based b. Performance-based Straight salary c. Straight salary Performance-based d. Straight salary Straight salary 10. Moral hazard is best described in contexts in which a. division managers cite enormous top management pressures to make the budget as excuses for not adhering to ethical accounting policies and procedures. b. the numbers that subunit managers report should be uncontaminated by cooking the books. c. an employee prefers to exert less effort than desired by the owner because the effort cannot be accurately monitored and enforced. d. socially responsible companies set aggressive environmental goals and measure and report their performance against them.

CHAPTER 23 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. b d c d a c d a b c

Quiz Question Calculations 3. Revenues Variable costs Traceable fixed costs Operating income 38,500/350,000 = 11% 4. 5. 38,500/950,000 = 4.1% or rounded to 4% Operating income 350,000 10% Residual income a. 950,000 101% 575,000 101% Operating income $38.500 35,000 3,500 $959,500 (580,750) (336,500) 42,500 $950,000 (575,000) (336,500) $ 38,500

6.

42,500/350,000 = 12.1% b. 350,000 .95 = 332,500 38,500/332,500 = 11.6%