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- Chapter 8
- Flexible Budgets, Overhead Cost Variances, and Management Control
- 1)
- Overhead costs are a major part of costs for most companiesmore than 50% of all costs for some companies..
- 2)
- At the start of the budget period, management will have made most decisions regarding the level of variable costs to be incurred.
- 3)
- One way to manage both variable and fixed overhead costs is to eliminate nonvalue-adding activities..
- 4)
- The planning of fixed overhead costs does not differ from the planning of variable overhead costs.
- 5)
- In a standard costing system, the variable-overhead rate per unit is generally expressed as a standard cost per output unit..
- 6)
- For calculating the cost of products and services, a standard costing system does not have to track actual costs..
- 7)
- Standard costing is a cost system that allocates overhead costs on the basis of overhead cost rates based on actual overhead costs times the standard quantities of the allocation bases allowed for the actual outputs produced.
- 8)
- The budget period for variable-overhead costs is typically less than 3 months.
- 9)
- A favorable variable overhead spending variance can be the result of paying lower prices than budgeted for variable overhead items such as energy..
- 10)
- The variable overhead efficiency variance is computed in a different way than the efficiency variance for direct-cost items.
- 11)
- The variable overhead flexible-budget variance measures the difference between standard variable overhead costs and flexible-budget variable overhead costs.
- 12)
- The variable overhead efficiency variance measures the efficiency with which the cost-allocation base is used..
- 13)
- The variable overhead efficiency variance can be interpreted the same way as the efficiency variance for direct-cost items.
- 14)
- An unfavorable variable overhead efficiency variance indicates that variable overhead costs were wasted and inefficiently used.
- 15)
- Causes of a favorable variable overhead efficiency variance might include using lower-skilled workers than expected.
- 16)
- If the production planners set the budgeted machine hours standards too tight, one could anticipate there would be an unfavorable variable overhead efficiency variance..
- 17)
- If the production planners set the budgeted machine hours standards too tight, one could anticipate there would be an unfavorable fixed overhead efficiency variance.
- 18)
- For fixed overhead costs, the flexible-budget amount is always the same as the static-budget amount..
- 19)
- The fixed overhead flexible-budget variance is the difference between actual fixed overhead costs and the fixed overhead costs in the flexible budget..
- 20)
- There is never an efficiency variance for fixed costs..
- 21)
- All unfavorable overhead variances decrease operating income compared to the budget..
- 22)
- A favorable fixed overhead flexible-budget variance indicates that actual fixed costs exceeded the lump-sum amount budgeted.
- 23)
- Fixed costs for the period are by definition a lump sum of costs that remain unchanged and therefore the fixed overhead spending variance is always zero.
- 24)
- Caution is appropriate before interpreting the production-volume variance as a measure of the economic cost of unused capacity..
- 25)
- The production-volume variance arises whenever the actual level of the denominator differs from the level used to calculate the budgeted fixed overhead rate..
- 26)
- The lump sum budgeted for fixed overhead will always be the same amount for the static budget and the flexible budget..
- 27)
- A favorable production-volume variance arises when manufacturing capacity planned for is not used.
- 28)
- The fixed overhead flexible budget variance is the difference between actual fixed overhead costs and fixed overhead costs in the flexible budget..
- 29)
- An unfavorable production-volume variance always infers that management made a bad planning decision regarding the plant capacity.
- 30)
- Favorable overhead variances are always recorded with credits in a standard cost system..
- 31)
- Under activity-based costing, the flexible-budget amount equals the static-budget amount for fixed overhead costs..
- 32)
- Managers should use unitized fixed manufacturing overhead costs for planning and control.
- 33)
- For purposes of allocating fixed overhead costs to products, managers may view the fixed overhead costs as if they had a variable-cost behavior pattern..
- 34)
- Both financial and nonfinancial performance measures are key inputs when evaluating the performance of managers..
- 35)
- In the journal entry that records overhead variances, the manufacturing overhead allocated accounts are closed..
- 36)
- Variance analysis of fixed nonmanufacturing costs, such as distribution costs, can also be useful when planning for capacity..
- 37)
- At the end of the fiscal year, the fixed overhead spending variance is always written off to cost of goods sold.
- 38)
- Variance analysis of fixed overhead costs is also useful when a company uses activity-based costing..
- 39)
- An unfavorable fixed setup overhead spending variance could be due to higher lease costs of new setup equipment..
- 40)
- A favorable variable setup overhead efficiency variance could be due to actual setup-hours exceeding the setup-hours planned for the units produced.
- 41)
- Overhead costs have been increasing due to all of the following EXCEPT:
- C)
- tracing more costs as direct costs with the help of technology
- 42)
- Effective planning of variable overhead costs means that a company performs those variable overhead costs that primarily add value for:
- B)
- the customer using the products or services
- 43)
- Variable overhead costs include:
- D)
- machine maintenance
- 44)
- Fixed overhead costs include:
- B)
- property taxes paid on plant facilities
- 45)
- Effective planning of fixed overhead costs includes all of the following EXCEPT:
- A)
- planning day-to-day operational decisions
- 46)
- Effective planning of variable overhead includes all of the following EXCEPT:
- A)
- choosing the appropriate level of capacity
- 47)
- Choosing the appropriate level of capacity:
- A)
- is a key strategic decision
- 48)
- The MAJOR challenge when planning fixed overhead is:
- C)
- choosing the appropriate level of capacity
- 49)
- In a standard costing system, a cost-allocation base would MOST likely be:
- C)
- standard machine-hours
- 50)
- For calculating the costs of products and services, a standard costing system:
- D)
- All of these answers are correct.
- 51)
- The variable overhead flexible-budget variance measures the difference between:
- B)
- actual variable overhead costs and the flexible budget for variable overhead costs
- 52)
- A $5,000 unfavorable flexible-budget variance indicates that:
- B)
- the actual variable manufacturing overhead exceeded the flexible-budget amount by $5,000
- 53)
- Which of the following is NOT a step in developing budgeted variable overhead rates?
- B)
- estimating the budgeted denominator level based on expected utilization of available capacity
- 54)
- In flexible budgets, costs that remain the same regardless of the output levels within the relevant range are:
- C)
- fixed costs
- 55)
- What is the budgeted variable overhead cost rate per output unit?
- A)
- $10.75
- 56)
- What is the flexible-budget amount for variable manufacturing overhead?
- B)
- $236,500
- 57)
- What is the flexible-budget variance for variable manufacturing overhead?
- B)
- $5,500 unfavorable
- 58)
- Variable manufacturing overhead costs were ________ for actual output.
- A)
- higher than expected
- 59)
- What is the budgeted variable overhead cost rate per output unit?
- C)
- $18.00
- 60)
- What is the flexible-budget amount for variable manufacturing overhead?
- A)
- $324,000
- 61)
- What is the flexible-budget variance for variable manufacturing overhead?
- B)
- $18,000 unfavorable
- 62)
- Variable-manufacturing overhead costs were ________ for actual output.
- A)
- higher than expected
- 63)
- What is the budgeted variable overhead cost rate per output unit?
- B)
- $125.00
- 64)
- What is the flexible-budget amount for variable manufacturing overhead?
- B)
- $39,375
- 65)
- What is the flexible-budget variance for variable manufacturing overhead?
- A)
- $1,125 favorable
- 66)
- Variable-manufacturing overhead costs were ________ for actual output.
- C)
- lower than expected
- 67)
- The variable overhead flexible-budget variance can be further subdivided into the:
- C)
- spending variance and the efficiency variance
- 68)
- An unfavorable variable overhead spending variance indicates that:
- B)
- the price of variable overhead items was more than budgeted
- 69)
- When machine-hours are used as an overhead cost-allocation base, the MOST likely cause of a favorable variable overhead spending variance is:
- C)
- a decline in the cost of energy
- 70)
- When machine-hours are used as an overhead cost-allocation base and the unexpected purchase of a new machine results in fewer expenditures for machine maintenance, the MOST likely result would be to report a(n):
- A)
- favorable variable overhead spending variance
- 71)
- For variable manufacturing overhead, there is no:
- D)
- production-volume variance
- 72)
- Kellar. What is the variable overhead flexible-budget variance?
- A)
- $1,200 favorable
- 73)
- What is the variable overhead spending variance?
- D)
- $1,560 favorable
- 74)
- Patel. What is the variable overhead flexible-budget variance?
- A)
- $600 favorable
- 75)
- What is the variable overhead spending variance?
- D)
- $780 favorable
- 76)
- Roberts. What is the actual variable overhead cost?
- C)
- $51,450
- 77)
- What is the flexible-budget amount?
- B)
- $50,000
- 78)
- What is the variable overhead spending variance?
- C)
- $2,450 unfavorable
- 79)
- What is the variable overhead efficiency variance?
- A)
- $1,000 favorable
- 80)
- Roberson. What is the actual variable overhead cost?
- C)
- $165,000
- 81)
- What is the flexible-budget amount?
- B)
- $151,875
- 82)
- What is the variable overhead spending variance?
- A)
- $3,750 favorable
- 83)
- What is the variable overhead efficiency variance?
- B)
- $16,875 unfavorable
- 84)
- Russo. What is the actual variable overhead cost?
- A)
- $122,063
- 85)
- What is the flexible-budget amount?
- B)
- $126,000.00
- 86)
- What is the variable overhead spending variance?
- D)
- $1,968.75 favorable
- 87)
- What is the variable overhead efficiency variance?
- A)
- $1,968.75 favorable
- 88)
- What is the total variable overhead variance
- C)
- $3,937.50 favorable
- 89)
- The variable overhead efficiency variance is computed ________ and interpreted ________ the direct-cost efficiency variance.
- B)
- the same as; differently than
- 90)
- An unfavorable variable overhead efficiency variance indicates that:
- C)
- the variable overhead cost-allocation base was not used efficiently
- 91)
- Variable overhead costs can be managed by:
- D)
- Both A and B are correct.
- 92)
- When machine-hours are used as a cost-allocation base, the item MOST likely to contribute to a favorable variable overhead efficiency variance is:
- B)
- the production scheduler's impressive scheduling of machines
- 93)
- When machine-hours are used as a cost-allocation base, the item MOST likely to contribute to an unfavorable variable overhead efficiency variance is:
- A)
- using more machine hours than budgeted
- 94)
- When machine-hours are used as an overhead cost-allocation base, a rush order resulting in unplanned overtime that used less-skilled workers on the machines would MOST likely contribute to reporting a(n):
- B)
- unfavorable variable overhead efficiency variance
- 95)
- When machine-hours are used as an overhead cost-allocation base and annual leasing costs for equipment unexpectedly increase, the MOST likely result would be to report a(n):
- C)
- unfavorable fixed overhead flexible-budget variance
- 96)
- The fixed overhead cost variance can be further subdivided into the:
- D)
- flexible-budget variance and the production-volume variance
- 97)
- The amount reported for fixed overhead on the static budget is also reported:
- C)
- on the flexible budget
- 98)
- An unfavorable fixed overhead spending variance indicates that:
- B)
- the price of fixed overhead items cost more than budgeted
- 99)
- A favorable fixed overhead spending variance might indicate that:
- D)
- a plant expansion did not proceed as originally planned
- 100)
- For fixed manufacturing overhead, there is no:
- B)
- efficiency variance
- 101)
- Jenny’s.What is the flexible-budget amount?
- A)
- $120,000
- 102)
- What is the amount of fixed overhead allocated to production?
- D)
- $125,000
- 103)
- What is the fixed overhead spending variance?
- C)
- $3,000 unfavorable
- 104)
- What is the fixed overhead production-volume variance?
- D)
- $5,000 favorable
- 105)
- Rutch. What is the flexible-budget amount?
- C)
- $57,500
- 106)
- What is the amount of fixed overhead allocated to production?
- A)
- $51,750
- 107)
- What is the fixed overhead spending variance?
- C)
- $4,100 favorable
- 108)
- Matthew’s. What is the flexible-budget amount?
- C)
- $120,000
- 109)
- What is the amount of fixed overhead allocated to production?
- A)
- $100,000
- 110)
- What is the fixed overhead production-volume variance?
- C)
- $20,000 unfavorable
- 111)
- Fixed overhead is:
- D)
- underallocated by $22,000
- 112)
- The production-volume variance may also be referred to as the:
- B)
- denominator-level variance
- 113)
- A favorable production-volume variance indicates that the company:
- B)
- has allocated more fixed overhead costs than budgeted
- 114)
- An unfavorable production-volume variance of $40,000 indicates that the company has:
- A)
- unused fixed manufacturing overhead capacity
- 115)
- When machine-hours are used as a cost-allocation base, the item MOST likely to contribute to a favorable production-volume variance is:
- D)
- strengthened demand for the product
- 116)
- When machine-hours are used as a cost-allocation base, the item MOST likely to contribute to an unfavorable production-volume variance is:
- A)
- a new competitor gaining market share
- 117)
- Excess capacity is a sign:
- B)
- that capacity may need to be re-evaluated
- 118)
- An unfavorable production-volume variance:
- C)
- measures the amount of extra fixed costs planned for but not used
- 119)
- The difference between budgeted fixed manufacturing overhead and the fixed manufacturing overhead allocated to actual output units achieved is called the fixed overhead:
- D)
- production-volume variance
- 120)
- Variable overhead costs:
- D)
- All of these answers are correct.
- 121)
- Fixed overhead costs:
- C)
- are unaffected by the degree of operating efficiency in a given budget period
- 122)
- Fixed overhead costs must be unitized for:
- D)
- Both A and C are correct.
- 123)
- Generally Accepted Accounting Principles require that unitized fixed manufacturing costs be used for:
- C)
- external reporting
- 124)
- A nonfinancial measure of performance evaluation is:
- C)
- energy used per machine-hour
- 125)
- Variance information regarding nonmanufacturing costs can be used to:
- D)
- All of these answers are correct.
- 126)
- Tucker Company uses a standard cost system. In March, $133,000 of variable manufacturing overhead costs were incurred and the flexible-budget amount for the month was $150,000. Which of the following variable manufacturing overhead entries would have been recorded for March?
- D)
- Variable Manufacturing Overhead Control 133,000
- Accounts Payable Control and other accounts 133,000
- 127)
- Alvarado Company made the following journal entry:
- Variable Manufacturing Overhead Allocated 100,000
- Variable Manufacturing Overhead Efficiency Variance 30,000
- Variable Manufacturing Overhead Control 125,000
- Variable Manufacturing Overhead Spending Variance 5,000
- B)
- A $5,000 favorable spending variance was recorded.
- 128)
- John's Football Manufacturing Company reported:
- Actual fixed overhead $800,000
- Fixed manufacturing overhead spending variance $20,000 favorable
- Fixed manufacturing production-volume variance $30,000 unfavorable
- To isolate these variances at the end of the accounting period, John would debit Fixed Manufacturing Overhead Allocated for:
- B)
- $790,000
- 129)
- Brandon's Basketball Manufacturing Company reported:
- Actual fixed overhead $1,000,000
- Fixed manufacturing overhead spending variance $60,000 unfavorable
- Fixed manufacturing production-volume variance $40,000 unfavorable
- To isolate these variances at the end of the accounting period, Brandon would:
- B)
- debit Fixed Manufacturing Overhead Spending Variance for $60,000
- 130)
- Jovana Company uses a standard cost system. In March, $117,000 of variable manufacturing overhead costs were incurred and the flexible-budget amount for the month was $120,000. Which of the following variable manufacturing overhead entries would have been recorded for March?
- B)
- Work-in-Process Control 120,000
- Variable Manufacturing Overhead Allocated 120,000
- 131)
- Tate Company makes the following journal entry:
- Variable Manufacturing Overhead Allocated 150,000
- Variable Manufacturing Overhead Efficiency Variance 5,000
- Variable Manufacturing Overhead Control 125,000
- Variable Manufacturing Overhead Spending Variance 30,000
- D)
- A $25,000 favorable flexible-budget variance was recorded.
- 132)
- Jeremy's Football Manufacturing Company reported:
- Actual fixed overhead $500,000
- Fixed manufacturing overhead spending variance $30,000 favorable
- Fixed manufacturing production-volume variance $20,000 unfavorable
- To isolate these variances at the end of the accounting period, Jeremy would debit Fixed Manufacturing Overhead Allocated for:
- D)
- $510,000
- 133)
- Kristin's Basketball Manufacturing Company reported:
- Actual fixed overhead $800,000
- Fixed manufacturing overhead spending variance $60,000 favorable
- Fixed manufacturing production-volume variance $40,000 favorable
- To isolate these variances at the end of the accounting period, Kristin would debit:
- A)
- Fixed Manufacturing Overhead Allocated for $900,000
- 134)
- Above is a:
- A)
- 4-variance analysis
- 135)
- In the above chart, the amounts for (A) and (B), respectively, are:
- D)
- Zero; Zero
- 136)
- In a 3-variance analysis the spending variance should be:
- C)
- $ 5,500 U
- 137)
- In a 2-variance analysis the flexible-budget variance and the production-volume variance should be ________, respectively.
- B)
- $20,500 U; $40,000 U
- 138)
- In a 1-variance analysis the total overhead variance should be:
- B)
- $60,500 U
- 139)
- Calculate the efficiency variance for variable setup overhead costs.
- B)
- $600 unfavorable
- 140)
- Calculate the spending variance for variable setup overhead costs.
- C)
- $600 unfavorable
- 141)
- Calculate the flexible-budget variance for variable setup overhead costs.
- B)
- $1,300 favorable
- 142)
- Calculate the spending variance for fixed setup overhead costs.
- B)
- $400 unfavorable
- 143)
- Calculate the production-volume variance for fixed setup overhead costs.
- C)
- $4,666.67 favorable
- 144)
- Lukehart. Calculate the efficiency variance for variable setup overhead costs.
- A)
- $150 favorable
- 145)
- Calculate the spending variance for variable setup overhead costs.
- C)
- $264 unfavorable
- 146)
- Calculate the flexible-budget variance for variable setup overhead costs.
- D)
- $114 unfavorable
- 147)
- Calculate the spending variance for fixed setup overhead costs.
- C)
- $250 favorable
- 148)
- Calculate the production-volume variance for fixed setup overhead costs.
- B)
- $1,800 unfavorable
- 149)
- Fixed and variable cost variances can ________ be applied to activity-based costing systems.
- A)
- always
- Chapter 9
- Inventory Costing and Capacity Analysis
- 1)
- The two most common methods of costing inventories in manufacturing companies are variable costing and fixed costing.
- 2)
- Absorption costing "absorbs" only variable manufacturing costs.
- 3)
- Variable costing includes all variable costsboth manufacturing and nonmanufacturingin inventory.
- 4)
- Under both variable and absorption costing, all variable manufacturing costs are inventoriable costs..
- 5)
- The main difference between variable costing and absorption costing is the way in which fixed manufacturing costs are accounted for..
- 6)
- Under variable costing, fixed manufacturing costs are treated as an expense of the period..
- 7)
- The contribution-margin format of the income statement is used with absorption costing.
- 8)
- The contribution-margin format of the income statement distinguishes manufacturing costs from nonmanufacturing costs.
- 9)
- The gross-margin format of the income statement highlights the lump sum of fixed manufacturing costs.
- 10)
- In absorption costing, all nonmanufacturing costs are subtracted from gross margin..
- 11)
- Direct costing is a perfect way to describe the variable-costing inventory method.
- 12)
- When variable costing is used, an income statement will show gross margin.
- 13)
- The income under variable costing will always be the same as the income under absorption costing.
- 14)
- Absorption costing is required by GAAP (Generally Accepted Accounting Principles) for external reporting..
- 15)
- When production deviates from the denominator level, a production-volume variance always exists under absorption costing..
- 16)
- Fixed manufacturing costs included in cost of goods available for sale + the production-volume variance will always = total fixed manufacturing costs under absorption costing..
- 17)
- The production-volume variance only exists under absorption costing and not under variable costing..
- 18)
- When the unit level of inventory increases during an accounting period, operating income is greater under variable costing than absorption costing.
- 19)
- The difference in operating income under absorption costing and variable costing is due solely to the timing difference of expensing fixed manufacturing costs..
- 20)
- If managers report inventories of zero at the start and end of each accounting period, operating incomes under absorption costing and variable costing will be the same..
- 21)
- Under absorption costing, managers can increase operating income by holding more inventories at the end of the period..
- 22)
- Many companies use variable costing for internal reporting to reduce the undesirable incentive to build up inventories..
- 23)
- Under variable costing, managers can increase operating income by simply producing more inventory at the end of the accounting period even if that inventory never gets sold.
- 24)
- Nonfinancial measures such as comparing units in ending inventory this period to units in ending inventory last period can help reduce buildup of excess inventory..
- 25)
- One of the most common problems reported by companies using variable costing is the difficulty of classifying costs into fixed or variable categories..
- 26)
- Managers can increase operating income when absorption costing is used by producing more inventory..
- 27)
- A manager can increase operating income by deferring maintenance beyond the current accounting period when absorption costing is used..
- 28)
- Throughput costing considers only direct materials and direct manufacturing labor to be truly variable costs.
- 29)
- Throughput costing is also referred to as super-variable costing..
- 30)
- When production quantity exceeds sales, throughput costing results in reporting greater operating income than variable costing.
- 31)
- Throughput costing provides more incentive to produce for inventory than does absorption costing.
- 32)
- A company may use absorption costing for external reports and still choose to use throughput costing for internal reports..
- 33)
- Throughput contribution equals revenues minus all product costs.
- 34)
- Throughput costing results in a higher amount of manufacturing costs being placed in inventory than either variable or absorption costing.
- 35)
- Determining the "right" level of capacity is one of the most strategic and difficult decisions managers face..
- 36)
- Both theoretical and practical capacity measure capacity in terms of demand for the output.
- 37)
- Normal capacity utilization is the expected level of capacity utilization for the current budget period, which is typically one year.
- 38)
- Normal capacity utilization is not the same as master-budget capacity utilization..
- 39)
- Theoretical capacity is generally much larger than master-budget capacity utilization..
- 40)
- Theoretical capacity allows time for regular machine maintenance.
- 41)
- Estimates of human factors such as the increased risk of injury when machines work at faster speeds are important when estimating practical capacity..
- 42)
- Theoretical capacity is unattainable in the real world..
- 43)
- Theoretical capacity is the capacity level that represents what the firm is able to obtain under reasonable circumstances.
- 44)
- Fixed manufacturing cost per unit will be the same no matter what capacity concept is used.
- 45)
- Data from normal costing and standard costing are used in pricing and product-mix decisions..
- 46)
- If a company chooses practical capacity for planning purposes, it must also use practical capacity for performance evaluation.
- 47)
- Theoretical capacity is most often used to cost a product.
- 48)
- Practical capacity highlights capacity acquired but currently not used..
- 49)
- For benchmarking purposes it is best to use master-budget capacity because all competitors use about the same about of capacity for production.
- 50)
- Using normal capacity for pricing decisions can lead to setting noncompetitive selling prices..
- 51)
- Using master-budget capacity for pricing purposes can lead to a downward demand spiral..
- 52)
- Using practical capacity is best for evaluating the marketing manager's performance for a particular year.
- 53)
- The production-volume variance is affected by the choice of capacity concept used to determine the denominator level..
- 54)
- The higher the denominator level the higher the budgeted fixed manufacturing cost rate per unit.
- 55)
- Master-budget capacity utilization can be more reliably estimated than normal capacity utilization..
- 56)
- Unused capacity is considered wasted resources and the result of poor planning.
- 57)
- Challenges only result from estimating the denominator level, but not the costs in the numerator of the fixed manufacturing cost rate.
- 58)
- Estimating capacity costs is unique to manufacturing and it is not applicable to nonmanufacturing entities.
- 59)
- If the capacity level chosen to calculate the budgeted fixed overhead cost rate is more than the actual production, an unfavorable production-volume variance will result..
- 60)
- The breakeven points are the same under both variable costing and absorption costing.
- 61)
- Which of the following cost(s) are inventoried when using variable costing?
- A)
- direct manufacturing costs
- 62)
- Which of the following cost(s) are inventoried when using absorption costing?
- D)
- Both A and C are correct.
- 63)
- ________ is a method of inventory costing in which all variable and fixed manufacturing costs are included as inventoriable costs.
- C)
- Absorption costing
- 64)
- Absorption costing is required for all of the following EXCEPT:
- B)
- determining a competitive selling price
- 65)
- Absorption costing:
- C)
- includes fixed manufacturing overhead as an inventoriable cost
- 66)
- Variable costing:
- B)
- treats direct manufacturing costs as a product cost
- 67)
- ________ method(s) expense(s) variable marketing costs in the period incurred.
- D)
- All of these answers are correct.
- 68)
- ________ method(s) include(s) fixed manufacturing overhead costs as inventoriable costs.
- B)
- Absorption costing
- 69)
- ________ method(s) expense(s) direct material costs as cost of goods sold.
- D)
- All of these answers are correct.
- 70)
- ________ method(s) is required for tax reporting purposes.
- B)
- Absorption costing
- 71)
- ________ is a method of inventory costing in which only variable manufacturing costs are included as inventoriable costs.
- B)
- Variable costing
- 72)
- Variable costing regards fixed manufacturing overhead as a(n):
- C)
- period cost
- 73)
- The only difference between variable and absorption costing is the expensing of:
- C)
- fixed manufacturing costs
- 74)
- Marie’s. What is the inventoriable cost per unit using variable costing?
- B)
- $35
- 75)
- What is the inventoriable cost per unit using absorption costing?
- C)
- $60
- 76)
- Gabe’s. What is the inventoriable cost per unit using variable costing?
- B)
- $15.00
- 77)
- What is the inventoriable cost per unit using absorption costing?
- C)
- $18.75
- 78)
- Which of the following inventory costing methods shown below is required by GAAP (Generally Accepted Accounting Principles) for external financial reporting?
- A)
- absorption costing
- 79)
- The contribution-margin format of the income statement:
- D)
- is used with variable costing
- 80)
- The gross-margin format of the income statement:
- B)
- is used with absorption costing
- 81)
- The contribution-margin format of the income statement:
- B)
- highlights the lump sum of fixed manufacturing costs
- 82)
- The gross-margin format of the income statement:
- A)
- distinguishes between manufacturing and nonmanufacturing costs
- 83)
- ________ are subtracted from sales to calculate contribution margin.
- D)
- Both A and B are correct.
- 84)
- ________ are subtracted from sales to calculate gross margin.
- D)
- Both A and C are correct.
- 85)
- Peggy’s. What is cost of goods sold per unit using variable costing?
- A)
- $20
- 86)
- What is cost of goods sold using variable costing?
- A)
- $35,000
- 87)
- What is contribution margin using variable costing?
- B)
- $91,000
- 88)
- What is operating income using variable costing?
- D)
- $47,000
- 89)
- Andrea’s. What is cost of goods sold per unit when using absorption costing?
- C)
- $29
- 90)
- What is gross margin when using absorption costing?
- D)
- $24,750
- 91)
- What is operating income when using absorption costing?
- B)
- $16,500
- 92)
- An unfavorable production-volume variance occurs when:
- B)
- the denominator level exceeds production
- 93)
- If the unit level of inventory increases during an accounting period, then:
- B)
- more operating income will be reported under absorption costing than variable costing
- 94)
- The difference between operating incomes under variable costing and absorption costing centers on how to account for:
- B)
- fixed manufacturing costs
- 95)
- One possible means of determining the difference between operating incomes for absorption costing and variable costing is by:
- B)
- subtracting fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead in ending inventory
- 96)
- When comparing the operating incomes between absorption costing and variable costing, and beginning finished inventory exceeds ending finished inventory, it may be assumed that:
- D)
- variable costing operating income exceeds absorption costing operating income
- 97)
- Which of the following statements is FALSE?
- B)
- Nonmanufacturing costs are expensed in the future under variable costing.
- 98)
- Helton Company has the following information for the current year:
- Beginning fixed manufacturing overhead in inventory $95,000
- Fixed manufacturing overhead in production 375,000
- Ending fixed manufacturing overhead in inventory 25,000
- Beginning variable manufacturing overhead in inventory $10,000
- Variable manufacturing overhead in production 50,000
- Ending variable manufacturing overhead in inventory 15,000
- What is the difference between operating incomes under absorption costing and variable costing?
- A)
- $70,000
- 99)
- The following information pertains to Brian Stone Corporation:
- Beginning fixed manufacturing overhead in inventory $60,000
- Ending fixed manufacturing overhead in inventory 45,000
- Beginning variable manufacturing overhead in inventory $30,000
- Ending variable manufacturing overhead in inventory 14,250
- Fixed selling and administrative costs $724,000
- Units produced 5,000 units
- Units sold 4,800 units
- What is the difference between operating incomes under absorption costing and variable costing?
- C)
- $15,000
- 100)
- Heinrich. Fixed manufacturing costs expensed on the income statement (excluding adjustments for variances) total:
- A)
- $3,600
- 101)
- Fixed manufacturing costs included in ending inventory total:
- C)
- $900
- 102)
- The production-volume variance is:
- B)
- $1,500
- 103)
- Operating income using absorption costing will be ________ than operating income if using variable costing.
- C)
- $900 higher
- 104)
- Veach. Fixed manufacturing costs expensed on the income statement (excluding adjustments for variances) total:
- C)
- $6,000
- 105)
- Fixed manufacturing costs included in ending inventory total:
- D)
- 0
- 106)
- The production-volume variance totals:
- D)
- 0
- 107)
- Operating income using variable costing will be ________ than operating income if using absorption costing.
- D)
- $900 lower
- Answer the following questions using the information below:
- Morse Corporation incurred fixed manufacturing costs of $7,200 during 20X5. Other information for 20X5 includes:
- The budgeted denominator level is 800 units.
- Units produced total 1,000 units.
- Units sold total 950 units.
- Beginning inventory was zero.
- The fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold.
- 108)
- Under absorption costing, fixed manufacturing costs expensed on the income statement (excluding adjustments for variances) total:
- A)
- $8,550
- 109)
- Under absorption costing, the production-volume variance is:
- C)
- $1,800
- 110)
- Under variable costing, the fixed manufacturing costs expensed on the income statement (excluding adjustments for variances) total:
- B)
- $7,200
- 111)
- Operating income using absorption costing will be ________ operating income if using variable costing.
- A)
- $450 higher than
- 112)
- At the end of the accounting period Susan Corporation reports operating income of $30,000 and the fixed overhead cost rate is $20 per unit. Under absorption costing, if this company now produces an additional 100 units of inventory, then operating income:
- A)
- will increase by $2,000
- 113)
- At the end of the accounting period Bumsted Corporation reports operating income of $30,000 and the fixed overhead cost rate is $20 per unit. Under variable costing, if this company produces 100 more units of inventory, then operating income:
- C)
- will not be affected
- 114)
- Given a constant contribution margin per unit and constant fixed costs, the period-to-period change in operating income under variable costing is driven solely by:
- A)
- changes in the quantity of units actually sold
- 115)
- Companies have recently been able to reduce inventory levels because:
- D)
- Both A and B are correct.
- 116)
- Many companies have switched from absorption costing to variable costing for internal reporting:
- C)
- to reduce the undesirable incentive to build up inventories
- 117)
- Ways to "produce for inventory" that result in increasing operating income include:
- C)
- deferring maintenance to accelerate production
- 118)
- Switching production to products that absorb the highest amount of fixed manufacturing costs is also called:
- B)
- cherry picking
- 119)
- To discourage producing for inventory, management can:
- D)
- evaluate nonfinancial measures such as units in ending inventory compared to units in sales
- D)
- evaluate performance over a three- to five-year period rather than a single year
- D)
- incorporate a carrying charge for inventory in the internal accounting system
- 120)
- Which method is NOT a way to discourage producing for inventory?
- D)
- evaluate performance on a quarterly basis only
- 121)
- Under absorption costing, if a manager's bonus is tied to operating income, then increasing inventory levels compared to last year would result in:
- A)
- increasing the manager's bonus
- 122)
- Under variable costing, if a manager's bonus is tied to operating income, then increasing inventory levels compared to last year would result in:
- C)
- not affecting the manager's bonus
- 123)
- Critics of absorption costing suggest to evaluate management on their ability to:
- C)
- decrease inventory costs
- 124)
- Differences between absorption costing and variable costing are much smaller when a:
- A)
- large part of the manufacturing process is subcontracted out
- B)
- just-in-time inventory strategy is implemented
- 125)
- All of the following are examples of drawbacks of using absorption costing EXCEPT:
- C)
- operating income solely reflects income from the sale of units and excludes the effects of manipulating production schedules
- 126)
- Which of the following inventory costing methods shown below is MOST likely to cause undesirable incentives for managers to build up finished goods inventory?
- A)
- absorption costing
- 127)
- Throughput costing is also called:
- B)
- super-variable costing
- 128)
- Advocates of throughput costing argue that:
- D)
- All of these answers are correct.
- 129)
- Variable and absorption costing may be combined with all costing systems EXCEPT:
- A)
- mixed costing
- 130)
- Throughput contribution equals:
- C)
- revenues minus all direct material cost of goods sold
- 131)
- If 600 units are produced and only 400 units are sold, ________ results in the greatest amount of expense reported on the income statement.
- A)
- throughput costing
- 132)
- If 400 units are produced and 600 units are sold, ________ results in the greatest amount of operating income.
- A)
- throughput costing
- 133)
- Advocates of throughput costing maintain that:
- C)
- fixed manufacturing costs are related to the capacity to produce rather than to the actual production of specific units
- Answer the following questions using the information below:
- Reusser Company produces wood statues. Management has provided the following information:
- Actual sales 80,000 statues
- Budgeted production 100,000 statues
- Selling price $20.00 per statue
- Direct material costs $5.00 per statue
- Variable manufacturing costs $1.50 per statue
- Variable administrative costs $2.50 per statue
- Fixed manufacturing overhead $2.00 per statue
- 134)
- What is the cost per statue if throughput costing is used?
- D)
- $5.00
- 135)
- What is the total throughput contribution?
- D)
- $1,200,000
- Answer the following questions using the information below:
- Stober Company produces a specialty item. Management has provided the following information:
- Actual sales 60,000 units
- Budgeted production 50,000 units
- Selling price $40.00 per unit
- Direct material costs $10.00 per unit
- Variable manufacturing overhead $3.00 per unit
- Variable administrative costs $5.00 per unit
- Fixed manufacturing overhead $4.00 per unit
- 136)
- What is the cost per statue if throughput costing is used?
- D)
- $10.00
- 137)
- What is the total throughput contribution?
- D)
- $1,800,000
- 138)
- Which of the following inventory costing methods results in the least amount of costs being inventoried?
- C)
- throughput costing
- 139)
- Which of the following inventory costing methods shown below is LEAST likely to cause undesirable incentives for managers to build up finished goods inventory?
- C)
- throughput costing
- 140)
- Practical capacity is the denominator-level concept that:
- A)
- reduces theoretical capacity for unavoidable operating interruptions
- 141)
- ________ reduces theoretical capacity for unavoidable operating interruptions.
- A)
- Practical capacity
- 142)
- ________ is based on the level of capacity utilization that satisfies average customer demand over periods generally longer than one year.
- D)
- Normal capacity utilization
- 143)
- ________ is (are) based on the demand for the output of the plant.
- B)
- Master-budget capacity utilization
- C)
- Normal capacity utilization
- 144)
- ________ is the level of capacity based on producing at full efficiency all the time.
- B)
- Theoretical capacity
- 145)
- Theoretical capacity allows for:
- D)
- preventive machine maintenance
- D)
- interruptions due to uncontrollable power failures
- D)
- rework of the expected number of defective units
- 146)
- Theoretical capacity:
- A)
- is unattainable in the real world
- B)
- represents an ideal goal of capacity usage
- C)
- is based on engineering studies that provide information about the technical capabilities of machines used in production
- 147)
- The budgeted fixed manufacturing cost rate is the lowest for:
- B)
- theoretical capacity
- 148)
- ________ provides the lowest estimate of denominator-level capacity.
- C)
- Master-budget capacity utilization
- 149)
- ________ is the level of capacity utilization that satisfies average customer demand over a period that includes seasonal, cyclical, and trend factors.
- A)
- Normal capacity utilization
- Answer the following questions using the information below:
- A manufacturing firm is able to produce 1,000 pairs of shoes per hour, at maximum efficiency. There are three eight-hour shifts each day. Due to unavoidable operating interruptions, production averages 800 units per hour. The plant actually operates only 27 days per month.
- 150)
- What is the theoretical capacity for the month of April?
- B)
- 720,000 units
- 151)
- What is the practical capacity for the month of April?
- C)
- 518,400 units
- 152)
- Theoretical capacity:
- C)
- when used for product costing results in the lowest cost estimate of the four capacity options
- 153)
- The use of theoretical capacity results in an unrealistically low fixed manufacturing cost per unit because it is based on:
- B)
- an unattainable level of capacity
- 154)
- Budgeted fixed manufacturing costs of a product using practical capacity:
- A)
- represents the cost per unit of supplying capacity
- 155)
- Normal capacity utilization:
- B)
- can result in setting selling prices that are not competitive
- 156)
- Master-budget capacity utilization:
- A)
- hides the amount of unused capacity
- 157)
- From the perspective of long-run product costing it is best to use:
- C)
- practical capacity for pricing decisions
- 158)
- Customers expect to pay a price that includes:
- B)
- the cost of actual capacity used
- 159)
- The marketing manager's performance evaluation is most fair when based on a denominator level using:
- C)
- master-budget capacity utilization
- 160)
- ________ is the continuing reduction in the demand for a company's products that occurs when competitor prices are not met.
- A)
- Downward demand spiral
- 161)
- Using master-budget capacity to set selling prices:
- C)
- can result in a downward demand spiral
- 162)
- When large differences exist between practical capacity and master-budget capacity utilization, companies may:
- A)
- classify the difference as planned unused capacity
- 163)
- The effect of spreading fixed manufacturing costs over a shrinking master-budget capacity utilization amount results in:
- B)
- increased unit costs
- 164)
- The higher the denominator level, the:
- B)
- lower the amount of fixed manufacturing costs allocated to each unit produced
- 165)
- Operating income reported on the end-of-period financial statements is changed when ________ is (are) used to handle the production-volume variance at the end of the accounting period.
- C)
- the write-off variances to cost of goods sold approach
- 166)
- Practical capacity may:
- A)
- increase over time due to improvements in plant layout
- 167)
- The Internal Revenue Service requires the use of ________ for calculating fixed manufacturing costs per unit.
- A)
- practical capacity
- 168)
- It is most difficult to estimate ________ because of the need to predict demand for the next few years.
- D)
- normal capacity utilization
- 169)
- Managers face uncertainty when estimating:
- D)
- All of these answers are correct.
- 170)
- Unused capacity:
- B)
- is intended for future use
- C)
- provides capacity for potential demand surges
- 171)
- Capacity costs:
- A)
- are difficult to estimate
- 172)
- The breakeven point using absorption costing depends on all of the following factors, EXCEPT:
- B)
- the budgeted level of production
- 173)
- There is not an output-level variance for variable costing, because:
- D)
- fixed manufacturing overhead is not allocated to work in process
- Answer the following questions using the information below:
- Ms. Andrea Chadwick, the company president, has heard that there are multiple breakeven points for every product. She does not believe this and has asked you to provide the evidence of such a possibility. Some information about the company for 20X5 is as follows:
- Total fixed manufacturing overhead $180,000
- Total other fixed expenses $200,000
- Total variable manufacturing expenses $120,000
- Total other variable expenses $120,000
- Units produced 30,000 units
- Budgeted production 30,000 units
- Units sold 25,000 units
- Selling price $40
- 174)
- What are breakeven sales in units using variable costing?
- C)
- 11,875 units
- 175)
- What are breakeven sales in units using absorption costing?
- C)
- 7,692 units
- 176)
- What are breakeven sales in units using absorption costing if the production units are actually 25,000?
- D)
- 8,847 units
- Answer the following questions using the information below:
- The following information pertains to the Bean Company:
- Selling price per unit $123
- Standard fixed manufacturing costs per unit $60
- Variable selling and administrative costs per unit $12
- Standard variable manufacturing costs per unit $3
- Fixed selling and administrative costs $48,000
- Units produced 10,000 units
- Units sold 9,600 units
- 177)
- What is the variable costing breakeven point in units?
- D)
- 6,000 units
- 178)
- What is the absorption costing breakeven point in units?
- B)
- 1,000 units
- Answer the following questions using the information below:
- Greene Manufacturing incurred the following expenses during 20X5:
- Fixed manufacturing costs $45,000
- Fixed nonmanufacturing costs $35,000
- Unit selling price $100
- Total unit cost $40
- Variable manufacturing cost rate $20
- Units produced 1,340 units
- 179)
- What will be the breakeven point if variable costing is used?
- C)
- 1,000 units
- 180)
- What will be the breakeven point in units if absorption costing is used?
- C)
- 887 units
- 181)
- What is the breakeven point in units using absorption costing if the units produced are actually 2,250?
- D)
- 584 units
- 182)
- The formula for computing the breakeven point in units under variable costing includes all of the following EXCEPT:
- B)
- contribution margin percentage
- 183)
- Bosely Corporation is in the business of selling computers. The following expenses were incurred in March 20X8:
- Fixed manufacturing costs $75,000
- Fixed nonmanufacturing costs $35,000
- Unit selling price $1,200
- Variable manufacturing cost $700
- Units produced 1,500
- What will be the breakeven point if variable costing is used?
- B)
- 220 units
- Chapter 11
- Decision Making and Relevant Information
- 1)
- A decision model is a formal method for making a choice, frequently involving both quantitative and qualitative analyses..
- 2)
- Feedback from previous decisions uses historical information and, therefore, is irrelevant for making future predictions.
- 3)
- Relevant costs are expected future costs that differ among alternatives..
- 4)
- Relevant revenues are expected future revenues that do not differ among alternatives.
- 5)
- The amount paid to purchase tools last month is an example of a sunk cost..
- 6)
- For decision making, differential costs assist in choosing between alternatives..
- 7)
- For a particular decision, differential revenues and differential costs are always relevant..
- 8)
- A cost may be relevant for one decision, but not relevant for a different decision..
- 9)
- Revenues that remain the same for two alternatives being examined are relevant revenues.
- 10)
- Sunk costs are past costs that are unavoidable..
- 11)
- The cost of a machine purchased last year will be irrelevant in a decision for next year..
- 12)
- A sunk cost can never be relevant..
- 13)
- Quantitative factors are always expressed in numerical terms..
- 14)
- Qualitative factors are outcomes that are measured in numerical terms, such as the costs of direct labor.
- 15)
- If a manufacturer chooses to continue purchasing direct materials from a supplier because of the ongoing relationship that has developed over the years, the decision is based on qualitative factors..
- 16)
- Relevant revenues and relevant costs are the only information managers need to select among alternatives.
- 17)
- Full costs of a product are relevant for one-time-only special order pricing decisions.
- 18)
- Full costs of a product include variable costs, but not fixed costs.
- 19)
- For one-time-only special orders, variable costs may be relevant but not fixed costs..
- 20)
- The price quoted for a one-time-only special order may be less than the price for a long-term customer..
- 21)
- Bid prices and costs that are relevant for regular orders are the same costs that are relevant for one-time-only special orders.
- 22)
- Qualitative factors, because they are not measured numerically, are unimportant in the decision-making process.
- 23)
- In a one-time special order situation, if the price offered by the potential buyer is less than the absorption cost per unit, then the producer should not accept the special offer.
- 24)
- In relevant cost analysis, managers should avoid incorrect general assumptions and beware of misleading unit cost information..
- 25)
- An incremental product cost is generally a fixed cost.
- 26)
- If Option 1 costs $100 and Option 2 costs $80, then the differential cost is $180.
- 27)
- Producing another 10,000 units may increase the fixed cost of rent..
- 28)
- Absorption cost per unit is the best product cost to use for one-time-only special order decisions.
- 29)
- Sometimes qualitative factors are the most important factors in make-or-buy decisions..
- 30)
- If a company is deciding whether to outsource a part, the reliability of the supplier is an important factor to consider..
- 31)
- Outsourcing is risk free to the manufacturer because the supplier now has the responsibility of producing the part.
- 32)
- Opportunity cost is the contribution to operating income that is forgone by not using a limited resource in its next-best alternative use..
- 33)
- When a firm maximizes profits it will simultaneously minimize opportunity costs..
- 34)
- In a make-or-buy decision when there are alternative uses for capacity, the opportunity cost of idle capacity is relevant..
- 35)
- When opportunity costs exist, they are always relevant..
- 36)
- When capacity is constrained, relevant costs equal incremental costs plus opportunity costs..
- 37)
- If the $17,000 spent to purchase inventory could be invested and earn interest of $1,000, then the opportunity cost of holding inventory is $17,000.
- 38)
- The choice is not really whether to make or buy, but rather how to best use available production capacity..
- 39)
- Opportunity costs never appear in a company's accounting records since they are foregone costs and not actual costs..
- 40)
- Product-mix decisions are typically long-run decisions.
- 41)
- For short-run product-mix decisions, managers should focus on minimizing total fixed costs.
- 42)
- For short-run product-mix decisions, maximizing contribution margin will also result in maximizing operating income..
- 43)
- Regardless of the restraining resource, managers should produce more of the product with the greatest contribution margin per unit to maximize profits.
- 44)
- When there are scarce resources, the firm should attempt to maximize the contribution margin per unit of the scarce resource..
- 45)
- Management should focus on per unit costs when deciding whether to discontinue a product or not.
- 46)
- Avoidable variable and fixed costs should be evaluated when deciding whether to discontinue a product, product line, business segment, or customer..
- 47)
- All corporate-office allocated costs should be included in relevant-cost analysis.
- 48)
- Depreciation allocated to a product line is a relevant cost when deciding to discontinue that product.
- 49)
- A company is considering adding a fourth product to use available capacity. A relevant factor to consider is that corporate costs can now be allocated over four products rather than only three.
- 50)
- All variable costs are relevant and all fixed costs are irrelevant.
- 51)
- In a decision as to whether or not to drop a product, fixed costs that have been allocated to that product are always relevant.
- 52)
- When replacing an old machine with a new machine, the purchase price of the new machine is a relevant cost..
- 53)
- When replacing an old machine with a new machine, the purchase price of the old machine is a relevant cost.
- 54)
- When replacing an old machine with a new machine, the book value of the old machine is a relevant cost.
- 55)
- Replacing an old machine will increase operating income in the long run, but not for this year. A manager may choose not to replace the machine if performance evaluations are based on performance over a single year..
- 56)
- Managers tend to favor alternatives that make their own performance look better..
- 57)
- Linear programming is a tool that maximizes total contribution margin of a mix of products with multiple constraints..
- 58)
- A decision model involves:
- B)
- both quantitative and qualitative analyses
- 59)
- Feedback regarding previous actions may affect:
- A)
- future predictions
- B)
- implementation of the decision
- C)
- the decision model
- 60)
- Place the following steps from the five-step decision process in order:
- A = Make predictions about future costs
- B = Evaluate performance to provide feedback
- C = Implement the decision
- D = Choose an alternative
- C)
- A D C B
- 61)
- The formal process of choosing between alternatives is known as a(n):
- B)
- decision model
- 62)
- Ruggles Circuit Company manufactures circuit boards for other firms. Management is attempting to search for ways to reduce manufacturing labor costs and has received a proposal from a consulting company to rearrange the production floor next year. Using the information below regarding current operations and the new proposal, which of the following decisions should management accept?
- Currently Proposed
- Required machine operators 5 4.5
- Materials-handling workers 1.25 1.25
- Employee average pay $8 per hour $9 per hour
- Hours worked per employee 2,100 2,000
- B)
- Rearrange the production floor.
- Answer the following questions using the information below:
- LeBlanc Lighting manufactures small flashlights and is considering raising the price by 50 cents a unit for the coming year. With a 50-cent price increase, demand is expected to fall by 3,000 units.
- Currently Projected
- Demand 20,000 units 17,000 units
- Selling price $4.50 $5.00
- Incremental cost per unit $3.00 $3.00
- 63)
- If the price increase is implemented, operating profit is projected to:
- A)
- increase by $4,000
- 64)
- Would you recommend the 50-cent price increase?
- D)
- Yes, because operating profits increase.
- 65)
- When using the five-step decision process, which one of the following steps should be done last?
- C)
- Evaluation and feedback
- 66)
- When using the five-step decision process, which one of the following steps should be done first?
- A)
- Obtain information
- 67)
- For decision making, a listing of the relevant costs:
- A)
- will help the decision maker concentrate on the pertinent data
- B)
- will only include future costs
- C)
- will only include costs that differ among alternatives
- 68)
- Sunk costs:
- B)
- are past costs
- 69)
- Sunk costs:
- D)
- are ignored when evaluating alternatives
- 70)
- A computer system installed last year is an example of a(n):
- A)
- sunk cost
- 71)
- Costs that CANNOT be changed by any decision made now or in the future are:
- D)
- sunk costs
- 72)
- In evaluating different alternatives, it is useful to concentrate on:
- D)
- relevant costs
- 73)
- Which of the following costs always differ among future alternatives?
- C)
- relevant costs
- 74)
- Which of the following costs are never relevant in the decision-making process?
- B)
- historical costs
- Answer the following questions using the information below:
- Jim's 5-year-old Geo Prizm requires repairs estimated at $3,000 to make it roadworthy again. His friend, Julie, suggested that he should buy a 5-year-old used Honda Civic instead for $3,000 cash. Julie estimated the following costs for the two cars:
- Geo Prizm Honda Civic
- Acquisition cost $15,000 $3,000
- Repairs $ 3,000
- Annual operating costs
- (Gas, maintenance, insurance) $ 2,280 $2,100
- 75)
- The cost NOT relevant for this decision is the:
- A)
- acquisition cost of the Geo Prizm
- 76)
- What should Jim do? What are his savings in the first year?
- C)
- Buy the Honda Civic; $180
- 77)
- A relevant revenue is a revenue that is a(n):
- B)
- future revenue
- 78)
- A relevant cost is a cost that is a (n):
- A)
- future cost
- 79)
- Relevant information has all of these characteristics EXCEPT:
- B)
- all future revenues and expenses are relevant
- 80)
- Quantitative factors:
- B)
- can be expressed in monetary terms
- 81)
- Qualitative factors:
- D)
- include customer satisfaction
- 82)
- Historical costs are helpful:
- A)
- for making future predictions
- 83)
- When making decisions:
- C)
- appropriate weight must be given to both quantitative and qualitative factors
- 84)
- Employee morale at Dos Santos, Inc., is very high. This type of information is known as a:
- A)
- qualitative factor
- 85)
- Roberto owns a small body shop. His major costs include labor, parts, and rent. In the decision-making process, these costs are considered to be:
- C)
- quantitative factors
- 86)
- One-time-only special orders should only be accepted if:
- A)
- incremental revenues exceed incremental costs
- 87)
- When deciding to accept a one-time-only special order from a wholesaler, management should do all of the following EXCEPT:
- D)
- verify past design costs for the product
- 88)
- When there is excess capacity, it makes sense to accept a one-time-only special order for less than the current selling price when:
- A)
- incremental revenues exceed incremental costs
- 89)
- Full cost of the product is:
- C)
- the sum of all variable and fixed costs in all the business functions of the value chain
- Answer the following questions using the information below:
- Welch Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. Welch Manufacturing has excess capacity. The following per unit data apply for sales to regular customers:
- Variable costs:
- Direct materials $40
- Direct labor 20
- Manufacturing support 35
- Marketing costs 15
- Fixed costs:
- Manufacturing support 45
- Marketing costs 15
- Total costs 170
- Markup (50%) 85
- Targeted selling price $255
- 90)
- What is the full cost of the product per unit?
- B)
- $170
- 91)
- What is the contribution margin per unit?
- C)
- $145
- 92)
- For Welch Manufacturing, what is the minimum acceptable price of this special order?
- A)
- $110
- 93)
- What is the change in operating profits if the one-time-only special order for 1,000 units is accepted for $180 a unit by Welch?
- A)
- $70,000 increase in operating profits
- 94)
- Ratzlaff Company has a current production level of 20,000 units per month. Unit costs at this level are:
- Direct materials $0.25
- Direct labor 0.40
- Variable overhead 0.15
- Fixed overhead 0.20
- Marketing - fixed 0.20
- Marketing/distribution - variable 0.40
- Current monthly sales are 18,000 units. Jim Company has contacted Ratzlaff Company about purchasing 1,500 units at $2.00 each. Current sales would not be affected by the one-time-only special order, and variable marketing/distribution costs would not be incurred on the special order. What is Ratzlaff Company's change in operating profits if the special order is accepted?
- C)
- $1,800 increase in operating profits
- 95)
- Black Tool Company has a production capacity of 1,500 units per month, but current production is only 1,250 units. The manufacturing costs are $60 per unit and marketing costs are $16 per unit. Doug Hall offers to purchase 250 units at $76 each for the next five months. Should Black accept the one-time-only special order if only absorption-costing data are available?
- D)
- Yes, since operating profits will most likely increase.
- Answer the following questions using the information below:
- Grant's Kitchens is approached by Ms. Tammy Wang, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers:
- Direct materials $455
- Direct labor 300
- Variable manufacturing support 45
- Fixed manufacturing support 100
- Total manufacturing costs 900
- Markup (60%) 540
- Targeted selling price $1440
- Grant's Kitchens has excess capacity. Ms. Wang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit.
- 96)
- For Grant's Kitchens, what is the minimum acceptable price of this one-time-only special order?
- A)
- $830
- 97)
- Other than price, what other items should Grant's Kitchens consider before accepting this one-time-only special order?
- B)
- reaction of existing customers to the lower price offered to Ms. Wang
- 98)
- If Ms. Wang wanted a long-term commitment for supplying this product, this analysis:
- A)
- would definitely be different
- 99)
- An example of a quantitative factor for the decision-making process is:
- D)
- manufacturing overhead
- 100)
- If there was limited capacity, all of the following amounts would change EXCEPT:
- C)
- variable costs
- Answer the following questions using the information below:
- Northwoods manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $90 per table, consisting of 80% variable costs and 20% fixed costs. The company has surplus capacity available. It is Northwoods' policy to add a 50% markup to full costs.
- 101)
- Northwoods is invited to bid on a one-time-only special order to supply 100 rustic tables. What is the lowest price Northwoods should bid on this special order?
- B)
- $7,200
- 102)
- A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Northwoods Incorporated is invited to submit a bid to the hotel chain. What is the lowest price per unit Northwoods should bid on this long-term order?
- D)
- $135
- 103)
- Cochran Corporation has a plant capacity of 100,000 units per month. Unit costs at capacity are:
- Direct materials $4.00
- Direct labor 6.00
- Variable overhead 3.00
- Fixed overhead 1.00
- Marketingfixed 7.00
- Marketing/distributionvariable 3.60
- Current monthly sales are 95,000 units at $30.00 each. Suzie, Inc., has contacted Cochran Corporation about purchasing 2,000 units at $24.00 each. Current sales would not be affected by the one-time-only special order. What is Cochran's change in operating profits if the one-time-only special order is accepted?
- A)
- $14,800 increase
- 104)
- The sum of all the costs incurred in a particular business function (for example, marketing) is called the:
- A)
- business function cost
- 105)
- The sum of all costs incurred in all business functions in the value chain (product design, manufacturing, marketing, and customer service, for example) is known as
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