CHAPTER 2 QUIZ

1. 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

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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 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.

5.

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8.

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.

9.

10.

CHAPTER 2 QUIZ SOLUTIONS

1. 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 QUIZ
1. 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.

2.

3.

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: Revenues (400 sets sold @ $600 per set) $240,000 Variable costs 160,000 Fixed costs 50,000

4.

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

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What is LSBs DOL? a. 3.33 b. 2.00 c. 0.50 d. 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.

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11.

12.

13.

CHAPTER 3 QUIZ SOLUTIONS

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. c a c b a c d b b b

11. 12. 13.

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 QUIZ
1. 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.

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d. 5.

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: Work-in-Process $ 5,000 Finished Goods 20,000 Cost of Goods Sold 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.

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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 out-of-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 SOLUTIONS

1. 2. b d

3. 4. 5. 6. 7. 8. 9. 10.

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

2.

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. 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.

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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

Inspection Time 10 minutes 20 minutes

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. 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.

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CHAPTER 7 QUIZ
1. [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 Variable marketing and administrative expense $10,000 $10,500 Fixed marketing and administrative expense $12,000 $11,000

2.

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. [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. 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

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

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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 Minus unfavorable price variance Materials at standard $30,970 30,800 170 U 82,500 1,500 81,000

5.

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 Flexible Budget: Actual Units Sold Static Budget: Budgeted Units Sold

X Actual Sales Mix X Actual CM/unit

X Actual Sales Mix X Budgeted CM/unit

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 X Actual Price Actual Input X Budgeted Price Flexible Budget: Budgeted Input (for actual output) X Budgeted Price

| - - - - - - - Price variance - - - - - - - | - - - - - - - Efficiency variance - - - - - - - | | - - - - - - - - - - - - - - - - - - - Flexible budget variance - - - - - -- - - - - - ----- - - - | INPUT YIELD AND MIX VARIANCES Actual Input/Actual Mix : Actual Inputs Used X Actual Input Mix X Budgeted Price Actual Input Used X Budgeted Input Mix X Budgeted Price Flexible Budget: Budgeted Input (for actual output) X Budgeted Input Mix X Budgeted Price

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