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Question 1

The financial records of Maker Company shows a total manufacturing cost of $750,000 and a cost of goods
manufactured of $680,000. Factory overhead was applied to production at a rate of 75% of direct labor cost. Work-in-
process inventory at January 1 was 80% of work-in-process inventory at December 31. Applied factory overhead was
25% of total manufacturing cost.

If the company uses a normal (nonstandard) absorption cost system, the carrying value of Maker’s work-in-process
inventory at December 31 is

A. $ 87,500
B. $ 350,000
C. $ 280,000
D. $ 70,000

Question 2

A skin care company began manufacturing 18,000 pieces of silk lotion during the month of September. A total of
13,000 silk lotions were completed and transferred to the Packaging Department; the remaining 5,000 silk lotions
were still in the mixing process at the end of the month. There was no beginning inventory.

Costs for the Mixing Department for the month of September were as follows:

Direct materials $ 45,000


Conversion cost 36,000
Total $ 81,000

All of the Mixing Department's direct materials were placed in process, but, on average, only 40% of the conversion
cost was applied to the ending work-in-process inventory.

The cost of the units transferred to the Packaging Department is:

A. $63,700
B. $93,000
C. $58,500
D. $81,000

Question 3

Dutch Corporation employs an absorption costing system for internal reporting purposes; however, the company is
considering using variable costing. Data regarding Dutch's planned and actual operations for the calendar year are
presented below.
Planned Actual
Activity Activity
Beginning finished goods inventory 35,000 35,000
Sales 100,000 85,000
Production 115,000 95,000
Planned Planned Actual
Costs Costs Incurred
Per Unit Total Costs
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Direct materials $12.00$1,380,000$1,140,000


Direct labor 9.00 1,260,000 855,000
Variable manufacturing overhead 3.00 345,000 380,000
Fixed manufacturing overhead 6.00 700,000 620,000
Variable selling expenses 8.00 920,000 750,000
Fixed selling expenses 7.00 805,000 780,000
Variable administrative expenses 2.00 230,000 250,000
Fixed administrative expenses 3.00 345,000 325,000
Total $50.00 $5,985,000 $5,100,000

The planned per unit cost figures shown in the above schedule were based on Dutch producing and selling 115,000
units. Dutch uses a predetermined manufacturing overhead rate for applying manufacturing overhead to its product;
thus, a combined manufacturing overhead rate of $9.00 per unit was employed for absorption costing purposes. Any
over- or underapplied manufacturing overhead is closed to the Cost of Goods Sold account at the end of the reporting
year.

The beginning finished goods inventory for absorption costing purposes was valued at the previous year's planned
unit manufacturing cost, which was the same as the current year's planned unit manufacturing cost. There are no
work-in-process inventories at either the beginning or the end of the year. The planned and actual unit selling price for
the current year was $65.00 per unit.

Dutch Corporation's total fixed costs expensed this year on the absorption costing basis were

A. $1,725,000
B. $1,675,000
C. $1,665,000
D. $1,615,000

Question 4

The following data pertain to a company's machining-department operations in June.


Units Completion
Work-in-process, December 1 50,000 50%
Units started 225,000
Units completed and transferred158,000
to the finishing department
Work-in-process, December 31 36,000 50%

Materials are added at the beginning of the process and conversion costs are incurred uniformly throughout the process.
Assuming use of the FIFO method of process costing, the equivalent units of conversion performed during June were:

A. 158,000 equivalent units.


B. 151,000 equivalent units.
C. 225,000 equivalent units.
D. 176,000 equivalent units.

Question 5

There are two products developed by Leonard Company namely copper and silver. Each Copper sells for $3 per
unit, and each Silver sells for $6 per unit. Assume the silver is not marketable at split-off but must be further planed
and sized at a cost of $300,000 per production run. During this process, 15,000 units are unavoidably lost; these
spoiled units have no discernible value. The remaining units of silver are salable at $15.00 per unit. The copper,
although salable immediately at the split-off point, are honed at a costs of $150,000 per production run. The copper
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are then sold for $7.50 each. A standard production run incurs joint costs of $450,000 and results in 90,000 units of
copper and 135,000 units of silver.

Using the net realizable value (NRV) basis, the completed cost assigned to each unit of silver would be

A. $5.28
B. $2.50.
C. $5.68.
D. $2.90.

Question 6

A company with three products classifies its costs as belonging to five functions: design, production, marketing,
distribution, and customer services. For pricing purposes, all company costs are assigned to the three products. The
direct costs of each of the five functions are traced directly to the three products. The indirect costs of each of the five
business functions are collected into five separate cost pools and then assigned to the three products using
appropriate allocation bases. The allocation base that would most likely be the best for allocating the indirect costs of
the distribution function is:

A. Dollar sales volume.


B. Number of sales persons.
C. Number of shipments.
D. Number of customer phone calls.

Question 7

Serge Company uses direct (variable) costing for internal reporting and absorption costing for the external financial
statements. A review of the firm’s internal and external disclosures will likely find

A. a contribution margin rather than gross margin in the reports released to shareholders.
B. a higher inventoriable unit cost reported to management than to the shareholders.
C. a difference in the treatment of fixed selling and administrative costs.
D. internal income figures that vary closely with sales and external income figures that are influenced by both units
sold and productive output.

Question 8

Tuesday Inc. processes Maxi into two joint products, Mama and Xixi. Maxi is purchased in 30,000 tons for $250,000.

Mama Xixi
No of units 18,000 12,000
Selling Price 16 8
Processing costs are $470,000 to process the 30,000 tons of Maxi.

If the sales value at split-off method is used to allocate joint costs to the final products, the per gallon cost (rounded to
the nearest cent) of producing Mama is

A. $30.0 per ton.


B. $18.0 per ton.
C. $24.0 per ton.
D. $19.6 per ton.
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Question 9

Bruno Company produces two main products – Double A and Triple A, and a by-product out of a joint process –
Single A. The ratio of output quantities to input quantities of direct material used in the joint process remains
consistent from month to month. Monthly output in gallons is 120,000 for Double A and 180,000 for Triple A. The
selling price is $25 for Double A and $12 for Triple A.

The main products are not marketable at the split-off point and, thus, have to be processed further. The
net realizable value of the by-product is used to reduce the joint production costs before the joint costs
are allocated to the main products. Single A monthly output in gallons is 100,000 and had a selling
price of $5.

During the month, separable process costs are for Double A and Triple is $780,000 and $965,000
respectively. Bruno incurred joint production costs of $3,280,000.

Bruno has employed the physical-volume method to allocate joint production costs to the two main
products.

The amount of joint production cost that Bruno would allocate to the Double A by using the physical-
volume method to allocate joint production costs would be

A. $1,640,000
B. $834,000
C. $1,312,000
D. $1,112,000

Question 1

Earth Shaker Foods produces the following three supplemental food products simultaneously through a refining
process costing $78,250.
Core: 5,000 pounds of Core, a popular but relatively rare grain supplement having a caloric value of 500
calories per pound.
Atmos: 2,500 pounds of Atmos, a flavoring material high in carbohydrates with a caloric value of 300
calories per pound.
Hydro: 750 pounds of Hydro, used as a cattle feed supplement with a caloric value of 50 calories per pound.

The joint products, Core and Atmos, have a final selling price of $8 per pound and $10 per pound, respectively,
after additional processing costs of $2.50 per pound of each product are incurred after the split-off point. Hydro, a
by-product, is sold at the split-off point for $3.50 per pound.

Assuming Earth Shaker Foods inventories Hydro, the by-product, the joint cost to be allocated to Core using
the net realizable value method is

A. $45,375.
B. $30,250.
C. $ 2,625.
D. $46,950.
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Question 11

Bonus Company produced 1,500 units of magnetic film on which 1,200 units were sold, both as budgeted. There were
no beginning or ending work-in-process inventories. Budgeted and actual fixed costs were equal. All variable
manufacturing costs are affected by volume of production only, and all variable selling costs are affected by sales
volume only. There is no beginning finished goods inventory.
Budgeted per unit revenues and costs were as follows:

Per Unit
Sales price $170
Direct materials 65
Direct labor 28
Variable manufacturing costs 17
Fixed manufacturing costs 10
Variable selling costs 13
Fixed selling costs ($8,700 total) 5.50
Fixed administrative costs ($4,600 total) 2.50

Assuming that Bonus Company uses absorption costing, the operating income for the prior year was

A. $28,100
B. $24,200.
C. $31,100.
D. $29,400.

Question 12

North West Inc. has the following quality financial data for its most recent fiscal year.
Rework costs $ 20,000
Warranty repair costs 25,000
Product line inspection 12,000
Design engineering 58,000
Supplier evaluation 33,000
Labor training 26,000
Product testing 8,000
Breakdown maintenance 2,500
Product scrap 15,000
Cost of returned goods 8,500
Customer support 2,500
Product liability claims 4,000

The total amount of prevention costs that should be reported in a Cost of Quality report for the year is

A. $84,000.
B. 117,000.
C. $59,000.
D. $125,000.
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Question 13

A public accounting firm has two departments, Auditing Services (AS) and Tax Services (TS). These two departments
use the services of two service departments, Computer Programming (CP) and Computer Operations (CO). The
percentages of each service used by each department for a typical period are:
CP CO AS TS
CP 30% 50% 20%
CO 25% 45% 30%

The company prices its auditing services and tax services on the basis of estimated costs of providing those services.
Based upon this information, the most appropriate method for allocating service department costs is the:

A. Step-down method.
B. Physical-units method.
C. Reciprocal method.
D. Massachusetts Formula.

Question 14

A company that uses a process costing system inspects its goods at the 60% stage of completion. If the firm’s ending
work-in-process inventory is 80% complete, how would the firm account for its normal and abnormal spoilage?

A. Normal spoilage costs would be added to the cost of the good units completed during the period; in contrast,
abnormal spoilage costs would be written off as a loss.
B. Both normal and abnormal spoilage costs would be added to the cost of the good units completed during the period.
C. Both normal and abnormal spoilage costs would be written off as an expense of the period.
D. Normal spoilage costs would be allocated between the cost of good units completed during the period and the
ending work-in-process inventory. In contrast, abnormal spoilage costs would be written off as a loss.

Question 15

A company employs a process costing system for its two-department manufacturing operation using the first-in,
first-out (FIFO) inventory method. When units are completed in Department 1, they are transferred to Department 2 for
completion. Inspection takes place in Department 2 immediately before the direct materials are added, when the
process is 70% complete with respect to conversion.

The number of defective units (that is, those failing inspection) is usually below the normal tolerance limit of 4% of
units inspected. Defective units have minimal value, and the company sells them without any further processing for
whatever it can. Generally, the amount collected equals, or slightly exceeds, the transportation cost. A summary of the
manufacturing activity for Department 2, in units for the current month, is presented below.
Physical Flow
(output units)
Beginning inventory (60% complete with respect to conversion) 20,000
Units transferred in from Department 1 180,000
Total units to account for 200,000
Units completed in Department 2 during the month 170,000
Units found to be defective at inspection 5,000
Ending inventory (80% complete with respect to conversion) 25,000
Total units accounted for 200,000
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Beginning work-in-process inventory was valued at $78,000, consisting of $23,000 of transferred-in costs and $55,000
of conversion costs. Transferred-in costs for units transferred in during the month were $360,000. Costs added to
production during the month were $156,000 in direct materials added and $326,700 in conversion costs added.

The equivalent units for direct materials for the current month would be

A. 195,000 units.
B. 181,500 units.
C. 175,000 units.
D. 200,000 units.

Question 16

A sporting goods manufacturer buys wood as a direct material for baseball bats. The Forming Department processes
the baseball bats, and the bats are then transferred to the Finishing Department where a sealant is applied. The
Forming Department began manufacturing 10,000 "Casey Sluggers" during the month of May. There was no
beginning inventory.

Costs for the Forming Department for the month of May were as follows:
Direct materials $33,000
Conversion costs 17,000
Total $50,000

A total of 8,000 bats were completed and transferred to the Finishing Department; the remaining 2,000 bats were still
in the forming process at the end of the month. All of the Forming Department's direct materials were placed in
process, but, on average, only 25% of the conversion cost was applied to the ending work-in-process inventory.

The cost of the work-in-process inventory in the Forming Department at the end of May is

A. $7,600
B. $10,000
C. $2,500
D. $20,000

Question 1

Red Sea Company uses a weighted-average process cost system to account for the cost of producing a chemical
compound. As part of production, Material B is added when the goods are 80% complete. Beginning work-in-process
inventory for the current month was 135,000 units, 90% complete. During the month, 280,000 units were started in
process, and 240,000 units were completed. There were no lost or spoiled units. If the ending inventory was 60%
complete, the total equivalent units for Material B for the month was

A. 240,000 units.
B. 280,000 units.
C. 375,000 units.
D. 415,000 units.
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Question 18

Aguilar Industries manufactures bed. The three models of bed, which are all variations of the same design, are King
Size (can be stacked), Queen Size (with arms), and Single Size (with arms and padding). The company uses batch
manufacturing and has an operation costing system.

Aguilar has an extrusion operation and subsequent operations to form, trim, and finish the beds. Plastic sheets are
produced by the extrusion operation, some of which are sold directly to other manufacturers. During the forming
operation, the remaining plastic sheets are molded into bed seats and the legs are added; the King Size model is sold
after this operation. During the trim operation, the arms are added to the Queen Size and Single Size models and the
bed edges are smoothed. Only the Single Size model enters the finish operation where the padding is added. All of the
units produced are subject to the same steps within each operation, and no units are in process at the end of the period.
The units of production and direct materials costs were as follows:
Units Extrusion Form Trim Finish
Produced Materials MaterialsMaterialsMaterials
Plastic sheets 6,000 $ 60,000
King Size model 10,000 72,000 $24,000
Queen Size model 5,000 128,000 80,000 $50,000
Single Size model 3,500 24,000 8,000 6,000 $12,000
24,500$192,000 $44,000 $15,000 $12,000

Manufacturing costs applied during the month were:


Extrusion Form Trim Finish
OperationOperationOperationOperation
Direct labor $152,000 $60,000 $30,000 $18,000
Factory overhead 240,000 72,000 39,000 24,000

The unit cost of a Queen Size model is

A. $87.35
B. $75.85
C. $35.75
D. $77.35

Question 19
Dennis Tom Company manufactures a line of products distributed nationally through wholesalers. Presented
below are planned manufacturing data for the year and actual data for November of the current year. The
company applies overhead based on planned machine hours using a predetermined annual rate.
Planning Data
Annual November
Fixed manufacturing overhead $1,200,000 $100,000
Variable manufacturing overhead 2,400,000 220,000
Direct labor hours 48,000 4,000
Machine hours 240,000 22,000
Data for November
Direct labor hours (actual) 4,200
Direct labor hours (plan based on output) 4,000
Machine hours (actual) 21,600
Machine hours (plan based on output) 21,000
Fixed manufacturing overhead $101,200
Variable manufacturing overhead $214,000

The total amount of overhead applied to production for November was


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A. $316,200.
B. $315,000.
C. $320,000.
D. $300,000.

Question 20

According to the theory of constraints, all of the following activities help to relieve the problem of a bottleneck in
operations except

A. increasing the efficiency of operations at non-bottleneck machines.


B. eliminating idle time at the bottleneck operation.
C. shifting products that do not have to be made on bottleneck machines to non-bottleneck machines.
D. reducing setup time at the bottleneck operation.

Question 21

A profitable company with five departments uses plantwide overhead rates for its highly diversified operation. The firm
is studying a change to either allocating overhead by using departmental rates or using activity-based costing (ABC).
Which one of these two methods will likely result in the use of a greater number of cost allocation bases and more
accurate costing results?

A. Departmental allocation will result in a greater number of allocation bases; and departmental allocation will result in
more accurate costing results.
B. ABC will result in a greater number of allocation bases; and ABC will result in more accurate costing results.
C. ABC will result in a greater number of allocation bases; and departmental allocation will result in more accurate
costing results.
D. Departmental allocation will result in a greater number of allocation bases; and ABC will result in more accurate
costing results.

Question 22

Wild Rose Scent, Inc. is a local company that produces air freshener. The production costs and output of Wild Rose
for December are as follows:

Ocean Scent Garden Scent Sports Scent


Units produced 300,000 240,000 120,000
Units sold 80,000 120,000 120,000
Selling price 20 30 15

The air freshener is processed in a single refinery. The company does not have the capacity to process further and
sells its output each month. There were no beginning inventories of finished goods or work-in-process in June 1. Air
freshener acquired and placed in production amounted to $5,000,000. The direct labor and related costs is
$2,000,000 and Factory overhead is $3,000,000.

The portion of the joint production costs assigned to Ocean Scent based upon the relative sales value of output is

A. $4,000,000
B. $4,800,000
C. $2,286,000
D. $2,500,000
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Question 23

Bonus Company produced 1,500 units of magnetic film on which 1,200 units were sold, both as budgeted. There were
no beginning or ending work-in-process inventories. Budgeted and actual fixed costs were equal. All variable
manufacturing costs are affected by volume of production only, and all variable selling costs are affected by sales
volume only. There is no beginning finished goods inventory.

Budgeted per unit revenues and costs were as follows:

Per Unit
Sales price $170
Direct materials 65
Direct labor 28
Variable manufacturing costs 17
Fixed manufacturing costs 10
Variable selling costs 13
Fixed selling costs ($8,700 total) 5.50
Fixed administrative costs ($4,600 total) 2.50

Assuming that Bonus Company uses variable costing, the operating income for the prior year was

A. $31,100
B. $24,200.
C. $28,100.
D. $29,400.

Question 24

From the following budgeted data, calculate the budgeted indirect cost rate that would be used in a normal costing
system.
Total direct labor hours 180,000
Direct costs $ 2,700,000
Total indirect labor hours 60,000
Total indirect labor-related costs $ 1,980,000
Total indirect non-labor-related costs $ 1,620,000

A. $20
B. $11
C. $15
D. $9

Question 25

At the end of manufacturing process, some units of failed to pass final inspection. The rework of the defective units was
authorized since the estimated incremental revenue from reworking the units exceeded the cost of rework. The
manufacturing overhead budget includes an allowance for rework. The predetermined manufacturing overhead rate is
130% of direct labor cost.

The following costs were incurred in reworking the units:


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Direct materials $ 2,250


Miscellaneous supplies $ 80
Direct labor $ 7,300

The account(s) to be charged and the appropriate charges for the rework cost would be:

A. Factory overhead control for $19,120.


B. Work-in-process inventory control for $9,630.
C. Factory overhead control for $9,630.
D. Work-in-process inventory control for $2,250 and factory overhead control for $16,870.

Question 26

Tamiya Company manufactures two clothing lines, Cotton and Linen, out of a joint process.

Cotton Linen
Standard production 100,000 150,000
Selling price 3.50 1.00
The joint (common) costs incurred are $368,000 for a standard production run.
Assuming both products are sold at the split-off point, the amount of joint cost of each production run allocated to
Cotton on a net realizable value (NRV) basis is

A. $220,800
B. $257,600.
C. $110,400.
D. $147,200.

Question 27

Which one of the following is the best reason for using variable costing?

A. Variable costing usually results in higher operating income than if a company uses absorption costing.
B. All costs are variable in the long term.
C. Variable costing is acceptable for income tax reporting purposes.
D. Fixed factory overhead is more closely related to the capacity to produce than to the production of specific units.

Question 28

Which one of the following lists of functions is in proper value chain order?

A. Production design, distribution, and marketing.


B. Research and development, marketing, and customer services.
C. Production, marketing, and production design.
D. Research and development, customer service, and distribution.
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Question 29

Rombus Manufacturing is revising the cost allocation of its service departments, below are the information with regards
to the recommendation of the company consultant:

Quality
Maintenance Machining Assembly Total
Control
Budgeted overhead costs before allocation$ 60,000 $70,000 $90,000 $80,000 $300,000
Budgeted machine hours 5,000 5,000
Budgeted direct labor hours 2,000 2,000
Budgeted hours of service:
Quality control 750 2,100 900 3,750
Maintenance 1,100 1,300 700 3,100

Using the direct method, the total amount of overhead allocated to each machine hour at Rombus Manufacturing
would be:

A. $8.40
B. $18.00.
C. $9.10.
D. $35.50.

Question 30

During December, Mendez, Inc. is a manufacturing company specializing with creation of leather shoes. During
August, the company had the following selected data.

Beginning work-in-process inventory:


Raw material $ 20
Conversion cost 35
Materials added 70
Conversion cost 115

All material is added at the beginning of process, and conversion costs are added uniformly during the process.
There are 150 units completed and transferred to the next department. Beginning work-in-process inventory is 30
units (70% complete as to conversion cost) and ending work-in-process inventory is 20 units (30% complete as to
conversion cost).

Mendez, Inc. uses the first-in, first-out (FIFO) process-costing method. The equivalent units of production used to
calculate conversion cost for August was

A. 170 units.
B. 150 units.
C. 135 units.
D. 156 units.

Question 31

Rainbow Company manufactures radio-controlled toy cars. Summary budget financial data for Rainbow for the current
year are as follows.
Sales (5,000 units at $150 each) $750,000
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Variable manufacturing cost 400,000


Fixed manufacturing cost 100,000
Variable selling and administrative cost 80,000
Fixed selling and administrative cost 150,000

Rainbow uses an absorption costing system with overhead applied based on the number of units produced, with a
denominator level of activity of 5,000 units. Underapplied or overapplied manufacturing overhead is written off to cost
of goods sold in the year incurred. The $20,000 budgeted operating income from producing and selling 5,000 toy cars
planned for this year is of concern to Harvey Brent, Rainbow's president. She believes she could increase operating
income to $50,000 (her bonus threshold) if Rainbow produces more units than it sells, thus building up the finished
goods inventory. How much of an increase in the number of units in the finished goods inventory would be needed to
generate the $50,000 budgeted operating income?

A. 600 units.
B. 1,500 units.
C. 556 units.
D. 7,500 units.

Question 3

Sergio Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products,
the controller estimates the amount of overhead that should be allocated to the individual product lines from the
information given as follows:
Rubber Leather
Shoes Shoes
Units produced 25 25
Material moves per product line 5 15
Direct labor hours per unit 200 200
Budgeted materials handling costs$50,000

Under activity-based costing (ABC), the materials handling costs allocated to one unit of Rubber Shoes would be

A. $1,000
B. $2,500
C. $1,500
D. $500

Question 33

The Photocopying Department provides photocopy services for both Departments A and B and has prepared its total
budget using the following information for next year.
Fixed costs $100,000
Available capacity 4,000,000 pages
Budgeted usage:
Department A 1,200,000 pages
Department B 2,400,000 pages
Variable cost $0.03 per page

Assume that the dual-rate cost allocation method is used and the allocation basis is budgeted usage for fixed costs
and actual usage for variable costs. How much cost would be allocated to Department A during the year if actual
usage for Department A is 1,400,000 pages and actual usage for Department B is 2,100,000 pages?
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A. $42,000
B. $72,000
C. $75,333
D. $82,000

Question 34

The change in period-to-period operating income when using variable costing can be explained by the change in the

A. Unit sales level multiplied by a constant unit contribution margin.


B. Finished goods inventory level multiplied by the unit sales price.
C. Finished goods inventory level multiplied by a constant unit contribution margin.
D. Unit sales level multiplied by the unit sales price.

Question 35

The primary purpose for allocating common costs to joint products is to determine

A. the inventory cost of joint products for financial reporting.


B. the selling price of a by-product.
C. whether or not one of the joint products should be discontinued.
D. the variance between budgeted and actual common costs.

Question 36

A company employs a process costing system for its two-department manufacturing operation using the first-in,
first-out (FIFO) inventory method. When units are completed in Department 1, they are transferred to Department 2 for
completion. Inspection takes place in Department 2 immediately before the direct materials are added, when the
process is 70% complete with respect to conversion. The specific identification method is used to account for lost units.

The number of defective units (that is, those failing inspection) is usually below the normal tolerance limit of 3% of
units inspected. Defective units have minimal value, and the company sells them without any further processing for
whatever it can. Generally, the amount collected equals, or slightly exceeds, the transportation cost. A summary of the
manufacturing activity for Department 2, in units for the current month, is presented below.
Physical Flow
(output units)
Beginning inventory (60% complete with respect to conversion) 60,000
Units transferred in from Department 1 240,000
Total units to account for 300,000
Units completed in Department 2 during the month 220,000
Units found to be defective at inspection 7,500
Ending inventory (80% complete with respect to conversion) 30,000
Total units accounted for 300,000

Beginning work-in-process inventory was valued at $102,000, consisting of $27,000 of transferred-in costs and $75,000
of conversion costs. Transferred-in costs for units transferred in during the month were $440,000. Costs added to
production during the month were $222,000 in direct materials added and $292,500 in conversion costs added.
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The units that failed inspection during the current month would be classified as:

A. Normal reworked units.


B. Normal waste.
C. Abnormal spoilage.
D. Normal spoilage.

Question 37

Wellness Manufacturing produces a product that passes through two departments. The units are completed in
assembly by adding the remaining direct materials when the units are 60% complete with respect to conversion costs.
Conversion costs are added proportionately in assembly. The production activity in the assembly department for the
current month is presented as follows. Wellness uses the FIFO (first-in, first-out) inventory method in its process cost
system.
Beginning inventory units (25% complete with respect to conversion costs)12,000
Units transferred in from the molding department during the month 56,000
Units to account for 68,000

Units completed and transferred to finished goods inventory 48,000


Ending inventory units (40% complete with respect to conversion costs) 20,000
Units accounted for 68,000

The units from the molding department are completed in the assembly department. The equivalent units in the assembly
department for direct materials for the current month are

A. 36,000 units.
B. 53,000 units.
C. 48,000 units.
D. 56,000 units.

Question 38

Fowler Co. provides the following summary of its total budgeted production costs at three production levels.
Volume in Units
1,000 1,500 2,000
Cost A $1,420$2,130$2,840
Cost B 1,550 2,200 2,900
Cost C 1,000 1,000 1,000
Cost D 1,630 2,445 3,260

The cost behavior of each of the Costs A through D, respectively, is

A. variable, fixed, fixed, and variable.


B. variable, semi-variable, fixed, and variable.
C. variable, semi-variable, fixed, and semi-variable.
D. semi-variable, variable, fixed, and variable.
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Question 39

Some units of output failed to pass final inspection at the end of the manufacturing process. The production and
inspection supervisors determined that the estimated incremental revenue from reworking the units exceeded the cost
of rework. The rework of the defective units was authorized, and the following costs were incurred in reworking the
units:

Materials requisitioned from stores:

Direct materials $ 23,000


Miscellaneous supplies $ 2,000
Direct labor $ 38,000

The manufacturing overhead budget includes an allowance for rework. The predetermined manufacturing overhead
rate is 125% of direct labor cost. The account(s) to be charged and the appropriate charges for the rework cost would
be:

A. Work-in-process inventory control for $63,000.


B. Work-in-process inventory control for $23,000 and factory overhead control for $87,500.
C. Factory overhead control for $110,500.
D. Factory overhead control for $63,000.

Question 4

The Printing Department provides photocopy services for both Departments Accounting and Treasury and has
prepared its total budget using the following information for next year.
Fixed costs $75,000
Available capacity 300,000 pages
Budgeted usage:
Accounting Department 90,000 pages
Treasury Department 210,000 pages
Variable cost $0.06 per page

Assume that the dual-rate cost allocation method is used and the actual usage for fixed costs and variable costs. How
much cost would be allocated to Accounting Department during the year if actual usage for Accounting Department is
70,000 pages and actual usage for Treasury Department is 180,000 pages?

A. $4,200
B. $64,800
C. $26,700
D. $25,200

Question 41

Multiple or departmental overhead rates are considered preferable to a single or plantwide overhead rate when

A. Cost drivers, such as direct labor, are the same over all processes.
B. Various products are manufactured that do not pass through the same departments or use the same manufacturing
techniques.
C. Individual cost drivers cannot accurately be determined with respect to cause-and-effect relationships.
D. Manufacturing is limited to a single product flowing through identical departments in a fixed sequence.
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Question 42

Robert Corporation employs an absorption costing system for internal reporting purposes; however, the company
is considering using variable costing. Data regarding Robert's planned and actual operations for the calendar year
are presented below.
Planned Actual
Activity Activity
Beginning finished goods inventory 35,000 35,000
Sales 140,000125,000
Production 140,000130,000
Planned Planned Actual
Costs Costs Incurred
Per Unit Total Costs
Direct materials $12.00$1,680,000$1,560,000
Direct labor 9.00 1,260,000 1,170,000
Variable manufacturing overhead 4.00 560,000 520,000
Fixed manufacturing overhead 5.00 700,000 715,000
Variable selling expenses 8.00 1,120,000 1,000,000
Fixed selling expenses 7.00 980,000 980,000
Variable administrative expenses 2.00 280,000 250,000
Fixed administrative expenses 3.00 420,000 425,000
Total $50.00$7,000,000$6,620,000

The planned per unit cost figures shown in the above schedule were based on Robert producing and selling 140,000
units. Robert uses a predetermined manufacturing overhead rate for applying manufacturing overhead to its product;
thus, a combined manufacturing overhead rate of $9.00 per unit was employed for absorption costing purposes. Any
over- or underapplied manufacturing overhead is closed to the Cost of Goods Sold account at the end of the reporting
year.

The beginning finished goods inventory for absorption costing purposes was valued at the previous year's planned
unit manufacturing cost, which was the same as the current year's planned unit manufacturing cost. There are no
work-in-process inventories at either the beginning or the end of the year. The planned and actual unit selling price
for the current year was $70.00 per unit.

Robert Corporation's absorption costing operating income was

A. Lower than variable costing operating income because actual sales were less than planned sales.
B. Higher than variable costing operating income because actual production exceeded actual sales.
C. Lower than variable costing operating income because actual production was less than planned production.
D. Lower than variable costing operating income because actual production exceeded actual sales.

Question 43

NVM Packing has three service departments that support the production area. Outlined below is the estimated
overhead by department for the upcoming year:
Service Estimated Number of
Departments Overhead Employees
Repair $25,000 2
Painting 35,000 2
Packing 10,000 1
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Production
Departments
Assembly 25
Bolting 12

The Painting Department supports the greatest number of departments, followed by the Packing Department.
Overhead cost is allocated to departments based upon the number of employees.

Using the direct method of allocation, how much of the Painting Department's overhead will be allocated to the
Packing Department?

A. $0
B. $11,667
C. $7,000
D. $875

Question 44

Assume 550 units were worked on during a period in which a total of 500 good units were completed. Normal spoilage
consisted of 30 units; abnormal spoilage, 20 units. Total production costs were $2,200. The company accounts for
abnormal spoilage separately on the income statement as loss due to abnormal spoilage. Normal spoilage is not
accounted for separately. What is the cost of the good units produced?

A. $2,120.
B. $2,200.
C. $2,080.
D. $2,332.

Question 45

Bethlehem Industries has developed two new products but has only enough plant capacity to introduce one of
these products this year. The company controller has gathered the following data to assist management in deciding
which product should be selected for production.

Bethlehem's fixed overhead includes proportional rent and utilities, machinery depreciation, and supervisory
salaries. Selling and administrative expenses are not allocated to products.
Cost per unit: Power DrillPower Saw
Raw materials $22.00 $18.00
Machining at $12/hr. 9.00 7.50
Assembly at $10/hr. 15.00 5.00
Variable O/H at $8/hr. 18.00 9.00
Fixed O/H at $4/hr. 9.00 4.50
Total unit cost: $73.00 $44.00
Suggested selling price $88.98 $49.95
Actual research and development costs $180,000 $95,000
Proposed advertising and promotion costs $300,000 $250,000

Research and development costs for Bethlehem's two new products are

A. Relevant costs.
B. Conversion costs.
C. Opportunity costs.
D. Sunk costs.
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Question 46

Many companies recognize three major categories of costs of manufacturing a product. These are direct materials,
direct labor, and overhead. Which of the following is an overhead cost in the production of an automobile?

A. The cost of the laborers who place tires on each automobile.


B. The delivery costs for the tires on each automobile.
C. The cost of small tools used in mounting tires on each automobile.
D. The cost of the tires on each automobile.

Question 47

Consider the following information for Richardson Company for the prior year.
The company produced 1,000 units and sold 900 units, both as budgeted.
There were no beginning or ending work-in-process inventories and no beginning finished goods inventory.
Budgeted and actual fixed costs were equal, all variable manufacturing costs were affected by
production volume only, and all variable selling costs were affected by sales volume only.

Budgeted per unit revenues and costs were as follows:

Per unit
Sales price $100
Direct materials 30
Direct labor 20
Other variable manufacturing costs 10
Fixed manufacturing costs 5
Variable selling costs 12
Fixed selling costs ($3,600 total) 4
Fixed administrative costs ($1,800 total) 2

The contribution margin earned by Richardson for the prior year was

A. $35,000
B. $28,000
C. $25,200
D. $31,500

Question 48

Paul Asi Company had the following inventories at the beginning and end of the month of January:
January 1January
31 Finished goods $125,000 $117,000
Work-in-process 235,000 251,000
Direct materials 134,000 124,000

The following additional manufacturing data were available for the month of January:

Direct materials purchased $189,000


Purchase returns and allowances 1,000
Transportation-in 3,000
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Direct labor 300,000


Actual factory overhead 175,000

Paul Asi Company applies factory overhead at a rate of 60% of direct labor cost, and any overapplied or
underapplied factory overhead is deferred until the end of the year, December 31.

Paul Asi Company's prime cost for January was:

A. $501,000.
B. $489,000.
C. $201,000.
D. $199,000.

Question 49

Successful implementation of a just-in-time (JIT) inventory system requires all of the following except

A. each worker is able to operate all machinery and perform all supporting tasks.
B. close relationships with suppliers.
C. use of Enterprise Resource Planning (ERP) software.
D. close coordination between and among work stations.

Question 50

In joint-product costing and analysis, which one of the following costs is relevant when deciding the point at which
a product should be sold to maximize profits?

A. Purchase costs of the materials required for the joint products.


B. Sales salaries for the period when the units were produced.
C. Separable costs after the split-off point.
D. Joint costs to the split-off point.

Question 51

Thompson James is the general manager of the General Merchandise Division, and his performance is measured using
the residual income method. Thompson is reviewing the following forecasted information for his division for next year:
Amount
Category
Working capital $700,000
Revenue 4,600,000
Plant and equipment 2,250,000

If the imputed interest charge is 20% and Thompson wants to achieve a residual income target of $860,000, what will
costs have to be in order to achieve the target?

A. $3,150,000
B. $2,250,000
C. $1,850,000
D. $3,750,000
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Question 52

The warehouse supervisor controls the preparation of raw materials used in the manufacture of products and the
docking of finished goods to its respective gondola. Separate staffs are employed for the preparation and docking
operations. The labor-related costs for the warehousing function are as follows:
Warehouse supervisor's salary $ 70,000
Receiving clerks' wages 125,000
Shipping clerks' wages 80,000
Employee benefit costs (30% of wage and salary costs) 75,000
Total labor-related costs $350,000

Approximately 60% of the warehouse supervisor’s time is spent on preparation activities and 40% on docking
activities.

The company employs a responsibility accounting system for performance reporting purposes. The costs are
classified on the report as period or product costs. The total labor-related costs that would be listed on the
responsibility accounting performance report as product costs under the control of the warehouse supervisor for the
warehousing function would be

A. $225,450
B. $276,750
C. $205,000
D. $168,750

Question 53

A company has two divisions, A and B, each operated as a profit center. A charges B $35 per unit for each unit
transferred to B. Other data follow:
A's variable cost per unit $30
A's fixed costs $10,000
A's annual sales to B 5,000 units
A's sales to outsiders 50,000 units

A is planning to raise its transfer price to $50 per unit. Division B can purchase units at $40 each from outsiders, but
doing so would idle A's facilities now committed to producing units for B. Division A cannot increase its sales to
outsiders. From the perspective of the company as a whole, from whom should Division B acquire the units, assuming
B's market is unaffected?

A. Division A, but only until fixed costs are covered, then from outside vendors.
B. Division A, but only at the variable cost per unit.
C. Division A, despite the increased transfer price.
D. Outside vendors.

Question 54

Edith Carolina, president of the Deed Corporation, requires a minimum return on investment of 8% for any project to
be undertaken by her company. The company is decentralized, and leaves investment decisions up to the discretion
of the division managers as long as the 8% return is expected to be realized. Michael Sanders, manager of the
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Cosmetics Division, has had a return on investment of 14% for his division for the past 3 years and expects the
division to have the same return in the coming year. Sanders has the opportunity to invest in a new line of cosmetics
which is expected to have a return on investment of 12%.
If the Deed Corporation evaluates managerial performance using residual income based on the corporate minimum
required rate of return, what will be the preference for taking on the proposed cosmetics line by Edith Carolina and
Michael Sanders?

A. Carolina will reject / Sanders will accept


B. Carolina will accept / Sanders will reject
C. Carolina will reject / Sanders will reject
D. Carolina will accept / Sanders will accept

Question 55

Manhattan Corporation has several divisions that operate as decentralized profit centers. At the present time, the
Fabrication Division has excess capacity of 5,000 units with respect to the UT-371 circuit board, a popular item in
many digital applications. Information about the circuit board follows.
Market price $48
Variable selling/distribution costs on external sales 5
Variable manufacturing cost 21
Fixed manufacturing cost 10

Manhattan’s Electronic Assembly Division wants to purchase 4,500 circuit boards either internally, or else use a
similar board in the marketplace that sells for $46. The Electronic Assembly Division’s management feels that if the
first alternative is pursued, a price concession is justified, given that both divisions are part of the same firm. The best
process to determine the price ultimately charged by the Fabrication Division to the Assembly Division for the circuit
board is to

A. establish the price through negotiations between the Fabrication's and Electronic Assembly's Division management.
B. set the price equal to the price that would be charged if the Fabrication Department had no excess capacity.
C. establish the price by an arbitration committee.
D. establish the price by top management.

Question 56

For several years, Northern Division of Marino Company has maintained a positive residual income. Northern is
currently considering investing in a new project that will lower the division’s overall return on investment (ROI) but
increase its residual income. What is the relationship between the expected rate of return on the new project, the
firm’s cost of capital, and the division’s current ROI?

A. The division’s current return on investment is higher than the expected rate of return on the new project, but lower
than the firm’s cost of capital.
B. The firm’s cost of capital is higher than the expected rate of return on the new project, but lower than the division’s
current return on investment.
C. The expected rate of return on the new project is higher than the division’s current return on investment, but lower
than the firm’s cost of capital.
D. The expected rate of return on the new project is higher than the firm’s cost of capital, but lower than the division’s
current return on investment.
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Question 57

Packing Division of a company is currently operating at 50% capacity. It produces a single product and sells all its
production to outside customers for $21 per unit. Variable costs are $12 per unit, and fixed costs are $4 per unit at the
current production level. Finishing Division , which currently purchases this product from an outside supplier for $10
per unit, would like to purchase the product from Packing Division. Packing Division will operate at 80% capacity to
meet outside customers' and Finishing Division's demand. What is the minimum price that Packing Division should
charge Finishing Division for this product?

A. $9.60 per unit.


B. $21.00 per unit.
C. $10.00 per unit.
D. $12.00 per unit.

Question 58

The production manager of the Super T-shirt Company is responsible for the activity of her department and the costs
associated with production. Super T adheres to a responsibility centered budget process, and the manager’s
performance is measured by how well she performs to budget. Recently, the dark horse team won the local college
basketball tournament. As a result, the sales department, which operates as a profit center, received an order for
10,000 t-shirts, but only if they could be delivered in three days. The production manager said she could meet the
schedule, but only by incurring overtime pay that would cause her to be over budget for hourly wages paid. What
would be the best course of action for the sales department and the production manager to undertake in this case?

A. Charge the overtime to the sales department's budget.


B. Accept the order and ignore the effect on the production budget when conducting the performance review.
C. Accept the order and overrun the production manager's budget.
D. Refuse the overtime and produce only what the production department is capable of while staying within the budget.

Question 59

An appropriate transfer price between two divisions of The Stark Company can be determined from the following data:
Fabricating Division
Market price of subassembly $50
Variable cost of subassembly $20
Excess capacity (in units) 1,000
Assembling Division
Number of units needed 900

What is the natural bargaining range for the two divisions?

A. Any amount less than $50.


B. $50 is the only acceptable price.
C. Between $50 and $70.
D. Between $20 and $50.
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Question 60

Performance results for four geographic divisions of a manufacturing company are shown below.
Actual Return Return on
Target Returnon Investment Sales
Division on Investment
A 18% 18.1% 8%
B 16% 20.0% 8%
C 14% 15.8% 6%
D 12% 11.0% 9%

The division with the best performance is

A. Division B.
B. Division A.
C. Division C
D. Division D.

Question 61

Home Furnishing Inc. manufactures high end wooden tables and uses a standard cost system. The following
information is available for the month of February:

22,000 tables were produced although 25,000 had been scheduled for production.
94,000 direct labor hours were worked at a total cost of $940,000.
The standard direct labor rate is $9 per hour.
The standard direct labor time per unit is 4
hours. Variable overhead costs were $740,000.
Fixed overhead costs were $540,000.

The standard factory overhead costs per table are based on direct labor hours and are as follows:

Variable overhead (4 hours at $8/hour) - $32


Fixed overhead (4 hours at $5/hour*) - $20
Total overhead cost per unit - $52
* Based n a capacity of 100,000 direct labor hours per month.

The variable overhead efficiency variance for February was

A. $180,000 unfavorable.
B. $130,000 unfavorable.
C. $135,000 favorable.
D. $135,000 unfavorable.

Question 62

Listed below is selected financial information for the Western Division of the Benjamin Company for last year.
Amount
Account (thousands)
Average working capital $ 625
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General and administrative expenses 75


Net sales 4,000
Average plant and equipment 1,775
Cost of goods sold 3,525

If Benjamin treats the Western Division as an investment center for performance measurement purposes, what is
the before-tax return on investment (ROI) for last year?
A. 34.78%
B. 22.54%
C. 19.79%
D. 16.67%

Question 63

A manufacturer has the following direct materials standard for one of its products.
Direct materials: 5 pounds @ $2.50/pound = $12.50
The company records all inventory at standard cost. Data for the current period regarding the manufacturer's
budgeted and actual production for the product as well as direct materials purchases and issues to production for
manufacture of the product are presented as follows.
Budgeted production for the period: 12,500 units
Actual production for the period: 10,000 units

Direct materials purchases:


Pounds purchased: 60,000 pounds
Total cost: $75,000

Direct materials issued in production: 53,000 pounds

The materials quantity variance for the current period is

A. $23,750 favorable.
B. $7,500 unfavorable.
C. $17,500 favorable.
D. $3,750 unfavorable.

Question 64

A company isolates its raw material price variance in order to provide the earliest possible information to the manager
responsible for the variance. The budgeted amount of material usage for the year was computed as follows:

30,000 units of finished goods × 5 pounds/unit × $8.00/pound = $1,200,000.

Actual results for the year were the following:


Finished goods produced 32,000 units
Raw materials purchased220,000 pounds
Raw materials used 200,000
pounds Cost per pound $8.50
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The raw material price variance for the year was

A. $160,000 unfavorable.
B. $100,000 unfavorable.
C. $ 75,000 unfavorable.
D. $110,000 unfavorable.

Question 65

Juneville uses a standard costing system in the manufacture of its single product. The 15,000 units of raw material in
inventory were purchased for $90,000, and two units of raw material are required to produce one unit of final product.
In March, the company produced 3,500 units of product. The standard cost for material allowed for the output was
$35,000, and there was an unfavorable quantity variance of $4,500.

The materials price variance for the units used in March was

A. $3,500 unfavorable.
B. $4,500 unfavorable.
C. $7,900 unfavorable.
D. $7,000 unfavorable.

Question 66

Which of the following is least likely to cause an unfavorable materials quantity (usage) variance?

A. Labor that possesses skills equal to those required by the standards.


B. Machinery that has not been maintained properly.
C. Scheduling of substantial overtime.
D. Materials that do not meet specifications.

Question 67

An unfavorable direct labor efficiency variance could be caused by a(n)

A. Favorable fixed overhead volume variance.


B. Favorable variable overhead spending variance.
C. Unfavorable variable overhead spending variance.
D. Unfavorable material usage variance.

Question 68

Mount Zion, a job-order shop, uses a full-absorption, standard-cost system to account for its production costs. The
O/H costs are applied on a direct-labor-hour basis. A production volume variance will exist for Mount Zion in a month
when

A. The fixed factory O/H applied on the basis of standard allowed direct labor hours differs from actual fixed
factory O/H.
B. Production volume differs from sales volume.
C. The fixed factory O/H applied on the basis of standard allowed direct labor hours differs from the budgeted
fixed factory O/H.
D. Actual direct labor hours differ from standard allowed direct labor hours.
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Question 69

Franklin Glass Works' production budget for the year ended November 30 was based on 200,000 units. Each unit
requires two standard hours of labor for completion. Total overhead was budgeted at $900,000 for the year, and the
fixed overhead rate was estimated to be $3.00 per unit. Both fixed and variable overhead are assigned to the product
on the basis of direct labor hours. The actual data for the year ended November 30 are presented as follows.
Actual production in units 198,000
Actual direct labor hours 440,000
Actual variable overhead $352,000
Actual fixed overhead $575,000

Franklin's variable overhead efficiency variance for the year is

A. $35,520 favorable.
B. $33,000 unfavorable.
C. $33,000 favorable.
D. $66,000 unfavorable.

Question 70

Samana Industries employs a standard cost system in which direct materials inventory is carried at standard cost.
Standard quantity of direct materials is 5 pounds and standard labor hour is 1.25 hours. Standard price is $3.60 and
$12.00 for direct material and direct labor respectively.

During May, Samana purchased 125,000 pounds of direct materials at a total cost of $475,000. The total factory
wages for May were $364,000, 90% of which were for direct labor. Samana manufactured 22,000 units of product
during May using 108,000 pounds of direct materials and 28,000 direct labor hours.

The direct labor price (rate) variance for May is

A. $8,400 unfavorable.
B. $8,400 favorable.
C. $7,200 unfavorable.
D. $6,000 unfavorable.

Question 71

Highlight Inc. uses a standard cost system and applies factory overhead to products on the basis of direct labor
hours. If the firm recently reported a favorable direct labor efficiency variance, then the
A. fixed overhead volume variance must be unfavorable.
B. direct labor rate variance must be unfavorable.
C. variable overhead spending variance must be favorable.
D. variable overhead efficiency variance must be favorable.
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Question 72

DMY Industries is a multidivisional firm that evaluates its managers based on the return on investment (ROI)
earned by their divisions. The evaluation and compensation plans use a targeted ROI of 15% (equal to the cost of
capital) and managers receive a bonus of 5% of basic compensation for every one-percentage point that the
division's ROI exceeds 15%. David Evans, manager of the Consumer Products Division, has made a
forecast of the division's operations and finances for next year that indicates the ROI would be 24%. In addition, new
short-term programs were identified by the Consumer Products Division and evaluated by the finance staff as follows.
Program
Projected ROI
A 13%
B 19%
C 22%
D 31%

Assuming no restrictions on expenditures, what is the optimal mix of new programs that would add value to
DMY Industries?

A. D only.
B. A, B, C, and D.
C. C and D only.
D. B, C, and D only.

Question 73

Moro Imports uses flexible budgeting for the control of costs. The company's annual master budget includes
$324,000 for fixed production supervisory salaries at a volume of 180,000 units. Supervisory salaries are expected to
be incurred uniformly throughout the year. During the month of September 15,750 units were produced, and
production supervisory salaries incurred were $28,000. A performance report for September would reflect a budget
variance of

A. $1,000 unfavorable.
B. $350 unfavorable.
C. $1,000 favorable.
D. $350 favorable.

Question 74

Variable overhead is applied on the basis of standard direct labor hours. If, for a given period, the direct labor
efficiency variance is unfavorable, the variable overhead efficiency variance will be:

A. Favorable.
B. Zero.
C. Unfavorable.
D. The same amount as the labor efficiency variance.
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Question 75

One of the items produced by a manufacturer of lawn and garden tools is a chain saw. The direct labor standard for
assembling and testing a chain saw is 3 hours at $8 per hour. Budgeted production for October was 4,000 units.
Actual production during the month was 2,500 units, and direct labor cost was $72,000 for 8,000 hours. What is the
direct labor efficiency variance?

A. $4,000 favorable.
B. $4,500 favorable.
C. $8,000 unfavorable.
D. $4,000 unfavorable.

Question 76

Lower Complex Inc. has several divisions that operate as decentralized profit centers. Lower Complex's Production
Division manufactures video arcade equipment using the products of two of Lower Complex's other divisions. The
Plastics Division manufactures RPG s, one type that is made exclusively for the Production Division, while other less
complex components are sold to outside markets. The products of the Sports Division are sold in a competitive
market; however, one video card model is also used by the Production Division. The actual costs per unit used by the
Production Division are presented below.
RPG Sports
Direct material $1.25 $2.40
Direct labor 2.35 3.00
Variable overhead 1.00 1.50
Fixed overhead .40 2.25
Total cost $5.00 $9.15

The Plastics Division sells its commercial products at full cost plus a 25% markup and believes the proprietary RPG
made for the Production Division would sell for $6.25 per unit on the open market. The market price of the video card
used by the Production Division is $10.98 per unit.

Assume that the Production Division is able to purchase a large quantity of Sports from an outside source at
$8.70 per unit. The Sports Division, having excess capacity, agrees to lower its transfer price to $8.70 per unit. This
action would

A. Subvert the profit goals of the Sports Division while optimizing the profit goals of the Production Division.
B. Optimize the profit goals of the Production Division while subverting the profit goals of Lower Complex Inc.
C. Allow evaluation of both divisions on the same basis.
D. Optimize the overall profit goals of Lower Complex Inc.

Question 77

Solo and Duo are autonomous divisions of a corporation. They have no beginning or ending inventories, and the
number of units produced is equal to the number of units sold. Following is financial information relating to the two
divisions:
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Division
Solo Duo
Sales $225,000 $600,000
Other revenue 22,500 33,750
Direct materials 67,500 146,250
Direct labor 45,000 90,000
Variable factory overhead 11,250 33,750
Fixed factory overhead 56,250 123,750
Variable selling and administrative expense 33,750 67,500
Fixed selling and administrative expense 78,750 135,000
Central corporate expenses (allocated) 27,000 45,000

What is the contribution margin of Division Duo?

A. $352,500
B. $397,500
C. $225,000
D. $307,500

Question 78

Division Micro of a company produces a component for use in remote access of computers. Division Micro's fixed cost
of producing this component is $10 per unit and its variable cost is $80 per unit at its current level of production, which
is 60% of capacity. It currently sells to outside customers for $100 per unit. Division Macro of the same company
would like to purchase this component from Division Micro for $95. Division Micro has enough excess capacity to fill
Division Macro's requirements. The managers of both divisions are compensated based upon reported profits. Which
of the following transfer prices will maximize total company profits and be most equitable to the managers of Division
Macro and Division Micro?

A. $90 per unit.


B. $110 per unit.
C. $80 per unit.
D. $100 per unit.

Question 79

Oakmont Company has two divisions, Household Appliances and Construction Equipment. The manager of the
Household Appliances Division is evaluated on the basis of return on investment (ROI). The manager of the
Construction Equipment Division is evaluated on the basis of residual income. The cost of capital has been 12% and
the return on investment has been 16% for the two divisions. Each manager is currently considering a project with a
14% rate of return. According to the current evaluation system for managers, which manager(s) would have incentive
to undertake the project?

A. Both managers would have incentive to undertake the project.


B. The manager of the Household Appliances Division would have incentive to undertake the project while the
manager of the Construction Equipment Division would not have incentive to undertake the project.
C. The manager of the Construction Equipment Division would have incentive to undertake the project while the
manager of the Household Appliances Division would not have incentive to undertake the project.
D. Neither manager would have incentive to undertake the project.
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Question 80

Anthony Brown, purchasing manager at Holiday Manufacturing Corporation, was able to acquire a large quantity of
raw material from a new supplier at a discounted price. Marion Conner, inventory supervisor, is concerned because
the warehouse has become crowded and some things had to be rearranged. Brian Jones, vice president of
production, is concerned about the quality of the discounted material. However, the Engineering Department tested
the new raw material and indicated that it is of acceptable quality. At the end of the month, Holiday experienced a
favorable materials usage variance, a favorable labor usage variance, and a favorable materials price variance. The
usage variances were solely the result of a higher yield from the new raw material. The favorable materials price
variance would be considered the responsibility of the

A. Vice president of production.


B. Engineering manager.
C. Inventory supervisor.
D. Purchasing manager.

Question 81
The following data apply to the 7,600 articles that were actually reviewed and edited during the current
year of an organization that specializes in reviewing and editing technical magazine articles :
Total hours used by professional staff: 153,600 hours
Flexible costs: $7,296,000
Total cost: $7,790,400

The company sets the following standards for evaluating the performance of the professional staff:
Annual budgeted fixed costs for normal capacity level of 8,000 articles reviewed and edited: $480,000
Standard professional hours per 8 articles: 160 hours
Flexible budget of standard labor costs to process 8,000 articles: $8,000,000

The fixed cost spending variance for the year is:

A. $38,400 unfavorable.
B. $14,400 favorable.
C. $24,000 favorable.
D. $14,400 unfavorable.

Question 82

Gloria Plastic Inc. production budget for the year ended November 30 was based on 200,000 units. Each unit
requires two standard hours of labor for completion. Total overhead was budgeted at $900,000 for the year, and
the fixed overhead rate was estimated to be $3.00 per unit. Both fixed and variable overhead are assigned to the
product on the basis of direct labor hours. The actual data for the year ended November 30 are presented as
follows.
Actual production in units 198,000
Actual direct labor hours 440,000
Actual variable overhead $352,000
Actual fixed overhead $575,000
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Gloria's fixed overhead volume variance for the year is


A. $55,000 unfavorable.
B. $19,000 favorable.
C. $25,000 favorable.
D. $6,000 unfavorable.

Question 83

Which one of the following variances is of least significance from a behavioral control perspective?

A. Unfavorable material quantity variance amounting to 20% of the quantity allowed for the output attained.
B. Fixed overhead volume variance resulting from management's decision midway through the fiscal year to reduce its
budgeted output by 20%.
C. Favorable labor rate variance resulting from an inability to hire experienced workers to replace retiring workers.
D. Unfavorable labor efficiency variance amounting to 10% more than the budgeted hours for the output attained.

Question 84

A company had a variable overhead efficiency variance that is $25,000 favorable and applies variable overhead
based upon direct labor. A possible cause of this variance is that

A. electricity rates were lower than expected.


B. less supplies were used than anticipated.
C. higher skilled labor was used.
D. less units of finished goods were produced.

Question 85

Mercury Company manufactures a line of products distributed nationally through wholesalers. Presented below are
planned manufacturing data for the year and actual data for November of the current year. The company applies
overhead based on planned machine hours using a predetermined annual rate.
Planning Data
Annual November
Fixed manufacturing overhead $1,200,000 $100,000
Variable manufacturing overhead 2,400,000 220,000
Direct labor hours 48,000 4,000
Machine hours 240,000 22,000
Data for November
Direct labor hours (actual) 4,200
Direct labor hours (plan based on output) 4,000
Machine hours (actual) 21,600
Machine hours (plan based on output) 21,000
Fixed manufacturing overhead $101,200
Variable manufacturing overhead $214,000
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The amount of over or underapplied variable manufacturing overhead for November was

A. $6,000 underapplied.
B. $2,000 overapplied.
C. $6,000 overapplied.
D. $4,000 underapplied.

Question 86

Of the following pairs of variances found in a flexible budget report, which pair is most likely to be related?

A. Labor rate variance and variable overhead efficiency variance.


B. Material price variance and variable overhead efficiency variance.
C. Labor efficiency variance and fixed overhead volume variance.
D. Material usage variance and labor efficiency variance.

Question 87

Tiny Tykes Corporation had a flexible variable overhead of $90,000 and an applied fixed overhead of $125,000.
The company experience a variable overhead spending variance of $2,000 (favorable) and production volume
variance of $5,000 (unfavorable). Actual variable and fixed overhead is $80,000 and $120,000, respectively.

The fixed overhead efficiency variance is

A. Never a meaningful variance.


B. $3,000 favorable.
C. $3,000 unfavorable.
D. $5,000 favorable.

Question 88

A fixed overhead volume variance based on standard direct labor hours measures:

A. Deviation from standard direct labor hour capacity.


B. Deviation from the normal, or denominator, level of direct labor hours.
C. Fixed overhead efficiency.
D. Fixed overhead use.

Question 89

Cortney manufacturing budget for the production of 8,000 units for the month of June included 16,000 hours of
direct labor at $24 per hour, or $240,000. During September, 7,200 units were produced, using 15,360 direct labor
hours, incurring $62,976 of variable overhead. Cortney Manufacturing uses a standard cost system with
overhead applied based on direct labor hours. The company’s record shows a variable overhead efficiency
variance of $3,840 unfavorable.
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The standard variable overhead rate per direct labor hour was

A. $4.10
B. $3.85
C. $6.00
D. $4.00

Question 90

The difference between the actual amounts and the flexible budget amounts for the actual output achieved is the

A. Standard cost variance.


B. Flexible budget variance.
C. Sales volume variance.
D. Production volume variance.

Question 91

Price variances and efficiency variances can be key to the performance measurement within a company. In evaluating
the performance within a company, a materials efficiency variance can be caused by all of the following except the:

A. Sales volume of the product.


B. Performance of the workers using the material.
C. Actions of the purchasing department.
D. Design of the product.

Question 92

The Candy Division sells goods internally to the Chocolate Division of the same company. The quoted external price
in industry publications from a supplier near Eastern is $200 per ton plus transportation. It costs $20 per ton to
transport the goods to Western. Eastern's actual market cost per ton to buy the direct materials to make the
transferred product is $100. Actual per ton direct labor is $50. Other actual costs of storage and handling are $40. The
company president selects a $220 transfer price. This is an example of

A. Market-based transfer pricing.


B. Cost plus 20% transfer pricing.
C. Cost-based transfer pricing.
D. Negotiated transfer pricing.

Question 93

Anderson Michaels, shipping manager for DFG Distributors, is responsible for managing the staff and all related
transportation equipment to fill orders for bakery products from local retailers and deliver the products to those
retailers. Which one of the following groups of three performance measures most likely would result in the highest
level of goal congruence?
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A. Customer satisfaction; elapsed time to complete an order; percentage of orders filled accurately.
B. Labor cost per order; transportation cost per order; number of orders completed per day.
C. The percentage of orders filled on time; the percentage of orders filled accurately; average cost to fill and deliver
an order.
D. Orders completed per employee per day; employee injuries per hour worked; number of vehicle accidents per year.

Question 94

A company manufactures a product that passes through two production departments, molding and assembly. Direct
materials are added in the assembly department when conversion is 50% complete. Conversion costs are incurred
uniformly. The activity in units for the assembly department during April is as follows:
Units
Work-in-process inventory, April 1 (60% complete as to conversion costs) 5,000
Transferred in from molding department 32,000
Defective at final inspection (within normal limits) 2,500
Transferred out to finished goods inventory 28,500
Work-in-process inventory, April 30 (40% complete as to conversion costs) 6,000

The number of equivalent units for direct materials in the assembly department for April calculated on the
weighted-average basis is

A. 34,000 units.
B. 31,000 units.
C. 26,000 units.
D. 28,500 units.

Question 95

Minimal Inc. completed 50,000 units costing $600,000, exclusive of spoilage allocation. Of these completed units,
25,000 were sold during the month. Additional information about spoilage is presented below:

Amount
Normal spoilage $20,000
Abnormal spoilage 50,000

An additional 10,000 units, costing $80,000, were 50% complete at May 31. All units are inspected between the
completion of manufacturing and transfer to finished goods inventory.

The portion of total spoilage that should be charged against revenue in May is

A. $70,000.
B. $50,000.
C. $60,000.
D. $20,000.

Question 96
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A company employs a process costing system for its two-department manufacturing operation using the first-in,
first-out (FIFO) inventory method. When units are completed in Department 1, they are transferred to Department 2 for
completion. Inspection takes place in Department 2 immediately before the direct materials are added, when the
process is 70% complete with respect to conversion. The specific identification method is used to account for lost units.

Beginning work-in-process inventory was valued at $78,000, consisting of $23,000 of transferred-in costs and $55,000
of conversion costs. Transferred-in costs for units transferred in during the month were $360,000. Costs added to
production during the month were $156,000 in direct materials added and $326,700 in conversion costs added.

A summary of the manufacturing activity for Department 2, in units for the current month, is presented below.
Physical Flow
(output units)
Beginning inventory (60% complete with respect to conversion) 20,000
Units transferred in from Department 1 180,000
Total units to account for 200,000
Units completed in Department 2 during the month 170,000
Units found to be defective at inspection 5,000
Ending inventory (80% complete with respect to conversion) 25,000
Total units accounted for 200,000

The number of defective units (that is, those failing inspection) is usually below the normal tolerance limit of 4% of
units inspected. Defective units have minimal value, and the company sells them without any further processing for
whatever it can. Generally, the amount collected equals, or slightly exceeds, the transportation cost.

The amount of spoilage cost that was expensed for the month was

A. $16,300
B. $0
C. $16,479
D. $19,000

Question 97

Units of production is an appropriate overhead allocation base when


A. Direct material costs are large relative to direct labor costs incurred.
B. Direct labor costs are low.
C. Several well-differentiated products are manufactured.
D. Only one product is manufactured.

Question 98

The cost associated with abnormal spoilage ordinarily would be charged to:

A. A material variance account.


B. Inventory.
C. A special loss account.
D. Manufacturing overhead.
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Question 99

Total quality management (TQM) is built on a philosophy based on several beliefs. Which of the following is not part
of TQM's four major objectives:

A. Enhanced and consistent quality of the product or service.


B. Elimination of non-value adding work or processes, which leads to lower costs.
C. A stable and unchanging product or service.
D. Timely and consistent responses to customer needs.

Question 100

All of the following are considered appropriate goals for measuring a division manager's efficiency for a budgeting
period except

A. earnings per share projections.


B. a reduction in the organizational structure (fewer employees doing a given amount of work).
C. budgeted operating income.
D. a targeted share of the market.

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