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CHAPTER 2 QUIZ
- 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. $850, b. $900, c. $1,050, d. $1,950,
- Morton Graphics successfully bid on a job printing standard notebook covers during the year using last year’s 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 company’s 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.
- 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.
CHAPTER 2 QUIZ SOLUTIONS
- a
- d
- a
- b
- d
- c
- d
- a
- b
- a
Quiz Question Calculations
- Fixed costs = (800,000) 75% + 250,000 = $850,
CHAPTER 3 QUIZ
- 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.
- What is LSB’s DOL? a. 3. b. 2. c. 0. d. 1.
- If LSB’s sales increase by $20,000, what will be the company’s operating profit? a. $42, b. $12, c. $50, d. $30,
- 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.
CHAPTER 3 QUIZ SOLUTIONS
- c
- a
- c
- b
- a
- c
- d
- b
- b
- b
- c
- b
- c
Quiz Question Calculations
- Variable costs per unit = $160,000/400 units sold = $
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,
- Cost of option a: $2,500 Profit = 0
Cost of option b: $1,000 + 5(250) = $2,250 Profit = $ Cost of option c: $10 (250) = $2,500 Profit = 0 Cost of option d: $25 (125) = $3,125 Loss ($625)
2. DOL = $60,000/$30,000 = 2.
20% × 2 = 40%
40% × $30,000 = $12,000 increase
CHAPTER 4 QUIZ
- 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.
- 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, 200,000 – 7,120 = $192,
- 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
- 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.
Question 3 is based on the following data
The average cost data are for In-Sync Fixtures Company’s (a retailer) only two product lines, Marblette and Italian Marble.
Marblette Italian Marble Purchase volume 20,000 1, Purchase cost per unit $50 $ Shipments received 12 12 Hours used per shipment * 5 3 ***** These data were accumulated after a careful activity analysis.
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.
- 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.
Information for questions 6 and 7 is given below.
Jackson Enterprises manufactures two products—A 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 Cost Driver Cost-Allocation Rate Materials receiving Number of parts $2.00 per part Production setup Number of setups $500.00 per setup Quality inspection Inspection time $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 Inspection Time Basic Gizmo 10 50 10 minutes Advanced Gizmo 15 25 20 minutes
Direct costs for the two products are as follows: Direct Materials Direct Labor Basic Gizmo $50.00 $ 75. Advanced Gizmo $95.00 $125.
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.
- [CMA Adapted] Bartholomew Corporation’s 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 Company’s direct-material costs for the month of July 2005 was as follows:
Actual quantity purchased 30,000 units Actual unit purchase price $2. Materials purchase-price variance —unfavorable (based on purchases) $1, 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.
- Information for Garner Company’s direct-labor costs for the month of September 2005 was as follows:
Actual direct-labor hours 34,500 hours Standard direct-labor hours 35,000 hours Total direct-labor payroll $241, Direct-labor efficiency variance—favorable $ 3,
[CPA Adapted] What is Garner’s direct-labor price (or rate) variance? a. $21,000 favorable b. $21,000 unfavorable c. $17,250 unfavorable d. $20,700 unfavorable
- 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 manager’s 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.
Quiz Question Calculations
- 5,100 – 5,000 = 100 units $7* = $700F
Unit CM = 60,000 – 15,000 – 10,000/35,000 = $
- Actual DL $30,
Flexible budget 5,600 $5.50 30, Flexible budget variance 170 U
- Actual price 30,000 2.75 82,
Minus unfavorable price variance 1, Materials at standard 81,
81,000/30,000 = $2.70 standard price per unit
Actual quantity 22,000 units Standard quantity 24,000 units Efficiency variance 2,000 1.70 = $5,400 F
- Actual direct labor cost $241,
Standard 34,500 6.40 $220, Price variance 20.700 U
Standard rate = 3,200/(35,000 – 34,500) = $6.
FLEXIBLE-BUDGET AND SALES-VOLUME VARIANCE ANALYSIS
Actual Results: Flexible Budget: Static Budget:
Actual Units Sold Actual Units Sold Budgeted Units Sold
