1. The per-unit standards for direct labor are 2 direct labor hours at $12 per hour. If in producing 2,400 units, the actual direct
labor cost was $51,200 for 4,000 direct labor hours worked, the total direct labor variance is
$4,000 unfavorable
$6,400 unfavorable
$1,920 unfavorable
$6,400 favorable
2. Poodle Company manufactures two products, Mini A and Maxi B. Poodle's overhead costs consist of setting up machines,
$800,000; machining, $1,800,000; and inspecting, $600,000. Information on the two products is:
Mini A Maxi B
Direct labor hours 15,000 25,000
Machine setups 600 400
Machine hours 24,000 26,000
Inspections 800 700
Overhead applied to Mini A using traditional costing using direct labor hours is
$1,670,000
$1,536,000
$1,200,000
$1,920,000
3. Disney's variable costs are 30% of sales. The company is contemplating an advertising campaign that will cost $22,000. If
sales are expected to increase $40,000, by how much will the company's net income increase?
$18,000
$12,000
$6,000
$28,000
4. The cost to produce Part A was $10 per unit in 2005. During 2006, it has increased to $11 per unit. In 2006, Supplier
Company has offered to supply Part A for $9 per unit. For the make-or-buy decision,
net relevant costs are $1 per unit
differential costs are $2 per unit
incremental costs are $1 per unit
incremental revenues are $2 per unit
5. Luca Company overapplied manufacturing overhead during 2006. Which one of the following is part of the year end entry to
dispose of the overapplied amount assuming the amount is material?
An increase to cost of goods sold
An increase to finished goods
A decrease to work in process inventory
A decrease to applied overhead
6. In most cases, prices are set by the
customers
selling company
largest competitor
competitive market
7. Max Company uses 10,000 units of Part A in producing its products. A supplier offers to make Part A for $7. Max Company
has relevant costs of $8 a unit to manufacture Part A. If there is excess capacity, the opportunity cost of buying Part A from the
supplier is
$0
$80,000
$70,000
$10,000
8. Prices are set by the competitive market when
a company can effectively differentiate its product from others
the product is specially made for a customer
there are no other producers capable of manufacturing a similar item
a product is not easily distinguished from competing products
9. Waco's Widgets plans to sell 22,000 widgets during May, 19,000 units in June, and 20,000 during July. Waco keeps 10% of
the next month's sales as ending inventory. How many units should Waco produce during June?
19,000
18,900
19,100
21,000
10. An activity that has a direct cause-effect relationship with the resources consumed is a(n)
cost driver
product activity
cost pool
overhead rate
11. The per-unit standards for direct materials are 2 gallons at $4 per gallon. Last month, 11,200 gallons of direct materials
that actually cost $42,400 were used to produce 6,000 units of product. The direct materials quantity variance for last month
was
$2,400 favorable
$5,600 unfavorable
$3,200 unfavorable
$3,200 favorable
12. Which of the following represents the two basic types of cost accounting systems?
Job order and process cost systems
Process cost and batch systems
Job order and batch systems
Job order and job accumulation systems
13. Which of the following statements is FALSE?
The overhead volume variance is favorable if standard hours allowed for output is greater than the standard hours at normal
capacity.
The overhead volume variance indicates whether plant facilities were used efficiently during the period.
The overhead volume variance relates solely to fixed costs.
The costs that cause the overhead volume variance are usually controllable costs.
14. At January 1, 2004, Barry, Inc. has beginning inventory of 4,000 widgets. Barry estimates it will sell 35,000 units during the
first quarter of 2004 with a 10% increase in sales each quarter. Barry's policy is to maintain an ending inventory equal to 25%
of the next quarter's sales. Each widget costs $1 and is sold for $1.50. How much is budgeted sales revenue for the third
quarter of 2004?
$57,525
$63,525
$42,350
$63,000
15. Manufacturing overhead costs are applied to work in process on the basis of
standard hours allowed
ratio of actual variable to fixed costs
actual hours worked
actual overhead costs incurred
16. Which cost is charged to the product under variable costing?
Variable manufacturing overhead
Fixed manufacturing overhead
Fixed administrative expenses
Variable administrative expenses
17. Seran Company has contacted Truckel Inc. with an offer to sell it 5,000 of the wickets for $18 each. If Truckel makes the
wickets, variable costs are $11 per unit. Fixed costs are $12 per unit; however, $5 per unit is avoidable. Should Truckel make
or buy the wickets?
Make; savings = $20,000
Buy; savings = $25,000
Buy; savings = $10,000
Make; savings = $10,000
18. Which of the following statements is FALSE?
A standard cost is more accurate than a budgeted cost.
A standard is a unit amount.
In concept, standards and budgets are essentially the same.
The standard cost of a product is equivalent to the budgeted cost per unit of product.
19. Gottberg Mugs is planning to sell 2,000 mugs and produce 2,200 mugs during April. Each mug requires 2 pounds of resin
and a half hour of direct labor. Resin costs $1 per pound and employees of the company are paid $12.50 per hour.
Manufacturing overhead is applied at a rate of 120% of direct labor costs. Gottberg has 2,000 pounds of resin in beginning
inventory and wants to have 2,400 pounds in ending inventory. How much is the total amount of budgeted direct labor for
April?
$27,500
$13,750
$12,500
$25,000
20. The difference between a budget and a standard is that
a budget expresses what costs were, while a standard expresses what costs should be
a budget expresses a total amount while a standard expresses a unit amount
standards are excluded from the cost accounting system, whereas budgets are generally incorporated into the cost accounting
system
a budget expresses management's plans, while a standard reflects what actually happened
21. Poodle Company manufactures two products, Mini A and Maxi B. Poodle's overhead costs consist of setting up machines,
$800,000; machining, $1,800,000; and inspecting, $600,000. Information on the two products is:
Mini A Maxi B
Direct labor hours 15,000 25,000
Machine setups 600 400
Machine hours 24,000 26,000
Inspections 800 700
Overhead applied to Maxi B using traditional costing using direct labor hours is
$1,280,000
$1,536,000
$1,670,000
$2,000,000
22. Which of the following factors would suggest a switch to activity-based costing?
Overhead costs constitute a significant portion of total costs.
Product lines similar in volume and manufacturing complexity.
Production managers use data provided by the existing system.
The manufacturing process has been stable.
23. A standard cost is
a predetermined cost
the historical cost of producing a product last year
a cost which is paid for a group of similar products
the average cost in an industry
24. What broad functions does the management of an organization perform?
Planning, directing, and controlling
Directing, manufacturing, and controlling
Planning, manufacturing, and controlling
Planning, directing, and selling
25. What sometimes makes implementation of activity-based costing difficult in service industries is
identifying activities, activity cost plus, and cost drivers
that a larger proportion of overhead costs are company-wide costs
attempting to reduce or eliminate nonvalue-added activities
the labeling of activities as value-added
26. Which one of the following is NEVER part of recording the issuance of raw materials in a job order cost system?
Debit Finished Goods Inventory
Debit Manufacturing Overhead
Debit Work in Process Inventory
Credit Raw Materials Inventory
27. What is the best way to handle manufacturing overhead costs in order to get the most timely job cost information?
The company should determine an allocation rate as soon as the actual costs are known, and then apply manufacturing
overhead to jobs.
The company should add actual manufacturing overhead costs to jobs as soon as the overhead costs are incurred.
The company should account for only the direct production costs.
The company should apply overhead using an estimated rate throughout the year.
28. Which of the following would be accounted for using a job order cost system?
The pasteurization of milk
The production of textbooks
The production of town homes
The production of cans of spinach
29. Which cost is NOT charged to the product under variable costing?
Direct labor
Direct materials
Fixed manufacturing overhead
Variable manufacturing overhead
30. If the standard hours allowed are less than the standard hours at normal capacity,
variable overhead costs will be overapplied
the overhead volume variance will be unfavorable
the overhead controllable variance will be favorable
variable overhead costs will be underapplied
31. Managerial accounting
is governed by generally accepted accounting principles
pertains to the entity as a whole and is highly aggregated
places emphasis on special-purpose information
is concerned with costing products
32. Which one of the following is indirect labor considered?
Product cost
Period cost
Nonmanufacturing cost
Raw material cost
33. Which cost is NOT charged to the product under absorption costing?
Fixed administrative expenses
Variable manufacturing overhead
Direct materials
Direct labor
34. One of Astro Company's activity cost pools is machine setups, with estimated overhead of $150,000. Astro produces
sparklers (400 setups) and lighters (600 setups). How much of the machine setup cost pool should be assigned to sparklers?
$90,000
$150,000
$60,000
$75,000
35. H55 Company sells two products, beer and wine. Beer has a 10 percent profit margin and wine has a 12 percent profit
margin. Beer has a 27 percent contribution margin and wine has a 25 percent contribution margin. If other factors are equal,
which product should H55 push to customers?
Selling either results in the same additional income for the company
Beer
Wine
It should sell an equal quantity of both.
36. A company developed the following per-unit standards for its product: 2 pounds of direct materials at $6 per pound. Last
month, 2,000 pounds of direct materials were purchased for $11,400. The direct materials price variance for last month was
$600 favorable
$600 unfavorable
$300 favorable
$11,400 favorable
37. At the end of the year, manufacturing overhead has been overapplied. What occurred to create this situation?
The actual manufacturing overhead costs were less than the manufacturing overhead assigned to jobs.
Estimated manufacturing overhead was less than actual manufacturing overhead costs.
The company incurred more manufacturing overhead costs than the manufacturing overhead assigned to jobs.
The company incurred more total job costs than the amount budgeted for the job.
38. Which of the following is NOT typical of traditional costing systems?
Use of direct labor hours or direct labor cost to assign overhead
Assumption of correlation between direct labor and incurrence of overhead cost
Use of a single predetermined overhead rate
Use of multiple cost drivers to allocate overhead
39. In traditional costing systems, overhead is generally applied based on
machine hours
direct labor
direct material dollars
units of production
40. All of the following statements are correct EXCEPT that
activity-based costing has been widely adopted in service industries
a larger proportion of overhead costs are company-wide costs in service industries
the general approach to identifying activities and activity cost pools is the same in a service company as in a manufacturing
company the objective of installing ABC in service firms is different than it is in a manufacturing firm
41. A company must price its product to cover its costs and earn a reasonable profit in
all cases
its early years
the long run
the short run
42. Hess, Inc. sells a single product with a contribution margin of $12 per unit and fixed costs of $74,400 and sales for the
current year of $100,000. How much is Hess's break-even point?
6,200 units
2,133 units
$25,600
4,600 units