Solved by verified expert :I. Multiple Choice:
1. Management accounting primarily is concerned
with providing:
a. information
to managers inside the organization as well as information to stockholders,
creditors, and others outside the organization.
b. information to governmental regulatory
c. information to managers inside the
d. information to stockholders, creditors, and
others outside the organization.

2. Managerial accounting reports are:
a. required
under the Foreign Corrupt Practices Act of 1977.
b. specified
by the Securities and Exchange Commission.
c. designed
to meet the needs of the managers and are not mandated by a regulatory body or
outside agency.
d. governed
by the requirements of generally accepted accounting principles.

3. An example of a direct labor cost is wages
paid to a:
machine operator Supervisor in a factory
a. No No
b. No Yes
c. Yes Yes
d. Yes No

4. Within the relevant range:
a. variable cost per unit decreases as
production decreases.
b. fixed cost per unit increases as production
c. fixed cost per unit decreases as production
d. variable cost per unit increases as
production decreases.

5. Manufacturing
overhead cost:
a. can be either a variable cost or a fixed
b. includes the costs shipping finished goods
to customers.
c. includes all factory labor costs.
d. include all fixed costs.

6. When the
level of activity increases within the relevant range, how does each of the
following change?
cost Total variable Fixed cost
per unit cost per unit
a. Increases Increases Increases
b. Increases No change Increases
c. Decreases No change Decreases
d. Decreases Increases Decreases

7. The manufacturing operation that would be most
likely to use a job-order costing system is:
a. Shipbuilding.
b. Toy manufacturing.
d. Crude oil refining.

8. A
disadvantage of the high-low method of cost analysis is that:
a. it cannot be used when there are a very
large number of observations.
b. it is too time consuming to apply.
c. it uses two extreme data points, which may
not be representative of normal conditions.
d. it relies totally on the judgment of the
person performing the cost analysis.

In computing its
predetermined overhead rate, Brady Company included its factory insurance cost
twice. This error will result in:
a. the ending balance of Finished Goods to be
b. the credits to the Manufacturing Overhead account to
be understated.
the Cost of Goods
manufactured to be overstated.
d. the Net Operating Income to be overstated.

A proper journal
entry to close overapplied overhead to Cost of Goods Sold would be:
a. Cost of Goods Sold xxx
Work in Process xxx
b. Cost of Goods Sold xxx
Overhead xxx
Cost of Goods
Sold xxx
Finished Goods xxx
d. Manufacturing Overhead xxx
Cost of Goods
Sold xxx

11. A
proper journal entry to record issuing raw materials to be used on a job would
a. Finished Goods xxx
Materials xxx
b. Work in Process
Materials xxx
c. Raw
Materials xxx
in Process xxx
d. Raw Materials xxx
Goods xxx

12. Contribution margin means
a. what remains from total sales after
deducting fixed expenses.
b. what remains after deducting cost of goods
sold to cover fixed and variable expenses.
c. what remains from total sales after
deducting all variable expenses.
d. the sum of cost of goods sold and variable

13. If the labor efficiency
variance is unfavorable, then:
a. actual hours exceeded standard hours
allowed for the actual output.
b. standard hours allowed for the actual
output exceeded actual hours.
c. the standard rate exceeded the actual rate.

d. the actual rate exceeded the standard rate.

14. An unfavorable
material quantity variance indicates that:
a. actual usage of material exceeds the
standard material allowed for output.
b. standard material allowed for output
exceeds the actual usage of material.
c. actual material price exceeds standard
d. standard material price exceeds actual

15. Which of the following would most likely be
included as part of manufacturing overhead in the production of a wooden table?

a. The amount
paid to the individual who stains the table.
b. The
commission paid to the salesperson who sold the table.
c. The cost
of glue used in the table.
d. The cost
of the wood used in the table.

16. In a
manufacturing company, direct labor costs combined with direct materials costs
are known as:
a. period
b. prime
c. conversion
d. opportunity

17. The property
taxes on the factory building for a manufacturer would be an example of:
Prime Cost Conversion
a. Yes No

b. No Yes
c. No No
d. Yes Yes

18. All of the following costs would be found in a
company’s accounting records except:
a. Sunk cost.
b. Direct cost.

c. Indirect
d. Opportunity

19. A sunk cost
a. a cost
that may be saved by not adopting an alternative.
b. a cost
that may be shifted to the future with little or no effect on current
c. a cost
that cannot be avoided because it has already been incurred.
d. a cost
which does not entail any dollar outlay but which is relevant to the
decision-making process.

20. The balance in the Work
in Process account equals:
a. the
balance in the Finished Goods inventory account.
b. the
balance in the Cost of Goods Sold account.
c. the balances
on the job cost sheets of uncompleted jobs.
d. the
balance in the Manufacturing Overhead account.

21. Which of the following costs, if expressed on a
per unit basis, would be expected to vary inversely with the level of
production and sales?
a. Sales
b. Fixed manufacturing overhead.
c. Variable
manufacturing overhead.
d. Direct materials.

22. All other things equal, if a division’s
traceable fixed expenses decrease:
a. the
division’s segment margin will increase.
b. the
overall company net operating income will decrease.
c. the
division’s contribution margin will increase.
d. the
division’s sales volume will increase.

23. On January 1, Lake Corporation increased its
management salaries. All other costs and revenues were unchanged. How did this
increase affect Lake’s break-even point and
margin of safety?

point Margin of safety
a. Increase Decrease
b. Increase Increase
c. Decrease Increase
d. Decrease Decrease

24. The break-even point in
units is calculated using:
a. variable
expenses and the unit contribution margin.
b. variable
expenses and the contribution margin ratio.
c. fixed
expenses and the unit contribution margin.
d. fixed
expenses and the contribution margin ratio.

25. If sales volume increases
and all other factors remain constant, then the:
a. contribution
margin ratio will increase.
b. break-even
point will decrease.
c. margin of
safety will increase.
d. net
operating income will decrease.

26. Segmented income statements are most meaningful to
managers when they are prepared:
a. in a
single-step format.
b. on an
absorption cost basis.
c. on a cost
behavior (contribution format) basis.
d. on a cash

27. In setting a transfer price, which of the
following should not be considered?
a. Production
capacity of the selling division.
b. Product
demand from outside customers.
c. Costs
eliminated by internal transfers.
d. Fixed
production costs of the buying division.

II. Multiple Choice: Problems
costs at one of Gotch Corporation’s factories are listed below:

Machine –Hours Electrical Cost
March …………………… 3,731
April …………………….. 3,728 35,248
May ……………………… 3,765 35,479
June ……………………… 3,793
July ……………………… 3,797 35,692
August …………………… 3,701
September ……………….. 3,800
October ………………….. 3,735
November ……………….. 3,740

Management believes that
electrical cost is a mixed cost that depends on machine-hours. Using the high-low method to estimate the
variable and fixed components of this cost, these estimates would be closest
a. $0.15 per machine-hour; $35,115 per month
b. $9.11 per machine-hour; $1,249 per month
c. $9.43 per machine-hour; $35,406 per month
d. $6.57 per machine-hour; $10,728 per month

Exhibit 1: The Tingey Company has 500 obsolete microcomputers
that are carried in inventory at a total cost of $720,000. If these
microcomputers are upgraded at a total cost of $100,000, they can be sold for a
total of $160,000. As an alternative, the microcomputers can be sold in their
present condition for $50,000.

2. Refer to Exhibit
1. The sunk cost in this situation is:
a. $720,000
b. $160,000
c. $
d. $100,000

3. Refer to Exhibit 1: What is the net advantage or disadvantage to the company
from upgrading the computers rather than selling them in their present
a. $110,000 advantage.
b. $660,000 disadvantage.
c. $ 10,000 advantage.
d. $ 60,000

4. Refer to Exhibit 1. Suppose the selling price of
the upgraded computers has not been set. At what selling price per unit would
the company be as well off upgrading the computers as if it just sold the
computers in their present condition?
a. $100
b. $770
c. $ 300
d. $210

Exhibit 2: The Liski Company has established standards as
material ………………………….. 3 pounds @ $4/pound
= $12 per unit
Direct labor ……………………………… 2
hours @ $8/hour = $16 per unit
4 Variable overhead ……………………….. 2 hours @
$5/hour = $10 per unit

production figures for the past year were as follows:

Units produced …………………………….. 500
Direct material used …………………….…. 1,600 pounds
Direct material purchased (3,000
pounds)… $12,300
Direct labor cost (950 hours)
……………… $7,790
Variable overhead cost incurred
…………… $4,655

5. Refer to Exhibit 2. The materials price variance is:
a. $160 U
b. $6,300 U
c. $300 U
d. $150 U

6. Refer to Exhibit
2. The materials quantity variance is:
a. $ 400 U
b. $410 F
c. $410 U
d. $ 6,000 U

7. Refer to Exhibit
2. The labor rate variance is:
a. $210 F
b. $190 F
c. $399 F
d. $190 U

8. Refer to Exhibit
2. The labor efficiency variance is:
a. $400 F
b. $800 F
c. $800 U
d. $500 F

9. Refer to Exhibit
2. The variable overhead spending variance is:
a. $345 F
b. $95 F
c. $655.50 F
d. $345 U

Refer to Exhibit 2. The variable overhead efficiency
variance is:
a. $500 F
b. $500 U

c. $245 F
d. $250 F

III. Problems:

1. Watkins Pacific Company sells a single product for
$38 per unit. If variable expenses are 62.5% of sales and fixed expenses total
$13,500, the break-even point in quantity
and dollar($) will be:

2. Best Client
Company has sales of 1,200 units at $60 a unit.
Variable expenses are 40% of the selling price and total fixed expenses are $35,000.
If Cartel Company expects next year’s total sales could increase 12%, they want
to know how this change affects their profit. Calculate DOL and then, using DOL, calculate next year’s net income in dollar.

3. At the end
of the year, actual manufacturing overhead costs were $120,000 and applied manufacturing overhead costs were $163,125.
If the denominator activity for the year was 20,000 machine-hours, and if 22,500
standard machine-hours were allowed for the year’s production, Calculate the predetermined overhead
rate per machine-hour.

4. The Assembly Department uses
the weighted-average method in its process costing system. The following
information pertains to one of the company’s processing departments for a
recent month (5 points):

of units Materials
Beginning WIP
Started during the month
————- 80,000 $72,000
Ending WIP —————————- 25,000 (60% completed)

a. How many units were completed and transferred to
the next processing department during the month?
b. What is the EU in the ending WIP?
c. What is the cost per unit for material?

5. Central
Company has two product lines, J and K. During June, the company’s net
operating income was $25,000, and the common fixed expenses were $37,000. The
contribution margin ratio for J was 30%, its sales were $200,000, and its
segment margin was $21,000. If the contribution margin for K was $80,000, Calculate the segment margin
for K.

6. The Kosco
Company has three divisions—Northern, Western, and Southern. The divisions have
the following revenues and expenses: Northernn Western Southern
Sales $450,000
$400,000 680,000
Variable expenses 235,000 140,000 242,000
Traceable fixed expenses 165,000
105,000 218,000
Allocated common corporate expenses
92,000 85,000
Net operating income (loss) $(42,000) $70,000 $

of Kosco is considering the elimination of the Northern Division. If the Northern
Division were eliminated, its traceable fixed expenses could be avoided. The
total common corporate expenses would be unaffected. Given these data, what is
your decision, eliminating or keeping it and why? Justify
your decision by showing your calculation
and overall company’s net
operating income (or loss) before and after eliminating Northern Division.

7. Rowell Corporation manufactures laser printers.
Rowell currently manufactures the 32,000 imaging drums that it uses in its
printers. The annual costs to manufacture these 32,000 drums are as follows:

Cost of drum Total cost
Variable manufacturing cost …………… $23 $736,000
Fixed manufacturing cost ……………….. $65 $2,080,000
Total cost

Solutions Inc. has offered to provide Rowell with all of its imaging drum needs
for $72 per drum. If Rowell accepts this offer, 70% of the fixed manufacturing
cost above could be totally eliminated. Also, Rowell will be able to use the
freed up space to generate $240,000 of income each year in the production of
alternative products.

on the information presented, would Rowell be
better off to make the drums or buy the drums and by how

8. Hausman
Corporation bases its budget on machine-hours. The company’s static planning
budget for November appears below:
Budgeted number of machine-hours ————————-
Budgeted variable costs:
(@$3.70 per machine-hour) ————- 35,150
(@$2.40 per machine-hour) —————- 22,800
Budgeted fixed costs:
———————————————— 46,550
Equipment depreciation —————————– 31,350
Total cost ——————————————————

Required: Prepare
a flexible budget for 9,850 machine-hours per month.

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