Hansen AISE TB Ch10 - testbank PDF

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513This edition is intended for use outside of the U. only, with content that may be different from the U. Edition. This may not beChapter 10Segmented Reporting, Investment Center Evaluation, and Transfer PricingMULTIPLE CHOICE In a company with a centralized approach to responsibility accounting, u...

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Chapter 10 Segmented Reporting, Investment Center Evaluation, and Transfer Pricing MULTIPLE CHOICE 1.

In a company with a centralized approach to responsibility accounting, upper-level managers do which of the following? a. Make decisions. b. Implement decisions. c. Make and implement decisions. d. Review the outcomes of decisions only.

ANS: A OBJ: 2 2.

Decentralization occurs when a. the firm's operations are located over a large geographic area to reduce risk b. authority for important decisions is delegated to lower segments of the organization c. important decisions are made at the upper levels and the lower levels of the organization are responsible for implementing the decisions d. None of the above are correct.

ANS: B OBJ: 2 3.

DIF: 1 REF: p. 418 NAT: AICPA Reflective thinking | IMA Cost management

In a company with a decentralized approach to responsibility accounting, lower-level managers typically do which of the following? a. Make key decisions only. b. Implement key decisions only. c. Both make and implement key decisions. d. Review the outcomes of key decisions only.

ANS: C OBJ: 2 4.

DIF: 1 REF: p. 418 NAT: AICPA Reflective thinking | IMA Performance measures

DIF: 1 REF: p. 418 NAT: AICPA Reflective thinking | IMA Performance measures

Why would a company decide to decentralize? a. To ensure all decisions are made by one or two key individuals within the company. b. To enhance competition, exposing segments to market forces. c. To keep decision making within the top levels of the organization. d. To discourage competition from other companies in the same field.

ANS: B OBJ: 2

DIF: 1 REF: p. 418-419 NAT: AICPA Reflective thinking | IMA Performance measures

513 This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

514  Managerial Accounting 5.

Advantages of decentralization include all of the following EXCEPT a. divisional management is able to react to changing market conditions more rapidly than top management b. divisional management is a source of personnel for promotion to top management positions c. decentralization can free top managers day to day operations d. decentralization permits divisional management to concentrate on firmwide problems and long-range planning

ANS: D OBJ: 2 6.

Responsibility accounting includes all of the following EXCEPT a. responsibility b. culpability c. accountability d. performance evaluation

ANS: B OBJ: 1 7.

DIF: 2 REF: p. 420 NAT: AICPA Reflective thinking | IMA Performance measures

Types of responsibility centers include all of the following EXCEPT a. profit centers b. contribution centers c. investment centers d. cost centers

ANS: B OBJ: 1 9.

DIF: 2 REF: p. 419 NAT: AICPA Reflective thinking | IMA Performance measures

The Marketing Department is most likely considered to be a(n) a. profit center b. revenue center c. investment center d. cost center

ANS: B OBJ: 1 8.

DIF: 2 REF: p. 419 NAT: AICPA Reflective thinking | IMA Performance measures

DIF: 2 REF: p. 420 NAT: AICPA Reflective thinking | IMA Performance measures

The Human Resource office at a major banking establishment is most likely considered to be a(n) a. profit center b. revenue center c. investment center d. cost center

ANS: D OBJ: 1

DIF: 2 REF: p. 420 NAT: AICPA Reflective thinking | IMA Performance measures

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

Chapter 10/Segmented Reporting, Investment Center Evaluation, and Transfer Pricing  515 10. The Production Department is most likely considered to be a(n) a. profit center b. revenue center c. investment center d. cost center ANS: D OBJ: 1

DIF: 2 REF: p. 420 NAT: AICPA Reflective thinking | IMA Cost management

11. An Accounting Department within a large corporation is most likely considered to be a(n) a. profit center b. revenue center c. investment center d. cost center ANS: D OBJ: 1

DIF: 2 REF: p. 420 NAT: AICPA Reflective thinking | IMA Cost management

12. When variable costing is used, all of the following are considered product costs EXCEPT a. direct labor b. fixed overhead c. variable overhead d. direct materials ANS: B OBJ: 2

DIF: 2 REF: p. 422 NAT: AICPA Analytic | IMA Cost management

13. When absorption costing is used, all of the following costs are considered product costs EXCEPT a. direct labor b. variable selling and administrative costs c. variable overhead d. fixed overhead ANS: B OBJ: 2

DIF: 2 REF: p. 422 NAT: AICPA Analytic | IMA Cost management

14. In a variable costing system, product cost includes a. direct materials, direct labor, variable overhead b. direct materials, direct labor, fixed overhead c. direct labor, variable overhead, fixed overhead d. direct materials, variable overhead, fixed overhead ANS: A OBJ: 2

DIF: 2 REF: p. 422 NAT: AICPA Analytic | IMA Cost management

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

516  Managerial Accounting 15. When variable costing is used, fixed manufacturing overhead is recognized as an expense when a. the cost is incurred b. the product is sold c. the product is completed d. none of the above are correct ANS: A OBJ: 2

DIF: 2 REF: p. 422 NAT: AICPA Reflective thinking | IMA Cost management

16. If a company uses absorption costing, product cost would be calculated by adding together a. direct materials, direct labor, variable overhead and fixed overhead only b. direct materials, direct labor, and fixed overhead only c. direct labor, variable overhead, and fixed overhead only d. direct materials, variable overhead, and fixed overhead only ANS: A OBJ: 2

DIF: 2 REF: p. 422 NAT: AICPA Analytic | IMA Cost management

17. Which costing method is NOT acceptable to the FASB for external reporting? a. absorption costing b. full costing c. variable costing d. all of the above methods are acceptable ANS: C OBJ: 2

DIF: 1 REF: p. 423 NAT: AICPA Reflective thinking | IMA Cost management

18. Variable costing can be used for a. external reporting purposes b. internal reporting purposes c. either external reporting or internal reporting d. neither external reporting nor internal reporting ANS: B OBJ: 2

DIF: 1 REF: p. 423 NAT: AICPA Reflective thinking | IMA Cost management

19. When variable costing is used, which costs would appear as ending inventory on the balances sheet? a. direct materials, direct labor, fixed overhead and variable overhead only b. direct materials, direct labor, and fixed overhead only c. direct materials, direct labor, and variable overhead only d. direct materials, direct labor only ANS: C OBJ: 2

DIF: 2 REF: p. 423 NAT: AICPA Analytic | IMA Cost management

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

Chapter 10/Segmented Reporting, Investment Center Evaluation, and Transfer Pricing  517 20. When variable costing is used, the income statement is usually prepared using a. a contribution margin format b. a functional format c. an operational format d. all of the above ANS: A OBJ: 2

DIF: 2 REF: p. 424 NAT: AICPA Analytic | IMA Cost management

21. The level of production affects income under which of the following methods? a. absorption costing b. variable costing c. both absorption and variable costing d. neither absorption nor variable costing ANS: A OBJ: 2

DIF: 2 REF: p. 424 NAT: AICPA Analytic | IMA Cost management

22. During this past year, Bouncy Company experienced no change in inventory. Sales were 40,000 units at a selling price of $3 per unit. Variable manufacturing costs were $1.25 per unit, and total manufacturing costs were $55,000. Under absorption costing, net income was calculated at $53,000. What was net income under variable costing? a. $65,000 b. $55,000 c. $53,000 d. $2,000 ANS: C SUPPORTING CALCULATIONS: Net income under absorption and variable costing is the same when there is no change in inventory. PTS: 1 DIF: 2 REF: p. 424 NAT: AICPA Analytic | IMA Cost management

OBJ: 2

23. Which of the following would appear on an absorption costing income statement but NOT on a variable costing income statement? a. cost of goods sold b. selling and administrative expenses c. contribution margin d. gross margin ANS: D OBJ: 2

DIF: 2 REF: p. 424 NAT: AICPA Analytic | IMA Cost management

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

518  Managerial Accounting Figure 10-1 Fairfield Corporation uses an actual cost system and produces a single product. Information about the product for the past year is as follows: Production (units) Sales (units) Selling price Machine hours

Product X 100,000 80,000 $20.00 50,000

Manufacturing costs: Direct materials Direct labor Variable overhead Fixed overhead

$ 80,000 240,000 40,000 200,000

Nonmanufacturing costs: Variable selling Fixed selling

$48,000 20,000

There were no beginning inventories. (Round amounts to two decimal places.) 24. Refer to Figure 10-1. Fairfield's unit product cost for Product X using variable costing would be a. $4.00 b. $3.60 c. $3.20 d. $2.80 ANS: B SUPPORTING CALCULATIONS: Direct materials ($80,000/100,000) Direct labor ($240,000/100,000) Variable overhead ($40,000/100,000) Cost per unit PTS: 1 DIF: 2 REF: p. 423 NAT: AICPA Analytic | IMA Cost management

$0.80 2.40 0.40 $3.60 OBJ: 2

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

Chapter 10/Segmented Reporting, Investment Center Evaluation, and Transfer Pricing  519 25. Refer to Figure 10-1. Fairfield's unit product cost for Product X using absorption costing would be a. $5.60 b. $7.60 c. $5.00 d. $4.00 ANS: A SUPPORTING CALCULATIONS: Direct materials ($80,000/100,000) Direct labor ($240,000/100,000) Variable overhead ($40,000/100,000) Fixed overhead ($200,000/100,000) Cost per unit PTS: 1 DIF: 2 REF: p. 423 NAT: AICPA Analytic | IMA Cost management

$0.80 2.40 0.40 2.00 $5.60 OBJ: 2

26. Refer to Figure 10-1. Fairfield's variable cost of goods sold would be a. $312,000 b. $296,000 c. $288,000 d. $256,000 ANS: C SUPPORTING CALCULATIONS: Direct materials ($80,000/100,000) Direct labor ($240,000/100,000) Variable overhead ($40,000/100,000) Total variable cost of goods sold per unit

$0.80 2.40 0.40 $3.60

80,000  $3.60 = $288,000 PTS: 1 DIF: 2 REF: p. 424 NAT: AICPA Analytic | IMA Cost management

OBJ: 2

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

520  Managerial Accounting 27. Refer to Figure 10-1. Fairfield's variable cost per unit would be a. $3.20 b. $3.60 c. $4.08 d. $4.20 ANS: D SUPPORTING CALCULATIONS: Direct materials ($80,000/100,000) Direct labor ($240,000/100,000) Variable overhead ($40,000/100,000) Variable selling costs ($48,000/80,000) Total cost per unit PTS: 1 DIF: 2 REF: p. 424 NAT: AICPA Analytic | IMA Cost management

$0.80 2.40 0.40 0.60 $4.20 OBJ: 2

28. Refer to Figure 10-1. If Fairfield uses absorption costing, cost of goods sold would be a. $860,000 b. $728,000 c. $704,000 d. $448,000 ANS: D SUPPORTING CALCULATIONS: Direct materials ($80,000/100,000) Direct labor ($240,000/100,000) Variable overhead ($40,000/100,000) Fixed overhead ($200,000/100,000) Cost per unit

$0.80 2.40 0.40 2.00 $5.60

80,000  $5.60 = $448,000 PTS: 1 DIF: 2 REF: p. 424 NAT: AICPA Analytic | IMA Cost management

OBJ: 2

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

Chapter 10/Segmented Reporting, Investment Center Evaluation, and Transfer Pricing  521 29. Refer to Figure 10-1. If Fairfield uses absorption costing, net income would be a. $1,152,000 b. $1,044,000 c. $1,264,000 d. $1,084,000 ANS: D SUPPORTING CALCULATIONS: Sales Revenue Less: Cost of Goods Sold Gross Margin Less: variable selling expense Less: fixed selling expense Net Income

$1,600,000 448,000 1,152,000 48,000 20,000 $1,084,000

Cost of goods sold calculation: Direct materials ($80,000/100,000) Direct labor ($240,000/100,000) Variable overhead ($40,000/100,000) Fixed overhead ($200,000/100,000) Cost per unit

$0.80 2.40 0.40 2.00 $5.60

80,000  $5.60 = $448,000 PTS: 1 DIF: 3 REF: p. 424 NAT: AICPA Analytic | IMA Cost management

OBJ: 2

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

522  Managerial Accounting 30. Refer to Figure 10-1. If Fairfield uses variable costing, net income would be a. $1,264,000 b. $1,064,000 c. $1,044,000 d. $1,084,000 ANS: C SUPPORTING CALCULATIONS: Sales Revenue Less: Cost of Goods Sold Less: variable selling expense Contribution margin Less: fixed overhead Less: fixed selling expense Net Income Variable cost of goods sold calculation: Direct materials ($80,000/100,000) Direct labor ($240,000/100,000) Variable overhead ($40,000/100,000) Total variable cost of goods sold per unit

$1,600,000 288,000 48,000 1,264,000 200,000 20,000 $1,044,000 $0.80 2.40 0.40 $3.60

80,000  $3.60 = $288,000 PTS: 1 DIF: 3 REF: p. 424 NAT: AICPA Analytic | IMA Cost management

OBJ: 2

Figure 10-2 Lee Company began the year with no inventories of work in process or finished goods. Budgeted and actual costs for the year were as follows: Variable costs: Direct materials Direct labor Manufacturing overhead Selling expenses

$15 per unit $10 per unit $7 per unit $5 per unit

Fixed costs: Manufacturing overhead Selling and administrative

$180,000 per month $50,000 per month

During the first three months of the year, production and sales in units were as follows: January February March Total

Production 20,000 20,000 20,000 60,000

Sales 20,000 18,000 22,000 60,000

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

Chapter 10/Segmented Reporting, Investment Center Evaluation, and Transfer Pricing  523 31. Refer to Figure 10-2. Lee's unit cost of production for February under variable costing would be a. $46 b. $37 c. $32 d. $41 ANS: C SUPPORTING CALCULATIONS: Direct materials Direct labor Variable overhead Cost per unit

$15 10 7 $32

PTS: 1 DIF: 2 REF: p. 423 NAT: AICPA Analytic | IMA Cost management

OBJ: 2

32. Refer to Figure 10-2. Lee Company sells its product for $100 per unit. There were no work-inprocess inventories at the end of any month and costs have remained stable all year long. Lee's unit cost of production for March using absorption costing would be a. $46 b. $41 c. $37 d. $32 ANS: B SUPPORTING CALCULATIONS: Direct materials Direct labor Variable overhead Fixed overhead ($180,000/20,000) Cost per unit PTS: 1 DIF: 2 REF: p. 423 NAT: AICPA Analytic | IMA Cost management

$15 10 7 9 $41 OBJ: 2

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

524  Managerial Accounting Figure 10-3 Jennings Industries began operations on January 1. The company sells a single product for $7 per unit. During the year, 80,000 units were produced and 75,000 units were sold. There was no workin-process inventory at December 31. The company uses an actual cost system, and actual costs for the year were as follows: Direct materials Direct labor Manufacturing overhead Selling and administrative expenses

Fixed Costs -0-0$60,000 $35,000

Variable Costs $1.50 per unit produced $1.80 per unit produced $0.40 per unit produced $0.50 per unit sold

33. Refer to Figure 10-3. Jennings' variable costing income would be a. $210,000 b. $115,000 c. $118,750 d. $187,500 ANS: B SUPPORTING CALCULATIONS: $525,000 (277,500)

Sales ($7  75,000) Variable cost of goods sold ($3.70*  75,000) Variable selling and administrative expenses ($0.50  75,000) Contribution margin Fixed overhead Fixed selling and administrative expenses Net income

(37,500) $210,000 (60,000) (35,000) $115,000

*$1.50 + $1.80 + $0.40 = $3.70 PTS: 1 DIF: 3 REF: p. 424 NAT: AICPA Analytic | IMA Cost management

OBJ: 2

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

Chapter 10/Segmented Reporting, Investment Center Evaluation, and Transfer Pricing  525 34. Refer to Figure 10-3. Jennings' product cost per unit under variable costing would be a. $4.45 b. $4.20 c. $3.70 d. $3.30 ANS: C SUPPORTING CALCULATIONS: Direct materials Direct labor Variable overhead Total variable product cost

$1.50 1.80 0.40 $3.70

PTS: 1 DIF: 2 REF: p. 423 NAT: AICPA Analytic | IMA Cost management

OBJ: 2

35. Refer to Figure 10-3. Jennings' product cost per unit under absorption costing would be a. $4.45 b. $4.20 c. $3.70 d. $3.30 ANS: A SUPPORTING CALCULATIONS: Direct materials Direct labor Variable overhead Fixed overhead ($60,000/80,000) Total variable product cost PTS: 1 DIF: 2 REF: p. 423 NAT: AICPA Analytic | IMA Cost management

$1.50 1.80 0.40 0.75 $4.45 OBJ: 2

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

526  Managerial Accounting 36. Refer to Figure 10-3. Jennings' absorption costing income would be a. $210,000 b. $115,000 c. $118,750 d. $187,500 ANS: C SUPPORTING CALCULATIONS: $525,000 333,750 $191,250

Sales ($7  75,000) Less: Cost of goods sold ($4.45*  75,000) Gross margin Less: Selling and administrative expenses [$35,000 + ($0.50  75,000)] Net income

72,500 $118,750

*$1.50 + $1.80 + $0.40 + ($60,000/80,000) = $4.45 PTS: 1 DIF: 3 REF: p. 424 NAT: AICPA Analytic | IMA Cost management

OBJ: 2

37. The difference in net income using variable an...