Test 4 March 2017, questions and answers PDF

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____ 1. Setting the selling price of a company's product is an example of a. planning. b. control. c. decision making. d. all of the above. ____ 2. Management accounting is primarily concerned with: a. providing investors with useful information for valuing securities. b. providing creditors informa...

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1. Setting the selling price of a company's product is an example of a. planning. b. control. c. decision making. d. all of the above.

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2. Management accounting is primarily concerned with: a. providing investors with useful information for valuing securities. b. providing creditors information on the status of their loans. c. providing managers with relevant information to help achieve organizational goals. d. providing the relevant taxation authorities with information to determine the amount of taxes owed.

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3. Which of the following costs is NOT a product cost? a. rent on an office building b. indirect labour c. repairs on manufacturing equipment d. steel used in inventory items produced

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4. Selling and administrative costs are classified as a. product costs. b. conversion costs. c. period costs. d. factory overhead. Figure 3-7 Granite, Inc., has identified the following overhead costs and cost drivers for next year: Overhead Item Setup costs Ordering costs Maintenance Power

Expected Cost £100,000 40,000 200,000 20,000

Cost Driver Number of setups Number of orders Machine hours Kilowatt hours

Expected Quantity 500 3,200 4,000 80,000

The following are two of the jobs completed during the year:

Direct materials Direct labour Units completed Direct labour hours Number of setups Number of orders Machine hours Kilowatt hours

Job 500 £1,500 £1,400 100 100 2 8 40 60

Job 501 £2,000 £2,400 160 160 8 10 50 100

The company's normal activity is 4,000 direct labour hours. ____

5. Refer to Figure 3-7. If Granite, Inc., used activity-based cost drivers to allocate overhead costs, the total cost of Job 500 would be

a. b. c. d.

£5,715. £5,667. £5,415. £5,315.

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6. Support department costs are accounted for in which one of the following ways? a. They are allocated directly to units of product. b. They are allocated to producing departments and then allocated to units of product. c. They are allocated to units of product and then allocated to the producing departments. d. They are expensed as incurred.

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7. The method of accounting for inventory that assigns all manufacturing costs to inventory is sometimes referred to as: a. absorption costing. b. FIFO. c. the weighted average cost method. d. conversion costing.

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8. A profit-volume graph a. measures profit or loss on the horizontal axis. b. illustrates total revenues, total cost, and profits at various sales volumes. c. is not subject to the same limiting assumptions as cost-volume-profit graphs. d. illustrates the relationship between volume and profits.

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9. In a profit-volume graph, the slope of the profit line represents a. the selling price per unit. b. the contribution margin per unit. c. the variable cost per unit. d. total contribution margin. Figure 9-2 Vest Industries manufactures 40,000 components per year. The manufacturing cost of the components was determined as follows: Direct materials Direct labour Variable manufacturing overhead Fixed manufacturing overhead Total

£ 75,000 120,000 45,000 __60,000 £300,000

An outside supplier has offered to sell the component for £12.75. ____ 10. Refer to Figure 9-2. What is the effect on income if Vest Industries purchases the component from the outside supplier? a. £270,000 decrease b. £270,000 increase c. £30,000 decrease d. £30,000 increase Figure 9-4

The following information pertains to Ewing Company's three products:

Unit sales per month Selling price per unit Variable costs per unit Unit contribution margin

D 900

E 1,400

F 800

£6.00 _3.00 £3.00

£11.25 __9.00 £ 2.25

£ 7.50 __7.80 £(0.30)

____ 11. Refer to Figure 9-4. Assume that product F is discontinued and the space used to produce product F is rented for £600 per month. Monthly profits will a. increase by £360. b. decrease by £5,400. c. increase by £600. d. increase by £840. ____ 12. When there is one scarce resource, the product that should be produced first is the product with the highest a. contribution margin per unit of the scarce resource. b. sales price per unit of the scarce resource. c. demand. d. contribution margin per unit. ____ 13. Zandy Beverage Company plans to eliminate a branch that has a contribution margin of £50,000 and fixed costs of £75,000. Of the fixed costs, £55,000 cannot be eliminated. The effect of eliminating this branch on net income would be a(n) a. decrease of £25,000. b. increase of £25,000. c. decrease of £30,000. d. increase of £30,000. ____ 14. Products might consume overhead in different proportions due to a. differences in product size. b. differences in setup times. c. differences in product complexity. d. all of the above. Figure 10-6 Multiple Products Co. has predicted the following costs for this year for 100,000 units:

Variable Fixed Total

Manufacturing £ 400,000 600,000 £1,000,000

Selling and Administrative £100,000 300,000 £400,000

____ 15. Refer to Figure 10-6. What is the manufacturing cost mark up needed to obtain a target profit of £100,000? a. 100 per cent b. 67 per cent c. 50 per cent d. 25 per cent

Figure 15-2 Harald, Inc., has done a cost analysis for its production of bumper stickers. The following activities and cost drivers have been developed: Activity Maintenance Machining Setups Purchasing

Cost Formula £11,000 + £0.11 per machine hour £25,000 + £0.50 per machine hour £50 per batch £200 + £45 per purchase order

Following are the actual costs of producing 85,000 stickers: 5,000 machine hours; 10 batches; 20 purchase orders Maintenance Machining Setups Purchasing

£11,500 28,300 550 1,000

____ 16. Refer to Figure 15-2. What is the actual cost per sticker? (Round to three decimal places.) a. £0.468 b. £0.478 c. £0.486 d. £0.487 ____ 17. A budget based on additions and subtractions from last year's budget is a. a zero-base budget. b. a continuous budget. c. an incremental budget. d. none of these. ____ 18. A budget is a. a planning tool. b. a control tool. c. a means of communicating goals to the firm's divisions. d. all of the above. ____ 19. Which of the following appears in the cash budget? a. interest payments b. purchase of equipment on credit c. depreciation d. all of the above Figure 15-3 Projected sales for Sommers, Inc., for next year and beginning and ending inventory data are as follows: Sales Beginning inventory Desired ending inventory

50,000 units 4,000 units 8,000 units

The selling price is £40 per unit. Each unit requires four pounds of material which costs £6 per pound. The beginning inventory of raw materials is 12,000 pounds. The company wants to have 3,000 pounds of material in inventory at the end of the year. ____ 20. Refer to Figure 15-3. Sommers' budgeted sales would be a. £2,160,000. b. £2,320,000. c. £2,480,000. d. £2,000,000. ____ 21. Which of the following is an example of a discretionary fixed cost? a. the cost of a donation to the United Way b. the cost of the manufacturing facilities c. the cost of the manufacturing equipment d. taxes on the property used for manufacturing ____ 22. The following forecasted sales pertain to Reject City: Month June July August September

Sales £160,000 200,000 120,000 80,000

Collection pattern: 65 per cent in month of sale 35 per cent in month following sales Accounts receivable as of May 31 Finished goods inventory as of May 31

£28,000 6,000 units

Reject City has a selling price of £5 per unit and expects to maintain ending inventories equal to 25 per cent of next month's sales. How many units are expected to be produced in June? a. 36,000 units b. 50,000 units c. 82,000 units d. 42,000 units ____ 23. Which of the following is NOT a key feature of an ideal budgetary system? a. participation b. incentives c. accountability for noncontrollable costs d. feedback on performance ____ 24. Standard cost systems can enhance operational control through the use of a. price variances, which indicate the need for enhanced spending control. b. efficiency variances, which indicate the need for corrective action. c. standard costs, which indicate the desired cost of a unit of input. d. actual costs, which indicate the price received for units sold.

____ 25. The purchase of inferior direct materials at a lower price might affect which of the following variances? a. materials price variance b. materials usage variance c. labour efficiency variance d. all of the above ____ 26. A favourable materials usage variance may be caused by a. excessive rework. b. a special price offered by suppliers. c. use of experienced workers. d. none of the above. ____ 27. Labour rate variances can be the result of a. the use of an average wage rate. b. unexpected overtime. c. seniority mix changes. d. all of the above. ____ 28. Who is responsible for unfavourable labour efficiency variances caused by poor quality materials? a. warehouse manager b. production manager c. purchasing manager d. engineering manager Figure 17-1 Max Company has developed the following standards for one of its products: Direct materials Direct labour Variable overhead

15 pounds  £16 per pound 4 hours  £24 per hour 4 hours  £14 per hour

The following activities occurred during the month of October: Materials purchased Materials used Units produced Direct labour Actual variable overhead

10,000 pounds costing £170,000 7,200 pounds 500 units 2,300 hours at £23.60 per hour £30,000

The company records materials price variances at the time of purchase. ____ 29. Refer to Figure 17-1. Max's labour rate variance would be a. £920 unfavourable. b. £920 favourable. c. £800 unfavourable. d. £800 favourable. Figure 17-2

Rax Company has developed the following standards for one of its products: Direct materials Direct labour Variable overhead

12 pounds  £14 per pound 3 hours  £18 per hour 3 hours  £8 per hour

The following activities occurred during the month of October: Materials purchased Materials used Units produced Direct labour Actual variable overhead

10,000 pounds at £13.60 per pound 9,000 pounds 800 units 2,500 hours at £19.00 per hour £22,000

The company records materials price variances at the time of purchase. ____ 30. Refer to Figure 17-2. Rax's materials usage variance would be a. £8,400 unfavourable. b. £8,400 favourable. c. £5,600 unfavourable. d. £5,600 favourable. ____ 31. For planning and control purposes, fixed overhead is NOT included in the standard cost per unit because: a. it is incurred based on the number of units produced. b. the number of units produced do not vary from period to period. c. it can best be controlled on a lump-sum basis. d. of all of the above ____ 32. Investment centre managers would be evaluated based on a. operating income of the profit centre. b. return on investment. c. economic value added. d. all of the above. ____ 33. An example of an investment centre is a a. production department. b. company. c. marketing department. d. credit department. ____ 34. A transfer pricing system should satisfy which of the following objectives? a. accurate performance evaluation b. goal congruence c. preservation of divisional autonomy d. all of the above ____ 35. If it is available, the correct transfer price is a. the market price from a perfectly competitive market. b. the negotiated transfer price. c. the variable production costs of the firm. d. none of the above.

____ 36. Which of the following types of transfer prices do NOT encourage the selling division to be efficient? a. transfer prices based upon market prices b. transfer prices based upon actual costs c. transfer prices based upon standard costs d. transfer prices based upon standard costs plus a markup for profit ____ 37. In a negotiated transfer price, a. market prices may not be suitable. b. opportunity costs could be used to set boundaries. c. buyers and sellers influence the transfer price set. d. All of the above are true. Figure 20-1 Universe Industries has two divisions: the Haley Division and the Comet Division. Information about a component that the Haley Division produces is as follows: Sales Variable manufacturing costs Fixed manufacturing overhead Expected sales in units

£120 per unit £30 per unit £20 per unit 4,000 units

The Haley Division can produce up to 5,000 components per year. The Comet Division needs 200 units of the component for a product it manufactures. ____ 38. Refer to Figure 20-1. The maximum transfer price that the Comet Division would be willing to pay is a. £120. b. £70. c. £50. d. £30. ____ 39. Refer to Figure 20-1. The minimum transfer price that the Haley Division would be willing to accept is a. £120. b. £70. c. £50. d. £30. ____ 40. Refer to Figure 20-1. If the selling division did NOT have excess capacity, the minimum transfer price the selling division would be willing to accept is a. £120. b. £75. c. £50. d. £30.

Solutions

1. 2. 3. 4. 5.

ANS: C ANS: C ANS: A ANS: C ANS: C SUPPORTING CALCULATIONS: Setups: £100,000/500 = £200 per setup Ordering costs: £40,000/3,200 = £12.50 per order Maintenance: £200,000/4,000 = £50 per machine hour Power: £20,000/80,000 = £0.25 per kilowatt hour Direct materials Direct labour Overhead: Setups (£200  2) Ordering costs (£12.50  8) Maintenance (£50  40) Power (£0.25  60) Total cost

6. 7. 8. 9. 10.

£1,500 1,400 £ 400 100 2,000 ____15

_2,515 £5,415

ANS: B ANS: A ANS: D ANS: B ANS: A SUPPORTING CALCULATIONS: Make: Direct materials Direct labour Variable overhead Total

£ (75,000) (120,000) __(45,000) £(240,000)

Buy: Purchase price (40,000  £12.75)

£(510,000)

£510,000 - £240,000 = £270,000 decrease in income 11. ANS: D SUPPORTING CALCULATIONS: (800  £0.30) + £600 = £840 12. ANS: A 13. ANS: C SUPPORTING CALCULATIONS: Contribution Margin Avoidable fixed costs (£75,000 - £55,000) Segment margin

£50,000 _20,000 £30,000

14. ANS: D 15. ANS: C 16. ANS: C SUPPORTING CALCULATIONS: £41,350/85,000 = £0.486 17. 18. 19. 20.

ANS: C ANS: D ANS: A ANS: D SUPPORTING CALCULATIONS: 50,000  £40 = £2,000,000

21. ANS: A 22. ANS: A SUPPORTING CALCULATIONS: £160,000/£5 + [(£200,000/£5)  0.25] - 6,000 = 36,000 units 23. ANS: C 24. ANS: B 25. ANS: D 26. ANS: C 27. ANS: D 28. ANS: C 29. ANS: B SUPPORTING CALCULATIONS: (2,300 hours  £23.60) - (2,300 hours  £24) = £920 F 30. ANS: B SUPPORTING CALCULATIONS: (9,000 pounds  £14) - (800 units  12 pounds  £14) = £8,400 F 31. ANS: C 32. ANS: D 33. ANS: B 34. ANS: D 35. ANS: A 36. ANS: B 37. ANS: D 38. ANS: A SUPPORTING CALCULATIONS: The market price of £120 39. ANS: D SUPPORTING CALCULATIONS: Haley's variable manufacturing costs of £30 40. ANS: A SUPPORTING CALCULATIONS: The market price of £120...