True or False: Please indicate whether each statement is true or false. (2 points per question)
1. The standard cost is how much a product should cost to manufacture.
2. Because accountants have financial expertise, they are the only ones that are able to set standard costs for the production area.
3. An unfavorable cost variance occurs when budgeted cost at actual volumes exceeds actual cost.
4. A centralized business organization is one in which all major planning and operating decisions are made by top management.
5. The plant managers in a cost center can be held responsible for major differences between budgeted and actual costs in their plants.
6. Property tax expense for a department store’s store equipment is an example of a direct expense.
7. Differential revenue is the amount of increase or decrease in revenue expected from a particular course of action as compared with an alternative.
8. The product cost concept includes all manufacturing costs plus selling and administrative expenses in the cost amount to which the markup is added to determine product price.
9. When a bottleneck occurs between two products, the company must determine the contribution margin for each product and manufacture the product that has the highest contribution margin per bottleneck hour.
10. Care must be taken involving capital investment decisions, since normally a long-term commitment of funds is involved and operations could be affected for many years.
11. Average rate of return equals average investment divided by estimated average annual income.
12. Managers depend on product costing to make decisions regarding continuing operations, advertising, and product mix.
13. The single plantwide overhead rate method is very expensive to apply.
14. In the just-in-time (JIT) philosophy, unexpected downtime is the result of unreliable processes.
15. In a just-in-time (JIT) system, the work in process account will show more transactions than in a traditional cost system.
Multiple Choice (2 points per question):
16. If the actual quantity of direct materials used in producing a commodity differs from the standard quantity, the variance is termed:
a. controllable variance
b. price variance
c. quantity variance
d. rate variance
17. The Joyner Corporation purchased and used 126,000 board feet of lumber in production, at a total cost of $1,449,000. Original production had been budgeted for 22,000 units with a standard material quantity of 5.5 board feet per unit and a standard price of $12 per board foot. Actual production was 23,000 units.
Compute the material price variance.
18. The standard factory overhead rate is $10 per direct labor hour ($8 for variable factory overhead and $2 for fixed factory overhead) based on 100% capacity of 30,000 direct labor hours. The standard cost and the actual cost of factory overhead for the production of 5,000 units during May were as follows:
Standard: 25,000 hours at $10 $250,000
Actual: Variable factory overhead 202,500
Fixed factory overhead 60,000
What is the amount of the factory overhead volume variance?
a. $12,500 favorable
b. $10,000 unfavorable
c. $12,500 unfavorable
d. $10,000 favorable
19. Espinosa Corporation had $1,100,000 in invested assets, sales of $1,210,000, income from operations amounting to $242,000, and a desired minimum rate of return of 15%.
The profit margin for Espinosa is:
20. Materials used by Bristol Company in producing Division C’s product are currently purchased from outside suppliers at a cost of $10 per unit. However, the same materials are available from Division A. Division A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit. A transfer price of $9.50 per unit is negotiated and 30,000 units of material are transferred, with no reduction in Division A’s current sales.
How much would Division C’s income from operations increase?
21. The balanced scorecard measures
a. only financial information
b. only nonfinancial information
c. both financial and nonfinancial information
d. external and internal information
22. All of the following should be considered in a make or buy decision except
a. cost savings
b. quality issues with the supplier
c. future growth in the plant and other production opportunities
d. the supplier will make a profit that would no longer belong to the business
23. What cost concept used in applying the cost-plus approach to product pricing includes only desired profit in the “markup”?
a. Product cost concept
b. Variable cost concept
c. Sunk cost concept
d. Total cost concept