1. (TCO 1) Performance reports often compare current period performance with (Points: 4) Performance in a prior period. Planned (budgeted) performance. Both A and B are correct. Neither A nor B is correct. 2. (TCO 1) Marco Diner produced and sold 2,000 bagels last month and had fixed costs of $6,000. If production and sales are expected to increase by 10% next month, which of the following statements is true? (Points: 4) Total fixed costs will increase. Total fixed costs will decrease. Fixed cost per unit will increase. Fixed cost per unit will decrease. 3. (TCO 2) Which of the following is a manufacturing cost? (Points: 4) Direct material Advertising expense Depreciation of the office equipment used by the sales staff Salary of the company president 4. (TCO 2) An allocation base is (Points: 4) a common characteristic that jobs share, which is used to spread the overhead costs among the various jobs. the minimum amount of overhead assigned to a job. used to determine how many labor hours were needed to complete a job. used to authorize the release of materials from the storeroom to the production area. 5. (TCO 3) Why do we compute equivalent units differently for raw materials and conversion costs? (Points: 4) Raw materials are more difficult to count Conversion costs are more difficult to count They are introduced into the process at different times None of the above 6. (TCO 3) The Nazareth Company’s mixing department incurred conversions costs of $650,820 during January, after recording a beginning Work in Process inventory of $30,430 for conversion costs. Fifty-four thousand units were transferred out of the department and the ending inventory consisted of 2,500 units that are 20% complete with respect to conversion. What is the conversion cost per equivalent unit? (Points: 4) $12.50 $12.05 $12.17 $12.62 7. (TCO 4) Regression analysis (Points: 4) uses all the available data points to estimate a cost equation can be performed by many spreadsheet programs provides an equation that can be used to estimate total costs at different levels all of the above 8. (TCO 4) The number of units that must be sold to exactly cover its fixed and variable costs is the (Points: 4) contribution margin break-even point relevant range margin of safety 9. (TCO 5) Full costing (Points: 4) is the same as absorption costing. considers fixed manufacturing overhead as part of the cost of inventory. often does not provide the information needed for C-V-P analysis. All of the above choices are correct. 10. (TCO 5) If the number of units sold is less than the number of units produced (Points: 4) full costing and variable costing will yield the same net income. full costing will assign some fixed manufacturing overhead to the units in the ending inventory. net income will be higher under variable costing than under full costing. inventory levels will decrease. 11. (TCO 6) A major problem with cost-plus contracts is that they (Points: 4) are not acceptable under GAAP. cause the supplier to take significant financial risks. require the supplier to use variable costing. create an incentive to allocate as much cost as possible to the goods produced under the cost-plus contract. 12. (TCO 6) Which of the following steps is not involved in the ABC approach? (Points: 4) Identify activities which cause costs to be incurred. Allocate costs to products based on activity usage. Group costs of activities into cost pools. Improve processes based on benchmarking 13. (TCO 7) Which of the following is not a term used to describe the additional costs incurred as a result of selecting one decision over another? (Points: 4) Differential costs Sunk costs Relevant costs Incremental costs 1. (TCO 7) The value of benefits foregone by selecting one alternative over another is a(n) (Points: 4) sunk cost incremental benefit differential revenue opportunity cost 2. (TCO 8) Which of the following statements about price, demand and profit is most generally true? (Points: 4) As price increases, demand increases As demand increases, prices increase As prices increase, demand decreases As price increases, profits decrease 3. (TCO 8) When deciding to accept or reject a special order, which of the following costs would most likely not be relevant? (Points: 4) The wages of direct labor to make the order. Depreciation on the machinery used to make the order. The raw material used to make the order. The electricity used to run the machine to make the order. 4. (TCO 9) The required rate of return used to compute net present value is related to the firm’s (Points: 4) contribution margin. depreciation methods. fixed costs. cost of capital. 5. (TCO 9) The internal rate of return (Points: 4) takes into account the time value of money. is the rate of return that equates the present value of future cash flows to the initial investment. both A and B neither A nor B 6. (TCO 10) Which of the following is not a reason that actual results may deviate from planned performance? (Points: 4) A bottom-up approach to budgeting was used. Managers have done a particularly good or particularly poor job of managing operations. Conditions have changed since the budget was developed. The budget was poorly conceived and constructed. 7. (TCO 10) The amount of direct material that must be purchased during a period depends on the amount of direct material (Points: 4) needed for production. available in the beginning inventory. desired as ending inventory. All of the above are correct. 8. (TCO 10) The difference between the stand and actual cost is a(n) (Points: 4) actual cost overrun. variance by exception. slack amount. standard cost variance. 9. (TCO 10) In general, an unfavorable material variance arises from (Points: 4) using more material than planned. paying a higher price for material than planned. Both A and B None of the above 10. (TCO 10) The type of center that has responsibility for generating revenue as well as controlling costs is a(n) (Points: 4) investment center. cost center. business center. profit center. 11. (TCO 10) Responsibility accounting holds managers responsible for (Points: 4) all costs charge to their department. all direct cost of their department plus part of the allocated company costs. only costs they have personally approved. only costs they can control. 12. The ratio that measures the return earned independently of how the firm is financed is the (Points: 4) return on stockholders’ equity. price earnings ratio. earnings per share. return on assets. 1. Distinguish between product costs and period costs. Define both types of costs and provide examples. 2. (TCO 6) Pacific Airlines has three service departments; ticketing, baggage handling, and aircraft maintenance. Costs of these departments are allocated to two revenue producing departments, domestic and international flights. Costs for the service departments are not separated into fixed and variable and the totals are as follows: Ticketing $4,000,000 Baggage handling $2,000,000 Aircraft maintenance $6,000,000 Air miles are as follows: Domestic 10,000,000 International 30,000,000 (a) Allocate the service department costs based on air miles. (b) Evaluate World Airlines use of air miles as a basis for allocation. Do you think the cause-and-effect relationship is strong? (c) Suggest alternative methods to allocate the service department costs. 3. Joanie Corp sells it products on both credit and cash basis. Monthly sales are sold 10% for cash, 90% for credit. Credit sales are collected 40% in the month of sale and 60% the following month. Sales for the first quarter are as follows: January $100,000 February $150,000 March $125,000 Compute cash collections for February. 4. Singleton Company is trying to determine a predetermined manufacturing overhead. Estimated overhead for the upcoming year is $600,000. Budgeted machine hours are 120,000 hours, and budgeted labor hours are 15,000 hours at a rate of $20.00 per hour. Compute the predetermined overhead rate based on: (a) Machine hours (b) Direct labor hours (c) Direct labor dollars 5. An investment of $185,575 is expected to generate returns of $65,000 per year for each of the next four years. What is the investment’s internal rate of return? 6. Copper Queen Hotel is interested in estimating fixed and variable costs so the hotel can make more accurate projections of costs, break-even and profits. The hotel is in a resort area and busy from November through March. In July and August, the hotel has only a 50 percent occupancy rate. Classify each of the following costs as fixed, variable or mixed. A. Depreciation of the building B. Salaries of restaurant staff C. Salaries of hotel manager, desk manager, accounting clerks D. Soap, shampoo and other toiletries in the bathrooms E. Laundry costs (cost of bed linens, table cloths, cleaning products, depreciation on cleaning equipment. F. Food and beverage costs G. Grounds Maintenance 7. The following data has been taken from Air-Tite company in its first year of business. Units produced 100,000 Units sold 60,000 Units in ending inventory 40,000 Fixed manufacturing overhead $500,000 (a) Compute the amount of fixed manufacturing overhead that would be expensed in the current year if full absorption costing is used. (b) Compute the amount of fixed manufacturing overhead that would be expensed in the current year if variable costing is used. (c) Compute the amount of fixed manufacturing overhead that would be included in ending inventory under full absorption costing.