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Solution Manual For Cost Accounting 8th

Edition, Raiborn & Kinney


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Multiple Choice Questions


Chapter 1:

1. (LO.1) Select the incorrect comparison between financial and management accounting:
Financial Accounting Management Accounting
a. Primary focus External Internal
b. Overriding criteria Verifiability GAAP
c. Information timeframe Historical Current/future
d. Recordkeeping Formal Formal and informal
2. (LO.1) Oversight of auditing standards for public companies is the responsibility of the
a. Public Company Accounting Oversight Board.
b. Securities and Exchange Commission.
c. Financial Accounting Standards Board.
d. Institute of Management Accountants.
3, (LO.1) The acronym IASB stands for
a. Internal Accounting Standards Board.
b. Internal Auditing Standards Board.
c. International Auditing Standards Board.
d. International Accounting Standards Board.
4. (LO.1) Cost accounting can best be described as
a. the intersection between financial and management accounting.
b. a system that meets the informational demands of both financial and management
accounting.
c. a system that provides product cost information to Internal managers for planning,
controlling, decision making and evaluating performance.
d. all of the above.
5. (LO.2) Statements on Management Accounting (SMA) are directives on the practice of
management and cost accounting. Select the incorrect statement concerning SMAs from the
following.
a. SMAs are issued by the Cost Accounting Standards Board.
b. SMAs are not legally binding.
c. SMAs go through a rigorous developmental and exposure process.
d. SMAs describe high-quality or best practices in management accounting.

6. (LO.3) A management accountant who fails to perform professional duties in accordance with
relevant standards is acting contrary to which of the following standards?
a. Competency
b. Integrity
c. Objectivity
d. Confidentiality
7. (LO.3) The IMA Code of Ethics requires a management accountant to follow the established
policies of the organization when facing an ethical conflict. When management accountants fail to
resolve an ethical conflict by talking with their immediate supervisor they should
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a. communicate the problem to authorities outside the organization.
b. contact the next higher managerial level.
c. notify the audit committee of the board of directors.
d. contact the chief financial officer.
8. (LO.3) According to the IMA Code of Ethics a practitioner has the responsibility to recognize
professional limitations. Under which standard of ethical conduct would this responsibility be
included?
a. Competency
b. Confidentiality
c. Integrity
d. Objectivity
9. (LO.4) Strategic planning includes all of the following except:
a. top-level management participation.
b. a long-term focus.
c. analysis of the current month’s actual variances from budget.
d. identification of long-term key variables including external influences.
10. (LO.4) The strategy that is being used by a company that seeks to provide superior quality
products or more unique services than its competitors is a
a. cost leadership strategy. b. differentiation strategy.
c. customer value strategy. d. value chain strategy.
11. (LO.5) All of the following are staff personnel except:
a. production supervisor.
b. cost accountant.
c. corporate controller.
d. tax accountant.
12. (LO.5) An organization’s collection of knowledge, skills, and information is referred to as its
a. political capital.
b. qualitative capital.
c. intangible capital.
d. intellectual capital.

13. (LO.6) All of the following are examples of upstream functions in the value chain except
a. supply.
b. research and development.
c. production.
d. design.
14. (LO.7) Which balanced scorecard perspective focuses on those things that the organization must
do well to meet customer needs and expectations?
a. Customer perspective
b. Learning and growth perspective
c. Financial perspective
d. Internal business perspective
15. (LO.8) Which of the following is a violation of the Foreign Corrupt Practices Act?
a. Paying cash bribes to foreign officials
b. Giving sporting event tickets to foreign officials
c. Providing free samples to the families of foreign officials
d. All of the above

Chapter 2:

1. (LO.1) Select the incorrect statement concerning cost objects.


a. When the cost object is the Production Department, the cost of a production supervisor’s
salary would be a direct cost.
b. A direct cost must be conveniently and economically traceable to the cost object.
c. When the cost object is a Tundra truck, the cost of the truck’s engine is a direct cost.
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d. When the cost object is the Toyota Princeton Indiana manufacturing plant the cost of
overhead is an indirect cost.
2. (LO.2) Which of the following statements is correct concerning fixed costs?
a. Within the relevant range, total fixed costs always increase when volume increases.
b. A step cost may be fixed or variable.
c. The fixed costs per unit will remain constant provided volume remains within the relevant
range.
d. Within the relevant range, total fixed costs always decrease when volume increases.
3. (LO.2) A utility bill that includes a flat charge for basic service plus a stated rate for each kilowatt
hour of usage beyond a specified level is an example of a
a. mixed cost.
b. step cost.
c. variable cost.
d. independent cost.
4. (LO.2) In relation to the dollar amount of Tundra truck sales, which of the following classifications is
appropriate for the truck tires used in production and for the salaries of production supervisors?

Truck Tires Production Supervisor Salaries


a. Variable cost Fixed cost
b. Fixed cost Variable cost
c. Variable cost Mixed cost
d. Mixed cost Fixed cost

5. (LO.3) The estimated unit cost for a company planning to produce and sell at a level of 12,000
units per month is as follows:
Estimated
Cost Item Unit Cost
Direct material $20
Direct labor 32
Variable manufacturing overhead 6
Fixed manufacturing overhead 12
Variable selling 4
Fixed selling 4

What is the total estimated conversion costs per unit?


a. $70
b. $58
c. $52
d. $50
6. (LO.3) Which of the following is not a product cost for Tundra trucks?
a. Steering wheel
b. Glue
c. Salary of product sales manager
d. Overhead
7. (LO.4) Which of the following types of firms has the highest degree of conversion causing a major
transformation from input to output?
a. Lee’s Landscaping Company
b. Toyota Manufacturing Company
c. Wal-Mart Stores
d. All of the above
8. (LO.4) Select the incorrect statement concerning the stages of the production or conversion
process.
a. A manufacturing company’s Finished Goods inventory account is similar to a service
company’s Supplies inventory account.
b. Firms such as retailers that engage in only low or moderate degrees of conversion ordinarily
have only a single inventory account.
c. The production process occurs in three stages: raw material, work in process, and finished

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goods.
d. At the point of sale, product costs flow from an inventory account to Cost of Goods Sold
expense.
9. (LO.5) Which of the following would not be classified as direct material for a Tundra truck?
a. Cost of the battery
b. Cost of the glue used to secure the carpet in the cab of the truck
c. Cost of freight paid on the truck windshield
d. Cost of the fuel tank
10. (LO.5) Which of the following would be classified as direct labor for the production of a Tundra
truck?
a. Wages paid to assembly line (production) workers
b. Bonuses paid to production workers for exceeding production goals
c. Production workers’ Social Security taxes
d. All of the above
11. (LO.5) Which of the following costs would not be classified as overhead for the production of
Tundra trucks?
a. Salary of plant manager
b. Indirect labor costs
c. Salary of Toyota Chief Executive Officer
d. Depreciation of production machinery
12. (LO.6) All of the following are reasons why overhead costs are allocated to cost objects except:
a. to compare alternative courses of action for management planning and decision making.
b. to identify the fixed and variable components of the various overhead costs.
c. to determine the full cost of the cost object.
d. to motivate the manager in charge of the cost object to manage it efficiently.
13. (LO.7) A Company had the following inventories at the beginning and end of January:
January 1 January 31
Finished goods $12,500 $11,700
Work in process 23,500 25,100
Direct material 13,400 12,400

The following additional manufacturing data were available for the month of January:

Direct material purchased $18,900


Direct labor 30,000
Actual factory overhead 17,500

What was the total cost of direct material used for January?
a. $19,900
b. $18,900
c. $17,900
d. $6,500

14. (LO.7) B Company had the following inventories at the beginning and end of January:

January 1 January 31
Finished goods $125,000 $117,000
Work in process 235,000 251,000
Direct material 134,000 124,000

The following additional manufacturing data were available for the month of January:

Direct material used $189,000


Direct labor 300,000
Actual factory overhead 175,000

What was B Company’s cost of goods manufactured for January?


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a. $672,000
b. $660,000
c. $658,000
d. $648,000

15. (LO.7) C Company had the following inventories at the beginning and end of January:

January 1 January 31
Finished goods $125,000 $117,000
Work in process 235,000 251,000
Direct material 134,000 124,000

Assuming the Cost of Goods Manufactured for January was $660,000, what was C Company’s
cost of goods sold for January?
a. $676,000
b. $668,000
c. $666,000
d. $652,000
Chapter 3:
1. (LO.1) All of the following are reasons for using predetermined overhead rates in product costing
except:
a. to overcome the problem of fluctuations in activity levels that have no impact on fixed
overhead costs.
b. to overcome the problem caused by overhead containing both fixed and variable costs.
c. to adjust for variations in actual overhead costs that are unrelated to fluctuations in activity.
d. to allow management to determine whether a product, product line, or customer is profitable.
2. (LO.2) What is the best method for disposing of significant underapplied factory overhead?
a. Charge the underapplied amount to cost of goods sold
b. Prorate the underapplied amount to cost of goods sold, finished goods, and work in process
c. Prorate the underapplied amount to inventory only (work in process and finished goods)
d. Charge the underapplied amount to a loss account at the end of the period
3. (LO.2) Select the incorrect statement concerning overapplied overhead.
a. The overhead control account will have a debit balance.
b. The amount of overhead transferred to WIP from the overhead control account exceeded the
actual amount of overhead incurred.
c. Overapplied overhead must be closed at year-end because a single year’s activity level was
used to set the predetermined overhead rate.
d. Overapplied overhead may result if the company’s actual utilization of capacity is greater than
expected.

4. (LO.3) In determining cost behavior in business, the cost function is often expressed as y = a +
bx. W hat does the “a” term represent?
a. Total variable costs
b. Total fixed costs
c. Unit variable cost
d. Unit fixed cost
5. (LO3) M Company derived the following cost equation to explain its monthly manufacturing
overhead cost:
OH = $80,000 + $12MH, where MH = machine hours
The standard time required to manufacture one unit is 4 machine hours. The company applies
manufacturing overhead to production on the basis of machine hours and its normal annual
production is 50,000 units. What is the estimated variable manufacturing overhead cost for a
month in which scheduled production is 5,000 units?
a. $360,000
b. $320,000
c. $240,000
d. $80,000

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6. (LO.4) Which method of separating mixed costs ensures the best fitting regression line?
a. High-low method
b. Scattergraph method
c. Proration method
d. Least squares regression method
7. (LO.4) W Company is working on its annual profit plan for the coming year. The company wants to
determine the cost behavior pattern of its maintenance costs. The prior year’s data regarding
maintenance hours and costs are as follows.

Hours of Maintenance
Activity Costs
January 480 $ 4,200
February 320 3,000
March 400 3,600
April 300 2,820
May 500 4,350
June 310 2,960
July 320 3,030
August 520 4,470
September 490 4,260
October 470 4,050
November 350 3,300
December 340 3,160

Using the high-low method, estimate the amount of maintenance cost per hour.
a. $2,781
b. $570
c. $7.50
d. $0.13
8. (LO.4) X Company uses simple regression to separate its selling costs (y) into fixed and variable
components based on units sold (x). A computer software program generated the following
regression analysis results:
Average x 400
Average y 3600
a 684.65
Standard error of a 49.515
b 7.2884
Standard error of b 0.12126
Std error of the estimate 34.469
2
r 0.99724
What equation should X Company use to estimate its selling costs?
a. y = $3,600 + 400x
b. y = $684.65 + 7.2884x c.
y = $3,600 + 7.2884x d. y =
$684.65 + .12126x
9. (LO.5) In applying overhead, individual department rates would be used instead of a plant wide
rate if
a. the manufactured products differ in the resources consumed from the individual departments in
the plant.
b. a company wants to adopt a standard cost system.
c. a company’s manufacturing operations are highly automated.
d. manufacturing overhead is the largest component of product cost.

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10. (LO.6) Which cost accumulation and reporting system treats the costs of all manufacturing
components (direct material, direct labor, and both variable and fixed overhead) as product
costs?
a. Absorption costing
b. Variable costing
c. Mixed costing
d. None of the above
11. (LO.6) Which cost accumulation and reporting system reports the total contribution margin?
a. Absorption costing
b. Variable costing
c. Mixed costing
d. None of the above
12. (LO.6) Which cost accumulation and reporting system is required for external reporting and tax
purposes?
a. Absorption costing
b. Variable costing
c. Mixed costing
d. None of the above
13. (LO.7) The primary difference between absorption and variable costing lies in the treatment of :
a. variable selling and administrative costs.
b. variable overhead costs.
c. fixed overhead costs.
d. fixed selling and administrative costs.
14. (LO.7) Which cost accumulation and reporting system provides management an incentive to
over-produce (i.e., produce more units than can be sold)?
a. Absorption costing
b. Variable costing
c. Mixed costing
d. None of the above
15. (LO.7) In a period in which there is no change in inventory, which cost accumulation and reporting
system will report higher profits?
a. Absorption costing
b. Variable costing
c. Mixed costing
d. None of the above

Chapter 4:
1. (LO.1) Activity-based management (ABM) focuses on improving customer value and enhancing
profitability. Which of the following is an impact of implementing ABM to control production
processes?
a. More effective performance evaluation
b. More accurate cost determination and control
c. More efficient production processes
d. All of the above
2. (LO.1) Select the incorrect statement from the following.
a. An activity is any repetitive action that is performed in fulfillment of a business function.
b. Non-value-added activities increase the time spent on a product but do not increase its
worth.
c. The objective of activity-based management is to eliminate all non-value-added activities.
d. Activity analysis attempts to classify activities as value added or non-value-added.
3. (LO.1) All of the following are non-value-added time except:
a. inspection time.
b. move time.
c. processing time.
d. wait time.
4. (LO.2) Which of the following correctly computes manufacturing cycle efficiency?

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a. Total Cycle Time – Total Value-Added Time.
b. Total Cycle Time / Total Value-Added Time.
c. Total Value-Added Time + Total Non-Value-Added Time.
d. Total Value-Added Time / Total Cycle Time.
5. (LO.2) The need to rework products because of a poorly designed training program is an example
of a non-value-added activity caused by
a. systemic factors.
b. physical factors.
c. human factors.
d. None of the above.
6. (LO3) All of the following are examples of batch-level costs except:
a. costs of engineering change orders.
b. purchase order costs.
c. inspection costs.
d. movement costs.
7. (LO.3) Select the incorrect matching of cost and cost level.
a. Unit level : Direct material
b. Facility level : Equipment maintenance
c. Product level : Product development
d. Batch level : Setup costs
8. (LO.4) Which costing system assigns costs within multiple cost pools to products using multiple
drivers?
a. Activity-based costing
b. Variable costing
c. Traditional costing
d. None of the above
9. (LO.4) E Corporation, which makes electronic components for NASA’s space shuttle, uses
activity-based costing. One of its activities is described below:
Est. Qty of Required for
Activity Cost Driver Cost Driver Cost Rate Current contract
(1) Quality control No. of units 210,000 units $0.14 17,500 units

Select the incorrect statement from the following.


a. $2,450 will be assigned to the contract on which the company is currently working.
b. The company’s annual estimated quality control costs cannot be determined from the
information provided.
c. Since the component is being built for the U.S. Government for use on the space shuttle, it is
not unusual for the company to inspect every unit produced.
d. It is likely that the company uses a different cost driver to assign other support costs such as
setup costs.

The next two questions are based on the following information:

P Company is considering using activity-based costing instead of its traditional costing system
because it believes its current system may be providing misleading information. The following
data shows the budgeted manufacturing overhead.
Budgeted Budgeted
Activity Cost Driver Activity Cost
Materials handling No. of parts handled 6,000,000 $720,000
Setup costs No. of setups 750 315,000
Machining costs Machine hours (MH) 30,000 540,000
Quality control No. of batches 500 225,000
Total overhead cost $1,800,000

The company also estimates that it will work 50,000 direct labor hours in the coming year. The
following information is provided for one of the company’s products for the coming year:

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Direct material and Direct Labor
Direct materials cost per unit $4.40
Direct labor cost per unit
.05 DLH @ $15/DLH .75
Total $5.15

Sales and production data:


Expected sales 20,000 units
Batch size 5,000 units
Setups 2 per batch
Total parts per finished unit 5 parts
Machine hour required 80 MH per batch

10. (LO.4) If the organization uses a traditional full cost system, the cost per unit of this product for
the coming year will be
a. $6.95.
b. $6.11.
c. $5.44.
d. $5.39.

11. (LO.4) If the organization uses an activity-based cost system, the cost per unit of this product for
the coming year will be
a. $6.30.
b. $6.21.
c. $6.08.
d. $6.00.
12. (LO.5) The use of activity-based costing normally results in:
a. substantially lower unit costs for low-volume products than is reported by traditional product
costing.
b. equalizing setup costs for all product lines.
c. decreased setup costs being charged to low-volume products.
d. substantially greater unit costs for low-volume products than is reported by traditional product
costing.
13. (LO.5) Because of the changes that are occurring in the basic operations of many firms, all of the
following represent trends in the way indirect costs are allocated except:
a. treating direct labor as an indirect manufacturing cost in an automated factory.
b. using throughput time as an application base to increase awareness of the costs associated
with lengthened throughput time.
c. preferring plant-wide application rates that are applied to machine hours rather than incurring
the cost of detailed allocations.
d. using several machine cost pools to measure product costs on the basis of time in a machine
center.
14. (LO.5) Activity-Based Costing is appropriate for which of the following organizations?
a. One that produces and sells a wide variety of products. b.
One that produces and sells a single complex product. c.
One that provides a single service to customers.
d. All of the above
15. (LO.6) A number of barriers must be overcome to implement activity-based costing systems
successfully. Select the barrier that is not matched up properly with its type.
a. Fear of change Individual barrier
b. Regulatory agencies Environmental barrier
c. Corporate culture issues Organizational barrier
d. All of the above barriers are properly classified.

Chapter 5:
1. (LO.1) All of the following would most likely use a job order costing system except:
a. a dental practice.

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b. an auto repair shop.
c. a small appliance maker.
d. an architectural firm.
2. (LO.1) Which of the following costs is not charged to Work in Process in a normal cost system?
a. Actual overhead
b. Actual direct materials c.
Actual direct labor
d. Estimated indirect labor
3. (LO.1) Which of the following product costs would be charged to Work in Process assuming a
standard costing system?
a. Actual direct material costs b. Actual overhead costs
c. Actual direct labor costs d. Applied overhead costs
4. (LO.2) Select the incorrect job order costing system characteristic.
a. Costs are accumulated by job.
b. A job may consist of multiple units provided all units are similar.
c. Costs of different jobs cannot logically be averaged so a unique cost must be determined for
each job.
d. Jobs are usually produced to distinct customer specifications.
5. (LO.3) Which of the following serves at a subsidiary ledger for the Work in Process account?
a. Standard cost card
b. Material requisition form
c. Job requisition form
d. Job order cost sheet
6. (LO.3) Which of the following is not a source document used in job order costing systems?
a. Cost of production report
b. Employee time sheet
c. Job cost sheet
d. Material requisition form
7. (LO.4) Select the response that represents the correct flow of costs in a job order costing system.
a. Raw materials, work in process, cost of goods sold, finished goods
b. Raw materials, work in process, finished goods, cost of goods sold
c. Raw materials, overhead, work in process
d. Direct material, finished goods, work in process
8. (LO.4) The journal entry to apply overhead to production would include:
a. a debit to Manufacturing Overhead Control.
b. credits to various accounts such as Cash, Accumulated Depreciation, and Accounts Payable.
c. a credit to Manufacturing Overhead Control.
d. a credit to Work in Process.
9. (LO.4) The journal entry to transfer production from the Finishing Department to Finished Goods
would include a:
a. credit to Finished Goods.
b. debit to Cost of Goods Manufactured.
c. credit to WIP – Finishing.
d. credit to Cost of Goods Manufactured.
10. (LO.4) M Corporation manufactures a specialty line of jeans using a job-order-cost system.
During May, the following costs were incurred in completing Job M1: direct materials, $13,700;
direct labor, $4,800; administrative, $1,400; and selling, $5,600. Overhead was applied at the rate
of $25 per machine hour, and Job M1 required 800 machine hours. If Job M1 resulted in
7,000 good jeans, the cost of goods sold per unit would be
a. $5.50.
b. $6.30.
c. $5.70.
d. $8.50.
11. (LO.4) Q Company uses a normal cost system. The following information is from its financial
records for the year:
Total manufacturing costs, $2,500,000
Cost of goods manufactured, $2,425,000
Applied overhead, 30% of total manufacturing costs

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Predetermined OH rate, 80% of direct labor cost

Assuming the company’s work in process inventory at January 1 was 75 percent of its December
31 work in process inventory, what is the carrying value of the company’s work in process
inventory at December 31?
a. $75,000
b. $100,000
c. $225,000
d. $300,000
12. (LO.5) Which of the following costing systems does not involve computing cost variances?
a. Actual costing system
b. Normal costing system
c. Standard costing system
d. All of the above systems involve computing cost variances
13. (LO.5) Select the incorrect statement concerning standard costs and job order costing.
a. A standard cost system determines product cost by using predetermined norms in the
inventory accounts for prices and/or quantities of cost components.
b. Standards can be used in a job order cost system only if a company typically engages in jobs
that produce fairly similar products.
c. Under GAAP, standard cost job order systems may not substitute for actual or normal costing
systems.
d. Standard cost variances can be computed for actual-to-standard differences regardless of
whether standards have been established for both quantities and prices or for prices or rates
only.
14. (LO.6) Which of the following statements is true concerning job order costing and management
decision making?
a. Job order costing assists managers in their planning, controlling, decision making and
performance evaluations functions.
b. Job order costing allows managers to trace costs associated with specific current jobs to
better estimate costs of future jobs.
c. Job order costing provides a means by which managers can better control the costs
associated with their operations.
d. All of the above are true statements.
15. (LO.7) Select the incorrect statement regarding the accounting for product losses.
a. Normal losses that are anticipated on all jobs are estimated and included in the development of
the predetermined OH rate.
b. Normal losses that are associated with a particular job are charged to a loss account in the
period they are incurred.
c. Abnormal losses are charged to a loss account in the period they are incurred.
d. The difference between normal and abnormal loss is one of degree and therefore must be
determined by management.
Chapter 6:
1. (LO.1) Which of the following would least likely use a process costing system?
a. Manufacturer of custom furniture
b. Manufacturer of soft drinks c.
Manufacturer of gasoline
d. Manufacturer of paper
2. (LO.1) Which of the following is not a basic objective of process costing?
a. Compute an average cost per unit since units are homogeneous b.
Allocate production costs between whole units and partial units
c. Separate production costs into fixed and variable components
d. Determine the amount of production costs that should be transferred to the next department
3. (LO.1) Select the incorrect statement regarding equivalent units of production (EUP).
a. Two units 50% complete are equivalent to one unit 100% complete.
b. Except in very rare instances, only one EUP calculation is needed per department.
c. EUP equals the number of whole units of output that could have been produced during a
period from the actual effort expended.
d. The objective of EUP calculations is to eliminate the costing problem caused by partially

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completed units.
4. (LO.2) The steps in process costing are listed below:
1 – Calculate physical units to be accounted for
2 – Calculate physical units accounted for
3 – Calculate equivalent units of production (EUP)
4 – Calculate total costs to be accounted for
5 – Calculate the cost per EUP
6-?
What is the missing step?
a. Assign costs to whole and partial units in ending inventory
b. Assign costs to whole units produced during the period
c. Assign costs to units started and completed during the period
d. Assign costs to units transferred out and units in ending inventory
5. (LO.2) Which of the following is true about the weighted average method of process costing?
a. The calculation of EUP must take into consideration the units in both beginning and ending
inventory.
b. The cost per EUP will include prior period costs if the department had beginning inventory.
c. The most common alternative to the weighted average method is the last-in, first-out method.
d. The weighted average method refers to a method of determining which units were sold and
which units remain in inventory.
Use the following information for the next three questions.
Z Company employs a process costing system for its manufacturing operations. All direct
materials are added at the beginning of the process and conversion costs are added
proportionately. The production quantity schedule for April is reproduced below:

Units
Work in process on April 1 (60% complete as to conversion costs) 1,000
Units started during April 5,000
Total units to account for 6,000
Units completed and transferred out 4,000
Work in process on April 30 (20% complete as to conversion costs) 2,000
Total units accounted for 6,000
Costs pertaining to the month of April are as follows:
Beginning inventory costs: (DM, $54,600; Conversion, $35,560) $ 90,160
Costs incurred during April (DM, $468,000; Conversion $574,060) $1,042,060

6. (LO.2) Using the weighted average method, the equivalent units for direct materials for April are:
a. 6,000 units.
b. 5,000 units.
c. 4,400 units.
d. 3,800 units.
7. (LO.2) Using the weighted average method, the equivalent units for conversion costs for April are:
a. 6,000 units.
b. 5,000 units.
c. 4,400 units.
d. 3,800 units.
8. (LO.2) Using the weighted average method, the equivalent unit materials cost for April is:
a. $78.00.
b. $87.10.
c. $130.65.
d. $138.55.

9. (LO.2) Using the weighted average method, the 4,000 units completed during April will be
transferred out at an EUP unit cost of:
a. $188.69.
b. $225.65.
c. $257.31.
d. $283.04.
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Use the following information for the next two questions.

L Company uses a process cost system to account for its manufacturing operations. All direct
materials are added at the beginning of the process and conversion costs are added
proportionately. The production quantity schedule for June is reproduced below:

Units
Work in process on June 1 (20% complete as to conversion costs) 16,000
Units started during June 100,000
Total units to account for 116,000
Units completed and transferred out from beginning inventory 16,000
Units started and completed during June 76,000
Work in process on June 30 (40% complete as to conversion costs) 24,000
Total units accounted for 116,000
Costs pertaining to the month of June are as follows:
Beginning inventory costs: (DM, $54,600; Conversion, $35,560) $ 90,160
Costs incurred during June (DM, $468,000; Conversion $574,060) $1,042,060
10. (LO.3) Using the FIFO method, the equivalent units for direct materials for June are:
a. 116,000 units.
b. 100,000 units.
c. 85,600 units.
d. 76,000 units.
11. (LO.3) Using the FIFO method, the equivalent units for conversion costs for June are:
a. 116,000 units.
b. 100,000 units.
c. 98,400 units.
d. 76,000 units.
12. (LO.3) Using the FIFO method, the direct materials cost per equivalent unit for units started and
completed during June is:
a. $6.16.
b. $6.00.
c. $5.23.
d. $4.68.
13. (LO.4) Select the incorrect statement concerning process costing in a multidepartment setting.
a. In this environment, goods are transferred from a predecessor (upstream) department to a
successor (downstream) department.
b. Transferred out costs of the predecessor department become transferred in costs of the
successor department.
c. Occasionally, successor departments will change the unit of measure used in predecessor
departments.
d. By definition, successor departments may not add any additional raw materials to the units
received from predecessor departments.
14. (LO.5) Which of the following statements is true concerning process costing?
a. Companies my substitute standard costs for actual costs.
b. EUP calculations for standard process costing are identical to those of FIFO process costing. c.
An advantage of standard process costing is that material, labor, and overhead variances can
be computed to assist in performance evaluation.
d. All of the above are true.
15. (LO.6) An appropriate costing system for a company whose various product lines have different
direct materials but similar processing techniques is likely a
a. weighted average method of process costing.
b. first-in, first out method of process costing.
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c. hybrid method of process costing.
d. last-in, first out method of process costing.
16. (LO.7: Appendix 1) Which of the following is a common variation of the weighted average EUP
calculation presented in the chapter?
a. Whole units transferred out + Ending inventory EUP
b. Weighted average EUP – Beginning inventory EUP
c. FIFO EUP / 2
d. Whole units transferred out – Beginning units
17. (LO.8: Appendix 2) In process costing, the cost of normal continuous losses is handled through
the method of neglect, which
a. excludes the spoiled units from the equivalent unit computation, thereby increasing the cost
per equivalent unit.
b. includes the spoiled units in the equivalent unit computation, thereby increasing the cost per
equivalent unit.
c. excludes the spoiled units from the equivalent unit computation, thereby decreasing the cost
per equivalent unit.
d. includes the spoiled units in the equivalent unit computation, thereby decreasing the cost per
equivalent unit.
Chapter 7:
1. (LO.1) Select the correct statement regarding standards.
a. A standard is a benchmark or norm used for planning and control.
b. The difference between standard cost and actual cost is referred to as a variance.
c. Standards are developed for materials, labor, and overhead.
d. All of the above
2. (LO.1) The document that summarizes the expected quantities and costs needed to produce a
unit is called a
a. bill of materials.
b. total cost of ownership document.
c. operations flow document.
d. standard cost card.
3. (LO.2) This month R Company planned to produce 3,000 units of its product. The standard cost
card calls for six pounds of material at $.30 per pound. Actual production for the month was 3,100
units, resulting in a favorable price variance of $380 and an unfavorable quantity variance of
$120. Based on these variances, one could conclude that:
a. more materials were purchased than were used.
b. the actual cost of material was less than the standard cost.
c. the actual usage of material was less than the standard allowed.
d. the actual cost and usage of material were both less than standard.
4. (LO.2) An unfavorable direct labor efficiency variance could be caused by a (n):
a. unfavorable variable overhead spending variance.
b. unfavorable fixed overhead volume variance.
c. unfavorable material usage variance.
d. favorable fixed overhead volume variance.
5. (LO.2) The flexible budget for the month of August was for 9,000 units with direct material at $15
per unit. Direct labor was budgeted at 45 minutes per unit for a total of $81,000. Actual output for
the month was 8,500 units with $127,500 in direct material and $77,775 in direct labor expense.
Direct labor hours of 6,375 were actually worked during the month. Variance analysis would show:
a. a favorable direct labor efficiency variance of $1,275.
b. an unfavorable direct labor efficiency variance of $1,275.
c. an unfavorable direct labor rate variance of $1,275.
d. none of the above.
6. (LO.2) The total fixed overhead variance is the:
a. measure of the lost profits from the lack of sales volume.
b. amount of the underapplied or overapplied fixed overhead costs.
c. potential cost reduction that can be achieved from better cost control.
d. measure of production inefficiency.

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7. (LO.2) Variable overhead is applied on the basis of standard direct labor hours. If the direct labor
efficiency variance is favorable, the variable overhead efficiency variance will be:
a. unfavorable.
b. favorable.
c. zero.
d. the same amount as the labor efficiency variance.
8. (LO.2) Y Company’s product has a labor standard of 2 hours per unit. For 2011, it estimates its
production will be 200,000 units (400,000 DLHs). It budgets total overhead at $900,000, which
results in a fixed overhead rate of $1.50 per hour. Actual data for the year include: Actual
production, 198,000 units (440,000 DLHs), Actual variable overhead, $352,000, Actual fixed
overhead, $575,000 The variable overhead efficiency variance for the year is:
a. $66,000 unfavorable.
b. $35,520 favorable.
c. $33,000 favorable.
d. $33,000 unfavorable.
9. (LO.3) Standard cost systems should be used for all of the following reasons except:
a. motivation.
b. decision-making.
c. establishing blame.
d. clerical efficiency.
10. (LO.3) Select the correct statement from the following.
a. An extremely favorable variance is not necessarily a good variance.
b. There is a movement in practice toward reporting variances less often than in the past.
c. Only unfavorable variances need to be investigated.
d. For proper performance evaluation to be made, responsibility for variances should not be
traced to specific managers.
11. (LO.4) The best basis upon which cost standards should be set to measure controllable
production inefficiencies is:
a. engineering standards based on attainable performance.
b. normal capacity.
c. engineering standards.
d. ideal capacity.
12. (LO.5) Variance analysis for conversion cost in automated plants normally focuses on:
a. spending variances for overhead costs.
b. efficiency variances for machinery and production costs rather than labor costs.
c. volume variance for production.
d. all of the above.
13. (LO.6) (Appendix) A possible combination of materials or labor is called
a. materials-time measurement.
b. yield.
c. mix.
d. conversion.
14. (LO.6) (Appendix) A measure of the difference between the actual total quantity of input and the
standard total quantity allowed based on output is called the
a. mix variance.
b. yield variance.
c. volume variance.
d. none of the above.
15. (LO.6) (Appendix) Select the correct equation for the labor mix variance.
a. (Actual mix x Actual hours x Actual rate) – (Actual mix x Actual hours x Standard rate)
b. (Actual mix x Actual hours x Standard rate) – (Actual mix x Actual hours x Standard rate)
c. (Actual mix x Actual hours x Standard rate) – (Standard mix x Actual hours x Standard rate)
d. (Standard mix x Actual hours x Standard rate) – (Standard mix x Standard hours x Standard
rate)

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Chapter 8:
1. (LO.1) Short-tem planning that produces “single use” plans such as the annual budget is referred
to as
a. strategic planning.
b. managerial planning.
c. tactical planning.
d. internal planning.
2. (LO.1) A budget sets the resource constraints under which managers must operate for the
upcoming budget period. The control phase includes all of the following except:
a. making actual-to-budget comparisons.
b. providing feedback to operating managers.
c. investigating variances.
d. assigning blame for poor performance.
3. (LO.2) All of the following are operating budgets except:
a. selling and administrative budget.
b. purchases budget.
c. cash budget.
d. sales budget.
4. (LO2) When preparing the series of annual operating budgets, management usually starts the
process with the:
a. cash budget.
b. budgeted balance sheet.
c. sales budget.
d. production budget.
5. (LO.3) G Company has beginning inventory of 4,000 units. Management estimates that 35,000
units will be sold during the first quarter with a 10% increase in sales each quarter. It is the
company’s policy to maintain an ending inventory equal to 25% of the next quarter’s sales. Each
unit sells for $3.00. How much sales revenue should be budgeted for the third quarter?
a. $84,700
b. $115,050
c. $126,000
d. $127,050
6. (LO.3) L Company’s budget calls for the following production:
Quarter 1 45,000 units Quarter 3 34,000 units
Quarter 2 38,000 units Quarter 4 48,000 units

Each unit of product requires three pounds of direct material. The company’s policy is to begin
each quarter with an inventory of direct material equal to 30% of that quarter’s direct material
production requirements. Budgeted direct material purchases (in pounds) for the third quarter
would be:
a. 114,600.
b. 89,400.
c. 38,200.
d. 29,800.

7. (LO.3) The following beginning and ending inventory levels (in units) are planned for the
upcoming fiscal year:
Beginning of Year End of Year
Raw material 40,000 50,000
Work-in-process 10,000 10,000
Finished goods 80,000 50,000

Two units of raw material are needed to produce each unit of finished product. If the company
plans to sell 480,000 units during the upcoming fiscal year, the number of units it would have to
manufacture during the year would be:

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a. 510,000 units.
b. 480,000 units.
c. 450,000 units.
d. 440,000 units.
8. (LO.3) D Company is planning to sell 2,000 units and produce 2,200 units during the upcoming
month. Each unit requires 2 ounces of raw material at a cost of $15.00 per ounce and one-half hour
of direct labor at a rate of $12.50 per hour. Overhead is applied at a rate of 120% of direct labor
costs. The company has 2,000 ounces of raw material in its beginning inventory and wants to have
2,400 ounces in its ending inventory. How much direct labor cost should be budgeted for the
upcoming month?
a. $27,500
b. $16,500
c. $13,750
d. $12,500
9. (LO.3) E Company is planning to sell 2,000 units and produce 2,200 units during the upcoming
month. Each unit requires 2 ounces of raw material at a cost of $15.00 per ounce and one-half
hour of direct labor at a rate of $12.50 per hour. Overhead is applied at a rate of 120% of direct
labor costs. The company has 2,000 ounces of raw material in its beginning inventory and wants to
have 2,400 ounces in its ending inventory. How much overhead cost should be budgeted for the
upcoming month?
a. $27,500
b. $16,500
c. $13,750
d. $12,500
10. (LO.4) The following credit sales are budgeted by J Company:
January $124,000
February 120,000
March 135,000
April 140,000
May 142,000

The company's past experience indicates that 50% of receivables are collected in the month of
sale, 30% in the month following the sale, and 20% in the second month following the sale. What
amount should be budgeted as cash receipts for March?
a. $135,000
b. $128,300
c. $67,500
d. $60,800
11. (LO.4) M Company budgeted direct materials purchases of $150,000 in April and $240,000 in
May. It is the company’s practice to pay for 70% of its purchases in the month of purchase and
the remaining 30% in the following month. Other costs are all paid during the month incurred.
During May, the following items were budgeted:

Wages expense $75,000


Purchase of office equipment 36,000
Selling and administrative expenses 24,000
Depreciation expense 18,000

What amount should be budgeted for cash disbursements for May?


a. $366,000
b. $348,000
c. $324,000
d. $213,000
12. (LO.5) Select the correct formula to compute cost of goods manufactured.
a. Beginning WIP + Raw Materials Purchased + Direct Labor + Factory Overhead – Ending WIP
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b. Beginning Finished Goods + Cost of Goods Sold – Ending Finished Goods
c. Raw Materials Used + Direct Labor + Factory Overhead
d. Beginning WIP + Raw Materials Used + Direct Labor + Factory Overhead – Ending WIP
13. (LO.6) A continuous budget:
a. presents a statement of expectations for a period but does not present a firm commitment.
b. drops the current month or quarter and adds a future month or a future quarter as the current
month or quarter is completed.
c. presents the plan for only one level of activity and does not adjust to changes in the level of
activity.
d. presents the plan for a range of activity so that the plan can be adjusted for changes in
activity.
14. (LO.6) All of the following are benefits of budgeting except:
a. budgeting provides assurance that the company will achieve its objectives.
b. budgeting facilitates the coordination of activities.
c. budgeting requires managers to plan ahead.
d. budgeting provides specific benchmarks for evaluating performance.
15. (LO.7) (Appendix) Which of the following items should be included in a company’s budget
manual?
a. Sample budgetary forms
b. Calendar of scheduled budgetary activities
c. Original, revised, and approved budgets
d. All of the above should be included.

Chapter 9:

1. (LO.1) Which income statement format better facilitates the determination of a company’s
break- even point?
a. Absorption costing income statement
b. Full costing income statement
c. Variable costing income statement
d. None of the above
2. (LO.1) Select the incorrect equation for computing the breakeven
point. a. Total Fixed Costs = Total Contribution Margin
b. Total Revenue = Total Costs
c. Total Profit = $0
d. Total Variable Costs = Total Fixed Costs
3. (LO.2) A Company sells a product for $7.50 whose variable cost is $2.25 per unit. The
company needed to sell 20,000 shirts to break even. What was the company’s total fixed
costs?
a. $105,000
b. $150,000
c. $45,000
d. $3,810
4. (LO.2) B Company sells a product for $7.50 whose variable cost is $2.25 per unit. The company
needed to sell 20,000 shirts to break even and its net income was $5,040 before tax. How many
units did the company sell?
a. 2,240
b. 20,000
c. 20,672
d. 20,960
5. (LO.2) W Company manufactures a product that sells for $800 per unit. The unit variable costs
are $600 and total fixed costs are $6,600,000. The annual sales volume required for W
Company to break even is:
a. $26,400,000. b.
$8,800,000. c.
$6,600,000.

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d. None of the above.
6. (LO.3) F Company manufactures and sells T-shirts. Last year, the shirts sold for $7.50 each,
and the variable cost to manufacture them was $2.25 per unit. The company needed to sell
20,000 shirts to break even. The net income last year was $5,040. F Company’s expectation
for the coming year include the following:
- The selling price of the T-shirts will be $9.00
- Variable cost to manufacture will increase by one-third
- Fixed costs will increase by 10%
- The income tax rate of 40% will be unchanged
The number of T-shirts that must be sold to break even in the coming year is:
a. 22,000.
b. 20,000.
c. 19,250.
d. 17,500.
7. (LO.3) A calculation used in a CVP analysis determines the break-even point. Once the
break- even point has been reached, operating income will increase by the:
a. contribution margin per unit for each additional unit sold.
b. gross margin per unit for each additional unit sold.
c. fixed costs per unit for each additional unit sold.
d. variable costs per unit for each additional unit sold.
8. (LO.3) A company sells a product for $9.00 which has a variable manufacturing cost of $3.00
per unit. Last year, the company needed to sell 20,000 shirts to break even. Assuming the
company is subject to a 40% tax rate and wishes to earn $22,500 profit after tax for the coming
year, what sales will be required?
a. $257,625
b. $236,250
c. $213,750
d. $180,000
9. (LO.3) X Company sold a product last year that had a $5.00 unit contribution margin. A
significant change in the company’s production technology has caused a 10% increase in
annual fixed costs but a 20% decrease in unit variable costs. Assuming there was no change in
the product’s $10.00 selling price what is the company’s new contribution margin ratio?
a. 60%
b. 50%
c. 40%
d. Can’t be determined from the information provided
10. (LO.3) A significant change in Y Company’s production technology caused its total fixed costs of
$6,708,716 to increase by 9%. However, the change caused a 20% unit cost decrease in
direct labor and a 25% decrease in the unit material cost leading to $25 increase in its $300
unit contribution margin. After incorporating these changes, what is Y Company’s new break-
even point?
a. 22,500 units
b. 20,643 units
c. 24,375 units
d. 22,363 units
11. (LO.4) One Company sells two products, A and B. A has a unit contribution margin of $40
while B has a unit contribution margin of $25. Last year the company sold 40,000 units of
Product A and 60,000 units of Product B. What is the company’s weighted average
contribution margin?
a. ($40 + $25) / 2
b. ($40 x 40,000) + ($25 x 60,000)
c. ($40 x 0.4) + ($25 x 0.6)
d. None of the above
12. (LO.5) For a profitable company, the amount by which sales can decline before losses occur
is known as the:
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a. sales volume variance. b. hurdle rate.
c. marginal income rate. d. margin of safety.

13. (LO.5) V Company sold 10,000 units of its product for $100 per unit. It’s unit variable costs are
$20 and its total fixed costs are $600,000. Assuming the company has a 40% tax rate, what is
its degree of operating leverage?
a. 4.00
b. 0.25
c. 6.67
d. 0.15

14. (LO.6) Which of the following is not an assumption of CVP analysis?


a. All revenues and variable cost are linear.
b. Mixed costs can be accurately separated into their fixed and variable components.
c. Sales exceed production.
d. Labor productivity and market conditions will not change.

15. (LO.6) Select the incorrect statement from the following.


a. If changes occur in selling price or cost, new computations must be made for break-even
and CVP analysis.
b. In the long-term, fixed costs should be regarded as a long-term variable cost.
c. Fixed costs exist only in a short-term perspective.
d. In the future, the only nonmonetary variable included in the break-even model will be sales
volume.

Chapter 10:
1. (LO.1) Which of the following is not a required characteristic of relevant information?
a. Must be associated with the decision under consideration
b. Must have a connection to or bearing on some future endeavor
c. Must be important to the decision maker
d. Must be verifiable by an independent reviewer or auditor
2. (LO.1) Contribution to income that is foregone by not using a limited resource for its best
alternative use is referred to as
a. marginal cost.
b. incremental cost.
c. non-relevant cost.
d. opportunity cost.
3. (LO.1) Total unit costs are:
a. relevant for cost-volume-profit analysis. b.
needed for determining sunk costs.
c. non-relevant in marginal analysis.
d. needed for determining product contribution.
4. (LO.2) Sunk costs are:
a. relevant to decision making.
b. not relevant to decision making.
c. non-relevant to long-run decisions but not to short-run decisions. d.
fixed costs.
5. (LO.2) In equipment-replacement decisions, which one of the following does not affect the
decision-making process?
a. Historical cost of the old equipment b.
Cost of the new equipment
c. Operating costs of the new equipment
d. Current disposal price of the old equipment
6. (LO.3) Select the incorrect statement from the following.
a. A cost that is the same for multiple alternatives under consideration is not relevant.
b. The cost of acquiring the machine that is currently used to produce a component is relevant in
making an outsourcing decision.
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c. The cost to acquire a component in a make or buy decision is relevant.
d. The salvage or residual value of a piece of machinery is relevant in a keep-or-replace
decision.
7. (LO.3) A company’s approach to a make-buy decision a.
involves an analysis of avoidable costs.
b. depends on whether the company is operating at or below breakeven.
c. should use absorption costing.
d. should use activity-based costing.
8. (LO.3) P Company currently manufactures all component parts used in the manufacture of
various small appliances. A steel handle is used in three different products. The current year
budget for 20,000 handles has the following unit cost:
Direct material $0.60
Direct labor 0.40
Variable overhead 0.10
Fixed overhead 0.20
Total unit cost $1.30

A steel company has offered to supply 20,000 handles to P Company for $1.25 each, which
includes delivery. Accepting the offer will:
a. decrease the handle unit cost by $0.15.
b. decrease the handle unit cost by $0.25.
c. increase the handle unit cost by $0.15.
d. Increase the handle unit cost by $0.05.
9. (LO.4) Select the incorrect statement concerning scarce resource decisions.
a. Unit contribution margin rather than gross margin is the appropriate measure of profitability.
b. Scarce resources may include machine hours, skilled labor hours, and raw materials.
c. If the objective is to maximize profits, a scarce resource is best used to produce and sell the
product generating the highest contribution margin per unit.
d. Although in the long run, a company may acquire a higher quantity of the scarce resource, in
the short run, management must make the most efficient use of the currently available
resources.
10. (LO.5) D Company recently expanded its manufacturing capacity, which will allow it to produce up
to 15,000 units of Products A and B. The sales department believes it can sell up to 13,000 units of
either product this year. Because the two products are very similar, D Company will produce only
one of the two products. The following information is available:

Per Unit Data


Product A Product B
Selling price $88.20 $80.00
Variable costs 52.80 52.80

Fixed costs will total $369,600 if Product A is produced but will be only $316,800 if Product B is
produced. D Company is subject to a 40% income tax rate. If the company desires an after-tax
profit of $24,000, how many units of Product B will the company have to sell?
a. 4,460
b. 12,529
c. 13,118
d. 13,853

11. (LO.6) Select the correct statement concerning special order decisions.
a. Such decisions must not violate the Robinson-Patman Act which prohibits companies from
pricing the same product at different levels when those amounts do not reflect related cost
differences.
b. Companies may give ad hoc discounts if such concessions relate to real or imagined
competitive pressures.
c. Special order decisions often hinge on productive capacity issues.
d. All of the above are correct.

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12. (LO.6) R Company sells a product for $10.00 that has the following unit cost:
Direct material $1.60
Direct labor 2.40
Variable overhead 1.20
Fixed overhead 1.30
Total unit cost $6.50

A company that does not compete with R Company’s existing customers has made an offer to
purchase 1,000 units of the product at a proposed price of $6.00. R Company is currently selling
all of the units it can produce to its existing customers. Select the correct statement from the
following.
a. Reject the offer since the offer price is less than the unit production cost.
b. Accept the offer since the offer price exceeds the sum of the variable costs.
c. Reject the offer to avoid a $4.00 per unit decrease in profit on the 1,000 units. d.
Accept the offer since the offer price exceeds the unit fixed cost.
13. (LO.7) Select the correct definition of segment margin from the following:
a. Revenue – Expenses
b. Revenue – Variable Costs
c. Revenue – Variable Costs – Avoidable Fixed Costs
d. Revenue – Variable Costs – Unavoidable Fixed Costs
14. (LO.8) (Appendix) What problem is being addressed with the following objective function: VC =
VC1X1 + VC2X2?
a. Maximization problem
b. Minimization problem c.
Feasible problem
d. Non-negative problem
15. (LO.8) (Appendix) Select the incorrect statement concerning linear programming.
a. The feasible region must fall within or on all of the constraint lines.
b. A corner formed by constraint lines is called a vertex.
c. The optimal solution is found midway between two vertexes.
d. The simplex method is a more efficient way to handle complex linear programming problems.

Chapter 11:
1. (LO.1) A product that results from a joint process may be classified as
a. a joint product.
b. a by-product.
c. scrap.
d. All of the above.
2. (LO.1) Select the incorrect statement from the following.
a. Producing first-quality merchandise and factory seconds in a single operation can be viewed
as a joint process.
b. Waste is a residual output from many production processes whose sales value is comparable
to that of by-products.
c. By-products are distinguished from scrap by their higher sales value.
d. While joint cost allocations are necessary to determine financial statement valuations, such
allocations should not be used in making internal decisions.
3. (LO.1) Select the incorrect statement concerning the split-off point.
a. The split-off point is the point at which joint process outputs are first identifiable as individual
products.
b. If joint output is processed beyond the split-off point, additional costs will be incurred and
must be assigned to the specific products for which those costs were incurred.
c. A single joint process cannot have multiple spit-off points.
d. Output may be sold at the split-off point or processed further and then sold.
4. (LO.2) In joint product costing and analysis, which one of the following costs is relevant when
deciding the point at which a product should be sold in order to maximize profits?
a. Purchase costs of the materials required for the joint products
b. Separable costs after the split-off point

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c. Joint costs to the split-off point
d. Sales salaries for the period when the units were produced
5. (LO.2) Before committing resources to a joint process, management must first decide whether
total expected revenue from selling the joint output ‗basket‘ of products is likely to exceed the:
a. selling expenses for the goods.
b. joint costs and separate processing costs after split-off.
c. disposal costs for any waste generated.
d. All of the above.
6. (LO.2) When estimating unit selling prices for use in allocating joint production costs, which of the
following should be considered?
a. Competitor prices
b. Consumers‘ sensitivity to price changes
c. Costs
d. All of the above
7. (LO.3) All of the following are common monetary measures for allocating joint costs to joint
products except:
a. approximated net realizable value at split-off.
b. gross margin at split-off.
c. net realizable value at split-off.
d. sales value at split-off.
8. (LO.3) LS Company manufactures two products, Product L and Product S in a joint process. The
joint (common) costs incurred are $420,000 for a standard production run that generates 180,000
units of L and 120,000 units of S. Product L sells for $2.40 per unit while Product S sells for $3.90
per unit. Assuming both products are sold at the split-off point, the amount of joint cost of each
production run allocated to Product L on a net realizable value (NRV) basis is:
a. $252,000.
b. $218,400.
c. $201,600.
d. $168,000.

9. (LO.3) Products A and B are manufactured in a joint process. The joint (common) costs incurred
are $252,000 for a standard production run that generates 108,000 gallons of Product A which
sells for $2.40 per gallon and 72,000 gallons of Product B which sells for $3.90 per gallon. If no
additional costs are incurred after the split-off point, the amount of joint cost of each production
run allocated to Product B on a physical measure basis is:
a. $100,800.
b. $140,000.
c. $151,200.
d. $280,800.

10. (LO.3) Products X and Y are manufactured in a joint process. The joint (common) costs incurred
are $420,000 for a standard production run that generates 180,000 gallons of Product X which sells
for $2.40 per gallon and 120,000 gallons of Product Y which sells for $3.90 per gallon. If additional
processing costs beyond the split-off point are $1.40 per gallon for Product X and $0.90 per gallon
for Product Y, the amount of joint cost allocated to Product Y on a net realizable value basis is:
a. $280,000.
b. $252,000.
c. $168,000.
d. $140,000.
11. (LO.3) M Company incurs $10,000,000 in joint costs for its three products. The company
estimates the products‘ production, final selling price, and separate costs after split-off as follows:
Estimated Estimated
Product Production Selling Price Separate Cost
Product A 3,000 $2,000 $200
Product B 2,400 $3,000 $500

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Product C 1,200 $1,500 $100

How much of the joint costs should be allocated to Product A under the approximated net
realizable value at split-off? (Note: round percentages to zero decimal places.)
a. $4,600,000
b. $4,100,000
c. $1,300,000
d. None of the above
12. (LO.4) P Inc. always generates a certain amount of waste due to the nature of its production
activities regardless of which products it is producing at the time. After production in a recent
month, the company sold $200 of scrap. Which of the following is the correct entry to record the
sale of the scrap using the realized value approach?
a. Cash 200
Manufacturing Overhead 200
b. Cash 200
Finished Goods 200
c. Cash 200
Scrap Inventory 200
d. Cash 200
Work in Process 200
13. (LO.4) Select the incorrect statement concerning the accounting for by-product and scrap.
a. Reducing joint cost by the NRV of the by-product/scrap is the traditional method used to
account for such goods.
b. Regardless of whether a company uses the NRV or the realized value approach, the specific
method used to account for by-product should be established before the joint cost is allocated
to the joint products.
c. Two common methods used to account for by-products are the NRV approach and the
realized value approach.
d. Under the realized value approach, the estimated selling price of the by-product is recognized
prior its actual sale.
14. (LO.5) Not-for-profit organizations may charge the entire cost of a joint activity to fund-raising if all
of the following criteria are met except:
a. amount.
b. audience.
c. content.
d. purpose.
15. (LO.5) If a majority of compensation or fees for anyone performing a part of an activity is tied to
contributions raised, the activity automatically fails the
a. purpose criterion and all costs of the activity must be charged to program activities.
b. content criterion and all costs of the activity must be charged to fund-raising.
c. purpose criterion and all costs of the activity must be charged to fund-raising.
d. audience criterion and all costs of the activity must be charged to administrative activities.

Chapter 12:
1. (LO.1) Select the incorrect statement concerning the historical relationship between cost
accounting systems and financial accounting systems.
a. The two systems often compete.
b. Financial accounting systems have been the dominant system.
c. For financial reporting requirements, cost information must be highly segmented.
d. Information provided by the financial reporting system is often of little value for cost
management purposes.
2. (LO.1) A structure of interrelated elements that collects, organizes, and communicates data to
managers so they can plan, control, make decisions, and evaluate performance is a:
a. cost management system (CMS).
b. enterprise resource planning (ERP) system.
c. management control system (MCS).
d. management information system (MIS).
3. (LO.1)Which of the following is not a primary component of a management control system?
a. Assessor
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b. Black box
c. Effector
d. Sensor
4. (LO.2) Which of the following is not an organizational role of a cost management system?
a. Help manage core competencies
b. Link plans and strategies to actual organizational performance
c. Help identify tactics to fend off organizational threats
d. Identify the organization’s mission
5. (LO.3) Which of the following is not a primary goal of a cost management system?
a. Assess product/service life-cycle performance
b. Develop accurate product costs
c. Identify the company’s least profitable customers
d. Measure performance
6. (LO.3) The product/service costs generated by the CMS are used for which of the following
purposes?
a. Prepare financial statements
b. Create a basis for performance measurements
c. Establish prices for cost-plus contracts
d. All of the above
7. (LO.4) The relative composition of an organization’s fixed and variable costs and, thus, how
costs change relative to changes in production or sales volume is referred to as its:
a. cost behavior.
b. cost horizon.
c. cost pattern.
d. cost structure.
8. (LO.4) The underlying set of assumptions about the entity and the goals, processes,
practices, and values that its member share is referred to as its:
a. mission.
b. strategic plan.
c. organizational culture.
d. organizational structure.
9. (LO.4) The strategy of identifying and exploiting temporary opportunities for advantage is
known as a
a. confrontational strategy.
b. cost leadership strategy.
c. differentiation strategy.
d. systematic strategy.
10. (LO.4) Core competencies which are the operational dimensions that are key to the
company’s survival include:
a. quality.
b. customer service.
c. cost control.
d. all of the above.
11. (LO.4) Select the incorrect statement from the following.
a. High-tech companies can’t pursue a cost leadership strategy due to the high costs of
technology.
b. Management of high technology costs requires beating competitors to the market with
new products.
c. Often, getting products to market quickly and profitably requires a compromise between
product innovation and superior product design.
d. The faster a product gets to market, the fewer competitive products will exist.
12. (LO.4) Cost control (Cost Leadership), product replacement (Product Differentiation), and
Distribution channel development (Confrontation) are activities for which product life cycle?
a. Build
b. Harvest
c. Hold
d. Grow
13. (LO.5) Stock options are an example of a:
a. cash incentive plan.
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b. short-term performance incentive. c.
long-term performance incentive.
d. none of the above.

14. (LO.5) Select the item that incorrectly details the shift in control emphasis in future
competitive environments?
a. Performance Measurement: From concentrating on multiple types of critical success
measures to concentrating on financial results
b. Cost Standards: from using expected standards to using ideal standards
c. Budgeting: From developing annual budgets to developing rolling budgets
d. Product Offerings: From developing a limited number of product styles to engaging in
mass customization to entice a wide variety of customers

15. (LO.6) Which of the following is not an objective of enterprise resource planning systems?
a. Manage and coordinate a myriad of organizational activities b.
Maintain the company’s various legacy information systems
c. Improve operational efficiencies
d. Take advantage of cost savings from shared service centers
Chapter 13:
1. (LO.1) Select the incorrect statement concerning decentralization.
a. When top management delegates decision-making authority to subunit managers,
decentralization exists.
b. The degree of centralization can be viewed as a continuum.
c. Decentralized companies often centralize certain functions such as the treasury function.
d. When functions and the decision-making authority for those functions are delegated, top
management no longer retains any responsibility for those functions.

2. (LO. 1) All of the following are advantages of decentralization except:


a. reduces decision-making time.
b. helps top management recognize and develop managerial talent.
c. requires less communication between organizational units.
d. All of the above are advantages.

3. LO.2) A responsibility accounting system is the key management control tool in


a. decentralized organizations.
b. centralized organizations.
c. sole proprietorships.
d. none of the above.

4. (LO.2) Which of the following is not a basic control function of a responsibility accounting system?
a. Monitor the differences between planned and actual data at scheduled intervals
b. Prepare a plan and use it to communicate output expectations
c. Exert managerial influence in response to significant differences
d. Insure the company’s books do not get out of balance

5. (LO.3) The men’s shoe department at Macy’s is most likely organized as


a. an investment center.
b. a cost center.
c. a revenue center. d.
none of the above.

6. (LO.3) Select the incorrect statement from the following.


a. Another term for investment center is profit center.
b. Service departments (e.g., maintenance and housekeeping) are commonly organized as cost
centers.
c. Responsibility accounting systems identify, measure, and report on the performance of
responsibility centers and their managers.

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d. In most instances, pure revenue centers do not exist because their managers are also
responsible for managing some costs in the center.

7. (LO.4) The following sales data is provided for one of J Company’s products:
Budgeted Actual
Unit Selling Price $10 $8
Unit sales volume 10,000 12,000

What was the product’s total revenue variance?


a. $24,000 unfavorable
b. $20,000 favorable
c. $4,000 favorable
d. $4,000 unfavorable

8. (LO.5) In allocating the factory utilities support department costs to producing departments, which
one of the following would most likely be used as an activity base?
a. Units of products sold
b. Salary of support department employees
c. Units of electric power consumed
d. Direct materials usage

The next three questions are based on the following information:

M Company wishes to allocate the costs of its support departments, Housekeeping (HK) and
Maintenance (MN) to its production departments, Machining and Finishing. The following
information is provided:
HK MN Machining Finishing Total
Overhead costs $35,000 $20,000 $200,000 $100,000 $355,000

The company plans to use budgeted service hours as the allocation base and provides the
following information:
S e r v i c e s P r o v I d e d T o:
HK MN Machining Finishing Total
Service provided by HK — 7,000 21,000 7,000 35,000
Service provided by MN 10,000 — 18,000 12,000 40,000

9. (LO.5) If the direct method of allocating support department costs is used, the total service costs
allocated to the Finishing Department would be:
a. $8,000.
b. $8,750.
c. $12,000.
d. $16,750.

10. (LO.5) If the step-down method of allocating support department costs is used, how much
Maintenance Department costs would be allocated to the Finishing Department if the allocation
process begins with Housekeeping?
a. $7,000
b. $10,800
c. $16,200
d. $20,000

11. (LO.5) If the reciprocal method of allocating service costs is used, what total amount of
Housekeeping costs (rounded to the nearest dollar) will ultimately be allocated to the other
departments?
a. $42,105
b. $35,000
c. $33,684
d. $28,421
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12. (LO.5) The following information is provided for V Company which has two service departments
(S1 and S2) and two production departments (P1 and P2):
S1 S2 P1 P2 Total
Overhead costs $10,000 $15,000 $125,000 $150,000 $300,000
Services ProvIded T o:
S1 S2 P1 P2 Total
Service provided by S1 — 10% 45% 45% 100%
Service provided by S2 15% — 40% 45% 100%

Select the correct equation for use in allocating S1 costs under the reciprocal method. a.
S1 = $10,000
b. S1 = $10,000 + .15(S2)
c. S1 = $10,000 + .10(S2)
d. S1 = $10,000 + .10(S2) + .45(P1) + .45(P2)

13. (LO.6) Which of the following is not a type of transfer price used by companies that transfer
products or components among sister divisions?
a. Negotiated
b. Market-based
c. Standard-based
d. Cost-based

14. (LO.6) Transfers between units often have lower packaging, advertising, and delivery costs than
similar sales to external customers. This can be a problem for which of the following transfer
pricing systems?
a. Negotiated
b. Market-based
c. Standard-based
d. Cost-based

15. (LO.7) Which of the following is a difficulty encountered by multinational companies?


a. Differences in tax systems, customs duties, freight and insurance costs, import/export
regulations, and foreign-exchange controls
b. The ability to determine what transfer price would be considered reasonable as though
generated in an arm’s-length transaction
c. The increase in transfer pricing audits by tax authorities
d. All of the above are difficulties

Chapter 14:
1. (LO.1) Select the incorrect statement about organization mission statements.
a. Not all organizations have a reason or mission for which it exists.
b. The mission statement identifies how the organization will meet its customer needs.
c. Mission statements must be communicated to internal and external stakeholders.
d. The organization’s mission can be used as the underlying base for setting organizational
goals and objectives.

2. (LO.2) Internal performance measures should reflect concern for


a. streamlined production.
b. high quality.
c. minimization of product complexity.
d. all of the above.

3. (LO.2) The most common performance measure used for all organizations is
a. cost control.

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b. revenue growth.
c. profit.
d. stock price.

4. (LO.3) Which of the following is not a general criteria for designing a performance measurement
system?
a. The measures should be established to assess progress toward the organizational mission
and its related goals and objectives.
b. If the other criteria are followed carefully, feedback is not necessary as employees will
evaluate their own performance.
c. The persons being evaluated should have input in developing the performance measures.
d. The persons being evaluated should have the appropriate skills, equipment, information, and
authority to be successful under the measurement system.

5. (LO.4) Return on investment is expressed as income


a. divided by the current year’s capital expenditures.
b. divided by liabilities.
c. divided by assets invested.
d. divided by total stockholders’ equity.

6. (LO.4) How is return on investment computed under the Du Point model?


a. Profit Margin + Asset Turnover
b. Profit Margin / Asset Turnover
c. Profit Margin – Asset Turnover
d. Profit Margin x Asset Turnover

7. (LO.4) Which of the following management actions will increase return on investment?
a. Raising selling prices without impairing demand
b. Increasing expenses
c. Increasing investment in assets
d. All of the above

8. (LO.4) When using the residual income (RI) approach for evaluation purposes, expansion (or
additional investments in assets) should occur in an investment center when
a. RI exceeds the cost of capital.
b. RI is positive.
c. RI is negative.
d. RI is less than the cost of capital.

9. (LO.4) One of X Company’s investment centers had the following operating statistics:
Sales $450,000
Operating income 25,000
X Co. net profit after taxes 8,000
Total assets 500,000
Shareholders’ equity 200,000

Assuming the company’s cost of capital is 6%, which one of the following statements is correct?
a. The center’s residual income is ($5,000). b. The center’s return on investment is 4%.
c. The center’s residual income is ($22,000). d. The center’s residual income is $13,000.

10. (LO.5) Measurements of success in which of the following areas would be leading indicators of
increased market share and profitability?
a. Product quality
b. Speed of delivery
c. Company reputation
d. All of the above

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11. (LO.6) Select the incorrect statement concerning nonfinancial performance measures (NFPMs).
a. NFPMs are based on nonmonetary details, such as time, quantities, and ratios.
b. Using as many NFPMs as possible will increase employee motivation.
c. Appropriate nonfinancial metrics are those that can be clearly articulated and defined.
d. NFPMs have many distinct advantages over financial performance measures.

12. (LO.7) Although internal measures are useful, a company’s true organizational performance can
only be assessed by
a. top management.
b. customers.
c. workers.
d. government regulators.

13. (LO.8) Earnings per share would most likely be a metric for which of the following balanced
scorecard perspective?
a. Internal business
b. Customer
c. Financial
d. Learning and growth

14. (LO.9) Which of the following rewards are most appropriate for a performance-based
compensation plan?
a. Monetary rewards
b. Non-monetary rewards
c. Short-term and long-term rewards
d. All of the above

15. (LO.10) All of the following factors should be considered in designing a compensation package for
expatriates except:
a. language spoken in the foreign subsidiary.
b. currency fluctuations.
c. labor market factors.
d. cost of living adjustments.

Chapter 15:
1. (LO.1) Which of the following is not a quantitative capital project evaluation method illustrated in
the text?
a. Discounted payback period
b. Profitability index
c. Market share
d. All of the above are quantitative capital project evaluation methods.

2. (LO.2) The payback period for an investment project is defined as the


a. number of years required for cumulative project profits to equal the initial investment.
b. number of years required for cumulative project cash flows to equal the average investment. c.
number of years required for cumulative project cash flows to equal the initial investment.
d. period of time sufficient to earn a return equal to the cost of capital.

The next three questions are based on the following information:

A Company is reviewing an investment proposal whose initial cost will be $105,000 and whose
returns are presented in the following schedule:

Annual
Net After-Tax Annual
Year Book Value Cash Flows Net Income
1 $70,000 $50,000 $15,000
2 42,000 45,000 17,000
3 21,000 40,000 19,000
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4 7,000 35,000 21,000
5 -0- 30,000 23,000

All cash flows are assumed to take place at the end of the year. The salvage value of the
investment at the end of each year is equal to its net book value and there will be no salvage value
at the end of the investment’s life. The company uses an 8% after-tax target rate of return for new
investment proposals. The present value interest factors for an 8% rate of return are provided
below:
Present Value of PV of an Annuity of
$1 Received at $1 Received at
Year the End of Period the end of Each Period
1 .93 .93
2 .86 1.79
3 .79 2.58
4 .74 3.32
5 .68 4.00

3. (LO.2) The traditional payback period for the investment proposal is


a. 0.875 years.
b. 1.933 years.
c. 2.250 years.
d. over 5 years.

4. (LO.3) The net present value of the investment proposal is


a. ($30,240).
b. $58,100.
c. $163,100.
d. $200,000.

5. (LO.3) What is the investment’s profitability index?


a. 1.90
b. 1.55
c. 1.00
d. 0.90

6. (LO.3) Select the incorrect capital budgeting decision rule from the following.
a. Under the NPV model, accept a project whose NPV is zero.
b. Under the PI model, accept all projects whose PI is 1.0 or lower.
c. Under the NPV model, accept a project whose NPV is positive.
d. No general decision rule is available for the payback model.

7. (LO.4) Select the incorrect statement concerning the internal rate of return (IRR) method of
evaluating capital projects.
a. The IRR is the discount rate that causes the net present value to be zero.
b. The IRR is most easily computed for projects having equal annual net cash inflows.
c. Any project with a positive IRR should be accepted.
d. Manually finding the IRR of a project that has unequal annual cash flows requires an iterative
trial-and-error process.

8. (LO.5) Which of the following equations correctly computes the tax benefit of depreciation?
a. Depreciation tax deduction x the tax rate
b. Depreciation tax deduction x (1 – the tax rate)
c. Depreciation tax deduction x (1 + the tax rate)
d. Depreciation tax deduction

9. (LO.6) All of the following are limitations of the payback method of evaluating capital projects
except:

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a. cash flows and project life are treated as deterministic without explicit consideration of
probabilities.
b. the time value of money is ignored.
c. the cash flow pattern preferences are not explicitly recognized.
d. project returns are measured in terms of earnings.

10. (LO.7) The rankings of mutually exclusive investments determined using the internal rate of return
(IRR) method and the net present value (NPV) method may be different when
a. the lives of the multiple projects are equal and the size of the required investments are equal.
b. the required rate of return equals the IRR of each project.
c. the required rate of return is higher than the IRR of each project.
d. multiple projects have unequal lives and the size of the investment for each project is
different.

11. (LO.8) A formal method of considering capital project risk requires making adjustments to the
discount or hurdle rate. Under the risk-adjusted discount rate method, the decision maker
a. increases the rate used for discounting future cash inflows.
b. decreases the rate used for discounting future cash inflows.
c. does not adjust the discount rate for future cash inflows.
d. only adjusts the discount rate for future cash outflows.

12. (LO.9) Select the incorrect statement concerning postinvestment audits.


a. In a postinvestment audit of a capital project, information on actual project results is gathered
and compared to expected results.
b. A postinvestment audit becomes more crucial as the size of the capital expenditure
increases.
c. A postinvestment audit eliminates the likelihood that project sponsors will provide overly
optimistic forecasts of future revenues or cost savings.
d. Postinvestment audit comparisons should be made using the same techniques used
originally to determine project acceptance.

13. (LO.10 Appendix 1) Select the incorrect statement concerning the time value of money.
a. Future values depend on three factors: amount of cash flow, rate of interest, and timing.
b. From an investor’s perspective, simple interest is preferable to compound interest.
c. An ordinary annuity in one in which the cash flows occur at the end of the period.
d. The time between interest computations is referred to as the compounding period.

14. (LO.11 Appendix 2) All of the following capital budgeting models measure project returns using
cash flows except the
a. accounting rate of return model. b. internal rate of return model.
c. net present value model. d. payback model.

15. (LO.11 Appendix 2) G Company is reviewing an investment proposal that will cost $100,000 and
that is expected to have the following returns:
Annual
Net After-Tax Annual
Year Cash Flows Net Income
1 $40,000 $50,000
2 40,000 40,000
3 40,000 30,000
4 40,000 20,000

All cash flows are assumed to take place at the end of the year. Zero salvage value is expected at the
end of the investment’s life. The company uses a 8% target rate of return for new investment proposals.
What is this project’s accounting rate of return using the initial value of the investment?

a. 35%
b. 40%
c. 70%
d. 80% www.testbanksuccess.com
Chapter 16:
1. (LO.1) Select the response that shows the correct order of the steps in a cost control system.
a. Evaluate → Plan → Respond → Execute
b. Evaluate → Plan → Execute → Respond
c. Plan → Execute → Respond → Evaluate
d. Plan → Execute → Evaluate →Respond

2. (LO.1) Preparing variance reports for a division is a cost control method for which of the following
control points?
a. After an event
b. During an event
c. Before an event
d. All of the above

3. (LO.2) Cost changes may be attributed to which of the following factors?


a. Volume changes
b. Inflation
c. Supply/supplier cost adjustments
d. All of the above

4. (LO.3) Cost containment is not possible for:


a. reduced supplier competition.
b. supply and demand adjustments.
c. quantities purchased.
d. seasonality.

5. (LO3.) The practice of finding acceptable alternatives to high-cost items or not spending money
for unnecessary goods or services is referred to as:
a. cost reduction.
b. cost management.
c. cost avoidance.
d. cost containment.

6. (LO.4) Committed costs:


a. may be partially controlled by comparing actual and expected results from plant asset
investments.
b. include costs such as maintenance and advertising.
c. are usually not measurable in monetary terms.
d. are generated by activities that vary in type and magnitude from day to day.

7. (LO.4) Discretionary costs are:


a. costs such as depreciation and staff salaries.
b. those management decides to incur in the current period to enable the company to achieve
objectives other than the filling of orders placed by customers.
c. governed mainly by past decisions that established the current levels of operating and
organizational capacity and that only change slowly in response to small changes in capacity.
d. unaffected by current managerial decisions.

8. (LO.5) Discretionary costs are generally budgeted on the basis of all of the following factors
except:
a. the upcoming period’s expected level of operations.
b. the previous period’s actual costs.
c. the related activity’s perceived significance to achieving the organization’s goals.
d. the ability of managers to effectively negotiate during the budgetary process.

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9. (LO.6) Which of the following is not a reason firms hold cash?
a. To cover unexpected events
b. For speculation
c. To liquidate transactions
d. All of the above are reasons why firms hold cash.

10. (LO.6) Which of the following variables influences the cost of carrying cash?
a. Cost of borrowing
b. Cost of issuing equity capital
c. Opportunity cost of holding cash
d. All of the above

11. (LO.7) Purchases of indirect materials and nonoperating inputs such as office supplies are
increasingly being accomplished using an e-procurement system. W hich of the following
functions is typically not included in such a system?
a. Payment function
b. Requisitioning function
c. Forecasting function
d. Ordering function

12. (LO.8) A decision maker is operating in an environment in which all the facts surrounding a decision
are known exactly, and each alternative is associated with only one possible outcome. The
environment is known as:
a. conflict. b. risk.
c. uncertainty. d. certainty.

13. (LO.9) All of the following are strategies for dealing with uncertainty except:
a. explicitly considering uncertainty when estimating future costs.
b. installing new information technology.
c. structuring costs to adjust to uncertain outcomes.
d. insuring against occurrences of specific events.

14. (LO.9) What coefficient of correlation results from the following data?
X Y
1 10
2 8
3 6
4 4
5 2

a. - 1
b. 0
c. +1
d. +100

15. (LO.9) In regression analysis, which of the following correlation coefficients represents the
strongest relationship between the independent and dependent variable

a. - .50
b. .00
c. .50
d. 1.00

Chapter 17:

1. (LO.1) All of the following are important non-value-adding process activities except:

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a. storing products for which there is little immediate demand.
b. sealing the finish on materials prior to assembly.
c. moving materials.
d. experiencing unscheduled production interruptions.

2. (LO.1) A graph of actual process results that shows upper and lower limits for the process and
which is used to detect when the process is out of control is known as a:
a. control chart.
b. pareto chart.
c. breakeven chart.
d. process chart.

3. (LO.1) Which of the following is least likely to be included in a customer definition of quality?
a. Reliability
b. Performance
c. Non-value added activities
d. Aesthetics

4. (LO.2) The benchmarking practice in which a product or service is examined using a process
known as reverse engineering is:
a. process benchmarking.
b. internal benchmarking.
c. strategic benchmarking.
d. results benchmarking.

5. (LO.2) The benchmarking approach that seeks process performance information from outside the
organization’s own industry and which can result in a 35% improvement in performance is
a. Strategic benchmarking.
b. Results benchmarking.
c. Process benchmarking.
d. Internal benchmarking.

6. (LO.3) Which of the following is an important tenet of the total quality management (TQM)
philosophy?
a. To dictate continuous improvement for an internal managerial system of planning, controlling,
and decision making for continuous improvement
b. To require participation by everyone in the organization
c. To focus on improving goods/services from the customer point of view
d. All of the above are tenets of TQM

7. (LO.3) Which of the following is usually maintained in the database of a customer loyalty system?
a. Frequency of use
b. Customer preferences
c. Credit card data
d. All of the above

8. (LO.4) To win the Malcolm Baldrige National Quality Award, applicants must show excellence in
all of the following categories except:
a. leadership.
b. customer focus.
c. cost containment.
d. strategic planning.
9. (LO.4) All of the following are internal benefits of TQM except:
a. Increased customer trust and loyalty
b. Reduced number of errors
c. Increased profitability through reduced costs
d. Increased innovation and acceptance of new ideas

10. (LO.5) The four costs of quality can be classified into two categories:

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a. Costs of compliance and costs of assurance
b. Costs of noncompliance and costs of quality failure
c. Costs of compliance and costs of quality failure
d. Internal costs and external costs

11. (LO.5) The four categories of costs associated with product quality costs are:
a. external failure, internal failure, prevention, and carrying.
b. external failure, internal failure, prevention, and appraisal.
c. external failure, internal failure, training, and appraisal.
d. warranty, product liability, prevention, and appraisal.

12. (LO.5) The cost of scrap, rework, and tooling changes in a product quality cost system are
categorized as a(n):
a. external failure cost.
b. internal failure cost.
c. training cost.
d. prevention cost.

13. (LO.5) The cost of statistical quality control in a quality cost system is categorized as a(n):
a. appraisal cost.
b. internal failure cost.
c. training cost.
d. prevention cost.

14. (LO.6) All of the following would generally be included in a cost-of-quality report except:
a. warranty claims.
b. design engineering.
c. supplier evaluations.
d. lost contribution margin.

15. (LO.6) Listed below are selected line items from the cost-of-quality report for N Co for the last
month:
Category Amount
Rework $ 725
Equipment maintenance 1,154
Product testing 786
Product repair 695

What is N Co’s total prevention and appraisal cost for the last month?
a. $786
b. $1,154
c. $1,940
d. $2,665

Chapter 18:

1. (LO.1) Every company has upstream suppliers and downstream customers. These relationships
may be referred to as a
a. total quality management system.
b. kanban system.
c. value chain.
d. just-in-time network.

2. (LO.2) Which of the following items is not included in annual inventory carrying costs?
a. Inventory storage cost
b. Inventory purchase cost
c. Insurance on inventory
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d. Property taxes on inventory

3. (LO.3) The approach to producing inventory in which production is conducted in anticipation of


customer orders is referred to as a
a. just in time system. b. push system.
c. value chain. d. pull system.

4. (LO.3) The primary objective of a pull system of production is to minimize:


a. the purchase cost of inventory.
b. the number of parts needed to produce a product.
c. the number of production supervisors needed in the factory.
d. the cost of carrying inventory.

5. (LO.4) Which of the following is not a stage of development in a product’s life cycle?
a. Maturity b. Growth
c. Entrenchment d. Introduction

6. (LO.4) In which stage of the product life cycle are costs usually at their lowest level and profits at
their highest levels?
a. Maturity
b. Growth
c. Entrenchment
d. Introduction

7. (LO.5) Select the correct equation for a product’s target cost (TC).
a. TC = Estimated selling price x (Acceptable profit margin + Selling and administrative costs)
b. TC = Estimated selling price / Acceptable profit margin + Selling and administrative costs)
c. TC = Estimated selling price - Acceptable profit margin - Selling and administrative costs
d. TC = Estimated selling price + (Acceptable profit margin - Selling and administrative costs)

8. (LO.6) Which of the following is a primary goal of just-in-time systems?


a. Eliminating any production process that does not add value to the product/service
b. Reducing the total cost of production/performance while increasing quality c.
Continuously improving production/performance efficiency
d. All of the above

9. (LO.6) What is the optimal JIT situation with regard to supplier relationships?
a. Have only one vendor for any given item
b. Use at least two vendors for each item purchased to minimize chances of stockout
c. Acquire all items needed to produce the company’s products from a single vendor
d. None of the above

10. (LO.7) A production system involving a network of robots and material conveyance devices
monitored and controlled by computers that allows for rapid production and responsiveness to
changes in production needs is referred to as:
a. flexible manufacturing system.
b. computer-integrated manufacturing system.
c. focused factory arrangement system.
d. virtual reality manufacturing system.

11. (LO.8) Select the incorrect statement concerning lean enterprises.


a. Lean manufacturing refers to making only those items in demand by customers and making
those items without waste.
b. Like JIT, one of the primary goals of lean manufacturing is to eliminate value-added activities.
c. Lean enterprises seek to lower cycle times and increase quality.
d. Lean manufacturing can lead to reduced product life cycles.

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12. (LO.9) Points at which the processing levels are sufficiently slow to produce idle time in other
processing mechanisms in the network are referred to as
a. stress points.
b. bottlenecks.
c. traffic jams.
d. backflush points.

13. (LO.10 Appendix) The annual demand for mantle clocks is estimated to be 5,000 units. The
annual cost of carrying one unit in inventory is $10, and the cost to initiate a producti on run is
$1,000. There are no clocks on hand and so the company plans to schedule four equal
production runs for the coming year. The company operates 250 business days per year. Assume
that sales occur uniformly throughout the year and that production is instantaneous. If the
company does not maintain a safety stock, the estimated total annual carrying costs for the
mantle clock is:
a. $10,250.
b. $6,250.
c. $5,000.
d. $4,000.

14. (LO.10 Appendix) B Company needs help in determining the number of production runs it should
schedule for the coming year. It has no beginning inventory, annual demand of 5,000 units, annual
cost of carrying one unit in inventory is $10, and the estimated cost of setting up a production run
is $1,000. How many production runs are needed for the coming year?
a. 7
b. 5
c. 4
d. 2

15. (LO.10 Appendix) When the level of safety stock is increased:


a. lead time will increase.
b. carrying costs will decrease.
c. the frequency of stock outs will decrease.
d. lead time will decrease.

Chapter 19:
1. (LO.1) Which of the following is not a major business trend promoting the increased use of
business process reengineering?
a. Increasing use of the corporate form of business organization
b. Advancement of technology
c. Pursuit of increased quality
d. Increase in price competition caused by globalization

2. (LO.1) Business process reengineering changes the way firms execute processes by:
a. making better use of technology.
b. making less use of technology.
c. using more employees.
d. eliminating all but the most profitable products in order to simply operations.

3. (LO.2) Global competition is forcing firms to downsize and restructure operations to:
a. defend core competencies.
b. remain cost competitive.
c. eliminate non-value activities.
d. all of the above.

4. (LO.2) One of the grim realities of ever-improving efficiency is that


a. Input costs are declining
b. Cycle times are increasing

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c. Fewer workers are required
d. All of the above

5. (LO.2) The data, facts, experiences, and lessons learned important to an organization’s existence
are referred to as:
a. a data depository.
b. an enterprise resource planning system.
c. workforce diversity.
d. organizational memory.

6. (LO.3) Different languages and cultures can impede communication within globally dispersed
operations. Why is accounting a useful coordinating mechanism?
a. Because accounting represents an application of the universal language of mathematics
b. Because the interpretation of accounting information need not depend on local culture
c. Because accounting is the universal language of business
d. All of the above

7. (LO.4) All of the following are objectives of enterprise resource planning (ERP) systems except:
a. to automate accounting processes.
b. to share data across the enterprise.
c. To eliminate information system installation costs.
d. to provide real-time access to company data.

8. (LO.4) Installation of an ERP system impacts the financial function in all of the following ways
except:
a. Financial specialists have to find ways to finance the acquisition of the ERP system.
b. Financial and system specialists become responsible for selecting and installing the software.
c. Financial specialists will be responsible for analyzing the data repository to support
management decisions.
d. Finance specialists are accountable for integrating externally purchased data with internally
generated data.

9. (LO.4) Which technique uses statistical techniques to uncover answers to important questions
about business operations?
a. business process reengineering (BPR)
b. data mining
c. employee to capital cost ratio (ECC)
d. enterprise resource planning system (ERP)

10. (LO.5) Joint ventures, equity investments, and technology swaps are examples of
a. venture capitalists.
b. licensing agreements.
c. strategic alliances.
d. exclusive buyer-seller agreements

11. (LO.5) An agreement involving two or more firms to jointly contribute to the supply chain
a. involves the exploitation of partner knowledge.
b. includes partners with access to different markets.
c. allows sharing of risks and rewards.
d. all of the above.

12. (LO.6) Characteristics of firms that are best suited to a successful implementation of open-book
management include all of the following except:
a. small size.
b. centralized management.
c. a history of employee empowerment.
d. the presence of trust between employees and managers.

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13. (LO.6) Open-book management:
a. decreases the transparency of information within an organization.
b. requires accountants to change from a mind-set of sharing to guarding information.
c. frequently uses games and meetings to make information understandable to financially
unsophisticated employees.
d. centralizes both authority to make decisions and responsibility for decision results.

14. (LO.6) Which of the following is not a common principle of open-book management?
a. Teach employees to understand the company’s financial results
b. Link nonfinancial measures to financial results
c. Empower employees by allowing them to evaluate their own performance
d. Turn the management of the business into a game that employees can win

15. (LO.7) Which of the following is not a general approach to controlling environmental costs?
a. Signing the Kyoto Protocol to reduce pollution
b. Cleaning up pollutants after they are produced
c. Improving processes to reduce the amount of waste produced
d. Preventing pollution by never producing polluting materials

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