97 - Test 1 MGT 605

Test One MGT 605 Chapters 1-6
True/False
Indicate whether the statement is true or false.
____ 1. TQM seeks to improve the quality of both the product and the work environment.
____ 2. The balanced scorecard has gained little acceptance as an approach to establish effective performance
measurement.
____ 3. Although management accountants should try not to engage in activities that would prejudice their ability to
carry out their duties, they are not obligated to refrain from such activities after business hours, as long as
these activities take place off company premises.
____ 4. Period costs are consumed entirely in the current reporting period.
____ 5. The changes in Work in Process Inventory and total manufacturing costs for a period are used to compute cost
of goods manufactured.
____ 6. A zero balance in Finished Goods Inventory at the start of the period means all previously completed products
have been shipped.
____ 7. It is difficult to track costs to individual products in a continuous flow manufacturing process.
____ 8. Because process costing is normally associated with a continuous production flow, products that are in
process at the beginning of the period are assumed to be the first products completed during the current
period.
____ 9. For a manufacturer, the final customer is part of the supply chain and customer service is part of the value
chain.
____ 10. Nonvalue-adding activity costs do not increase a product's cost because they do not add value to the product.
____ 11. Activity costs per unit equal total activity costs divided by total volume.
____ 12. In moving toward the just-in-time continuous work flow concept, a key objective is the elimination of waste.
____ 13. In a just-in-time manufacturing environment, both push-through and pull-through methods trigger scheduling
of production.
____ 14. Both activity-based management (ABM) and just-in-time (JIT) seek to eliminate or reduce nonvalue-adding
activities and to improve the allocation of resources.
____ 15. Telephone costs are an example of a mixed cost.
____ 16. If fixed costs are $24,000, variable costs are $25 per unit, and the product sells for $45, the total contribution
margin at the breakeven point is $1,200.
____ 17. If fixed costs are increased, then a breakeven analysis with an adjustment for profit will yield an increase in
the number of sales or targeted sales units.
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 18. Which of the following is not part of the "perform" stage in the management process?
a. Matching human resources to the task to be performed
b. Hiring and training personnel
c. Identifying operating activities that minimize waste
d. Controlling operations
____ 19. TQM can be used in
a. merchandising firms.
b. service firms.
c. manufacturing firms.
d. all of these.
____ 20. Jillian Harmon supervises 5 cashiers at Jack's Market. In the past, each cashier served an average of 25
customers per hour. Two months ago, management remodeled the store and installed a new cash register
system. Customers no longer need to take their groceries out of the basket. Last month the number of
customers served was 5,185 and each cashier worked an average of 170 hours for the month. Based on this
information, the service rate has
a. increased 19 percent.
b. decreased 21 percent.
c. increased 22 percent.
d. decreased 20 percent.
____ 21. Which of the following is not an example of indirect materials?
a. Wood in a desk
b. Nails in a desk
c. Screws in a desk
d. Lubricants for machinery
____ 22. Which of the following is the formula used to compute a product's unit cost?
a. (Direct Materials + Direct Labor) / Number of Units Produced
b. (Direct Materials + Direct Labor + Overhead) / Number of Units Produced
c. (Direct Labor + Overhead) / Number of Units Produced
d. (Indirect Materials + Indirect Labor + Overhead) / Number of Units Produced
____ 23. Cost allocation is the process of assigning which of the following costs to specific cost objects?
a. Overhead
b. Direct labor
c. Selling and administrative expenses
d. Direct materials
____ 24. Raisin Company's overhead cost was overapplied by $4,300 in the current year. The estimated overhead was
$170,000, and the applied overhead was $166,000. Compute the actual overhead.
a. $161,700
b. $166,700
c. $165,700
d. $174,300
____ 25. Accounting for the incurrence of __________ does not change significantly between job order costing and
process costing.
a. selling expenses
b. direct materials and conversion costs
c. direct materials costs
d. conversion costs
____ 26. The Taylor Company uses a process costing system. Assume that direct materials are added at the beginning
of the period and that direct labor and overhead are added continuously throughout the process. The company
uses the FIFO costing method. The following data are available for one of its accounting periods:
Units
Beginning work in process 26,000 (70 percent complete for conversion costs)
Units started 180,000
Units transferred out 191,000
Ending work in process 15,000 (60 percent complete for conversion costs)
Assume that you have calculated a direct materials cost per unit of $4 and a conversion cost per unit of $7.
Under this assumption, the ending balance for Work in Process Inventory would be
a. $82,000.
b. $165,000.
c. $99,000.
d. $123,000.
____ 27. Why are equivalent units of production used in process costing?
a. To allocate overhead costs
b. To determine the value of work in process and finished goods inventories
c. To aid in determining costs per unit and costs of inventories in each process
d. To determine the cost per finished unit
____ 28. Fantastic Fabricating uses the FIFO method in its process costing system. Beginning inventory in the mixing
processing center consisted of 4,000 units, 75 percent complete with respect to conversion costs. Ending work
in process inventory consisted of 3,000 units, 60 percent complete with respect to conversion costs. If 11,200
units were transferred to the next processing center during the period, the equivalent units for conversion
costs would be
a. 12,400 units.
b. 10,000 units.
c. 11,200 units.
d. 12,200 units.
____ 29. Natasha Corporation's Shaping Department had no beginning inventory and completed and transferred to
finished goods 920 units during May. Ending inventory for May contained 80 units that were 30 percent
complete as to conversion costs and 100 percent complete as to direct materials costs. The charges to the
Shaping Department during May were $3,776 for conversion costs and $2,500 for direct materials costs.
Compute the cost of work transferred out if Natasha Corporation uses the FIFO costing method.
a. $6,180
b. $5,980
c. $5,774
d. $6,118
____ 30. Weston Company uses the FIFO method in its process costing system. The first processing department, the
Welding Department, started the month with 18,000 units in its beginning work in process inventory that were
50 percent complete with respect to conversion costs. The conversion costs in the beginning work in process
inventory were $52,200. An additional 55,000 units were started into production during the month. There
were 16,000 units in the ending work in process inventory of the Welding Department that were 20 percent
complete with respect to conversion costs. A total of $284,160 in conversion costs were incurred in the
department during the month. What would be the cost per equivalent unit for conversion costs for the month
on the department's process cost report? (Round to three decimal places.)
a. $5.550
b. $4.608
c. $5.800
d. $5.167
____ 31. Customer relations are usually part of
a. the supply chain.
b. the value chain.
c. both the value chain and the supply chain.
d. neither the value chain nor the supply chain.
____ 32. For a company offering services, which of the following is a value-adding activity?
a. Billing the clients
b. Preparing job order forms
c. Ordering, receiving, and inspecting supplies
d. Designing advertisements
____ 33. Engineering design is an activity vital to the success of any motor vehicle manufacturer. Identify the level at
which engineering design would be classified in the cost hierarchy used with ABC for a maker of built-to-
order city and county emergency vehicles (orders are usually placed for 10 to 12 identical vehicles).
a. Unit-level activity
b. Batch-level activity
c. Product-level activity
d. Facility-level activity
____ 34. As production increases, what should you expect to happen to the fixed costs per unit?
a. Increase
b. Decrease
c. Remain the same
d. Either increase or decrease, depending on the variable cost
____ 35. For every unit that a company produces and sells above the breakeven point, its profitability is improved
(ignoring taxes) by the unit's
a. gross margin.
b. selling price minus fixed cost.
c. variable cost.
d. contribution margin.
Short Answer
36. The Chief Financial Officer (CFO) of your company has asked you to help her develop a cost control report to
be distributed within the company. She wants your input concerning what she should think about before
developing such a report. Discuss the significant points, in detail, the CFO should consider before the cost
control report is prepared.
37. Compute the overhead rate per shipping request for the Shipping Department if the estimated overhead costs
are $18,290 and the number of estimated shipping requests is 3,100.
38. Loren, Inc., sold 30,000 units of its product last year with the following results:
Sales revenue $900,000

Variable costs 630,000
Fixed costs 190,000
Operating income $ 80,000
The company expects variable costs to increase by $4.00 per unit this year.
a. Assuming the unit sale price remains constant, compute the unit contribution margin and the contribution
margin ratio for this year.
b. Given the expected change in variable costs, how many units will have to be sold this year to earn the same
operating income as last year?
c. Assuming the company is willing to raise the unit sales price but wants the contribution margin to be the
same as last year, determine the unit sales price the company must charge to cover the expected increase in
variable costs.
Test One MGT 605 Chapters 1-6
Answer Section
TRUE/FALSE
1. ANS: T PTS: 1 OBJ: LO3 NAT: AACSB correlation: reflective

LOC: Learning type: Recall KEY: continuous improvement
2. ANS: F PTS: 1 OBJ: LO4 NAT: AACSB correlation: reflective
LOC: Learning type: Recall KEY: balanced scorecard
3. ANS: F PTS: 1 OBJ: LO5 NAT: AACSB correlation: reflective
LOC: Learning type: Comprehension KEY: professional ethics
4. ANS: T PTS: 1 OBJ: LO1 NAT: AACSB correlation: analytic
LOC: Learning type: Recall KEY: cost concepts
LOC: Learning type: Comprehension
KEY: cost allocation| cost concepts| inventory cost and goods flow
LOC: Learning type: Comprehension KEY: job order costing| process costing
LOC: Learning type: Comprehension KEY: process costing
LOC: Learning type: Comprehension KEY: support of value chain analysis
10. ANS: F PTS: 1 OBJ: LO1 NAT: AACSB correlation: analytic
LOC: Learning type: Comprehension KEY: process value analysis
LOC: Learning type: Recall KEY: activity-based cost
LOC: Learning type: Recall KEY: JIT| management issues
LOC: Learning type: Recall KEY: JIT| management issues
LOC: Learning type: Recall KEY: Comparison of ABM and lean
LOC: Learning type: Comprehension KEY: cost behavior analysis| cost concepts
LOC: Learning type: Application KEY: profitability
LOC: Learning type: Comprehension KEY: cost behavior analysis| profitability
MULTIPLE CHOICE
18. ANS: D PTS: 1 OBJ: LO1 NAT: AACSB correlation: reflective

LOC: Learning type: Comprehension KEY: management functions
19. ANS: D PTS: 1 OBJ: LO3 NAT: AACSB correlation: reflective
LOC: Learning type: Recall KEY: management tools for continuous improvement
20. ANS: C PTS: 1 OBJ: LO4 NAT: AACSB correlation: analytic
LOC: Learning type: Application KEY: performance measures
21. ANS: A PTS: 1 OBJ: LO2 NAT: AACSB correlation: analytic
LOC: Learning type: Comprehension KEY: cost concepts
22. ANS: B PTS: 1 OBJ: LO4 NAT: AACSB correlation: analytic
LOC: Learning type: Recall KEY: cost allocation| cost concepts
LOC: Learning type: Recall KEY: cost allocation
LOC: Learning type: Application KEY: analyze transactions| cost allocation
25. ANS: B PTS: 1 OBJ: LO2 NAT: AACSB correlation: reflective
LOC: Learning type: Comprehension KEY: job order costing| process costing
26. ANS: D PTS: 1 OBJ: LO4 NAT: AACSB correlation: analytic
LOC: Learning type: Application KEY: process costing
27. ANS: C PTS: 1 OBJ: LO3 NAT: AACSB correlation: reflective
LOC: Learning type: Recall KEY: support of value chain analysis
LOC: Learning type: Application KEY: support of value chain analysis
LOC: Learning type: Comprehension KEY: activity-based cost
LOC: Learning type: Comprehension KEY: cost behavior analysis
LOC: Learning type: Comprehension KEY: profitability| cost-volume-profit analysis
SHORT ANSWER
36. ANS:
In addition to identifying the Why, Who, What, and When of the report, students should address the specific
points that need to be considered under each topic.
Why: What is the purpose of the report? Is the intent to report on total costs or is the report going to be
concerned with specific costs? Are the costs being considered for the entire company or for specific segments
of the company?
Who: Who is going to receive the report? Is it going to specific line managers or to someone higher up in the
company or to both groups? In other words, is it going to individuals actually incurring the costs or to
individuals that are just familiar with the costs being reported?
What: Can the information needed to prepare the report be obtained from existing source documents and other
sources or not? How will the information be presented? As columnar data, as charts and graphs, as dollar
amounts, as percentages, as year-to-date costs, as actual compared to budget, as actual this year compared to
actual last year, or some other way?
When: How often will the report be prepared? Daily, weekly, monthly, quarterly, annually? Is the report going
to be used to influence current operations or future operations?
PTS: 1 OBJ: LO1 NAT: AACSB correlation: reflective

LOC: Learning type: Application
KEY: information and communication| internal accounting reports
37. ANS:
$18,290 / 3,100 requests = $5.90 per shipping request
PTS: 1 OBJ: LO5 NAT: AACSB correlation: analytic

LOC: Learning type: Application KEY: cost allocation
38. ANS:
a.
Unit sales price ($900,000 ÷ 30,000 units) $30
Unit variable costs ([$630,000 ÷ 30,000 units] + $4) 25
Unit contribution margin $5
Contribution margin ratio = $5 ÷ $30 = 16.7%
b. Desired unit sales = ($190,000 + $80,000) ÷ $5 = 54,000 units
c. Last year's contribution margin ratio = $270,000 ÷ $900,000 = 30%
Therefore, last year's variable cost ratio = 1.00 – 0.30 = 0.70, or 70%, and given the requirements of the
exercise, this must be the variable cost ratio for this year.
New unit sales price = $25 ÷ 70% = $35.71
PTS: 1 OBJ: LO5 NAT: AACSB correlation: analytic

LOC: Learning type: Application KEY: cost behavior analysis| profitability

97 - Test 1 MGT 605

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97 - Test 1 MGT 605

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Test One MGT 605 Chapters 1-6

____ 15. Telephone costs are an example of a mixed cost.

Sales revenue $900,000

1. ANS: T PTS: 1 OBJ: LO3 NAT: AACSB correlation: reflective

18. ANS: D PTS: 1 OBJ: LO1 NAT: AACSB correlation: reflective

PTS: 1 OBJ: LO1 NAT: AACSB correlation: reflective

PTS: 1 OBJ: LO5 NAT: AACSB correlation: analytic

b. Desired unit sales = ($190,000 + $80,000) ÷ $5 = 54,000 units

c. Last year's contribution margin ratio = $270,000 ÷ $900,000 = 30%

New unit sales price = $25 ÷ 70% = $35.71

PTS: 1 OBJ: LO5 NAT: AACSB correlation: analytic

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