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Chapter 1 and chapter 21. Galway Co. management desires cost information regarding its Celtic brand. The Celtic brand is a(n)a. cost object.b. cost driver.c. cost assignment.d. actual cost.2. The cost of printer paper on a college campus would be a direct cost to the college but would need to be allocated as an indirect cost toa. departments.b. buildings.c. schools.d. individual student instruction.3. What is the total fixed cost of the shipping department of Elaine Co. if it has the following information for 2011?Salaries $800,000 75 percent of employees on guaranteed contractsPackaging $400,000 depending on size of item(s) shippedPostage $500,000 depending on weight of item(s) shippedRent of warehouse space $250,000 annual leasea. $850,000b. $900,000c. $1,050,000d. $1,950,0004. Rosland Graphics successfully bid on a job printing standard notebook covers during the year using last years price of $0.27 per cover. This amount was calculated from prior year costs, noting that no changes in any costs had occurred from the past year to the current year. At the end of the year, the company manager was shocked to discover that the company had suffered a loss. “How could this be?” she exclaimed. “We had no increases in cost and our price was the same as last year. Last year we had a healthy income.” What could explain the companys loss in income this current year?a. Their costs were all variable costs and the amount produced and sold increased.b. Their costs were mostly fixed costs and the amount produced this year was less than last year.c. They used a different cost object this year than the previous year.d. Their costs last year were actual costs but they used budgeted costs to make their bids.5. Which type of company converts raw materials into finished products?a. Not-for-profitb. Servicec. Merchandisingd. Manufacturing6. The three categories of inventories commonly found in many manufacturing companies are:a. Direct materials, direct labor, and indirect manufacturing costs.b. Purchased goods, period costs, and cost of goods sold.c. Direct materials, work-in-process, and finished goods.d. LIFO, FIFO, and weighted average.7. Inventoriable costs area. only purchased goods for resale.b. a category of costs used only for manufacturing companies.c. recorded as expenses when incurred and later reclassified as assets.d. recorded as assets when incurred.8. Period costs area. all costs in the income statement other than cost of goods sold.b. defined as manufacturing costs incurred this period on the schedule of cost of goods manufactured.c. always recorded as assets when first incurred.d. those costs that benefit future periods.9. The cost of a product can be measured as any of the following except as onea. gathered from all areas of the value chain.b. identified as period cost.c. designated as manufacturing cost only.d. explicitly defined by contract.10. The primary focus of cost management is toa. help managers make different decisions.b. calculate product costs.c. aid managers in budgeting.d. distinguish between relevant and irrelevant information.SOLUTIONS 1. a2. d3. a4. b5. c6. c7. d8. a9. b10. aCalculations3. Fixed costs = (800,000) 75% + 250,000 = $850,000Chapter 31. A mixed cost function has a constant component of $20,000. If the total cost is $60,000 and the independent variable has the value 200, what is the value of the slope coefficient?a. $200b. $400c. $600d. $40,0002. CMA Adapted Of the following methods, the one that would not be appropriate for analyzing how a specific cost behaves isa. the scattergraph method.b. the industrial engineering approach.c. linear programming.d. statistical regression analysis.3. When the high-low method is used to estimate a cost function, the variable cost per unit is found bya. performing regression analysis on the associated cost and cost driver database.b. subtracting the fixed cost per unit from the total cost per unit based on either the highest or lowest observation of the cost driver.c. dividing the difference between the highest and lowest observations of the cost driver by the difference between costs associated with the highest and lowest observations of the cost driver.d. dividing the difference between costs associated with the highest and lowest observations of the cost driver by the difference between the highest and lowest observations of the cost driver.The following data apply to questions 4 and 5.Tory Company derived the following cost relationship from a regression analysis of its monthly manufacturing overhead cost.y = $80,000 + $12X where: y = monthly manufacturing overhead costX = machine-hoursThe standard error of estimate of the regression is $6,000.The standard time required to manufacture one six-unit case of Torys single product is four machine-hours. Tory applies manufacturing overhead to production on the basis of machine-hours, and its normal annual production is 50,000 cases.4. CMA Adapted Torys estimated variable manufacturing overhead cost for a month in which scheduled production is 10,000 cases would bea. $80,000.b. $480,000.c. $160,000.d. $320,000.5. CMA Adapted Torys predetermined fixed manufacturing overhead rate would bea. $4.80/MH.b. $4.00/MH.c. $3.20/MH.d. $1.60/MH.6. Three criteria to use in identifying cost drivers from the potentially large set of independent variables that can be included in a regression model area. goodness of fit, size of the intercept term, and specification analysis.b. independence between independent variables, economic plausibility, and specification analysis.c. economic plausibility, goodness of fit, and significance of independent variable.d. spurious correlation, expense of gathering data, and multicollinearity.7. Companies that take advantage of quantity discounts in purchasing their materials havea. decreasing cost functions.b. linear cost functions.c. nonlinear cost functions.d. stationary cost functions.8. With the cumulative average-time learning modela. the cumulative time per unit declines by a constant percentage when production doubles.b. the time needed to produce the last unit declines by a constant percentage when production doubles.c. costs increase in total by a constant percentage as production increases.d. the total cumulative time increases in proportion to production increases.9. When using the incremental unit-time learning modela. the cumulative time per unit declines by a constant percentage when production doubles.b. the time needed to produce the last unit declines by a constant percentage when production doubles.c. the time to produce one additional unit decreases by a constant percentage.d. costs increase incrementally in an undetermined pattern.10. Which of the following is not a common problem encountered in collecting data for cost estimation?a. Lack of observing extreme valuesb. Missing datac. Changes in technologyd. Distortions resulting from inflationSOLUTIONS1. a2. c3. d4. b5. d6. c7. c8. a9. b10. aCalculations1. Total cost $60,000 40,000 Fixed cost 20,000 200 units = $200/unit (variable cost)Variable cost 40,0004. y = 80,000 + 12xVariable cost = (10,000 cases 4 machine hours/case $12/machine hour)Variable cost = $480,0005. Fixed costs = $80,000 = $.40/ machine hourMachine hours 50,000 4 $.40/ machine hour 4mh/unit = $1.60Chapter 41. Production-cost cross-subsidization results froma. allocating indirect costs to multiple products.b. assigning traced costs to each product.c. assigning costs to different products using varied costing systems within the same organization.d. assigning broadly averaged costs across multiple products without recognizing amounts of resources used by which products.2. In refining a cost systema. total direct costs are unchanged because they can be traced in an economically feasible way to the product and traced costs are more accurate.b. the costs are grouped in homogeneous pools of the same or similar amounts.c. the criterion of cause-and-effect is used to relate indirect costs to a factor that systematically links to a cost object.d. the organization looks for cost-allocation bases that will provide a uniform spreading of indirect costs to each product.Question 3 is based on the following data.The average cost data are for In-Sync Fixtures Companys (a retailer) only two product lines, Marblette and Italian Marble.Marblette Italian MarblePurchase volume 20,000 1,000Purchase cost per unit $50 $50Shipments received 12 12Hours used per shipment * 5 3*These data were accumulated after a careful activity analysis.Currently, In-Sync Fixtures uses a traditional costing system with indirect costs allocated using purchased cost of goods as a basis. In-Sync Fixtures is considering refining the allocation of their receiving costs of $40,000. They realize that the Italian Marble is heavier and requires more care than the Marblette but that the Marblette comes in larger volume.3. Which statement can be made using the results of the activity analysis performed by In-Sync Fixtures?a. The use of this refined activity-based costing system will increase the accuracy of the resulting product costs because a more appropriate cost driver will be used as the allocation base.b. The traditional allocation method currently being used is causing product-cost cross-subsidization with the product line Marblette being undercosted.c. The cost allocated to the Italian Marble product line under the current traditional system is more than the activity-based costing allocated cost.d. The use of this refined activity-based costing system will increase the accuracy of the resulting product costs because it probably will cost less to trace the costs to the product lines.4. Advertising of a specific product is an example ofa. unit-level costs.b. batch-level costs.c. product-sustaining costs.d. facility-sustaining costs.5. The allocation of indirect costs in an activity-based costing systema. may require other costs to be allocated to activities before the costs of the activities can be allocated to the products.b. is simplified because more costs are identified as direct costs.c. requires the use of heterogeneous cost pools.d. is simplified because a limited number of activities are identified as cost objects.Information for questions 6 and 7 is given below.Jackson Enterprises manufactures two productsa basic gizmo and an advanced model gizmo. The company is using an activity-based costing system. They have identified three activities for allocation of indirect costs.Activity Cost Driver Cost-Allocation RateMaterials receiving Number of parts $2.00 per partProduction setup Number of setups $500.00 per setupQuality inspection Inspection time $90 per hourA production run for the basic model is 250 units, for the advanced model, 100 units.Each unit of product consumes the following activities:Number of Parts Number of Setups Inspection TimeBasic Gizmo 10 50 10 minutesAdvanced Gizmo 15 25 20 minutesDirect costs for the two products are as follows:Direct Materials Direct LaborBasic Gizmo $50.00 $ 75.00Advanced Gizmo $95.00 $125.006. The amount of overhead allocated to one unit of the basic model would bea. $592.b. $37.c. $162.d. $65.7. The total cost of an advanced model would bea. $162.b. $65.c. $200.d. $265.8. A significant limitation of activity-based costing is thea. attention given to indirect cost allocation.b. many necessary calculations.c. operations staffs attitude toward the accounting staff.d. use it makes of technology.9. Evaluating customer reaction of the trade-off of giving up some features of a product for a lower price would best fit which category of management decisions under activity-based management?a. Pricing and product-mix decisionsb. Cost reduction decisionsc. Design decisionsd. Discretionary decisions10. Which of the following statements is more representative of activity-based costing in comparison to a department costing system?a. The use of multiple cost-allocation basesb. The use of indirect-cost rates for significant resource usec. The use of activities having a cause-and-effect relationshipd. The use of multiple cost poolsSOLUTIONS1. d2. c3. a4. c5. a6. b7. d8. c9. c10. bCalculations6. (2 10) + ($500/250) + ($90/60 10) = $377. $75 + $125 + ($2 15) + ($500/100) + ($90/60 20)Chapter51. A cost-allocation base may be any of the following except aa. cost driver.b. cost pool.c. way to link indirect costs to a cost object.d. nonfinancial quantity.2. A company that manufactures dentures for use by local dentists would usea. process costing.b. personal costing.c. operations costing.d. job costing.3. The first step in the seven-step approach to job costing is toa. select the cost-allocation base to use in assigning indirect costs to the job.b. identify the direct costs of the job.c. identify the job that is the chosen cost object.d. identify the indirect-cost pools associated with the job.4. Using normal costing rather than actual costing requires that the allocating of indirect manufacturing costs to work-in-process bea. done on a more timely basis, such as every two weeks rather than every month.b. journalized only at year end when adjusting entries are normally made.c. calculated by using the budgeted rate times actual quantity of allocation base.d. calculated by using the budgeted rate times the budgeted quantity of allocation base.5. Manufacturing Overhead Controla. represents actual overhead costs incurred.b. has a normal debit balance.c. is a control account with a subsidiary ledger detailing the components of manufacturing overhead.d. All of the above6. Which of the following accounts is not classified as an asset?a. Manufacturing Overhead Controlb. Materials Controlc. Work-in-Process Controld. Finished Goods Control7. The costs incurred on jobs that are currently in production but are not yet complete would appear in thea. Materials Control account.b. Finished Goods Control account.c. Manufacturing Overhead Control account.d. Work-in-Process Control account.8. The Precision Widget Company had the following balances in their accounts at the end of the accounting period:Work-in-Process$ 5,000Finished Goods 20,000Cost of Goods Sold 200,000If their manufacturing overhead was overallocated by $8,000 and Precision Widget adjusts their accounts using a proration based on total ending balances, the revised ending balance for Cost of Goods Sold would bea. $192,880.b. $200,00.c. $207,120.d. $208,000.9. Liberty Box Company calculated an indirect-cost rate of $12.50 per labor hour for fringe benefits for use in their normal costing system. At the end of the year, the actual cost of fringe benefits was $980,000. The total of labor hours worked for the year was the same amount as budgeted, 70,000 hours. If Job #640 required the use of 15 labor hours and the company used the adjusted allocation rate approach, by what amount would the cost of Job #640 change?a. $560.00b. $281.25c. $22.50d. $20.5010. If each professional in a service company is paid on an annual salary basis, why might the firm want to use a predetermined or budgeted rate for direct or professional labor?a. A predetermined or budgeted rate is easier to justify to a client who might question a billing rate.b. Professional staff persons do not keep accurate records of the jobs on which they work.c. Professional staff incurs more client costs, such as travel, lodging, and out-of-town meals, while working on a job.d. Year-end bonuses paid to the professional staff are difficult to trace to individual jobs.SOLUTIONS 1. b2. d3. c4. c5. d6. a7. d8. a9. c10. dCalculations1. Work-in-Process $5,000 / 225,000 2.2% $8,000 = 176Finished Goods $20,000 /225,000 8.9% $8,000 = 712Cost of Goods Sold $200,000 / 225,000 88.9% $8,000 = 7,120 200,000 7,120 = $192,8809. 980.000/70,000 = $14.00 (actual rate)$14,000 $12.50 = $1.50 excess of actual over budget1.50 15 hours $22.50 additional costChapter6Use the following information for questions 1 through 10.Top That manufactures baseball-style hats. Material is introduced at the beginning of the process in the Cutting Department. Conversion costs are incurred (and allocated) uniformly throughout the process. As the cutting of material is completed, the pieces are immediately transferred to the Sewing Department. Data for the Cutting Department for the month of February 2009 follow:Work-in-process, January 3150,000 units100 percent complete for direct materials; 40 percent completed for conversion costs actual costs of direct materials, $70,500; actual costs of conversion, $34,050Units started during February, 225,000Units completed during February 200,000Work-in-process, February 28 75,000 units100 percent complete for direct materials; 20 percent completed for conversion costsDirect materials added during February actual costs $342,000Conversion costs added during February actual costs $352,9501. Assuming Top That uses the weighted-average method to account for inventories, the equivalent units of work for the month of February areDirect Materials Conversion Costsa. 225,000 225,000b. 200,000 200,000c. 275,000 215,000d. 225,000 200,0002. Assuming Top That used the weighted-average method to account for inventories, the cost per equivalent whole unit produced during February isa. $3.30.b. $3.55.c. $3.77.d. $4.00.3. Assuming Top That uses the weighted-average method to account for inventories, the assignment of costs to work-in-process at the end of February isa. $300,000.b. $266,250.c $166,525.d. $139,500.4. If Top That uses the first-in, first-out (FIFO) method to account for inventories, the equivalent units of work for the month of February areDirect Materials Conversion Costsa. 225,000 225,000b. 225,000 195,000c. 275,000 200,000d. 200,000 195,0005. If Top That uses the FIFO method to account for inventories, the costs per equivalent unit for February areDirect Materials Conversion Costsa.