Test Bank For Cost Management 6th Edition by Don R. Hansen, Maryanne M. Mowen, Dan L. Heitger Chapte

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Test Bankth For

Cost Management 6 Edition by Don R. Hansen, Maryanne M. Mowen, Dan L. Heitger Chapter 1-21 Answers are at the End of Each Chapter Chapter 1

Indicate whether the statement is true or false. 1. The service sector of the U.S. economy has decreased in importance as traditional industries have declined in importance. a. True b. False 2. Business ethics is learning what is right or wrong in the work environment and choosing what is right. a. True b. False 3. Three of the major certifications available to management accountants are a Certificate in Management Accounting, a Certificate in Public Accounting, and a Certificate in Internal Auditing. a. True b. False 4. Positions that have direct responsibility for basic objectives are referred to as staff positions, and those indirectly responsible are called line positions. a. True b. False 5. Evaluating the performance of a segment of the company is an example of planning. a. True b. False 6. The cost management information system has two major subsystems: the cost accounting information system and the operational control information system. a. True b. False 7. Preparing reports for division managers is an activity associated with the cost management information system. a. True b. False 8. One of the major advances in information technology that affects firms is the emergence of electronic commerce. a. True b. False 9. The role of cost and management accountants is one of support and teamwork and assistance of those who are responsible for achieving a company's basic objectives. a. True Page 1

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b. False 10. The cost management information system is primarily concerned with producing outputs for external users. a. True b. False 11. The examination for obtaining the Certificate in Management Accounting consists of two parts: (1) Technology and Analytics and (2) Strategic Financial Management. a. True b. False 12. The Certificate of Public Accounting does NOT include the right to serve as external auditors. a. True b. False 13. The treasurer of a company is responsible for all taxation activities, including dealing with the IRS. a. True b. False 14. JIT is a critical part of a more comprehensive approach referred to as lean manufacturing. a. True b. False 15. For each certification, all an applicant has to do is meet specific educational and experience requirements. a. True b. False 16. Changes in the way business is conducted worldwide have broadened the focus of cost management accounting systems. a. True b. False 17. Divulging company information when NOT legally obligated to do so violates the confidentiality part of the IMA code of ethics. a. True b. False 18. The focus of lean manufacturing is to eliminate waste, which is anything that does not add value to the end user (customer). a. True b. False 19. Firms subject to the Sarbanes-Oxley Act do not have to disclose whether they have a code of ethics for senior financial officers, nor why. a. True b. False Page 2

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20. Enterprise resource planning (ERP) software has the objective of providing an integrated system capability and is able to run all the operations of a company. a. True b. False 21. The three broad objectives of financial accounting information systems are to provide information for costing out services and products, planning and control, and decision making. a. True b. False 22. An accounting information system collects, records, summarizes, analyzes, and manages data to transform inputs into information that is provided to users. a. True b. False 23. The Institute of Management Accountants has established ethical standards for management accountants. a. True b. False 24. The controller of a company supervises all the accounting departments and is often viewed as a member of the top management team. a. True b. False 25. Employee and customer loyalty are NOT a result of a strong code of ethics. a. True b. False 26. The process of choosing among competing alternatives is called decision making. a. True b. False 27. In just-in-time (JIT) manufacturing, each operation produces only what is necessary for the succeeding operations. a. True b. False 28. In resolving an ethical conflict, it would be appropriate to take the matter to the press where there's no legal requirement. a. True b. False 29. The Certified Internal Auditor must pass a comprehensive examination designed to ensure technical competence and have two years' work experience. a. True b. False 30. The two major subsystems of the accounting information system are the financial accounting information system and the cost management accounting information system. Page 3

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a. True b. False

Indicate the answer choice that best completes the statement or answers the question. 31. Which of the following are Standards of Ethical Conduct for Management Accountants? a. perseverance and creativity b. determination and respect for others c. discipline, confidence, competitive, and observance d. competence, confidentiality, integrity, resolution of ethical conflict, and credibility 32. The _____ system is an integrated system capable of providing access to real-time data from the various functional areas of a company. a. financial management information b. enterprise resource planning c. lean accounting management d. operational control information 33. Which of the following statements is TRUE? a. Firms that emphasize ethics outperform firms that don't emphasize ethics. b. Those corporations that mention ethics in their management reports have lower than average performance. c. Companies with a strong code of ethics and sense of integrity and honor will have trouble competing over the long run. d. All of these choices 34. In an accounting information system, which of the following is NOT a process that transforms inputs into information that is provided to users? a. collecting data b. analyzing data c. performance reporting d. summarizing data 35. Staff positions are positions that are a. directly involved in both financial and nonfinancial measures of efficiency of an organization. b. supportive in nature and have only indirect responsibility for an organization's basic objectives. c. supportive in nature and indirectly assess the overall cost impact of product designs over a product's life cycle. d. directly responsible for carrying out the basic objectives of an organization. 36. The primary objective of the cost management information system is to provide a. stockholders and potential investors with useful information for decision making. b. banks and other creditors with information useful in making credit decisions. c. management with information useful for planning and control of operations. d. the Internal Revenue Service with information about taxable income. 37. Total quality management emphasizes a. zero defects. Page 4

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b. continual improvement. c. elimination of waste. d. All of these choices 38. Which of the following best describes business sustainability? a. It is defined as a company’s ability to create value over the long term by measuring performance, managing risks, and communicating effectively to stakeholders. b. It is defined as development that is designed to assign costs to individual products and services and other objects as specified by management. c. It is defined as development that is designed to provide accurate and timely feedback concerning the performance of managers and others relative to their planning and control of activities. d. It is defined as development that is primarily concerned with producing outputs for internal users using inputs and processes needed to satisfy management objectives. 39. Which of the following costing activities is associated with the financial accounting system and preparing information for external users? a. determining the cost of a department b. determining the cost of goods sold for financial statements c. preparing budgets d. determining the cost of a customer 40. Which of the following activities is NOT associated with the cost management information system? a. preparing a cost of quality report b. preparing a performance report that compares actual costs to budgeted costs c. determining the cost of a customer d. using future expected earnings to estimate the price of a share of common stock 41. Which of the following job positions is a staff position? a. controller b. production vice president c. production supervisor d. assembly foreman 42. Developing a company strategy for responding to anticipated new markets is an example of a. planning. b. control. c. performance evaluation. d. All of these choices 43. Inspecting units produced to determine if they meet specifications is an example of a. planning. b. control. c. decision making. d. costing. 44. The type of management that broadens the focus of accounting because it is concerned with factors that drive costs, Page 5

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such as cycle time and process productivity, is called a. cost accounting. b. cost management. c. financial management. d. financial accounting. 45. Engaging in or supporting an activity that would discredit the profession would relate to which of the following parts of the IMA code of ethics? a. competence b. independence c. integrity d. credibility 46. In resolving an ethical conflict, it is inappropriate to discuss the problem with the immediate supervisor because of a violation of which of the following Standards of Ethical Conduct for Management Accountants? a. competence b. confidentiality c. credibility d. This action is not in violation of the code of ethics. 47. As a manager for a construction company, determining the bid your company should submit on a construction contract is an example of a. planning. b. controlling. c. decision making. d. eliminating constraints. 48. Financial accounting information is used for a. investment decisions. b. regulatory measures. c. stewardship evaluation. d. All of these choices 49. Principles of personal ethical behavior include a. integrity. b. respect for others. c. fairness. d. All of these choices 50. Which of the following is NOT significant to the advancement of digital information technology in the manufacturing environment? a. enterprise resource planning software b. emergence of automated manufacturing c. development of forensic accounting d. ability to capture real-time data within electronic decision support systems Page 6

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51. The internal auditor performs a a. line function. b. staff function. c. production function. d. marketing function. 52. Which of the following activities is NOT associated with the financial accounting information system? a. reporting on the cost of quality b. reporting to the SEC c. preparing reports for the IRS d. preparing a statement of cash flows 53. Which of the following job positions is a line function? a. financial vice president b. controller c. production supervisor d. treasurer 54. The acceptance of a savings bond from a supplier as an enticement to do business with the supplier would be a violation of which of the following Standards of Ethical Conduct for Management Accountants? a. confidentiality b. integrity c. reliability d. None of these choices 55. Which of the following would be considered a line function? a. production employee b. corporate headquarters housekeeping and maintenance employee c. public relations employee d. administrative services employee 56. Which of the following advances in information technology includes the analysis of large data sets and data visualization? a. decision support systems b. integrated cost management c. data analytics d. online inventory system 57. The manager has to decide what tasks are needed and how they should be accomplished. This statement describes a. the organization chart. b. planning. c. organizing. d. None of these choices 58. Continuous improvement is a. critical in a dynamic environment. Page 7

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b. important to finding and maintaining a competitive advantage. c. an effort to find ways to increase overall efficiency, improve quality, and reduce costs. d. All of these choices 59. Managers are considering outsourcing subcomponents of production. Data are collected about the costs of making the subcomponent. Different bids are sought for the purchase of the subcomponents. Which of the following managerial activities is applicable in this situation? a. control b. continuous improvement c. planning d. decision making 60. Monitoring the number of defects produced is an example of the management function of a. planning. b. control. c. decision making. d. treasury monitoring. 61. When a management accountant attends training seminars on new FASB rules, which of the following parts of the IMA code of ethics is being observed? a. competence b. confidentiality c. integrity d. credibility 62. Cost accounting a. is concerned with assigning costs to various cost objects. b. attempts to satisfy the costing objectives of both financial accounting and management accounting. c. provides cost information that supports planning, controlling, and decision making. d. All of these choices 63. Which of the following positions would most likely be a line manager? a. personnel department manager b. production supervisor c. treasurer d. cost accounting department manager 64. Which of the following relates to the credibility section of the IMA code of ethics? a. Prepare clear and complete reports. b. Communicate professional limitations. c. Avoid actual or apparent conflicts of interest. d. Communicate information fairly and objectively. 65. Evaluating the performance of a segment of the company is an example of a. planning. b. control. Page 8

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c. internal auditing. d. continuous improvement. 66. Any form of commerce that is executed using information and communications technology is called a. ERP. b. OLAP. c. electronic commerce. d. DSS. 67. The formulation of a program for the accomplishment of a specific purpose is referred to as a. controlling. b. motivating. c. organizing. d. planning. 68. The _____ information system is concerned with producing outputs for external users. a. forensic accounting b. financial accounting c. operational accounting d. lean accounting 69. Which of the following does NOT describe a cost management system? a. evaluation of segments or products within the firm b. emphasis on the future c. external focused d. focus on effective use of resources 70. Software that has integrated system capability using real-time data is a. enterprise resource planning software. b. an online analytic program. c. computer-assisted engineering software. d. None of these choices 71. Which of the following is a cost management subsystem designed to assign costs to individual products and services and other objects, as specified by management a. financial accounting information system b. operational control system c. cost accounting information system d. All of these choices 72. Competitive advantage is established by having a. more customer products than competitors. b. better quality products than competitors. c. a customer orientation providing greater customer value for less cost than competitors. d. greater internal operational efficiencies than competitors. Page 9

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73. Setting the selling price of a company's product is an example of a. planning. b. controlling. c. decision making. d. costing the product. 74. Which of the following is NOT provided by cost accountants? a. cost information for valuing inventories in accordance with GAAP b. cost information about processes and activities for managing a company c. financial information for external users d. cost information about products, customers, and services 75. The monitoring of a plan's implementation is called a. planning. b. controlling. c. decision making. d. budgeting. 76. Which of the following manufacturing management approaches has a specific focus on allowing firms to increase quality, reduce inventories, eliminate waste, and reduce costs? a. operational manufacturing system b. online analytic programs c. decision support system d. lean manufacturing 77. Investigating production variances and adjusting the production process to take corrective action is an example of a. planning. b. control. c. internal auditing. d. both planning and internal auditing. 78. Cost management information systems provide information a. for preparing the planning and controlling activities undertaken by managers of an organization. b. to prepare statements of cash flows and balance sheets for external users. c. that can be used for regulatory measures. d. for stock analysts’ and other external users’ evaluation. 79. The planning process includes a. setting objectives. b. identifying means of achieving the objectives. c. formulating future actions to achieve a goal. d. All of these choices 80. In a performance report, the a. differences between actual costs and allowed costs are always undesirable. Page 10

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b. expenditures of less than allowed amounts are undesirable. c. expenditures of more than allowed amounts are not permitted to occur. d. expenditures of less than allowed amounts are desirable. 81. Accounting activities within an organization are usually under the overall supervision of the a. Certified Public Accountant. b. controller. c. Chartered Accountant. d. treasurer. 82. Accounting reports that provide feedback by comparing planned (budgeted) data with actual data are called a. performance reports. b. favorable reports. c. auditing reports. d. improvement reports. 83. Setting the company's profit targets for the upcoming year is an example of the management function of a. planning. b. control. c. variance analysis. d. internal auditing. 84. Which of the following is an example of a staff position in an organization? a. plant manager b. accountant c. vice president of marketing d. vice president of manufacturing 85. The cost management information system is concerned with a. reporting financial information according to GAAP. b. providing cost information that is used in planning, control, and decision making. c. reporting to external users. d. providing financial information to investors. 86. Which of the following is the officer responsible for money management and serves chiefly as the custodian of the organization's funds? a. Certified Public Accountant b. controller c. Chartered Accountant d. treasurer 87. Factors that have led to a global market for manufacturing and service firms are a. improved transportation and communications systems. b. improved telemarketing and communications. c. improved telemarketing and transportation systems. Page 11

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d. None of these choices 88. Which of the following is an advantage of analyzing big data sets using business analytics? a. an increased current ratio b. a reduced arbitrage fund c. an improved quality d. a decreased basis risk 89. Extending the close of the fiscal year beyond December 31 so that some sales of next year are included in the current year would be a violation of which of the following Standards of Ethical Conduct for Management Accountants? a. competence b. confidentiality c. conformance d. All of these choices 90. An accountant certified to possess the minimum professional qualifications for an external auditor is a a. CPA. b. CMA. c. CIA. d. All of these choices 91. Which of the following information systems provides information that helps managers engage in a program of continuous improvement of all aspects of their businesses? a. financial accounting information system b. operational control information system c. cost management information system d. value chain information system 92. In resolving an ethical conflict, which of the following would NEVER be appropriate? a. discussing the matter with the chief executive officer b. discussing the matter with an external member of the board of directors c. taking the matter to the press where there is no legal requirement d. resigning from the position because of a conflict 93. The chief accounting officer of an organization is the a. vice president of finance. b. internal auditor. c. treasurer. d. controller. 94. Altering dates of shipping documents of next January's sales to record them as sales in the current year would be a violation of which of the following Standards of Ethical Conduct for Management Accountants? a. competence b. integrity c. credibility d. All of these choices Page 12

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95. Persons in the United States who provide external auditing services are designated as a. Certified Public Accountants. b. Certified Financial Accountants. c. Chartered Accountants. d. Certified Management Accountants. 96. Which of the following activities is associated with the cost management information system? a. preparing reports for division managers b. preparing reports for the IRS c. preparing reports for the SEC d. preparing financial statements that conform to GAAP 97. JIT is a critical part of a more comprehensive approach referred to as a. supply chain management. b. lean manufacturing. c. just-in-time manufacturing. d. computer-integrated manufacturing. 98. Which of the following positions would most likely be a staff manager? a. machining foreman b. assembly foreman c. production supervisor d. controller 99. Disclosing all information, unfavorable as well as favorable, that could influence an intended user's understanding of reports would relate to which of the following sections of the IMA code of ethics? a. competence b. independence c. integrity d. credibility 100. Which of the following certifications requires a candidate to pass a qualifying examination in Technology and Analytics and Strategic Financial Management? a. Certificate in Management Accounting b. Certificate in Public Accounting c. Certificate in Internal Auditing d. Certificate in Financial Accounting 101. All of the following would be considered staff functions EXCEPT the vice president of a. finance. b. corporate planning. c. marketing. d. research and development. 102. Which of the following emerging trends in cost accounting deals with managers striving to create an environment Page 13

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that will enable workers to manufacture perfect (zero-defect) products? a. advances in information technology b. time as a competitive element c. global competition d. total quality management 103. Which of the following statements is TRUE? a. The service sector comprises approximately three quarters of the U.S. economy and employment. b. The service sector comprises approximately 20 percent of the U.S. economy and employment. c. Traditional smokestack industries have increased in importance in recent years. d. The service sector has decreased in importance in recent years. 104. Which of the following is NOT part of the financial accounting information system? a. filing reports with the SEC b. reporting a large contingent liability to current and potential shareholders c. making a managerial assessment such as determining the future cash flows of a proposed flexible manufacturing system d. preparing GAAP financial statements 105. Disclosing company information (when not legally obligated to do so) would be a violation of which of the following parts of the IMA code of ethics? a. competence b. confidentiality c. independence d. credibility 106. Analyzing cost overruns to determine their cause is an example of a. planning. b. control. c. decision making. d. activity-based costing. 107. Which of the following cost management tools supports the firm's concentration on the delivery of value to the customer? a. service industry growth b. global competition c. preparing an earnings report for the SEC d. value chain analysis 108. Which of the following duties is usually assigned to the controller? a. overseeing the finance functions of the company b. managing investor relations of the company c. raising capital for the company d. overseeing the financial accounting functions of the company 109. When a management accountant ignores data in favor of unsupported opinion, this action would speak most directly Page 14

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to which of the following parts of the IMA code of ethics? a. competence b. confidentiality c. independence d. credibility 110. In JIT manufacturing, each operation produces a. only what is necessary for the succeeding operations. b. all that it can to offset fixed costs. c. a fixed percentage in excess of orders to ensure adequate quality stock. d. all that it can in order to build inventories. 111. The setting of objectives and the identification of methods to achieve those objectives is called a. planning. b. controlling. c. performance evaluation. d. decision making. 112. A demand-pull system that strives to produce a product only when it is needed and only in the quantities demanded by customers is referred to as a. supply chain management. b. theory of constraints. c. lean manufacturing. d. just-in-time manufacturing. 113. The Statement of Ethical Professional Practice of the Institute of Management Accountants addresses all of the following EXCEPT a. competence. b. confidentiality. c. strategic cost management. d. integrity. 114. Which of the following describes the managerial activity of comparing actual results with budgeted results? a. control b. continuous improvement c. planning d. decision making 115. In a financial accounting information system, the inputs are usually a. financial statements. b. analyses of data. c. performance reports. d. economic events. 116. In a company, engineers have redesigned production processes lowering production costs, shortening production cycle time, reducing waste, and improving quality. Which of the following types of managerial activity applies to this Page 15

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situation? a. controlling b. continuous improvement c. planning d. decision making 117. Manufacturing environment automation is associated with increases in a. inventory. b. productive capacity. c. processing time. d. None of these choices 118. Which of the following is NOT an advance in information technology that affects firms in a manufacturing environment? a. enterprise resource planning (ERP) software b. GAAP reporting software to generate financial reports for external users c. activity-based costing (ABC) d. time-driven activity-based costing (TDABC) 119. Cost management is concerned with producing outputs for a. internal managers. b. creditors. c. investors. d. regulatory authorities. 120. Which of the following is NOT a process associated with an accounting information system? a. auditing existing data b. collecting and recording data c. providing information to users d. analyzing and managing data 121. The certification sponsored by the Institute of Management Accountants that emphasizes economics, finance, management, financial accounting and reporting, management reporting, and decision analysis is the a. CPA. b. CMA. c. CIA. d. All of these choices

Enter the appropriate word(s) to complete the statement. 122. The _________ information system is primarily concerned with producing outputs for internal users using inputs and processes needed to satisfy management objectives. 123. The Standards of Ethical Conduct for Management Accountants include competence, confidentiality, integrity, resolution of ethical conflict, and _________. Page 16

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124. The IMA's program to recognize professional competence in the field of management accounting yields a designation as a(n) _________ Accountant. 125. Organizations and professional associations often establish a _________ or standards of conduct for their managers and employees. 126. _________ is the persistent pursuit and elimination of waste which results in a decrease of lead time. 127. Positions in a company that have direct responsibility for its basic objectives are called _________ positions, and the positions indirectly responsible for the company's objectives are called _________ positions. 128. Only Certified Public Accountants are permitted by law to serve as _________. 129. The role of _________ accountants is to assist and support those responsible for carrying out an organization's basic objectives by assisting internal decision makers. 130. The cost management subsystem designed to assign costs to individual products and services is called the _________ information system. 131. The _________ is a method used to continuously improve manufacturing and nonmanufacturing activities by focusing on the fact that resources are finite, and the most limited resources must be focused on and exploited until constraints are eliminated.

132. Contrast the role of the financial vice president, the controller, and the treasurer. 133. What is the difference between a staff position and a line position? 134. You are a management accountant for Savage Corporation. Gabe Hopen, the sales representative for one of Savage’s suppliers, invited you to attend a professional sporting event. Because you are an avid sports fan, you accepted Gabe's invitation. At the sporting event, Gabe begins talking about Savage's upcoming contract renewals with suppliers. Because there is intense competition and because it is the first bid he will submit to Savage Corporation, he asks you to review his bid to make sure "it is good enough" before he submits it to the company. In addition, because you are knowledgeable about costs, especially regarding this contract, he asks you to tell him if his bid is "in the ballpark" or "needs improvement." He indicates that if he wins the contract, you will be provided with season tickets for the rest of the year. Considering the Standards of Ethical Conduct for Management Accountants, how would you respond to Gabe's request? 135. Explain what is meant by confidentiality and why it is important. 136. Discuss three advances in digital information technology that are changing the manufacturing environment. 137. Describe the connection between planning, controlling, and feedback. 138. You are a management accountant for the Eastern Division of Strong Enterprises. Your longtime friend, Alana Rodriguez, is the Eastern Division manager. Alana was instrumental in helping you obtain your current position. Because the manager's annual bonus is based on the amount of profit the Eastern Division reports for the year, Alana has asked you to adjust some of the reported financial information to make the Eastern Division appear more profitable. Considering the Standards of Ethical Conduct for Management Accountants, how would you respond to Alana Page 17

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Rodriguez's request? 139. Describe the two major subsystems of a cost management system and briefly summarize their importance. 140. What is customer orientation? Why is it important in a global environment? What role does cost management play in serving customers? 141. Briefly discuss the relationship between cost accounting, management accounting, and cost management. 142. Discuss the three forms of accounting certification. Which form of certification do you believe is best for management accountants? Why? 143. How has the nature of accounting systems shifted in response to technology? 144. What can a company do to increase the likelihood of its employees being ethical in all their undertakings? 145. Give some examples of reporting feedback that will assist in continuous improvement of a service industry company. 146. Discuss how the goal of profit maximization is affected by ethical considerations. What incentives are there for managers to manipulate accounting data in unethical ways in order to increase profits? 147. Identify and discuss the factors that are affecting the way cost accounting is currently practiced. 148. What is the role of the controller in an organization? Describe some of the activities over which he or she has control. 149. Explain the relationship between a cost management system and a financial accounting system.

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Answer Key 1. False 2. True 3. True 4. False 5. False 6. True 7. True 8. True 9. True 10. False 11. True 12. False 13. False 14. True 15. False 16. True 17. True 18. True 19. False 20. True 21. False 22. True 23. True 24. True 25. False Page 19

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26. True 27. True 28. False 29. True 30. True 31. d 32. b 33. a 34. c 35. b 36. c 37. d 38. a 39. b 40. d 41. a 42. a 43. b 44. b 45. c 46. d 47. c 48. d 49. d 50. c 51. b Page 20

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52. a 53. c 54. b 55. a 56. c 57. b 58. d 59. d 60. b 61. a 62. d 63. b 64. d 65. b 66. c 67. d 68. b 69. c 70. a 71. c 72. c 73. c 74. c 75. b 76. d 77. b Page 21

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78. a 79. d 80. d 81. b 82. a 83. a 84. b 85. b 86. d 87. a 88. c 89. a 90. a 91. b 92. c 93. d 94. d 95. a 96. a 97. b 98. d 99. d 100. a 101. c 102. d 103. a Page 22

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104. c 105. b 106. b 107. d 108. d 109. a 110. a 111. a 112. d 113. c 114. a 115. d 116. b 117. b 118. b 119. a 120. a 121. b 122. cost management 123. credibility 124. Certified Management 125. code of ethics 126. Lean manufacturing 127. line; staff 128. external auditors 129. cost (or management) Page 23

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130. cost accounting 131. theory of constraints 132. The financial vice president reports to the president and supervises the treasurer and controller. The treasurer supervises the financing function, and the controller supervises the accounting information system. 133. A line position has direct responsibility for carrying out the basic objectives of an organization. A staff position has indirect responsibility for the basic objectives and provides a supportive role for line activities. 134. According to the Standards of Ethical Conduct for Management Accountants, management accountants have a responsibility to "refrain from using or appearing to use confidential information acquired in the course of their work for unethical or illegal advantage either personally or through a third party." If you agree to review Gabe's bid and tell him if the bid needs improvement so that he will win the contract, this could be viewed as using confidential information for your personal advantage (season tickets). In addition, management accountants have a responsibility to refuse any gift, favor, or hospitality that would influence their actions. 135. Management accountants are entrusted with sensitive information about their companies and their dealings with outside firms. Confidentiality standards require that accountants honor this trust. They cannot disclose confidential information without the permission of the company, unless legally required to do so. They must monitor their subordinates to make sure that they are upholding the confidentiality standard. They may not use or appear to use confidential information acquired in their work for unethical or illegal advantage. 136. Technology has fostered computer-integrated manufacturing, changing the way laborers work. The theory of constraints (TOC) has enabled firms to identify bottlenecks and improve the time and quality of production. Just-in-time (JIT) manufacturing has reorganized the production line to respond to customer demand, rather than sequential, efficient supply. Total quality management (TQM) has focused firms on quality and continuous improvement, reducing waste and cost. 137. Planning establishes performance standards, feedback compares actual performance with planned performance, and control uses feedback to evaluate deviations from plans. 138. According to the Standards of Ethical Conduct for Management Accountants, management accountants have a responsibility to "perform their professional duties in accordance with relevant laws, regulations, and technical standards." Therefore, if "massaging the numbers" involves violating any laws, regulations, or technical standards, it would violate the Standards of Ethical Conduct for Management Accountants. In addition, the Standards of Ethical Conduct for Management Accountants indicate that management accountants have a responsibility to communicate information fairly and objectively and to disclose all relevant information that could be expected to influence a user. 139. A cost management system consists of two major subsystems: a cost accounting system and an operational control system. The cost accounting system is designed to assign costs to individual products or services. A cost accounting system must assign costs in order to value inventory and determine the cost of goods sold. The operational control system is designed to provide accurate timely feedback concerning performance of managers and others. Operational control is also designed to evaluate activities that should be performed and how well they are performed. The operational control system should be designed to provide opportunities for continuous quality improvement. 140. Organizations are concerned with the importance and value that customers have for their processes, activities, products, and services. Firms want to deliver value to customers in order to keep them and to attract new customers in an increasingly competitive global environment. Managing activities and costs is a critical component of managing the value chain. Page 24

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141. Management accounting is concerned with using financial and nonfinancial information for planning and control, continuous improvement, and decision making. Cost accounting gathers information to satisfy the cost objectives necessary for internal and external reporting. Cost management encompasses both cost accounting and management accounting. It is concerned with assigning costs to cost objectives and using that information to make decisions that use resources effectively and maximize shareholder value. 142. The three forms of certification are the Certified Public Accountant (CPA), the Certified Management Accountant (CMA), and the Certified Internal Auditor (CIA). Although each certification can prove to be valuable for management accountants, the CMA is tailored to fit the needs of management accountants. The CPA has a public accounting orientation, and the CIA has an internal auditing orientation. Only the CMA specifically addresses the professional requirements of a management accountant. 143. Advances in the development of specialized software for cost and operations management in manufacturing firms have allowed firms to create one database that can be used for many purposes within the accounting systems. Information is more accessible and can be used to provide much more effective planning, control, feedback, decision making, and continuous improvement. Technology breakthroughs have allowed the emergence of electronic commerce and value chain management so that companies can maintain a customer focus and strive for business sustainability in the long term. 144. Companies can establish a culture and atmosphere of ethical business practices by rewarding those employees who are honest, are fair, and act with integrity. They can establish their own code of professional conduct that sets out the organizational purpose, beliefs, values, and expectations of employees. The code of conduct should be known, visible, and enforced. Companies should hire certified professionals, when appropriate. Certified professionals have codes of conduct and standards appropriate to their duties. Companies can incorporate ethical values into the selection criteria for employee recruitment. 145. A service industry company will be interested in monitoring all aspects of performance. It may prepare performance reports on materials and labor usage, as well as on meeting revenue targets. It will want to keep track of things important to customers: turnaround time, customer satisfaction, types of complaints, and requests for auxiliary services (i.e., shipping). It may keep records about the characteristics of customers (i.e., geography, profession, residence, age) to better understand their market. It will be interested in efficiency and productivity of labor and equipment. It might monitor the usage of capacity. It will be interested in reporting on all aspects of performance. 146. The objective of profit maximization should be constrained by the requirement that profits are achieved through legal and ethical means. Because performance evaluation and rewards for managers often are linked to reported profits, managers might manipulate accounting data to show increased profits in order to increase their own bonuses. The evaluation and reward system should be designed to discourage unethical behavior. 147. Worldwide competitive pressures, deregulation, growth in the service industry, and advances in information and manufacturing technology have changed the nature of our economy and caused many manufacturing and service industries to dramatically change the way in which they operate. These changes, in turn, have prompted the development of innovative and relevant cost management practices. 148. The controller is responsible for both internal and external accounting. These responsibilities usually include such diverse activities as taxes, SEC reports, cost accounting, budgeting, internal auditing, financial accounting, and systems accounting. 149. The cost management system is concerned with producing information for the company's internal users and is designed to meet management objectives. A cost management system has three broad objectives—to provide information on costing of products and services, planning and control activities, and decision-making activities. A financial accounting system is mainly concerned with producing information for the company's external users. Financial accounting information is used for investment decisions, stewardship evaluation, activity monitoring, and regulatory measures. The rules that govern a financial accounting system are defined by the Securities Exchange Page 25

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commission (SEC) and the Financial Accounting Standards Board (FASB). Outputs of a financial accounting system include the basic financial statements which include the income statement, balance sheet, statement of cash flows, and statement of owner's equity (or statement of retained earnings).

Page 26

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Indicate whether the statement is true or false. 1. The overall objective of an activity-based cost management system is to manage activities to reduce costs and improve customer value. a. True b. False 2. An integrated cost management system receives information from and provides information to only the controller of a company. a. True b. False 3. The income statement prepared for external parties is frequently referred to as absorption-costing income, or fullcosting income. a. True b. False 4. Cost management information benefits production, marketing, and customer service systems as well as being a crucial part of managerial decision making. a. True b. False 5. Cost is the cash or cash equivalent value sacrificed for goods and services that are expected to bring a current or future loss to the company. a. True b. False 6. The cost of goods manufactured represents the total manufacturing cost of goods completed during the current period. a. True b. False 7. Gross margin, also called gross profit, is the difference between sales and cost of goods sold. a. True b. False 8. The cost management information system is primarily concerned with producing outputs for internal users using inputs and processes needed to satisfy management objectives. a. True b. False 9. The financial accounting information system provides information for three broad objectives: costing services and products, planning and control, and decision making. a. True b. False 10. Error costs are costs associated with measurements required by the cost management system and measurement costs are the costs associated with making poor decisions. a. True Page 27

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b. False 11. Conversion cost is the sum of direct materials and direct labor cost and prime cost is the sum of direct labor and overhead cost. a. True b. False 12. Cost management systems can be broadly classified as traditional or activity based. a. True b. False 13. The cost accounting system that emphasizes tracing over allocation is called an activity-based accounting system. a. True b. False 14. A traditional cost accounting system assumes that all costs can be classified as fixed with respect to changes in the units or volume produced. a. True b. False 15. Intangible products are goods produced by converting raw materials into finished products through the use of labor and capital inputs. a. True b. False 16. Work in process consists of all partially completed units found in production at a given point in time. a. True b. False 17. Product costs include production or manufacturing costs, plus nonmanufacturing costs such as marketing and customer service. a. True b. False 18. Assigning costs accurately to cost objects is of low priority. Accuracy is not evaluated based on knowledge of some underlying "true cost." a. True b. False 19. The cost of goods sold is the cost of direct materials, direct labor and overhead attached to the units sold. a. True b. False 20. Cost assignment is one of the key processes of the cost accounting system. a. True b. False Page 28

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21. The value chain is the set of activities required to design, develop, produce, market, deliver and provide post-sales service for the products and services sold to customers. a. True b. False 22. Services differ from tangible products on three dimension: intangibility, perishability, and inseparability. a. True b. False 23. Production costs are costs associated with manufacturing goods or providing services and are classified as direct materials, direct labor, and overhead. a. True b. False 24. The most precise of the three methods of cost assignment is direct tracing since it relies on observable causal relationships. a. True b. False 25. The three methods of cost assignment are direct tracing, driver tracing, and allocation. a. True b. False

Indicate the answer choice that best completes the statement or answers the question. 26. Inventory balances for the Jameson Company in October are as follows: Raw materials Work in process Finished goods

October 1 $ 27,000 48,000 108,000

October 31 $21,000 37,200 90,000

During October, purchases of direct materials were $36,000. Direct labor and factory overhead costs were $60,000 and $84,000, respectively. What are the total manufacturing costs added to production in the period? a. $186,000 b. $180,000 c. $144,000 d. $174,200 27. Product costs are converted from cost to expense when a. units are completed. b. materials are purchased. c. units are sold. d. materials are requisitioned. 28. In a company that supplies muffins to bakeries, delivered muffins to bakeries would be a(n) a. interrelated part. Page 29

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b. input. c. output. d. process. 29. Information from the records of Conundrum Company for September was as follows: Sales Selling and administrative expenses Direct materials used Direct labor Variable factory overhead Factory overhead

$307,500 52,500 66,000 75,000 50,000 51,250

Direct materials

Inventories Sept. 1 Sept 30 $ 8,000 $10,500

Work in process

18,750

21,000

Finished goods

17,250

14,250

Conundrum Company produced 20,000 units. The prime costs per unit (rounded to the nearest cent) for September were a. $7.05. b. $8.81. c. $14.74. d. $20.00. 30. The accounting information subsystem that is primarily concerned with producing outputs for external users is called a(n) a. cost management information system. b. computer system. c. internal accounting system. d. financial accounting information system. 31. The following data are for Lauren Enterprises: Selling and administrative expenses Direct materials used Direct labor (25,000 hours) Factory overhead application rate

Direct materials Work in process Finished goods

$75,000 $265,000 $300,000 $16 per DLH

Inventories Beginning Ending $50,000 $45,000 75,000 90,000 40,000 25,000

What is the cost of goods sold? a. $565,000 b. $950,000 Page 30

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c. $965,000 d. $980,000 32. Which cost assignment method would likely assign the cost of maintenance for machines in a department that does cutting when the cutting activity is the cost object? a. driver tracing b. assignment c. allocation d. arbitration 33. Which of the following is NOT a trait or focus of a traditional cost management system? a. unit-based drivers b. narrow and rigid product costing c. allocation intensive d. focus on understanding and managing activities 34. Which of the following is an objective of the operational control information system? a. providing information to external users b. facilitating the assignment of costs to products and services c. ensuring that day-to-day activities support the long-range strategic objectives of the organization d. increasing post-purchase costs 35. Which of the following costs would be considered a direct material? a. an immaterial amount of glue used in the production of hard-copy textbooks b. labor used to produce hard-copy textbooks c. paper used in the production of hard-copy textbooks d. depreciation on the textbook company’s corporate office building 36. Information from the records of Conundrum Company for September was as follows: Sales Selling and administrative expenses Direct materials used Direct labor Variable factory overhead Factory overhead

$307,500 52,500 66,000 75,000 50,000 51,250

Direct materials

Inventories Sept. 1 Sept 30 $ 8,000 $10,500

Work in process

18,750

21,000

Finished goods

17,250

14,250

Conundrum Company produced 20,000 units. What is the total variable cost per unit (rounded to the nearest cent)? a. $7.05 b. $9.55 Page 31

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c. $2.18 d. $6.25 37. Which of the following costs is a period cost? a. depreciation on factory equipment b. transportation-in for raw materials shipments c. small tools and supplies used in the production process d. depreciation of sales office computers 38. Which of the following costs incurred by a bus manufacturer would NOT be directly attributable to the finished product? a. wages paid to assembly-line production workers b. tires for buses c. windshields for buses d. depreciation on factory building 39. Information from the records of Conundrum Company for September was as follows: Sales Selling and administrative expenses Direct materials used Direct labor Variable factory overhead Factory overhead

$307,500 52,500 66,000 75,000 50,000 51,250

Direct materials

Inventories Sept. 1 Sept 30 $ 8,000 $10,500

Work in process

18,750

21,000

Finished goods

17,250

14,250

Conundrum Company produced 20,000 units. If production increased to 32,000 units next year, what is the effect on variable product cost per unit and total product cost per unit, respectively? a. remain the same; remain the same b. remain the same; decrease c. increase; remain the same d. decrease; increase 40. For financial accounting, the nature of the inputs and the rules and conventions governing processes are defined by the a. Securities and Exchange Commission (SEC). b. Trade Reporting and Compliance Board (TRCP). c. International Ethics Standards Board (IESB). d. Monetary and Securities Trade Regulation Commission (MSTRC). 41. The records of Bentler Shoppers, Inc., for December show the following information: Sales

$2,050,000 Page 32

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Selling and administrative expenses Direct materials purchases Direct labor Factory overhead Direct materials, December 1 Work in process, December 1 Finished goods, December 1 Direct materials, December 31 Work in process, December 31 Finished goods, December 31

Date:

250,000 205,000 298,000 350,000 50,000 85,000 64,000 41,000 72,000 55,000

The net income for the month of December is a. $875,000. b. $916,000. c. $884,000. d. $770,000. 42. Which of the following will be included in traditional product costs? a. customer service costs b. marketing costs c. research and development costs d. manufacturing costs 43. Selling and administrative costs are classified as a. product costs. b. conversion costs. c. period costs. d. factory overhead. 44. Information from the records of Abel Corporation for July was as follows: Sales Selling and administrative expenses Direct materials used Direct labor Factory overhead *

$1,230,000 210,000 264,000 300,000 405,000

*Variable overhead is $205,000, fixed overhead is $200,000

Inventories Direct materials Work in process Finished goods

July 1 $36,000 75,000 69,000

July 31 $42,000 84,000 57,000

The variable product costs are a. $969,000. b. $769,000. c. $764,000. d. $1,179,000. Page 33

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45. During the month of January, Marcos & Hennessey, Inc., had total manufacturing costs of $165,000. It incurred $62,000 of direct labor cost and $40,000 of manufacturing overhead cost during the month. If the materials inventory on January 1 was $5,800 less than the materials inventory on January 31, what was the cost of materials purchased during the month? a. $53,650 b. $68,800 c. $58,000 d. $93,800 46. Which of the following costs is NOT a period cost? a. receptionist's salary b. steel used in steel railings c. depreciation on sales staff cars d. sales commission 47. Factors that cause changes in resource usage, activity usage, costs and revenues are called a. indirect costs. b. drivers. c. assignments. d. cost objects. 48. The outputs of an accounting information system include a. economic events. b. financial statements. c. a bill of lading report. d. value chain information. 49. Which type of inventory is normally sold to the customer? a. direct materials b. factory supplies c. work in process d. finished goods 50. With regard to products, perishability can be defined as a. buyers of products who cannot see, feel, hear or taste the product before it is bought. b. services that cannot be stored. c. buyers and sellers who must be in direct contact for the sale to take place. d. buyers of the product who do not need direct contact with the manufacturer of the product. 51. A cost that expires without producing any revenue benefit is known as a(n) a. loss. b. expense. c. profit. d. surplus. 52. Information from the records of Chrome Ponies Enterprises for June is as follows: Page 34

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Sales Direct labor Selling and administrative expenses Direct materials purchases Factory overhead

Direct materials Work in process Finished goods

June 1 $1,200 2,500 2,300

Date:

$41,000 10,000 7,000 6,000 13,500 Inventories June 30 $1,400 2,800 1,900

What is the gross margin (gross profit)? a. $11,500 b. $11,600 c. $4,500 d. $4,600 53. When calculating the absorption-costing income for external reporting, all a. manufacturing costs ultimately become nonmanufacturing costs. b. manufacturing costs are product costs and product costs are never expensed. c. costs of selling manufactured products are classified as product costs. d. selling and administrative costs are classified as nonmanufacturing costs. 54. Information from the records of Conundrum Company for September was as follows: Sales $307,500 Selling and administrative expenses 52,500 Direct materials used 66,000 Direct labor 75,000 Variable factory overhead 50,000 Factory overhead 51,250 Inventories Sept. 1 Sept 30 Direct materials $ 8,000 $10,500 Work in process

18,750

21,000

Finished goods

17,250

14,250

Conundrum Company produced 20,000 units. What are the conversion costs (rounded to the nearest cent) per unit? a. $7.05 b. $8.81 c. $12.11 d. $14.74 55. The role of data analytics in cost management includes asking all but which of the following questions? a. What am I measuring? b. Why am I measuring it? Page 35

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c. Why do we have nonproduction costs? d. Which analytical method should be employed in my analysis? 56. Which of the following costs is a period cost for a manufacturing company? a. controller's salary b. wages of machine operators c. insurance on factory equipment d. fringe benefits for factory employees 57. Information from the records of Chrome Ponies Enterprises for June is as follows: Sales Direct labor Selling and administrative expenses Direct materials purchases Factory overhead

Direct materials Work in process Finished goods

$41,000 10,000 7,000 6,000 13,500

Inventories June 1 June 30 $1,200 $1,400 2,500 2,800 2,300 1,900

What are the total manufacturing costs added? a. $18,500 b. $19,300 c. $29,000 d. $29,300 58. The sum of the total additions to work in process during a period is a. total manufacturing costs added. b. factory overhead applied. c. material used. d. cost of goods manufactured. 59. In a cost management system, the cost view does NOT include a. resources. b. activities. c. driver analysis. d. products and customers. 60. The precision of driver tracing depends upon a. physically observable relationships. b. the strength of causal relationships described by the driver. c. allocation estimations. d. both the strength of causal relationships described by the driver and allocation estimations. 61. With regard to services, inseparability means that Page 36

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a. products cannot be stored. b. direct contact must take place for an exchange. c. products have a physical presence. d. None of these choices 62. Which of the following is NOT a benefit of an activity-based cost management system? a. greater product costing accuracy b. increased cost of implementing the system c. improved decision making d. enhanced strategic planning 63. In a company that supplies muffins to bakeries, which of the following would be considered a transforming process? a. delivered muffins b. baking c. egg d. oil 64. All of the following costs are included in factory overhead EXCEPT a. factory supplies. b. indirect labor. c. the plant foreman's salary. d. direct labor. 65. Information from the records of Chrome Ponies Enterprises for June is as follows: Sales Direct labor Selling and administrative expenses Direct materials purchases Factory overhead

Direct materials Work in process Finished goods

June 1 $1,200 2,500 2,300

$41,000 10,000 7,000 6,000 13,500 Inventories June 30 $1,400 2,800 1,900

What is the cost of goods sold? a. $36,500 b. $28,600 c. $29,400 d. $29,500 66. Which of the following is an example of an expense? a. cost of a proposed advertising campaign b. cost of a product delivered to a customer c. cost of the purchase of equipment d. write-off of an obsolete product Page 37

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67. The overall objective of accounting information systems is to a. provide information to users. b. manage the organization. c. prepare financial reports. d. report to the government. 68. Which of the following costs incurred by a wooden chair manufacturer would be traced to the product cost through direct tracing? a. depreciation on factory equipment b. supervisor's salary c. insurance on the factory building d. woodworker's salary 69. The direct costs of operating a college computer center would NOT include a. rent paid for computers. b. a fair share of college utilities. c. paper used by the center. d. computer consultants' salaries. 70. Which of the following is a common trait of a traditional cost management system? a. unit-based drivers b. tracing intensive c. use of both financial and nonfinancial measures of performance d. detailed activity information 71. A prescriptive data analytic type such as an analysis of strategic cost management would answer which of the following questions? a. What is happening? b. Why is it happening? c. What is likely to happen? d. What do I need to do? 72. Direct costs a. are incurred for the benefit of the business as a whole. b. would continue even if a particular product were discontinued. c. are those costs that can be easily and accurately traced to a cost object. d. can be assigned to products only by a process of allocation. 73. The assignment of indirect costs to cost objects is referred to as a. allocation. b. direct tracing. c. physical observation. d. cost management. 74. The records for the previous year for Sarasota Boat Builders, Inc., show the following data: Page 38

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Selling and administrative expenses Direct materials used Direct labor (100,000 hours) Factory overhead application rate

Date:

$300,000 $530,000 $600,000 $5 per DLH Inventories

Work in process Finished goods

Beginning $150,000 80,000

Ending $160,000 50,000

The cost of goods sold is a. $1,630,000. b. $1,880,000. c. $1,600,000. d. $1,650,000. 75. Which of the following is an example of a loss? a. cost of a product delivered to a customer b. cost of a delivered advertising campaign c. cost of the purchase of equipment d. write-off of an obsolete product 76. The income statement prepared for external reporting is a. based on a functional classification. b. referred to as absorption-costing income. c. called full-costing income. d. All of these choices. 77. The sum of direct labor and factory overhead is referred to as a. period costs. b. conversion costs. c. prime costs. d. direct product costs. 78. Which cost assignment method would likely assign the cost of heating in a plant that makes beds and dressers when the bed product line is the cost object? a. driver tracing b. direct tracing c. allocation d. arbitration 79. An example of a tangible product, rather than a service, would be a. housekeeping. b. insurance coverage. c. a coffee mug. d. medical exam. Page 39

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80. Which of the following statements regarding traceability is true? a. It uses well-specified economic events as inputs, and its processes follow certain rules and conventions. b. It is used for investment decisions, stewardship evaluation, activity monitoring, and regulatory measures. c. It is the ability to assign a cost directly to a cost object in an economically feasible way by means of a causal relationship. d. It is concerned with determining what activities should be performed by managers and assessing how well they are performed. 81. A cost management subsystem designed to provide accurate and timely feedback concerning the performance of managers and others relative to their planning and control activities is called the a. cost accounting information system. b. financial accounting system. c. operational control information system. d. tax reporting system. 82. Inventory balances for Balmer Company in April are as follows: Raw materials Work in process Finished goods

April 1 $ 40,000 67,500 150,000

April 30 $ 35,000 59,800 120,000

During April, purchases of direct materials were $58,000. Direct labor and factory overhead costs were $82,000 and $110,000, respectively. Prime costs for April were a. $145,000. b. $140,000. c. $88,000. d. $152,700. 83. An example of a service, rather than a tangible product, would be a. medical exams. b. cloths. c. trucks. d. radios. 84. Which of the following expenses incurred by a department store is a direct cost for the women's shoe department? a. salespersons' commissions in the women's shoe department b. salaries for individuals working in the accounting department c. advertising expense for the service department d. allocated rent expense for the clothing department 85. Information from the records of Abel Corporation for July of the current year was as follows: Sales Selling and administrative expenses Direct materials used

$1,230,000 210,000 264,000 Page 40

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Direct labor Factory overhead *

Date:

300,000 405,000

*Variable overhead is $205,000, fixed overhead is $200,000

Inventories Direct materials Work in process Finished goods

July 1 $36,000 75,000 69,000

July 31 $42,000 84,000 57,000

The conversion cost is a. $960,000. b. $1,179,000. c. $705,000. d. $564,000. 86. Traceable costs across the entire value chain can assist managers in meeting which of the following objectives? a. product pricing decisions b. tactical profitability analysis c. external financial reporting d. strategic design decisions 87. If a company’s total warehousing cost for the year amounts to $950,000, and 35% of the warehousing activity is associated with storing finished goods after they are produced and 65% with storing direct materials until they are used in the production process, how much of the cost would be charged as a product cost? a. $285,000 b. $332,500 c. $617,500 d. $950,000 88. A(n) _____ is a basic unit of work performed within an organization. a. allocation b. object c. driver d. activity 89. Information from the records of Chrome Ponies Enterprises for June is as follows: Sales Direct labor Selling and administrative expenses Direct materials purchases Factory overhead

Direct materials Work in process Finished goods

June 1 $1,200 2,500 2,300

$41,000 10,000 7,000 6,000 13,500 Inventories June 30 $1,400 2,800 1,900 Page 41

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What was the cost of materials used in production? a. $6,200 b. $6,000 c. $5,800 d. $19,500 90. _____ is concerned with determining what activities should be performed and assessing how well they are performed. a. The financial accounting system b. The value chain c. Operational control d. Traditional costing 91. Which of the following would be more likely associated with a traditional cost accounting information system? a. setup costs assigned to products using the number of setups as the driver b. materials handling costs assigned to products using the number of moves as the activity driver c. customer service costs assigned to products using the number of complaints as the activity driver d. purchasing costs assigned to products using number of direct labor hours as the activity driver 92. A cost used up in the production of revenues is a(n) a. unexpired cost. b. loss. c. expense. d. asset. 93. Which of the following would NOT be a cost that could be directly traced to a custom piece of furniture based upon physical observation? a. wood and upholstery materials that are in the final piece b. depreciation paid on factory equipment c. labor of the worker assembling the piece of furniture d. labor of the woodworker who finishes the wood of the piece 94. Which of the following costs are expensed in the period in which they are incurred? a. direct materials costs b. product costs c. factory overhead costs d. nonproduction costs 95. In a cost management system, the process view does NOT include a. resources. b. activities. c. driver analysis. d. performance analysis. 96. The system that focuses on the management of activities with the objective of improving the value received by the customer and the profit received by providing this value is called a. activity-based management. Page 42

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b. contemporary cost control. c. traditional cost management system. d. JIT. 97. Which of the following is a service organization? a. grocery store b. CPA firm c. cattle ranch d. department store 98. The following data are for Lauren Enterprises: Selling and administrative expenses Direct materials used Direct labor (25,000 hours) Factory overhead application rate

Direct materials Work in process Finished goods

$75,000 $265,000 $300,000 $16 per DLH

Inventories Beginning Ending $50,000 $45,000 75,000 90,000 40,000 25,000

What is the cost of goods manufactured? a. $1,115,000 b. $965,000 c. $955,000 d. $950,000 99. Screaming Exhaust Systems, Inc., recorded the following data for April: Beginning finished goods inventory Beginning work-in-process inventory Ending work-in-process inventory Ending finished goods inventory Factory overhead costs Direct materials used Direct labor

$ 60,000 40,000 80,000 50,000 200,000 160,000 100,000

What is the cost of goods manufactured for April? a. $470,000 b. $420,000 c. $460,000 d. $430,000 100. Which of the following items could be associated with either a traditional cost accounting information system or an activity-based cost information system? a. Overhead is assigned on a plantwide rate based on direct labor hours. b. Customer service costs are assigned to products using number of complaints as the activity driver. c. Direct labor cost is assigned to products using direct tracing. Page 43

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d. None of these choices 101. In an accounting information system, the inputs are usually a. financial statements. b. analyzing data. c. economic events. d. performance reports. 102. The three methods of assigning costs to cost objects are direct tracing, driver tracing, and a. observation. b. arbitration. c. assignment. d. allocation. 103. A small engine repair shop purchased materials costing $9,000 in July. The beginning inventory of material parts was $4,500, and the ending inventory of material parts was $4,000. Payments for direct labor for July totaled $27,000, secretarial costs were $2,000, and overhead of $5,000 was incurred. In addition, $5,000 was spent on advertising and $2,000 for the franchise name. Revenue for July was $50,000. What is the gross margin for July? a. $41,500 b. $43,500 c. $1,500 d. $8,500 104. Which of the following costs is a product cost? a. lease payments on cars used by salespersons b. president's salary c. property taxes on factory building d. depreciation on office equipment used in the sales office 105. An example of a period cost is the a. president's salary. b. insurance on factory equipment. c. property taxes on a factory building. d. wages of factory custodians. 106. Assume the following information for Blue Knights Corporation for the year ended December 31: Sales Cost of goods manufactured for the year Beginning finished goods inventory Ending finished goods inventory Selling and administrative expenses

$2,250 1,350 450 495 300

What is the cost of goods sold for the year ended December 31? a. $1,305 b. $1,605 Page 44

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c. $1,350 d. $1,650 107. A small engine repair shop purchased materials costing $9,000 in July. The beginning inventory of material parts was $4,500, and the ending inventory of material parts was $4,000. Payments for direct labor for July totaled $27,000, secretarial costs were $2,000, and overhead of $5,000 was incurred. In addition, $5,000 was spent on advertising and $2,000 for the franchise name. Revenue for July was $50,000. What is the cost of services sold for July? a. $41,500 b. $43,500 c. $50,500 d. $40,500 108. In a manufacturing company, product costs include a. direct materials only. b. direct materials, direct labor, and factory overhead. c. direct materials and direct labor only. d. direct labor only. 109. Which of the following costs is an example of product costs? a. selling commissions b. nonfactory office salaries c. direct materials d. advertising expense 110. Assume the following data for Rodriguez Services, an accounting firm, for November: Beginning materials inventory Beginning work-in-process inventory Ending work-in-process inventory Ending materials inventory Actual overhead costs Direct materials used Direct labor

$ 20,000 40,000 50,000 10,000 100,000 60,000 200,000

What is the cost of services sold for November? a. $370,000 b. $350,000 c. $360,000 d. $330,000 111. Which of the following items would NOT appear on an income statement of a service organization? a. selling expenses b. cost of goods sold c. administrative expenses d. gross margin Page 45

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112. In a functional-based management system, one is NOT likely to find a. unit- and non-unit-based cost drivers. b. maximization of individual unit performance. c. narrow and rigid product costing. d. allocation intensive cost assignment. 113. The merchandise inventory in a merchandising business corresponds most closely to which of the following items in a manufacturing firm? a. materials inventory b. cost of goods available for sale c. cost of goods manufactured d. finished goods inventory 114. Which of the following costs would be included as part of direct materials in the production of an automobile? a. an immaterial amount of glue for a sticker applied to the automobile b. steel c. gasoline used to fuel machines in production d. None of these choices 115. A company has purchased some steel to use in the production of steel railings. If this steel has NOT been put into production, it would be classified as a. finished goods inventory. b. factory supplies. c. work-in-process inventory. d. direct materials inventory. 116. The difference between a supply and an indirect material is that a. supplies are not necessary for production. b. indirect materials are not physically part of the product. c. supplies are not necessary for production and are not physically part of the product. d. supplies are necessary for production and are not physically part of the product. 117. Which of the following costs would be included in nonproduction costs? a. direct materials b. direct labor c. research and development d. All of these choices 118. Wages paid to a janitor in a factory would be classified as a. direct labor. b. direct janitor salaries. c. supervisor salaries. d. factory overhead. 119. Information from the records of Chrome Ponies Enterprises for June is as follows: Page 46

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Sales Direct labor Selling and administrative expenses Direct materials purchases Factory overhead

Direct materials Work in process Finished goods

June 1 $1,200 2,500 2,300

Date:

$41,000 10,000 7,000 6,000 13,500 Inventories June 30 $1,400 2,800 1,900

Cost of goods manufactured in June is a. $29,300. b. $29,700. c. $29,200. d. $29,000. 120. The ending work-in-process inventory is deducted on the a. balance sheet. b. income statement. c. statement of cost of goods manufactured. d. statement of cash flows. 121. Which of the following costs would be included as part of direct labor? a. an employee who brings raw materials to several production assembly lines (a materials handler) where each line is making different products b. a cutter in the production of wooden shelving c. an assembly line supervisor d. a janitor who cleans the employees’ offices 122. The most likely method to assign the cost of an assembly-line supervisor when the assembly line is the cost object is the a. driver tracing method. b. arbitration method. c. allocation method. d. direct tracing method. 123. A descriptive data analytic type such as an analysis of sales by customer would answer which of the following questions? a. What is happening? b. Why is it happening? c. What is likely to happen? d. What do I need to do? 124. Which of the following is NOT likely to be found in an activity-based management system? a. tracing of costs to activities b. only unit-based drivers Page 47

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c. broad flexible product costing d. systemwide performance maximization 125. Cost of goods sold equals cost of goods manufactured a. when finished goods inventories remain constant. b. when work-in-process inventories remain constant. c. plus beginning work-in-process inventory minus ending work-in-process inventory. d. when materials inventories remain constant. 126. Morton Manufacturing shows cost of goods sold for the month of March was $90,000. The finished goods inventory was $15,000 on March 1 and $17,500 on March 31. Beginning and ending work-in-process inventories were $20,000 and $25,000, respectively. What was the cost of goods manufactured during March? a. $92,500 b. $90,000 c. $87,500 d. $97,500 127. What is a disadvantage of assigning costs evenly over all cost objects? a. Not all costs will be assigned. b. Total costs will be distorted. c. Costs may be distorted by consumption patterns of other cost objects. d. None of these choices 128. All of Eva Enterprise's operations are housed in one building with the costs of occupying the building accumulated in a separate account. The total costs incurred in July amounted to $48,000. The company allocates these costs on the basis of square feet of floor space occupied. Administrative offices, sales offices, and factory operations occupy 9,000, 6,000, and 30,000 square feet, respectively. How much will be classified as a product cost for July? a. $9,600 b. $6,400 c. $16,000 d. $32,000 129. Which of the following methods of assigning costs is based on convenience or some assumed linkage and reduces the overall accuracy of the cost assignments? a. direct tracing b. driver tracing c. allocation d. All of these choices 130. Information from the records of Abel Corporation for July was as follows: Sales Selling and administrative expenses Direct materials used Direct labor Factory overhead *

$1,230,000 210,000 264,000 300,000 405,000

*Variable overhead is $205,000, fixed overhead is $200,000 Page 48

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Inventories Direct materials Work in process Finished goods

July 1 $36,000 75,000 69,000

July 31 $42,000 84,000 57,000

The prime costs are a. $210,000. b. $264,000. c. $300,000. d. $564,000. 131. Which of the following costs would be included as part of factory overhead? a. depreciation of plant equipment b. direct labor c. depreciation on the corporation's office building d. paper used in the production of books 132. Which of the following accounts would appear on the financial statements of ONLY a manufacturing firm? a. Direct Materials Inventory b. Bonds Payable c. Prepaid Insurance d. Retained Earnings 133. The optimal level in the trade-off between measurement and error costs is when a. measurement costs are greater than error costs. b. measurement costs and error costs are minimized. c. measurement costs are less than error costs. d. the total measurement costs and error costs are maximized. 134. Inventory balances for Jameson Company in October are as follows: Raw materials Work in process Finished goods

October 1 $ 27,000 48,000 108,000

October 31 $21,000 37,200 90,000

During October, purchases of direct materials were $36,000. Direct labor and factory overhead costs were $60,000 and $84,000, respectively. What is the cost of materials used in production? a. $36,000 b. $42,000 c. $47,800 d. $54,000 135. Which of the following would NOT be included in the conversion cost of an automobile? a. small screws, their cost considered immaterial, used in the wire harness assembly for the automobile Page 49

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b. assembly worker wages c. depreciation on machinery d. steel for the body of the automobile 136. Which of the following is an important trait of an activity-based cost management system? a. allocation intensive b. narrow and rigid product costing c. non-unit-based drivers d. focus on managing costs 137. Beginning work-in-process inventory is $188,000, ending work-in-process inventory is $220,000, cost of goods manufactured is $850,000, and direct materials used are $162,000. What are the conversion costs? a. $688,000 b. $980,000 c. $656,000 d. $720,000 138. Which of the following items is NEVER relevant to the cost flows of a service organization? a. finished goods inventory b. materials inventory c. work-in-process inventory d. All of these choices 139. In a company that supplies muffins to bakeries, which of the following would be considered an input? a. delivered muffins b. flour c. baking d. None of these choices 140. High quality cost management systems should have an organization-wide perspective. Which of the following would NOT be a benefit of a cost management system? a. increased speed from ignoring nonfinancial information b. the reduction of duplicate data storage and use of data c. improvement in the timeliness of reports d. increased efficiency of generating reliable and accurate information 141. Order-getting costs would NOT include a. marketing costs. b. customer service costs. c. advertising. d. salaries of sales personnel. 142. Information from the records of Conundrum Company for September was as follows: Sales Selling and administrative expenses

$307,500 52,500 Page 50

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Direct materials used Direct labor Variable factory overhead Factory overhead

Date:

66,000 75,000 50,000 51,250

Direct materials

Inventories Sept. 1 Sept 30 $ 8,000 $10,500

Work in process

18,750

21,000

Finished goods

17,250

14,250

Conundrum Company produced 20,000 units. What is the total product cost per unit (rounded to the nearest cent)? a. $14.74 b. $12.11 c. $12.18 d. $12.24 143. Prime product costs include a. only factory overhead. b. only direct labor. c. direct labor and factory overhead. d. direct materials and direct labor. 144. The following information has been provided for Hope Enterprises: Cost of goods manufactured Work in process: Beginning Ending Direct labor Materials placed in production Factory overhead

$7,500 1,200 1,400 4,000 1,500 ?

What is the amount of factory overhead? a. $2,000 b. $2,200 c. $1,400 d. $5,500 145. Which of the following costs would NOT be included in calculating inventory values under the absorption-costing basis? a. direct materials b. fixed overhead c. selling and administrative expenses d. direct labor 146. Error costs can be defined as Page 51

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a. the costs associated with the measurements required by the cost management system. b. unit costs assigned based on activities. c. the costs associated with making poor decisions based on bad cost information. d. None of these choices 147. Conversion costs do NOT include a. direct materials. b. direct labor. c. factory overhead. d. any of these costs. 148. A predictive data analytic type such as an analysis of customer demand patterns would answer which of the following questions? a. What is happening? b. Why is it happening? c. What is likely to happen? d. What do I need to do? 149. Inventory balances for Marshall, Inc., in June are as follows: Raw materials Work in process Finished goods

June 1 $1,125 2,000 4,500

June 30 $ 875 1,550 3,750

During June, purchases of direct materials were $1,500. Direct labor and factory overhead costs were $2,500 and $3,500, respectively. Conversion costs for June were a. $8,200. b. $7,750. c. $7,500. d. $6,000. 150. Costs that are expensed in the period in which they are incurred are called a. direct materials costs. b. product costs. c. nonproduction costs. d. inventoriable costs. 151. Inventory balances for Jameson Company in October are as follows: Raw materials Work in process Finished goods

October 1 $ 27,000 48,000 108,000

October 31 $21,000 37,200 90,000

During October, purchases of direct materials were $36,000. Direct labor and factory overhead costs were $60,000 and $84,000, respectively. Page 52

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What is the cost of goods manufactured? a. $180,000 b. $186,000 c. $194,000 d. $196,800 152. The following information is from the records of Stretch Limousines, Inc.: Net direct materials purchases cost Total direct materials used Beginning direct materials inventory

$225,000 275,000 125,000

The ending direct materials inventory is a. $175,000. b. $75,000. c. $50,000. d. $100,000. 153. The cost of units completed during a period is called a. cost of goods sold. b. cost of goods manufactured. c. current manufacturing costs. d. finished goods inventory. 154. If physical observation CANNOT be used to identify the exact amount of resources consumed by a cost object, the next best approach is a. driver tracing. b. allocation. c. estimation. d. None of these choices 155. Which of the following items would NOT be classified as part of factory overhead of a firm that makes sailboats? a. factory supplies used b. depreciation of factory buildings c. canvas used in sail d. indirect materials 156. Which of the following costs is NOT a product cost? a. rent on an administrative office building b. indirect labor on the production line c. repairs on manufacturing equipment d. steel used in producing inventory for sale to customers 157. Intangibility of services means that a. products cannot be seen, tasted, heard or felt before the purchase. b. products cannot be stored. Page 53

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c. exchange takes place in direct contact. d. there is an expiration date associated with the service. 158. The cash or cash equivalent value sacrificed for goods and services that are expected to bring a current or future benefit to the organization is/are called a. expenses. b. cost. c. an activity. d. a loss. 159. Sumter Company recently had a fire in its accounting office, which destroyed most of its records. Only the following information could be salvaged for the year: Direct labor Factory overhead Cost of goods sold Work in process, January 1 Finished goods, January 1 Work in process, December 31 Finished goods, December 31

$400,000 200,000 800,000 80,000 160,000 100,000 120,000

The cost of direct materials used in production during the year is a. $140,000. b. $180,000. c. $200,000. d. $260,000. 160. Which of the following is a cost management subsystem designed to provide accurate and timely feedback concerning the performance of managers and others relative to their planning and control of activities? a. financial accounting information system b. operational control information system c. cost accounting information system d. All of these choices 161. Information from the records of Abel Corporation for July was as follows: Sales Selling and administrative expenses Direct materials used Direct labor Factory overhead *

$1,230,000 210,000 264,000 300,000 405,000

*Variable overhead is $205,000, fixed overhead is $200,000

Inventories Direct materials Work in process Finished goods

July 1 $36,000 75,000 69,000

July 31 $42,000 84,000 57,000

The total product cost is Page 54

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a. $1,179,000. b. $969,000. c. $615,000. d. $764,000. 162. Inventory balances for Spirit Light Ventures for November are as follows: Materials Work in process Finished goods

November 1 $ 9,000 16,000 36,000

November 30 $ 7,000 12,400 30,000

During November, purchases of direct materials were $18,000. Direct labor and factory overhead costs were $20,000 and $28,000, respectively. The cost of goods manufactured in November was a. $68,000. b. $77,600. c. $74,000. d. $71,600. 163. The records of Williamson Company show the following information: Direct materials used Direct labor Factory overhead Beginning work-in-process inventory Beginning finished goods inventory Ending work-in-process inventory Selling and administrative expenses

$ 90,000 130,000 150,000 15,000 20,000 42,000 37,500

What was the cost of goods manufactured during the year? a. $343,000 b. $365,000 c. $385,000 d. $328,000 164. Value-chain product costs include which of the following? a. customer service costs b. marketing costs c. research and development d. All of these choices 165. An example of a nonproduction cost is a. wages paid to assembly line employees. b. manufacturing supplies. c. insurance on manufacturing facilities. d. the treasurer's salary. Page 55

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166. Which of the following is NOT an example of a difference between the income statement of a service organization and the income statement of a manufacturing organization? a. A service company will never have work in process. b. A service company will not have a finished goods inventory. c. Fulfillment costs may be added to cost of goods sold of a service company. d. Research and development expenses are not usually a major component of a service organization. 167. Which of the following is a cost accounting system that uses only unit-based activity drivers to assign costs to cost objects? a. activity-based management b. activity-based costing system c. traditional cost management system d. standards-based cost management system 168. The following information for Sutton Glass Company has been provided: Cost of goods manufactured Work in process: Beginning Ending Direct labor Direct materials used Factory overhead

$100,000 15,000 20,000 30,000 ? 45,000

What is the amount of direct materials used? a. $25,000 b. $30,000 c. $35,000 d. $100,000 169. Services differ from tangible products on three important dimensions: intangibility, inseparability, and a. profitability. b. sustainability. c. utility. d. perishability. 170. Selected data concerning the past year's operations of Motor City Corporation are as follows: Selling and administrative expenses Direct materials used Direct labor (50,000 hours) Factory overhead application rate

Direct material Work in process Finished goods

$225,000 $467,500 $450,000 $8 per DLH Inventories Beginning $ 75,000 112,500 60,000

Ending $ 67,500 135,000 37,500

The cost of direct materials purchased is Page 56

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a. $467,500. b. $460,000. c. $437,500. d. $445,000. 171. Which of the following is a cost management subsystem designed to assign costs to individual products and services and other objects, as specified by management? a. financial accounting information system b. operational control information system c. cost accounting information system d. All of these choices 172. According to the rules and conventions of the Financial Accounting Standards Board (FASB), only production costs should be used in calculating product costs for a. tactical profitability analysis. b. pricing decisions. c. product mix decisions. d. reporting inventories in external financial reporting. 173. In a company that supplies muffins to bakeries, which of the following would NOT be considered an input? a. delivered muffins b. flour c. egg d. oil 174. The set of interrelated parts that performs one or more processes to accomplish specific objectives is called a(n) a. cost objective. b. system. c. activity. d. cost driver. 175. The following information pertains to Steel Wheels, Inc.: Cost of goods manufactured Beginning work-in-process inventory Ending work-in-process inventory Manufacturing overhead What are the prime costs for the year? a. $360,000 b. $480,000 c. $270,000 d. $300,000

$350,000 110,000 80,000 50,000

Enter the appropriate word(s) to complete the statement. 176. __________ means the consumer cannot see, hear, feel, or taste a service before it is bought. Page 57

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177. Expired costs used up in the generation of revenues are called __________. 178. The least accurate but easiest to apply method of cost assignment for indirect costs that are not directly traceable to the cost object is the __________ method. 179. Generally, more managerial objectives can be met with an activity-based system than with a _________ system. 180. The resources given up that are expected to bring a current or future benefit to the organization are called __________. 181. In preparing an income statement, __________ and __________ costs are separated. 182. The cost management subsystem designed to provide accurate and timely feedback concerning the performance of managers relative to their control of activities is the __________ information system. 183. __________ are generally materials necessary for production that do not become part of the finished product or are not used to provide a service. 184. Cost management systems can be broadly classified as traditional or __________. 185. In deciding whether to implement a(n) __________ cost management system, managers must evaluate the trade-off between costs of measurement and cost of errors. 186. Costs necessary to market and distribute a product or service are often referred to as order- __________ and order__________ costs. 187. The overall objective of accounting information is to provide information to __________. 188. A subsystem of the accounting information system designed to satisfy costing, controlling, and decision-making objectives is called the __________ system. 189. Gross margin is the difference between __________ and the cost of goods or services sold. 190. __________ income is the difference between gross margin and selling and administrative expenses.

191. Big Foot Athletics designs and manufactures running shoes. A new model of shoes, Fast Track, has been developed and is ready for production. Required: Which costs will the production manager collect from the value chain, and how would these costs be used in different decisions? a. Traditional product costs b. Operating product costs c. Value-chain product costs 192. Describe several of the major differences between a traditional cost management system and an activity-based cost management system. 193. The cost of goods sold for Immaculate Corporation for the month of April was $450,000. Work-in-process inventory at the end of April was 95% of the work-in-process inventory at the beginning of the month. Overhead is 80% of the Page 58

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direct labor cost. During the month, $110,000 of direct materials were purchased. Revenues for Immaculate were $600,000, and the selling and administrative costs were $70,000. Other information about Immaculate's inventories and production for April was as follows: Ending inventories, April 30 Direct materials Work in process Finished goods

$ 19,000 ? 105,000

Beginning inventories, April 1 Direct materials Work in process Finished goods

$ 22,200 40,000 208,500

Required: a. Prepare a statement of cost of goods manufactured and a statement of cost of goods sold b. Prepare an income statement. c. What are the prime costs, conversion costs, and period costs? 194. Define activity-based management. 195. Foremost Corporation incurred the following costs: Beginning direct materials inventory Beginning work-in-process inventory Beginning finished goods inventory Ending direct materials inventory Ending work in process Ending finished goods Factory supervisor's salary Depreciation on plant Sales Selling and administrative expenses Plant maintenance Plant utilities Direct material purchases Direct labor

$ 17,000 8,000 18,000 15,000 13,000 24,000 25,000 10,000 650,000 100,000 5,000 9,000 185,000 200,000

Required: Calculate the following values: a. Direct materials used b. Cost of goods manufactured c. Cost of goods sold d. Operating income 196. The following items (partial list) are associated with a functional-based cost accounting information system, an activity-based cost accounting information system, or both: a. b. c. d. e. f.

Materials purchasing cost incurrence Assignment of purchasing cost to products using direct labor hours Assignment of purchasing cost using number of purchase orders Usage of direct materials Direct materials cost assigned to products using direct tracing Materials handling cost incurrence Page 59

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Materials handling cost assigned using direct labor hours Materials handling cost assigned using the number of moves as the driver Computer Materials handling equipment Decision to make a part or buy it from a supplier Costing out of products Report detailing individual product costs

Required: 1. For an activity-based cost system, classify these items into one of the following categories: a. Interrelated parts b. Processes c. Objectives d. Inputs e. Outputs f. User actions 2.

How would the choices differ between the two systems? What are the costs and benefits of each?

197. Classify the following costs incurred by a step railing manufacturing company as direct materials, direct labor, factory overhead, or period costs: a. b. c. d. e. f. g. h. i. j.

Wages paid to production workers Utilities in the office Depreciation on machinery in plant Steel to make the railings Accountant's salary Rent on factory building Rent on office equipment Maintenance workers' wages Utilities in the plant Maintenance on office equipment

198. Information about Mobile Enterprises for the year ending December 31 is as follows: Sales Selling and administrative expenses Net income Beginning inventories: Direct materials Work in process Finished goods

$300,000 18,000 8,000

20,000 18,000 62,000

Ending direct materials is 20% larger than beginning direct materials. Ending work in process is half of the beginning work in process. Ending finished goods increased by $8,000 during the year. Prime costs and conversion costs are 70% and 60% of total manufacturing costs added, respectively. Materials purchases are $113,200. Required: a. Prepare a statement of cost of goods manufactured. b. Prepare an income statement. Note: Find the numbers for the income statement first. 199. The following information pertains to Ressler Company: Page 60

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Direct materials purchases Beginning direct materials Factory overhead Beginning work in process Cost of goods manufactured Ending finished goods Gross margin Selling and administrative expenses Beginning finished goods Ending work in process Ending direct materials Direct labor Direct materials used Operating income (loss) Total manufacturing costs added Cost of goods sold Sales

Class:

Date:

$ 85,800 15,200 72,600 13,200 315,000 30,000 32,000 10,000 20,000 11,000 15,500 ? ? ? ? ? ?

Required: Determine the following values: a. Net income b. Total manufacturing costs added c. Cost of goods sold d. Sales e. Direct materials used f. Direct labor 200. In choosing a cost management system, the controller must balance the total costs of implementing such systems. What costs must be balanced to determine total cost? How do traditional and activity-based cost systems balance the trade-offs? 201. Explain the differences between direct tracing, driver tracing, and allocation. 202. Brigade Builders, Inc. designs decks, gazebos, and play equipment for residential homes. The following was provided for the year ended September 30: Direct labor Direct material purchases Administrative expenses Overhead Selling expenses Beginning direct materials inventory Beginning work in process Ending direct materials inventory Ending work in process

$800,000 80,000 155,000 95,000 325,000 43,000 21,000 18,000 45,000

The average design fee is $900. There were 3,500 designs processed during the year. Required: a. Prepare a statement of cost of services sold. b. Prepare an income statement. c. Discuss three differences between services and tangible products. Page 61

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203. Information from the records of Masibo Company for the last month is as follows: Purchases of direct materials Indirect labor Direct labor Depreciation on factory machinery Sales Selling and administrative expenses Rent on factory building

Direct materials Work in process Finished goods

Beginning $30,000 9,000 22,000

$ 65,000 25,000 32,500 12,000 205,900 21,000 28,000

Inventories Ending $30,100 10,100 20,100

Required: a. Prepare a statement of cost of goods manufactured for the last month. b. Prepare an income statement for the last month. c. Determine prime and conversion costs. 204. The following costs were incurred by Texman Company: Direct labor Direct materials purchases Depreciation on plant Factory supervisor's salary Plant maintenance Plant utilities Sales Selling and administrative expenses Beginning direct materials inventory Beginning work-in-process inventory Beginning finished goods inventory Ending direct materials inventory Ending work-in-process inventory Ending finished goods inventory

$ 950,000 645,000 55,000 98,000 26,000 30,000 2,555,000 480,000 72,000 54,000 75,000 68,000 51,000 88,000

Required: Calculate the following values: a. Direct materials used b. Cost of goods manufactured c. Cost of goods sold d. Operating income 205. Describe a cost management information system, its objectives, and its major subsystems.

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Answer Key 1. True 2. False 3. True 4. True 5. False 6. True 7. True 8. True 9. False 10. False 11. False 12. True 13. True 14. False 15. False 16. True 17. False 18. False 19. True 20. True 21. True 22. True 23. True 24. True 25. True Page 63

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26. a 27. c 28. c 29. a 30. d 31. c 32. a 33. d 34. c 35. c 36. b 37. d 38. d 39. b 40. a 41. b 42. d 43. c 44. b 45. b 46. b 47. b 48. b 49. d 50. b 51. a Page 64

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52. b 53. d 54. b 55. c 56. a 57. d 58. a 59. c 60. b 61. b 62. b 63. b 64. d 65. c 66. b 67. a 68. d 69. b 70. a 71. d 72. c 73. a 74. d 75. d 76. d 77. b Page 65

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78. c 79. c 80. c 81. c 82. a 83. a 84. a 85. c 86. a 87. c 88. d 89. c 90. c 91. d 92. c 93. b 94. d 95. a 96. a 97. b 98. d 99. b 100. c 101. c 102. d 103. d Page 66

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104. c 105. a 106. a 107. a 108. b 109. c 110. b 111. b 112. a 113. d 114. b 115. d 116. d 117. c 118. d 119. d 120. c 121. b 122. d 123. a 124. b 125. a 126. a 127. c 128. d 129. c Page 67

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130. d 131. a 132. a 133. b 134. b 135. d 136. c 137. d 138. a 139. b 140. a 141. b 142. b 143. d 144. b 145. c 146. c 147. a 148. c 149. d 150. c 151. d 152. b 153. b 154. a 155. c Page 68

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156. a 157. a 158. b 159. b 160. b 161. b 162. d 163. a 164. d 165. d 166. a 167. c 168. b 169. d 170. b 171. c 172. d 173. a 174. b 175. c 176. Intangibility 177. expenses 178. allocation 179. traditional 180. costs 181. production; nonproduction Page 69

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182. operational control 183. Supplies 184. activity-based 185. activity-based 186. getting; filling 187. users 188. cost management 189. sales revenue 190. Operating 191. Production costs would be included in all of these definitions. a. Traditional product costs:

Direct materials, direct labor and manufacturing overhead are the traditional product costs. They would be used for external reporting, budgeting, and control of costs.

b. Operating product costs:

In addition to the traditional product costs, marketing and customer service costs would be considered in analyzing profitability of the product. Strategic questions about the operating design (i.e., materials and plant layout) would be addressed. The focus is on the revenue and cost of Fast Track.

c. Value-chain product costs:

Production costs of Fast Track must be viewed in relation to other products. Strategic pricing and product mix decisions must be made. The profitability of all the product lines is at issue.

192. The traditional cost accounting system assumes that all costs can be classified as fixed or variable with respect to changes in the units or volume of product produced. The activity-based cost management system's objective is to improve the quality, content, relevance, and timing of information. A comparison of the two systems is as follows: Traditional 1. Unit-based drivers 2. Allocation intensive 3. Narrow and rigid product costing 4. Focus on managing costs 5. Sparse activity information 6. Maximization of individual unit

Activity-Based 1. Unit and non-unit-based drivers 2. Tracing intensive 3. Broad, flexible product costing 4. Focus on managing activities 5. Detailed activity information 6. Systemwide performance maximization Page 70

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performance 7. Uses financial measures of performance

Date:

7. Uses both financial and nonfinancial measures of performance

193. a. Immaculate Corporation Statement of Cost of Goods Manufactured For the Month of April Direct materials: Beginning inventory* Add: Purchases* Materials available Less: Ending inventory* Direct materials used in production Direct labor (see below) Manufacturing overhead ($128,500 × 0.80) Total manufacturing costs added Add: Beginning work-in-process inventory* Less: Ending work-in-process inventory ($40,000 × 0.95) Cost of goods manufactured (from COGS statement)

$ 22,200 110,000 $132,200 (19,000) $113,200 128,500 102,800 $344,500 40,000 (38,000) $346,500

DM used = $22,200 + $110,000 − $19,000 = $113,200 COGM = $450,000 + $105,000 − $208,500 = $346,500 Total manufacturing costs added = DM + DL + MOH $344,500 = $113,200 + DL + MOH $231,300 = DL + MOH $231,300 = DL + (MOH = 0.80 × DL) $231,300 = DL + 0.80DL $231,300 = 1.80DL $128,500 = DL MOH = 0.80 × DL MOH = 0.80 × $128,500 = $102,800 Immaculate Corporation Statement of Cost of Goods Sold For the Month of April Cost of goods manufactured Add: Beginning finished goods inventory* Cost of goods available for sale Less: Ending finished goods inventory* Cost of goods sold*

$346,500 208,500 $555,000 105,000 $450,000

*These items are provided. b. Immaculate Company Income Statement For the Month of April Page 71

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Sales* Cost of goods sold:* Cost of goods manufactured Add: Beginning finished goods inventory* Cost of goods available for sale Less: Ending finished goods inventory* Gross margin Less: Selling and administrative expenses* Operating income

Date:

$600,000 $346,500 208,500 $555,000 105,000

450,000 $150,000 70,000 $ 80,000

*These items are provided. c.

Conversion costs

= Direct labor and overhead = $231,300 = $128,500 + $102,800 = $231,300 Prime costs = DM + DL = $113,200 + $128,500 = $241,700 Period costs = $70,000

194. Activity-based management focuses on the management of activities with the objective of improving the value received by the customer and the profit received by providing this value; it includes driver analysis, activity analysis, and performance evaluation and draws on activity-based costing as a major source of information. 195. a. $17,000 + $185,000 − $15,000 = $187,000 b. $187,000 + $200,000 + $25,000 + $10,000 + $5,000 + $9,000 + $8,000 − $13,000 = $431,000 c. $18,000 + $431,000 − $24,000 = $425,000 d. $650,000 − $425,000 − $100,000 = $125,000

196. 1. Activity-based cost accounting information system: a. Interrelated parts: computer b. Processes: cost assignment: direct tracing of materials, driver tracing of purchasing costs (orders), materials handling cost (moves) c. Objectives: costing out of products d. Inputs: direct materials cost, purchasing cost, materials handling cost e. Outputs: product cost report f. User actions: make-or-buy decision 2.

The difference in the costing systems is found in the processes. A functional-based cost system would not use non-unit drivers such as moves and orders to assign overhead but would use a unit driver like direct labor hours. There is increased accuracy of the cost assignments in an activity-based system, and a more comprehensive idea of costs may be used for decision making. The activity-based cost accounting system is more expensive to develop but has the benefit of more comprehensive uses for cost information. The functional-based cost system is simpler and less expensive to implement but the information generated is less versatile.

197. a.

Direct labor

f.

Factory overhead Page 72

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Period Factory overhead Direct materials Period

g. h. i. j.

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Period Factory overhead Factory overhead Period

198. a. Mobile Enterprises Statement of Cost of Goods Manufactured For the Year Ended December 31 Direct materials: Beginning inventory* Add: Purchases* Materials available Less: Ending inventory* ($20,000 × 1.20) Direct materials used in production Direct labor [(0.7 × $273,000) − $109,200] Manufacturing overhead [(0.6 × $273,000) − $81,900] Total manufacturing costs added Add: Beginning work-in-process inventory* Less: Ending work-in-process inventory* ($18,000 × 0.50) Cost of goods manufactured

$ 20,000 113,200 $133,200 (24,000) $109,200 81,900 81,900 $273,000 18,000 9,000 $282,000

b. Mobile Enterprises Income Statement For the Year Ended December 31 Sales* Cost of goods sold: Cost of goods manufactured Add: Beginning finished goods inventory* Cost of goods available for sale Less: Ending finished goods inventory* ($62,000 + $8,000) Gross margin Less: Selling and administrative expenses* Operating income*

$300,000 $282,000 62,000 $344,000 70,000

274,000 $ 26,000 18,000 $ 8,000

*These items are provided. 199. a. Net income = Gross margin − Selling and administrative expenses = $32,000 − $10,000 = $22,000 b. Total manufacturing costs added = Cost of goods manufactured + Ending work in process − Beginning work in process = $315,000 + $11,000 − $13,200 = $312,800 c. Cost of goods sold = Beginning finished goods + Cost of goods manufactured − Ending finished goods = $20,000 + $315,000 − $30,000 = $305,000 d. Sales = Gross margin + Cost of goods sold = $32,000 + $305,000 = $337,000 e. Direct materials used = Beginning direct materials + Direct materials purchases − Ending direct materials = $15,200 + $85,800 − $15,500 = $85,500 f. Direct labor = Total manufacturing cost − Direct materials used − Factory overhead = $312,800 − $85,500 − $72,600 = $154,700

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200. Error costs and measurement costs must be considered in choosing a cost management system. Activity-based cost management has greater measurement costs due to analyzing many activities but has greater accuracy and fewer error costs. Functional-based cost systems have lower measurement costs but higher error costs. Controllers must assess the need for accuracy in costing, pricing, and managing profitability. 201. Direct tracing is the process of identifying and assigning costs to a cost object that are specifically or physically associated with the cost object. Driver tracing is assigning costs using drivers, which are causal factors. The driver approach relies on identification of factors that allegedly capture the causal relationship. Allocation is the assignment of indirect costs to cost objects based on convenience or assumed linkages. 202. a.

b.

c.

Brigade Builders, Inc. Statement of Cost of Services Sold For the Year Ended September 30, 2018 Direct materials Beginning inventory Add: Purchases Materials available Less: Ending inventory Direct materials used in production Direct labor Overhead Total services production costs added Add: Beginning work in process Less: Ending work in process Cost of services sold Brigade Builders, Inc. Income Statement For the Year Ended September 30 Sales ($900 × 3,500) Cost of services sold Gross margin Selling expenses Administrative expenses Operating income

$ 43,000 80,000 $123,000 18,000 $

105,000 800,000 95,000 $1,000,000 21,000 45,000 $ 976,000

$3,150,000 976,000 $2,174,000 $325,000 155,000

480,000 $1,694,000

Services have three attributes that are not possessed by tangible products: intangibility, perishability, and inseparability.

203. a. Masibo Company Statement of Cost of Goods Manufactured For the Last Month Direct materials: Beginning inventory Add: Purchases

$30,000 65,000 Page 74

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Materials available Less: Ending inventory Direct materials used in production Direct labor Manufacturing overhead: Indirect labor Depreciation on factory machinery Rent on factory building Total manufacturing costs added Add: Beginning work-in-process inventory Less: Ending work-in-process inventory Cost of goods manufactured

$95,000 30,100

Date:

$64,900 32,500 $25,000 12,000 28,000

65,000 $162,400 9,000 10,100 $161,300

b. Masibo Company Income Statement For the Last Month Sales Cost of goods sold Cost of goods manufactured Add: Beginning finished goods inventory Cost of goods available for sale Less: Ending finished goods inventory Gross margin Less: Selling and administrative expenses Operating income c.

$205,900 $161,300 22,000 $183,300 20,100

163,200 $ 42,700 21,000 $ 21,700

Prime costs = Direct materials cost + Direct labor cost = $64,900 + $32,500 = $97,400 Conversion costs = Direct labor cost + Overhead cost = $32,500 + $65,000 = $97,500

204. a. Direct materials used = Beginning direct materials inventory + Direct materials purchased − Ending direct materials inventory = $72,000 + $645,000 − $68,000 = $649,000 b Cost of goods manufactured = Direct materials used + Direct labor + Factory supervisor's salary + Depreciation on plant + Plant maintenance + Plant utilities + Beginning work-in-process inventory − Ending work-in-process inventory = $649,000 + $950,000 + $98,000 + $55,000 + $26,000 + $30,000 + $54,000 − $51,000 = $1,811,000 c. Cost of goods sold = Beginning finished goods inventory + Cost of goods manufactured − Ending finished goods inventory = $75,000 + $1,811,000 − $88,000 = $1,798,000 d. Operating income = Sales − Cost of goods sold − Selling and administrative expense = $2,555,000 − $1,798,000 − $480,000 = $277,000 205. The cost management information system is an accounting information subsystem that is primarily concerned with producing outputs for internal users using inputs and processes needed to satisfy management objectives. The objectives are as follows: Page 75

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To provide information for costing out services, products, and other objects of interest to management. To provide information for planning and control. To provide information for decision making.

The major subsystems of a cost management information system are the cost accounting information system and the operational control information system.

Indicate whether the statement is true or false. 1. The most widely used method to determine cost behavior is managerial judgment. a. True b. False 2. Before opting to use managerial judgment, management should make sure that each cost is predominantly fixed or variable. a. True b. False 3. In the method of least squares, each single measure of closeness is first squared. Squaring the deviations avoids problems caused by a mix of positive and negative numbers. a. True b. False 4. Mixed costs are costs that have both fixed and variable components. a. True b. False 5. A cost that does not change as output changes is a variable cost, and one that changes is a fixed cost. a. True b. False 6. Resources, such as direct materials, direct labor, electricity, equipment, and so on, are economic elements that enable one to perform activities. a. True b. False 7. Based on managerial judgment, the best predictor of manufacturing costs is the units available. a. True b. False 8. Whenever least squares is used to fit an equation involving two or more independent variables, the method is called multiple regression. a. True b. False 9. When multiple regression is used, the user has a choice of using manual computation or using regression programs. Page 76

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a. True b. False 10. Costs can display variable, fixed, or mixed behavior, and it is important that they are classified accurately. a. True b. False 11. Finding a strong statistical association between an activity cost and an activity driver can provide evidence to managers about the correctness of a driver selection. a. True b. False 12. The three widely used quantitative methods of separating a mixed cost into its fixed and variable components are the high-low method, the scatterplot method, and the method of least squares. a. True b. False 13. Variable costs are defined as costs that, in total, are constant regardless of change in an activity driver. a. True b. False 14. The account analysis method can be used to estimate costs by classifying accounts in the general ledger as variable but cannot be used to estimate costs that are classified as mixed or fixed. a. True b. False 15. Multiple regression can be useful to assess cost behavior when a dependent variable is affected by only one independent variable. a. True b. False 16. Resources are categorized as flexible, which are supplied as needed, and committed, which are supplied in advance of usage. a. True b. False 17. An alternative measure of goodness of fit is the coefficient of determination. a. True b. False 18. The level of activity performance where the amount of activity capacity needed corresponds to the level of efficiency required is called the activity capacity. a. True b. False 19. A cost object is the item for which managers want cost information, so the first step is to determine appropriate cost objects. Page 77

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a. True b. False 20. Activity-based use of resources can improve both managerial control and decision making because it encourages managers to pay more attention to controlling resource usage and spending. a. True b. False 21. The high-low method preselects the two points that are used to compute the parameters F and X in the expression Y = F + VX. a. True b. False 22. The cumulative average-time learning curve model states that the cumulative average time per unit increases by a constant percentage. a. True b. False 23. When utilizing managerial judgment to determine cost behavior, some managers may ignore mixed costs. a. True b. False 24. Managers agree that the ideas behind the learning curve can extend to the service industry only. a. True b. False 25. A number of cost behavior patterns do NOT follow a linear pattern; instead, they follow a nonlinear cost curve called the learning curve. a. True b. False 26. The experience curve relates cost to increased efficiency, such that the more a task is performed, the lower the cost of doing will be. a. True b. False 27. If a company changes from skilled labor to robots, the data tied to previous experience are of little value in predicting future costs. a. True b. False 28. The basis of the learning curve is that as we perform an action over and over, we improve, and each additional performance takes less time than the preceding ones. a. True b. False 29. A feature of regression analysis NOT provided by the scatterplot or high-low methods is to provide information to assess the reliability of the estimated costs formula. Page 78

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a. True b. False 30. The percentage of variability in the dependent variable explained by an independent variable (i.e. measure of activity output) is called the coefficient of correlation. a. True b. False 31. Methods of estimating costs used by companies include the industrial engineering method, the account analysis method, and the instant decision method. a. True b. False 32. The industrial engineering method is used to determine which activities, and in what amounts, are necessary to complete a process. a. True b. False 33. Multiple regression is a dependable tool for identifying the behavior of activity costs. a. True b. False 34. Fixed costs are costs that, in total, are constant within the relevant range as the level of the associated driver varies. a. True b. False 35. The plot of data points showing the relationship between materials handling costs and activity output is called a scattergraph. a. True b. False

Indicate the answer choice that best completes the statement or answers the question. 36. The following information is available for electricity costs for the last six months of the year: Month January February March April May June

Production Volume 1,400 2,800 3,200 1,750 1,200 2,100

Electricity Costs $2,200 5,400 5,700 3,900 2,400 4,050

What are the fixed costs? a. $420 b. $100 c. $200 d. None of these choices Page 79

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37. When the volume of activity increases within the relevant range, the fixed cost per unit a. decreases at first and then increases. b. remains the same. c. decreases. d. increases. 38. The efficient level of activity performance is called a. practical capacity. b. activity capacity. c. unused capacity. d. acquired capacity. 39. The method of managerial judgment in determining the cost behavior uses a manager’s a. experience and past observation of cost relationships to determine fixed and variable costs. b. skills in determining practical capacity. c. past observation to distinguish flexible resources and committed resources. d. ethical focus to determine step-variable costs and step-fixed costs. 40. The following computer printout estimated overhead costs using regression:

Parameter Intercept DLH

Estimate 100.41 14.05

2

t for H0 Parameter = 0 4.81 6.78

Pr > t 0.0003 0.0001

Standard Error of Parameter 20.88 2.07

0.80 25.03 17

R Square (R ) Standard Error (Se) Observations Use the following statistical table: Degrees of Freedom 1 2 3 4 5 6 7 8 9 10

90%

95%

99%

Degrees of Freedom

90%

95%

99%

6.314 2.920 2.353 2.132 2.015 1.943 1.895 1.860 1.833 1.812

12.708 4.303 3.182 2.776 2.571 2.447 2.365 2.306 2.262 2.228

63.657 9.925 5.841 4.604 4.032 3.707 3.499 3.355 3.250 3.169

11 12 13 14 15 16 17 18 19 20

1.796 1.782 1.771 1.761 1.753 1.746 1.740 1.734 1.729 1.725

2.201 2.179 2.160 2.145 2.131 2.120 2.110 2.101 2.093 2.086

3.106 3.055 3.055 3.012 2.947 2.921 2.898 2.878 2.861 2.845

During the last accounting period, 10,000 direct labor hours were worked. What is the confidence interval for the predicted overhead cost rounded to the nearest whole number for a 90% confidence level? a. predicted value between 140,557 and 140,644 b. predicted value between 140,644 and 140,731 Page 80

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c. predicted value between 87,000 and 130,500 d. None of these choices 41. Hereford Company is planning to introduce a new product with an 80% learning rate for production for batches of 1,000 units. The variable labor costs are $30 per unit for the first 1,000-unit batch. Each batch requires 100 hours. There are $10,000 in fixed costs not subject to learning. What is the cumulative total time using the incremental unit-time learning curve to produce 2,000 units? a. 180 hours b. 100 hours c. 90 hours d. 80 hours 42. The costs incurred for the acquisition of short-run activity capacity, usually as the result of yearly planning are called a. discretionary fixed expenses. b. committed fixed expenses. c. mixed costs. d. step-variable costs. 43. If a company rents a truck for a flat fee plus an additional charge per mile, what type of cost is the rent? a. step cost b. fixed cost c. variable cost d. mixed cost 44. In the formula Y = F + VX, total variable cost is represented by a. VX. b. F. c. Y. d. V. 45. The following computer printout estimated overhead costs using regression:

Parameter Intercept Dlh 2

R Square (R ) Standard Error (Se) Observations

Estimate 100.41 14.05

t for H0 Parameter = 0 4.81 6.78

Pr > t 0.0003 0.0001

Standard Error of Parameter 20.88 2.07

0.80 25.03 17

During the last accounting period 10,000 direct labor hours were worked. Which of the following is the correct model? a. Overhead = 4.81 + 6.78 Dlh b. Overhead = 100.41 + 14.05 Dlh c. Overhead = 14.05 + 100.41 Dlh d. Dlh = 4.81 + 6.78 Overhead Page 81

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46. Which of the following statements is TRUE about confidence intervals? a. It measures the degree of association between cost and activity output. b. It determines which activities are needed to complete a process. c. It consists of a single point and actual cost will always coincide with predicted cost. d. It indicates whether the parameters are different from zero. 47. As the volume of activity increases within the relevant range, the variable cost per unit a. decreases. b. decreases at first and then increases. c. remains the same. d. increases. 48. The following information was taken from a computer printout generated with the least-squares method for use in estimating overhead costs: Slope 45 Intercept 5,700 Correlation coefficient 0.72 Activity variable Direct labor hours The cost formula is a. Overhead = $5,700 − $45X. b. Overhead = $5,700 + $45X. c. Overhead = $5,700 + ($45 × 0.72). d. Overhead = $5,700 × 0.72. 49. Spokane Corporation found its maintenance cost and sales dollars to be somewhat correlated. Last year's high and low observations were as follows: Maintenance Cost $46,000 52,000

Sales $600,000 800,000

What is the fixed portion of the maintenance cost? a. $28,000 b. $52,000 c. $60,000 d. $14,000 50. Which of the following is an example of a committed fixed expense? a. depreciation on a factory building b. supervisor's salary c. direct labor d. insurance on a building 51. In the method of least squares, the deviation is the difference between the a. predicted and estimated costs. b. predicted and average costs. Page 82

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c. average and actual costs. d. predicted and actual costs. 52. Amigos Industries analyzed the relationship between total factory overhead and changes in direct labor hours. It found the following: Y = $6,000 + $6X The Y in this equation is an estimate of a. total variable costs. b. total direct labor hours. c. total factory overhead. d. total fixed costs. 53. An equipment lease that specifies a payment of $8,000 per month plus $7 per machine hour used is an example of a a. fixed cost. b. variable cost. c. step cost. d. mixed cost. 54. Which of the following would be an example of a unit-based cost driver? a. engineering orders b. material moves c. inspection hours d. direct labor hours 55. Assuming costs are represented on the vertical axis and volume of activity on the horizontal axis, which of the following costs would be represented by a line that is parallel to the horizontal axis? a. total direct material costs b. a consultant paid $75 per hour with a maximum fee of $1,200 c. employees who are paid $10 per hour and guaranteed a minimum weekly wage of $200 d. rent on exhibit space at a convention 56. Assuming costs are represented on the vertical axis and volume of activity on the horizontal axis, which of the following costs would be represented by a line that starts at the origin and reaches a maximum value beyond which the line is parallel to the horizontal axis? a. total direct material costs b. a consultant paid $100 per hour with a maximum fee of $2,000 c. employees who are paid $15 per hour and guaranteed a minimum weekly wage of $300 d. rent on exhibit space at a convention 57. Weaknesses of the high-low method include all of the following EXCEPT a. only two observations are used to develop the cost function. b. the high and low activity levels may not be representative. c. the method does not detect if the cost behavior is nonlinear. d. the method is relatively complex and difficult to apply. Page 83

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58. Sandoval Company has four process engineers that are each able to process 1,500 design changes. Last year, 5,250 design changes were produced by the four engineers. Each engineer is paid $60,000 per year. Calculate the activity rate per change order. a. $4 per change order b. $10 per change order c. $40 per change order d. $15 per change order 59. Which of the following is an advantage of using the scatterplot method over the high-low method to estimate costs? a. It is a statistical method to determine the ―best fit.‖ b. A cost analyst can review the data visually and eliminate outliers. c. The quality of the cost formula relies on the objective judgment of the analyst. d. The cost formula can be determined simply by looking at two points of data. 60. Which of the following is an example of a variable cost? a. materials used in production b. research and development c. supervisors' salaries d. rent 61. In a traditional cost management system, cost behavior is assumed to be driven only by a. unit-based cost drivers. b. non-unit-level cost drivers. c. activity-based cost drivers. d. None of these choices 62. The following computer printout estimated overhead costs using regression:

Parameter Intercept DLH

Estimate 100.41 14.05

2

t for H0 Parameter = 0 4.81 6.78

Pr > t 0.0003 0.0001

Standard Error of Parameter 20.88 2.07

0.80 25.03 17

R Square (R ) Standard Error (Se) Observations Use the following statistical table: Degrees of Freedom 1 2 3 4 5 6

90%

95%

99%

Degrees of Freedom

90%

95%

99%

6.314 2.920 2.353 2.132 2.015 1.943

12.708 4.303 3.182 2.776 2.571 2.447

63.657 9.925 5.841 4.604 4.032 3.707

11 12 13 14 15 16

1.796 1.782 1.771 1.761 1.753 1.746

2.201 2.179 2.160 2.145 2.131 2.120

3.106 3.055 3.055 3.012 2.947 2.921 Page 84

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1.895 1.860 1.833 1.812

2.365 2.306 2.262 2.228

3.499 3.355 3.250 3.169

17 18 19 20

1.740 1.734 1.729 1.725

Date:

2.110 2.101 2.093 2.086

2.898 2.878 2.861 2.845

During the last accounting period, 10,000 direct labor hours were worked. Find the t-value for a 90% confidence level. a. 1.740 b. 1.753 c. 6.314 d. 2.920 63. Sonor Systems undertakes its own machine maintenance. The depreciation on the equipment is $20,000 per year, and operating cost is $2 per machine hour. Last year, 275,000 machine hours were used to produce 100,000 units. If 300,000 machine hours had been worked last year, what would have been the total machine maintenance cost? a. $600,000 b. $620,000 c. $420,000 d. $220,000 64. Stanford Company incurred the following maintenance cost during a five-month period: Month June July August September October

Production Volume 75 115 190 60 135

Maintenance Costs $250 310 400 240 355

Using a computer or calculator, compute the estimate of the fixed portion of maintenance costs using the method of least squares. Rounded to whole dollars, this value would be a. $575. b. $166. c. $160. d. $66. 65. A managerial accountant has determined the following relationships between overhead and several possible bases: Basis Direct labor hours Direct labor dollars Machine hours Employee minutes in coffee breaks

Correlation with Total Overhead 0.842 0.279 −0.837 −0.243

The best basis for overhead application is a. direct labor hours. b. coffee breaks. c. direct labor dollars. d. machine hours. Page 85

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66. In the formula Y = F + VX, V refers to the a. dependent variable. b. intercept. c. slope. d. total variable costs. 67. The following computer printout estimated overhead costs using regression:

Parameter Intercept Dlh

Estimate 100.41 14.05

2

R Square (R ) Standard Error (Se) Observations

t for H0 Parameter = 0 4.81 6.78

Pr > t 0.0003 0.0001

Standard Error of Parameter 20.88 2.07

0.80 25.03 17

During the last accounting period 10,000 direct labor hours were worked. The coefficient of determination in this model tells us that a. the slope is 14.05. b. the intercept is 100.41. c. 80% of the variation in the overhead variable is explained by direct labor hours. d. the slope is significant. 68. The cost function derived by the least-squares cost estimation method a. is linear. b. must be tested for minima and maxima. c. is parabolic. d. is quadratic. 69. When a firm acquires the resources needed to perform an activity, it is obtaining a. practical capacity. b. resource usage. c. activity capacity. d. unused capacity. 70. The following information is available for electricity costs for the last six months of the year: Month February March April May June July

Production Volume 1,000 2,200 2,000 1,630 1,240 1,340

Electricity Costs $1,700 4,000 3,200 3,100 2,600 3,020

Using the high-low method, what is the estimated variable cost per unit of production? (Round answer to two decimal places.) Page 86

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a. $1.75 b. $1.92 c. $1.53 d. $1.37 71. The drivers that explain changes in costs as units produced change are called a. non-unit-level drivers. b. activity-based cost drivers. c. unit-level drivers. d. All of these choices 72. Longberry Corporation manufactures and sells party items. The following representative direct labor hours and production costs are provided for a four-month period: Month May June July August Totals Let

a b n X Y S

= = = = = =

Direct Labor Hours 3,600 4,800 6,000 4,800 19,200

Production Costs $15,000 17,500 20,000 17,500 $70,000

Fixed production costs per month Variable production costs per direct labor hour Number of months Direct labor hours per month Total monthly production costs Summation

The monthly production cost can be expressed as a. X = aY + b. b. X = a + bY. c. Y = a + bX. d. Y = b + aX. 73. Sonor Systems undertakes its own machine maintenance. The depreciation on the equipment is $20,000 per year, and operating cost is $2 per machine hour. Last year, 275,000 machine hours were used to produce 100,000 units. Compute the total machine maintenance cost for last year. a. $570,000 b. $550,000 c. $420,000 d. $20,000 74. Which of the following methods is used to estimate costs by classifying accounts in the general ledger as fixed, variable, or mixed? a. account analysis method b. multiple regression method c. coefficient of correlation method d. least cost method Page 87

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75. The following information was available about supplies cost for the second quarter of the year: Month July August September

Production Volume 700 1,600 600

Supplies Cost $3,185 7,100 2,700

Using the high-low method, the estimate of supplies cost at 1,000 units of production is a. $2,700. b. $4,460. c. $4,900. d. $7,100. 76. Sonor Systems undertakes its own machine maintenance. The depreciation on the equipment is $20,000 per year, and operating cost is $2 per machine hour. Last year, 275,000 machine hours were used to produce 100,000 units. Develop a cost equation for the total machine maintenance cost. a. Y= $275,000 b. Y = $20,000 c. Y = $20,000 + $2Mhr d. Y = $2Mhr 77. Longberry Corporation manufactures and sells party items. The following representative direct labor hours and production costs are provided for a four-month period: Month May June July August Totals Let

a b n X Y S

= = = = = =

Direct Labor Hours 3,600 4,800 6,000 4,800 19,200

Production Costs $15,000 17,500 20,000 17,500 $70,000

Fixed production costs per month Variable production costs per direct labor hour Number of months Direct labor hours per month Total monthly production costs Summation

Predict a cost for 5,000 labor hours. a. $17,900 b. $17,700 c. $16,667 d. $30,400 78. What does a correlation coefficient near –1 mean? a. Two variables are moving in opposite directions. b. Two variables are moving in the same direction. c. Two variables are unrelated. d. One variable is not a good predictor of the other. Page 88

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79. Sonor Systems undertakes its own machine maintenance. The depreciation on the equipment is $20,000 per year, and operating cost is $2 per machine hour. Last year, 275,000 machine hours were used to produce 100,000 units. What was the total maintenance cost per unit produced last year? a. $0.55 b. $4.20 c. $5.50 d. $5.70 80. Hereford Company is planning to introduce a new product with an 80% learning rate for production for batches of 1,000 units. The variable labor costs are $30 per unit for the first 1,000-unit batch. Each batch requires 100 hours. There are $10,000 in fixed costs not subject to learning. What is the cumulative total time (labor hours) to produce 2,000 units based on the cumulative average-time learning curve? a. 20 hours b. 80 hours c. 100 hours d. 160 hours 81. Which of the following graphs represents fixed costs?

I

II

III

a. I b. II c. III d. None of these choices 82. If at a given volume total costs and fixed costs are known, the variable costs per unit may be computed with which of the following formulas? a. (Total costs − Fixed costs) ÷ Unit volume b. (Total costs ÷ Unit volume) − Fixed costs c. (Total costs × Unit volume) − (Fixed costs ÷ Unit volume) d. Total costs − (Fixed costs ÷ Unit volume) 83. Which of the following is an advantage of the high-low method? a. It minimizes the squared differences between actual observations and the cost function. b. It is objective and simple to calculate. c. It uses a statistical method to mathematically derive the cost function. d. It identifies nonlinearity and outliers. 84. Barron Enterprises has the following information about its truck fleet miles and operating costs: Year

Miles

Operating Costs Page 89

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Year 1 Year 2 Year 3

400,000 480,000 560,000

Date:

$256,000 280,000 320,000

What is the best estimate of total costs using the high-low method if the expected fleet mileage for Year 3 is 500,000 miles? a. $288,000 b. $296,000 c. $256,000 d. $320,000 85. The following computer printout estimated overhead costs using multiple regression:

Parameter Intercept

Estimate 1.000

t for H0 Parameter = 0 1.96

Pr > t 0.0250

Standard Error of Parameter 510.204

Setup hours

25

81.96

0.0001

0.305

Number of parts

100

9.50

0.0001

10.527

2

R Square (R ) Standard Error (Se) Observations

0.94 75.00 160

During the year, the company used 1,000 setup hours and 500 parts. Which slope and intercept parameters are significant at the 0.05 level? a. intercept b. setup hours c. number of parts d. All of these choices 86. Flexible resources a. are supplied as needed. b. are acquired from outside sources, not requiring a long-term commitment. c. have no unused capacity. d. All of these choices 87. Resources that are acquired from outside sources, where the terms of acquisition do NOT require any long-term commitment for any given amount of the resource, are called a. flexible resources. b. committed resources. c. discretionary fixed expenses. d. committed fixed expenses. 88. Mixed costs, by definition, contain both a. product and period costs. b. fixed and variable costs. Page 90

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c. direct and indirect costs. d. controllable and noncontrollable costs. 89. What is the difference between a correlation equal to −1 and a correlation equal to 0? a. A correlation equal to −1 means two alternatives are moving in the same direction, whereas a correlation of 0 means they are moving in opposite directions. b. A correlation equal to −1 means two alternatives are moving in the same direction, whereas a correlation of 0 means they are unrelated. c. A correlation equal to −1 means two alternatives are moving in opposite directions, whereas a correlation of 0 means they are moving in the same direction. d. A correlation equal to −1 means two alternatives are moving in opposite directions, whereas a correlation of 0 means they are unrelated. 90. A smaller standard error indicates that a. the regression line more closely approximates the data. b. the regression line and the data are unrelated. c. there is negative correlation. d. the profitability is increasing at an increasing rate. 91. The range of activity within which a linear cost function is valid is called the a. normal range. b. relevant range. c. activity range. d. None of these choices 92. A coefficient of determination of 0.91 means a. the two variables move together in the same direction and have a strong relationship. b. the parameter is not significant. c. the model is significant 91% of the time. d. that the independent variable explains 91% of the cost. 93. Which of the following methods of determining cost behavior uses average account values and average driver values to calculate fixed costs and variable rates? a. industrial value costing method b. account analysis method c. learning average curve model d. confidence interval driver model 94. Economists have determined that the linearity assumption is most likely to be a close approximation for an underlying nonlinear cost function a. within a relevant range of activity. b. over the long run. c. for short-run periods. d. both over the long run and for short-run periods. 95. The following cost functions were developed for manufacturing overhead costs: Page 91