Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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1.
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Cost
behavior refers to the manner in which: a. | a cost changes as the related activity
changes | b. | a cost is allocated to products | c. | a cost is used
in setting selling prices | d. | a cost is estimated | | |
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2.
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The
three most common cost behavior classifications are: a. | variable costs,
product costs, and sunk costs | b. | fixed costs, variable costs, and mixed
costs | c. | variable costs, period costs, and differential
costs | d. | variable costs, sunk costs, and opportunity
costs | | |
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3.
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Costs
that remain constant in total dollar amount as the level of activity changes are
called: a. | fixed
costs | b. | mixed costs | c. | opportunity
costs | d. | variable costs | | |
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4.
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Which
of the graphs in Figure 19-1 illustrates the behavior of a total fixed
cost?
a. | Graph
2 | b. | Graph
3 | c. | Graph
4 | d. | Graph
1 | | |
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5.
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Costs
that vary in total in direct proportion to changes in an activity level are called: a. | fixed
costs | b. | sunk costs | c. | variable
costs | d. | differential costs | | |
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6.
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Which
of the graphs in Figure 19-1 illustrates the behavior of a total variable
cost?
a. | Graph
2 | b. | Graph
3 | c. | Graph
4 | d. | Graph
1 | | |
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7.
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The
graph of a variable cost when plotted against its related activity base appears as
a: a. | circle | b. | rectangle | c. | straight
line | d. | curved
line | | |
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8.
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Which
of the graphs in Figure 19-1 illustrates the nature of a mixed cost?
a. | Graph
2 | b. | Graph
3 | c. | Graph
4 | d. | Graph
1 | | |
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9.
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Which
of the following costs is a mixed cost? a. | Salary of a factory supervisor | b. | Electricity
costs of $2 per kilowatt-hour | c. | Rental costs of $5,000 per month plus $.30 per machine hour of
use | d. | Straight-line
depreciation on factory equipment | | |
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10.
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In
cost-volume-profit analysis, all costs are classified into the following two
categories: a. | mixed costs and
variable costs | b. | sunk costs and fixed costs | c. | discretionary
costs and sunk costs | d. | variable costs and fixed costs | | |
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11.
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If
sales are $820,000, variable costs are 62% of sales, and operating income is $260,000, what is the
contribution margin ratio?
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12.
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If
fixed costs are $300,000, the unit selling price is $95, and the unit variable costs are $45, what is
the break-even sales (units)? a. | 3,500 units | b. | 3,158
units | c. | 14,000 units | d. | 6,000
units | | |
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13.
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If
fixed costs are $250,000, the unit selling price is $20, and the unit variable costs are $16, what is
the break-even sales (units) if the variable costs are decreased by $2? a. | 41,667
units | b. | 12,500 units | c. | 62,500
units | d. | 83,333 units | | |
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14.
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If
variable costs per unit increased because of an increase in hourly wage rates, the break-even point
would: a. | decrease | b. | increase | c. | remain the
same | d. | increase or
decrease, depending upon the percentage increase in wage rates | | |
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15.
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The
point where the profit line intersects the left vertical axis on the profit-volume chart
represents: a. | the maximum
possible operating loss | b. | the maximum possible operating income | c. | the total fixed
costs | d. | the break-even point | | |
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16.
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Phipps Co. sells two products, Arks and Bins. Last year Phipps sold 12,000 units of
Arks and 28,000 units of Bins. Related data are:
Product | Unit
Selling
Price | Unit Variable
Cost | Unit
Contribution
Margin | Arks | $120 | $80 | $40 | Bins | 80 | 60 | 20 | | | | |
What was Phipps
Co.'s sales mix last year? a. | 30% Arks, 70% Bins | b. | 12% Arks, 28%
Bins | c. | 70% Arks, 30%
Bins | d. | 40% Arks, 20%
Bins | | |
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17.
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If a
business had sales of $4,000,000, fixed costs of $1,200,000, a margin of safety of 25%, and a
contribution margin ratio of 40%, what was the break-even point? a. | $3,000,000 | b. | $2,800,000 | c. | $4,800,000 | d. | $1,000,000 | | |
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18.
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Cost-volume-profit analysis cannot be used if which of the following
occurs? a. | Costs cannot be
properly classified into fixed and variable costs | b. | The total fixed
costs change | c. | The per unit variable costs change | d. | Per unit sales
prices change | | |
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19.
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The
benefits of comparing actual performance of the operations against planned goals include all of the
following except: a. | providing prompt
feedback to employees about their performance relative to the goal | b. | preventing
unplanned expenditures | c. | helping to establish spending
priorities | d. | determining how managers are performing against prior years'
actual operating results | | |
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20.
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When
management seeks to achieve personal departmental objectives that may work to the detriment of the
entire company, the manager is experiencing: a. | budgetary slack | b. | padding | c. | goal conflict | d. | cushions | | |
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21.
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The
process of developing budget estimates by requiring all levels of management to estimate sales,
production, and other operating data as though operations were being initiated for the first time is
referred to as: a. | flexible
budgeting | b. | continuous budgeting | c. | zero-based
budgeting | d. | master budgeting | | |
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22.
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A
variant of fiscal-year budgeting whereby a twelve-month projection into the future is maintained at
all times is termed: a. | flexible budgeting | b. | continuous
budgeting | c. | zero-based budgeting | d. | master
budgeting | | |
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23.
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McCabe Manufacturing Co.'s static budget at 8,000 units of production includes $40,000
for direct labor and $4,000 for electric power. Total fixed costs are $23,000. At 9,000
units of production, a flexible budget would show: a. | variable costs
of $49,500 and $25,875 of fixed costs | b. | variable costs of $44,000 and $23,000 of fixed
costs | c. | variable costs of $49,500 and $23,000 of fixed
costs | d. | variable and fixed costs totaling
$75,375 | | |
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24.
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A
series of budgets for varying rates of activity is termed a(n): a. | flexible
budget | b. | variable budget | c. | master
budget | d. | activity budget | | |
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25.
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Principal components of a master budget include which of the
following? a. | Production
budget | b. | Sales budget | c. | Capital
expenditures budget | d. | All of the above | | |
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26.
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Below
is budgeted production and sales information for Fleming Company for the month of
December:
| | Product
XXX | Product ZZZ | Estimated beginning inventory | 30,000
units | 18,000 units | Desired ending inventory | 32,000
units | 15,000 units | Region I, anticipated sales | 320,000
units | 260,000 units | Region II,
anticipated sales | 190,000 units | 130,000
units | | | |
The unit selling
price for product XXX is $5 and for product ZZZ is $14. Budgeted sales for the month
are: a. | $2,040,000 | b. | $4,680,000 | c. | $6,692,000 | d. | $8,010,000 | | |
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27.
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Below
is budgeted production and sales information for Fleming Company for the month of
December:
| | Product
XXX | Product ZZZ | Estimated beginning inventory | 30,000
units | 18,000 units | Desired ending inventory | 32,000
units | 15,000 units | Region I, anticipated sales | 320,000
units | 260,000 units | Region II,
anticipated sales | 190,000 units | 130,000
units | | | |
The unit selling
price for product XXX is $5 and for product ZZZ is $14. Budgeted production for product ZZZ during
the month is: a. | 405,000
units | b. | 390,000 units | c. | 387,000
units | d. | 423,000 units | | |
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28.
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Production and sales estimates for March for the Finneaty Co. are as
follows:
Estimated
inventory (units), March 1 | 17,500 | Desired
inventory (unit), March 31 | 19,300 | | | | Expected sales volume (units): | | Area M | 6,000 | Area
L | 7,000 | Area
O | 9,000 | Unit sales
price | $15 | | |
The number of units expected to be manufactured in
March is: a. | 22,000 | b. | 1,800 | c. | 23,800 | d. | 20,200 | | |
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29.
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Production estimates for August are as follows:
Estimated
inventory (units), August 1 | 12,000 | Desired
inventory (units), August 31 | 9,000 | Expected sales
volume (units), August | 75,000 | | |
For each unit produced, the direct materials
requirements are as follows:
Direct material A ($5 per lb.) | 3 lbs. | Direct material
B ($18 per lb.) | 1/2
lb. | | |
The number of pounds of materials A and B required for August
production is: a. | 216,000 lbs. of
A; 72,000 lbs. of B | b. | 216,000 lbs. of A; 36,000 lbs. of B | c. | 225,000 lbs. of
A; 37,500 lbs. of B | d. | 234,000 lbs. of A; 39,000 lbs. of B | | |
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30.
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Which
of the following budgets provides the starting point for the preparation of the direct labor cost
budget? a. | Direct materials
purchases budget | b. | Cash budget | c. | Production
budget | d. | Sales budget | | |
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31.
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The
budget that summarizes future plans for the acquisition of fixed assets is the: a. | direct materials
purchases budget | b. | production budget | c. | sales
budget | d. | capital expenditures budget | | |
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32.
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O'Neill Co. has $296,000 in accounts receivable on January 1, 2000. Budgeted
sales for January are $860,000. O'Neill expects to sell 20% of its merchandise for cash.
Of the remaining 80% of sales on account, 75% are expected to be collected in the month of sale and
the remainder the following month. The January cash collections from sales
are: a. | $812,000 | b. | $688,000 | c. | $468,000 | d. | $984,000 | | |
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33.
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Kidder Company began its operations on March 31 of the current year. Projected
manufacturing costs for the first three months of business are $156,800, $195,200, and $217,600,
respectively, for April, May, and June. Depreciation, insurance, and property taxes represent $28,800
of the estimated monthly manufacturing costs. Insurance was paid on March 31, and property taxes will
be paid in November. Three-fourths of the remainder of the manufacturing costs are expected to be
paid in the month in which they are incurred, with the balance to be paid in the following month. The
cash payments for manufacturing in the month of May are: a. | $156,800 | b. | $195,200 | c. | $166,400 | d. | $146,400 | | |
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34.
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Planning for capital expenditures is necessary for all of the following reasons
except: a. | machinery and
other fixed assets wear out | b. | expansion may be necessary to meet increased
demand | c. | amounts spent for office equipment may be
immaterial | d. | fixed assets may fall below minimum standards of
efficiency | | |
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35.
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Which
of the following conditions normally would not indicate that standard costs should be
revised? a. | The engineering
department has revised product specifications in responding to customer
suggestions. | b. | The company has signed a new union contract which increases the
factory wages on average by $2.00 an hour. | c. | Actual costs differed from standard costs for the preceding
week. | d. | The world price of raw materials
increased. | | |
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36.
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Standards that represent levels of operation that can be attained with reasonable
effort are called: a. | theoretical standards | b. | ideal
standards | c. | practical standards | d. | normal
standards | | |
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37.
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The
standard costs and actual costs for direct materials, direct labor, and factory overhead for the
manufacture of 2,500 units of product are as follows:
Standard Costs | Direct
materials | 2,600 kilograms @ $8.75 | Direct labor | 7,400 hours @ $11.40 | | | | Actual Costs | Direct
materials | 2,500 kilograms @ $8 | Direct labor | 7,500 hours @ $12 | Factory overhead (100% capacity - 10,000
hrs.): | | | | | Variable cost @ $2.08 per
hour | | Total variable cost,
$18,720 | | Fixed cost @ $.83 per
hour | | Total fixed cost,
$8,320 | | | |
The amount of direct materials price variance
is: a. | $1,875
unfavorable | b. | $1,950 favorable | c. | $1,875
favorable | d. | $1,950 unfavorable | | |
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38.
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The
standard costs and actual costs for direct materials, direct labor, and factory overhead for the
manufacture of 2,500 units of product are as follows:
Standard Costs | Direct
materials | 2,500 kilograms @ $8 | Direct labor | 7,500 hours @ $12 | | | | Actual Costs | Direct
materials | 2,600 kilograms @ $8.75 | Direct labor | 7,400 hours @ $11.40 | Factory overhead (100% capacity - 10,000
hrs.): | | | | | Variable cost @ $2 per
hour | | Total variable cost,
$18,000 | | Fixed cost @ $.80 per
hour | | Total fixed cost,
$8,000 | | | |
The amount of the direct materials quantity variance
is: a. | $875
favorable | b. | $800 unfavorable | c. | $800
favorable | d. | $875 unfavorable | | |
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39.
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The
following data relate to direct materials costs for November:
Actual
costs | 4,600 pounds at $5.50 | Standard costs | 4,500 pounds at $6.00 | | |
What is the
direct materials quantity variance? a. | $550 unfavorable | b. | $600
favorable | c. | $550 favorable | d. | $600
unfavorable | | |
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40.
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If
the price paid per unit differs from the standard price per unit for direct materials, the variance
is termed: a. | variable
variance | b. | controllable variance | c. | price
variance | d. | volume variance | | |
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41.
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Agnew
Corporation uses a standard cost system. The following information was provided for the period that
just ended:
Actual price per
kilogram | $1.76 | Actual kilograms
of material used | 61,500 | Actual hourly
labor rate | $20.60 | Actual hours of
production | 8,850 | Standard price
per kilogram | $1.80 | Standard
kilograms per completed unit | 5 kilograms | Standard hourly labor rate | $20.00 | Standard time
per completed unit | 3/4 hr. | Actual total
factory overhead | $64,500 | Fixed factory
overhead | $30,000 | Standard fixed
factory overhead rate | $3.00 per labor hour | Standard variable factory overhead rate | $5.00 per labor
hour | Maximum plant capacity | 10,000
hours | Plant operated during the
period | 9,000 hours | Units completed
during the period | 12,000 | | |
The direct
materials price variance is: a. | $2,460 favorable | b. | $2,700
favorable | c. | $2,700 unfavorable | d. | $2,460
unfavorable | | |
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42.
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The
following data relate to direct labor costs for the current period:
Standard
costs | 6,000 hours at $12.00 | Actual costs | 7,500 hours at $11.60 | | |
What is the
direct labor rate variance? a. | $15,000 unfavorable | b. | $3,000
favorable | c. | $17,400 unfavorable | d. | $2,400
favorable | | |
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43.
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Frogue Corporation uses a standard cost system. The following information was provided
for the period that just ended:
Actual price per kilogram | $3.00 | Actual kilograms
of material used. | 31,000 | Actual hourly
labor rate | $18.10 | Actual hours of
production | 4,900 labor hours | Standard price per kilogram | $2.80 | Standard
kilograms per completed unit | 6 kilograms | Standard hourly labor rate | $18.00 | Standard time
per completed unit | 1 hr. | Actual total
factory overhead | $34,900 | Fixed factory
overhead | $18,000 | Standard fixed
factory overhead rate | $1.20 per labor hour | Standard variable factory overhead rate | $3.80 per labor
hour | Maximum plant capacity | 15,000
hours | Plant operated during the
period | 10,000 hours | Units completed
during the period | 5,000 | | |
The direct labor
rate variance is: a. | $1,800
favorable | b. | $490 favorable | c. | $490
unfavorable | d. | $1,800 unfavorable | | |
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44.
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The
standard costs and actual costs for direct materials, direct labor, and factory overhead for the
manufacture of 2,500 units of product are as follows:
Standard Costs | Direct
materials | 2,500 kilograms @ $8 | Direct labor | 7,500 hours @ $12 | | | | Actual Costs | Direct
materials | 2,600 kilograms @ $8.75 | Direct labor | 7,400 hours @ $11.40 | Factory overhead (100% capacity = 10,000
hrs.): | | | | | Variable cost @ $2 per
hour | | Total variable cost,
$18,000 | | Fixed cost @ $.80 per
hour | | Total fixed cost,
$8,000 | | | |
The amount of the factory overhead controllable
variance is: a. | $2,000
unfavorable | b. | $3,000 favorable | c. | $0 | d. | $3,000 unfavorable | | |
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45.
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The
standard factory overhead rate is $7.50 per machine hour ($6.20 for variable factory overhead and
$1.30 for fixed factory overhead) based on 100% capacity of 80,000 machine hours. The standard
cost and the actual cost of factory overhead for the production of 15,000 units during August were as
follows:
Actual: | Variable factory overhead | $360,000 | | | Fixed factory overhead | 104,000 | Standard: | 60,000 hours at $7.50 | 450,000 | | | |
What is the amount of the factory overhead
controllable variance? a. | $12,000 unfavorable | b. | $12,000
favorable | c. | $14,000 unfavorable | d. | $26,000
unfavorable | | |
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46.
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Frogue Corporation uses a standard cost system. The following information was provided
for the period that just ended:
Actual price per kilogram | $3.00 | Actual kilograms
of material used | 31,000 | Actual hourly
labor rate | $18.10 | Actual hours of
production | 4,900 labor hours | Standard price per kilogram | $2.80 | Standard
kilograms per completed unit | 6 kilograms | Standard hourly labor rate | $18.00 | Standard time
per completed unit | 1 hr. | Actual total
factory overhead | $34,900 | Fixed factory
overhead | $18,000 | Standard fixed
factory overhead rate | $1.20 per labor hour | Standard variable factory overhead rate | $3.80 per labor
hour | 100% of normal
capacity | 15,000 hours | Plant operated
during the period | 10,000 hours | Units completed during the period | 5,000 | | |
The factory overhead volume variance
is: a. | $2,100
favorable | b. | $6,000 favorable | c. | $12,000
unfavorable | d. | $2,100 unfavorable | | |
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47.
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Favorable volume variances may be harmful when: a. | machine repairs
cause work stoppages | b. | supervisors fail to maintain an even flow of
work | c. | production in
excess of normal capacity cannot be sold | d. | there are insufficient sales orders to keep the factory
operating at normal capacity | | |
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48.
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Variances from standard costs are usually reported to: a. | suppliers | b. | stockholders | c. | management | d. | creditors | | |
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49.
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Assuming that the Morrita Desk Co. purchases 8,000 feet of lumber at $5.50 per foot
and the standard price for direct materials is $5.00, the entry to record the purchase and
unfavorable direct materials price variance is: a. | Direct
Materials
40,000
Direct Materials Price
Variance 4,000
Accounts
Payable
44,000 | b. | Direct
Materials
40,000
Accounts
Payable
40,000 | c. | Direct
Materials
44,000
Direct Materials Price
Variance
4,000
Accounts
Payable
40,000 | d. | Work in
Process
44,000
Direct Materials Price
Variance
4,000
Accounts
Payable
40,000 | | |
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50.
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The
use of standards for nonmanufacturing expenses is: a. | not as common as
it is for manufacturing costs | b. | as common as it is for manufacturing
costs | c. | not useful | d. | impossible | | |
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