Multiple Choice Answers

1. Abbe Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,100,000; sales of $4,525,000; cost of goods sold of $2,550,000; and operating expenses of $1,372,000. Compute the division’s return on assets:
a. 30.3%.    b. 23.6%.    c. 13.3%.    d. 10.4%.   e. 14.7%.

Question 2 A system of performance measures, including nonfinancial measures, used to assess company and division manager performance is:
Hurdle rate.
Return on investment.
Balanced scorecard.
Residual income.
Investment turnover.

Question 3 The Footwear Department of Lee’s Department Store had sales of $188,000, cost of goods sold of $132,500, indirect expenses of $13,250, and direct expenses of $27,500 for the current period. The Footwear Department’s contribution to overhead as a percent of sales is:

Question 4 A company that uses a job order cost accounting system would make the following entry to record the flow of direct materials into production:
debit Goods in Process Inventory, credit Cost of Goods Sold.
debit Goods in Process Inventory, credit Raw Materials Inventory.
debit Goods in Process Inventory, credit Factory Overhead.
debit Factory Overhead, credit Raw Materials Inventory.
debit Finished Goods Inventory, credit Raw Materials Inventory.

Question 5 Allocations of joint product costs can be based on the relative sales values of the products:

And never on the relative physical quantities of the products.
Plus an adjustment for future excess margins.
And not on any other basis.
At the “split-off point”.
Only if the products contain both direct and indirect costs.

Question 6Assume that sales are predicted to be $3,750, the expected contribution margin is $1,500, and a net loss of $250 is anticipated. The break-even point in sales dollars is:

7. Kyoto, Inc. predicts the following sales in units for the coming four months:  April-240 unitsMay-280June-300July-240Although each month’s ending inventory of finished units should be 60% of the next month’s sales, the March 31 finished goods inventory is only 100 units. A finished unit requires five pounds of raw material B. The March 31 raw materials inventory has 200 pounds of B. Each month’s ending inventory of raw materials should be 30% of the following month’s production needs. The budgeted production for May is:
200 units.
212 units.
268 units.
280 units.
292 units.

Question 8During March, the production department of a process manufacturing system completed a number of units of a product and transferred them to finished goods. Of the units transferred, 25,000 were in process at the beginning of March and 110,000 were started and completed in March. March’s beginning inventory units were 100% complete with respect to materials and 55% complete with respect to labor. At the end of March, 30,000 additional units were in process in the production department and were 100% complete with respect to materials and 30% complete with respect to labor. The production department incurred direct materials cost of $253,000 and its beginning inventory included materials cost of $93,500. Compute the direct materials cost per equivalent unit for the department using the weighted-average method.

Question 9 In a process costing system, when manufacturing overhead costs are applied to the cost of production, they are debited to:
the Finished Goods Inventory account.
the Cost of Goods Sold account.
the Goods in Process Inventory account.
the Manufacturing Overhead account.

the Raw Materials Inventory account.

Question 10 Mueller Corp. manufactures compact discs that sell for $5.00. Fixed costs are $28,000 and variable costs are $3.60 per unit. Mueller can buy a newer production machine that will increase fixed costs by $8,000 per year, but will decrease variable costs by $0.40 per unit. What effect would the purchase of the new machine have on Mueller’s break-even point in units?
4,444 unit increase.
9,850 unit decrease.
5,714 unit increase.
4,444 unit decrease.
No effect on the break-even point in units.

Question 11 Dell Builders manufactures each house to customer specifications. It most likely would use:
Process costing.
A periodic inventory system.
Unique costing.
Job order costing.
Activity-based costing.

Question 12  A cost that remains the same in total even when volume of activity varies is a:
Fixed cost.
Curvilinear cost.
Variable cost.
Step-wise variable cost.
Standard cost.

Question 13A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. If the firm wants to earn $35,000 pretax income, how many units must be sold?

Question 14Grafton budgets production of 300 units in June and 310 units in July. Each finished unit requires 4 pounds of raw material K, which costs $5 per pound. Each month’s ending inventory of raw materials should be 30% of the following month’s budgeted production. The June 1 raw materials inventory has 360 pounds of raw material K. Compute budgeted purchases for raw material K for June.
1,200 lbs.
1,240 lbs.
1,212 lbs.
1,220 lbs.
880 lbs.

15. Mach Co. operates three production departments as profit centers. The following information is available for its most recent year. Department 1’s contribution to overhead as a percent of sales is:
Dept         Sales              cost of goods sold         Direct expense         indirect expense1    1,000,000       700,000             100,000                     80,0002     400,000            150,000                      40,000                    100,0003         700,000             300,000                     150,000                    20,000

Question 16 Baker Company’s sales mix is 3 units of A, 2 units of B, and 1 unit of C. Selling prices for each product are $20, $30, and $40, respectively. Variable costs per unit are $12, $18, and $24, respectively. Fixed costs are $320,000. What is the break-even point in composite units?

Question 17 Hancock Manufacturing allocates overhead to production on the basis of direct labor costs. At the beginning of the year, Hancock estimated total overhead of $396,000; materials of $410,000 and direct labor of $220,000. During the year Hancock incurred $418,000 in materials costs, $413,200 in overhead costs and $224,000 in direct labor costs. Compute the amount of overhead applied to jobs during the year.

Question 18 Cabot Company collected the following data regarding production of one of its products. Compute the direct labor cost variance.
Direct labor standard (2hrs. @ $13/hr)
$26 per finished units
Actual Direct labor hours81,000 hrs
Actual finished units produced40,000 units
Actual cost of direct labor$1,093,500
$53,500 unfavorable.
$40,500 favorable.
$53,500 favorable.
$13,000 unfavorable.
$40,500 unfavorable.

Question 19  A dairy allocates the cost of unprocessed milk to the production of milk, cream, butter and cheese. For the current period, unprocessed milk was purchased for $240,000, and the following quantities of product and sales revenues were produced.
Pounds:Price per pound:
Cheese 50,000 2.20
Butter20,000  1.00
Cream10,000           3.00
How much of the $240,000 cost should be allocated to milk?
Question 20  Abbe Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,100,000; sales of $4,525,000; cost of goods sold of $2,550,000; and operating expenses of $1,372,000. Assume a target income of 10% of average invested assets. Compute residual income for the division:
Question 21A basis for allocating the cost of a resource to an activity cost pool or allocating the cost of an activity cost pool to a cost object is a(n):
Direct factor.
Indirect factor.
Cost driver.
Joint cost.
Opportunity cost.
Question 22 A company’s product sells at $12 per unit and has a $5 per unit variable cost. The company’s total fixed costs are $98,000. The break-even point in units is:
Question 23 The Palos Company expects sales for June, July, and August of $48,000, $54,000, and $44,000, respectively. Experience suggests that 40% of sales are for cash and 60% are on credit. The company collects 50% of its credit sales in the month following sale, 45% in the second month following sale, and 5% are not collected. What are the company’s expected cash receipts for August from its current and past sales?
Question 24 Kyle, Inc. has collected the following data on one of its products. The direct materials price variance is:
Direct materials standard (4lbs. @ $1/lb)
$4 per finished units
Total direct materials cost variance-unfavorable
Actual direct materials used
Actual finished units produced
$13,750 unfavorable.
$16,250 unfavorable.
$16,250 favorable.
$30,000 unfavorable.
$33,000 favorable.
Question 25 The most useful allocation basis for the departmental costs of an advertising campaign for a storewide sale is likely to be:
Floor space of each department.
Relative number of items each department had on sale
Number of customers to enter each department.
An equal amount of cost for each department.
Proportion of sales of each department.