Accounting Test

Question 1.1. (TCO 1) Which of the following is a sign that an ABC system may be useful? (Points : 5)

Operations staff agrees with accountants about the costs of manufacturing and marketing products and services.
There are small amounts of indirect costs.
Products make diverse demands on resources because of differences in volume, process steps, batch size, or complexity.
Products a company is less suited to produce and sell show small profits.


Question 2.2. (TCO 1) Merriamn Company provides the following ABC costing information:

Activities Total Costs Activity-cost drivers
Account inquiry hours $400,000 10,000 hours
Account billing lines $280,000 4,000,000 lines
Account verification accounts $150,000 40,000 accounts
Correspondence letters $ 50,000 4,000 letters
Total costs $880,000

The above activities are used by Department A and B as follows:

Department A Department B
Account inquiry hours 2,000 hours 4,000 hours
Account billing lines 400,000 lines 200,000 lines
Account verification accounts 10,000 accounts 8,000 accounts
Correspondence letters 1,000 letters 1,600 letters

How much of the inquiry cost will be assigned to Department A?

(Points : 5)

None of the above


Question 3.3. (TCO 2) A master budget (Points : 5)

includes only financial aspects of a plan and excludes nonfinancial aspects.
includes broad expectations and visionary results.
is an aid to coordinating what needs to be done to implement a plan.
should not be altered after it has been agreed upon.


Question 4.4. (TCO 2) White planned to use $82 of material per unit but actually used $80 of material per unit, and planned to make 1,200 units but actually made 1,000 units.  The flexible-budget variance is (Points : 5)

$2,000 favorable.
$14,000 unfavorable.
$16,400 unfavorable.
$2,400 favorable.


Question 5.5. (TCO 3) The conference method estimates cost functions (Points : 5)

by mathematically analyzing the relationship between inputs and outputs in physical terms.
using quantitative methods that can be very time consuming and costly.
based on analysis and opinions gathered from various departments.
using time-and-motion studies.


Question 6.6. (TCO 4) Relevant costs of a make-or-buy decision include all of the following EXCEPT (Points : 5)

fixed salaries that will not be incurred if the part is outsourced.
current direct material costs of the part.
special machinery for the part that has no resale value.
material-handling costs that can be eliminated.


Question 7.7. (TCO 5) Producing more non bottle neck output (Points : 5)

creates more inventory and increases throughput contribution.
creates less pressure for the bottleneck workstations.
allows for the maximization of overall contribution.
creates more inventory, but does not increase throughput contribution


Question 8.8. (TCO 5) Konrade’s Engine Company manufactures part TE456 used in several of its engine models.  Monthly production costs for 1,000 units are as follows:


Direct materials                                $40,000

Direct labor                                     10,000

Variable overhead costs                     30,000

Fixed overhead costs                         20,000

Total costs                               $100,000

It is estimated that 10% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier.  Konrade’s Engine Company has the option of purchasing the part from an outside supplier at $85 per unit.

If Konrade’s Engine Company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred) total

(Points : 5)



Question 9.9. (TCO 3) For January, the cost components of a picture frame include $0.35 for the glass, $0.65 for the wooden frame, and $0.80 for assembly.  The assembly desk and tools cost $400. A total of 1,000 frames is expected to be produced in the coming year.  What cost function best represents these costs? (Points : 5)

y = 1.80 + 400X
y = 2.20 + 1,000X
y = 400 + 1.80X
y = 1.00 + 400X


Question 10.10. (TCO 4) Opportunity costs (Points : 5)

result in a cash outlay.
only are considered when selecting among alternatives.
are recorded in the accounting records.
should be maximized for the best decision.



Question 11.11.

(TCO 1) For each of the following drivers identify an appropriate activity.

a.    # of machines

b.    # of setups

c.    # of inspections

d.    # of orders

e.    # of runs

f.    # of bins or aisles

g.   # of engineers

(Points : 25)



Question 12.12. (TCO 2) Favata Company has the following information:

Month                   Budgeted Sales

                                 June                           $60,000

July                             51,000

August                          40,000

September                      70,000

October                         72,000

In addition, the cost of goods sold rate is 70% and the desired inventory level is 30% of next month’s cost of sales.

Prepare a purchases budget for July through September.

(Points : 25)



Question 13.13. (TCO 3) Patrick Ross, the president of Ross’s Wild Game Company, has asked for information about the cost behavior of manufacturing overhead costs.  Specifically, he wants to know how much overhead cost is fixed and how much is variable.  The following data are the only records available:

          Month                                       Machine-hours              Overhead Costs

         February                                             1,700                             $20,500

March                                                2,800                              22,250

April                                                 1,000                              19,950

May                                                 2,500                              21,500

June                                                 3,500                              23,950

Using the high-low method, determine the overhead cost equation.  Use machine-hours as your cost driver.

(Points : 25)



Question 14.14.

(TCO 5) Kirkland Company manufactures a part for use in its production of hats.  When 10,000 items are produced, the costs per unit are:

Direct materials                                      $0.60

Direct manufacturing labor                         3.00

Variable manufacturing overhead                1.20

Fixed manufacturing overhead                    1.60

Total                                           $6.40

Mike Company has offered to sell to Kirkland Company 10,000 units of the part for $6.00 per unit.  The plant facilities could be used to manufacture another item at a savings of $9,000 if Kirkland accepts the offer.  In addition, $1.00 per unit of fixed manufacturing overhead on the original item would be eliminated.

a.     What is the relevant per unit cost for the original part?

b.    Which alternative is best for Kirkland Company?  By how much?

(Points : 25)

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