Multiple Choice Problems

Figure 10-1

ABC Company has identified the following production activities in its
firm:

Activities Activity Driver SQ AQ SP

Purchasing parts orders 2,000 2,200 $500

Scheduling production production runs 0 500 $200

Assembling parts labor hours 200,000 205,000 $15

Reworking parts rework hours 0 15,000 $10

Inspecting parts inspection hours 0 8,000 $12



____ 5. Refer to Figure 10-1. Calculate the total value-added costs.

a. $1,000,000

b. $1,100,000

c. $4,000,000

d. $4,175,000



Figure 10-2

Macy’s Manufacturing Company has identified the following production
activities in their tent manufacturing firm:

Activities Activity Driver SQ AQ SP

Sewing tents 150,000 152,000 $15

Stretching canvas labor hours 140,000 143,000 $10

Mending tents rework hours 0 40,000 $8

Set ups setups 0 500 $100

Inspection inspection hours 0 8,000 $12



____ 6. Refer to Figure 10-2. Calculate the total value-added costs.

a. $2,250,000

b. $2,280,000

c. $3,650,000

d. $3,810,000



Figure 10-11

The Derek Company has developed ideal standards for four activities:
labor, materials, inspection, and receiving.

Information is as follows:

Activity Activity Driver    SQ      AQ    SP 

Labor Hours 50,000 56,000 $  6

Materials Pounds 100,000 105,000  5

Inspection Inspection hours -0- 40,000 4

Receiving Orders 150 190 150



The actual prices paid per unit of each activity driver were equal to
the standard prices.

____ 10. Refer to Figure 10-11. Derek's nonvalue-added costs for
receiving would be

a. $28,500

b. $22,500

c. $16,500

d. $6,000



____ 11. A company has five days of finished goods inventory on hand to
avoid stockouts. The carrying costs of the inventory average $5,000 per
day.

Nonvalue-added costs would be

a. $-0-

b. $1,000

c. $5,000

d. $25,000



____ 12. The activity capacity (SQ) that should be used in calculating
activity capacity variances is

a. equal to zero for nonvalue-added activities

b. the standard capacity that should be used for value-added activities

c. both a and b are correct

d. none of the above



____ 13. The strategic-based responsibility accounting system maintains
the process and financial perspective of the activity-based approach but
adds

a. a customer perspective

b. an infrastructure perspective

c. both a and b

d. neither a nor b



Figure 10-16

A manufacturing cell has the theoretical capability of producing 40,000
microchips per quarter. The conversion cost per quarter is $90,000.
There are 16,000 production hours available within the cell per quarter.

____ 14. Refer to Figure 10-16. The theoretical cycle time per unit in
minutes would be

a. 270.0 minutes

b. 52.8 minutes

c. 37.5 minutes

d. 24.0 minutes



____ 15. A manufacturing cell has the theoretical capability of
producing 60,000 units annually. The annual conversion cost is $30,000,
and there are 6,000 production hours available within the cell per year.
The theoretical cycle time per unit in minutes would be

a. 0.625 minutes

b. 6.000 minutes

c. 8.400 minutes

d. 37.500 minutes



Figure 10-17

At the beginning of this year, Sammie Company installed a JIT purchasing
and manufacturing system. The following information has been gathered
about one of the company's products:

Current Year

Theoretical annual capacity 2,000    

Actual production 1,800    

Production hours available 1,000    

Scrap (pounds) 200    

Material used (pounds) 6,400    

Actual cost per unit 14    

Days of inventory 3    

Number of defective units 30    



____ 16. Refer to Figure 10-17. Sammie's actual cycle time for this
year would be

a. 1.8 hours per unit

b. 0.90 hours per unit

c. 0.56 hours per unit

d. 0.50 hours per unit





____ 18. The managerial accountant at Jann Corporation wishes to
estimate the firm's hidden quality costs using a Taguchi loss function
and has developed the following data:

Average deviation .25

Estimated external failure constant $600

Units produced and sold 10,000



The estimated loss per unit for Jann Corporation was

a. $600

b. $150

c. $96

d. $37.50



Figure 11-2

At the beginning of the year, George Company initiated a quality
improvement program. The program was successful in reducing scrap and
rework costs.

To help assess the impact of the quality improvement program, the
following data was collected for the current and preceding year:

Preceding Year Current Year

Sales $2,000,000   $2,000,000  

Quality training 2,000   3,000  

Materials inspection 5,000   8,000  

Scrap 40,000   30,000  

Rework 80,000   50,000  

Product inspection 10,000   20,000  

Product warranty 70,000   55,000  



____ 19. Refer to Figure 11-2. For the current year, George's internal
failure costs are what percentage of sales?

a. 4.0%

b. 2.9%

c. 2.5%

d. 1.5%





Figure 11-6

Information about Trane Company is as follows:

Prior Year Current Year

Output (units) 30,000 40,000

Input quantities:



   Labor (hours) 30,000 25,000



____ 23. Refer to Figure 11-6. Trane's partial operational productivity
ratio for labor for the current year is

a. 1.6

b. 0.75

c. 0.625

d. 1.33



____ 24. The following information has been extracted from the
accounting records of TACTYC Corporation:

Year 1 Year 2

Revenues $1,800,000  $2,200,000 

Cost of inputs 1,050,000 1,188,000



TACTYC adopted several process improvements in Year 2. Without these
process improvements, the cost of inputs would have been $1,276,000.
TACTYC's price recovery was

a. $262,000

b. $400,000

c. $138,000

d. $312,000



____ 25. Ecoefficiency maintains that organizations can produce more
useful goods and services

a. but do so at the cost of the environment

b. while simultaneously reducing negative environmental impacts

c. without increasing the environmental pollution

d. None of the above are correct.



____ 26. Cyclic capitalism is the idea that companies should

a. consume their own waste

b. recycle their waste

c. rotate employees' jobs

d. charge employees for their waste



____ 27. Costs of activities executed to determine if products,
processes, and other activities within the firm are in compliance with
appropriate environmental standards are called

a. environmental prevention costs

b. environmental detection costs

c. environmental internal failure costs

d. environmental external failure costs



Figure 12-3

At the end of this year, Mandan Chemical Company identified the
following costs in its accounting records as environmentally related:

Last Year

Inefficient materials usage $200,000

Treatment and disposal of toxic waste 800,000

Cleanup of contaminated soil 300,000

Testing for contamination 100,000

Operation of pollution control equipment 140,000

Maintenance of pollution control equipment 60,000

Environmental studies 20,000

Evaluation and selection of suppliers 10,000

Training (environmentally related) 12,500



____ 28. Refer to Figure 12-3. What is the total of Mandan's
environmental prevention activities?

a. $32,500

b. $42,500

c. $142,500

d. none of the above



Figure 12-5

Schilling Company manufactures a number of products, two of which are
the ABC and XYZ. The following environmental activities have been
identified, and the following costs have been associated with the two
products:

  ABC     XYZ  

Pounds produced 200,000 500,000

Packaging materials (pounds) 600,000 300,000

Energy usage (kilowatt hours) 200,000 100,000

Toxic releases (cubic feet) 500 100

Pollution control (machine hours) 80,000 20,000





Costs of activities:



   Using packaging materials

$900,000

   Using energy

240,000

   Releasing toxins (fines)

120,000

   Operating pollution control



      equipment

280,000



____ 29. Refer to Figure 12-5. What is the environmental cost per pound
of XYZ?

a. $2.28

b. $5.42

c. $0.912

d. none of the above



Figure 12-9

McDouglas Company embarked on an environmental awareness and improvement
program in 2005. At the end of 2006, the controller had gathered the
following data.

Year BTUs Hazardous waste cost Pounds of nonhazardous waste Percentage
of vehicles powered by propane gas

2001 3,000 4,000 15,000 2%

2002 2,900 4,500 14,000 3%

2003 2,800 4,600 13,000 4%

2004 2,700 4,700 12,000 4%



____ 30. Refer to Figure 12-9. In which area has the company
demonstrated the highest degree of improvement?

a. BTUs

b. hazardous waste cost

c. pounds of nonhazardous materials

d. percentage of vehicles powered by propane gas



____ 31. If a company uses absorption costing, product cost would be
calculated by adding together

a. direct materials, direct labor, variable overhead and fixed overhead
only

b. direct materials, direct labor, and fixed overhead only

c. direct labor, variable overhead, and fixed overhead only

d. direct materials, variable overhead, and fixed overhead only



____ 32. Variable costing net income is

a. higher than absorption net income when more units are sold than
produced

b. lower than absorption net income when more units are produced than
sold

c. the same as absorption net income when all units produced are sold

d. all of the above are correct



Figure 15-1

Fairfield Corporation uses an actual cost system and produces a single
product. Information about the product for the past year is as follows:

Product X

Production (units) 100,000

Sales (units) 80,000

Selling price $20.00

Machine hours 50,000



Manufacturing costs:

   Direct materials $ 80,000

   Direct labor 240,000

   Variable overhead 40,000

   Fixed overhead 200,000



Nonmanufacturing costs:

   Variable selling $48,000

   Fixed selling 20,000



There were no beginning inventories. (Round amounts to two decimal
places.)

____ 33. Refer to Figure 15-1. Fairfield's unit product cost for
Product X using variable costing would be

a. $4.00

b. $3.60

c. $3.20

d. $2.80



____ 34. Refer to Figure 15-1. If Fairfield uses absorption costing,
net income would be

a. $1,152,000

b. $1,044,000

c. $1,264,000

d. $1,084,000



____ 35. At break-even, contribution margin equals

a. total variable costs

b. total fixed costs

c. total manufacturing costs

d. fixed manufacturing costs



____ 36. If fixed costs increase, the break-even point in units will

a. increase

b. decrease

c. remain the same

d. remain the same; however, contribution margin per unit will decrease



____ 37. If the contribution margin per unit decreases, the break-even
point in units

a. will increase

b. will decrease

c. will remain the same

d. cannot be determined from the information given



____ 38. The following information is provided:

Sales price per unit ?

Variable cost per unit $175

Fixed costs $1,625,000

Break-even point in units 5,000 units



The sales price is

a. $325

b. $675

c. $500

d. Cannot determine with information provided



____ 39. Contribution margin ratio can be calculated in all of the
following ways except

a. Contribution margin per unit/Selling price per unit

b. 1 - Variable cost ratio

c. Fixed costs/Contribution margin per unit

d. Total contribution margin/Total revenues



Figure 16-6

Sales $500,000

Variable costs $100,000

Fixed costs $200,000



____ 40. Refer to Figure 16-6. Sales in dollars necessary to generate a
before-tax profit of $40,000 would be

a. $300,000

b. $400,000

c. $425,000

d. $1,200,000



Figure 16-8

The following information pertains to Kangas Company:

Selling price per unit $250

Variable manufacturing costs per unit $75

Fixed manufacturing costs per unit $90

Variable selling costs per unit $45

Fixed selling costs per unit $20

Expected production and sales 2,000 units



____ 41. Refer to Figure 16-8. Kangas' contribution margin ratio is

a. 48%

b. 52%

c. 66%

d. 70%



____ 42. In order for the break-even computation to be meaningful to
management, sales mix should be computed using the

a. expected mix

b. most desirable mix

c. least desirable mix

d. traditional mix



Figure 16-10

Lily Fan Company has three products: Economy, Standard, and Deluxe. The
following information is available for the three products:

Economy Standard Deluxe

Selling price $10  $20  $35 

Variable cost $ 8  $13  $24 

Contribution margin $2  $7  $11 

Expected sales 18,000  12,000  6,000 



Fixed costs are $170,500.

____ 43. Refer to Figure 16-10. Assuming the sales mix does not change,
break-even sales in dollars for Economy would be

a. $16,500

b. $357,500

c. $55,000

d. $165,000



____ 44. A cost-volume-profit graph is prepared using all of the
following assumptions except

a. linearity within the relevant range

b. units produced equals units sold

c. constant sales mix

d. constant cost fluctuation



____ 45. Which of the following measures the percentage change in
profits resulting from a percentage change in sales?

a. variable cost ratio

b. contribution margin ratio

c. degree of operating leverage

d. sales margin ratio



Figure 16-12

The Taylor Company has provided the following information:

Activity Driver Unit

Variable Cost Level of

Activity Driver

Units $10      --      

Setups $1,000      20      

Engineering hours $30      1,000      



Other data:

Total fixed costs (ABC) $50,000

Unit selling price $20



____ 46. Refer to Figure 16-12. Using the ABC approach to CVP analysis,
how many units must Taylor sell to break even?

a. 10,000 units

b. 5,000 units

c. 2,500 units

d. none of the above



____ 47. Kaylin Company purchased a piece of equipment for $100,000 that
had a useful life of 5 years. The equipment had no salvage value. It
saves the company $40,000 a year and costs the company $5,000 a year to
operate. What is the accounting rate of return on the equipment?

a. 30%

b. 15%

c. 40%

d. 35%



____