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Chapter 04 - Systems Design: Process Costing

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Chapter 04
Systems Design: Process Costing
Multiple Choice Questions
1. (Appendix 4A) Which of the following statements referring to a production
report is not
correct?
A. The quantity schedule deals with physical units, not whole units.
B. The total "Costs to be accounted for" must equal the total cost of the units
completed and
transferred out, plus the cost of the ending work-in-process inventory.
C. The equivalent units in the ending work-in-process inventory will be different if
the
weighted-average method is used than it will be if the FIFO method is used.
D. The total of the "Units to be accounted for" will equal the total of the "Units
accounted for."
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Learning Objective: 4
Learning Objective: 6
Learning Objective: 7
Learning Objective: 8

2. Assume that there is no beginning work-in-process inventory, and the ending
work-in-process inventory is 50% complete with respect to conversion costs.
What would be
the number of equivalent units of production with respect to conversion costs
under the
weighted-average method?
A. The same as the units completed.
B. The same as the units started during the period.
C. Less than the units completed.
D. Less than the units started during the period.
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 2

Chapter 04 - Systems Design: Process Costing
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3. (Appendix 4A) All production costs have been steadily rising in the Donner
Company for

several periods, and the company maintains large work-in-process inventories.
What is the
Donner Company's cost per equivalent unit, as computed using the FIFO
method?
A. The same as that computed under the weighted-average method.
B. Higher than that computed under the weighted-average method.
C. Lower than that computed under the weighted-average method.
D. It could be the lower than, the same as, or higher than that computed under
the
weighted-average method.
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 3
Learning Objective: 7

4. (Appendix 4A) If a company uses two different unit cost figures to cost
transfers from one
department to another under a process costing system, then which of the
following statements is
reasonable to assume?
A. There was no beginning work-in-process inventory.
B. Processing centres are arranged in a sequential pattern.
C. The FIFO cost method is being used.
D. The weighted-average cost method is being used.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 5
Learning Objective: 8

5. For which of the following industries would it NOT be appropriate to use
process costing?
A. Custom furniture building.
B. Oil refining.
C. Grain milling.
D. Newsprint production.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 1

Chapter 04 - Systems Design: Process Costing
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6. Which of the following statements best defines an operation costing system?
A. It is identical to a process costing system except that actual manufacturing
overhead costs
are traced to units of product.
B. It is the same as a process costing system except that direct materials costs
are accounted for
in the same way as in job-order costing system.
C. It is the same as a job-order costing system except that direct materials costs
are accounted
for in the same way as in a process costing system.
D. It is identical to a job-order costing system except that actual manufacturing
overhead costs

are traced to units of product.
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 1
Learning Objective: 8

7. Lucas Company uses the weighted-average method in its process costing
system. The
company adds materials at the beginning of the process in the Forming
Department, which is
the first of two stages in its production process. Information concerning
operations in the
Forming Department in October follows:
What was the materials cost of work in process on October 31?
A. $3,060.
B. $5,520.
C. $6,000.
D. $6,120.
EI = 6,000 + 50,000 - 44,000 = 12,000 units * $28,560/56,000 = $6120.
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Learning Objective: 4
Learning Objective: 5

Chapter 04 - Systems Design: Process Costing
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8. David Company uses the weighted-average method in its process costing
system. The first
processing department, the Welding Department, started the month with 20,000
units that were
80% complete with respect to conversion costs. The conversion cost in this
beginning
work-in-process inventory was $123,200. An additional 65,000 units were started
into
production during the month. There were 19,000 units in the ending work-inprocess inventory
of the Welding Department that were 10% complete with respect to conversion
costs. A total of
$389,250 in conversion costs were incurred in the department during the month.
What would be the cost per equivalent unit for conversion costs for the month?
(Round off to
three decimal places.)
A. $7.547.
B. $7.700.
C. $4.634.
D. $5.988.
EU = 66,000 + 19,000 *.1 = 67,900. Cost/EU = (132,200 + 389,250)/67,900
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 2
Learning Objective: 3

Chapter 04 - Systems Design: Process Costing
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9. Larner Company uses the weighted-average method in its process costing
system. Operating
data for the first processing department for the month of June appear below:
According to the company's records, the conversion cost in beginning work-inprocess
inventory was $68,064 at the beginning of June. Additional conversion costs of
$585,324 were
incurred in the department during the month.
What was the cost per equivalent unit for conversion costs for the month?
(Round off to three
decimal places.)
A. $5.575.
B. $6.174.
C. $6.892.
D. $7.090.
($68,064 + 585,324)/(91,000 + 19,000 * 20%)
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 2
Learning Objective: 3

Chapter 04 - Systems Design: Process Costing
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10. Glo Co., a manufacturer of combs, uses the weighted-average method in its
process costing
system. The company sold 125,000 units during the month of April. There is only
one
processing department. The following additional information is provided:
What were the equivalent units of production for conversion costs for April?
A. 126,500.
B. 125,500.
C. 123,500.
D. 117,500.
Transferred out of WIP to FG = 125,000 + 30,000 - 37,500 = 117,500 (from FG
information).
EU = 117,500 * 100% + 8,000 *.75 = 123,500
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
Learning Objective: 5

Chapter 04 - Systems Design: Process Costing
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11. The Morgan Company uses the weighted-average method in its process
costing system. For
a particular department, the company had 54,000 equivalent units of production
with respect to

conversion costs in March. There were 7,500 units in the department's beginning
work-in-process inventory, two-thirds complete with respect to conversion costs.
During
March, 52,500 units were started and 50,000 were completed and transferred out
of the
department. What was the ending work-in-process inventory in the department?
A. Consisted of 5,000 units.
B. Consisted of 2,500 units.
C. 65% complete with respect to conversion costs.
D. 40% complete with respect to conversion costs.
7,500 + 52,500 = 60,000 less 50,000 transferred out = EI of 10,000 units.
EI equiv. units = 54,000 - 50,000 = 4,000 EU therefore 4/10 = 40% complete.
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2

12. The following data were taken from the accounting records of the Hazel
Corporation, which
uses the weighted-average method in its process costing system:
What were the equivalent units of production for conversion costs?
A. 102,000 units.
B. 112,000 units.
C. 111,000 units.
D. 100,000 units.
T. out = 30,000 + 90,000 - 20,000 = 100,000 * 100% + 20,000 *60% = 112,000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2

Chapter 04 - Systems Design: Process Costing
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13. Baker Company uses the weighted-average method in its process costing
system. The
Assembly Department started the month with 8,000 units in its beginning work-inprocess
inventory that were 90% complete with respect to conversion costs. An additional
95,000 units
were transferred in from the prior department during the month to begin
processing in the
Assembly Department. There were 11,000 units in the ending work-in-process
inventory of the
Assembly Department that were 90% complete with respect to conversion costs.
What were the equivalent units of production for conversion costs in the
Assembly Department
for the month?
A. 94,700 units.
B. 101,900 units.
C. 98,000 units.
D. 92,000 units.
92,000 + 11,000 *.9 = 101,900

Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2

14. Jawson Company uses the weighted-average method in its process costing
system.
Operating data for the Painting Department for the month of April appear below:
What were the equivalent units of production for conversion costs in the Painting
Department
for April?
A. 67,300 units.
B. 68,820 units.
C. 70,520 units.
D. 63,900 units.
(6,300 + 65,600 - 4,600) * 100% + 4,600 * 70%
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2

Chapter 04 - Systems Design: Process Costing
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15. Sarver Company uses the weighted-average method in its process costing
system. The
Fitting Department is the second department in its production process. The data
below
summarize the department's operations in March:
The Fitting Department's production report indicates that the cost per equivalent
unit for
conversion cost for March was $8.24.
How much conversion cost was assigned to the units transferred out of the
Fitting Department
during March?
A. $482,287.20.
B. $502,640.00.
C. $523,240.00.
D. $561,144.00.
(7,100 + 61,000 - 4,600) * $8.24
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 4

Chapter 04 - Systems Design: Process Costing
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16. The Nichols Company uses the weighted-average method in its process
costing system. The
company recorded 29,500 equivalent units of production for conversion costs for
November in
a particular department. There were 6,000 units in the ending work-in-process
inventory on
November 30, 75% complete with respect to conversion costs. The November 1

work-in-process inventory consisted of 8,000 units, 50% complete with respect to
conversion
costs. A total of 25,000 units were completed and transferred out of the
department during the
month. What was the number of units started during November in the
department?
A. 24,500 units.
B. 23,000 units.
C. 27,000 units.
D. 21,000 units.
25,000 + 6,000 - 8,000 = 23,000 started.
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2

17. The Assembly Department started the month with 35,000 units in its
beginning
work-in-process inventory. Additional units 472,000 were transferred in from the
prior
department during the month to begin processing in the Assembly Department.
There were
34,000 units in the ending work-in-process inventory of the Assembly
Department. How many
units were transferred to the next processing department during the month?
A. 507,000 units.
B. 473,000 units.
C. 471,000 units.
D. 541,000 units.
35,000 + 472,000 - 34,000
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 1
Learning Objective: 2

Chapter 04 - Systems Design: Process Costing
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18. Huffer Company uses the weighted-average method in its process costing
system. The
following information pertains to Processing Department D for the month of May:
All materials are added at the beginning of the process. Which of the following
costs is closest
to the cost per equivalent unit for materials?
A. $0.43.
B. $0.45.
C. $0.55.
D. $0.59.
($11,000 + 36,000)/(85,000 + 25,000)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Learning Objective: 3

Chapter 04 - Systems Design: Process Costing
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19. Harker Company uses the weighted-average method in its process costing
system. The first
processing department, the Welding Department, started the month with 16,000
units in its
beginning work-in-process inventory that were 40% complete with respect to
conversion costs.
The conversion cost in this beginning work-in-process inventory was $29,440. An
additional
59,000 units were started into production during the month, and 61,000 units
were completed in
the Welding Department and transferred to the next processing department.
There were 14,000
units in the ending work-in-process inventory of the Welding Department that
were 10%
complete with respect to conversion costs. A total of $246,400 in conversion
costs were
incurred in the department during the month.
What would be the cost per equivalent unit for conversion costs for the month?
(Round off to
three decimal places.)
A. $4.176.
B. $4.600.
C. $3.375.
D. $4.421.
EI = 16,000 + 59,000 - 61,000 = 14,000 units.
Cost/EU = ($29,440 + 246,400)/(61,000 + 14,000 *.1) = $4.4205
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Learning Objective: 3

Chapter 04 - Systems Design: Process Costing
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20. Paxton Company uses the weighted-average method in its process costing
system. The
Moulding Department is the second department in its production process. The
data below
summarize the department's operations in January:
The accounting records indicate that the conversion cost that had been assigned
to beginning
work-in-process inventory was $10,973, and a total of $268,107 in conversion
costs were
incurred in the department during January.
What was the cost per equivalent unit for conversion costs for January in the
Moulding
Department? (Round off to three decimal places.)

000 units. $95. By what amount would the equivalent units of production for conversion costs for the month of November differ if the FIFO method were used instead of the weighted-average method? A.400.100.400*.600.75 for materials and $4.000. If the cost per equivalent unit for August was $2. $126. 1 that were 100% complete with respect to material costs and 20% complete with respect to conversion costs. The work in process on November 30 was 100% complete with respect to material costs and 40% complete with respect to conversion costs. 18.000 units were started in Department No.A.75 + 18.300 + 9.400 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Learning Objective: 4 22.704. The units in the ending workin-process inventory were 100% complete with respect to materials and 60% complete with respect to labour and overhead. (Appendix 4A) On November 1. 2.Systems Design: Process Costing 4-14 21.107)/(50.6*$4.000 units of work in process in Department No. 160. Yankee Company had 20. D.973 + 268. $5.2) Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Learning Objective: 3 Chapter 04 .000 units were completed and transferred to Department No. During November.000*. $4. D. ($10. The company's ending work-in-process inventory on August 31 consisted of 18. . C.348. 20.000 decrease. 1. $75.25 = $95. what was the total cost assigned to the ending work-in-process inventory? A. $4.038. C. and 170. B. $80.25 for labour and overhead. B.080. The company has only a single processing department. $5.000*$2. The Richmond Company uses the weighted-average method in its process costing system.

000 EU. 83.4 = 174.4 = 170.000 units in the ending work-in-process inventory of the Assembly Department that were 20% complete with respect to conversion costs.000 units.000 + 12. EI = 10.000 decrease. Fabian Company uses the weighted-average method in its process costing system.000 *. an additional 90. Therefore 4.100 units.Systems Design: Process Costing 4-16 24.000 units. Narver Company uses the weighted-average method in its process costing system.8 + 150.: EU = 170.000 * 1 + 10. 89. 87.000 units were completed in the Assembly Department and transferred to the next processing department.Systems Design: Process Costing 4-15 23. C. 8.300 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Chapter 04 .000*.400 units. 16.000 decrease. W.000 units.000 units in its beginning work-inprocess inventory that were 70% complete with respect to conversion costs. 87. What were the equivalent units of production for conversion costs in the Assembly Department for the month? A.000 units were transferred in from the prior department to begin processing in the Assembly Department. Operating data for the Lubricating Department for the month of October appear below: What were the equivalent units of production for conversion costs in the Lubricating Department for October? . Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 7 Chapter 04 .000 + 10.000 less using FIFO. 4. C. During the month. Avg.B.000 *. The Assembly Department started the month with 9.20 = 894. D. There were 12.000 decrease.000 EU FIFO: 20.000 units. D. 87. 93. Transferred out 170.000 *. During the month. B.

100 units.51.38.00. C. (54.000 = $40.000 and the cost per equivalent unit for labour and overhead is $8. The company's ending work-in-process inventory consists of 5. 37.780 units.000 units.100 units.000)/(50.000 *.2) Bloom's Level: Apply Difficulty: Medium .30. B. $8.Systems Design: Process Costing 4-18 26. 43. D. If the total dollar value of the inventory is $60. B.20. $4. $7. 44. $5.A.5 * $8 = $20.780 units.000 Material Cost/EU = $40.600 *.00.00. Department 2 is the second of three sequential processes. Department 2 reported the following data: The company uses the weighted-average method in its process costing system.00.Systems Design: Process Costing 4-17 25. C. $5. B.80 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Chapter 04 . To the nearest cent.000/(5.000 + 36.000 + 315.100 + 9.000 . 47. what is the cost per equivalent unit on the production report for conversion costs? A. $6. $6. what is the cost per equivalent unit for materials? A.45. Value for Labour and Overhead in Inventory = 5.000 *. $10. 37.000 Material cost in inventory = $60. C.000*. All materials are added at the beginning of processing in Department 2. D. Black Company uses the weighted-average method in its process costing system.00.8) = $10 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 Chapter 04 . During October. D. 80% complete with respect to materials and 50% complete with respect to labour and overhead.

Learning Objective: 2 Learning Objective: 3 Chapter 04 . During the month.125.50 for conversion costs.00 for materials and $3. The units in the ending inventory are 100% complete with respect to materials and 75% complete with respect to conversion costs.000 units were transferred out.. 100% complete with respect to materials cost and 40% complete with respect to conversion costs. $285.75 * $5.000. $159.000 units. $240. $178.000.70 for conversion costs under the weighted-average method. 50.00 for materials and $5. 25. $255.70) Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 . what was the total cost of the units completed and transferred out? A. 50. $109.375.000 units.000 * ($2 + $3. B. B. D.000 * $3 + 25.000 *.Systems Design: Process Costing 4-19 27. C. $270.000. $212. Inc.500. what is the total cost in the April 30 work-in-process inventory? A. uses the weighted-average method in its process costing system. Given this information. D. If the cost per equivalent unit is $3. Overland. C. Valley Manufacturing Company's beginning work-in-process inventory consisted of 10.000. The equivalent unit cost was computed to be $2. The total cost in the beginning inventory was $30.50 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Learning Objective: 4 28. The company's work-in-process inventory on April 30 consists of 25.000.375.

400.800. Ogden Company uses the weighted-average method in its process costing system. The costs per equivalent unit for the period were $2.00 for conversion costs.Chapter 04 . The cost of the beginning work-in-process inventory in the department was recorded as $10.000. The ending work in process is 50% complete with respect to conversion costs. B. B. During the period. Information for the month of January concerning Department A. $6. $35.00 for material and $3. follows: Materials are added at the beginning of the process. C.000 * $0. $3. What was the cost of units transferred out during the month? A. $45. the first stage of the company's production process.000 units were completed and transferred on to the next department.40 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Chapter 04 . 10. 9. D.000 units that were 70% complete with respect to materials and 60% complete with respect to conversion costs.600.000 * ($2 + $3) . The beginning work-in-process inventory in its Painting Department consisted of 3. Trapp Company uses the weighted-average method in its process costing system. What cost would be recorded for the ending work-in-process inventory? A.400. $39.5 * $0. $45. 9.Systems Design: Process Costing 4-21 30.400. D.400. $8.48 + 10.000.800. C.000 *.Systems Design: Process Costing 4-20 29. $4.

The Moulding Department is the second department in its production process.20. $6.000 (38.00. $10. .000 EU for conversion costs therefore 2/10 = 20% complete. 10.Systems Design: Process Costing 4-22 32.30. Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Learning Objective: 4 Chapter 04 . How much conversion cost was assigned to the ending work-in-process inventory in the Moulding Department for January? A.203. EI cost of material. C.40.000 . With respect to conversion costs. 60% complete with respect to materials.121.37. The total dollar value of this inventory is $38. 38% complete. The ending work-in-process inventory consists of 10. $4.000)/$4/EU = 2.310.000. B.000 units. The company has only one processing department.000 *.80. 30% complete. 20% complete.6 * $5 = $30. Strap Company uses the weighted-average method in its process costing system. The data below summarize the department's operations in January: The Moulding Department's production report indicates that the cost per equivalent unit for conversion cost for January was $5.00 for conversion costs for the period.00 for materials and $4.081. 10% complete. $10. The costs per equivalent unit are $5. what is the ending work-inprocess inventory? A.Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 31. Rariton Company uses the weighted-average method in its process costing system. B. D. D. C.

057.000*.22. C. D. B.3) = $9.085 in conversion costs were incurred in the department during the month.000 . (Appendix 4A) Ebis Company uses the FIFO method in its process costing system.) A.000 are from beginning inventory. $9.1.4 * $5.000 units in its beginning work-in-process inventory. A total of $806.085/(13.000 + 89.9 + 67.000*1 + 22.000 units were started into production during the month. $9. $8.000 = 80. An additional 89. What would be the cost per equivalent unit for conversion costs for the month on the department's production report? (Round off to three decimal places.450. started the month with 13. $9.000 units of which 13.Systems Design: Process Costing 4-23 33. 30% of these units were complete with respect to conversion costs. $806.45 Bloom's Level: Apply Difficulty: Hard Learning Objective: 6 Learning Objective: 7 . The first processing department.000 units in the ending work-in-process inventory of the Welding Department.026. Transferred out = 13.000*. The conversion cost in this beginning work-in-process inventory was $12.37 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Learning Objective: 4 Chapter 04 .610. 10% of the units were complete with respect to conversion costs. the Welding Department.900 *.700. There were 22.

The beginning work-in-process inventory in a particular department consisted of 6.500. $5. Additional conversion costs of $427.682/(19.Systems Design: Process Costing 4-24 34.9) = $5. B. $427. two-thirds complete with respect to conversion costs.62 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 Learning Objective: 7 Chapter 04 . (Appendix 4A) Herston Company uses the FIFO method in its process costing system. $5.779.000*1 + 17.682 were incurred in the department during the month. (Appendix 4A) Marten Company uses the FIFO method in its process costing system. C. D.2 + 57.498. What would be the cost per equivalent unit for conversion costs for September on the Casting Department's production report? (Round off to three decimal places. Operating data for the Casting Department for the month of September appear below: According to the company's records.Chapter 04 .620. 42. $5.000*. During the month.Systems Design: Process Costing 4-25 35.000 units.000 units were . $5. the conversion cost in beginning work-inprocess inventory was $83.600 at the beginning of September.) A.000*.

Of the 8.000/8. 50% complete with respect to conversion costs.000 = 36. 25% complete with respect to conversion costs. 8.000*. The Assembly Department started the month with 6. B. EU = 6. 60% were complete with respect to conversion costs.000*.40.000 units. EI consists of 6.6 = 75.8 + 66. Total EU was 40. D.000 units.000 + 42. Bloom's Level: Analyze Difficulty: Hard Learning Objective: 6 36.600 units.000 equivalent units of production for conversion costs.000 units in its beginning work-inprocess inventory. 8. C.000 .000 .000*1/3 + 34. An additional 74. From transferred out the EU = 6.000 EU in EI.36. D.000*1 + 8.started and 40. 20% of the units were complete with respect to conversion costs.000 units.000 + 74.600 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 .8.000 units were transferred in from the prior department during the month to begin processing in the Assembly Department.000 units.000 = 4.000 .000 units. What were the equivalent units of production for conversion costs in the Assembly Department for the month? A. 76. 76. The company had 40. Which of the following represents the ending work-in-process inventory in the department? A. 75.000 EU therefore 40. 100% complete with respect to conversion costs. 72. 4.000). C.000. (Appendix 4A) Carson Company uses the FIFO method in its process costing system.000 units in the ending work-inprocess inventory of the Assembly Department.000 = 72.000 = 8. 0 units.800 units.000 units were completed and transferred out of the department. B.000 units 50% complete (4. 6.000 transferred out.

Trans. 85.Systems Design: Process Costing 4-26 37. 85.960 units.6 + 78.000 units. Operating data for the Enamelling Department for the month of May appear below: What were the equivalent units of production for conversion costs in the Enamelling Department for May? A. 80. The January 1 work-in-process inventory in Department A contained $10. (Appendix 4A) Creer Company uses the FIFO method in its process costing system.8.800 units. C. D.800 units of which 2.000 .400 come from BI. B. Department A had 20.000 in materials cost and $11.000 units in process at the beginning of January. During January.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 Chapter 04 .400*1 + 8. EU = 2. 93.50 per . materials costs were $0. (Appendix 4A) Karmen Company uses the FIFO method in its process costing system.400 + 87.6 = 85. and 40% were complete with respect to conversion costs.400*.Chapter 04 .200 units.600 = 80.600*. Out = 2.Systems Design: Process Costing 4-27 38.600 in conversion cost. All materials are added at the beginning of the process in Department A.

000.50 = $18. $39. $45. C. (Appendix 4A) Mukluk Company uses the FIFO method in its process costing system.50 per equivalent unit.600 = $21.000 for a total of $39. D. What was the total cost attached to these units when they were transferred to the next department? A. $3.000 units were in process.000 + 11.600 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 Learning Objective: 8 39.equivalent unit.000 *. and conversion costs were $1. $2. $37.600.600.7*$5 = $5. B. At the beginning of the month.400 + 1. $8.600. $33.600 Cost to complete these units = 20.900 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 Learning Objective: 8 Chapter 04 . BI = $10. $5. The .Systems Design: Process Costing 4-28 40.000*. C.600. and 100% were complete with respect to materials and 30% were complete with respect to conversion.900. The conversion cost for the month of April is $5. 1.00 per equivalent unit. All of the units in the beginning work-in-process inventory were completed and transferred out during the month. If these units are fully complete by the end of the month.900.500. with a total cost at that point of $2. $3. D. what will be their total cost? A. and the materials cost is $2.400.6 * $1.90 per equivalent unit. (Appendix 4A) Index Company uses the FIFO method in its process costing system. B.

010.000*1 + 10.000 units were started into production during the month.9 + 66. Additional conversion costs of $129. $5.000 units in the ending work-in-process inventory of the Forming Department. started the month with 17. $5.300. An additional 76. D. What would be the cost per equivalent unit for conversion costs for the month on the Forming Department's production report? (Round off to three decimal places. C.000 units in its beginning work-in-process inventory. There were 10. (Appendix 4A) Qart Company uses the FIFO method in its process costing system.) .050.960 were incurred in the department during the month.7) = $5.867. $445. What would be the cost per equivalent unit for conversion costs for March on the Cutting Department's production report? (Round off to three decimal places. the conversion cost in beginning work-inprocess inventory was $1. the Forming Department.000 units were completed and transferred to the next processing department. 70% of the units were complete with respect to conversion costs.150. $5.05 Bloom's Level: Apply Difficulty: Hard Learning Objective: 6 Learning Objective: 7 Chapter 04 .Systems Design: Process Costing 4-29 41.915/(17. the units were 10% complete with respect to conversion costs.000*.656 at the beginning of March.) A.915 in conversion costs were incurred in the department during the month. Operating data for the Cutting Department for the month of March appear below: According to the company's records. $5. B. and 83.000*. A total of $445.first processing department. The conversion cost in this beginning work-in-process inventory was $9.

000*. $1.840.000 EU.Systems Design: Process Costing 4-30 42.000.250 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 6 Learning Objective: 8 Chapter 04 .25 = $145. The following data are taken from the accounting records of a particular department for June: What is the cost of the 75.50 + 55.4 = 8.250.677. $168. Transferred out 20.500.000*$0.8 + 70. $1. units started and completed 55.750. At .250. C.500 + 8. 45.A. (Appendix 4A) Winkle Company uses the FIFO method in its process costing system. (Appendix 4A) Roger Company uses the FIFO method in its process costing system. $1. $145. D. $151.000 from BI *. $131. $1.000 units transferred out of the department during June? A.000*. Cost of units transferred out then = $17.960/76.Systems Design: Process Costing 4-31 43. B.000*1 + 4. C. B. Cost/EU = $129.000*$2.756.6 = 76.710. D.000 EU.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 Learning Objective: 7 Chapter 04 .

During the month. 336. C.000 units. Department One is the first stage of the company's production process.000*.000 units were transferred to the next processing center during the month. . At the end of the month. 6.000*1 + 20. 5. what would be the equivalent units of production for conversion costs? A. 352.000 units that were 60% complete with respect to conversion costs.000 units in its beginning work-inprocess inventory. 13. 40.6 + 300.the beginning of March.700 units. 360.700 units. 10.000 units.Systems Design: Process Costing 4-32 45. D. B.000*.6 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 44.6 Bloom's Level: Apply Difficulty: Easy Learning Objective: 6 Chapter 04 . 10% of the units were complete with respect to conversion costs. the work-in-process inventory in the Blending Processing Center consisted of 5. The following information pertains to conversion costs for April for Department One: What are the equivalent units of production for conversion costs? A.000*1 + 2.000*. 90% complete with respect to conversion costs. The Grinding Department started the month with 18.300 units. 11.000 units. (Appendix 4A) Winder Company uses the FIFO method in its process costing system. B.000*. D. C.1 + 5. If 10. the work-in-process inventory consisted of 2. (Appendix 4A) Garson Company uses the FIFO method in its process costing system.000 units. 320.000 units.000 units.

3. Operating data for the Brazing Department for the month of November appear below: What were the equivalent units of production for conversion costs in the Brazing Department for November? A.200 units.000*.9 + 97. 113. 49.2 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 Chapter 04 . C.400*1 + 7.400 units. 43.8 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 . (Appendix 4A) Oxyrom Company uses the FIFO method in its process costing system.000 units were completed in the Grinding Department and transferred to the next processing department.800*.Systems Design: Process Costing 4-33 46.200 units. 18. During the month.300*. 115. 115.000 units.an additional 98.000 units. 81.000*. 115.8 + 39. D.000*1 + 1.000 units in the ending work-in-process inventory of the Grinding Department.000 units were transferred in from the preceding department to begin processing in the Grinding Department. D.200 units.280 units. B. What were the equivalent units of production for conversion costs in the Grinding Department for the month? A.040 units. B. 50. C. 20% were complete with respect to conversion costs. 48. Of the 1.

090. The Forming Department processes the baseball bats. the conversion cost in beginning work-inprocess inventory was $7.9*$8. How much conversion cost would be assigned to the units completed and transferred out of the department during March? A. B.470 at the beginning of March. $533.Chapter 04 .000*$8. C. D.000*. $7. Operating data for the Curing Department for the month of March appear below: According to the company's records.530.20.Systems Design: Process Costing 4-35 A sporting goods manufacturer buys wood as a direct material for baseball bats.470 + 9. $525. and the bats are then transferred to the Finishing Department where a sealant is applied.20 + 56.Systems Design: Process Costing 4-34 47.20 Bloom's Level: Apply Difficulty: Hard Learning Objective: 6 Learning Objective: 8 Chapter 04 .040. The cost per equivalent unit for conversion costs for March was $8. There was no beginning work-in-process inventory in the Forming Department in May. $592.000 Casey . The Forming Department began manufacturing 10.000. (Appendix 4A) Tarten Company uses the FIFO method in its process costing system. $533.

The company uses the weighted-average method of process costing.000 = 10.500 = $2. EI = 2. $10.000 = $3.25 = 8. B.000 bats were completed and transferred to the Finishing Department during May. $42. Cost/EU as in #73. Cost/EU = $17.600 Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 Adam Company uses the weighted-average method in its process costing system. Costs = 8. The . What was the cost of the units transferred to the Finishing Department during May? A.000.000.000/8.30 + 500*$2 = $7. $7.000/10. $2. B. $50.600.000*.000 + 2.30 Conv. The ending work-in-process inventory was 100% complete with respect to direct materials and 25% complete with respect to conversion costs. EU's Material = 8. D. C. Costs for the Forming Department for the month of May were as follows: A total of 8. $53.500 Cost/EU material = $33.Slugger baseball bats during May. C. 48. Total $5. $40. What was the cost of the work-in-process inventory in the Finishing Department at the end of May? A.30 Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 Chapter 04 .400.Systems Design: Process Costing 4-36 49.500.000.000 + 2. $4.000 * $5.000 Conv.000*$3.000.000. D.30 Transferred out = 8.

145. Chapter 04 . Since materials are all added at beginning of process then all units 125. The October 31 work-in-process inventory in the Mixing Department consisted of 4. The cost per equivalent unit was $2.000 units.following information for the Assembly Department was obtained from the accounting records for September (all materials are added at the beginning of the process): Chapter 04 . D.000 + 320.000 units. 122.000.40. During October.500. What are the equivalent units of production for material for the month? A. $429. $41.000 units.000 + 16.000 equivalent units of material and 5.000 units.000 + 105.000. Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Madsen Company uses the weighted-average method in its process costing system. The "Total cost to be accounted for" section of the production report for the month will show an amount equal to which of the following? A.000 + 63. B.50 for materials and $6.000 . .000 are 100% complete as to material.000. the Mixing Department transferred out 40. C. $604. Transferred out = 60.500. What was the total cost of the October 31 work-in-process inventory? A.000 equivalent units of labour and overhead.250. B.25 for labour and overhead.Systems Design: Process Costing 4-38 52. 105.000 + 40. D. $30. 165.000 = 125. $106. C.000 units. $498.Systems Design: Process Costing 4-37 50.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 51.

000 are from BI. T.000 units.000. 54.Systems Design: Process Costing 4-39 54. C.50 + $6. 4. 60. 47.000 units of which 8. 40. $43.750.000*1 + 10. D.25 Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 53. out 48. B. $35.000. $110.000*$2.50 + 5.000*$6.000*0 + 40. C. 58. $350.250. 50.B.750. $78. 51. what are the equivalent units of production for labour and overhead for the month? A.250 (EI from 78) Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Learning Objective: 5 The activity in Nolan Company's Blending Department for the month of April is given below: All materials are added at the beginning of processing in the Blending Department.000 units. what are the equivalent units of production for material for the month? A. D. C.25) + $41.000 units. D.000 units.000 units. The "Total cost to account for" section of the production report for October will show an amount equal to which of the following? A.000*1 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 55. $391. B.750. $428. Chapter 04 . . (Appendix 4A) Using the FIFO method.000. (Appendix 4A) Using the FIFO method.000 units.000 *($2. EU = 8. B.

58. D.000*.000*. 47.000 + 10. 48. 67.050 units. 52.000*1 + 3.000 units.000 units.7 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Activities in the Challenger Company's Assembly Department for the month of March follow: 58.000 units. B.000 units.000*.000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Chapter 04 .5 + 40.000*.7 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 56. D.000 units. D. what are the equivalent units of production for materials for March? A. 50.000 units.000 units. what are the equivalent units of production for labour and overhead for the month? A.C. 5.000 units.000 units. 54. Using the weighted-average method.000 units.35 Bloom's Level: Apply Difficulty: Easy .000*1 + 10. 48. 48.Systems Design: Process Costing 4-40 57. what are the equivalent units of production for material for the month? A.000 units. 68. Using the weighted-average method. 67. 51.000 units. B. C. 50.000 + 10. B. Using the weighted-average method.000 units. C. D. 55. 70. C. 8. 65.

what are the equivalent units of production for materials? A. 42.750 units. D. C. D.250 units. 9.000*1 + 3. 64. C.000*.Learning Objective: 2 Chapter 04 .Systems Design: Process Costing 4-41 59. B. (Appendix 4A) Assuming that Tru-Colour Paint Company uses the FIFO method.250 units.000*1 + 8.Systems Design: Process Costing 4-42 . 53. 46.000*.000 units.000 units. 45. 67.25 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 The following data relate to the Blending Department of Tru-Colour Paint Company for a recent month: All materials are added prior to the beginning of work in the Blending Department. 67.600 units. 66.7 + 62.000 units. what are the equivalent units of production for conversion for March? A. 60. 5.000*0 + 37.000*1 Bloom's Level: Apply Difficulty: Hard Learning Objective: 6 Chapter 04 .000 units. B. (Appendix 4A) Using the FIFO method.

B.600 units. Assuming that Tru-Colour Paint Company uses the weighted-average method. C. 48. 46.400 units. B. what are the equivalent units of production for materials? A.000 units.400 units. 44. 46.25 Bloom's Level: Apply Difficulty: Hard Learning Objective: 6 62. what are the equivalent units of production for conversion costs? A. 48.000 units.000*1 + 8. 9. 46. C. (Appendix 4A) Assuming that Tru-Colour Paint Company uses the FIFO method.000*.4 + 37. 42. D.000 units.Systems Design: Process Costing 4-43 The information below was obtained from the records of the first processing department of Christine Corporation for the month of July. 42.000 units. what are the equivalent units of production for conversion costs? A.600 units.000*. 54. Assuming that Tru-Colour Paint Company uses the weighted-average method.000 units. All materials are added at the beginning of the manufacturing process. D. . 46.000 units. 46. C. 54.000 + 8.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 63. D. 44.000 units. B. 45.61.000 + 8. The company uses the weightedaverage method in its process costing system.25 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Chapter 04 .000 units.000*.

800 units. 82. 80.000*.000*1 + 10. B.000 units.000 units. B.000 units.500 units.000 units. 60. C. What are the equivalent units of production for material for the month? A.000 units. 60.000 units. 60.000 + 10. 70.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 65. . 74. All materials are added at the beginning of the process. What are the equivalent units of production for materials for the month of May? A. What are the equivalent units of production for labour and overhead for the month of May? A. 90. B.000 units. 70.000 units.000 units. The company uses the weighted-average method in its process costing system. 69.500 units. 80. C.000 + 14. 69. B. 80.Systems Design: Process Costing 4-44 The information below was obtained from the records of the first processing department of Moore Company for the month of May. 90.800 units. 64.000 units. D. 66.000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 67. D. 80.25 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Chapter 04 . C. D. What are the equivalent units of production for labour and overhead for the month? A.64. 82.

B. D.C.7 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Chapter 04 . the Refining Department incurred an additional $290. Assuming that the company uses the weighted-average cost method.Systems Design: Process Costing 4-46 69.000 + 17. 73. C. 114.800 units.000 in conversion costs. 120. 119. 65. what are the equivalent units of production for conversion costs for the Refining Department for the month? A.Systems Design: Process Costing 4-45 Information about units processed and processing costs incurred during a recent month in the Refining Department of a manufacturing company follow: The beginning work-in-process inventory included $11. D.800 units.000*.000 units.100 units. During the month. 60. 68.000 + 14.000 units.000*.3 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Chapter 04 .000 units. 131. 114.000 of conversion cost. Assuming that the company uses the weighted-average cost method. what is the cost per .

($11.527 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Learning Objective: 3 70.53.52.000 = $2. 111.000/115. 11. D.250 units. 115.950 units.250 EU Bloom's Level: Apply Difficulty: Hard Learning Objective: 6 Learning Objective: 7 Kimbeth Manufacturing makes Dust Density Sensors (DDS). $2. 114. $2.000*. $230. $2.Systems Design: Process Costing 4-47 71. B. C. 119.54. (Appendix 4A) Assuming that the company uses the FIFO method. $2.3 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 Chapter 04 .000*1 + 17. what are the equivalent units of production for conversion costs for the refining Department for the month? A. a safety device for the mining . $2.000)/30.55.65 + 103. D. C.100 units.50. (Appendix 4A) Assuming that the company uses the FIFO method. what is the cost per equivalent unit for conversion costs for the month in the refining Department.44. B. $2.equivalent unit for conversion costs for the month in the refining Department. B.59. C. rounded to the nearest cent? A.000*.000 + 290. $2. rounded to the nearest cent? A.000 units. $2.44. D.

16. (Appendix 4A) Using the FIFO method. The ending work-in-process inventory was 90% complete with respect to materials and 40% complete with respect to conversion costs. D.600 units. 107.400 units. The following information pertains to operations for the month of May: The beginning work-in-process inventory was 60% complete with respect to materials and 20% complete with respect to conversion costs. (Appendix 4A) Using the FIFO method. The company uses a process costing system and has only a single processing department.200 units.4 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 74. .12. (Appendix 4A) Using the FIFO method.Systems Design: Process Costing 4-48 72. 108. 85. The costs were as follows: Chapter 04 . 16.800 units.50.000 + 24.000 + 24.000*.000*. D. C. 98. 104.400 units.000 units.000*. 82.200 units.000*. $4. C. B. B. 88. the cost per equivalent unit of materials for May is closest to which of the following? A. $4. what are the equivalent units of production for conversion costs for May? A. what are the equivalent units of production for materials for May? A.000 units. B.4 + 76.8 + 76.9 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 73. 95.industry.

83.Systems Design: Process Costing 4-49 75.C.300.000/104.000.8333/EU from 100 Bloom's Level: Apply Difficulty: Hard Learning Objective: 6 Learning Objective: 7 Learning Objective: 8 Chapter 04 . $5. D. $6. $155. B. the total cost of units in the ending work-in-process inventory is closest to which of the following? A. (Appendix 4A) Using the FIFO method.20.000*. $5.50/EUfrom 99 + 24. the cost per equivalent unit of conversion cost for May is closest to which of the following? A. $6. $574. $154.800. 24. C.60.00. $468.000 EU from 97 Bloom's Level: Apply Difficulty: Hard Learning Objective: 6 Learning Objective: 7 Chapter 04 . $157. C.000/98.000*.200.4*$5.400 EU from 98 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 Learning Objective: 7 76.9*$4. $4.80. B. $4.Systems Design: Process Costing . D. $153.65. (Appendix 4A) Using the FIFO method. D.

($35.000*.400.000*. the cost per equivalent unit of conversion cost for May is closest to which of the following? A.60. Using the weighted-average method. (24.960. $153. B. $5.60/Eu from 102) + 24. the total cost of the units in ending work-in-process inventory is closest to which of the following? A. $4. the cost per equivalent unit of materials for May is closest to which of the following? A. B.83. $4. D. C. $4. B.000 + 24.560 + 574.12. $154.000)/(92. D.50.960.000 + 24. $6.4*$6/EU from 103) Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 Reid Company uses a process costing system in which units go through several departments. $5.9) Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 78. C. D. In .560 + 468.000*. C. Using the weighted-average method. ($54.4) Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Chapter 04 .00.000*. $5.65. Using the weighted-average method. $156.41.03.Systems Design: Process Costing 4-51 79.000)/(92.9*$4.800.4-50 77. $86. $6.

80.74.64.Systems Design: Process Costing 4-52 80.000 + 30. Other data for the department for June are as follows: Chapter 04 . Assuming that the company uses the weighted-average method.700)/(130.700/125. (Appendix 4A) Assuming that the company uses the FIFO cost method. units in the beginning work-in-process inventory were 80% complete with respect to conversion costs.000*.000 + 30. $1. $1. $1.220 + 175. A summary of cost data for the month follows: .64. ($50. rounded to the nearest cent? A.the Cutting Department for June. For May. the month just completed.000*.35. $1. B. what is the cost per equivalent unit for conversion costs for June. EU = 15.25) Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Cherrington Company uses a process costing system. D.48.000 units that were 60% complete with respect to conversion costs.40. what is the cost per equivalent unit for conversion costs for June. $1. Units in the ending work-in-process inventory were 25% complete with respect to conversion costs.000*.000.56. Cost/EU = $175. $1.500 Bloom's Level: Apply Difficulty: Hard Learning Objective: 6 Learning Objective: 7 81. $1.2 + 115. C. D. $1. rounded to the nearest cent? A. C.25 = 125. the beginning work-in-process inventory consisted of 50. B. The ending inventory for the month was 20% complete with respect to conversion costs.

($30. $3.000 Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 83.000 + 180.000*. $4. D. .000 + 40. what is the cost per equivalent unit for conversion costs for May. rounded to the nearest cent? A. $4.000)/(190.Chapter 04 .83.000/(50. $4. The company uses the FIFO method in its process costing system.29. $690.000 + 690. All materials are added at the beginning of the manufacturing process. $3.Systems Design: Process Costing 4-53 82. $3.000*.49. Assuming that Cherrington Company uses the weighted-average method.2) Bloom's Level: Apply Difficulty: Hard Learning Objective: 6 Learning Objective: 7 The following information was obtained from the records of the first processing department of Keith Manufacturing Company for the month of February. $4. rounded to the nearest cent? A.4 + 140. B. $4.64.000 + 40. C.000*.000 190.11. D. what is the cost per equivalent unit for conversion costs for May.31.00.2) Note: EI = 50.19. (Appendix 4A) Assuming that Cherrington Company uses the FIFO method. C. B.

C. Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 Chapter 04 . (Appendix 4A) What are the equivalent units of production for labour and overhead for the month? A. B. B. 95.000 units.Systems Design: Process Costing 4-55 86. 54. 60.500 units.000*1 + 20.Chapter 04 . 75. (Appendix 4A) What are the equivalent units of production for material for the month? A. D. Eve Company uses the weighted-average method in its process costing system. 59. D.000*0 + 40.Systems Design: Process Costing 4-54 84.500 units.000 units. 54.000 units.000 units. 15.000 units.000 units. C. 50. The following information for the Assembly Department was obtained from the accounting records for September (all materials are added at the beginning of the process): What unit cost (rounded to the nearest cent) was used in calculating the total cost of labour and overhead included in the Work-in-process inventory on September 1? .000*1 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 85. 60.

$54. $5.000/9. rounded to the nearest cent? A. $3. $16.000 EU.78 D.560/(16. The costs were as follows: 87.000 = $1.15 = 9.000*. The ending work-in-process inventory was 90% complete with respect to materials and 40% complete with respect to conversion costs.41. The following information pertains to operations for the month of May: The beginning work-in-process inventory was 60% complete with respect to materials and 20% complete with respect to conversion costs. B. 0. $8. 1. C.68.6) Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 .53.000 *.60. 0.27 B.Systems Design: Process Costing 4-56 Selah Manufacturing makes a quality-improvement device for the aeronautical industry. D.A. The company uses a process costing system and has only a single processing department. What was the unit cost for materials included in the beginning work-inprocess inventory.31 C.73 EI from Aug 31 = 60. 2.7777 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Chapter 04 . $4.

using weighted-average. B. $1.040. B. $522. $2. Operations costing. Which method of accounting would not have been possible to use? A.132. C. $609.560/(16. Process costing. C. rounded to the nearest cent? A. $1. $35.11. D.000*. Process costing using either weighted-average or FIFO. (Appendix 4A) Suppose there was no separate breakdown of the total cost of the beginning work-in-process inventory of $90. Bloom's Level: Understand Difficulty: Easy Learning Objective: 1 .22. using FIFO.160.042.Systems Design: Process Costing 4-57 88.600. What was the unit cost for conversion included in the beginning work-inprocess inventory. $2.78. Process costing. $6.560. D. What total amount was debited to the Work-in-process inventory during the month of May? A.2) Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 89. Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 90. $11.560). C.Chapter 04 . B.120 into materials ($54.00. D.560) and conversion ($35.

000 * ($4. Bloom's Level: Understand Difficulty: Medium Learning Objective: 10 Learning Objective: 11 Learning Objective: 9 .160. (Appendix 4B) Which of the following statements about reciprocal service department costs is correct? A.200 B. They are allocated to producing departments under the step-down method but not allocated to producing departments at all under the direct method.9) = $4.Systems Design: Process Costing 4-58 91.Chapter 04 . Suppose the company used the weighted-average method.000 C. Cost/EU Material = $522.00 Units completed and transferred out = 92. They are allocated to producing departments under both the direct and stepdown methods. $1. They are not allocated to producing departments under either the direct or the step-down methods.000 + 24. What amount would have been credited to the Work-in-process inventory for the units completed and transferred out during the month of May? A. $1.600/(92. They are allocated to producing departments under the direct method but not allocated to producing departments at all under the step-down method. $423.000 + 24.000*.975.4) = $6. Cost = $609. D. $552.560/(92.132.60 Cost/EU conv.60 + $6) Bloom's Level: Apply Difficulty: Hard Learning Objective: 1 Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 92. B.000*.200 D. C.

(Appendix 4B) Grant Company has several service departments that provide services to each other as well as to operating departments within the company. and it is therefore considered to be the most accurate method for allocating service department costs to operating departments? A. Bloom's Level: Understand Difficulty: Medium Learning Objective: 10 Learning Objective: 11 Learning Objective: 9 .Chapter 04 . C. The direct method. The step-down method. The sequential method. The reciprocal method. The allocation by cost behaviour method. D. The step-down method. Bloom's Level: Understand Difficulty: Easy Learning Objective: 10 Learning Objective: 11 Learning Objective: 9 95. The direct method. Bloom's Level: Understand Difficulty: Medium Learning Objective: 10 94. It is a less accurate method of allocation than the direct method. B.Systems Design: Process Costing 4-59 93. C. D. D. It cannot be used when a company has more than two service departments. C. It ignores some interdepartmental services. (Appendix 4B) Which of the following statements about the step-down method of allocating service department is correct? A. (Appendix 4B) What allocation method recognizes that service departments often provide each other with interdepartmental services. The reciprocal method. Which method would be least accurate in allocating the company's service department costs? A. B. B. It is a simpler allocation than the direct method.

700.000. B. $10. what would be the amount of cost allocated to Engineering under the direct method? A. D. $8. $17.344.000. (Appendix 4B) Parker Company has two service departments—cafeteria and engineering—and two operating departments. $8. $20.000. D. Bloom's Level: Understand Difficulty: Medium Learning Objective: 9 Chapter 04 .Chapter 04 . B. $0.000 * 40%/80% Bloom's Level: Apply . $20. If these costs are budgeted at $69.Systems Design: Process Costing 4-61 97. $3.800. $3. uses the direct method to allocate service department overhead costs to operating departments.375. (Appendix 4B) Boa Corp. C. C. Information for the month of June follows: What would be the amount of maintenance department costs allocated to Operating Department A for June? A.750.Systems Design: Process Costing 4-60 96. The number of employees in each department is given below: The costs of the Cafeteria are allocated to other departments on the basis of the number of employees in the departments.

000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 9 Chapter 04 .600. B. $21. $24.Systems Design: Process Costing 4-62 Westmore Company has two Service Departments and two Operating Departments. Personnel costs are allocated on the basis of number of employees.000/27. 98. $54. How much Building & Grounds cost would be allocated to Operating Department A? A. D. $20. Predetermined overhead rates in the Operating Departments are calculated on the basis of direct labour hours.Systems Design: Process Costing 4-63 99. Budgeted costs and other data relating to these departments are presented below: The costs of Building & Grounds are allocated first on the basis of square metres of space occupied.903. C.700.000.000 * 12. (Appendix 4B) Assume that the company uses the step-down method of allocating Service . (Appendix 4B) Assume that the company uses the direct method of allocating Service Department costs to Operating Departments.Difficulty: Medium Learning Objective: 9 Chapter 04 . The departmental costs for the Operating Departments are overhead costs. $29.

D.Systems Design: Process Costing 4-64 101.000 + 54.368. $850. $92.000 + 200. D.000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 10 .450. B. $205. C. C. $112. $107. $1. (200.000. (Appendix 4B) Assume again that the company uses the step-down method. C. How much Personnel Department cost would be allocated to Operating Department B? A. $1.000. $0.704. $0.000*3/30) * 55/100 Bloom's Level: Apply Difficulty: Medium Learning Objective: 10 Chapter 04 . 54. D.590. (Appendix 4B) Assume that the company uses the step-down method of allocating Service Department costs to Operating Departments.430. B.000 + 54.970. $90. and Building and Grounds costs are allocated first.000.Department costs to Operating Departments. $107.000*3/30) * 45/100 Bloom's Level: Apply Difficulty: Medium Learning Objective: 10 100.000. (200.400.000. How much Personnel Department cost would be allocated to Operating Department A? A. and Building and Grounds costs are allocated first. What would be the total amount of cost allocated from the two Service Departments to the Operating Departments for the year? A. $254. B.

what would be the amount of .000. B. $3.000 + 252. The costs of the Cafeteria are allocated on the basis of number of employees. ($900.000 hrs. $3.67. Chapter 04 .Systems Design: Process Costing 4-65 102.000*10/18 + 140. C.000. Round all calculations to the nearest dollar. $112. B.800. $18. C. Bloom's Level: Apply Difficulty: Hard Learning Objective: 9 104.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 9 103.000/18. D. $100. (Appendix 4B) Under the direct method of allocation.67.000 * 8.17. $96.17. (Appendix 4B) Under the step-down method of allocation. $18. $0. what would be the amount of Custodial Services cost allocated to the Cutting Department? A. Predetermined overhead rates in the Cutting and Assembly departments are based on machine hours. what would be the predetermined overhead rate for the year in the Assembly Department? A. Budgeted costs and budgeted activity in the various departments for the most recent year are presented below: Service Department costs are allocated to Producing Departments with the costs of Custodial Services allocated first on the basis of square metres of space occupied. 252. D. (Appendix 4B) Under the direct method of allocation.000*200/350)/60.Russet Company has two Service Departments and two Producing Departments.

$5. (Appendix 4B) Under the step-down method of allocation.Custodial Services cost allocated to the Assembly Department? A.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 10 Chapter 04 . There is no allocation to custodial. $70.000.000.000.260.000. What would be the amount of cost allocated to Milling from Maintenance under the direct method? A. B.000/20. C. $61. $0.000. $0. B. (Appendix 4B) Under the step-down method of allocation.Systems Design: Process Costing 4-66 105. C. . D. what would be the amount of cost allocated from the Cafeteria to the Cutting Department? A. $0. $8. $7.000 * 10.500. (140. $60.568. $120. (Appendix 4B) Suppose Maintenance Department costs are allocated on the basis of labour hours.000*2/20) * 150/350 Bloom's Level: Apply Difficulty: Hard Learning Objective: 10 106.Systems Design: Process Costing 4-67 107. $126. Bloom's Level: Apply Difficulty: Medium Learning Objective: 10 The James Company has four departments with data as follows: Chapter 04 .800. what would be the amount of cost allocated from the Cafeteria to Custodial Services? A. $7. 252. $140. Custodial is done before cafeteria. D.000 + 252. C.250. D. B.

000.000 per year.Systems Design: Process Costing 4-68 109.700. $750. $6. C. $0.720. C.B.600. D. the costs of the Personnel Department are allocated before the costs of the Engineering Department are allocated. Departments and number of employees are as follows: Chapter 04 . $698.000 * 10/(10 + 84 + 66) Bloom's Level: Apply Difficulty: Medium Learning Objective: 10 Anderson Company has two Service Departments and two Producing Departments. What would be the amount of this cost allocated to the Engineering Department under the step-down method. Under the step-down method. (Appendix 4B) Suppose Cafeteria Department costs are allocated on the basis of number of employees and that the step-down method is used with costs of the Cafeteria Department allocated first.250/(5. $12. $5. $0.250 + 4. rounded to the nearest dollar? A. $81. B.000 * 5. (Appendix 4B) Total costs in the Personnel Department are $900.750) Bloom's Level: Apply Difficulty: Medium Learning Objective: 9 108. $5. $10. $625. The costs of the Personnel Department are allocated to other departments on the basis of the number of employees in the departments. B. D. . What would be the amount of cost allocated from the Cafeteria Department to Maintenance Department? A.

000 * 290/(90 + 590 + 290) Bloom's Level: Apply Difficulty: Medium Learning Objective: 10 Chapter 04 . (Appendix 4B) What would be the amount of Accounting Department costs allocated to the Maintenance Department? . What would be the amount of Personnel Department cost that would be allocated to Producing Department 2 under the step method? A. D.046. $0. (Appendix 4B) Total costs in the Personnel Department are $900. $900.000. the costs of the Personnel Department are allocated before the costs of the Engineering Department are allocated. with the Accounting Department being allocated first. Accounting Department costs are allocated to Operating Departments on the basis of accounting hours of service provided. $261. $269.Systems Design: Process Costing 4-69 The Mohawk-Hudson Company is an electric utility which has two Service Departments: Accounting and Maintenance.505. $83.591.072.000 * 90/(90 + 590 + 290) Bloom's Level: Apply Difficulty: Medium Learning Objective: 10 110. 900. Under the step-down method. Maintenance Department costs are allocated on the basis of maintenance hours of service. D.C. Budgeted costs and other data for the coming year are as follows: The step-down method is used to allocate Service Department costs. $296. 111.000 per year. C. B. It has two Operating Departments: Generation and Transmission. $92.

500/(2.000.500) Bloom's Level: Apply Difficulty: Medium Learning Objective: 10 113. $42.000. (200. $123. B. B.000 * 2. Bloom's Level: Apply Difficulty: Medium Learning Objective: 10 114. 100. (Appendix 4B) What would be the amount of Accounting Department costs allocated to the Generation Department? A.000.000. C. D. D. $45. $0. $140. $19.000.000/(2. B.Systems Design: Process Costing 4-70 112.A.750.500 + 2.000 + 4. C. $20. C. $38. B. $75.048. $100.000 + 4. $57.200/(7.685.200 + 4800) Bloom's Level: Apply Difficulty: Medium Learning Objective: 10 . D.000. C. $0. $150. $88.500) Bloom's Level: Apply Difficulty: Medium Learning Objective: 10 Chapter 04 .857.000 * 4. $69.500 3.000. (Appendix 4B) What would be the amount of Maintenance Department cost allocated to the Accounting Department? A.143. (Appendix 4B) What would be the amount of Maintenance Department cost allocated to the Generation Department? A.000 + 20.315. $18.000) * 7. D.000. $132.

D. (Appendix 4B) What is the value of S2 in the two equations? A. 115. $144. B.000/. $144. B.889. $130.000. $128. Bloom's Level: Evaluate Difficulty: Hard Learning Objective: 11 Chapter 04 . C.000 + 0.90 Text does not give examples of this type of calculation.Systems Design: Process Costing 4-72 116.20 x S1 Round all calculations to the nearest dollar in answering the related questions.889.50 *(100.000.50 x S2 S2 = $100. (Appendix 4B) What is the value of S1 in the two equations? A. $80.000.444.Chapter 04 . .444. $128.Systems Design: Process Costing 4-71 X Company has two Service Departments—S1 and S2—and two Production Departments—P1 and P2.000 +.000. $140. S1 = 80. $100. D.000 S1 = 130.10*S1 = 130. C. Direct costs for each department and the proportion of service costs used by the various departments for the month of September are as follows: X Company's management accountant has formulated the following two equations as the first step in using the reciprocal method to allocate the costs of the two Service Departments: S1 = $80.000 + 0.000 + 20*S1) S1 -.

The following journal entry would be made in a process costing system when units that have been completed with respect to the work done in the final processing department are transferred to the finished goods warehouse: TRUE Bloom's Level: Understand Difficulty: Easy Learning Objective: 1 119. In process costing. The following journal entry would be made in a process costing system when units that have been completed with respect to the work done in Processing Department Z are transferred from Processing Department Z to Processing Department Y: TRUE Bloom's Level: Understand Difficulty: Easy Learning Objective: 1 Chapter 04 . (Appendix 4A) The "Quantity Schedule and Equivalent Units" section of the production report is the same for the weighted-average method and the FIFO method of process costing. the same equivalent units figure is used for both materials and conversion costs.Substitute the value of S1 from #142 into second equation. FALSE Bloom's Level: Understand Difficulty: Easy Learning Objective: 2 . Bloom's Level: Evaluate Difficulty: Hard Learning Objective: 11 True / False Questions 117. S2 = 100. FALSE Bloom's Level: Understand Difficulty: Hard Learning Objective: 2 Learning Objective: 6 120.444.000 +.Systems Design: Process Costing 4-73 118.444) Text does not give examples of this type of calculation.20 * 144.

(Appendix 4A) The cost per equivalent unit for conversion costs will always be the same under both the FIFO and the weighted-average methods if there is no beginning work-in-process inventory. (Appendix 4A) Under the FIFO process costing method. (Appendix 4A) The cost per equivalent unit for conversion costs will always be the same under both the FIFO and the weighted-average methods if there is no ending work-in-process inventory. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 3 125. When computing the cost per equivalent unit. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 4 124. TRUE Bloom's Level: Understand Difficulty: Hard Learning Objective: 3 Learning Objective: 7 123. FALSE Bloom's Level: Understand Difficulty: Hard Learning Objective: 3 Learning Objective: 7 Chapter 04 . it is NOT necessary to consider the percentage of completion of the units in beginning inventory under the weightedaverage method. When assigning costs to partially completed units in the ending work-inprocess inventory.Systems Design: Process Costing 4-74 122. it is NOT necessary to consider the percentage of completion of the units under the weighted-average method.121. TRUE . the equivalent units of production in the production report relate to work done only during the current period.

Systems Design: Process Costing 4-75 126. In order to use process costing. The weighted-average method of process costing can only be used if materials are added at the beginning of the production process. all divided by the equivalent units of production for the period. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 129. the output of a processing department must be homogeneous. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 127. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 Learning Objective: 6 128. TRUE Bloom's Level: Remember Difficulty: Easy Learning Objective: 1 . (Appendix 4A) The cost per equivalent unit under the FIFO method of process costing is equal to the cost of beginning work-in-process inventory plus the costs added during the period.Bloom's Level: Understand Difficulty: Easy Learning Objective: 6 Chapter 04 . A manufacturer of blank DVDs would ordinarily use process costing rather than job-order costing.

If all units go through all processing departments. any amount of the allocation base that is attributable to the service department whose cost is being allocated is ignored. (Appendix 4B) The direct method has the disadvantage that it may leave some service department costs unallocated. rather than sequential. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 9 Chapter 04 . then the processing departments are arranged in a parallel.Systems Design: Process Costing 4-77 .Systems Design: Process Costing 4-76 130. (Appendix 4B) In both the direct and step-down methods of allocating service department costs.Chapter 04 . rather than by job. FALSE Bloom's Level: Understand Difficulty: Easy Learning Objective: 1 132. costs are accumulated in processing departments. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 10 Learning Objective: 9 133. fashion. TRUE Bloom's Level: Remember Difficulty: Easy Learning Objective: 1 131. In process costing.

TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 10 Chapter 04 . then the number of employees in the personnel department itself must be included in the allocation base when the step-down method is used. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 10 136. (Appendix 4B) The step-down method of allocating service department costs takes into account some. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 10 . reciprocal services provided among service departments are ignored.Systems Design: Process Costing 4-78 138. TRUE Bloom's Level: Understand Difficulty: Easy Learning Objective: 9 135. (Appendix 4B) Under the direct method of allocating service department costs. (Appendix 4B) The step-down method usually begins with the service department that provides the least amount of service to the other service departments. of the reciprocal services that service departments provide to each other. (Appendix 4B) If personnel department expenses are allocated on the basis of the number of employees in various departments. (Appendix 4B) The step-down method requires establishing an order of allocation before service department costs can be allocated to operating departments.134. but not all. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 10 137.

TRUE Bloom's Level: Understand Difficulty: Hard Learning Objective: 10 Learning Objective: 11 Learning Objective: 9 Chapter 04 . TRUE Bloom's Level: Understand Difficulty: Hard Learning Objective: 10 Learning Objective: 11 140. . The following data concern the operations of the company's first processing department for a recent month: Required: Prepare a production report for the department using the weighted-average method. (Appendix 4B) The step method usually provides results that are a reasonable approximation of the results that the reciprocal method provide. (Appendix 4B) The reciprocal method of allocating service department costs is much simpler than the direct method and as a consequence is much more widely used. (Appendix 4B) Cost allocation is still an issue even if a service department generates some revenues from operating departments. FALSE Bloom's Level: Understand Difficulty: Easy Learning Objective: 11 Learning Objective: 9 141. Able Inc.Systems Design: Process Costing 4-79 Essay Questions 142.139. uses the weighted-average method in its process costing system.

b) Determine the cost per equivalent unit for materials and conversion costs. uses the weighted-average method in its process costing system. The following data concern the operations of the company's first processing department for a recent month: Required: Using the weighted-average method: a) Determine the equivalent units of production for materials and conversion costs. .Systems Design: Process Costing 4-80 Weighted Average method: Quantity schedule and equivalent units Chapter 04 . c) Determine the cost of units transferred out of the department during the month. Barker Inc.Systems Design: Process Costing 4-82 143.Chapter 04 .Systems Design: Process Costing 4-81 Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 Learning Objective: 5 Chapter 04 .

d) Determine the cost of ending work-in-process inventory in the department.Systems Design: Process Costing 4-84 Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 Learning Objective: 5 Chapter 04 . Chapter 04 . Chapter 04 . Required: . The Curing Department of Harmon Company reported the following information for the month of November: All materials are added at the beginning of the process.Systems Design: Process Costing 4-85 144. Harmon Company uses the weighted-average method in its process costing system.Systems Design: Process Costing 4-83 a) through d) The answers to all of the questions can be found by filling out a production report as follows.

400 EUs = $7.000 EUs = $4.500 + $146. c) The total cost assigned to units transferred out of the Curing Department during November. uses the weighted-average method in its process costing system. Carver Inc.500 Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 Learning Objective: 5 Chapter 04 .400)/32. Chapter 04 .75 per EU Costs transferred out: 30. d) The cost assigned to work-in-process inventory as of November 30.Systems Design: Process Costing 4-87 145.000 units * ($7.50 + $4. The following data concern the operations of the company's first processing department for a recent month: Required: Using the weighted-average method. .75) = $367.600 + $194.Compute the following items for the company's monthly production report using the weighted-average method: a) The equivalent units (EUs) of production for materials. b) The cost per equivalent unit for conversion.000)/38.Systems Design: Process Costing 4-86 a) b) ($48.50 per EU c) Materials cost per equivalent unit: ($34. determine the equivalent units of production for materials and conversion costs by compiling the "Quantity Schedule and Equivalent Units" portion of the production report.

rounded to the nearest tenth of a cent. after forming has been completed. the units are transferred to the Finishing Department.Systems Design: Process Costing 4-90 a) Equivalent units: Unit costs: . calculate the equivalent units and unit cost for materials and conversion costs. Chapter 04 . (Appendix 4A) The Smith Company manufactures a product that goes through two departments prior to completion. calculate the equivalent units and unit cost for materials and conversion costs. Required: a) Assuming the company uses the weighted-average method.Chapter 04 . b) (Appendix 4A) Assuming the company uses the FIFO method.Systems Design: Process Costing 4-88 Quantity schedule and equivalent units Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Chapter 04 . rounded to the nearest tenth of a cent. during March: Cost in the beginning work-in-process inventory and cost added during the month were as follows: The Forming Department is the first department in the production process. The following information is available on work in one of these departments.Systems Design: Process Costing 4-89 146. the Forming Department.

3.000 + $394. The total cost transferred out during the month.000 EUs = $4 per EU 4.000 = $0.Systems Design: Process Costing 4-92 a) 2.000/470. The cost assigned to the ending work-in-process inventory.000 x 80% = $16.000)/500.000 = $0.000 = $0. 2. Compute the following: 1. 2. The equivalent units of production for conversion for the month.000 = $0.Systems Design: Process Costing 4-91 147.Materials: ($42. During the month. $112.500. Compute the following: 1. $4 per EU x 5.838 Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 6 Chapter 04 .810)/520. 3. The following information relates to one month's activity in the company's Curing Department: The conversion cost of the beginning inventory was $6. The cost per equivalent unit for conversion for the month.864 b) Equivalent units: Unit costs: Materials: $440. $112. 4. b) Assume that the company uses the weighted-average cost method. Required: a) (Appendix 4A) Assume that the company uses the FIFO method.95 per EU .500 30. The total cost transferred out during the month. The cost per equivalent unit for conversion for the month.000 EUs = $3.929 Conversion: ($38.000 28.000 in additional conversion cost was incurred.810/470. The equivalent units of production for conversion for the month.000 Chapter 04 . (Appendix 4A) Dita Company uses a process costing system. Chapter 04 .Systems Design: Process Costing 4-93 b) 2.938 Conversion: $394.190 + $440. $118. The cost assigned to the ending work-in-process inventory. 4.

95 per EU = $102.Systems Design: Process Costing 4-95 a) b) c) Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 . $3. Production and cost data for the month of February for Process A of the Packer manufacturing Company follow: The company uses the weighted-average method in its process costing system.000 x 80% = $15. b) Determine the cost transferred to finished goods. c) Determine the amount of cost that should be assigned to the ending work-inprocess and finished goods inventories.700 4.95 per EU x 5.3.Systems Design: Process Costing 4-94 148. 26.800 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 Learning Objective: 7 Learning Objective: 8 Chapter 04 . Chapter 04 .000 units x $3. Required: a) Calculate the equivalent units and unit costs for February for materials and for conversion costs.

A review of the company's inventory and cost records for the most recently completed year revealed the following information: The company uses the weighted-average method in its process costing system. Required: a) Compute the equivalent units of production and the cost per equivalent units for materials and for conversion costs. b) Determine the cost transferred to finished goods. c) Determine the amount of cost that should be assigned to the ending work-inprocess inventory.Chapter 04 . Miller Company manufactures a product for which materials are added at the beginning of the manufacturing process. The ending inventory is 50% complete with respect to conversion costs. Chapter 04 .Systems Design: Process Costing 4-97 a) b) c) .Systems Design: Process Costing 4-96 149.

(Appendix 4A) Sharp Company has a process costing system. Required: Assuming the company uses the weighted-average method. The following information is available on work in one of these departments.Systems Design: Process Costing 4-98 Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 150. The Hardy Company manufactures a product that goes through two departments prior to completion.Chapter 04 . The following data relate to the company's Mixing Department for a recent month: All materials are added at the beginning of the mixing process. Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Chapter 04 . rounded to the nearest tenth of a cent. during the month of July: The Moulding Department is the first department in the production process. the units are transferred to the Finishing Department. . Required: a) (Appendix 4A) Compute the equivalent units of production for materials using the FIFO method. the Moulding Department. calculate the equivalent units for materials and conversion costs. after moulding has been completed.Systems Design: Process Costing 4-99 151.

b) (Appendix 4A) Compute the equivalent units of production for conversion using the FIFO method. (Appendix 4A) Darver Inc.Systems Design: Process Costing 4-102 Quantity Schedule and Equivalent Units . c) Compute the equivalent units of production for materials using the weightedaverage method. d) Compute the equivalent units of production for conversion using the weightedaverage method. Chapter 04 . Chapter 04 .Systems Design: Process Costing 4-100 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 Chapter 04 . uses the FIFO method in its process costing system. The following data concern the operations of the company's first processing department for a recent month: Required: Prepare a production report for the department using the FIFO method.Systems Design: Process Costing 4-101 152.

Chapter 04 . d) Determine the cost of ending work-in-process inventory in the department. (Appendix 4A) Easy Inc.Systems Design: Process Costing 4-104 153. c) Determine the cost of units transferred out of the department during the month. Chapter 04 .Systems Design: Process Costing 4-105 a) through d) can be answered by completing a production report as follows: . The following data concern the operations of the company's first processing department for a recent month: Required: Using the FIFO method: a) Determine the equivalent units of production for materials and conversion costs.Systems Design: Process Costing 4-103 Bloom's Level: Apply Difficulty: Hard Learning Objective: 6 Learning Objective: 7 Learning Objective: 8 Chapter 04 . b) Determine the cost per equivalent unit for materials and conversion costs. uses the FIFO method in its process costing system.

Chapter 04 . Chapter 04 .Systems Design: Process Costing 4-106 Bloom's Level: Apply Difficulty: Hard Learning Objective: 6 Learning Objective: 7 Learning Objective: 8 Chapter 04 .Systems Design: Process Costing 4-107 154. (Appendix 4A) Farwest Inc. The following data concern the operations of the company's first processing department for a recent month: Required: Using the FIFO method. uses the FIFO method in its process costing system.Systems Design: Process Costing 4-108 Quantity Schedule and Equivalent Units Bloom's Level: Apply Difficulty: Medium . determine the equivalent units of production for materials and conversion costs by compiling the "Quantity Schedule and Equivalent Units" portion of the production report.

Systems Design: Process Costing 4-111 Bloom's Level: Apply Difficulty: Hard Learning Objective: 6 . (Appendix 4A) Production and cost data for the month of February for Process A of the Packer Manufacturing Company were as follows: The company uses the FIFO cost method in its process costing system. Required: a) Calculate the equivalent units and unit costs for February for materials and conversion costs.Systems Design: Process Costing 4-109 155.Systems Design: Process Costing 4-110 a) b) c) Chapter 04 . Chapter 04 . b) Determine the cost transferred to finished goods. c) Determine the amount of cost that should be assigned to the ending work-inprocess and finished goods inventories.Learning Objective: 6 Chapter 04 .

and Surgery. There is more tracing of costs (such as direct materials and direct labour) to individual jobs in job-order costing systems than in processing costing systems. In essence. that is. in many cases. all costs are indirect in process costing systems and have to be allocated. Of course. Usually. the allocation bases (including overhead allocations in job-order costing systems) are not entirely accurate. more tracing generally costs more money even in this age of technology. Bloom's Level: Evaluate Difficulty: Hard Learning Objective: 1 Chapter 04 . This is the reason why job-order costing systems tend to be more expensive than process costing systems. instead they are traced to activities or processes or departments before their allocation to outputs. greater accuracy and cost-efficiency. On the other hand they also tend to be more costly systems than processing costing systems. Hybrid systems that are part-job and part-process are become popular because they offer the benefits of both systems. costs are not traced to products/jobs. Required: Comment on the two observations.Learning Objective: 7 Learning Objective: 8 156.Systems Design: Process Costing 4-112 157. selected arbitrarily without establishing a cause-and-effect relationship. In process costing systems. Geriatrics. They are. Job-costing systems tend to produce more accurate product cost information compared to process costing systems. (Appendix 4B) Central Medical Clinic has two Service Departments— Building Services and Energy—and three Operating Departments—Pediatrics. Central allocates the cost of Building Services on the basis of square metres and Energy on the basis of .

patient days. (Appendix 4B) Delta Manufacturing Company has two Service Departments—Custodial . allocating Building Services first. Chapter 04 . b) Prepare a schedule to allocate Service Department costs to Operating Departments by the step-down method. rounding all dollar amounts to the nearest whole dollar. Budgeted operating data for the year just completed follow: Required: a) Prepare a schedule to allocate Service Department costs to Operating Departments by the direct method. and rounding all amounts to the nearest whole dollar.Systems Design: Process Costing 4-114 b) Step-down method: Bloom's Level: Apply Difficulty: Hard Learning Objective: 10 Learning Objective: 9 Chapter 04 .Systems Design: Process Costing 4-113 a) Direct method: Chapter 04 .Systems Design: Process Costing 4-115 158.

rounding all dollar amounts to the nearest whole dollar. Budgeted operating data for the year just completed follow: Required: a) Prepare a schedule to allocate Service Department costs to the Production Departments by the direct method. allocating Custodial Services first.Systems Design: Process Costing 4-116 a) Direct method: b) Step-down method: Chapter 04 . Milling. and rounding all amounts to the nearest whole dollar. Delta allocates the cost of Custodial Services on the basis of square metres and Maintenance on the basis of labour hours. and Assembly. Chapter 04 .Systems Design: Process Costing 4-117 Bloom's Level: Apply Difficulty: Hard Learning Objective: 10 Learning Objective: 9 . b) Prepare a schedule to allocate Service Department costs to the Production Departments by the step-down method.Services and Maintenance—and three Production Departments—Cutting.

(Appendix 4B) Hancock Company has two Service Departments—Factory Administration and Maintenance—and two Producing Departments. Costs of Factory Administration are allocated on the basis of the number of employees. Allocation begins with the Factory Administration Department. Costs of Maintenance are allocated on the basis of labour hours.Systems Design: Process Costing 4-118 159. . (Appendix 4B) Flinders Company has two Service Departments—Factory Administration and Maintenance—and two Operating Departments. and then Maintenance costs are allocated on the basis of total labour hours. Selected information relating to these departments follow: The company allocates Service Department costs using the step-down method. Bloom's Level: Apply Difficulty: Medium Learning Objective: 10 Chapter 04 .Systems Design: Process Costing 4-119 160. Selected information relating to these departments is given below: The company allocates Service Department costs by the step-down method. Factory Administration costs are allocated first on the basis of number of employees.Chapter 04 . Required: Prepare a schedule showing the allocation of Service Department costs to other departments.

C. Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 2. B. Costs incurred at which of the following activity levels should NOT be allocated to products for decision-making purposes? A. Setting up equipment is an example of an activity at which of the following levels? A. Product-level activities. Unit-level activity. C. C. Product-level activity. Bloom's Level: Remember Difficulty: Easy Learning Objective: 1 3. Organization-sustaining activities.Required: Prepare a schedule showing the allocation of Service Department costs to the other departments. Bloom's Level: Apply Difficulty: Medium Learning Objective: 10 Chapter 05 . Unit-level activities. Batch-level activity. Batch-level activities. D. Organization-sustaining activity. Bloom's Level: Remember Difficulty: Medium Learning Objective: 1 . B. Product-level activity. D. D. Unit-level activity. B.Activity-Based Costing: A Tool to Aid Decision Making 5-1 Chapter 05 Activity-Based Costing: A Tool to Aid Decision Making Multiple Choice Questions 1. Batch-level activity. Testing a prototype of a new product is an example of an activity at which of the following levels? A. Organization-sustaining activity.

Arranging for a shipment of a number of different products to a customer is an example of an activity at which of the following levels? A. Batch-level activity.Activity-Based Costing: A Tool to Aid Decision Making . Customer-level activity. Batch-level activity. Batch-level activity. C. D. Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 Chapter 05 . C. Unit-level activity. Bloom's Level: Understand Difficulty: Hard Learning Objective: 1 5. Organization-sustaining activity. Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 6. Unit-level activity. Organization-sustaining activity. B. Worker recreational facilities are examples of costs that would ordinarily be considered to be incurred at which of the following activity levels? A. Product-level activity. B. Product-level activity.Chapter 05 . C. Unit-level activity. Which of the following activity levels is an example of the clerical activity associated with processing purchase orders to produce an order for a standard product? A. Organization-sustaining activity.Activity-Based Costing: A Tool to Aid Decision Making 5-2 4. D. B. D.

Because of the difficulties associated with identifying cost pools for the first stage of the allocation process. D. . B. Batch-level activity. Bloom's Level: Understand Difficulty: Hard Learning Objective: 2 Chapter 05 . C. Organization-sustaining activity. C. D. D. Human resource management.Activity-Based Costing: A Tool to Aid Decision Making 5-4 10. Because of the use of direct labour hours in allocating overhead costs to products rather than machine time or quantity of materials.5-3 7. Because of the over-reliance on volume as a basis for allocating overhead costs where products differ regarding the number of units produced. Cafeteria facilities available to and used by all employees. lot size. Advertising a product. Why may departmental overhead rates NOT correctly assign overhead costs? A. Unit-level activity. It is a key aspect of the activity-based costing model. B. C. Product-level activity. B. Which of the following would be classified as a product-level activity? A. Human resource management is an example of an activity at which of the following levels? A. Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 8. Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 9. Which of the following statements about overhead allocation based on volume alone is correct? A. Machine setup for a batch of a standard product. or complexity of production. Because of the high correlation between direct labour hours and the incurrence of overhead costs.

C. customers. most managers insist on fully allocating all costs to products. It will systematically overcost high-volume products and undercost low-volume products.Activity-Based Costing: A Tool to Aid Decision Making 5-5 13. C. Bloom's Level: Remember Difficulty: Easy Learning Objective: 1 12. Bloom's Level: Understand Difficulty: Medium Learning Objective: 3 Learning Objective: 5 11. An event that causes a transaction to begin. Maintaining an activity-based costing system is more costly than maintaining a traditional direct labour-based costing system. A measure of the amount of time required to perform an activity. A simple count of the number of times an activity occurs. What is a transaction driver? A. D. D. B. C. B. An activity measure that is used for the life of an activity-based costing system.B. This results in overstated costs. C. Bloom's Level: Remember Difficulty: Easy Learning Objective: 1 Chapter 05 . In practice. Changing from a traditional direct labour-based costing system to an activitybased costing system changes product margins and other key performance indicators used by managers. and other costing objects in an activity-based costing system. B. A simple count of the number of times an activity occurs. . It will systematically overcost low-volume products and undercost high-volume products. An event that causes a transaction to end. What is a duration driver? A. An activity measure that is used for the life of the company. It must be used for external financial reporting. D. A measure of the amount of time required to perform an activity. Which of the following is NOT a limitation of activity-based costing? A. Such changes are often resisted by managers.

Its yellow margin will be zero. "Green" costs adjust automatically to changes in activity. (Appendix 5A) Which of the following best describes a cost object. Bloom's Level: Understand Difficulty: Hard Learning Objective: 6 Chapter 05 . B.D.. The costs of idle capacity and organization-sustaining costs are not assigned codes. All of the above. (Appendix 5A) Which of the following statements concerning ease of adjustment codes is NOT correct? A. C.e. (Appendix 5B) Why would an activity-based costing system that is designed for internal decision making NOT conform to generally accepted accounting principles? A. C. Its yellow margin may be either positive or negative. such as a product or customer. Its yellow margin will be positive. C. More accurate product costs may result in increasing the selling prices of some products. Some non-manufacturing costs are assigned to products. "Red" costs cannot be adjusted to changes in activity. Some manufacturing costs (i. B. B. Bloom's Level: Understand Difficulty: Medium Learning Objective: 5 14. that has a negative green margin? A. D. but such adjustments require management action. Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 15. "Yellow" costs could be adjusted to changes in activity.Activity-Based Costing: A Tool to Aid Decision Making 5-6 16. First-stage allocations may be based on subjective interview data. the adjustment is not automatic. D. Its yellow margin will be negative. Bloom's Level: Understand Difficulty: Medium Learning Objective: 6 . D. the costs of idle capacity and organizationsustaining costs) will not be assigned to products.

Bloom's Level: Understand Difficulty: Easy Learning Objective: 6 20.47. or zero. negative. Its yellow margin may be positive. Its yellow margin will be negative. $19. D. Its yellow margin will be zero. B. Its green margin may be positive. Bloom's Level: Understand Difficulty: Medium Learning Objective: 6 Chapter 05 . C. B. or zero. C. negative. (Appendix 5A) Which of the following best describes a cost object. The estimated total cost and expected activity for each of the company's three activity cost pools are as follows: The activity rate under the activity-based costing system for Activity 3 is closest to which of the following? A. Its green margin will be negative. Its green margin will be zero.17.Activity-Based Costing: A Tool to Aid Decision Making 5-7 19. negative. D. Its yellow margin will be negative. Paul Company has two products: A and B. such as a product or customer. Its green margin will be positive. Its yellow margin may be either positive. that has a positive green margin? A. The company uses activity-based costing. Its yellow margin will be positive. . Bloom's Level: Understand Difficulty: Medium Learning Objective: 6 18. such as a product or customer. B. such as a product or customer. that has a positive red margin? A. that has a negative red margin? A. (Appendix 5A) Which of the following best describes a cost object. (Appendix 5A) Which of the following best describes a cost object. C. Its yellow margin will be zero. D. or zero. Its yellow margin will be positive.

200 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Chapter 05 .45. There .00. C. The company uses activitybased costing. $21.B. $65.87. C. $18. The company has two products: A and B. B. $70. D.000 units and of Product B is 6.33. Matt Company uses activity-based costing.53. $28.600/750 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Chapter 05 .67. The estimated total cost and expected activity for each of the company's three activity cost pools are as follows: The activity rate under the activity-based costing system for Activity 3 is closest to which of the following? A. $46. Selena Company has two products: A and B.Activity-Based Costing: A Tool to Aid Decision Making 5-8 21.40.000/1. $26. D. The annual production and sales of Product A is 8.Activity-Based Costing: A Tool to Aid Decision Making 5-9 22.000 units. $58. $14.

63. Bridget Company uses activity-based costing. B.60. $3.000 units and of Product B is 3. (9. B.00. C.000*800 + 91. with estimated total cost and expected activity as follows: The cost per unit of Product A under activity-based costing is closest to which of the following? A. $13. D.000 units. $6.40.000/750*400 + 12.200/3.000*800)/8.000 Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Chapter 05 . The company has two products: A and B.Activity-Based Costing: A Tool to Aid Decision Making 5-10 23. with estimated total cost and expected activity as follows: The cost per unit of Product A under activity-based costing is closest to which of the following? A.000/1. C.000/500*100 + 37. $8. $9. $6. There are three activity cost pools. $10. The annual production and sales of Product A is 2. (20.000 Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 .000/500*100 + 48.59.000/1.60.are three activity cost pools. $2.600*400)/2.80.90. D.

C. $150. C. would be allocated in the first-stage allocation to the Order Size activity cost pool? A. $282.000.Chapter 05 . The company has provided the following data concerning its costs and its activitybased costing system: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. $255. B.000*. $120. B.Activity-Based Costing: A Tool to Aid Decision Making 5-12 25. $360. would be allocated in the first-stage allocation to the Customer Support activity cost pool? A.000. You have been asked to complete the first-stage allocation of costs to the activity cost pools. $234.25 + 240. How much cost.000.000. in total.000. in total. .Activity-Based Costing: A Tool to Aid Decision Making 5-11 Dideda Company uses an activity-based costing system with three activity cost pools. How much cost.000*.000.000. 24. $255.6 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Chapter 05 . D. 360.

000*. $348. C. should NOT be allocated to orders and products in the second stage of the allocation process if the activity-based costing system is used for internal decision making? A. 360.000.05 + 100.000.000.000. How much cost. $120. 480.6 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 .000.000. $60.000. C.2 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 26. $188. 360. 27.1 + 240.D. You have been asked to complete the first-stage allocation of costs to the activity cost pools. in total. $0.000*.2 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Chapter 05 .65 + 240. B. $29. $84.000*.000. D. $390.000*.000*. D. in total. B. $84. The company has provided the following data concerning its costs and its activitybased costing system: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.000*.Activity-Based Costing: A Tool to Aid Decision Making 5-13 Diehl Company uses an activity-based costing system with three activity cost pools. How much cost. would be allocated in the first-stage allocation to the Order Size activity cost pool? A.

2 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Chapter 05 . in total. The company has provided the following data concerning its costs and its activitybased costing .000. should not be allocated to orders and products in the second stage of the allocation process if the activity-based costing system is used for internal decision making? A.85 + 100.2 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 29. $0.500.000. $493.000*. would be allocated in the first-stage allocation to the Customer Support activity cost pool? A. $428.000. $304.Activity-Based Costing: A Tool to Aid Decision Making 5-14 28.000*. $68. How much cost.000.Chapter 05 . in total.000. B. C.000*.Activity-Based Costing: A Tool to Aid Decision Making 5-15 Dierich Company uses an activity-based costing system with three activity cost pools. D. $116. $116. 480.000*. 480. $58. D.000. B.1 + 100. C. How much cost.

$222. $307. $164. $82. 600.000*. 600.000*. D. How much cost. 30.75 + 220.000*. should not be allocated to orders and products in the second stage of the allocation process if the activity-based costing system is used for internal decision making? A. D. You have been asked to complete the first-stage allocation of costs to the activity cost pools. B. $123.500.system: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. B.15 + 220. $104. C.1 + 220.000.000. How much cost. $389.2 Bloom's Level: Apply .000*.000.000. B. $0. $494.000*.Activity-Based Costing: A Tool to Aid Decision Making 5-16 31.2 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 32. C.000. in total. would be allocated in the first-stage allocation to the Customer Support activity cost pool? A.000. would be allocated in the first-stage allocation to the Order Size activity cost pool? A.000.000.6 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Chapter 05 . $164. $615. C. $492. How much cost.000*. in total.000.500. D. 600. in total.

in total.000.5 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Chapter 05 . $210. How much cost. $180. The company has provided the following data concerning its costs and its activity-based costing system: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. $255.000*. in total. would be allocated in the first-stage allocation to the Order Size activity cost pool? A. How much cost.000. $240.Activity-Based Costing: A Tool to Aid Decision Making 5-17 Davis Company uses an activity-based costing system in which there are three activity cost pools. C.000. You have been asked to complete the first-stage allocation of the costs to the activity cost pools. B.000*.000. $255. $300. . 33.35 + 200.Activity-Based Costing: A Tool to Aid Decision Making 5-18 34.Difficulty: Medium Learning Objective: 2 Chapter 05 . would be allocated in the first-stage allocation to the Customer Support activity cost pool? A.000. B.000. 400. D.

000*. (300. The company has provided the following data concerning its annual overhead costs and its activity-based costing system: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.000 Bloom's Level: Apply Difficulty: Medium .000. rounded to the nearest whole cent? In other words.3 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 35.000*.000*. The activity measures for the activity cost pools for the year are as follows: 36.C. $48.Activity-Based Costing: A Tool to Aid Decision Making 5-19 Escau Company is a wholesale distributor that uses activity-based costing for all of its overhead costs. 400. 400. what would be the overall activity rate for the Filling Orders activity cost pool? A. C. $60. B.000*.000.000*. What would be the total overhead cost per order according to the activitybased costing system. $120.000.00.000.000*. D.3 + 100.35)/3. D.67.000.00. D. How much cost. C. $52. $0. $56. $280.00. $49.2 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Chapter 05 . $80. $330. B. in total should not be allocated to orders and products in the second stage of the allocation process if the activity-based costing system is used for internal decision making? A.55 + 200.1 = 200.

000*. $10. (380. $11. what would be the overall activity rate for the Customer Support activity cost pool? A.Activity-Based Costing: A Tool to Aid Decision Making 5-21 .Learning Objective: 2 Chapter 05 . D. $12.3 = 114.000 and 380.000*8 + $228.704.392.6 = $228.000/3. To the nearest whole dollar.000*. What would be the total overhead cost per customer according to the activitybased costing system.600.704 Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 6 Chapter 05 .000*.800. rounded to the nearest whole dollar? In other words. Cost assigned = $380. $14.000/20*1 = 11. how much wages and salaries cost would be allocated to a customer who placed eight orders in a year? A. B. $9.400.000*.45)/20 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 38. C. $13.784. $14.650.000 $114.548. D. B.Activity-Based Costing: A Tool to Aid Decision Making 5-20 37. C. $7.6 + 100.

C. what would be the overall activity rate for the Customer Support activity cost pool? A.000. $11.35)/1.000*. C.5 + 200. $12.45)/30 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 41.00. rounded to the nearest whole dollar? In other words. To the nearest whole dollar. D. how much wages and salaries cost would be allocated to a customer who placed four orders in a year? A. $273. $7.000*. . What would be the total overhead cost per customer according to the activitybased costing system.Escalona Company is a wholesale distributor that uses activity-based costing for all of its overhead costs.000*.4 + 200.00 (580.Activity-Based Costing: A Tool to Aid Decision Making 5-22 40.00. (580. $312. The company has provided the following data concerning its annual overhead costs and its activity-based costing system: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. $292. rounded to the nearest whole cent? In other words. $12.124. what would be the overall activity rate for the Filling Orders activity cost pool? A.350. B.000*. The amount of activity for the year is as follows: 39. $302.700. B. What would be the total overhead cost per order according to the activitybased costing system.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Chapter 05 . $13.50.667. D.

595.000 * 4 + 580. $37. $10.2)/4. The company has provided the following data concerning its annual overhead costs and its activity-based costing system: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. (540.5/30 * 1 Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 6 Chapter 05 .Activity-Based Costing: A Tool to Aid Decision Making 5-23 Escoto Company is a wholesale distributor that uses activity-based costing for all of its overhead costs.248. D.1 + 200. B. $27.Activity-Based Costing: A Tool to Aid Decision Making . What would be the total overhead cost per order according to the activitybased costing system.000*.75.859. C. $23.00.000*. (580. what would be the overall activity rate for the Filling Orders activity cost pool? A.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Chapter 05 .50. D.000*. C. The amount of activity for the year is as follows: 42. $8.B. rounded to the nearest whole cent? In other words.50.4)/1.000*. $18. $14.

Note the numerator in each fraction represents the cost assigned to each pool for wages and salaries. $7. $14. C.950.000/4*8 + 432. D. $12.474. D.8 + 200. The annual production and sales of Product A is 800 units and of Product B is 500 units.948.6)/40 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 44.000*.2 direct labour hours per unit. The company has traditionally used direct labour hours as the basis for applying all manufacturing overhead to products.100. how much wages and salaries cost would be allocated to a customer who placed eight orders in a year? A.5-24 43. $14. what would be the overall activity rate for the Customer Support activity cost pool? A. $9. The total estimated overhead for next period is $92. 54. $10. . (540. B. $13.023. C. Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 6 Chapter 05 .3 direct labour hours per unit.000*.908.191. What would be the total overhead cost per customer according to the activitybased costing system. B. To the nearest whole dollar.800. rounded to the nearest whole dollar? In other words. $11.Activity-Based Costing: A Tool to Aid Decision Making 5-25 Acton Company has two products: A and B. and Product B requires 0.000/40*1.800. Product A requires 0.

The predetermined overhead rate under the traditional costing system is closest to which of the following? A. $270. activity rate) for Activity 1 under the activity-based costing system is closest to which of the following? A. Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 47. C.Activity-Based Costing: A Tool to Aid Decision Making 5-26 46.e.17. $270. $37. C.2 hrs. $7. $2. $24. B. $13. $4. D.49. C. D.. and General Factory—with estimated overhead costs and expected activity as follows: (Note: The General Factory activity cost pool's costs are allocated on the basis of direct labour hours.97.13. B. The new activity-based costing system would have three overhead activity cost pools—Activity 1. B. $54.3hrs + 500*.46.023/(800*. $28.60. .17. The overhead cost per unit of Product B under the traditional costing system is closest to which of the following? A.32.The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports.) 45.63. $13.15. $92.66 (from #65) *.66. $21.2hrs) Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 Chapter 05 . The predetermined overhead rate (i. Activity 2.

785. C. The company has traditionally used direct labour hours as the basis for applying all manufacturing overhead to products.97.20. $83.100 units. $14.79.800/3.24. B.100*.) 49.100*500 + 64.785/(1.500 + 12.700 units and of Product B is 1.6 direct labour hours per unit. (Appendix 5B) The predetermined overhead rate under the traditional costing system is closest to which of the following? A. $86. The overhead cost per unit of Product A under the activity-based costing system is closest to which of the following? A. Product A requires 0.3hrs + 1.Activity-Based Costing: A Tool to Aid Decision Making 5-27 Addy Company has two products: A and B. $70.000*2. The total estimated overhead for next period is $98. (14.D. D. Activity 2. The annual production and sales of Product A is 1.6) Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 Learning Objective: 7 . The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. $11.3 direct labour hours per unit.48.43. $98. and General Factory—with estimated overhead costs and expected activity as follows: (Note: The General Factory activity cost pool's costs are allocated on the basis of direct labour hours.08. D.487/1.15.700*. $19. $84. and Product B requires 0. $9. C.736/340*240)/800 units Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: Chapter 05 .66. $43. The new activity-based costing system would have three factory overhead activity cost pools—Activity 1.100 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 48. B. $81.487/1.

activity rate) for Activity 2 under the activity-based costing system is closest to which of the following? A.28.16. $35.43 (#68) *. D. D. $10. C.900*200 + 50.Chapter 05 . B. B.66. $5. $86.93.600*600 + 17.6 hrs.528/1.15.49.99. $26. D. $26. $50. C. $51.45. $50. $84. B. (Appendix 5B) The overhead cost per unit of Product B under the activitybased costing system is closest to which of the following? A. $11.66.385/1.385/1. (Appendix 5B) The predetermined overhead rate (i.100 units Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 . $9. (30.23.Activity-Based Costing: A Tool to Aid Decision Making 5-28 50.. Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 Learning Objective: 7 51.09. C. $17.872/1170*660)/1. (Appendix 5B) The overhead cost per unit of Product B under the traditional costing system is closest to which of the following? A.e.09.900 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 52. $38.

B.800 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 54. $41.450/1. B. The company has two products: A and B. (16.800*700 + 9.91. with estimated costs and expected activity as follows: 53. $24. There are three activity cost pools.69. C.77. $10.Activity-Based Costing: A Tool to Aid Decision Making 5-30 Accola Company uses activity-based costing..53.Chapter 05 . The annual production and sales of Product A is 200 units and of Product B is 400 units. D.660/700*100 + 18. The . $17.36.e.58. The company has two products: A and B. $74. $16.450/1. The cost per unit of Product B is closest to which of the following? A. $26.73.731/220*160)/400 Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Chapter 05 . The predetermined overhead rate (i. $18. $81. activity rate) for Activity 2 under the activity-based costing system is closest to which of the following? A. D.Activity-Based Costing: A Tool to Aid Decision Making 5-29 Abel Company uses activity-based costing. C.25.

$119. The cost per unit of Product A is closest to which of the following? A. $47.000 Bloom's Level: Apply .72.00.33.913. $22. $26.100 units and of Product B is 700 units. C. $116. $30. There are three activity cost pools. $48. The company uses activity-based costing and has prepared the following analysis. B. The activity rate under the activity-based costing system for Activity 3 is closest to which of the following? A.976/860 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 56.981/1. $57.89. D. C.annual production and sales of Product A is 1. $56. $33.600 + 48.67.796/860*440)/100 Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Chapter 05 .270/1. $41. $59.74. D.900*1.32.70.53.18. The annual production and sales of Product D is 7. $29. C.Activity-Based Costing: A Tool to Aid Decision Making 5-31 Arthur Company has two products: S and D.100*600 + 35. (18.20.000/3. 57. B.23. $90. showing the estimated total cost and expected activity for each of its three activity cost pools: The annual production and sales of Product S is 4. The activity rate for Activity 3 is closest to which of the following? A. with estimated costs and expected activity as follows: 55.547 units. D. B.

000*300)/4. D.88.600/750*500 + 90.97. $1.000/1. $26.Activity-Based Costing: A Tool to Aid Decision Making 5-32 Monson Company has two products: G and P. D.000/3. B.500 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 60. $1.Difficulty: Easy Learning Objective: 2 58. (20. The cost per unit of Product P under activity-based costing is closest to which of the following? A.000/500*100 + 14. B. The cost per unit of Product S under activity-based costing is closest to which of the following? A. 59.547 Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Chapter 05 .00.640 units.67. $89. $21.00. $10. B.00. The annual production and sales of Product P is 26. C.00. C.98. $16.00. The company uses activity-based costing and has prepared the following analysis. $10. 24. $6.600.83. .33. The activity rate under the activity-based costing system for Activity 2 is closest to which of the following? A. $5. $4. C. showing the estimated total cost and expected activity for each of its three activity cost pools: The annual production and sales of Product G is 10.

600 Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Chapter 05 .600)/26.10.000/1.5)/60. (80.D. D.Activity-Based Costing: A Tool to Aid Decision Making 5-33 Forse Florist specializes in large floral bouquets for hotels and other commercial spaces.000*.16.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Chapter 05 . What would be the total overhead cost per delivery according to the activitybased costing .Activity-Based Costing: A Tool to Aid Decision Making 5-34 62.000/4.6 + 40.000/600*400 + 24. What would be the total overhead cost per bouquet according to the activitybased costing system.000*3. what would be the overall activity rate for the Making Bouquets activity cost pool? A. $1. (30.500*900 + 80. C. B.90.05. $1. The amount of activity for the year is as follows: 61. $30. $0. rounded to the nearest whole cent? In other words. The company has provided the following data concerning its annual overhead costs and its activity-based costing system: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. $1.000*.20.

10.7 + 50. $24.00. $7. $6. what would be the overall activity rate for the Deliveries activity cost pool? A.Activity-Based Costing: A Tool to Aid Decision Making 5-35 63.25)/5. B. What would be the total overhead cost per delivery according to the activitybased costing system.35.73. $6. The amount of activity for the year is as follows: Chapter 05 .000*. $1.system. C. $1. what would be the overall activity rate for the Making Bouquets activity cost pool? A.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Foster Florist specializes in large floral bouquets for hotels and other commercial spaces. rounded to the nearest whole cent? In other words.3 + 40.000*.000*. What would be the total overhead cost per bouquet according to the activitybased costing system.79.00 B.20 (80.60 C. The company has provided the following data concerning its annual overhead costs and its activity-based costing system: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. $2. $6.80 D.45)/40.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 64. D. what would be the overall activity rate for the Deliveries activity cost pool? A. rounded to the nearest whole cent? In other words.000*. rounded to the nearest whole cent? In other words. (70. . $1.

D. What would be the total overhead cost per bouquet according to the activitybased costing system.2 + 50.45)/20. The company has provided the following data concerning its annual overhead costs and its activity-based costing system: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. $2.000*.00.000*. $2.Activity-Based Costing: A Tool to Aid Decision Making 5-36 Foss Florist specializes in large floral bouquets for hotels and other commercial spaces.25)/1.50.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Chapter 05 .B. C. The amount of activity for the year is as follows: 65.5 + 40. (70. B. $27.000*.000*.75. C.03.83. rounded to the nearest whole cent? In other words.00. $2. $3.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Chapter 05 . what would be the overall activity rate for the Making Bouquets activity cost pool? A. $30. (70.Activity-Based Costing: A Tool to Aid Decision Making 5-37 . $26.48. D.

rounded to the nearest whole cent? In other words.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Grogam Catering uses activity-based costing for its overhead costs.93. (70. The cost of the raw ingredients for the meals was $8. What would be the total overhead cost per delivery according to the activitybased costing system. management has assigned ease of adjustment codes to the costs as follows: wages are classified as a Yellow cost. B.25)/7. and other expenses detailed above. The company catered the function for a fixed price of $21. $3. According to the activity-based costing system. what would be the overall activity rate for the Deliveries activity cost pool? A.000*. Chapter 05 .50.71. $4. $5.25 per meal. For the purposes of preparing action analyses. supplies and raw ingredients as a Green cost. Management would like to know whether the company made any money on a recent function at which 100 meals were served.000*.Activity-Based Costing: A Tool to Aid Decision Making 5-38 67. The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool.93. D.00 per meal.35 + 40. This cost is in addition to the costs of wages. The company has provided the following data concerning the activity rates in its activity-based costing system: The number of meals served is the measure of activity for the Preparing Meals activity cost pool. C.66. supplies. and other expenses as a Red cost. what was the total cost (including the costs . $4.

B. $760. $390. $910. (Appendix 5A) In an action analysis report prepared for the function mentioned above. Total Cost is sum of above.760. D. D. C. $540 (#87) + $95 (red cost from #86) Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 Learning Objective: 6 Groce Catering uses activity-based costing for its overhead costs. C. $1. B.560. what would be the "red margin" in the report. rounded to the nearest whole dollar? A. Bloom's Level: Analyze Difficulty: Medium Learning Objective: 3 Learning Objective: 6 68. $710. (Appendix 5A) In an action analysis report prepared for the function mentioned above. The company has provided the following data concerning the activity rates in its activity-based costing system: . what would be the "yellow margin" in the report. $635. B. C.Total Cost from #86 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 Learning Objective: 6 Chapter 05 . rounded to the nearest whole dollar? A. $21/meal * 100 . rounded to the nearest whole dollar? A. $540. $1. D.060. $815. $1.Activity-Based Costing: A Tool to Aid Decision Making 5-39 69. $440. $690.of raw ingredients) of the function mentioned above.

The number of meals served is the measure of activity for the Preparing Meals
activity cost pool.
The number of functions catered is used as the activity measure for the
Arranging Functions
activity cost pool.
Management would like to know whether the company made any money on a
recent function at
which 150 meals were served. The company catered the function for a fixed price
of $14.00 per
meal. The cost of the raw ingredients for the meals was $8.75 per meal. This
cost is in addition
to the costs of wages, supplies, and other expenses detailed above.
For the purposes of preparing action analyses, management has assigned ease
of adjustment
codes to the costs as follows: wages are classified as a Yellow cost, supplies and
raw
ingredients as a Green cost, and other expenses as a Red cost.

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making
5-40

70. According to the activity-based costing system, what was the total cost
(including the costs
of raw ingredients) of the function mentioned above, rounded to the nearest
whole dollar?
A. $1,370.
B. $1,520.
C. $2,020.
D. $2,220.
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 3
Learning Objective: 6

71. (Appendix 5A) In an action analysis report prepared for the function
mentioned above, what
would be the "red margin" in the report, rounded to the nearest whole dollar?
A. ($70).
B. ($20).
C. $80.
D. $230.
150*$14 - total cost from #89
Bloom's Level: Analyze

Difficulty: Hard
Learning Objective: 3
Learning Objective: 6

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making
5-41

72. (Appendix 5A) In an action analysis report prepared for the function
mentioned above, what
would be the "yellow margin" in the report, rounded to the nearest whole dollar?
A. $240.
B. $315.
C. $365.
D. $420.
$80 (#90) + $160 (red cost from #89)
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 3
Learning Objective: 6

Grodt Catering uses activity-based costing for its overhead costs. The company
has provided
the following data concerning the activity rates in its activity-based costing
system:
The number of meals served is the measure of activity for the Preparing Meals
activity cost pool.
The number of functions catered is used as the activity measure for the
Arranging Functions
activity cost pool.
Management would like to know whether the company made any money on a
recent function at
which 60 meals were served. The company catered the function for a fixed price
of $19.00 per
meal. The cost of the raw ingredients for the meals was $8.60 per meal. This
cost is in addition
to the costs of wages, supplies, and other expenses detailed above.
For the purposes of preparing action analyses, management has assigned ease
of adjustment
codes to the costs as follows: wages are classified as a Yellow cost, supplies and
raw
ingredients as a Green cost, and other expenses as a Red cost.

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making
5-42

73. According to the activity-based costing system, what was the total cost
(including the costs
of raw ingredients) of the function mentioned above, rounded to the nearest
whole dollar?
A. $505.
B. $655.
C. $1,155.
D. $1,355.
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 3
Learning Objective: 6

74. (Appendix 5A) In an action analysis report prepared for the function
mentioned above, what
would be the "red margin" in the report, rounded to the nearest whole dollar?
A. ($165).
B. ($115).
C. ($15).
D. $135.
60 * $19 - 1,155(#92)
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 3
Learning Objective: 6

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making
5-43

75. (Appendix 5A) In an action analysis report prepared for the function
mentioned above, what
would be the "yellow margin" in the report, rounded to the nearest whole dollar?
A. $123.
B. $198.

C. $248.
D. $303.
-15 (#93) + 138 (#92)
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 3
Learning Objective: 6

76. Which of the following types of costs present the greatest difficulty in efforts
to trace them
to products and services?
A. Unit-level costs
B. Batch-level costs
C. Product/service-level costs
D. Organization-sustaining costs
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 1

77. Which of the following is a distinctive feature of an ABC system in
comparison to a
departmental overhead application system?
A. It is a two-stage allocation system.
B. It uses transactional drivers.
C. It must include at least one non unit-level driver.
D. It uses duration drivers.
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 1
Learning Objective: 5

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making
5-44

78. Which of the following is the fundamental and primary driver of costs in the
ABC model?
A. Cost objects.
B. Activities.
C. Consumption of resources.
D. Process improvements.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1

79. Which of the following is NOT a technique directly or indirectly useful in
process
improvements?
A. The lean thinking model.

B. Process costing.
C. Activity-based costing.
D. Activity-based management.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
Learning Objective: 7

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making
5-45

Addison Company has two products: A and B. Annual production and sales are
800 units of
Product A and 700 units of Product B. The company has traditionally used direct
labour-hours
as the basis for applying all manufacturing overhead to products. Product A
requires 0.2 direct
labour hours per unit and Product B requires 0.6 direct labour hours per unit. The
total
estimated overhead for next period is $71,286.
The company is considering switching to an activity-based costing system for the
purpose of
computing unit product costs for external reports. The new activity-based costing
system
would have three factory overhead activity cost pools—Activity 1, Activity 2, and
General
Factory—with estimated overhead costs and expected activity as follows:
(Note: The General Factory activity cost pool's costs are allocated on the basis of
direct labour
hours.)
80. (Appendix 5B) The predetermined overhead rate under the traditional costing
system is
closest to:
A. $25.34
B. $22.60
C. $37.30
D. $122.91
$71,286/(800*.2 + 700*.6)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 5

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making
5-46

81. (Appendix 5B) The overhead cost per unit of Product B under the traditional
costing system
is closest to:
A. $22.38
B. $13.56
C. $73.74
D. $15.20
$122.91(#99) *.6hrs.
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 5
Learning Objective: 7

82. (Appendix 5B) The predetermined overhead rate (i.e., activity rate) for Activity
2 under the
activity-based costing system is closest to:
A. $22.60
B. $54.84
C. $58.76
D. $36.73
$29,380/1,300
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
Learning Objective: 5

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making
5-47

83. (Appendix 5B) The overhead cost per unit of Product B under the activitybased costing
system is closest to:
A. $73.74
B. $56.62

C. $22.38
D. $47.52
(20,272/800*500 + 29,380/1,300*500 + 21,634/580*420)/700
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Learning Objective: 7

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making
5-48

Koszyk Manufacturing Corporation has a traditional costing system in which it
applies
manufacturing overhead to its products using a predetermined overhead rate
based on direct
labour-hours (DLHs). The company has two products, P85G and C43S, about
which it has
provided the following data:
The company's estimated total manufacturing overhead for the year is
$2,264,000 and the
company's estimated total direct labour-hours for the year is 40,000.
The company is considering using a variation of activity-based costing to
determine its unit
product costs for external reports. Data for this proposed activity-based costing
system appear
below:

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making
5-49

84. (Appendix 5B) The total cost of a unit of product P85G under the company's
traditional
costing system is closest to:
A. $146.97
B. $102.58

C. $101.69
D. $80.50
OH rate = $2,264,000/40,000 = $56.60/DLH. OH cost = 56.60*.8hrs = $45.28.
Add to this DM
of $36.50 and DL of $20.80
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 3
Learning Objective: 4
Learning Objective: 5
Learning Objective: 7

85. (Appendix 5B) The total cost of a unit of product C43S under the activitybased costing
system is closest to:
A. $165.34
B. $233.26
C. $162.22
D. $105.34
OH/unit = (1,160,000/40,000*12,000 + 288,000/2,400*920 +
816,000/2720*840)/10,000 =
$71.04. Add DM + DL = $165.34
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Learning Objective: 5
Learning Objective: 7

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making
5-50

Binegar Manufacturing Corporation has a traditional costing system in which it
applies
manufacturing overhead to its products using a predetermined overhead rate
based on direct
labour-hours (DLHs). The company has two products, R58G and R09O, about
which it has
provided the following data:
The company's estimated total manufacturing overhead for the year is
$1,617,600 and the
company's estimated total direct labour-hours for the year is 24,000.
The company is considering using a variation of activity-based costing to
determine its unit

000 + 252.680*1.10hrs/unit Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 Learning Objective: 7 87.00 C. $22.000/24.46 B.000 Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 7 Chapter 05 . (Appendix 5B) The manufacturing overhead that would be applied to a unit of product R09O under the activity-based costing system is closest to: A. (Appendix 5B) The manufacturing overhead that would be applied to a unit of product R58G under the company's traditional costing system is closest to: A.84 D.152 + 669. $113.Activity-Based Costing: A Tool to Aid Decision Making 5-51 86. $255.Activity-Based Costing: A Tool to Aid Decision Making 5-52 .74 B.90 $1. Data for this proposed activity-based costing system appear below: Chapter 05 . $141.28 (696. $6.product costs for external reports.10 C.600/2.000*21.232*1.176)/10.54 D. $17. $16.600/24.617.000hrs*. $2.000/1.

. $71.Activity-Based Costing: A Tool to Aid Decision Making 5-53 88.000.20. $38.80 + 18.800/3.77 D.541.86 D. about which it has provided the following data: The company's estimated total manufacturing overhead for the year is $2.960/2. $216.175. (Appendix 5B) The unit product cost of product M91F under the activitybased costing system is closest to: A.20 B. (Appendix 5B) The unit product cost of product U86Y under the company's traditional costing system is closest to: A.57 C. $75.760/47.000 + $19.15 B.Kebort Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labour-hours (DLHs). $121. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports.95 (1.760 and the company's estimated total direct labour-hours for the year is 47.000*19. $197. $95.000/47.196*2162)/10.20 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 3 Learning Objective: 5 Learning Objective: 7 89.50 C.000*.80 + $18.914*658 + 958.541.7 + 19. $55. Data for this proposed activity-based costing system appear below: Chapter 05 . The company has two products.000 + 407.00 $2. U86Y and M91F.

TRUE Bloom's Level: Understand Difficulty: Easy Learning Objective: 1 93. batch-level activities should not be combined with unit-level activities. Unit-level activities arise as a result of the total volume of production and are performed each time a unit is produced. Unit-level production activities are performed each time a unit is made. activities should be grouped together at the same level.Activity-Based Costing: A Tool to Aid Decision Making 5-54 True / False Questions 90. how many batches are run. or how many different products are made. Organization-sustaining activities are carried out regardless of how many units are made. When combining activities in an activity-based costing system.Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 5 Learning Objective: 7 Chapter 05 . TRUE Bloom's Level: Remember Difficulty: Easy Learning Objective: 1 91. TRUE Bloom's Level: Understand Difficulty: Easy Learning Objective: 1 92. TRUE Bloom's Level: Remember Difficulty: Easy Learning Objective: 1 . For example.

Chapter 05 . TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 97. Activity-based costing uses a number of activity cost pools. In traditional costing systems. customers. and other cost objects. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 3 Chapter 05 . all manufacturing costs are assigned to products—even . FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 96. activity rates are used to apply costs to products. In the second-stage allocation in activity-based costing. each of which is allocated to products on the basis of direct labour hours. Activity rates in activity-based costing are computed by dividing costs from the first-stage allocations by the activity measure for each activity cost pool.Activity-Based Costing: A Tool to Aid Decision Making 5-55 94.Activity-Based Costing: A Tool to Aid Decision Making 5-56 98. The first-stage allocation in activity-based costing is the process by which overhead costs are assigned to products before they are assigned to customers. FALSE Bloom's Level: Understand Difficulty: Easy Learning Objective: 1 95.

nonmanufacturing costs are not assigned to products. An activity-based costing system is generally easier to set up and run than a traditional cost system. When there are batch-level or product-level costs. In activity-based costing. Activity-based costing is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect only variable costs. TRUE Bloom's Level: Understand Difficulty: Hard Learning Objective: 5 100.manufacturing costs that are not caused by the products. an activity-based costing system ordinarily will shift costs from high-volume to low-volume products. a plant-wide overhead rate is used to apply overhead to products. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 Chapter 05 . TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 Learning Objective: 5 99.Activity-Based Costing: A Tool to Aid Decision Making 5-57 102. as in traditional costing systems. FALSE . in comparison to a traditional cost system. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 Learning Objective: 5 103. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 101. In activity-based costing.

Activity-Based Costing: A Tool to Aid Decision Making 5-58 106. such as production schedulers and product design engineers. than managing and sustaining a single product. FALSE Bloom's Level: Understand Difficulty: Hard Learning Objective: 1 105. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 107.Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 104. (Appendix 5A) An action analysis report reconciles activity-based costing product costs with traditional product costs based on direct labour. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 6 . Changing a cost accounting system is likely to meet with little resistance in an organization since it is a technical matter of little interest to individuals outside of the accounting department. The costs of these resources can be accurately allocated to products on the basis of direct labour hours. duration drivers are more accurate measures of the consumption of resources than transaction drivers. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 05 . Transaction drivers usually take more effort to record than duration drivers. Managing and sustaining product diversity requires many more overhead resources. In general. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 108.

Activity-Based Costing: A Tool to Aid Decision Making 5-59 Essay Questions 109. and office expense as a Yellow cost. The sales revenue from this job is $4. The amount of activity for the year is as follows: Required: Chapter 05 . The company has provided the following data concerning its annual overhead costs and its activity cost pools: Distribution of Resource Consumption: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs..e.Chapter 05 .400. Ingersol Draperies makes custom draperies for homes and businesses.Activity-Based Costing: A Tool to Aid Decision Making 5-60 a) Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the table below: b) Compute the activity rates (i. cost per unit of activity) for the Making Drapes and Job Support activity cost pools by filling in the table below: c) (Appendix 5A) Prepare an action analysis report in good form of a job that involves making 71 metres of drapes and has direct materials and direct labour cost of $2. . For purposes of this action analysis report.510. The company uses an activity-based costing system for its overhead costs. production overhead as a Red cost. direct materials and direct labour should be classified as a Green cost.

The company uses an activity-based costing system for its overhead costs. The company has provided the following data concerning its annual overhead costs and its activitybased costing system: Distribution of Resource Consumption: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.a) First-stage allocation Chapter 05 . Required: a) Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the table below: .000 square metres.Activity-Based Costing: A Tool to Aid Decision Making 5-62 110. The amount of activity for the year is as follows: A "square" is a measure of area that is roughly equivalent to 1. Hasty Hardwood Floors installs oak and other hardwood floors in homes and businesses.Activity-Based Costing: A Tool to Aid Decision Making 5-61 b) Activity rates (costs divided by activity) Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 6 Chapter 05 .

The company has provided the following data concerning its annual overhead costs and its activity-based costing system: Distribution of Resource Consumption: . cost per unit of activity) for the Installing Floors and Job Support activity cost pools by filling in the table below: c) Compute the overhead cost. a) First-stage allocation Chapter 05 . Goel Company.Activity-Based Costing: A Tool to Aid Decision Making 5-65 111..4 squares.Activity-Based Costing: A Tool to Aid Decision Making 5-64 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Learning Objective: 3 Chapter 05 .e.Chapter 05 . of a job that involves installing 3. uses activity-based costing for its overhead costs. according to the activity-based costing system.Activity-Based Costing: A Tool to Aid Decision Making 5-63 b) Compute the activity rates (i. a wholesale distributor.

uses an activity-based costing in which there are three activity cost pools. The amount of activity for the year is as follows: Required: Compute the activity rates (i.Activity-Based Costing: A Tool to Aid Decision Making 5-68 All three parts can be answered using a first-stage allocation of costs. in total.e.Activity-Based Costing: A Tool to Aid Decision Making 5-66 First-stage allocation Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Chapter 05 . would be allocated to the Business Development activity cost pool? c) How much cost. a consulting firm. would be allocated to the Working On Engagements activity cost pool? b) How much cost. would be allocated to the Other activity cost pool? Chapter 05 . in total.. in total. Fife & Jones PLC.The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. a) $379. cost per unit of activity) for the Filling Orders and Product Support activity cost pools by filling in the table below: Chapter 05 .Activity-Based Costing: A Tool to Aid Decision Making 5-67 112. The company has provided the following data concerning its costs and its activity-based costing system: Distribution of Resource Consumption: Required: a) How much cost.000 .

Activity-Based Costing: A Tool to Aid Decision Making 5-70 a) Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the table below: b) Compute the activity rates (i. Huish Awnings makes custom awnings for homes and businesses. The company uses an activity-based costing system for its overhead costs.000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Chapter 05 . The sales revenue from this job is $4.b) $173. cost per unit of activity) for the Making Awnings and Job Support activity cost pools by filling in the table below: c) (Appendix 5A) Prepare an action analysis report in good form of a job that involves making 80 yards of awnings and has direct materials and direct labour cost of $3. The company has provided the following data concerning its annual overhead costs and its activity cost pools: Overhead Costs: The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.Activity-Based Costing: A Tool to Aid Decision Making 5-69 113.000 c) $228.e. direct materials and direct . For purposes of this action analysis report.000.. The amount of activity for the year is as follows: Required: Chapter 05 .000.

The company uses an activity-based costing system for its overhead costs. Phoenix Company makes custom covers for air conditioning units for homes and businesses. Chapter 05 . The company has provided the following data concerning its annual overhead costs and its activity cost pools: Distribution of Resource Consumption: .Activity-Based Costing: A Tool to Aid Decision Making 5-73 114. production overhead as a Red cost. and office expense as a Yellow cost.labour should be classified as a Green cost.Activity-Based Costing: A Tool to Aid Decision Making 5-71 a) First-stage allocation Chapter 05 .Activity-Based Costing: A Tool to Aid Decision Making 5-72 Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 6 Chapter 05 .

e. cost per unit of activity) for the Making Covers and Job Support activity cost pools by filling in the table below: Chapter 05 .Activity-Based Costing: A Tool to Aid Decision Making 5-75 Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 6 .Activity-Based Costing: A Tool to Aid Decision Making 5-74 c) (Appendix 5A) Prepare an action analysis report in good form of a job that involves making 50 yards of covers and has direct materials and direct labour cost of $1.500. a) First-stage allocation Chapter 05 . production overhead as a Red cost.500. The amount of activity for the year is as follows: Required: a) Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the table below: b) Compute the activity rates (i.The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The sales revenue from this job is $2. direct materials and direct labour should be classified as a Green cost. For purposes of this action analysis report.. and office expense as a Yellow cost.

The company has provided the following data concerning its activity-based costing system.Chapter 05 . b) (Appendix 5A) Prepare an action analysis report in good form of a job that involves painting 63 square metres and has direct materials and direct labour cost of $2.Activity-Based Costing: A Tool to Aid Decision Making 5-76 115. For purposes of this action analysis report. The company uses an activity-based costing system for its overhead costs. direct materials and direct labour should be classified as a Green cost. and office expense as a Yellow cost. The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The company has already finished the first stage of the allocation process in which costs were allocated to the activity cost centres.070.. Chapter 05 . Jackson Painting paints the interiors and exteriors of homes and commercial buildings. cost per unit of activity) for the Painting and Job Support activity cost pools by filling in the table below. Round off all calculations to the nearest whole cent. The sales revenue from this job is $2. painting overhead as a Red cost. The results are listed below: Required: a) Compute the activity rates (i.500.e.Activity-Based Costing: A Tool to Aid Decision Making 5-77 .

Overhead currently is applied to the products on the basis of direct labour hours. Product C and Product D. and determine the unit product cost of each product for the current year. Data relating to these activities for the current period are given below: Determine the unit product cost of each product for the current period using the activity-based costing approach. Chapter 05 .Activity-Based Costing: A Tool to Aid Decision Making 5-79 .a) Activity rates (costs divided by activity) Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Learning Objective: 3 Learning Objective: 6 Chapter 05 . The company estimated it would incur $160. Data concerning the current period's operations appear below: Required: a) Compute the predetermined overhead rate under the current method.790 in manufacturing overhead costs during the current period. Cabanos Company manufactures two products. b) The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labour hours.Activity-Based Costing: A Tool to Aid Decision Making 5-78 116. The activity-based costing system would use three activity cost pools.

55 per unit.710/4. having been developed as an attempt to enter a market closely related to that of Product B.800 units = $20. the predetermined overhead using direct labour hours would be: Predetermined overhead rate = $160. Lionel Corporation manufactures two products.36 per unit. Product H is the more complex of the two products. . Product H is of fairly recent origin.58/DLH Using this overhead rate.790/13. requiring two hours of direct labour time per unit to manufacture.a) The expected total direct labour hours during the period are computed as follows: Using these hours as a base. Product D: $97. compared to one hour of direct labour time for Product B. Chapter 05 .400 units = $18. the unit product cost of each product would be: Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 5 Learning Objective: 7 Chapter 05 .Activity-Based Costing: A Tool to Aid Decision Making 5-80 Using activity-based costing.880 DLHs = $11. the unit product costs are: b) The overhead rates for each activity centre are as follows: The overhead cost charged to each product is: Overhead cost per unit: Product C: $63.080/3. Product H is produced on an automated production line.Activity-Based Costing: A Tool to Aid Decision Making 5-81 117. Product B and Product H.

000 units of Product B during the current year. Unit costs for materials and direct labour are: Required: a) Compute the predetermined overhead rate under the current method of allocation. The company estimated it would incur $450. determine the unit product cost of each product for the current year.Activity-Based Costing: A Tool to Aid Decision Making 5-82 a) The company expects to work 45.Overhead is currently assigned to the products on the basis of direct labour hours. the unit product cost of each product would be: b) The overhead rates are computed as follows: The overhead cost attributable to each product is: Chapter 05 .Activity-Based Costing: A Tool to Aid Decision Making . b) The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below: Using the data above and an activity-based costing approach.000 direct labour hours during the current year. and determine the unit product cost of each product for the current year.000/45.000 DLHs = $10.500 units of Product H and 30. Chapter 05 .000 in manufacturing overhead costs and produce 7.00/DLH Using this overhead rate. computed as follows: Using these hours as a base. the predetermined overhead using direct labour hours would be: Predetermined overhead rate = $450.

. and determine the unit product cost of each product for the current year.000 units = $6. Product H: $260. These activities and the amount of overhead cost attributable to each for the current year are given below: Using the data above and an activity-based costing approach.Activity-Based Costing: A Tool to Aid Decision Making 5-84 118.000 in manufacturing overhead costs and produce 5. requiring three hours of direct labour time per unit to manufacture. Product A and Product B. The company estimated it would incur $396.5-83 Overhead cost per unit: Product B: $189.236/30. having been developed as an attempt to enter a market closely related to that of Product A. the unit product cost of each product would be: Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 5 Learning Objective: 7 Chapter 05 . Flyer Corporation manufactures two products. Overhead is currently assigned to the products on the basis of direct labour hours.500 units = $34.3079/unit.500 units of Product B and 22. Product B is of fairly recent origin.7685/unit. Using activity-based costing. determine the unit product cost of each product for the current year. Product B is the more complex of the two products.000 units of Product A during the current year. Product B is produced on an automated production line. Unit costs for materials and direct labour are: Required: a) Compute the predetermined overhead rate under the current method of allocation. compared to one and one-half hours of direct labour time for Product A.764/7. b) The company's overhead costs can be attributed to four major activities.

Using activity-based costing.000/49. the predetermined overhead using direct labour hours would be: Predetermined overhead rate = $396.Activity-Based Costing: A Tool to Aid Decision Making 5-85 a) The company expects to work 49.Activity-Based Costing: A Tool to Aid Decision Making .2455/unit.00/DLH Using this overhead rate.0182/unit.Chapter 05 .500 DLHs = $8. the unit product cost of each product would be: Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 5 Learning Objective: 7 Chapter 05 .Activity-Based Costing: A Tool to Aid Decision Making 5-86 Overhead cost per unit: Product A: $159.500 direct labour hours during the current year.500 units = $43.600/5. the unit product cost of each product would be: b) The overhead rates are computed as follows: The overhead cost attributable to each product is: Chapter 05 .400/22.000 units = $7. computed as follows: Using these hours as a base. Product B: $236.

5-87 119. the unit product cost of each product would be: b) The overhead rates are computed as follows: The overhead cost attributable to each product is: . EMD Corporation manufactures two products. Product S and Product W. Product W is of fairly recent origin.000/40.50/DLH Using this overhead rate. Overhead is currently assigned to the products on the basis of direct labour hours. These activities and the amount of overhead cost attributable to each for the current year are given below: Using the data above and an activity-based costing approach.000 units of Product S during the current year. computed as follows: Using these hours as a base.000 direct labour hours during the current year. Unit cost for materials and direct labour are: Required: a) Compute the predetermined overhead rate under the current method of allocation. the predetermined overhead using direct labour hours would be: Predetermined overhead rate = $500.000 in manufacturing overhead costs and produce 10. compared to a half-hour of direct labour time for Product S.000 DLHs = $12.000 units of Product W and 60. determine the unit product cost of each product for the current year. Product W is produced on an automated production line. and determine the unit product cost of each product for the current year. requiring one hour of direct labour time per unit to manufacture. b) The company's overhead costs can be attributed to four major activities. The company estimated it would incur $500. Chapter 05 . having been developed as an attempt to enter a market closely related to that of Product S. Product W is the more complex of the two products.Activity-Based Costing: A Tool to Aid Decision Making 5-88 a) The company expects to work 40.

The overhead rates for each activity centre are as follows: The overhead cost charged to each product is: Overhead cost per unit: Product F: $59.000 units = $29.000 units = $3.4304/unit. Daba Company manufactures two products.800 units = $57. Data relating to the company's three activity cost pools are given below for the current year: Required: Using the activity-based costing approach.Chapter 05 . the unit product cost of each product would be: Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 5 Learning Objective: 7 Chapter 05 . Product W: $294.400 units of Product F and 1.Activity-Based Costing: A Tool to Aid Decision Making 5-90 120. the company expects to produce and sell 1. Product F and Product G.825/60. During the current year.Activity-Based Costing: A Tool to Aid Decision Making 5-89 Overhead cost per unit: Product S: $205.800 units of Product G.4175/unit.95 per unit.310/1.400 units = $42.930/1. determine the overhead cost per unit for each product. Using activity-based costing.175/10. Product G: $104. The company uses activity-based costing to compute unit product costs for external reports. .81 per unit.

Activity-Based Costing: A Tool to Aid Decision Making 5-91 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Learning Objective: 3 Chapter 05 .) Chapter 05 .Activity-Based Costing: A Tool to Aid Decision Making . Estimated costs and activities for the current year are presented below for the three activity centres: Actual costs and activities for the current year were as follows: Required: a) How much total overhead was applied to products during the year? b) By how much was overhead overapplied or underapplied? (Be sure to clearly label your answer as to whether the overhead was overapplied or underapplied for each activity centre as well as for the total.Chapter 05 . The company has three activity cost pools and applies overhead using predetermined overhead rates for each activity cost pool. Eaker Company uses activity-based costing to compute product costs for external reports.Activity-Based Costing: A Tool to Aid Decision Making 5-92 121.

using only one unit-level cost driver. Inc. by how much (in terms of total allocated/applied manufacturing overhead cost). using the activity-based-costing (ABC) method.Activity-Based Costing: A Tool to Aid Decision Making 5-94 122. Compared to the ABC method. if any.000 units of the XR7 model and 8. d) Assume Kya. the XR7 model and the ZD5 model.000 units of the ZD5 model for 2005 follow: Required: a) Identify and briefly explain each of the three cost drivers as either unit-level or batch-level or product-level or organization-sustaining level.Activity-Based Costing: A Tool to Aid Decision Making 5-95 a) Number of setup is a batch-level activity in the sense that machine has to be setup for each . Kya. manufactures two models of high-pressure steam valves. Inc. Budgeted manufacturing overhead cost and operating data regarding production and sales of 2. Chapter 05 . c) Calculate the budgeted manufacturing overhead cost for each unit of the two models. will use only the unit-level driver. b) Calculate the budgeted manufacturing overhead cost for each unit of the two models.5-93 a) The overhead rates for each activity centre are as follows: The amount of overhead applied to production is determined as follows: b) The amount of underapplied (overapplied) for each centre and all activity centres is as follows: Bloom's Level: Analyze Difficulty: Medium Learning Objective: 2 Learning Objective: 3 Learning Objective: 7 Chapter 05 . will the total output of each model be either under-costed or over-costed? e) Is the result obtained in part (d) above consistent with your expectations? Explain.

000) = $10 per DLH d) e) The result in part (d) above is consistent with expectations.Activity-Based Costing: A Tool to Aid Decision Making 5-96 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 5 Learning Objective: 7 123.000/40. b) How might the use of ABC based on maximum capacity activity level enhance a firm's ability to compete on price? Explain.200 per machine setup Vendor negotiations ($200. a) Use of maximum capacity activity level is consistent with the ABC method. b) Predetermined rate = $1. Direct labour is a traditional unit-level activity that is performed on each unit of output.000/250) = $3.000/1. Chapter 05 . NOT for idle capacity. budgeted (same as expected) or maximum capacity. ZD5 Model) while it under-costs the low-volume product (in this case XR7 Model). It will ensure a . is consistent with ABC? Explain.000) = $200 per part Assembly ($400.000/40. This is the result obtained in part (d) above.000 DLHs = $35/DLH c) Rates: setups ($800. use of only unit-level cost drivers such as direct labour hours generally tends to overcost the high volume product (in this case. Number of parts is a productlevel activity because the vendor negotiation costs increase with the number of different vendors to be sourced. Required: a) The use of which activity level. Activity-based-costing (ABC) charges products for the cost of capacity used.400. In comparison with ABC.batch independent of the number units in a batch.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. (Appendix 5B) Werger Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labour-hours (DLHs). by definition.reasonably stable (if not constant) activity rate regardless of the expected level of activity. A lower activity rate when applied to a lessthan-capacity expected or actual activity level will ensure that cost of idle capacity is not charged to products. Since.960 and the company's estimated total direct labour-hours for the year is 22. W82R and L48S. This is especially important in diverse multiple product firms where product emphasis decisions are routinely made.Activity-Based Costing: A Tool to Aid Decision Making 5-97 124. Accurate product cost information is a good starting point for competitive pricing. b) Since the cost of idle capacity will not be charged to products. Data for this proposed activity-based costing system appear . about which it has provided the following data: The company's estimated total manufacturing overhead for the year is $1. products are unlikely to be overcosted.521.000. Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 Learning Objective: 4 Learning Objective: 7 Chapter 05 . The fact that ABC generally achieves more accurate product costs (because it uses multiple unit-level and non unit-level cost drivers) also avoids undercosting or overcosting. The company has two products. expected level of activity cannot exceed the maximum capacity. the resulting activity rate is also likely to be lower.

ABC Unit Product Costs Overhead cost for W82R Overhead cost for L48S Chapter 05 .Activity-Based Costing: A Tool to Aid Decision Making 5-98 a.521.Activity-Based Costing: A Tool to Aid Decision Making 5-99 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 2 Learning Objective: 3 Learning Objective: 5 Learning Objective: 7 Chapter 05 . Chapter 05 .below: Required: a. Determine the unit product cost of each of the company's two products under the traditional costing system.000 DLHs = $69. Traditional Unit Product Costs Predetermined overhead rate = $1. b.18 per DLH b.Activity-Based Costing: A Tool to Aid Decision Making . Determine the unit product cost of each of the company's two products under activity-based costing system.960 22.

000 DLHs = $41. B40W and C63J. Determine the unit product cost of each of the company's two products under activity-based costing system. Determine the unit product cost of each of the company's two products under the traditional costing system.656. Chapter 05 .656. Data for this proposed activity-based costing system appear below: Required: a. Traditional Unit Product Costs Predetermined overhead rate = $2.000 64. (Appendix 5B) Torri Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labour-hours (DLHs).5-100 125. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. b.50 per DLH b.Activity-Based Costing: A Tool to Aid Decision Making 5-101 a. about which it has provided the following data: The company's estimated total manufacturing overhead for the year is $2. The company has two products. ABC Unit Product Costs Overhead cost for B40W Overhead cost for C63J .000.000 and the company's estimated total direct labour-hours for the year is 64.

Activity-Based Costing: A Tool to Aid Decision Making . Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system.000. Data for this proposed activity-based costing system appear below: Required: a.Activity-Based Costing: A Tool to Aid Decision Making 5-103 126. about which it has provided the following data: The company's estimated total manufacturing overhead for the year is $1.Activity-Based Costing: A Tool to Aid Decision Making 5-102 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 2 Learning Objective: 3 Learning Objective: 5 Learning Objective: 7 Chapter 05 .464. Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system. Chapter 05 . The company has two products. H16Z and P25P. (Appendix 5B) Welk Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labour-hours (DLHs).480 and the company's estimated total direct labour-hours for the year is 24.Chapter 05 . b. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports.

(Appendix 5B) Bullie Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labour-hours (DLHs). ABC Manufacturing Overhead Costs Overhead cost for H16Z Overhead cost for P25P Chapter 05 .5-104 a.650 and the company's estimated total direct labour-hours for the year is 35. Data for this proposed activity-based costing system appear below: Required: . about which it has provided the following data: The company's estimated total manufacturing overhead for the year is $1.464.Activity-Based Costing: A Tool to Aid Decision Making 5-106 127.000 DLHs = $61.000. D31X and U75X. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Traditional Manufacturing Overhead Costs Predetermined overhead rate = $1.Activity-Based Costing: A Tool to Aid Decision Making 5-105 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 2 Learning Objective: 3 Learning Objective: 5 Learning Objective: 7 Chapter 05 .02 per DLH b.480 24. The company has two products.147.

Activity-Based Costing: A Tool to Aid Decision Making 5-109 . Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system. Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system.650 35. b.147.000 DLHs = $32. Traditional Manufacturing Overhead Costs Predetermined overhead rate = $1.Activity-Based Costing: A Tool to Aid Decision Making 5-108 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 2 Learning Objective: 3 Learning Objective: 5 Learning Objective: 7 Chapter 05 .Activity-Based Costing: A Tool to Aid Decision Making 5-107 a. Chapter 05 .a.79 per DLH b. ABC Manufacturing Overhead Costs Overhead cost for D31X Overhead cost for U75X Chapter 05 .

Identify each of the three cost drivers as either unit-level. Decision: No Analysis and/or calculations: Preliminary analysis: The overhead allocation rate = $51 per DLH.000/(1. i. productlevel.e. Mike charges a fee of $100 per hour for each service and can devote a maximum of 4.128. number of transactions with clients. the decision can be based only on allocated cost per DLH . How might Mike's product/service emphasis decision in Part a above be altered if he were to allocate all the overhead costs using activity-based costing and the three cost drivers. b. Should Mike emphasize one service more than the other if Mike were to allocate all the overhead costs using direct-labours as the only overhead cost driver (1. Chapter 05 . number of clients. $204. Mike Kyekyeku is a sole proprietorship that provides consulting and tax preparation services to its clients.300 + 2. including any necessary explanation. batch-level. that is. Note: Since the $100 billing rate per DLH is the same. or organization-sustaining.700 for Consulting)? Support your decision with the relevant calculations and/or analysis.700) The two services generate the same profit for each hour of Mike's scarce time.300 for Tax and 2.000 hours annually to his clients. c. He reported the following revenues and expenses for 2008: Being an accountant. Mike kept good records of the following data for 2008: (i). (ii).Activity-Based Costing: A Tool to Aid Decision Making 5-110 a. Required: a. and computer hours? Show all your supporting calculations and/or analysis. customer-level.

$72. ** Same as the $100 billing rate less the $51 allocation rate. $48.800/2.000/500) *** same as using activity rate of $30 per computer hour (i.89 compared to $16. Preliminary analysis (ABC) Decision: Consulting should receive greater emphasis since every hour of Mike's scarce time generates a profit of $64. allocate in proportion to Tax and Consulting at 32.000/120) ** same as using activity rate of $144 per transactions (i. base decision on total allocated cost for each service together with an explanation that consulting has less allocated cost and also fewer number of direct labour hours.e.($51) which is the same for both services * Alternatively.00 for Tax. b.00 for Tax. $84.. respectively. Number of clients: Customer-level Number of transactions with clients: Unit-level Computer hours: Unit-level Chapter 05 . (Note: The decision can be based only on the total allocated cost per DLH (that is.200/1.700 = $35. * same as using activity rate of $700 per client (i.e. Alternatively.5% and 67. $109.000/1.11 for Consulting) since the billing rate per DLH of $100 is the same for both services.5%..e. $94.300 = $84.600) Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 Learning Objective: 5 Learning Objective: 7 ..Activity-Based Costing: A Tool to Aid Decision Making 5-111 c.

Bloom's Level: Understand Difficulty: Easy Learning Objective: 2 2. It uncovers potential bottlenecks before they occur. What is the budget or schedule that provides necessary input data for the direct labour budget? A. D. Raw materials purchases budget. D. D. B. B. Cash budget. Production budget. Schedule of cash disbursements.Chapter 09 . B. Bloom's Level: Understand Difficulty: Easy Learning Objective: 2 3. Schedule of cash collections. C. Which of the following is NOT a benefit of budgeting? A. C. Budgeted balance sheet. It provides benchmarks for evaluating subsequent performance. C. Production budget. Raw materials purchases budget. It coordinates the activities of the entire organization by integrating the plans and objectives of the various parts. The cash budget must be prepared before you can complete which of the following? A. It ensures that accounting records comply with generally accepted accounting principles.Budgeting 9-1 Chapter 09 Budgeting Multiple Choice Questions 1. Bloom's Level: Understand Difficulty: Easy Learning Objective: 1 .

Chapter 09 - Budgeting
9-2

4. Which of the following best describes the direct materials purchase budget?
A. It is the beginning point in the budget process.
B. It must provide for the desired ending inventory as well as for production.
C. It is accompanied by a schedule of cash collections.
D. It is completed after the cash budget.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 2

5. The master budget process usually begins with which of the following?
A. Production budget.
B. Operating budget.
C. Sales budget.
D. Cash budget.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 2

6. Which of the following variances in a comprehensive performance report using
the flexible
budget concept is the most appropriate for measuring efficiency of operations?
A. Sales volume variance.
B. Contribution margin variance.
C. Flexible budget variance.
D. Total static budget variance.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 4

Chapter 09 - Budgeting
9-3

7. There are various budgets within the master budget. One of these budgets is
the production
budget. Which of the following best describes the production budget?

A. It details the required direct labour hours.
B. It details the required raw materials purchases.
C. It is calculated based on the sales budget and the desired ending inventory.
D. It summarizes the costs of producing units for the budget period.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 2

8. Which of the following best describes a typical participative budget?
A. It is NOT subject to review by higher levels of management since to do so
would contradict
the participative aspect of the budgeting processing.
B. It is NOT subject to review by higher levels of management except in specific
cases where
the input of higher management is required.
C. It is subject to review by higher levels of management in order to prevent the
budgets from
becoming too loose.
D. It is NOT critical to the success of a budgeting program.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 1

9. What is a continuous (or perpetual) budget?
A. It is prepared for a range of activity so that the budget can be adjusted for
changes in activity.
B. It is a plan that is updated monthly or quarterly, dropping one period and
adding another.
C. It is a strategic plan that does not change.
D. It is used in companies that experience no change in sales.
Bloom's Level: Remember
Difficulty: Medium
Learning Objective: 1

Chapter 09 - Budgeting
9-4

10. Which of the following best describes a method of budgeting in which the
cost of each
program must be justified every year?
A. Operational budgeting.
B. Zero-based budgeting.
C. Continuous budgeting.
D. Responsibility accounting.
Bloom's Level: Remember
Difficulty: Easy

Learning Objective: 1

11. Fairmont Inc. uses an accounting system that charges costs to the manager
who has been
delegated the authority to make decisions concerning the costs. For example, if
the sales
manager accepts a rush order that will result in higher than normal manufacturing
costs, these
additional costs are charged to the sales manager because the authority to
accept or decline the
rush order was given to the sales manager. What best describes this type of an
accounting
system?
A. Responsibility accounting.
B. Contribution accounting.
C. Absorption accounting.
D. Operational budgeting.
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 1

Chapter 09 - Budgeting
9-5

12. Parlee Company's sales are 30% in cash and 70% on credit. Sixty percent of
the credit sales
are collected in the month of sale, 25% in the month following sale, and 12% in
the second
month following sale. The remainder is uncollectible. The following are budgeted
sales data:
What would be the budgeted total cash receipts in April?
A. $27,230.
B. $36,230.
C. $38,900.
D. $47,900.
30,000*.3 + 30,000*.7*.6 + 70,000*.7*.12 + 50,000*.7*.25
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2

13. Budgeted sales in Allen Company over the next four months are given below:
Twenty-five percent of the company's sales are for cash, and 75% are on
account. Collections
for sales on account follow a stable pattern as follows: 50% of a month's sales
are collected in

the month of sale, 30% are collected in the month following sale, and 15% are
collected in the
second month following sale. The remainder is uncollectible. Given these data,
what should be
cash collections for December?
A. $133,500.
B. $120,000.
C. $138,000.
D. $153,000.
Dec. cash sales 120,000 *.25 + Dec. credit sales 120,000 *.75 *.50 + Nov. credit
sales 180,000
*.75 *.30 + Oct. 160,000 *.75 *.15.
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2

Chapter 09 - Budgeting
9-6

14. The PDQ Company makes collections on credit sales according to the
following schedule:
25% in month of sale
70% in month following sale
4% in second month following sale
1% uncollectible
The following sales have been budgeted:
What would be the cash collections in June?
A. $110,000.
B. $111,500.
C. $113,400.
D. $115,500.
100,000*.04 + 120,000*.70 + 110,000*.25
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2

Chapter 09 - Budgeting
9-7

15. Orion Corporation is preparing a cash budget for the six months beginning
January 1.
Shown below are the company's expected collection pattern and the budgeted
sales for the
period:
Expected collection pattern:
65% collected in the month of sale
20% collected in the month after sale
10% collected in the second month after sale
4% collected in the third month after sale
1% uncollectible
What would be the estimated total cash collections during April from sales and
accounts
receivables?
A. $155,900.
B. $167,000.
C. $171,666.
D. $173,400.
160,000*.04 + 185,000*.10 + 190,000*.20 + 170,000*.65
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2

Chapter 09 - Budgeting
9-8

16. Pardee Company plans to sell 12,000 units during the month of August. If the
company has
2,500 units on hand at the start of the month, and plans to have 2,000 units on
hand at the end of
the month, how many units must be produced during the month?

A. 11,500 units.
B. 12,000 units.
C. 12,500 units.
D. 14,000 units.
12,000 + 2,000 - 2,500.
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2

17. Modesto Company produces and sells Product AlphaB. To guard against
stockouts, the
company requires that 20% of the next month's sales be on hand at the end of
each month.
Budgeted sales of Product AlphaB over the next four months are:
What would be the budgeted production for August?
A. 50,000 units.
B. 58,000 units.
C. 62,000 units.
D. 70,000 units.
60,000 + 50,000*.20 - 60,000*.20
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 2

Chapter 09 - Budgeting
9-9

18. Friden Company has budgeted sales and production over the next quarter as
follows:
On April 1, the company has 20,000 units of product on hand. A minimum of 20%
of the next
month's sales needs (in units) must be on hand at the end of each month. July
sales are expected
to be 140,000 units. What would be the budgeted sales for June (in units)?
A. 128,000 units.
B. 160,000 units.
C. 184,000 units.
D. 188,000 units.
May EI = 128,000 + 120,000*.20 - 128,000 = $32,000 = June BI. June sales =
156,000 + 32,000
- 140,000*.20.
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2

19. Walsh Company expects sales of Product W to be 60,000 units in April,
75,000 units in
May, and 70,000 units in June. The company desires that the inventory on hand
at the end of
each month be equal to 40% of the next month's expected unit sales. Due to
excessive
production during March, there were 25,000 units of Product W in the ending
inventory on
March 31. Given this information, what should be Walsh Company's production
of Product W
for the month of April?
A. 60,000 units.
B. 65,000 units.
C. 66,000 units.
D. 75,000 units.
60,000 + 75,000*.40 - 25,000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2

Chapter 09 - Budgeting
9-10

20. Superior Industries' sales budget shows quarterly sales for the next year as
follows:
Company policy is to have a finished goods inventory at the end of each quarter
equal to 20% of
the next quarter's sales. What should be the budgeted production for the second
quarter?
A. 7,200 units.
B. 8,000 units.
C. 8,400 units.
D. 8,800 units.
8,000 + 12,000*.20 - 8,000*.20
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2

21. The Tobler Company has budgeted production for next year as follows:
Four kilograms of raw materials are required for each unit produced. At the start
of the year,
raw materials on hand total 4,000 kilograms. The raw materials inventory at the
end of each

quarter should equal 10% of the next quarter's production needs. What would be
the budgeted
purchases of raw materials in the third quarter?
A. 50,400 kilograms.
B. 56,800 kilograms.
C. 62,400 kilograms.
D. 63,200 kilograms.
16,000*4 + 14,000*4*.10 - 16,000*4*.10
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2

Chapter 09 - Budgeting
9-11

22. Marple Company's budgeted production in units and budgeted raw materials
purchases over
the next three months are given below:
Two kilograms of raw materials are required to produce one unit of product. The
company
wants raw materials on hand at the end of each month equal to 30% of the
following month's
production needs. The company is expected to have 36,000 kilograms of raw
materials on hand
on January 1. What should be the budgeted production for February?
A. 75,000 units.
B. 82,500 units.
C. 105,000 units.
D. 150,000 units.
Desired EI = 129,000 + 36,000 - 60,000*2 = 45,000 kg. Production in Feb. =
45,000/.30/2
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2

18.500 units.000 decrease. Purchase . If the company has budgeted to purchase $18. .000*.Chapter 09 . ABC Company has a cash balance of $9.000 on April 1.40.Budgeting 9-12 23. B. $15.000 increase. $6. expected cash receipts are $45.500 units.000.500 units.Budgeting 9-13 25.000 in sales for the month of December.000.000*.000 in merchandise during December.000 increase. D. 18. $10. what is the budgeted change in inventory levels over the month of December? A.000 . 22.25 .000*. During April. What amount will the company need to borrow during April? A. C. 17. Change in inventory = Bud.000 + 16.30 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 2 Chapter 09 . The Willsey Merchandise Company has budgeted $40. The company must maintain a minimum cash balance of $6.000. 18. The finished goods inventory at the start of the year is 3. Expected cash disbursements during the month total $52. C. 13.000 decrease. $2. D. $22. The company's cost of goods sold is 30% of sales. The Waverly Company has budgeted sales for next year as follows: The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in units.CGS = 18.000 units.000 units.25 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 2 24. What should be the scheduled production for the third quarter? A.000. B.

000*. Budgeted sales for April are $300. had the following results for May. 100. $110. $6. $133.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 KAB Inc. $110. $113. D.000. Gross margin is budgeted at 30% of sales dollars. C. C. The Stacy Company makes and sells a single product: Product R.000*..60 + 110. The budgets for June and July are also given.Budgeting 9-14 27. $50.800.000.000. C. .000.000*.40.000.000. $78. Borrowing = 6. $4. B.2.000 = 2000. 300. Unadjusted cash = 9. a small retail store.30 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Chapter 09 .08 + 120.000. D.000.000*.000.30 .000. If the net income for April is budgeted at $40. $8. D. $102. what are the budgeted selling and administrative expenses? A. $105.000 + 45.52.000. Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 26.000 .B. B.000 . Avril Company makes collections on sales according to the following schedule: 30% in the month of sale 60% in the month following sale 8% in the second month following sale The following sales are expected: What should be the budgeted cash collections in March? A.000.333.

Budgeting 9-15 28.000*. Chapter 09 .000 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 2 Chapter 09 . $41.000. May purchases = June budgeted CGS.20 + 40. C. Suppliers of the goods are paid in the month following the purchase.000 + 20.000. B.500. $40. 42. $32.Budgeting .500.) The goods that are sold are purchased in the month prior to sale. The operating expenses are paid in the month of the sale. Cash disbursements = 20.000*. D. $41. (There are no bad debts. $43. $42.Sales are collected 80% in the month of the sale and the balance in the month following the sale. Purchases in May are paid for in June. $40.000. $40. What should be the cash disbursements during the month of June for goods purchased for resale and for operating expenses? A.000. What should be the amount of cash collected during the month of June? A. D. C.80 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 29. B.400.000.

In a budgeted income statement for the month of February.24.Budgeting 9-17 31. 30. and fixed expenses (all depreciation) should be $3. On that date. C.000. All purchases of merchandise inventory must be paid in the month of purchase. Expected sales for the first four months appear below: The company desires that the merchandise inventory on hand at the end of each month be equal to 50% of the next month's merchandise sales (stated at cost)..000 * (1 .10 . For purposes of budget preparation. . $1.200.800.3. $0. the balance will be on credit. what would be the merchandise inventory on February 28? A.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Chapter 09 . assume that the company's cost of goods sold is 60% of sales.9-16 Justin's Plant Store.200.60) . C.000*.800. a retailer. $4. In a budgeted balance sheet.000 per month.500. Cash payments for the variable operating expenses are made during the month the expenses are incurred. the only assets were $16. 24. $9. B. Seventy-five percent of the credit sales should be collected in the month following the month of sale. with the balance collected in the following month. what would be the net income? A. Sixty percent of all sales should be for cash.500 in merchandise inventory.000 in cash and $3. started operations on January 1. Variable operating expenses should be 10% of sales. B. $4. D. $3. $7.

000*. $13.800.000*.400.200. what would be the total cash receipts? A.900.200.25 + 16.000.40*.Budgeting 9-18 34. $9. B.000*.40 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 2 33.800(#53) + 16. CGS + EI .50 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 2 32. C.BI + Op. $11.D. $16.000*. 24.60*.200.40*. What would be the accounts receivable balance that would appear in the March 31 budgeted balance sheet? A. Expenses = 16. $8. $16. $20.000*.000*. $22. C.000. $15.10 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Information on the actual sales and inventory purchases of the Law Company for the first quarter follow: . B. D. 16. 16.60 + 24.4. $12.60 + 25.000*.300.000.25 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Chapter 09 . $8.000*.50 . B.800. $16.75 + 10. In a budget of cash disbursements for March. what would be the total cash disbursements? A.900.40*.000*. D. $17.600.60*. C. D. In a budget of cash receipts for March.

D. Law Company takes full advantage of the 3% discount allowed on purchases paid for by the end of the following month.000*. 150.000 * (1 . $87. Chapter 09 .000. The company expects sales in April of $150.000 and inventory purchases of $100. and 8% in the second month following sale. $139. $100.000.30 + 100.300. B.000. What would be the expected cash disbursements during April for inventory purchases? A. and on April 1 was $35.Collections from Law Company's customers are normally 60% in the month of sale. Law Company's cash balance on March 1 was $43. B.000*.Budgeting 9-19 35.000 is depreciation.000*.03) Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 . D. C. 30% in the month following sale. What would be the expected cash collections from customers during April? A.08 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 36.000. $137. C. $97. Operating expenses for the month of April are expected to be $38. The balance is uncollectible.000.000.000.000.000. of which $15. The remaining operating expenses are variable with respect to the amount of sales in dollars. 90. Those operating expenses requiring a cash outlay are paid for during the month incurred. $90.000.60 + 130. $150.000 is salaries and $8..600. $117.

000(#59) Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 The LaPann Company has obtained the following sales forecast data: The regular pattern of collection of credit sales is 20% in the month of sale.000 + 137.700.700.700.000.000*. $148. What is the budgeted accounts receivable balance on September 30? A. C. D.37.000.000.8.10 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 . D. 180. $190. $126.000*. B.000. B. What would be the expected cash disbursements during April for operating expenses? A. C. C.80 + 220.700.000.000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Chapter 09 .000 . $38. and the remainder in the second month following the month of sale.000(#57) . $19.000. 70% in the month following the month of sale. 38.Budgeting 9-20 38. 35. B. $30.300(#58) . There are no bad debts.30. $28.87. $62. D.000. What would be the expected cash balance on April 30? A. $23. $54. $15.000. 39. $166.

B. $278. of which $50.000 + 200.500. 60. $226. D. B.Chapter 09 .70 + 220. the following information has been assembled: Collections on sales: 60% in month of sale 30% in month following sale 10% in second month following sale The accounts receivable balance on January 1 of the current year was $70. What are the budgeted cash receipts for October? A.000*. $331. Chapter 09 . What would be the total cash collected by LaGrange Company during January? A. $188. $248.000*. .000*.20 + 180.Budgeting 9-22 41. To this end.000.000 represents uncollected November sales.000 represents uncollected December sales and $20. C.000. $261.000.10 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 The LaGrange Company had the following budgeted sales for the first half of the current year: The company is in the process of preparing a cash budget and must determine the expected cash collections by month.000.500.Budgeting 9-21 40.000.

what would be the units of raw material needed to be purchased? A.000.C. D. C. 1.010. $64.000 units.40 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Pardise Company plans the following beginning and ending inventory levels (in units) for July: Two units of raw material are needed to produce each unit of finished product.000*2 + 50. 900. D. What is the budgeted accounts receivable balance on June 1 of the current year? A.000 units. $344.40*. 480. 1.Budgeting 9-23 43.000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 44. 440.30 + 340.000 units. 70.000 + 50.000 Bloom's Level: Apply Difficulty: Medium .000 + 20.000 units.000.000.000 .000 units. 480.000*.000 units.000.000 + 50. If 500.000 units.40. 510.000 . $274. $76.000.10 + 160. B. 450. C. Chapter 09 . $132. D.80. If Pardise Company plans to sell 480. 120. C.000.000. B.000 finished units were to be manufactured during July. D. 1. B.000*.020. 500.60 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 42. $56.000 units.000/. what would be the number of units it would have to manufacture during July? A.000*.000 units during July.

4. 5. What is the desired ending inventory for December? A. C. 960 units.800 + 5. B.890 units. C. 5. 5. D. D. 5.15 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Roberts Enterprises has budgeted sales in units for the next five months as follows: Past experience has shown that the ending inventory for each month must be equal to 10% of the next month's sales in units.800*.15 .200*.Budgeting 9-24 45. The inventory on May 31 contained 410 units. The company needs to prepare a production budget for the second quarter of the year.600 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 46. .670 units.070 units. What are the total units to be produced in October? A.Learning Objective: 2 Barley Enterprises has budgeted unit sales for the next four months as follows: The ending inventory for each month should be equal to 15% of the next month's sales in units. 870 units. 4. 690 units. 780 units.530 units. Chapter 09 . The inventory on September 30 was below this level and contained only 600 units. B.

100*. 530 units. 7.300*. 7.700 units. 370 units.100 units.7. 370 units.630 units. 6. 530 units.Budgeting 9-25 47. D.Chapter 09 .700*. C. 670 units.10 . 6. What is the total number of units to be produced in July? A.10 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 49. B. 7. 6. What is the opening inventory in units for September? A.700*. C. 670 units. 6. D. B. B.Budgeting 9-26 Noel Enterprises has budgeted sales in units for the next five months as follows: .10 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 48.100 + 5. 710 units.10 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Chapter 09 . 7.280 units. D.920 units. What is the desired ending inventory for August? A. C.

600 *. 5. What is the total number of units to be produced in February? A. 5.400*. C. D. 460 units.400 units. 720 units. 380 units. 4. 4. 460 units.200*. 380 units. The company needs to prepare a production budget for the second quarter of the year. The inventory on December 31 contained 400 units. What is the opening inventory in units for April? A.120 units. Each unit of Product T requires 1.10 + 5. 540 units. What is the desired ending inventory for March? A.10 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 The LFM Company makes and sells a single product: Product T.220 units. D. 5.600 units.600 *.Budgeting 9-27 52.3 hours of labour at a labour rate of $9. C. 6. 50. LFM Company needs to prepare a Direct Labour Budget for the second quarter of next year. B.10 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 51. C. 4.400 + 7. 53.Past experience has shown that the ending inventory for each month must be equal to 10% of the next month's sales in units. D.10 per hour. B. What would be the budgeted direct labour cost per unit of Product T? . 720 units. 5. B.10 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Chapter 09 .580 units.

Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Chapter 09 . $227. $293.A. $7.031.000 units of Product T in June.00. D. respectively. C.10. 1. 25. $11.384.40. B. The finished goods inventories on June 1 and June 30 were budgeted at 500 and 700 units. $9. The company is in the process of preparing its Selling and Administrative Expense Budget for the last half of the year.Budgeting 9-28 54. The following budget data are available: All expenses other than depreciation are paid in cash in the month they are incurred. Product SW. B.83.10 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 The International Company makes and sells only one product.10/hr.750.3 hrs * $9. Chapter 09 . C. D. $304.000 * 1. The company has budgeted to produce 25.500.3 * 9. $295. What would be the budgeted direct labour costs incurred in June? A.Budgeting 9-29 . $10.

B. $123.250. B. $134.250. then how much was the total selling and administrative budget for November? A. $123.000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Chapter 09 . D.250.25 + 78.250. If the budgeted cash disbursements for selling and administrative expenses for November total $123.Budgeting 9-30 58.000.250. $78. what would be the total budgeted fixed selling and administrative expenses for September? A.250.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 56. what will be the total budgeted variable selling and administrative expenses for October? A.000 units of Product SW in July. C.000. 20.000.000 units of Product SW in October.000.000 * 2.000. $40. $187.25 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 57.25. $78. $56. . D. Total FC = $78. Total VC = $2.250.000. B. If the company has budgeted to sell 20.000 units of Product SW in September. what will be the total budgeted selling and administrative expenses for July? A. D. $168. If the company has budgeted to sell 25. If the company has budgeted to sell 24. 25.250. $54. $48. $134.000. $56.250 + 11. B. C.250.55. C. 123.000 * 2. $45.

C. $67,000.
D. $78,000.
Total FC = $78,000
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2

The Culver Company is preparing its Manufacturing Overhead Budget for the
third quarter of
the year. Budgeted variable factory overhead is $3.00 per unit produced;
budgeted fixed factory
overhead is $75,000 per month, with $16,000 of this amount being factory
depreciation.
59. If the budgeted production for July is 6,000 units, what is the total budgeted
factory
overhead for July?
A. $18,000.
B. $75,000.
C. $93,000.
D. $109,000.
6,000*3 + 75,000
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2

Chapter 09 - Budgeting
9-31

60. If the budgeted production for August is 5,000 units, what is the total
budgeted factory
overhead per unit?
A. $15.
B. $18.
C. $20.
D. $22.
3 + 75,000/5,000
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2

61. If all cash expenses are paid for in the month incurred what is the budgeted
cash
disbursements for manufacturing overhead if 5,500 units are produced?
A. $16,500.
B. $75,500.

C. $91,500.
D. $99,000.
5,500*3 + 75,000 - 16,000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2

The Bandeiras Company, a merchandising firm, has budgeted its activity for
December
according to the following information:
I. Sales at $550,000, all for cash.
II. Merchandise inventory on November 30 was $300,000.
III. Budgeted depreciation for December is $35,000.
IV. The cash balance at December 1 was $25,000.
V. Selling and administrative expenses are budgeted at $60,000 for December
and are paid in
cash.
VI. The planned merchandise inventory on December 31 is $270,000.
VII. The invoice cost for merchandise purchases represents 75% of the sales
price. All
purchases are paid for in cash.

Chapter 09 - Budgeting
9-32

62. What are the budgeted cash receipts for December?
A. $137,500.
B. $412,500.
C. $550,000.
D. $585,000.
all sales $550,000
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2

63. What are the budgeted cash disbursements for December?
A. $382,500.
B. $442,500.
C. $472,500.
D. $477,500.
550,000*.75 + 270,000 - 300,000 + 60,000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2

64. What is the budgeted net income for December?

A. $42,500.
B. $77,500.
C. $107,500.
D. $137,500.
550,000*(1 - .75) - 35,000 - 60,000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2

Chapter 09 - Budgeting
9-33

A cash budget by quarters for the Carney Company is given below (note that
some data are
missing). Missing data amounts have been keyed with either question marks or
lowercase
letters (a, b, c, etc.); these lowercase letters will be referred to in the questions
that follow. (It
may be necessary to calculate a value for items where a question mark appears.)
The company
requires a minimum cash balance of at least $10,000 to start a quarter. All data
are in thousands
of dollars.

Chapter 09 - Budgeting
9-34

65. What are the collections from customers during the first quarter (item a), in
thousands of
dollars?
A. $50.
B. $57.
C. $60.
D. $73.
66 + 7 - 16
Bloom's Level: Analyze

Difficulty: Medium
Learning Objective: 2

66. What is the borrowing required during the first quarter to meet the minimum
cash balance
(item b), in thousands of dollars?
A. $0.
B. $3.
C. $7.
D. $10.
10 - 7
Bloom's Level: Analyze
Difficulty: Easy
Learning Objective: 2

67. What is the cash disbursed for purchases during the second quarter (item c),
in thousands of
dollars?
A. $9.
B. $13.
C. $21.
D. $55.
10(e) + 70 - 17 - 6 - 14 - 22
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2

Chapter 09 - Budgeting
9-35

68. What is the repayment (including interest) of financing during the second
quarter (item d),
in thousands of dollars?
A. $0.
B. $4.
C. $7.
D. $17.
17 - 13
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 2

69. What is the cash balance at the beginning of the second quarter (item e), in
thousands of
dollars?
A. $0.
B. $7.

C. $10.
D. $14.
the same as ending first quarter.
Bloom's Level: Analyze
Difficulty: Easy
Learning Objective: 2

70. What are the total disbursements during the third quarter (item f), in
thousands of dollars?
A. $59.
B. $78.
C. $82.
D. $84.
80 + 2
Bloom's Level: Analyze
Difficulty: Easy
Learning Objective: 2

Chapter 09 - Budgeting
9-36

71. Which of the following is a major weakness of flexible budgets?
A. They are geared only to a single level of activity.
B. They give subordinates too much flexibility.
C. They force the manager to compare actual costs at one level of activity to
budgeted costs at a
different level of activity.
D. Their construction requires the use of one activity base common to all the
different cost
items.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 3

Pollitt Potato Packers has a flexible budget for manufacturing overhead that is
based on direct
labour hours. The following overhead costs appear on the flexible budget at the
200,000-hour
level of activity:
72. At an activity level of 180,000 direct labour hours, what amount would the
flexible budget
estimate for indirect labour cost?
A. $108,000.
B. $144,000.
C. $162,000.

D. $180,000.
180,000 * (180,000/200,000)
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 3

Chapter 09 - Budgeting
9-37

73. What amount would the flexible budget estimate for total variable overhead
cost per direct
labour hour?
A. $0.60.
B. $0.90.
C. $1.50.
D. $1.80.
(120,000 + 180,000)/200,000
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 3

74. At an activity level of 180,000 direct labour hours, what amount would the
flexible budget
estimate for total budgeted fixed costs?
A. $100,000.
B. $144,000.
C. $150,000.
D. $160,000.
100,000 + 40,000 + 20,000
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 3

75. At an activity level of 160,000 direct labour hours, what amount would the
flexible budget
estimate for the utilities?
A. $80,000.
B. $100,000.
C. $120,000.
D. $160,000.
Utilities is fixed.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 3

Chapter 09 - Budgeting
9-38

Capelli Hospital bases its budgets on patient-visits. The hospital's static budget
for August
appears below:
76. What should be the total variable overhead cost at an activity level of 9,300
patient-visits
per month?
A. $114,390.
B. $149,730.
C. $102,090.
D. $133,630.
9,300 * (5 + 7.30)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 3

77. What should be the total fixed overhead cost at an activity level of 9,600
patient-visits per
month?
A. $133,630.
B. $154,560.
C. $235,720.
D. $272,640.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 3

Chapter 09 - Budgeting
9-39

78. What should be the total overhead cost at an activity level of 9,400 patientvisits per
month?
A. $235,720

B. $249,250
C. $266,960
D. $250,640
9,400 * (5 + 7.30) + 133,630
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 3

Mandalay Hotel bases its budgets on guest-days. The hotel's static budget for
August appears
below:

Chapter 09 - Budgeting
9-40

79. What is the expected total variable overhead cost at an activity level of 5,000
guest-days per
month?
A. $127,000
B. $109,220
C. $95,000
D. $81,700
5,000 * (9.60 + 9.40)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 3

80. What is the expected total fixed overhead cost at an activity level of 5,500
guest-days per
month?
A. $139,700
B. $190,920
C. $244,200
D. $109,220
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 3

81. The total overhead cost at an activity level of 5,200 guest-days per month
should be:
A. $208,020
B. $230,880
C. $209,940
D. $190,920
5,200 * (9.60 + 9.40) + 109,220
Bloom's Level: Apply
Difficulty: Medium

38.800 F 7. $2.Budgeting 9-42 83.830 U 7. The hospital's static budget for July appears below: 82.800 U D. $2. What is the variance for supplies costs in the flexible budget performance report for the month? A. $5. $2. $5.Learning Objective: 3 Chapter 09 .Budgeting 9-41 Isadore Hospital bases its budgets on patient-visits.800*4. $2.800*7.60 .830 F D.250 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 Learning Objective: 4 Chapter 09 .240 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 Learning Objective: 4 . What is the variance for laundry costs in the flexible budget performance report for the month? A. $5. $5.61.080 U C.370 F C.370 U B.20 .080 F B.

65.84. $2. $2. Option D Indirect materials = 12.990 F D.Budgeting 9-43 85. Mongelli Family Inn is a bed and breakfast establishment in a converted 100year-old .000 machine hours if indirect material is a variable cost and factory rent a fixed cost? A.650 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 Learning Objective: 4 Chapter 09 .800/15. What is the variance for occupancy costs in the flexible budget performance report for the month? A. The following costs appear in Malgorzata Company's flexible budget at an activity level of 15.000 * 7.110 F 67.Budgeting 9-44 86. Option C D.000 machine-hours: What would be the flexible budget amounts at an activity level of 12.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 Chapter 09 .990 U C. $2.110 U B. Option A B. Option B C. $2.760 .

10 + 220 + 4.000.680 Bloom's Level: Apply Difficulty: Hard Learning Objective: 3 Chapter 09 .99.000 + 18. what would be the total budgeted overhead cost for a month if the activity level is 99 guests? A. $7.541. C.000.000/9.10. $61. The Inn's guests appreciate its gourmet breakfasts and individually decorated rooms.500*50 8. Total = 99*6. Required for further questions.000) .mansion. $59. $63.290 + 2.500.513. Flex Bud Operating Income = 8.500*(270. $7. $83. Bud.000/9. Assuming that the activity levels of 90 guests and 99 guests are within the same relevant range and rounding to the nearest dollar. D. (234 + 315)/90 = $6. B. Selling price = 450. B.Budgeting 9-45 The following is a summarized master budget that Winnipeg Company prepared for January: 87. C. What was the flexible budget operating income (loss) for Winnipeg Company for January? A.000/9. Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 . D.000.794.750. $54. $8.739. The Inn's overhead budget for the most recent month appears below: The Inn's variable overhead costs are driven by the number of guests.000 = $50/unit.

000(#109) Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 Learning Objective: 4 90.63.000 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 Learning Objective: 4 89. $371. $9. C. $20.32 .500*(55 .000 U. $27.750.000 = $83.99.500.000.500 * (30 + 2) + 99.Budgeting . B.000(#109) . What were the total flexible budget expenses for January? A. What was the total flexible budget variance for January? A. $29.500 U. D. $387. 8. C.1.000 U.000 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 Chapter 09 . $365. Variance = 83.50) . $25.750 U.750 F. What total sales volume variance did Winnipeg Company report for January? A. $383.750.750 54.500 U.000 U. 54. B.Chapter 09 . Actual Operating Income = 8.750 F. $3. C.000. D. $9. D. $12.Budgeting 9-46 88. B.

83.40) . $25.9-47 91.000 * (65 . Reported actual results for February were as follows: 92. B.750 F. What was the total static budget variance for February? A. C. $9. .000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 94.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 Chapter 09 . $20. where X represents the expected number of units of its only product to be manufactured and sold. What was the master budget operating income for February? A.Budgeting 9-48 93.000 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 Learning Objective: 4 Alaska Company expressed the total expenses (Y) component of its master budget for February with the cost formula Y = $100. B. 5. C. $12.000. $35.000 + $40*X. $33.000. D. $35. $25.000 U.000.400 U. 5. What was the total static budget variance for January? A.100.63. $23.000.000 units.400 * (65 .40) .000.750(see #111) .750 F. $33. The budgeted average selling price per unit was $65 for budgeted sales volume 5. What was the flexible operating income for February? A. D. $29. D.100. $7. $23.000.000.750 U. B. C.000.

What is the company's master budget operating income (loss) for April? A. The company employs a flexible budgeting system that covers a relevant range from 20. 35. D. 27. 27. $10. $550.600 . $625.000(#114) Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 Learning Objective: 4 95.000.B.000. $26.000(#115) . What was the flexible budget variance for February? A. $26.400 U. C.000 Bloom's Level: Apply Difficulty: Medium .000 F. D. $1.000 F. $10. What was the sales volume variance for February? A. $2.000 . $2.400 U. based on 22. B.000(#115) Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 Learning Objective: 4 Windsor Limited makes and sells a single product. Budget data for April.000 U.132.000 F. $2.30 . $10.25.000 units to 25. $7.600 F. B. $7. C.000 F.000 units and a just in time inventory system. C.600 F. D.000(#114) Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 Learning Objective: 4 Chapter 09 .3 . D. are as follows: 97. B.000 * (60 .600 F.000 units.35.30.Budgeting 9-49 96.2) .600 .000. $388.25. $463. 22. C.000.000 F.

The usual starting point in budgeting is to make a forecast of cash receipts and cash disbursements.Learning Objective: 3 Chapter 09 .000.000 F.30 .000 U. Suppose the company produces and sells 25.000 units at an average selling price of $55. B. $388.000.132.000 .000 units instead of the original 22. B. $180.000 * (60 .000 units at an average selling price of $55. C. D. $550. $463. Suppose the company produces and sells 25. 25.3 . $625.388. 463.000(#119) Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 Learning Objective: 4 True / False Questions 100. $3. $75.000 Bloom's Level: Apply Difficulty: Hard Learning Objective: 3 99.2) . C.000(#120) .000. What will be the company's sales volume variance for April? A.000 units? A.30.000 units instead of the original 22. D. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 . given the actual sales volume of 25.000 F.000.000 F. What is the company's flexible budget operating income (loss) for April.Budgeting 9-50 98. $75.

Budgets are used for planning rather than for control of operations. The participative budget can be a very effective control device in an organization. FALSE Bloom's Level: Remember Difficulty: Medium Learning Objective: 1 102. FALSE Bloom's Level: Remember Difficulty: Easy Learning Objective: 1 104.Budgeting 9-51 101. Control involves developing objectives and preparing the various budgets to achieve those objectives. One of the distinct advantages of a budget is that it can help to uncover potential bottlenecks before they occur. but is constantly adding a new month onto the end of the 12-month period as the current month is completed. TRUE Bloom's Level: Remember Difficulty: Easy Learning Objective: 1 103.Chapter 09 . TRUE Bloom's Level: Remember Difficulty: Easy Learning Objective: 1 . A continuous or perpetual budget is one that covers a 12-month period. TRUE Bloom's Level: Remember Difficulty: Easy Learning Objective: 1 105.

Budgeting 9-52 106. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 108.Budgeting 9-53 110. Sales forecasts are drawn up after the cash budget has been completed because it is only at that time that the funds available for marketing are known. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 . In the merchandise purchases budget.Chapter 09 . A production budget is to a manufacturing firm as a merchandise purchases budget is to a merchandising firm. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 107. the required purchases (in units) for a period can be determined by subtracting the beginning merchandise inventory (in units) from the budgeted sales (in units). FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 109. The direct materials to be purchased for a period can be obtained by subtracting the desired ending inventory of direct materials from the total direct materials needed for the period. the total direct labour cost for a budget period is computed by taking the total direct labour hours needed to make the budgeted output of completed units and multiplying them by the direct labour wage rate. In companies that have "no lay-off" policies. FALSE Bloom's Level: Understand Difficulty: Hard Learning Objective: 2 Chapter 09 .

In a performance report. actual costs should be compared to budgeted costs at the original budgeted activity level. Zero-based budgeting requires managers to justify all costs of programs as if these programs were being proposed for the first time. but once a budget is set the budget figures are not changed if actual activity later proves to be different than budgeted activity. it is generally best for top management to accept all budget estimates without question in order to minimize adverse behavioural responses from employees. A flexible budget is "flexible" in the sense that a budget can be prepared for any level of activity. . TRUE Bloom's Level: Remember Difficulty: Easy Learning Objective: 1 115. FALSE Bloom's Level: Understand Difficulty: Easy Learning Objective: 1 113. The effect of responsibility accounting is to personalize the accounting system. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 112. TRUE Bloom's Level: Remember Difficulty: Easy Learning Objective: 1 Chapter 09 .111.Budgeting 9-54 114. When using the participative budget approach. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 3 116. The beginning cash balance is not included on the cash budget since the cash budget deals exclusively with cash flows rather than with balance sheet amounts.

Budgeting 9-55 118. When choosing an activity measure for a flexible budget. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 Learning Objective: 3 . The static budget is a good tool for assessing whether variable costs are under control or not. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 Learning Objective: 2 120. A static budget is geared toward a single level of activity. The two components of the static budget variance are the flexible budget variance and the sales volume variance. but not revenues. A comprehensive flexible budget prepared for performance evaluation should incorporate both fixed and variable costs. FALSE Bloom's Level: Understand Difficulty: Easy Learning Objective: 3 Chapter 09 . it is best to choose an activity that is measured in dollars.FALSE Bloom's Level: Understand Difficulty: Easy Learning Objective: 4 117. FALSE Bloom's Level: Understand Difficulty: Hard Learning Objective: 3 121. TRUE Bloom's Level: Understand Difficulty: Easy Learning Objective: 1 Learning Objective: 2 119.

40% are paid in the month in which they are incurred and the balance in the following month. Cash collections from sales are budgeted at 60% in the month of sale. 30% in the month following the month of sale.Budgeting 9-56 Essay Questions 122. Accounts receivable on April 1 totalled $500. Bloom's Level: Apply . b) Prepare a schedule for each month showing budgeted cash receipts for Clay Company.000 ($90. and the remaining 10% in the second month following the month of sale. Clay Company has projected sales and production in units for the second quarter of the coming year as follows: Cash-related production costs are budgeted at $5 per unit produced.000. which will be paid in April.000 from February's sales and the remainder from March). The accounts payable balance on March 31 totals $190.000 per month. Chapter 09 .Budgeting 9-57 Payments relating to the prior month (March) in April represent the balance of accounts payable at March 31. Of these production costs. Selling and administrative expenses will amount to $100. All units are sold on account for $14 each.Chapter 09 . Required: a) Prepare a schedule for each month showing budgeted cash disbursements for Clay Company.

Of these production costs.000 from February's sales and the remainder from March).000. and the remaining 10% in the second month following the month of sale. Chapter 09 . All units are sold on account for $16 each. Accounts receivable on April 1 totalled $520.Difficulty: Medium Learning Objective: 2 Chapter 09 . Required: a) Prepare a schedule for each month showing budgeted cash disbursements for Tilson Company.000 ($100. which will be paid in April. Selling and administrative expenses will amount to $110. b) Prepare a schedule for each month showing budgeted cash receipts for Tilson Company.Budgeting 9-59 Payments relating to the prior month (March) in April represent the balance of accounts payable . Tilson Company has projected sales and production in units for the second quarter of the coming year as follows: Cash-related production costs are budgeted at $7 per unit produced.000 per month. 40% are paid in the month in which they are incurred and the balance in the following month. Cash collections from sales are budgeted at 60% in the month of sale. 30% in the month following the month of sale.Budgeting 9-58 123. The accounts payable balance on March 31 totals $193.

the balance is collected in the following month. The selling price is $2 per unit.at March 31. On March 31. Chapter 09 . have been budgeted as follows for the next four months: Streuling's board of directors has established a policy to commence in April that the inventory at the end of each month should contain 40% of the units required for the following month's budgeted sales.000 units. in units. b) Prepare a schedule of expected cash collections for each of the months April. a merchandising firm. May. and June. Required: a) Prepare a merchandise purchases budget showing how many units should be purchased for each of the months April. One-third of sales are paid for by customers in the month of the sale.Budgeting 9-61 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 . and June. May. Sales.000. had an inventory of 38. Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Chapter 09 . Streuling Enterprises. and it had accounts receivable totalling $85.Budgeting 9-60 124.

Required: a) Calculate the cash that TabComp can expect to collect during April. of which the first six months of the coming year are presented below: Cash sales account for 25% of TabComp's total sales. 30% of the total sales are paid by bank credit card. TabComp's month-end inventory requirements for computer hardware units are 30% of the next month's sales. Show all of your calculations. The cash and bank credit card sale payments are received in the month of the sale. and the remaining 45% are on open account (TabComp's own charge accounts).Budgeting 9-62 125. The cash receipts for sales on open account are 70% in the month following the sale and 28% in the second month following the sale. b) Determine the number of computer hardware units that should be ordered in January. TabComp prepares annual sales forecasts. Bank credit card sales are subject to a 4% discount. TabComp Inc. The units must be ordered two months in advance due to long lead times quoted by the manufacturer.Chapter 09 . which is deducted immediately. the remaining are uncollectible. is a retail distributor for MZB-33 computer hardware and related software. . Show all of your calculations.

Budgeting 9-63 a) The cash that TabComp can expect to collect during April is calculated below: b) The number of units that TabComp should order in January is calculated as follows: Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Chapter 09 . using this information and the budgeted cash receipts you computed for part a) above.Budgeting 9-64 126. From experience. the company has learned that a month's sales on account are collected according to the following pattern: The company requires a minimum cash balance of $5. b) The following additional information has been provided for March: Prepare a cash budget in good form for the month of March. The Doley Company has planned the following sales for the next three months: Sales are made 20% for cash and 80% on account. The beginning cash balance in March is budgeted to be $6.Budgeting 9-65 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 2 . Required: a) Compute the budgeted cash receipts for March.000. The company can borrow in any dollar amount and will not pay interest until April. Chapter 09 .000 to start a month.Chapter 09 .

and 9% in the second month following the sale.Budgeting 9-68 . Montero pays for purchases in the month following the purchase. 20% in the month following the sale. Montero's cash balance on May 1 was $22. The balance is expected to be uncollectible. Cash disbursements for expenses other than merchandise purchases are expected to be $14. a merchandising company. b) Compute the expected cash balance on May 31. Montero Corporation. Required: Chapter 09 . has provided the following budget data: Collections from customers are normally 70% in the month of sale.Budgeting 9-66 127.000.400 for May.Chapter 09 . Bloom's Level: Analyze Difficulty: Medium Learning Objective: 2 Chapter 09 .Budgeting 9-67 a) Compute the expected cash collections during May.

Budgeting 9-70 129. and March.000 units. the company has a policy of maintaining an ending inventory at the end of each month equal to 30% of the next month's . on December 31. However. Since the production of this specialized material by OMI's suppliers is sometimes irregular.: The inventory of finished goods at the end of each month should equal 20% of the next month's sales. the company has a policy of maintaining an ending inventory at the end of each month equal to 30% of the next month's production needs.3 = 21.100.: The inventory of finished goods at the end of each month must equal 20% of the next month's sales.780. the finished goods inventory totalled only 4.Budgeting 9-69 Beginning inventory. A sales budget is given below for one of the products manufactured by the OMI Co. Chapter 09 . Each unit of product requires three specialized electrical switches.3 = 35. Since the production of these specialized switches by Key's suppliers is sometimes irregular. on December 31.600 x 0. A sales budget is given below for one of the products manufactured by the Key Co. February. Each unit of product requires three kilograms of specialized material. January 1: 72. However. Required: Prepare a budget showing the quantity of switches to be purchased each month for January.000 x 3) x 0.128. the finished goods inventory totalled only 4. and in total for the quarter. Ending inventory. March 31: (39. Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Chapter 09 .000 units. This requirement had been met on January 1 of the current year.

The major difference between the two types of costs occurs in the control phase. Thus.100.000 x 0.Budgeting 9-71 Production Schedule required for purchase schedule: Beginning inventory. This requirement had been met on January 1 of the current year.3 = 26. Chapter 09 .700. However.000 x 3) x 0. Since total variable costs are expected to change in direct proportion to changes in the level of activity. Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Chapter 09 . control of truly variable costs can be . if any. and March. assuming the cost per unit level of activity remains constant. Required: Explain the differences. once the level of fixed costs has been determined in the budgeting process. that is. during the budgeting process. This is because the budgeted costs reflect cost of supplying capacity. Budgeting aids planning and controlling the level of both fixed costs and variable costs. January 1: 87. the most appropriate time to control the level of fixed costs is when they are being planned. the budgeted amounts can be revised to reflect changing levels of activity.production needs. Required: Prepare a budget showing the quantity of material to be purchased each month for January. and in total for the quarter. it cannot be changed in the short run in responses to changes in levels of activity.Budgeting 9-72 130. In theory. between the planning and controlling of fixed costs and variable costs.3 = 38. In essence planning and controlling the level of fixed costs occur at the same time. February. Ending inventory. March 31: (43.

Required: Chapter 09 . The following overhead data are for a department in a large company. after-the-fact.effective after completing the budgeting process.Budgeting 9-74 Prepare a report that would be useful in assessing how well costs were controlled in this department.Budgeting 9-75 132. Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 Learning Objective: 4 Chapter 09 . that is. Bloom's Level: Evaluate Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 Chapter 09 .Budgeting 9-73 131. The following overhead data are for a department in a large company. Required: Prepare a report that would be useful in assessing how well costs were controlled in this .

. Fougere Realtors' major costs are commissions for salespersons. 2007. listing agents. Chris Fougere. As usual. c) As a first step in helping Chris Fougere to evaluate cost/expense control in the organization. Fougere Realtors. and listing companies.Budgeting 9-77 . Inc. Required: a) Explain the major weakness of the performance report. specializes in home re-sales. (Note: Indicate any variance as either favourable (F) or unfavourable (U).department.. b) Explain clearly why all the variances for the variable expenses are unfavourable (U).) Chapter 09 . the managing partner of Fougere Realtors. Inc. received a report summarizing the performance for the most recent year. assuming the only cost driver is the number of home re-sales. Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 Learning Objective: 4 Chapter 09 . It earns revenue from selling fees. Its business has improved steadily over the last ten years.Budgeting 9-76 133. complete the following for the year ended December 31.

The major flaw is with respect to the variable expenses.102.Chapter 09 . One would expect the actual variable expenses to be higher.127. given the higher level of actual home re-sales. the original budgeted variable expenses are understated. By definition. b) All the variable expense variances are unfavourable because the correct comparison of actual variable expenses should be against budgeted variable expenses for the higher level of home re-sales. actual home re-sales of 202 versus budgeted home re-sales of 180.Budgeting 9-79 .100/180): $3. that is.50 Automobile ($36.000/180): $200 Advertising ($171. In essence. variable expenses are expected to change in direct proportion to changes in activity levels (number of home re-sales). not against budgeted variable expenses for the lower level of home resales.Budgeting 9-78 a) The major weakness of the performance report is the fact that it compares costs at two different activity levels (home re-sales).645 Bloom's Level: Evaluate Difficulty: Hard Learning Objective: 3 Learning Objective: 4 Chapter 09 . c) Preliminary calculations per home re-sale: Sales commissions ($1.000/180): $950 General overhead ($656.950/180): $6.

sales volume variance.Budgeting 9-80 b) Calculate the following variances: flexible budget variance. Chapter 09 . Toyworld manufactures and sells a line of toys. reproduced below (She had to attend to an outof-town emergency): Chapter 09 . It can also be calculated as the increase in unit sales . Your capable assistant provided you with the following data: Required: a) Your assistant has requested you to complete the "Flexible Budget" and "Static/Master Budget" columns of the analysis.500 and the static budget operating loss of $2. As president of Toyworld. and total static budget variance.134.550 and flexible budget operating income of $5.Budgeting 9-81 a) b) Calculation of Variances This is the difference between actual operating loss of $1. This is the same as the difference between the flexible budget operating income of $5.500.500. The toys are primarily distributed through department stores. you wanted to analyze Toyworld's profitability.

000 and the unfavourable flexible budget variance of $7.050. This facilitates performance evaluation and allows the entity to compare budgeted expenses with actual relating to each program and allows managers to make decisions with respect to similar programs in the future.000). This is the difference between the higher static budget operating loss of $2. insurance.Budgeting 9-82 volume (1. Rather than simply budget total expected costs a program basis details out the revenues and expenses related to each program that is expected to run.500 and the lower actual operating loss of $1. Bloom's Level: Understand Difficulty: Hard Learning Objective: 5 . An expenditure based budget simply lists the total expected costs of items such as rent.550. Discuss.000 units) times the budgeted unit contribution margin of $8 ($72.000/9. This is also the sum of the favourable sales volume variance of $8. Budgeting by program also facilitates the stewardship objective by providing information in a format permitting determination of whether funds designated by donors for specific purposes are being spent as intended.Chapter 09 . Bloom's Level: Evaluate Difficulty: Hard Learning Objective: 3 Learning Objective: 4 135. salaries and depreciation without detailing how these various expenses relate to particular programs. In a not-for-profit entity a budget can be prepared either on an expenditure basis or on a program basis.

D. Engineering estimates based on attainable performance. Practical standards.Standard Costs and Overhead Analysis 10-2 . C. The hours per unit that would be required for the present workforce to satisfy expected demand over the long run. B. Budgeted standards. Ideal standards. which of the following is the best basis for a company to use in establishing the standard hours allowed for the output of one unit of product? A. C. Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 Chapter 10 . Average historical performance for the last several years. Engineering estimates based on ideal performance. B. To measure controllable production inefficiencies. D.Chapter 10 . Normal standards. Which of the following refers to standards that allow for no machine breakdowns or other work interruptions and that require peak efficiency at all times? A.Standard Costs and Overhead Analysis 10-1 Chapter 10 Standard Costs and Overhead Analysis Multiple Choice Questions 1. Bloom's Level: Understand Difficulty: Easy Learning Objective: 1 2.

Actual hours exceed standard hours. B. If a company follows a practice of isolating variances at the earliest point in time. B. B. Overtime labour was used during the period. what would be the appropriate time to isolate and recognize a direct material price variance? A. Actual labour hours worked exceeded standard labour hours for the production level achieved. C. What does a favourable labour rate variance indicate? A. Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 4. D. The standard rate exceeds the actual rate. D. C. Bloom's Level: Understand Difficulty: Easy Learning Objective: 2 5. Practical standards can be used for product costing and cash budgeting. faster machine. When material is used in production. When production is completed.3. Practical standards can be attained by the average worker. Which of the following statements concerning practical standards is NOT correct? A. When material is purchased. Bloom's Level: Understand Difficulty: Medium Learning Objective: 3 Chapter 10 . B. there is no reason to adjust standards if an old machine is replaced by a newer. C. D. What does an unfavourable labour efficiency variance indicate? A. Under practical standards. The actual labour rate was higher than the standard labour rate. Standard hours exceed actual hours. C. The labour rate variance must also be unfavourable. Bloom's Level: Understand Difficulty: Medium Learning Objective: 3 . When practical standards are used. large variances are less likely than under ideal standards. The actual rate exceeds the standard rate. When material is issued.Standard Costs and Overhead Analysis 10-3 6. D.

The number of units produced was less than the number of units budgeted for the period. B. The average wage rate paid to direct labour employees was less than the standard rate.7. unskilled workers. If the actual labour hours worked exceed the standard labour hours allowed. C. Which of the following is the most probable reason a company would experience an unfavourable labour rate variance and a favourable labour efficiency variance? A.Standard Costs and Overhead Analysis 10-4 9. The standard hours allowed for the units produced were greater than actual direct labour hours used. Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 Learning Objective: 9 8. Unfavourable labour rate variance. C. Because of the production schedule. Favourable labour efficiency variance. The mix of workers assigned to the particular job was heavily weighted towards the use of higher paid. C. (Appendix 10B) What does a credit balance in a direct labour efficiency variance account indicate? A. Bloom's Level: Understand Difficulty: Medium Learning Objective: 3 Chapter 10 . relatively low-paid. D. workers from other production areas were assigned to assist this particular process. Favourable labour rate variance. Unfavourable labour efficiency variance. The mix of workers assigned to the particular job was heavily weighted towards the use of new. D. The actual total direct labour costs incurred were less than standard direct labour costs allowed for the units produced. B. what type of variance will occur? A. experienced individuals. . B.

Which department is usually held responsible for an unfavourable materials quantity variance? A. That the actual usage of materials was less than the standard allowed.30 per kilogram. Marketing. B. Actual production in November was 3. C. C. Tower Company planned to produce 3. Purchase of low quality materials. There was a favourable materials price variance of $380 and an unfavourable materials quantity variance of $120. That the actual cost per kilogram for materials was less than the standard cost per kilogram.000 units of its single product. D. Titactium. during November. Bloom's Level: Understand Difficulty: Medium Learning Objective: 3 10. Purchasing. Bloom's Level: Understand Difficulty: Easy Learning Objective: 2 11. B. Problems with labour efficiency. B. what could one assume? A. That more materials were purchased than were used. Based on these variances. Changes in the product mix. Defective materials caused more labour to be used in order to produce a standard unit. C. The standards for one unit of Titactium specify six kilograms of materials at $0. D. Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 Chapter 10 . Production. D. Problems with processing machines. Bloom's Level: Understand . Engineering.100 units of Titactium. That more materials were used than were purchased. A favourable materials price variance coupled with an unfavourable materials quantity variance would MOST likely result from which of the following? A.Standard Costs and Overhead Analysis 10-5 12.D.

and credits to Labour Efficiency Variance. C. and Wages Payable. B. and credits to Labour Efficiency . Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 Learning Objective: 3 14. B. Manufacturing overhead. Debits to Work in Process and Labour Rate Variance. A debit to Work in Process. (Appendix 10B) Drake Company purchased materials on account.Difficulty: Medium Learning Objective: 2 13. Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 Learning Objective: 9 Chapter 10 . A debit to Work in Process. Labour Rate Variance. (Appendix 10B) Which of the following entries would correctly record the charging of direct labour costs to Work in Process given an unfavourable labour efficiency variance and a favourable labour rate variance? A. A debit to Work in Process and an equal credit to Wages Payable. A credit to Materials Price Variance. B. A credit to Raw Materials Inventory. and credits to Labour Rate Variance and Wages Payable.Standard Costs and Overhead Analysis 10-6 15. D. Debits to Work in Process and Labour Efficiency Variance. C. D. C.60 per kilogram would include which of the following? A. The production manager.50 per kilogram from a supplier at $1. A debit to Materials Price Variance. The engineering department. A labour efficiency variance resulting from the use of poor quality materials should be charged to which/whom? A. D. The purchasing agent. The entry to record the purchase of materials having a standard cost of $1.

The standard output in units multiplied by the standard input allowed. D. a clothing manufacturer. The engineering manager. What is the standard direct material cost for cloth per unit of finished product? A. D. B.00. The actual output in units multiplied by the standard input allowed. C. there is unavoidable waste of 20%.20) * $3 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 . Bloom's Level: Understand Difficulty: Easy Learning Objective: 2 17. when the cloth is cut for assembly.80. Bloom's Level: Understand Difficulty: Medium Learning Objective: 3 Learning Objective: 9 16. The purchasing manager. uses a standard costing system. 2m/(1 .50.. Each unit of a finished product contains 2 metres of cloth. Under a standard cost system. The production manager. Dahl Company. $7. The sales manager. C. What do the terms "standard quantity allowed" or "standard hours allowed" mean? A. B. The actual output in units multiplied by the standard output allowed. C.00. calculated on input quantities. B. D. $6. The cost of the cloth is $3 per metre. $4. However. who is usually held responsible for the materials price variances? A.Standard Costs and Overhead Analysis 10-7 18.Variance and Wages Payable. The actual input in units multiplied by the standard output allowed. Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 Learning Objective: 5 Chapter 10 . $7.

$1. D. C.53.40 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Chapter 10 . The Porter Company has a standard cost system.500 kilograms of direct material at an actual cost of $53. B. D.725 favourable.15.000 .250 unfavourable. $3. C. $3.40.40/kg. the materials quantity variance was $1. $3.375. B. What was the materials price variance for July? A.000*2.10 .500 .000*3.725 unfavourable.600)/18.60 . Information on Fleming Company's direct material costs follows: What was the company's direct material price variance? A. $2.21.000 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 21.800. Std.000. (16. $3. variance = 22.50/kg.19.Standard Costs and Overhead Analysis 10-8 20. $2. the company purchased and used 22. $1.250 favourable. In July.50 . 20. $2. Price = 1. C.875/(22. Cox Company's direct material costs for the month of January were as follows: What was the favourable direct materials quantity variance for January? A.000)*$3.000 unfavourable.000 favourable.500*2.400.000 favourable. $3.875 unfavourable. Price = (18. B. $2. Std.750 kilograms.000 unfavourable.360. $3. D. and the standard quantity of materials allowed for July production was 21.3.000 = $3.750) = $2.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 .

D. $1.000 favourable.50 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 23.300)*6. The following materials standards have been established for a particular product: The following data pertain to operations concerning the product for the last month: . B.300 unfavourable. $35.Standard Costs and Overhead Analysis 10-9 22. $1. $37.Standard Costs and Overhead Analysis 10-10 24.000* $0.250 favourable. and 71.500 unfavourable. B. C.000 kilograms of direct materials were purchased. $1.50 more than the standard purchase price per kilogram.500 favourable.300 favourable.500 unfavourable.000 kilograms were used.25 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Chapter 10 .Chapter 10 .250 unfavourable. $2. what was the materials price variance? A. 75. Younger Company's direct material costs for product T were as follows: What was Younger's material quantity variance for March? A. $1. During March.100 . 75. (2. If the actual purchase price per kilogram was $0. D. $37. C. Last month.2.

250 favourable. The following materials standards have been established for a particular product: The following data pertain to operations concerning the product for the last month: What was the materials price variance for the month? A.15 . B. (3.75. $13. $7.06. C. $13. $7. $3.660 unfavourable. $6. B.540 unfavourable.375 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Chapter 10 . $3.Standard Costs and Overhead Analysis 10-12 26.500*19. C.5. B. $3. Information on Kennedy Company's direct material costs follows: What was the actual purchase price per unit. $3.732 favourable. $24.11.664 favourable. C.317 unfavourable. . 7.80 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 2 Chapter 10 . rounded to the nearest cent? A.100)*19. D.860 unfavourable.141. $6.45. D.What was the materials quantity variance for the month? A. D.7 .720 unfavourable. $2.Standard Costs and Overhead Analysis 10-11 25.200*1.

$2. C. $1.200 favourable.020 unfavourable. 23.000 kilograms. $19.20 per hour.100)*12 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 29.240)/1. $19. $16.500*2 + 1. The following labour standards have been established for a particular product: The following data pertain to operations concerning the product for the last month: What was the labour efficiency variance for the month? A.000 kilograms.600 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 2 27. The Fletcher Company uses standard costing. The following data are available for October: What was the standard quantity of material allowed for October production? A.577 favourable. 1. $2. B.020 favourable. 25. B.600*3.60 . (1. 24. D.000 kilograms. (23.4.Standard Costs and Overhead Analysis 10-13 28.500 kilograms. D. C.00 per direct labour-hour.000 units were produced using 4.000)/2 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Chapter 10 . During June.017 unfavourable. Yola Company manufactures a product with standards for direct labour of 4 direct labour-hours per unit at a cost of $12. 24.100 hours at $12.200 unfavourable. What was the direct labour efficiency variance? A. $16. B.(1. . C.029 favourable.000*4 . $1. D.017 favourable.

D.10 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 Chapter 10 . C. Lab Corp. $1. B. 3.700*14.6. 1. 1. C.295 unfavourable.400 hours.100)*12. $1.402 hours. B. The following labour standards have been established for a particular product: The following data pertain to operations concerning the product for the last month: What was the labour rate variance for the month? A.(900*8.Standard Costs and Overhead Analysis 10-14 30. 1.50.598 hours.295 favourable.05 .Standard Costs and Overhead Analysis 10-15 31.3 . Direct labour information for Product CER for the month of October follows: What were the actual hours worked? A.950 favourable. $2. uses a standard cost system.690 Bloom's Level: Apply Difficulty: Easy Learning Objective: 3 Chapter 10 . D. $2950 unfavourable.500*6 + 600)/6 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 3 .600 hours. 1. (1.

500 hours.500 hours.000 favourable.5*8 . D. $2. C.8.800*9 .1. $8. and the labour efficiency variance was $8.000/.800 hours.000 hours.32. $1. 5.160)/5. 4.20 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 3 34.Standard Costs and Overhead Analysis 10-16 33. Last month. The following data are available for November: What was the actual direct labour rate for November? A.000 unfavourable. C.20 more per hour than the standard labour rate. What was the actual number of hours worked during the past period? A. D. labour efficiency variance. 21.500 hours. the following results occurred last period: labour rate variance.000)/8 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 Chapter 10 . The Reedy Company uses a standard costing system. $9. 22. B.800 favourable.20.000 hours.400 hours. 23. What number of actual direct labour hours was used last period? A.500 hours. (5.80.000 units of the product were made. and the actual labour rate was $0. 20. 5. The standards for direct labour for a product are 2. $9. B.000*2. (9. C.800 Bloom's Level: Analyze Difficulty: Medium . B. In a certain standard costing system. $1.90. 9. 9. $8.00 D.5 hours at $8 per hour.

Thorp Co.000 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 3 36.9.850 unfavourable. D.760 favourable. $2.760 unfavourable.50) Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 Chapter 10 . the company reported the following data: What was the labour rate variance for April? A. Borden Enterprises uses standard costing. $5. $4.Learning Objective: 3 Chapter 10 .Standard Costs and Overhead Analysis 10-18 37. D. In April. B.000)/2.Standard Costs and Overhead Analysis 10-17 35.'s records disclosed the following data relating to direct labour: For the month of April. $4.75. C. The following standards for variable manufacturing overhead have been established for a .4. (10. For the month of April.850 favourable.50. actual direct labour hours amounted to 2.000. For the month of April. $3.50. $5. C. (8. B. what was Thorp's standard direct labour rate per hour? A. $2. $3.000 + 1.000*10 .00.800)/10 *(10 .

90 percent of which were for direct labour.2.600*12 . . $4. $17. $4. $130 unfavourable. C.000 direct labour hours.000 kilograms of direct materials and 32.450 unfavourable. $16. using 151.31. (200*7. B. D.750. The total factory wages for March were $400.900)*12. The following standards for variable manufacturing overhead have been established for a company that makes only one product: The following data pertain to operations for the last month: What was the variable overhead spending variance for the month? A.8 .397 unfavourable. $0.55 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Chapter 10 .000 units of product during March.company that makes only one product: The following data pertain to operations for the last month: What was the variable overhead efficiency variance for the month? A. 2. B. D.817 unfavourable. Bryan purchased 165.000 kilograms of direct materials at a total cost of $585. C.000. $130 favourable.Standard Costs and Overhead Analysis 10-19 38.338 unfavourable.330 Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 Bryan Company employs a standard cost system in which direct materials inventory is carried at standard cost. $580 unfavourable. Bryan has established the following standards for the prime costs of one unit of product: During March. Bryan manufactured 25.

$52.000*.000 favourable.000 favourable.400.550 unfavourable. D. $8. $7. B. C.585. 32. $8. C. D. $3.Standard Costs and Overhead Analysis 10-21 . $8.000)*3.50 .500 unfavourable.000*11 .000 unfavourable. What was the direct materials quantity variance for March? A.165.90 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 Chapter 10 .550 favourable. What was the price variance for the direct materials acquired by the company during March? A.250 unfavourable. C. D.Standard Costs and Overhead Analysis 10-20 39. $52.50 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 41. $8. $7.500 favourable. (25.Chapter 10 . $48. $48. B.750 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 40.250 favourable. What was the direct labour rate variance for March? A.500 favourable.000 unfavourable.500 unfavourable. 165. $3.000*3. B.000*6 .

$5. $5.625 favourable. C.2. .Standard Costs and Overhead Analysis 10-22 43.000*1.500 favourable.625 unfavourable.400 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 44. (25.000)*4 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 45. $5. $800 unfavourable. What was the labour rate variance? A. $440 favourable. (600*3 . B. $400 favourable. D. What was the direct labour efficiency variance for March? A. D. The company applies variable manufacturing overhead to products on the basis of direct labour hours. $600 favourable.000*4 .000)*11 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 The Litton Company has established standards as follows: Actual production figures for the past year are given below. $480 favourable. D. D. $480 unfavourable. What was the materials quantity variance? A. C. C.000 unfavourable. B. The company records the materials price variance when materials are purchased. $440 unfavourable. $4. 3.32.3 . $400 unfavourable. $760 unfavourable. Chapter 10 .500 unfavourable. B. $5. C. B. What was the materials price variance? A. $760 favourable.11. $600 unfavourable.42.

1. $800 favourable.100*8 . $800 unfavourable. $840 unfavourable. $840 favourable. $240 unfavourable. What was the variable overhead efficiency variance? A.100)*5 Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 Chapter 10 . B. B. B. $220 favourable. $220 unfavourable.1.1. $520 favourable.720 Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 48. What was the labour efficiency variance? A. C. $500 unfavourable. D. D.100*5 . 1.240 Bloom's Level: Apply Difficulty: Easy Learning Objective: 3 Chapter 10 .Standard Costs and Overhead Analysis . (600*2 . $500 favourable.9.100)*8 Bloom's Level: Apply Difficulty: Easy Learning Objective: 3 47. $520 unfavourable. What was the variable overhead spending variance? A. D.5. C. C. (600*2 .Standard Costs and Overhead Analysis 10-23 46. $240 favourable.

C.000*2 . $300 unfavourable.310 unfavourable. $1.3.150 favourable. What was the materials quantity variance for November? A.050 unfavourable.000 units and incurred the following costs: The company applies variable manufacturing overhead to products on the basis of direct labour hours. 8. $2. B.10-24 The Albright Company uses standard costing and has established the following standards for its single product: During November. the company made 4. .25) Bloom's Level: Apply Difficulty: Easy Learning Objective: 3 52. B. $810 unfavourable. (4. $810 favourable.500 favourable.050 unfavourable. D.600 favourable. $550 unfavourable. $1. $2.150 unfavourable. $2. $1. $1.200 unfavourable. 2. D. C.Standard Costs and Overhead Analysis 10-25 50. D. $1.8.7. B. $1. What was the labour rate variance for November? A.100)*3 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 51.310 favourable.200*(8 . $550 unfavourable. B. C. C.200 favourable.100*(3 . What was the labour efficiency variance for November? A. 49.10) Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Chapter 10 . What was the materials price variance for November? A. $2.

$300 favourable.700 favourable. $1. C. What was the materials price variance for January? A. D. $175 unfavourable. $300 unfavourable.000 . D. C.32.000*8/20 . $225 favourable. D. (4. The company has developed standard costs for one bag of Fastgro as follows: The company had no beginning inventories of any kind on January 1. (4. Variable manufacturing overhead is applied to production on the basis of direct labour hours. 4. What was the total variable overhead variance for November? A. B. 85.D.2. $1.4.3. What was the materials quantity variance for January? A. $1. C. The results of the company's operations during January are as follows: Chapter 10 .640 favourable. B. $225 unfavourable.5*2 . B.200)*8 Bloom's Level: Apply Difficulty: Easy Learning Objective: 3 Chapter 10 .300 unfavourable. $750 favourable.Standard Costs and Overhead Analysis 10-27 54.300 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 2 55.000*20 . $1.600 unfavourable.Standard Costs and Overhead Analysis 10-26 53.175 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Cole Laboratories makes and sells a lawn fertilizer called Fastgro. $800 unfavourable.(85.000*.000*.5 . $1.640 unfavourable.000))*8/20 Bloom's Level: Analyze . $400 unfavourable.

(4. $585 unfavourable. What was the labour rate variance for January? A.Standard Costs and Overhead Analysis 10-29 . D. 4.875 = 585 Unf. What was the labour efficiency variance for January? A.475 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Chapter 10 .1 . Bloom's Level: Analyze Difficulty: Medium Learning Objective: 3 Chapter 10 . What was the total variance for variable overhead for January? A. $125 favourable. $40 favourable. DL rate = 1. 390*11 . $350 unfavourable. C. $585 favourable.000*. $130 unfavourable. C. $475 favourable. D. $85 favourable.1 = $11/hr.Standard Costs and Overhead Analysis 10-28 57.10/. B. $110 favourable. $475 favourable. D.000*. $100 unfavourable. B.4 .4.390)*11 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 3 58.1.Difficulty: Medium Learning Objective: 2 56. $475 unfavourable. B. C.

$900 credit. the following events occurred: Purchased 15.600 debit. $240 credit.500 credit. The following standards have been established for one unit of Mip: There were no inventories of any kind on August 1. Used 1. Price/m = 9/6 = $1.060. 15. $1.000 board metres to produce 2.12. the general ledger would include what entry to the Labour Rate Variance account? A. (Appendix 10B) To record the use of direct materials in production. C. (2. $3. B. B. $6.100*6 .000. the general ledger would include what entry to the Materials Price Variance account? A. $3. and employs a standard costing system. . During August.50 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 2 Learning Objective: 9 61. called a Mip.000 debit. the general ledger would include what entry to the Materials Quantity Variance account? A.500 debit.50.(Appendix 10B) The Dexon Company makes and sells a single product. 59. D.000)*1.24.Standard Costs and Overhead Analysis 10-30 60.700 hours of direct labour time at a total cost of $20.500 debit Bloom's Level: Analyze Difficulty: Medium Learning Objective: 2 Learning Objective: 9 Chapter 10 .000 credit. $1.100 Mips. Used 12. (Appendix 10B) To record the incurrence of direct labour cost and its use in production. $6.600 credit.50 .000*1. (Appendix 10B) To record the purchase of direct materials.000 = 1.000 board metres at the total cost of $24. D. C. $900 debit.

000. Labour: 2. B.140.8 = $12/hr. D. C.20. $480 credit. the general ledger would include what entry to the Labour Efficiency Variance account? A.060. 63.700)*12 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 3 Learning Objective: 9 Chapter 10 . (Appendix 10B) To record the incurrence of direct labour costs and its use in production.000*.8 .B.56 .7. Labour: 2 hours per unit at $2.200 debit. the company produced 1. C.100*.75 per hour. (2.500 hours worked at a total cost of $8.140 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 64. B. $420 unfavourable. During the month of December.000 grams were purchased and used at a total cost of $7.. What was the materials price variance? A.60/. $1. D.000 units. Bloom's Level: Analyze Difficulty: Medium Learning Objective: 3 Learning Objective: 9 62.200 credit. $240 debit. Information for the month follows: Materials: 14. $1. $240 debit. What was the materials quantity variance? . $700 unfavourable. Standards for a particular toy are: Materials: 12 grams per unit at 56per gram. 1. D. $700 favourable.700*12 . C.1. 14. Rate = 9. $340 debit.Standard Costs and Overhead Analysis 10-31 The Alpha Company produces toys for national distribution. $340 credit. $420 favourable.

120 unfavourable.500 unfavourable. $2. C.Standard Costs and Overhead Analysis 10-33 . $1.120 favourable.600 unfavourable.375 unfavourable. C. $2.500)*2.14.500 favourable. D. B. $1.000*12 .820 unfavourable. B. (1.600 favourable. 2.000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 3 66. $1.Standard Costs and Overhead Analysis 10-32 65. What was the labour efficiency variance? A. What was the labour rate variance? A. $1. $1.000*2 .125 unfavourable. B. $1. (1.2. $1.125 favourable.75 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 The following materials standards have been established for a particular product: The following data pertain to operations concerning the product for the last month: Chapter 10 .500*2.56 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Chapter 10 .75 .375 favourable.820 favourable. $1. D.000)*. $1.8.A. $1. D. C.

$2.550 unfavourable. What was the materials quantity variance for the month? A.4. What was the materials price variance for the month? A.108. .4 .800*18 . (2.67. $1. B.700 favourable. $1. $11. B.982 unfavourable.600 unfavourable.640 favourable. $3. C. What was the materials price variance for the month? A. (700*4. D. C. $15. $10.880 unfavourable. $2. $430 favourable.104 unfavourable. C. D. D. $4.200)*18 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 The following materials standards have been established for a particular product: The following data pertain to operations concerning the product for the last month: Chapter 10 .20 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 The following materials standards have been established for a particular product: The following data pertain to operations concerning the product for the last month: Chapter 10 .300)*13.62. $430 unfavourable.5.700 unfavourable.20 . C. $16. 5.Standard Costs and Overhead Analysis 10-34 69. $2. $480 unfavourable. D.460 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 70. D. $6.309 unfavourable. What was the materials quantity variance for the month? A.700*1.550 unfavourable.800*13. $4. $6. $480 favourable. C.220 unfavourable.060 favourable.550 favourable. B.Standard Costs and Overhead Analysis 10-35 71. $2.880 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 68. 4. $3.640 unfavourable.9 .260 unfavourable. B. What was the materials price variance for the month? A. B.060 unfavourable.

920 unfavourable. D.920 favourable.710 favourable. $2. $1.8 . 14. $240 favourable. .25 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 The Clark Company makes a single product and uses standard costing. $1.550 unfavourable. $5. (1. $1. $2.9.600 Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 72.200*7. C.600*15.290 favourable.156.290 unfavourable. What was the materials quantity variance for the month? A. $7. (1. B. B. $8.230 favourable. D. What was the labour efficiency variance for the month? A. $7.25 .710 unfavourable. $1. C. 9. D.5 . $240 unfavourable.500)*17. $5.Standard Costs and Overhead Analysis 10-36 73. $11. $9.000*17.8.000*4 . D. B. B.814 unfavourable.Standard Costs and Overhead Analysis 10-37 75.10 .600)*15. C.480 Bloom's Level: Apply Difficulty: Easy Learning Objective: 3 74.700 unfavourable.10 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 The following labour standards have been established for a particular product: The following data pertain to operations concerning the product for the last month: Chapter 10 .030 unfavourable.144.230 unfavourable. What was the actual direct labour rate for May in dollars per hour? A.916 unfavourable. Some data concerning this product for the month of May follow: Chapter 10 .200*6. $8.9. What was the variable overhead spending variance for May? A.150 unfavourable. What was the labour rate variance for the month? A. C.290 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 76. $9.58.50.

$168.000*4 + 4.000.000)/14.000 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 3 77. $50.0 hours.000. C. D. $40. $11.50. 14.5 hours. What was the total standard cost for direct labour for May? A. D. $60. D.000. 14. (14.7.000*12 . C. $12. C.000.2 hours. What are the standard hours allowed to make one unit of finished product? A. 1.000*12 + 12.0 hours.000.000 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 4 79. B. B. What was the total standard cost for variable overhead for May? A. 1.000 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 Chapter 10 .75. $120. $12. D. 60.000 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 Learning Objective: 4 The following standards for variable manufacturing overhead have been established for a company that makes only one product: The following data pertain to operations for the last month: .00. B. $161.000.Standard Costs and Overhead Analysis 10-38 78. $180.000(#103)/4/10. 2. 1.B. $56. C.000.000.

55 . $6. $6. C.55 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 The Upton Company employs a standard costing system in which variable overhead is assigned to production on the basis of direct labour hours. $1.4. $7.870 favourable.680 favourable.Chapter 10 .6 .91.715 favourable. Data for the month of February include the following: Chapter 10 .900)*11.870 unfavourable.Standard Costs and Overhead Analysis 10-40 82. . D.155 unfavourable. D.900*11. C. What was the variable overhead spending variance for the month? A.000*1. 4.58. $1. B. D.95. What is the standard variable overhead rate per direct labour hour? A. (3. What was the variable overhead efficiency variance for the month? A. $2.12.190 unfavourable. B.190 favourable. C. $1. $2. $1.Standard Costs and Overhead Analysis 10-39 80. $1. $1.715 unfavourable.00. $7.310 Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 81. B.

$480 unfavourable and $100 favourable. $740 unfavourable.120 favourable. 85.840)*7(#107) Bloom's Level: Analyze Difficulty: Hard Learning Objective: 4 Chapter 10 . in the manufacture of its only product: Zizbo. $820 unfavourable. The unit standard prices of A and B are $10 and $8. respectively? A. $300 favourable and $240 unfavourable. D.6.48.(48.750)*8 Bloom's Level: Analyze Difficulty: Medium . B. $820 favourable. $950 unfavourable. B. $200 unfavourable and $240 unfavourable.450)*10 and B: (230*3 .700 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 4 84. What were the direct materials quantity variances for raw materials A and B.Standard Costs and Overhead Analysis 10-41 (Appendix 10A) Saskatoon Company uses two raw materials. The standard proportions for the manufacture of a unit of Zizbo are 2 units of A and 3 units of B. D. the company used 450 units of A and 750 units of B to produce 230 units of Zizbo. respectively. (7. $1. C. $740 favourable. A and B. $430 unfavourable. C.840*7(#107) .000 . Bloom's Level: Analyze Difficulty: Hard Learning Objective: 4 83. What was the variable overhead spending variance? A. B. $100 favourable and $480 unfavourable. A: (230*2 . D. 6. During the month of August. What was the variable overhead efficiency variance? A. $740 favourable.000hrs.700 + 300)/7. The materials are very close substitutes. C.

$240 unfavourable and $240 favourable. (Appendix 10A) For raw material A. Which one of the following variances is MOST controllable by a production supervisor? A. C. $60 favourable and $440 favourable. Yield = (3/5*1. (Appendix 10A) For raw material B. D. $300 favourable and $200 unfavourable. Materials price variance. D.200 . B.(2/5*(450 + 750))*10. $240 favourable and $200 favourable. B. Fixed overhead volume variance.230*3)*8 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Learning Objective: 8 88. C. Materials usage variance. Yield = (2/5*1. $200 unfavourable and $300 favourable.Standard Costs and Overhead Analysis 10-42 87. C. Mix = (450 . Bloom's Level: Understand Difficulty: Easy Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 Learning Objective: 5 . what were the mix and yield variances. $300 unfavourable and $200 favourable. $240 unfavourable and $240 unfavourable. respectively? A. B. D.200 . what were the mix and yield variances.(3/5*(450 + 750))*8. respectively? A. $60 favourable and $440 unfavourable.230*2)*10 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Learning Objective: 8 Chapter 10 . Mix = (750 . Variable overhead spending variance.Learning Objective: 2 86.

Option A B.Chapter 10 . Option D Bloom's Level: Understand Difficulty: Easy Learning Objective: 4 Learning Objective: 5 Learning Objective: 6 Learning Objective: 7 Chapter 10 . Option B C. Option C D. Option D Bloom's Level: Understand Difficulty: Easy Learning Objective: 4 Learning Objective: 5 Learning Objective: 6 91. Higher unit product cost. Option B C. Which of the following variances would be useful in calling attention to possible problems in the control of spending on overhead items? A. Which of the following variances would be useful in calling attention to possible problems in the control of spending on overhead items? A. Option C D. Frequent occurrence of a volume variance. B.Standard Costs and Overhead Analysis 10-43 89. Lower unit product cost. . Which of the following is directly associated with a higher denominator level of activity? A.Standard Costs and Overhead Analysis 10-44 90. Option A B. C.

C. then there is no volume variance. Bloom's Level: Understand Difficulty: Medium Learning Objective: 5 Learning Objective: 6 95. An increase in the fixed portion of the predetermined overhead rate.D. C. The amount of the fixed overhead budget variance. D. Bloom's Level: Understand Difficulty: Medium Learning Objective: 5 Chapter 10 . If the denominator level of activity is greater than the standard hours allowed for the output of the period. D. More profitable operations.Standard Costs and Overhead Analysis 10-45 93. An increase in the variable portion of the predetermined overhead rate. The amount of the variable overhead efficiency variance. D. The volume variance is the most appropriate measure of the utilization of plant facilities. Bloom's Level: Analyze Difficulty: Hard Learning Objective: 4 Learning Objective: 7 94. B. The amount of the volume variance. A decrease in denominator level of activity will lead to which of the following? A. The contribution margin lost by failing to meet the target denominator level of activity. C. The economic impact of the inability to reach a target denominator level of activity would best be measured by which of the following? A. B. then the volume variance is unfavourable. A decrease in the fixed portion of the predetermined overhead rate. A decrease in the variable portion of the predetermined overhead rate. Bloom's Level: Understand Difficulty: Hard Learning Objective: 5 92. If the denominator level of activity and the standard hours allowed for the output of the period are the same. The fixed overhead volume variance is due to which of the following? . If the denominator level of activity is greater than the standard hours allowed for the output of the period. then the volume variance is favourable. Which of the following statements is NOT correct? A. B.

Overhead cost is applied to units based on direct labour hours. Variable overhead efficiency variance. Bloom's Level: Understand Difficulty: Easy Learning Objective: 5 Learning Objective: 6 Chapter 10 .000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 . Which of the following variances is caused by a difference between the denominator activity in the predetermined overhead rate and the standard hours allowed for the actual production of the period? A.000.000 direct labour hours for the month. Fixed overhead volume variance. total overhead cost was budgeted at $80.000. Bloom's Level: Understand Difficulty: Easy Learning Objective: 5 Learning Objective: 6 97.000. D. C. Variable overhead spending variance. C.500*2* 80. C.500. The following data are available for April's activity: What was the amount of total overhead cost applied to production for the month of April? A. D.Standard Costs and Overhead Analysis 10-46 96. A difference between the denominator activity and the standard hours allowed for the actual output of the period. D. $76. Inefficient or efficient use of whatever the denominator activity is. B. Fixed overhead budget variance. A shift in the amount of hours required to produce the actual output. $79. For April. B.000/20. Inefficient or efficient use of overhead resources. B. The standard cost card indicates that each unit of finished product requires 2 direct labour hours. 9. $78.A. $80.000 based on a denominator activity level of 20.

If 24. the company worked 625 direct labour hours and produced 300 units.20.780 for the month and that the associated spending variance was $245 favourable. $0. At Jacobson Company. $0. 625 hours.Standard Costs and Overhead Analysis 10-47 98.100 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 4 Learning Objective: 7 . 300*500/250 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 3 99.100 direct labour hours were actually worked last month.Learning Objective: 5 Learning Objective: 6 Chapter 10 . (5. $0. 600 hours.35. 500 hours. $0.30. Last month's performance report showed that total actual indirect labour cost was $5. C. B.25. C. During October. what must be the flexible budget cost formula for indirect labour (per direct labour hour)? A. indirect labour is a variable cost that varies with direct labour hours. Hart Company's labour standards call for 500 direct labour hours to produce 250 units of product. 250 hours. D.780 + 245)/24. What were the standard hours allowed for October? A. D. B.

200. If 8.500 unfavourable.275. $1.50 . C.800 .700 favourable. The following information is available: Based on these data.7. At Overland Company.250. $1. 3.(15. $750 unfavourable.000 . $950 favourable.800 and that the associated spending variance was $200 unfavourable. The performance report for July showed that total actual maintenance costs were $9.225. what was the variable overhead spending variance? A. what was the budgeted maintenance cost per machine hour? A. $1.200)/8.000 machine hours were actually worked during July. $1. D. C. (9.000 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 4 Learning Objective: 7 101. Tyro Company has a standard cost system that applies manufacturing overhead to units of product on the basis of direct labour hours (DLHs).Standard Costs and Overhead Analysis 10-48 100. B. maintenance cost is exclusively a variable cost that varies directly with machine hours. D.Chapter 10 . $1.500*2.200) Bloom's Level: Apply Difficulty: Hard Learning Objective: 4 Learning Objective: 6 . $1. B.

Chapter 10 .800 * 5 * 300. The Adlake Company makes and sells a single product and uses a standard cost system.300.000 machine hours.000 in manufacturing overhead cost at a denominator activity of 20.000 . the company budgeted $300.75. $279. $102. $291. The following cost and activity were recorded during October: What was the amount of overhead cost that the company applied to work in process for October? A. Web Company uses a standard cost system that applies manufacturing overhead to units of product on the basis of machine hours.600.Standard Costs and Overhead Analysis 10-49 102. C.400. During February. During October.400/(80. $294. $98. B.000. B.400 unfavourable. $96. 6.330. only 75.000) *80.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 . At standard. each unit of finished product requires 5 machine hours. If the fixed overhead volume variance for February was $6.000 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 5 Learning Objective: 6 103. $285. However. D.000.000 standard machine hours were allowed for the month's actual production. $100.000 machine hours in computing its predetermined overhead rate. D.000. C. 3.000/20.000. the company used a denominator activity of 80. what was the total budgeted fixed overhead cost for the month? A.

what is the budgeted fixed factory overhead for the year? A.000 machine hours. B.50 .012. 10.000. $405.400 Bloom's Level: Apply Difficulty: Easy Learning Objective: 6 Chapter 10 . $607.3) Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 105.00 per machine hour. $400 unfavourable. B.000 *(7.500.Standard Costs and Overhead Analysis 10-50 104.Standard Costs and Overhead Analysis 10-51 . C. The predetermined overhead rate (variable and fixed) is $7. $1. Mauve Company uses a standard cost system that applies manufacturing overhead to units of product on the basis of direct labour hours (DLHs). D.500. D. The following data pertain to last month: What was the fixed overhead budget variance? A. $300 unfavourable.000 . 135. and the denominator activity level is 135. $30.10. $300 favourable.Learning Objective: 6 Chapter 10 .000.50 per machine hour. If the variable portion of the predetermined overhead rate is $3. C. $500 favourable.

For the month of January. What were the standard direct labour hours allowed for the month's output in January? A.200. The information below is taken from the company's flexible budget for manufacturing overhead: During the year. They fell short of the denominator hours by 1.200/1. They exceeded the denominator hours by 1.85 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 Learning Objective: 6 Chapter 10 .200.200 unfavourable. They fell short of the denominator hours by 1. Jaune Company uses a standard cost system that applies manufacturing overhead to units of product on the basis of direct labour hours (DLHs).85 per direct labour hour.000 . $500 favourable. $1. D. the fixed manufacturing overhead volume variance was $2. D. Patridge Company uses a standard cost system in which it applies manufacturing overhead to units of product on the basis of direct labour hours. 2. The following data pertain to last month's operations: What was the fixed overhead budget variance? A. C.Standard Costs and Overhead Analysis 10-52 108.5. $2. They exceeded the denominator hours by 1.000. the company operated at exactly 80% of capacity.500 Bloom's Level: Apply Difficulty: Easy Learning Objective: 6 107. C. 5. Henley Company uses a standard cost system that applies manufacturing overhead to units of product on the basis of direct labour hours. but it applied manufacturing .000.700 unfavourable.106. The company uses a fixed manufacturing overhead rate of $1. B. B.220 favourable. $500 unfavourable.

$6.000 favourable. What was the company's fixed overhead volume variance for the year? A.000 * 108.000*(1 + 4) Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 Learning Objective: 5 Learning Objective: 6 The Murray Company makes and sells a single product. Union Company uses a standard cost accounting system. .000 favourable.000/27. C.000 unfavourable. The following overhead costs and production data are available for August: What was the total amount of overhead applied to work in process in August? A. 24. $195. C. $197. $6. B.Standard Costs and Overhead Analysis 10-53 109.000.000 unfavourable. $12.overhead to products based on the 90% level.500. D. $199.000 .500. B. $197. $12. D. 39. The company recorded the following activity and cost data for May: The fixed portion of the predetermined overhead rate is $0.108.000 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 5 Learning Objective: 6 Chapter 10 .000.95 per direct labour hour.

$64.750.Standard Costs and Overhead Analysis 10-54 110. What was the fixed overhead budget variance for May? A.5*.Standard Costs and Overhead Analysis 10-55 A manufacturing company has a standard costing system based on machine hours (MHs) as the measure of activity. C.000 favourable. D. Data from the company's flexible budget for manufacturing overhead are given below: The following data pertain to operations for the most recent period: .400 favourable.000*1.5*. $6. $42.66.125.95 + 4. $62.125. $6. B.275.725.000*1.400. $68. C. $2. $64.000 unfavourable. $70. $2.500. $61. What was the amount of fixed manufacturing overhead cost applied to work in process during May? A.400 unfavourable.400(#135) . B. D. 45.700. 45. 68.000 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 6 Chapter 10 . D.95 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 112. C. B. $67. What was the amount of fixed overhead contained in the company's overhead flexible budget for May? A.275 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 6 111.Chapter 10 .

$2.075 favourable.Standard Costs and Overhead Analysis 10-56 114. C. $315 favourable. $2. 5.59. $315 unfavourable. $110. $2. $17. D. C. . C. D. C. B. $18. rounded to the nearest cent? A.00.994*18. (35. How much overhead was applied to products during the period.075 + 77.50. B. What was the total predetermined overhead rate. B. $18. rounded to the nearest dollar? A.100 .113. $112.300 * 35.550. rounded to the nearest dollar? A.850. $116.91.889. B. What was the variable overhead efficiency variance for the period.36.075/6. 6. rounded to the nearest dollar? A. What was the variable overhead spending variance for the period.100 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 Chapter 10 . $0. D. $18. $113.075 unfavourable.775)/6.50(#138) Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 Learning Objective: 6 115.075 unfavourable.415.540 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Learning Objective: 5 116.075 favourable. $2.

$1.900 unfavourable. $452 favourable. 77. Overhead costs are applied on the basis of direct labour hours. D. What was the fixed overhead budget variance for the period.775/6.075/6.775 = 1351. rounded to the nearest dollar? A. B.Standard Costs and Overhead Analysis 10-57 117. $1.100 . $3. C. What was the variable overhead spending variance for March? A.Standard Costs and Overhead Analysis 10-58 119. The Dillon Company had the following budgeted and actual data for March: Chapter 10 . C. D. The standard cost card shows that 5 direct labour hours are required per unit. rounded to the nearest dollar? A. (5. . $452 unfavourable. 5.359 unfavourable.775 .875 Bloom's Level: Apply Difficulty: Easy Learning Objective: 6 118.76. What was the fixed overhead volume variance for the period.352 unfavourable.994 .994 *77.550 favourable. $2.D. B.6.50 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 Learning Objective: 6 The Dillon Company makes and sells a single product and uses a flexible budget for overhead to plan and control overhead costs. $11.760 unfavourable.77. $4. B.100 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Chapter 10 .060 unfavourable. $900 unfavourable.902 unfavourable.300)*35. $900 favourable. $1.

160 favourable. (33. 33. B. $6. $6.000 unfavourable.000 . What was the fixed overhead volume variance for March? A.500 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Learning Objective: 5 120.750 favourable. $7. C. $17.000 . D. $6.700 unfavourable. $7.900 favourable. D.77.000/154.140. B.750 favourable.800)*123.300 unfavourable.240 favourable.160 unfavourable. $1.200/154. 161.80. B. $3. $14.161.C.240 unfavourable. $6.550 favourable.900*5 .200/154.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Learning Objective: 5 121. C.000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 5 Learning Objective: 6 Chapter 10 . What was the variable overhead efficiency variance for March? A.800 * 123. $900 favourable. 77. C. $3.900 * 5 * 77. What was the fixed overhead budget variance for March? A. $3. The standard cost card shows that 3 direct labour hours are required per unit of .000 . D.900 unfavourable.Standard Costs and Overhead Analysis 10-59 122.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 Learning Objective: 6 The Ferris Company applies manufacturing overhead costs to products on the basis of direct labour hours. $7.750 unfavourable. D.

118.800 .000)*99.000*99. B. 86. $4.800 favourable. $2.420 unfavourable. and incurred the following total manufacturing overhead costs: The denominator activity used for the predetermined overhead rate was 90.500 favourable.900 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Learning Objective: 5 124.000 . the company completed 28.115.300 unfavourable. C. $0. B. $1. what was the variable overhead efficiency variance? A.200 unfavourable. B.200 favourable. $4.000/90. what was the variable overhead spending variance? A. C. $4.500 unfavourable.86.500 favourable.420 favourable.000 direct labour hours. D. $3. D. For August. For August. $4.300 favourable. C. For August. $2.98. worked 86. (28.product.500 unfavourable.000*3 .000 direct labour hours and to incur the following total manufacturing overhead costs: During August.000 units of product. $3. what was the fixed overhead budget variance? A. For August.Standard Costs and Overhead Analysis 10-60 123. $6.300 Bloom's Level: Apply Difficulty: Easy Learning Objective: 5 Learning Objective: 6 . Chapter 10 .000 direct labour hours. $6. D.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Learning Objective: 5 125. the company budgeted to work 90.000/90.

The standard direct labour time was 3 direct labour hours per unit.000 was variable and $400.000 favourable.000 direct labour hours for the year.800/90.920 unfavourable.600. $110. $4. The actual results for the year are presented below: 127.980 unfavourable. $4.610.000 . The standard variable overhead rate was $2 per direct labour hour.000 unfavourable.000 was fixed.Chapter 10 . $82. The total budgeted manufacturing overhead for the year was $2.300 unfavourable.000 unfavourable. D.000 unfavourable. what was the fixed overhead volume variance? A. C. What was the variable overhead spending variance for the year? A.980 favourable. $7.000*2 .800 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 Learning Objective: 6 King Company estimated that it would operate its manufacturing facilities at 800. which served as the denominator activity in the predetermined overhead rate. 764. 28.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Chapter 10 . $10.000. D. B. For August. C.Standard Costs and Overhead Analysis 10-61 126.118. $4. B.1.000.Standard Costs and Overhead Analysis . of which $1.000 * 3 * 118. $2.

$25. What was the variable overhead efficiency variance for the year? A.000 favourable. $8.10-62 128.000 unfavourable. 400. 250. B.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 Learning Objective: 6 Chapter 10 .764.667 unfavourable. $41.000 favourable. . B. What was the fixed overhead volume variance for the year? A. B.000 unfavourable.000)*2 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 129. What was the variable overhead spending variance for the month? A. B. $10.000 unfavourable. $1.000 favourable. $28.000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 5 Learning Objective: 6 130. C. $192. The company uses machine hours as its measure of activity.000 favourable.000 unfavourable. (250. What was the fixed overhead budget variance for the year? A. D. C.000/800. $28.000 favourable.000*3 . $7. $18. C. $595 favourable. $74.000 . $595 unfavourable.000 unfavourable.739 favourable.000 .400.Standard Costs and Overhead Analysis 10-63 A manufacturing company that has only one product has established the following standards for its variable manufacturing overhead.392. The following data pertain to operations for the last month: 131. D. C. $17.000 unfavourable. $192.000 * 3 * 400. D.

What was the variable overhead spending variance for the month? A. $216 unfavourable. $1. B.037 unfavourable.700*14.700)*14.821 favourable. $1.821 unfavourable. C.905 Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 132.144 unfavourable.20 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 .D.1. D.100)*14. (600*7.172 unfavourable.165 Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 134. D.100*14. C. 5. $1. $11. C. $255 unfavourable. What was the variable overhead efficiency variance for the month? A.1 .739 unfavourable. D.Standard Costs and Overhead Analysis 10-64 A manufacturing company that has only one product has established the following standards for its variable manufacturing overhead.2 . $11. $1. $255 favourable.172 favourable. The following data pertain to operations for the last month: 133. $10. (200*8. What was the variable overhead efficiency variance for the month? A. $11.20 .076 unfavourable. 1.037 favourable.30 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Chapter 10 . B.72. B.24.5. $567 favourable. $10. The company uses direct labour hours (DLHs) as its measure of activity.30 .

B.Standard Costs and Overhead Analysis 10-65 135.000 favourable. C. B. $10. For March.000 unfavourable.250. C.000*2*4) .Standard Costs and Overhead Analysis 10-66 A furniture manufacturer has a standard costing system based on machine hours (MHs) as the measure of activity. rounded to the nearest cent? A. D.000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 136. What was the total predetermined overhead rate. B. For March. $21. 80.000 unfavourable.000 favourable.26. $80.Chapter 10 .000*4) Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 Chapter 10 . $6. D. $12.000 favourable. .000 unfavourable. what was the variable overhead spending variance? A. (38. $21. $96.000 favourable.16.(100.000 unfavourable.000*3 . $96. Data from the company's flexible budget for manufacturing overhead are given below: The following data pertain to operations for the most recent period: 137. what was the fixed overhead volume variance? A. $22. $80.

Standard Costs and Overhead Analysis 10-67 138.425/3.845 + 40.460. What was the fixed overhead budget variance for the period.190(#162) Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Learning Objective: 5 Learning Objective: 6 139.80. rounded to the nearest dollar? A. rounded to the nearest dollar? A. D. $1. C. 3.811 unfavourable. $21. $71. How much overhead was applied to products during the period.225 favourable. B. $74. 3. C.078*2.425 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 .425)/3. $1.90.408. $2.425 . What was the fixed overhead volume variance for the period.38. D. C.675 unfavourable.720 unfavourable. $2. $1.975 Bloom's Level: Apply Difficulty: Easy Learning Objective: 6 140. $3. $2.691 favourable.270 favourable.40. $21. (31. B. B.300 .270.955.078 * 40.450 favourable. $67.945 unfavourable. D. $72. rounded to the nearest dollar? A. $3. 40.C.300 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 Chapter 10 . D.

Learning Objective: 6 Chapter 10 . rounded to the nearest dollar? A.Standard Costs and Overhead Analysis 10-69 . $41. C.Standard Costs and Overhead Analysis 10-68 A manufacturer of playground equipment has a standard costing system based on machine hours (MHs) as the measure of activity.172*13.55. B.94. D. $40.60 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 Learning Objective: 6 Chapter 10 . $12. C.55(#166) = 42. 40.600.24. B. rounded to the nearest cent? A. $13. How much fixed overhead was applied to products during the period.650.000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 5 142. $11.070. $46. Data from the company's flexible budget for manufacturing overhead are given below: The following data pertain to operations for the most recent period: 141. D.87. 3. $13.650/3. What was the predetermined fixed overhead rate.980. $42.981.

$4. D.50 per DLH. $30. During January. $2. B.250. $2. B.00 per DLH. The standard cost card for one unit of product includes the following: Variable Factory Overhead: 3.790 favourable. rounded to the nearest dollar? A. @ $3. What was the budgeted fixed factory overhead cost for January? A. 42. $5. $1.500.650 .0 DLHs.420 favourable.60(#167) . rounded to the nearest dollar? A.700 direct labour hours (DLHs) and produced 3. B. $33.089 unfavourable. D. the company actually used 8. D. $31. C.256 favourable. . the company incurred $22. $950 unfavourable. What was the fixed overhead budget variance for the period.60 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 Learning Objective: 6 The Claus Company makes and sells a single product and uses standard costing.980.650 = 2.625.143.41. For January.000 of actual fixed overhead costs and recorded an $875 favourable volume variance. Fixed Factory Overhead: 3. C. What was the fixed overhead volume variance for the period. C. $3.375. Chapter 10 .381 unfavourable.330.000 units of product.331 favourable.470 unfavourable.40.Standard Costs and Overhead Analysis 10-70 145. $32.0 DLHs @ $4. 40. $2.600 Bloom's Level: Apply Difficulty: Easy Learning Objective: 5 Learning Objective: 6 144.

D. What was the denominator level of activity in direct labour hours (DLHs) used by Claus in setting the predetermined overhead rate for January? A. B. $24.3. (33.50 .900 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 .425)/3. 9. $23. C. Data from the company's flexible budget for manufacturing overhead are given below: The following data pertain to operations for the most recent period: 147. 8.500 DLHs.30. $23.625(#170)/3.50 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 5 Learning Objective: 6 Chapter 10 .875 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 5 Learning Objective: 6 146.500 DLHs. B.250 DLHs. 30.98. D.91.750 DLHs.Standard Costs and Overhead Analysis 10-71 A manufacturer of industrial equipment has a standard costing system based on machine hours (MHs) as the measure of activity.000 * 3 * 3.59. 10. C. What was the total predetermined overhead rate. rounded to the nearest cent? A. 9. $23.345 + 61.

483. $153. What was the total predetermined overhead rate. C.400 + 100.800)/8.75 Bloom's Level: Apply Difficulty: Medium .034.200.60 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 Learning Objective: 6 A manufacturer of industrial equipment has a standard costing system based on direct labour hours (DLHs) as the measure of activity. D. $96. $19. C. rounded to the nearest cent? A. B.770. rounded to the nearest dollar? A. How much overhead was applied to products during the period.410. rounded to the nearest dollar? A.65. $93.952*24. $19. $19. $154. Data from the company's flexible budget for manufacturing overhead are given below: The following data pertain to operations for the most recent period: Chapter 10 . $151.033. B.270.993. $94. (56.Chapter 10 . $20.30. How much overhead was applied to products during the period.65(#174) = 151.Standard Costs and Overhead Analysis 10-72 148. 3. D.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 150.992. $94. B. C.735*19. 7. $157.Standard Costs and Overhead Analysis 10-73 149.80.15.240. D.30(#172) = 96.

C. When the fixed overhead applied to units of product on the basis of standard hours allowed differs from the budgeted fixed overhead. When the actual direct labour hours differ from standard hours allowed. D. which is used for applying costs to production. . When there is a budget variance in fixed overhead costs. B. The variable portion of this rate. D. A volume variance will exist for Dori in a month under which of the following conditions? A. C. Bloom's Level: Understand Difficulty: Medium Learning Objective: 5 Learning Objective: 6 152. B. Chapter 10 . The fixed overhead volume variance. Dori's choice of a production volume as a denominator for calculating its predetermined overhead rate will have NO effect on which of the following? A. C. The actual direct labour hours multiplied by the standard fixed overhead rate per direct labour hour. The fixed overhead budget variance. The standard units of output for the actual direct labour hours worked multiplied by the standard fixed overhead rate per unit of output. B. Bloom's Level: Understand Difficulty: Hard Learning Objective: 5 Learning Objective: 6 153. When the production volume differs from sales volume.Standard Costs and Overhead Analysis 10-74 151.Learning Objective: 5 Learning Objective: 6 Dori Castings is a job order shop that uses a standard cost system to account for its production costs. Manufacturing overhead costs are applied to production on the basis of direct labour hours. What amount of fixed overhead would Dori apply to finished production? A. The fixed portion of this rate. The standard hours allowed for the actual units of finished output multiplied by the standard fixed overhead rate per direct labour hour. which is used for applying costs to production.

000 unfavourable.Standard Costs and Overhead Analysis 10-75 Jessep Corporation has a standard cost system in which manufacturing overhead is applied to units of product on the basis of direct labour hours. What was the fixed overhead volume variance? A.000 favourable. B.D. What was the fixed overhead budget variance? A. 45.000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 6 155.000 unfavourable. $2.45.000 * 45. $9.000 . D.000 . $2. The company has provided the following data concerning its fixed manufacturing overhead costs in March: 154.000 unfavourable. $3.48. $3. 12.000 favourable. Bloom's Level: Understand Difficulty: Medium Learning Objective: 6 Chapter 10 . D. C.000/15. $1. B. C. The actual fixed overhead cost per direct labour hour multiplied by the standard hours allowed.000 unfavourable. $3.Standard Costs and Overhead Analysis 10-76 .000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 Learning Objective: 6 Chapter 10 . $6.000 unfavourable.000 unfavourable.

300 . D.895 . $993 favourable. $1.895/3. rounded to the nearest dollar? A.895 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 Learning Objective: 6 Chapter 10 . $1. C. B. 3. $163 favourable. $166 unfavourable. C. B.Standard Costs and Overhead Analysis 10-77 An outdoor barbecue grill manufacturer has a standard costing system based on machine hours (MHs) as the measure of activity. What was the fixed overhead budget variance for the period. $585 favourable.420 * 26.450 favourable. What was the fixed overhead budget variance for the period.400 unfavourable.28. D.26. rounded to the nearest dollar? A. Data from the company's flexible budget for manufacturing overhead are given below: The following data pertain to operations for the most recent period: 158. . Data from the company's flexible budget for manufacturing overhead are given below: The following data pertain to operations for the most recent period: 156. $422 favourable. $815 favourable. $978 favourable. rounded to the nearest dollar? A.295 Bloom's Level: Apply Difficulty: Easy Learning Objective: 6 157. What was the fixed overhead volume variance for the period.An outdoor barbecue grill manufacturer has a standard costing system based on direct labour hours (DLHs) as the measure of activity. 26.

850.600 . $2. 50. The company recorded the following costs and activity for September: 160. What was the amount of fixed manufacturing overhead cost applied to work in process during September? A. What was the fixed overhead volume variance for the period.5*.743 * 50.150. C.400. rounded to the nearest dollar? A.009 unfavourable. $5. C. $1. D. $2.468 favourable. 22.140 = 1.800*2.810 unfavourable.140/4.690 Bloom's Level: Apply Difficulty: Easy Learning Objective: 6 159. $54. B.140 .48. $1.Standard Costs and Overhead Analysis 10-78 The Tate Company uses a standard costing system in which manufacturing overhead is applied to units of product on the basis of direct labour hours (DLHs).000.70 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 Learning Objective: 6 Chapter 10 . D.50. $61.B. $3. $4. C.360 favourable.503 favourable.559 favourable.801 unfavourable. 4.95 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 .558. $57. $59. D. B.

000. $61. What was the amount of fixed overhead cost contained in the company's flexible budget for manufacturing overhead for September? A. Which of the following is NOT true for variable manufacturing overhead costs in a standard costing system? A. Standard absorption costing.550. No volume variance is ever reported.400. C. $57.850 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 6 162.000. B. $60. C.150(#185) + 2. Under which product costing system for a manufacturing company would there be no fixed manufacturing overhead volume variance? A. B. Any underapplied or overapplied overhead is equal to the variable overhead spending variance. D.Chapter 10 . Standard variable costing. Job order costing. 54. D. B. Process costing. Bloom's Level: Evaluate Difficulty: Hard Learning Objective: 1 Learning Objective: 4 . D. The flexible variable overhead allowance for the standard hours allowed for the output is the same as the applied total variable overhead. $58. Bloom's Level: Understand Difficulty: Hard Learning Objective: 1 Learning Objective: 4 Learning Objective: 5 Learning Objective: 6 163. The slope of the budgeted variable overhead line is the same as the slope of the applied variable overhead line.Standard Costs and Overhead Analysis 10-79 161. C.

B. FALSE Bloom's Level: Understand Difficulty: Easy Learning Objective: 1 166. FALSE Bloom's Level: Understand Difficulty: Easy Learning Objective: 1 Chapter 10 . C. D. The standard direct labour rate should NOT include fringe benefits.Standard Costs and Overhead Analysis . not the result of poor cost control. Standard costs should generally be based on the actual costs of prior periods.Standard Costs and Overhead Analysis 10-80 164. Which of the following is NOT true for fixed manufacturing overhead costs in a standard costing system? A. The budget variance can arise under either a variable product costing system or an absorption product costing system. No efficiency variance is ever reported.Learning Objective: 5 Chapter 10 . Any underapplied or overapplied fixed manufacturing overhead is the same as the volume variance. Any volume variance is the result of applying fixed manufacturing overhead to products. Bloom's Level: Evaluate Difficulty: Hard Learning Objective: 1 Learning Objective: 5 Learning Objective: 6 True / False Questions 165.

FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 169. Management by exception means that a manager's attention is directed toward those parts of the organization where things are NOT proceeding according to plans. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 9 172.10-81 167. Purchase of poor quality materials will generally result in a favourable materials price variance and an unfavourable labour rate variance. The material quantity variance is computed based on the quantity of all materials purchased during the period. TRUE . FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 168. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 Chapter 10 . FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 Learning Objective: 3 170.Standard Costs and Overhead Analysis 10-82 171. the most effective time to recognize material price variances is when the materials are placed into production. From a standpoint of cost control. At the end of the variance analysis cycle. management should be able to identify possible causes for both favourable and unfavourable variances. (Appendix 10B) A favourable labour efficiency variance would result in a credit balance in the labour efficiency variance account.

FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 Learning Objective: 5 Chapter 10 . All cost variances should be considered exceptions that require the attention of management. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 8 176. The overhead spending variance contains price but not quantity elements. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 177. The production manager is usually held responsible for the labour efficiency variance. FALSE Bloom's Level: Understand . TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 3 174. (Appendix 10A) A mix variance for direct materials can be derived as the difference between the quantity variance and the yield variance. The variable overhead efficiency variance reflects how efficiently variable overhead resources were used.Standard Costs and Overhead Analysis 10-83 175. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 4 178.Bloom's Level: Remember Difficulty: Easy Learning Objective: 1 173. Standard costs can be used in conjunction with job-order costing but NOT with process costing.

In a standard costing system.or overapplied fixed overhead is equal to the sum of the fixed overhead budget variance and the fixed overhead volume variance. If the standard hours allowed for the actual output of the period is greater than the denominator level of activity (in hours). TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 6 182. The fixed portion of the predetermined overhead rate is used for product costing purposes and has no significance in terms of cost control. under.Standard Costs and Overhead Analysis 10-84 179. TRUE Bloom's Level: Understand Difficulty: Easy Learning Objective: 5 180. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 5 Learning Objective: 6 181. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 5 Learning Objective: 6 . A reason for keeping a constant denominator activity level is to maintain stability in the amount of overhead cost that is applied to each unit of product manufactured over the period. then the overhead budget variance will be unfavourable.Difficulty: Medium Learning Objective: 4 Chapter 10 .

One cause of an unfavourable overhead volume variance would be increases in cost for fixed overhead items. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 6 185. the accountant creates an artificial stability so far as fixed costs are concerned by applying fixed costs to products as if the fixed costs were really variable. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 5 Chapter 10 .Chapter 10 .Standard Costs and Overhead Analysis 10-85 183. If the denominator activity (in hours) used to compute the predetermined overhead rate is equal to the actual activity (in hours) for the period. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 6 184. Because managers want stable unit cost figures.Standard Costs and Overhead Analysis . FALSE Bloom's Level: Understand Difficulty: Hard Learning Objective: 5 Learning Objective: 6 186. then there is no volume variance. The fixed overhead budget variance is NOT controllable by managers because fixed costs are NOT controllable.

10-86 187. and prepare journal entries to record activity for the month. . Required: a) (Appendix 10B) For direct materials. (Appendix 10B) Albert Manufacturing Company manufactures a single product. 6. The standard cost of one unit of this product is: During the month of October. Capacity analysis is most affected by the presence of variable costs.000 units were produced. b) (Appendix 10B) For direct labour. FALSE Bloom's Level: Understand Difficulty: Hard Learning Objective: 1 Learning Objective: 7 189. compute the price and quantity variances for the month. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 10 Chapter 10 . (Appendix 10A) Direct labour efficiency variance can be analyzed further into mix and yield variances if more than one class of direct labour that are good substitutes is used in operations. Waste or excessive usage of overhead items will show up as part of the variable overhead efficiency variance. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 4 188. compute the rate and efficiency variances for the month.Standard Costs and Overhead Analysis 10-87 Essay Questions 190. NOT fixed costs. Selected cost data relating to the month's production follow: There was no beginning inventory of raw materials. The variable overhead rate is based on direct labour-hours.

50(AH . and prove the efficiency variance given above.500 hours Chapter 10 .250 unfavourable $4.000 units @ 1 hr. as follows: SR(AH . c) For variable overhead. compute the spending variance for the month.and prepare a journal entry to record labour activity for the month.250 unfavourable $4.000 = $2.Standard Costs and Overhead Analysis 10-88 a) Materials Price Variance: Journal entries: b) The actual hours worked during the period can be computed through the variable overhead efficiency variance.Standard Costs and Overhead Analysis 10-89 c) Variable Overhead Spending Variance: Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 Learning Objective: 9 . per unit) = $2.50AH = $29.$27.SH) = Variable Overhead Efficiency Variance $4. Chapter 10 .250 AH = 6.50AH .(6.

compute the price and quantity variances for the period and prepare journal entries to record all activity relating to direct materials for the period. Inc. c) For variable overhead. Chapter 10 . (Appendix 10B) Vernon Mills. is a large producer of men's and women's clothing.Chapter 10 .120 metres of materials were purchased. compute the rate and efficiency variances and prepare a journal entry to record the incurrence of direct labour cost for the period. Required: a) (Appendix 10B) For direct materials.Standard Costs and Overhead Analysis 10-91 a) Materials Price Variance: (b) Labour Rate Variance: .800 units of this product.Standard Costs and Overhead Analysis 10-90 191. all of which were used in production. The company uses standard costs for all of its products. The standard costs and actual costs per unit of product for a recent period are given below for one of the company's product lines: During this period. compute the spending and efficiency variances. A comparison of standard and actual costs for the period on a total cost basis is given below: There was no inventory of materials on hand at the beginning of the period. the company produced 4. b) (Appendix 10B) For direct labour. 21. During the period.

Show whether the variance is favourable (F) or unfavourable (U): a) Materials price variance b) Materials quantity variance c) Direct labour rate variance d) Direct labour efficiency variance e) Variable overhead spending variance f) Variable overhead efficiency variance . Required: From the above information.Standard Costs and Overhead Analysis 10-92 (c) Variable Overhead Spending Variance: Standard Hours of Input. at the Standard Rate: Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 Learning Objective: 9 Chapter 10 . compute the following variances. are given below: There were no inventory of materials at the beginning or end of the period. Lido Company's standard and actual costs per unit for the most recent period. during which 400 units were actually produced.Chapter 10 .Standard Costs and Overhead Analysis 10-93 192.

40((1.SH) = $3.0 x 400)) = $60 U c) Direct labour rate variance = AH(AR .4 x 400)($3.4 x 400)($6.00) = $280 U d) Direct labour efficiency variance = SR(AH .(1. (Appendix 10B) The Lahn Company produces and sells a single product.SR) = (1.$6.$3.SR) = (1.60 .50((2.SH) = $6.10 .SQ) = $1.Standard Costs and Overhead Analysis 10-94 a) Materials price variance = AQ(AP .4 x 400) .50 .50) = $84 U b) Materials quantity variance = SP(AQ .$1.1 x 400)($1.4 x 400) .5 x 400)) = $240 F e) Variable overhead spending variance = AH(AR .SP) = (2.5 x 400)) = $136 F Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 Chapter 10 .(2.00((1.Standard Costs and Overhead Analysis 10-95 193. Standards have been established for the product as follows: Actual cost and usage figures for the past month follow: Required: .(1.1 x 400) .40) = $168 F f) Variable overhead efficiency variance = SR(AH .Chapter 10 .

(5.50 x 4. x 4.200/2.Prepare journal entries to record: a) The purchase of raw materials.375 favourable Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Learning Objective: 3 Learning Objective: 9 Chapter 10 .(5 x 750)) = $875 unfavourable *** $3.50) = $200 unfavourable *** SR(AH . x 5 kgs per unit x 750 units = $13. b) The usage of raw materials in production.SH) = $5.968) = $1. c) The incurrence of direct labour cost.968 Materials quantity variance = SP(AQ .500(($14.40 unfavourable Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 .(3 x 750)) = $1.375 ** AH(AR .000 * $5.000) .SP) = 4. The following materials standards have been established for a particular product: The following data pertain to operations concerning the product for the last month: Required: a) What was the materials price variance for the month? b) What was the materials quantity variance for the month? Materials price variance = (AQ x AP) . = $15.350 favourable * $3.) .100 .750 ** AQ(AP .(AQ x SP) = $76.50(4. Chapter 10 . x 3 hrs per unit x 750 units = $12.50 per hr.70) = $4.940.$5.4.SQ) = $14.500 x $14.125 ** SP(AQ .450 .50 per kg.400/4.400 favourable SQ = Standard quantity per unit x Actual output = 9.2 x 540 = 4.50 per kg.SR) = 2.000 .500 kgs.Standard Costs and Overhead Analysis 10-96 * $3.$3.SQ) = $3.500 kgs.Standard Costs and Overhead Analysis 10-97 194.000 = $14.50) = $1.70 (5.000(($11.000 .50(2.

(AQ x SP) .60 unfavourable Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Chapter 10 .90(7.SQ) = $16.4 x 740 = 6.(AQ x SP) = $116.935 favourable SQ = Standard quantity per unit x Actual output = 9. The following materials standards have been established for a particular product: The following data pertain to operations concerning the product for the last month: Required: a) What is the materials price variance for the month? b) What is the materials quantity variance for the month? Materials price variance = (AQ x AP) .6.956 Materials quantity variance = SP(AQ . The following materials standards have been established for a particular product: The following data pertain to operations concerning the product for the last month: Required: a) What was the materials price variance for the month? b) What was the materials quantity variance for the month? Materials price variance = (AQ x AP) .435 .956) = $2.433.90) = $6.300 x $16.(7.100 .Standard Costs and Overhead Analysis 10-99 196.Standard Costs and Overhead Analysis 10-98 195.Chapter 10 .

Chapter 10 . the company purchased 7.20(6. All of this material was used in the production of 1. Dodge Company produces a single product.250.Standard Costs and Overhead Analysis 10-100 197.408) = $1.6 x 1.958.20) = $3. Direct labour cost totalled $55.SQ) = $10. The company has set the following standards for materials and labour: During the past month.408 Materials quantity variance = SP(AQ . the standard quantity allowed for materials in total for the month's production.6.000 kilograms of direct materials at a cost of $26.600 . The following variances have been computed: Required: a) For direct materials. compute the standard price per kilogram. b) For direct labour.(7.100 x $10.905 favourable SQ = Standard quantity per unit x Actual output = 3.780 = 6.40 unfavourable Bloom's Level: Apply Difficulty: Easy Learning Objective: 2 Chapter 10 .= $68. compute the actual direct labour cost per hour for the month and the labour rate variance. and the standard quantity per unit of product.125 for the month.515 .Standard Costs and Overhead Analysis .300 units of product.

000 SQ = 6.00(7. AR.00) = $2.$58.$15.$4.75 .500 kgs.SR) = Labour rate variance 3. may be used where appropriate.000 SP = $1.Standard Costs and Overhead Analysis 10-102 198. you wrote feverishly.) .500 hours = $15.250 .000 SP = $4. (The usual notations. AH (AR .500 AH = 3.SP) = $1.00 SQ = $26.000 kgs.SQ) = Materials quantity variance $4.500 kgs. per unit.500 = $6.. but you weren't able to record all the information she gave you before she dashed off muttering something about "another brush fire to put out. The supervisor of the cost department has just conferred with you concerning the variance analysis of direct labour for the month just ended." Your efforts are shown below: Required: a) To redeem yourself. SR.000 kilograms ($3.00 SP (AQ .625 unfavourable Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Chapter 10 . b) SR (AH .500 hours ($15.000 SP = $28.75 per hour.10-101 a) The actual cost of material per kilogram for the month was: $26.00 SQ = $2.300 units = 5 kgs.300 units x 3 hours)) = $6.7. adding numbers and labels.000 .000 kilograms = $3./1. $55.SP) = Materials price variance 7. complete the form above. .75 .750 favourable $26.125 total actual labour cost/3.75 per kilogram AQ (AP .000 favourable $15 AH .500/7. etc. As she talked.000 favourable $15 AH = $52.750 favourable 7.500 hours Therefore.SH) = Labour efficiency variance $15 (AH .000 unfavourable $4. SH.((1. 6.SQ) = $2.000 unfavourable $28. AH.

Standard Costs and Overhead Analysis 10-104 Bloom's Level: Analyze .$1.000 .$2.$2.000/4.440) = $36.440F AH x AR = 4.(-$1. how many units were produced? Chapter 10 .20 = $34.50 = 4.b) If you know that 18 minutes of labour is standard per unit of production.Efficiency variance = $36.250 = -$1.800 = $7.$2.750 SH = (SH x SR)/SR = $33.560 AH x SR = AH x AR .000 SR = (AH x SR)/AH = $36.440F = $34.250U = $810 .Standard Costs and Overhead Analysis 10-103 a) Computations--in this order: Rate variance = Total variance .800 x $7.50 SH x SR = AH x SR .250 = $33.$2.000 .560 .560 .Efficiency variance = $810U .500 b) Chapter 10 .440 = $1.250U = $36.750/$7.Rate variance = $34.

035 unfavourable SH = Standard hours per unit x Actual output = 2.520 Variable overhead efficiency variance = SR (AH .(AH x SR) = $97.290 unfavourable Bloom's Level: Apply Difficulty: Easy Learning Objective: 3 Chapter 10 .440) = $5.80) = $1.9 x 800 = 5.164 unfavourable Bloom's Level: Apply Difficulty: Medium .SH) = $11.440 Labour efficiency variance = SR (AH .SH) = $15.(AH x SR) = $80.100 x $15.5.520) = $9.(6.600 .220 unfavourable SH = Standard hours per unit x Actual output = 6.Standard Costs and Overhead Analysis 10-105 200. The following labour standards have been established for a particular product: The following data pertain to operations concerning the product for the last month: Required: a) What was the labour rate variance for the month? b) What was the labour efficiency variance for the month? Labour rate variance = (AH x AR) .(6.100 .8 x 2.80(6.900 x $11.50(6. The following standards for variable manufacturing overhead have been established for a company that makes only one product: The following data pertain to operations for the last month: Required: a) What was the variable overhead spending variance for the month? b) What was the variable overhead efficiency variance for the month? Variable overhead spending variance = (AH x AR) .385 .Difficulty: Hard Learning Objective: 3 199.50) = $1.6.900 .300 = 6.

For example.Learning Objective: 4 Chapter 10 . A standard is a unit concept. Theoretical standards. they often mean the total budgeted labour costs. Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 . standard quantity of input for a unit of output. Theoretically either can be used as the framework for the budgeting process. Required: a) What is the major distinction. Standards can be either theoretical ("impossible dream") or practical (attainable all the time or only part of the time). provides the better benchmark for evaluating subsequent performance in a budgeting system? Explain. Such standards generally will elicit positive motivation from workers. on the other hand. tend to discourage even the most diligent workers and as such may have no motivational value. standard cost per unit of input or standard cost per unit of output. for example.Standard Costs and Overhead Analysis 10-106 201. A budgeted amount is a total concept. if any. when businesses talk of budgeted labour costs. between a standard amount and a budgeted amount? b) Which standard. theoretical or practical. b) Practical standards should normally provide better benchmarks for evaluating subsequent performance because they are attainable through reasonable (although highly efficient) efforts by the average worker. not budgeted labour cost per unit of product. a) One major distinction between a standard amount and a budgeted amount is the unit of measurement. It is often quoted on per unit basis.

The resulting spending and efficiency variances may therefore have no relationship to either the cost or quantity of indirect labour if their amounts are insignificant relative to other components of variable overhead costs. in a manufacturing situation where there are significant variations in wage rates within or across departments. As such the standard variable overhead rate measures things other than indirect labour. Bloom's Level: Evaluate Difficulty: Hard Learning Objective: 1 Learning Objective: 3 . direct labour cost can better capture these variations as they are reflected in variable overhead costs. Required: a) Will direct labour cost ever be a better cost driver of variable overhead costs than direct labour hour? Explain b) How is the standard variable overhead rate different from the standard labour rate in variance analysis? Explain. by definition.Chapter 10 . Some variable overhead costs such as employee benefits and entitlements are usually dependent not only on number of hours but also wage rates. On the other hand.Standard Costs and Overhead Analysis 10-107 202. b) Variable overhead costs include not only indirect labour costs but also other costs such as indirect material and variable portions of utilities. a) Direct labour cost can be a better cost driver than direct labour hour. the standard direct labour rate. Direct labour hour is often assumed as the sole cost driver in analyzing the total variable overhead cost variance into spending and efficiency variances. For example. relates only to direct labour and any resulting variances have unique interpretations regarding direct labour quantity and rate.

$4.000. (Appendix 10B) The following is the standard cost card for X Company's only product: The company manufactured and sold 18.Standard Costs and Overhead Analysis 10-108 203.75 per hour. including the results of the variance analysis. b) Compute the direct labour rate and efficiency variances for the year.SQ) = Direct materials quantity variance $4. A total of 70. e) (Appendix 10B) Prepare a journal entry to record the variable overhead costs incurred and applied.200 metres .000 units of product during the year.000. Overhead cost is applied to products on the basis of direct labour hours.Standard Costs and Overhead Analysis 10-109 a) Direct materials price and quantity variances: AQ (AP . Chapter 10 . Actual variable overhead costs were $90. All of this material was used to manufacture the 18. The denominator activity level (direct labour hours) was 22.250 direct labour hours during the year at a cost of $9.20 .200 metres of material was purchased during the year at cost of $4.000 metres*) = $7. The company worked 29. f) (Appendix 10B) Prepare a journal entry to record the fixed overhead costs incurred and applied.20 per metre.040 unfavourable SP (AQ .SP) = Direct materials price variance 70. Required: a) Compute the direct materials price and quantity variances for the year.500 hours. while actual fixed overhead costs were $156.00 (70. d) Compute the fixed overhead budget and volume variances for the year. c) Compute the variable overhead spending and efficiency variances for the year.200 metres ($4. Budgeted fixed overhead costs as shown on the flexible budget were $157. including the results of the variance analysis. The company records showed no beginning or ending inventories for the year.500.72.200 favourable .000 units.Learning Objective: 4 Chapter 10 .00) = $14.

000 units x 4 metres per unit = 72. including both fixed and variable components.$10.00 (29.SH) .Standard Costs and Overhead Analysis 10-110 Bloom's Level: Apply Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 Learning Objective: 5 Learning Objective: 6 Learning Objective: 9 Chapter 10 . The company's total budgeted variable and fixed manufacturing overhead costs at the denominator level of activity are $20.500 unfavourable *18.*18. Flick Company uses a standard cost system.000 units x 1.000*)= $22.312.SR) = Direct labour rate variance 29. Manufacturing overhead is applied to units of product on the basis of direct labour hours.27.Direct labour efficiency variance $10.00) = $7. The predetermined overhead rate.000 for variable overhead and $30.000 hours c) Variable overhead spending and efficiency variances: d) Fixed overhead budget and volume variances: e) Journal entries for variable overhead: Chapter 10 .Standard Costs and Overhead Analysis 10-111 204.5 hours per unit = 27. The standards call for two direct .250 hours ($9.250 .50 favourable SR (AH .000 for fixed overhead.000 metres b) Direct labour rate and efficiency variances: AH (AR . is $2.75 .50 per direct labour hour.

00*) = $500 unfavourable * $20.50 = 20.(22.labour hours per unit of output produced.$30.000 = $1.000 DLHs c) Computation of variable overhead spending variance: Spending variance = (AH x AR) .50* (20.000/20.00) = $1.000 DLH) = $4.500 units = 23.000/$2.000 DLHs = $1.000 DLHs x $1.000 DLHs x $1.500 favourable *$30.000 .00) .000 Denominator level of activity = $50.(23.500 for variable overhead and $31.Standard Costs and Overhead Analysis 10-112 a) Total overhead at the denominator level of activity $50.500 units of product and worked 22.23.000/20.000 unfavourable f) Computation of the fixed overhead volume variance: Volume variance = Fixed portion of predetermined overhead rate x (Denominator hours .000 DLHs e) Computation of the fixed overhead budget variance: Budget variance = Actual fixed overhead . Actual costs were $22.00 d) Computation of variable overhead efficiency variance: Spending variance = (AH x SR) .000 favourable * 2 DLHs per unit x 11. Required: a) What is the denominator level of activity? b) What were the standard hours allowed for the output last year? c) What was the variable overhead spending variance? d) What was the variable overhead efficiency variance? e) What was the fixed overhead budget variance? f) What was the fixed overhead volume variance? Chapter 10 .(AH x SR) = ($22.000 DLHs* x $1.50 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Learning Objective: 5 Learning Objective: 6 .Standard hours allowed) = $1.(SH x SR) = (22.Flexible budget fixed overhead = $31.000 for fixed overhead.000 DLH = $1. the company produced 11. Last year.000 DLH .500) .000 direct labour hours.

and fixed overhead budget and volume variances.00 = 50.00) . Indicate actual.000 Standard hours allowed = (SH X SR)/SR = $150.SR) = 55.$92.00) = $5. and denominator activity levels.(SH x SR) . Performance records for last year are incomplete.000 = $3.000 = $170. variable overhead spending and efficiency variances.10 . Chapter 10 .000 direct labour hours = $1.10 Spending variance = AH (AR . You have just been hired as the controller of the Eastern Division of Global Manufacturing.500/55.000 ($3.000 hours Actual units produced = Standard hours allowed/Hours per unit = 50.000 hours/2 hours per unit = 25.000 x $3.(AH x SR) = (55.Standard Costs and Overhead Analysis 10-113 205.500 .$3.Chapter 10 .60 per direct labour hour Actual fixed overhead = Budgeted fixed overhead + Budget variance = $84. standard.800 + $7.800/53.$15.000 Actual variable overhead = Total actual overhead .000/$3.Standard Costs and Overhead Analysis 10-114 Budgeted fixed overhead rate = Fixed overhead/Denominator quantity = $84.500 Actual variable overhead rate = Actual variable overhead/Actual hours = $170.Actual fixed overhead = $262. with only the following data available: Required: Prepare a complete analysis of manufacturing overhead for the past year.000 = $150.500 unfavourable Overhead efficiency variance = (SH x SR) .000 units Volume variance = Budgeted fixed .200 = $92.

000 = $4.Standard Costs and Overhead Analysis 10-116 206. The company's condensed flexible budget for manufacturing overhead is given below: The denominator level of activity is 30.800 unfavourable Chapter 10 . including the results of the variance analysis.000 x $1. .5 machine hours per unit of output. Standards call for 2.800 . Actual activity and manufacturing overhead costs for the year are given below: Required: a) What are the standard hours allowed for the output? b) What was the variable overhead spending variance? c) What was the variable overhead efficiency variance? d) What was the fixed overhead budget variance? e) What was the fixed overhead volume variance? f) (Appendix 10B) Prepare a journal entry to record the variable overhead costs incurred and applied.(50. Sucher Company uses a standard cost system in which manufacturing overhead costs are applied to units of product on the basis of machine hours.000 machine hours.Standard Costs and Overhead Analysis 10-115 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 4 Learning Objective: 5 Learning Objective: 6 Chapter 10 .= $84.800 .$80.60) = $84.

Chapter 10 .000) .000 .000 MH .600 MHs x $3) .(32.32.(SH x SR) = (31. including the results of the variance analysis.(AH x SR) = ($96.000 MHs x $3) = $1.200 unfavourable c) Computation of variable overhead efficiency variance: Efficiency variance = (AH x SR) .200 favourable d) Computation of the fixed overhead budget variance: Budget variance = Actual fixed overhead .Standard hours allowed) = $10* (30.800 units x 2.000 favourable e) Computation of the fixed overhead volume variance: Volume variance = Fixed portion of predetermined overhead rate x (Denominator hours .000 machine hours b) Computation of variable overhead spending variance: Spending variance = (AH x AR) .000 favourable *$300.Standard Costs and Overhead Analysis 10-118 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Learning Objective: 5 Learning Objective: 6 Learning Objective: 9 .Standard Costs and Overhead Analysis 10-117 a) 12.g) (Appendix 10B) Prepare a journal entry to record the fixed overhead costs incurred and applied.$300.000/30.000 MH = $10 f) Journal entries for variable overhead: Chapter 10 .600 MHs x $3) = $1.000 = $3.5 machine hours per unit = 32.(31.000 MH) = $20.Flexible budget fixed overhead = $297.

b) Show how the $136. with variable and fixed elements identified: b) Applied overhead for the period: c) Variable overhead variances: Proof of variances: . showing separately the variable and fixed components of the rate. the cause of which management would like to know.100 underapplied overhead figure in terms of the variable overhead spending and efficiency variances and the fixed overhead budget and volume variances. The difference ($9. e) (Appendix 10B) Prepare a journal entry to record the fixed overhead costs incurred and applied.Standard Costs and Overhead Analysis 10-120 a) The predetermined overhead rate. including the results of the variance analysis. Required: a) Compute the predetermined overhead rate that would have been used during the year. c) Analyze the $9.Chapter 10 . According to the company's flexible budget.100) represents underapplied overhead. the following overhead costs should be incurred at an activity level of 18.000 machine hours (the denominator activity level chosen for the current year): During the current year. d) (Appendix 10B) Prepare a journal entry to record the variable overhead costs incurred and applied. (Appendix 10B) Nova Corporation produces a single product and uses a standard cost system to help control costs. Overhead is applied to production on the basis of machine hours. the company's Manufacturing Overhead account showed total debits for actual overhead costs of $145.100 and total credits for overhead actually applied of $136. including the results of the variance analysis.Standard Costs and Overhead Analysis 10-119 207.000 of "Applied Costs" was computed.000. Chapter 10 . the following operating results were recorded: At the end of the year.

. each unit of product requires one machine hour to complete. Required: a) The denominator activity level is 120.Chapter 10 . At standard. What are the predetermined variable and fixed manufacturing overhead rates? b) Actual data for the year were as follows: Compute the variable overhead spending and efficiency variances and the fixed overhead budget and volume variances for the year.Standard Costs and Overhead Analysis 10-122 208.Standard Costs and Overhead Analysis 10-121 d) Journal entries for variable overhead: Bloom's Level: Apply Difficulty: Hard Learning Objective: 4 Learning Objective: 5 Learning Objective: 6 Learning Objective: 9 Chapter 10 .000 units. Warner Manufacturing has established the following master flexible budget for the current year: Manufacturing overhead is applied on the basis of machine hours.

000 = $5.$300.000/120.000) = $37.50 (110.000 machine hours = $1.105.Standard Costs and Overhead Analysis 10-123 a) Predetermined variable overhead rate = $180.000 .000 unfavourable Volume variance = Fixed rate (Denominator hours .000 units x 1 hour per unit = 105.000 actual hours = $1.000 hours Fixed overhead variances: Budget variance = Actual fixed overhead .500 unfavourable Standard hours = 105.Standard Costs and Overhead Analysis 10-124 209.000 .SH) = $1.Standard hours) = $2.000 ($1.50 per machine hour b) Variable overhead variances: Spending variance = AH (AR .50 (120.Chapter 10 .500/110.000 machine hours = $2.000 units x 1 hour per unit = 105.Budgeted fixed overhead = $305.500 favourable AR = $159.105.50 per machine hour Predetermined fixed overhead rate = $300.500 unfavourable SR = 105.45 .000 .000) = $7.000 hours Bloom's Level: Analyze Difficulty: Hard Learning Objective: 4 Learning Objective: 5 Learning Objective: 6 Chapter 10 .SR) = 110.$1.45 per hour Efficiency variance = SR (AH .50) = $5.000/120. Wattis Manufacturing has established the following master flexible budget: .

000) = $67.SR) = 126.68 . What are the predetermined variable and fixed manufacturing overhead rates? b) Actual data for the year were as follows: Compute the variable overhead spending and efficiency variances and the fixed overhead budget and volume variances for the year.120.80 (126.500 unfavourable Volume variance = Fixed rate (Denominator hours .SH) = $1.000) = $10. At standard.500 = $5.800 unfavourable SR = 120.000 machine hours = $1.000 .000 units x 1 hour per unit = 120.500 unfavourable Standard hours = 120.000 .000 machine hours = $2.80) = $15.000 actual machine hours = $1.000 ($1.25 per machine hour b) Variable overhead variances: Spending variance = AH (AR .000 hours Bloom's Level: Apply Difficulty: Hard Learning Objective: 4 Learning Objective: 5 Learning Objective: 6 .Standard hours) = $2.Manufacturing overhead is applied on the basis of machine hours.Standard Costs and Overhead Analysis 10-125 a) Predetermined variable overhead rate = $270. Required: a) The denominator activity level is 150.000 units. each unit of product requires one machine hour to complete.000 hours.000/150.80 per machine hour Predetermined fixed overhead rate = $337.25 (150.Budgeted fixed overhead = $343.120 favourable AR = $211.$337.500/150.68 Efficiency variance = SR (AH .000 .$1.680/126.120.000 units x 1 hour per unit = 120. Chapter 10 . Fixed overhead variances: Budget variance = Actual fixed overhead .

Standard Costs and Overhead Analysis 10-126 210.$1.08 .268 = $2.880 = -$2. Required: a) Several numbers and labels have been omitted from the analysis of fixed overhead below. favourable variances are negative and unfavourable variances are positive.268 favourable Fixed overhead applied = 302.Standard Costs and Overhead Analysis 10-127 a) Computations-in this order: (Note: When used in the below algebraic formulas.880 unfavourable = -$388 .$1. How many units were actually produced in the situation above? c) Again suppose that 6 minutes of machine time is standard per unit of production.Chapter 10 . How many units of production were assumed when the predetermined application rate for fixed overhead was established? Chapter 10 . Tracton Corporation uses a standard costing system in which manufacturing overhead costs are applied to products on the basis of machine time. b) Suppose that 6 minutes of machine time is standard per unit of production.100 MH x $1.Budget variance = $388 favourable .) Volume variance = Total variance . Supply the missing numbers and labels.

respectively. During the month of August.268 = $324. Required: a) Calculate the following variances for raw materials X and Y: (i) Quantity variances.268 favourable = $326.880 Chapter 10 .268 + $388 favourable = $326. The unit standard prices of X and Y are $16 and $20.000 units of X and 1.Standard Costs and Overhead Analysis 10-128 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 5 Learning Objective: 6 Chapter 10 .000 Actual fixed overhead = Fixed overhead applied + Total variance = $326.268 .268 + $2.800 units of Y to produce 460 units of Gizmo. the company used 3.= $326. in the manufacture of its only product: Gizmo. (ii) Mix variances.268 Flexible budget fixed overhead = Fixed overhead applied + Volume variance = $326. X and Y. (Appendix 10A) Pictou Company uses two raw materials. (iii) Yield variances .Standard Costs and Overhead Analysis 10-129 211. Both materials are very close substitutes. The standard proportions for the manufacture of a unit of Gizmo are 6 units of X and 4 units of Y.268 + $2.$388 = $325.

800 x 60%. if any. SM: Standard Mix) Supporting calculations: AQ at SM: X: 4. The net yield variance was significantly unfavourable. 460 x 4 (i) Quantity variances Mix variants Chapter 10 .5%: 37. AM: Actual mix. SQ: Standard Quantity.b) Suppose you are made aware that the assistant production manager recommended the departure from the standard mix. The assistant production manager had relatively more influence on this variance and consequently she should not be commended.800 x 40% SQ at SM: X: 460 x 6. Y: 4. Unfortunately.Standard Costs and Overhead Analysis 10-130 Variance calculations Framework (AQ: Actual Quantity. Should the assistant manager be commended? Explain Chapter 10 .5% was a favourable net mix variance of $480.Standard Costs and Overhead Analysis 10-131 Yield variants The net effect of departing from the standard mix of 60%: 40% to actual mix of 62. Bloom's Level: Analyze Difficulty: Hard Learning Objective: 2 Learning Objective: 8 . this was strictly the result of shifting the mix in favour of the cheaper raw material X over which the assistant production manager had very little influence.

C. which of the following is a consequence of an increase in a division's traceable fixed expenses? A. C. The division's contribution margin ratio will decrease.Chapter 11 . Invested capital. B. Product advertising outlays. D. D. Direct materials. . Sales.Reporting for Control 11-2 3.Reporting for Control 11-1 Chapter 11 Reporting for Control Multiple Choice Questions 1. Salary of a corporation president. Operating income. Bloom's Level: Understand Difficulty: Easy Learning Objective: 4 2. Total assets. What would be a good example of a common cost that normally could NOT be assigned to products on a segmented income statement except on an arbitrary basis? A. The division's segment margin ratio will remain the same. Bloom's Level: Remember Difficulty: Easy Learning Objective: 1 Chapter 11 . B. The product manager's salary. Which of the following is the numerator in the calculation of the turnover component of ROI? A. All other things being equal. B.

C. Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 4.000. $45. $0.000*. $50. The contribution margin ratio in Division M was 40%. The overall company operating income will remain the same.000 + 50.000.Reporting for Control 11-3 5.000. D. C.000 + 200.000. and had a contribution margin ratio of 30% in Division B. L's SM = 70.000.000. What were Lyons Company's common fixed expenses? A.000 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 Chapter 11 .000 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 . More Company has two divisions: L and M. Lyons Company reported a contribution margin of $50. Total SM = 20. 50.000. the contribution margin in Division L was $60. $70.30 . $40. $85.000. During July. C.60.000. D. What was the segment margin for Division L? A. The common fixed expenses were $50. B. when sales in Division B were $200.25. B. and the company operating income was $20. The division's segment margin will decrease. Operating income for the company was $25. D.000.40.000 = 70.000.000 for Division A.000. $60.000. Lyons Company consists of two divisions: A and B.000 . and its sales were $250.000.000. $10.000 and traceable fixed expenses were $40. Division M's segment margin was $60.000 .

15) Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 Chapter 11 . During April.000 for Plant A. Johnson Company reported for the year just ended a contribution margin of $50. $70. what were the total fixed expenses? A.333.000) + (150.000.000. $90. D. a variable expense ratio of 60% of sales. What were Johnson Company's common fixed costs for last year? A.000*(1 -.000. using equation S -. Sales = 15. Division D's sales were closest to which of the following? A. Johnson Company operates two plants: Plant A and Plant B. $60. $40. $62.000.6 -. C.000 + (90. 50. $33.Reporting for Control 11-4 7. $93. Divisions A and B of Denner Company reported the following results for October: If common fixed expenses were $31. B.20. 31. $31.000.50.500.000 + 200.000*.000.000 and traceable fixed costs for the two plants totalled $50.000 = .000.000.000.000 . D. $52. Plant B had sales of $200.70) . D.2. and traceable fixed expenses of $15. Division D of Carney Company had a segment margin ratio of 15%.23. B.000.000*(1 -.30 . $100.000. $50.15S. Net operating income for the company was $20. C.000/(1 -.60) . B.000.000 Bloom's Level: Analyze . C.6.6S .000) Bloom's Level: Apply Difficulty: Hard Learning Objective: 1 8.000 and a contribution margin ratio of 30%.15. $22.000.

$110.000 .000 . $250. What were the total sales in Store J? A.250.000. and $40. $100.Reporting for Control 11-6 . D. or 40% of sales. 100.000. Traceable fixed expenses were $60. B. Sales K = 450. $70.000.000/.40 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 10. What were the total variable expenses in Store K? A.000.000. C.000(#44) = 200. $150. VC for K = 200.000 = $70. The contribution margin in Store J was $100.000 in Store J.000. During November.000 and sales of $450.000. or 15% of sales.000 + 40. 9.000 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 Chapter 11 .Difficulty: Hard Learning Objective: 1 Chapter 11 . D. C. CM for K = 30.Reporting for Control 11-5 Ieso Company has two stores: J and K. The segment margin in Store K was $30.70. $400. $200.000.000.000. B.000. Ieso Company reported operating income of $30.000. $130.000.000 in Store K.

D. the contribution margin in the North was $50.000. B.000.Reporting for Control 11-7 13.000.000 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 .000 .000.000 + 10. During last year. 40%.000) + 15. $24. $65. Total FC = (50.500.000)/250. 60%.000(#44) Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 Canon Company has two sales areas: North and South.60.000.000 in the North and $10. The segment margin in the South was $15. or 20% of sales.08 = 187.000 + 40.000. $170.000 .000.000. CM = 15.000 . What were the variable costs for the South area for the year? A. D.000 .000 + 60.000.000 + 40. $185. Total SM = 50.000 = 40. Chapter 11 .26. Traceable fixed costs were $15.000.500. $49. Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 14. $25. 24%.000. Total FC = 40.000.000. B. C.000 + 10. South sales = 15.500 25.000.000 in the South.000 so Common = 70. $50. D. $100. $140. What was the segment margin ratio in Store J? A.30. What were the total fixed costs (traceable and common) for Canon Company for the year? A.000.000. During last year.000 = 500.000 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 12. B. C.000. C.000 = 70. D.000/. or 8% of sales. the company reported total operating income of $26.000.000 + 15. What were Ieso Company's total fixed expenses for the year? A.11. $40. $162. C. $230. (100. VC = 187. Total SM = 30. B. 16%.15.

B. III only. I only. Which of the following is NOT an operating asset? A. II. Net book value is consistent with the computation of operating income. C. Residual income in the denominator. I and II only. Common shares. Net book value allows ROI to decrease over time as assets get older. C. Operating income in the denominator. I and III only. which includes amortization as an operating expense. Sales in the denominator. Cash.Reporting for Control 11-8 15. D. Bloom's Level: Understand Difficulty: Medium Learning Objective: 5 16. which of the following is used? A. A. B. Bloom's Level: Remember Difficulty: Easy Learning Objective: 5 17. Which of the following statements provide(s) an argument in favour of including only a plant's net book value rather than gross book value as part of operating assets in the ROI computation? I. III. Average operating assets in the denominator. B. D.Chapter 11 . C. Net book value is consistent with how plant and equipment items are reported on a balance sheet. Plant equipment. Inventory. In computing the margin in a ROI analysis. Bloom's Level: Understand Difficulty: Easy Learning Objective: 4 . D.

Dividing the margin by the turnover. Bloom's Level: Remember Difficulty: Easy Learning Objective: 4 Chapter 11 . D. How is a company's return on investment calculated? A. It will decrease if operating assets decrease. D. C. Bloom's Level: Understand Difficulty: Medium Learning Objective: 4 20. C. D. It will decrease if turnover increases. which of the following statements about a company's return on investment is correct? A. It will decrease if turnover decreases. Dividing the turnover by the average operating assets. It will increase if operating assets increase. All other things equal.Reporting for Control 11-9 18. A decrease in sales. B. Bloom's Level: Understand Difficulty: Medium Learning Objective: 4 19. B. Multiplying the turnover by the average operating assets. B. An increase in operating expenses. Assuming that sales and operating income remain the same.Chapter 11 . An increase in average operating assets. A decrease in operating expenses.Reporting for Control 11-10 . C. Multiplying the margin by the turnover. which of the following events would generally cause an increase in a company's return on investment (ROI)? A.

Delmar Corporation is considering the use of residual income as a measure of the performance of its divisions. Contribution margin minus traceable and common fixed expenses. Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 11 . Residual income does not measure how effectively the division manager controls costs. Option A B. Opportunities may be undertaken that will decrease the overall return on investment. The minimum required rate of return may eliminate desirable opportunities from consideration. C. Suppose a manager's performance is to be evaluated by residual income. B. All other things equal. What major disadvantage of this method should the company consider before deciding to institute it? A. D. Option D Bloom's Level: Understand Difficulty: Medium Learning Objective: 4 22.Reporting for Control 11-11 23. Sales minus variable expenses and traceable fixed expenses. Option B C. . This method does not make allowance for difference in the size of compared divisions. B. D. Which of the following is a correct definition of operating income? A.21. a company's return on investment is affected by a change in which of the following? A. C. Sales minus variable expenses. Option C D. Bloom's Level: Understand Difficulty: Easy Learning Objective: 5 24. Income before interest and taxes (EBIT). Which of the following will NOT result in an increase in the residual income figure for this manager.

Research and development. D. Which of the following would improve the manager's performance? A. The cost of which one of the following business functions making up the value chain is included in product costs for financial reporting purposes under generally accepted accounting principles? A. B. Manufacturing. Bloom's Level: Understand Difficulty: Medium Learning Objective: 5 25. The costs of which of the following business functions making up the value chain are NOT part of the downstream costs? A. An increase in sales. Increase in minimum required return. Customer service. D. A decrease in expenses. Decrease in operating income.assuming other factors remain constant? A. Customer Service. C. B. The performance of the manager of Division A is evaluated by residual income. Distribution. Marketing. Bloom's Level: Understand Difficulty: Medium Learning Objective: 6 . C. D. Bloom's Level: Understand Difficulty: Medium Learning Objective: 6 27. Decrease in average operating assets. Increase in average operating assets. B. Bloom's Level: Understand Difficulty: Medium Learning Objective: 5 Chapter 11 . C.Reporting for Control 11-12 26. D. C. A decrease in operating assets. An increase in the minimum required rate of return. B. Manufacturing. Product design.

Which costing system focuses on all costs along the value chain? A. B. D. D. Process costing. Inspection time. inspection time. B. D. Queue time. Absorption costing. Bloom's Level: Remember Difficulty: Easy Learning Objective: 6 30. Process time. Process time. Inspection time and move time. Move time. move time. C.Reporting for Control 11-13 29. and move time. C. How is manufacturing cycle efficiency (MCE) computed? A. Bloom's Level: Remember Difficulty: Medium Learning Objective: 6 31. By dividing value-added time by delivery-cycle time. Bloom's Level: Understand Difficulty: Hard Learning Objective: 6 Chapter 11 . and queue time. C. B. Throughput time consists of which of the following? A. Activity-based costing. Process time.28. By dividing value-added time by throughput time. C. D. Bloom's Level: Remember Difficulty: Easy Learning Objective: 6 . By dividing throughput time by delivery cycle time. inspection time. By dividing process time by delivery cycle time. Process time. Which of the following represents value-added time in the manufacturing cycle? A. Life cycle costing. B.

B. Bloom's Level: Remember Difficulty: Easy Learning Objective: 2 34. A residual income centre. Variable cost of producing a unit of product.Reporting for Control 11-14 32. C. An investment centre. less any costs saved by transferring internally. C. A profit centre. Which of the following best describes a segment of a business responsible for both revenues and expenses? A. B. what is the lowest acceptable transfer price as far as the selling division is concerned? A. D. C. The market price charged to outside customers. The full absorption cost of producing a unit of product. The amount that the purchasing division would have to pay an outside seller to acquire a similar product for its use. B. A cost centre. Activity-based costing. Effective decentralization is essential for which of the following management accounting practices in organizations? A. D. D. Bloom's Level: Understand Difficulty: Medium Learning Objective: 3 33. Segment reporting. When the selling division in an internal transfer has unsatisfied demand from outside customers for the product that is being transferred. Break-even analysis. Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 .Chapter 11 . Product costing.

B.Reporting for Control 11-15 35. External failure costs.Chapter 11 . An increase in appraisal costs will usually result in an increase in which of the following? A. Which statement(s) is/are correct? A. III. Consider the following three statements: I. C. I and III only. An investment centre has control over invested funds. Which of the following statements about quality costs is correct? A. II. C. Opportunity costs. D. B. A profit centre has control over both cost and revenue. They cut across departmental lines and often are not accumulated and reported to management. I and II only. A cost centre has no control over sales. D. Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 36. C. II only. They should be focused on appraisal activities. Internal failure costs. B. D. I only. Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 . but not over costs and revenue. They are minimized by having a team of well-trained quality control inspectors. Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 37. Prevention costs. They relate only to the manufacturing process.

Quality data gathering. Warranty repairs and replacements. D. Re-entering data because of keying errors. Net cost of spoilage. D. B. C. Net cost of scrap. Systems development. Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 39. Systems development. D. Lost sales arising from a reputation for poor quality. analysis. B. Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 41. Rework labour and overhead. Which of the following would be classified as an appraisal cost on a quality cost report? A. C. Which of the following would be classified as a prevention cost on a quality cost report? A. B. Which of the following would be classified as a prevention cost on a quality cost report? A. C. C. Supervision of testing and inspection activities. Quality engineering. D. Which of the following would be classified as a prevention cost on a quality cost report? A. Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 40.Chapter 11 . Final product testing and inspection. Technical support provided to suppliers. Quality training.Reporting for Control 11-16 38. and reporting. B. Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 . Rework labour and overhead. Cost of field servicing and handling complaints.

C. Downtime caused by quality problems. Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 43. D.Chapter 11 . Cost of field servicing and handling complaints. B. Downtime caused by quality problems. Supplies used in testing and inspection. Quality circles. C. Which of the following would be classified as an appraisal cost on a quality cost report? A.Reporting for Control 11-18 . D. Quality engineering. B. Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 44. Test and inspection of in-process goods. Amortization of test equipment. C. B. Final product testing and inspection. Returns and allowances arising from quality problems. Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 Chapter 11 . Which of the following would be classified as an internal failure cost on a quality cost report? A.Reporting for Control 11-17 42. D. Which of the following would be classified as an appraisal cost on a quality cost report? A. Net cost of scrap. Supplies used in testing and inspection.

D. D. Which of the following would be classified as an external failure cost on a quality cost report? A. B. Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 47. Re-entering data because of keying errors. Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 Chapter 11 . Which of the following would be classified as an external failure cost on a quality cost report? A. C. Amortization of test equipment. Systems development. D. Rework labour and overhead.45. Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 46. Systems development. Quality engineering. Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 . Which of the following would be classified as an internal failure cost on a quality cost report? A. Repairs and replacements beyond the warranty period. C. B. B. Quality training.Reporting for Control 11-19 48. D. Systems development. Quality engineering. C. Supplies used in testing and inspection. Which of the following would be classified as an internal failure cost on a quality cost report? A. Quality improvement projects. C. Technical support provided to suppliers. Final product testing and inspection. Product recalls. Quality training. B.

Test and inspection of incoming materials.000. C.000 + 31.000. $143.49. 68. B. $145. D. $185. B. $151. Warranty repairs and replacements. B.000. Amortization of test equipment. D.000.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 Chapter 11 .000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 52. Which of the following would be classified as an external failure cost on a quality cost report? A. $165. What will be the total internal failure cost appearing on the quality cost report? A. Test and inspection of in-process goods.Reporting for Control 11-21 .000. 70.000 + 83. C.000.000. $134. What will be the total prevention cost appearing on the quality cost report? A. $158. $103.000. $128. D.000 + 97.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 51.000 + 88. What will be the total appraisal cost appearing on the quality cost report? A. C. $150. 72.Reporting for Control 11-20 50.000. D. $155.000. Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 Eacker Company's quality cost report is to be based on the following data: Chapter 11 .000.000. B. $196. C.

000. D.000. $51.000 + 40.000 + 57. What will be the total appraisal cost appearing on the quality cost report? A.000. $97.53. $45.000. $119. $277.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 Chapter 11 . C. $121.000.000. C. B. C.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 Eade Company's quality cost report is to be based on the following data: 54. 32. $75. $143. What will be the total prevention cost appearing on the quality cost report? A.000.000 + 18.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 . 13.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 56. 62. B. $70.000.000. $43. B. $47.000. C. 73.000 + 46. What will be the total internal failure cost appearing on the quality cost report? A.000 + 11.Reporting for Control 11-22 55. $110.000. D. B.000. D. D. $119. What will be the total external failure cost appearing on the quality cost report? A.000. $80.000. $54.000. $628.000.

B. D. $102. D. $328.000. $112. $102. $175.000.Reporting for Control 11-24 .000 + 65.000. What will be the total external failure cost appearing on the quality cost report? A. C. $130. What will be the total prevention cost appearing on the quality cost report? A. $54. C.000. 75.Reporting for Control 11-23 Eagan Company's quality cost report is to be based on the following data: 58. B.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 59.000.000 + 92. $112. $75.57.000.000.000. C. What will be the total appraisal cost appearing on the quality cost report? A. B. $95. D.000.000 + 36.000.000 + 10. $167.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 Chapter 11 .000. $92.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 Chapter 11 . 59. 37.000.

000. $64. D. B. D.000.000 + 38. C.000. $247.60. C.000.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 .000. $69.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 63. C.000.000. $524. What will be the total appraisal cost appearing on the quality cost report? A.000. $158. $121. $99. 94. D. $121.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 Faast Company's quality cost report is to be based on the following data: Chapter 11 . B. B.000. $124. $211.000 + 86.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 64. $113. What will be the total internal failure cost appearing on the quality cost report? A. D.000. 96. C.000.000 + 16.000. $132.000. $102.000.000 + 29.000. $108.000.000. What will be the total external failure cost appearing on the quality cost report? A. $102.000. $124. 86. $178.000 + 27. 86. B.Reporting for Control 11-25 62. B. $139. 92.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 61. $148.000. D.000.000 + 53. C. What will be the total prevention cost appearing on the quality cost report? A. $245. What will be the total internal failure cost appearing on the quality cost report? A.

$286. $75. $79. B.000 + 32.000. C. $533.000.000. $93.000. $64. B.000.000. D. 13. What will be the total prevention cost appearing on the quality cost report? A. $78. C. $109. $157.000.Chapter 11 .000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 Chapter 11 .000.000.Reporting for Control 11-27 67.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 . 47. D.000. $140. B. D. 17.000. $127. What will be the total appraisal cost appearing on the quality cost report? A. C.000 + 61. What will be the total external failure cost appearing on the quality cost report? A.000.Reporting for Control 11-26 65. $73.000 + 62.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 Fabri Company's quality cost report is to be based on the following data: 66.

000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 Chapter 11 . D.000.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 69. C. $127. $85. $80.000.000. $481. $140. What will be the total appraisal cost appearing on the quality cost report? A. D.000. B. C. 93. D. C. $81. 56.000. What will be the total external failure cost appearing on the quality cost report? A. B.000 + 35. 72. 68.000.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 71.000 + 51. B. $181. $74.68.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 .000 + 29. $41. What will be the total prevention cost appearing on the quality cost report? A.000. $146.000. B.000.000. $217. What will be the total internal failure cost appearing on the quality cost report? A.000.000.000. $107. $324.Reporting for Control 11-28 Faust Company's quality cost report is to be based on the following data: 70.000 + 6. C. $78. $103.000. D.000 + 95.000.000. $107.

000.000 + 71.Reporting for Control 11-30 74. $74. $79. D. What will be the total appraisal cost appearing on the quality cost report? A.000 + 56. $59. C.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 73.000. B. D.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 . $98.000. B. $403. 3. What will be the total prevention cost appearing on the quality cost report? A. $155.000.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 75. $163.000.000. $197. What will be the total external failure cost appearing on the quality cost report? A.000.000 + 19. $113. $92. 27.000.000. C. D. 57.000.000. C. $84. D.000. What will be the total internal failure cost appearing on the quality cost report? A.000. B.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 Thais Company's quality cost report is to be based on the following data: Chapter 11 .Chapter 11 .000. $99.000.000 + 42. C. $170. B. 76.Reporting for Control 11-29 72. $132. $22. $71.000 + 68.000.

$126.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 78. $570. The budgeted contribution margin per unit. $247.000. (Appendix 11A) Which of the following is(are) NOT used in calculating sales mix variances for two products that are close substitutes? A. D. C.Reporting for Control 11-31 77.000. $104.000 + 61. The actual total units of the two products sold. Both the budgeted sales mix percentages and the budgeted contribution margin per unit.000.000. (Appendix 11A) The sales quantity variance is calculated by holding constant which of the following? A. Bloom's Level: Understand Difficulty: Medium Learning Objective: 8 79. C. B. $147. $100.76. B. D. The market volume in units.000. 65. What will be the total external failure cost appearing on the quality cost report? A. 103. D. C. The actual sales mix percentages. What will be the total internal failure cost appearing on the quality cost report? A.000.000 + 105. The budgeted sales mix percentages. $166.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 Chapter 11 . Bloom's Level: Understand Difficulty: Medium .000. B.000. D. C. $373. The budgeted sales mix percentages.000 + 39. The actual sales mix percentages. B.

Bloom's Level: Understand Difficulty: Medium Learning Objective: 9 82. (Appendix 11A) What is the sum of the sales mix variance and the sales quantity variance? A. The flexible budget variance.Learning Objective: 8 Chapter 11 . C. Advertising. Bloom's Level: Understand Difficulty: Medium Learning Objective: 9 Chapter 11 . Advertising. The sales volume variance. Bloom's Level: Understand Difficulty: Medium Learning Objective: 8 81. Collection of accounts receivable. The market share variance. (Appendix 11B) Which of the following is NOT an example of an order-getting marketing activity? A. B. C. C. Delivery of customers' orders.Reporting for Control 11-32 80. D. (Appendix 11B) Which one of the following is NOT an example of an orderfilling marketing activity? A. Order entry.Reporting for Control 11-33 . D. The master budget variance. B. Warehousing of customers' orders. B. D. Sales travel. Training of sales staff.

C.5% and 5%.500. If the company's turnover was 3. If the division's average operating assets last year were $450. what was the company's operating income for the year? A. P = .000/8. $37.12)/3 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 4 Chapter 11 . Q = .000) = 4% Bloom's Level: Analyze Difficulty: Hard Learning Objective: 4 . Reed Company reported total sales of $150. $18.Reporting for Control 11-34 85.000*. B. D. $2. Sales and average operating assets for Company P and Company Q are given below: What is the margin that each company (Company P and Company Q. B.000. 2.20/(50.000.500. 50% and 100%.000*. 12% and 16%.15 . B. Division B had an ROI last year of 15%. The division's minimum required rate of return is 10%. $22.000*. C. $67. (150. respectively) will have to earn in order to generate a return on investment of 20%? A.000 last year and a return on investment (ROI) of 12%.000. C.450. D.000) = 8%. D.10 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 4 Learning Objective: 5 84. what was the division's residual income for last year? A. $6.83. 8% and 4%.20/(20. 450.000.500.000/10.000. It is impossible to determine from the data given. $45.

B. B. Op.000/3.500.000.500.000. 2.5 = 200. Last year. $10. $200. 8%.000. and sales of $100. The turnover was 0. C. 8%. C.08 * 700. D.000.000/200.000.5 = 200. $700. $2.000 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 4 88. What were the average operating assets last year? A.Reporting for Control 11-35 87.000. D.000/x = .86. Assets = 100.000. Cable Company had the following results for the year just ended: What were Cable Company's average operating assets during the year? A. $12. a company had shareholders' equity of $160. .000/. D. A company had the following results last year: sales.000.20 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 4 . B. return on investment. operating income of $16. 9%.000. 28%. 10%. ROI = 16. C.5.28 so operating assets = 700. and margin. $50. $200.000.500/.000.450.000 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 4 Chapter 11 . $540. $2. What was the return on investment (ROI)? A.000. 7%.

12 Bloom's Level: Apply Difficulty: Easy Learning Objective: 5 Chapter 11 . $20.000/375.Reporting for Control 11-36 89.15/(750.000. $2.000*. What was the residual income for the Northern Division last year? A.000. 15. 7.000. Largo Company recorded sales of $750.150.Chapter 11 . What margin did Largo Company need to earn to achieve an ROI of 15%? A.000 . C. The Northern Division of the Smith Company had average total operating assets of $150. Its minimum required rate of return was 12%.000) Bloom's Level: Analyze Difficulty: Hard Learning Objective: 4 90. $18.000 and average operating assets of $375. 9. For the past year.000. The division reported operating income of $20.000.50% C.00% B.99% D. 20.000.000 last year.00% Margin = . 2. B. D.Reporting for Control 11-37 . $5.

Data concerning this part appear below: Division Y of the same company would like to use the part manufactured by Division X in one of its products.000)/5. 50 + ((75 . Division X makes a part that it sells to customers outside of the company. D. Data concerning this part appear below: Division Y of the same company would like to use the part manufactured by Division X in one of its products. Division X has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into outside sales.000 units of the part each period. C. . $75. what is the lower limit on the transfer price? A. Division Y requires 5. What should be the lowest acceptable transfer price from the perspective of Division X? A. According to the transfer pricing formula. B.Reporting for Control 11-38 92. $66.50)*5. Division Y currently purchases a similar part made by an outside company for $70 per unit and would substitute the part made by Division X. Division Y requires 5. Division X can already sell all of the units it can produce on the outside market.000 units of the part each period. Division Y currently purchases a similar part made by an outside company for $49 per unit and would substitute the part made by Division X. Division X makes a part that it sells to customers outside of the company.91. $16.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 Chapter 11 . $50. $30.

Division B currently purchases a similar part made by an outside company for $38 per unit and would substitute the part made by Division A. C. $38. D. If Division A sells to Division B rather than to outside customers. Data concerning this part appear below: Division B of the same company would like to use the part manufactured by Division A in one of its products.1 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 . D. B. $30. the variable cost per unit would be $1 lower. Division B requires 5. Division A has ample capacity to produce the units for Division B without any increase in fixed costs and without cutting into sales to outside customers. $40. $46. C.Reporting for Control 11-39 93. What should be the lowest acceptable transfer price from the perspective of Division A? A. $50. Transfer price = 30 + 0 Bloom's Level: Apply Difficulty: Easy Learning Objective: 3 Chapter 11 . 30 . Division A makes a part that it sells to customers outside of the company. $29.B. $49.000 units of the part each period.

000 Bloom's Level: Apply Difficulty: Hard Learning Objective: 3 95. . Division X of Charter Corporation makes and sells a single product that is used by manufacturers of forklift trucks. compared to what it is currently? A. $17.000 units a year from Division X to use in its products.000 wheel sets it needs annually from Division P at $87 per wheel set. $225. What would be the change in annual operating income for the company as a whole. $24. and the variable production cost per unit is $65.000 units per year to outside customers at $24 per unit.000 each year on the outside market.000. $16.00. and the variable cost to make each unit is $16.60. $21.000.000 wheel sets (of the kind made by Division P) yearly from an outside supplier at a price of $90 per wheel set.000 units.000. What should be the lowest acceptable transfer price from the perspective of Division X? A.00. Presently. Division Y of Charter Corporation would like to buy 10. B. There would be no cost savings from transferring the units within the company rather than selling them on the outside market. Division Q of Turbo Corporation currently buys 30. 16 + {(24 .000 .Chapter 11 . Division P of Turbo Corporation has the capacity for making 75.000 wheel sets per year and regularly sells 60.16)*(10.8.Reporting for Control 11-40 94. Division Q would like to buy the 30. C. $135.000)}/10. $600. it sells 12.40. The annual capacity is 20. B. D. The regular sales price is $100 per wheel set. C.

D. Income = (90 . TP = VC + opportunity cost = 40 + [{1.000 .000. $62. C. $24.950)}*62]/1.180.1.950 motors each month to outside customers at a contribution margin of $62 per motor. B. Min. The variable cost is $40 per motor.50. Division B of Harkin Company would like to obtain 1. $9.000*. C.400 motors each month from Division A.000 .000. B. $15.(3.000)}/30. $40.50 0* 30.000 motors per month and regularly sells 1.82.15 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 .000 = 82.00.50.65) * (30. What is Company A's residual income? A.000.000 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 Chapter 11 . $21. 36. Change in Op.50. = 65 + {(100 .Reporting for Control 11-41 96.000. T.400 Bloom's Level: Apply Difficulty: Hard Learning Objective: 3 The following information is available on Company A: 97.000 . What should be the lowest acceptable transfer price from the perspective of Division A? A. Division A of Harkin Company has the capacity for making 3.000. $45. $55.15. D. $750.400 .P.D.00.

36. 15%. 20%. What is Company A's return on investment (ROI)? A.000 units.000. 240. The following data are available for the South Division of Redride Products. B.Reporting for Control 11-42 98.000 + 1.000*. Note: Students will need to have an understanding of CVP analysis from chapter 7.000 units. C. (280. 1.000 units.16)/(20 . Inc.12) = 65. .300.Reporting for Control 11-43 The Axle Division of LaBate Company makes and sells only one product.000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 99.000 units per year. $10. C.Chapter 11 .000 units. what would be the residual income? A. 52.000 units.500. Bloom's Level: Analyze Difficulty: Hard Learning Objective: 4 Chapter 11 . D.000/180. Annual data on the Axle Division's single product follow: 100. 65. D. If Axle sells 15. 4%. 36%. B. and the single product it makes: How many units must South sell each year to have an ROI of 16%? A.

500 units. $50. Op. what would be the return on investment? A. 16%. Axle should sell how many units per year? A.22)/(50 .000 units per year. (16.12 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 5 101. 12%. 19. 16.250 units.500 units. $100. C.000. #units = (200. C.750.000 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 5 Chapter 11 . Income = 45.30) .12 = $135.000.750 units.000 + 750. C. C.250 units. D. 18. 19.000] . D.200.500 units. Axle must sell how many units per year? A.000*.000)/(50 . B.000*(50 .750 units. 16.000*. $30. [15. In order to achieve this. If Axle sells 16.000 * (50 .30) Bloom's Level: Analyze Difficulty: Hard Learning Objective: 4 103. Suppose the manager of Axle desires an annual residual income of $45.000)/750. 15%. 18. 18%. B. 14. 14.200.000. D. Suppose the manager of Axle desires a return on investment of 22%. D. B.30) . In order to achieve this goal.B.000.Reporting for Control 11-44 102.500 units. (200.30) Bloom's Level: Analyze Difficulty: Hard Learning Objective: 5 .000 + 135.000.000 * .000 + 750.

000.156 = $130.Reporting for Control . What was Division A's residual income? A. ROI = 3. $2.500.14 Bloom's Level: Apply Difficulty: Easy Learning Objective: 5 106. B. C. 500. B. $1. $400. $200. $125.25 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 4 105. B. $130.000.000.080. D. D.000. C. $20.000*1.20 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 4 Chapter 11 . $625.9% * 4 = 15.200.Estes Company has assembled the following data for its divisions for the past year: Chapter 11 . What were Division B's average operating assets rounded to the nearest dollars? A. $45. C.333.333.128.Reporting for Control 11-45 104.128. $30.000 . $35.000.000. What were Division A's sales? A.000*.300/. $81. Op.6%. D.000. Avg. 100. Assets = 20.000.000.

what was the minimum required rate of return? A.000/100. D.11-46 The Holmes Division recorded operating data as follows for the past year: 107.00%. 4.Reporting for Control 11-47 109. 11%.00%. 2. B.50%.75%. D. 20.000/100. 12%.000)/100. C. (25.13. 25. 31. 13%.00% D.75%.000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 110. For the past year.000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 Chapter 11 . 25. For the past year. 14%. 25.000 .25%. C. For the past year. what was the margin? A. B.50%.000 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 5 The Baily Division recorded operating data as follows for the past two years: Baily Division's turnover was exactly the same in both Year 1 and Year 2. 12. 13. . 10. C. 14. what was the turnover? A. B. what was the return on investment? A. 25. 200.000/200.000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 108. For the past year. 15. 15. B. C. D.

000.00%. $1.000.000.50%.5. $720. $140.75%. D. . $90. Turnover = . B.5 * 600. 18.Reporting for Control 11-48 111. 22.000. . C. What was the operating income in Year 1? A.200. D. What were the average operating assets in Year 2? A. C. $750.000.225/. 12.Chapter 11 .000 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 4 112.15 = 1. D. $150. $400. 27.000.000(#146) * . B.00%.18/1. $135. What were the sales in Year 1? A. Sales = 1. B. 900.15 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 4 113.Reporting for Control 11-49 114. What was the margin in Year 2? A. $900.000.000.000.5(turnover from #146) Bloom's Level: Analyze Difficulty: Medium Learning Objective: 4 Chapter 11 . C.

000. B.000.20 Bloom's Level: Apply Difficulty: Easy Learning Objective: 5 The following selected data pertain to Beck Co. C. C.000. D.000.100. $80. 80. C. 1.000 .000. B. 40%.B. $40.200. What was the return on investment? A. $900.000*.000. $100.000 .'s Beam Division for last year: 117.000. $40.000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 Chapter 11 . B. What was the residual income? A.200.000.000/200. $420.000. (400.5(#146) Bloom's Level: Analyze Difficulty: Medium Learning Objective: 4 The following selected data pertain to the belt division of Allen Corp. 15%.250. $10.000 . 20%. 80. D. $750.000/1. $50. 16%. D.000) . What was the residual income? A.Reporting for Control 11-50 116. D. for last year: 115.000. $800.000*.000. $80.200. C.20 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 .

Chapter 11 .000 .500%.000)/500. 40.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Chapter 11 .700.000*.000 . 40. $90. C.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 The Northern Division of the Gordon Company reported the following data for last year: 119. C. D. B.000%. 28. What was the return on investment last year for the Northern Division? A.000.5%. $48. 12. D.100. C. 62. D.15 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 . 18.250. 25.000.500.000. B.000%.0%.Reporting for Control 11-51 118. $125.000 . B. (900.000 . 20.Reporting for Control 11-52 120.000. What was the return on investment? A. 900. $135.700. What was the residual income for the Northern Division last year? A.0%.0%. (400.000 .125%.000)/200.

40. C.20. 50. 50. 40%. 8%. 14. What was the turnover for the past year? A. D. 36%. What was the return on investment for the past year? A. 20%. C. B. B.2%.000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 124. (50.98. 2. 11. D. C.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 .000/250.50. 8%.000/250.000 . 1. 625. B. B. 28%.2%. 19. C.Reporting for Control 11-53 122.4%.94. 6.000)/250. 12%. 8. What was the margin for the past year? A. 36%. D.000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 Chapter 11 .000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 123.Harstin Corporation has provided the following data: 121.000/625. 2. What was the minimum required rate of return for the past year? A.0%. D.

2 margin = . Income = 3.000.08 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 4 126. $768. B. $3. 1.000/. What was the turnover for Year 1? A.000. C.0.5 = 8%.333. . $3. 125.12(#160) Bloom's Level: Analyze Difficulty: Hard .Reporting for Control 11-55 127.000*.36/3 = 12%.12/1. D.08(#160) Bloom's Level: Analyze Difficulty: Hard Learning Objective: 4 Chapter 11 . What were the sales for Year 2? A.Reporting for Control 11-54 The Millard Division's operating data for the past two years are provided below: Millard Division's margin in Year 2 was 150% of the margin in Year 1.2. $384. Yr.200.12(#160)/.000.0. C. C. 4. B. $256.200.000. Yr. B. What was the operating income for Year 1? A.200.333. $1. 1.000. $240. D. 360. 1 margin = . D. Op.000. $3. 3.5.000.000.Chapter 11 .

18. D. $1.200. $1. C.000(#161)/3 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 4 Ricric Corporation has provided the following data for one of its products: Chapter 11 . D. B.Reporting for Control 11-56 129. $1. 3 + 4 + . 3/8(#164) Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 Chapter 11 . 8(#164) + 9 Bloom's Level: Apply Difficulty: Medium Learning Objective: 6 131. 9. B.33.000. What is the throughput time for this operation? A. 8 days. D. $1. 3.889. C. 0.3 days. B. 3 days. 17 days. 0.3 Bloom's Level: Apply Difficulty: Easy Learning Objective: 6 130. C.000. What were the average operating assets for Year 2? A.Reporting for Control 11-57 . 7.Learning Objective: 4 128.080.7 + . 8 days.000. 7.45. B. The manufacturing cycle efficiency for this operation is closest to which of the following? A.000. D. What is the delivery cycle time for this operation? A. 0.375. 0. 17 days. C.388.000.7 days.7 days.

Reporting for Control 11-58 133. 132. what will be the effect on the operating income of the company as a whole? A. would like to purchase 5. Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its usual selling price. If Division A sells the parts to Division B at $24 per unit (Division B's outside price). (24 . There will be no change in the status of the company as a whole.000 each period.25)*5. Lower by $10. what will be the effect on the operating income of company as a whole? A. If Division B continues to purchase parts from an outside supplier rather than from Division A. Division B is now purchasing these parts from an outside supplier at a price of $24 each.000 units of the part each period from Division A. D. Lowest TP = 18 + [(25 . Lower by $30. Higher by $5. C.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 Division A produces a part with the following characteristics: .000 each period.000 each period.18)*5.18)*5. Effect = (24 . Lower by $15. D.000 each period. Higher by $15.000 each period.000 each period. Lower by $5.000 = 25. B. Suppose that Division A has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into sales to outside customers.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 Chapter 11 . another division of the same company.000]/5. Lower by $35. C.Division A makes a part with the following characteristics: Division B.000 each period. B.

$17. C. Suppose that Division A has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into its sales to outside customers.Division B. $28. From the point of view of Division A. $30. another division in the company. Division B is presently purchasing the part from an outside source at $28 per unit. C. 18 . $18. $20. D. would like to buy this part from Division A. B.1) + (30 . the Walsh Division bought .Reporting for Control 11-59 135. B. any sales to Division B should be priced no lower than which of the following? A. D. $27. $29. $29. (18 . Suppose Division A is currently operating at capacity and can sell all of the units it produces on the outside market for its usual selling price. Last month. any sales to Division B should be priced no lower than which of the following? A.18) Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 Chapter 11 . From the point of view of Division A. 134.1 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 The Vega Division of Ace Company makes wheels that can either be sold to outside customers or transferred to the Walsh Division of Ace Company. $1 in variable costs can be avoided. If Division A sells to Division B.

30 . so transfers to the Walsh Division cut into outside sales. D. $42. What is the maximum price per wheel that Walsh should be willing to pay Vega? A.2 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 137. Suppose that the Vega Division has ample idle capacity so that transfers to the Walsh Division would not cut into its sales to outside customers. An outside supplier has offered to supply wheels to the Walsh Division for $41 each. $28. $42. B. Chapter 11 . What should be the lowest acceptable transfer price from the perspective of the Vega Division? A. $41. C.00. Suppose that Vega can sell 9. The following data are available from last month's operations for the Vega Division: If the Vega Division sells wheels to the Walsh Division.000 wheels each month to outside consumers.Reporting for Control 11-60 136. C. $45. B. $28. $28. . outside suppliers price of 41 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 138. $45. $31.000 of its wheels from the Vega Division for $42 each. Vega can avoid $2 per wheel in sales commissions. What should be the lowest acceptable transfer price from the perspective of the Vega Division? A.all 4. B. D. $30.75.

000 . D. What is the lowest transfer price that would not reduce the operating income of the Post Division? A.2) + [4.T.000)]*(45 . D.35. $1. 139.90 + [15. B. $1. {(30 .000 *(1. $0.90. D.75.00. Woodhead Company.35. C. $1. C.000 units.C.50 each.41. $42.000 .75 -.90 + 0 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 140. What is the lowest transfer price that would not reduce the operating income of the Post Division? A. Suppose there is ample capacity so that transfers of the posts to the Lamp Division do not cut into sales to outside customers. $41. $1.41.30)}/4.000 posts from the Post Division at $1.9. Suppose the transfer of posts to the Lamp Division will cut into sales to outside customers by 15.000 Bloom's Level: Apply Difficulty: Hard Learning Objective: 3 Chapter 11 . $0.75. 0. the Lamp Division bought all of its 25. Woodhead Company produces basic posts that can be sold to outside customers or sold to the Lamp Division of the M. B. $1.T. $1.90)]/25. Last year.00.(12.90. The following data are available for last year's activities of the Post Division: The total fixed costs would be the same for all the alternatives considered below.000 Bloom's Level: Apply Difficulty: Hard .Reporting for Control 11-61 The Post Division of the M. 0.

$1. $10.000 favourable. B. $200 favourable and $3. D. B. (1.250 favourable and $1. D.496 favourable. It considers both products to be close substitutes. respectively.000 Bloom's Level: Apply Difficulty: Hard Learning Objective: 3 (Appendix 11A) Kyekyeku Company retails two models of a product: Model X and Model Y. (Appendix 11A) What were the sales volume variances for Model X and Model Y.1. $1.500 favourable and $2. for last year? A. for last year? .1.750 decrease. C. respectively. The following data relate to the company's operations for last year: Chapter 11 .250 decrease. Suppose the transfer of posts to the Lamp Division will cut into sales to outside customers by 15. (Appendix 11A) What were the sales mix variances for Model X and Model Y.Reporting for Control 11-63 142. $13.1.008 .Reporting for Control 11-62 141.45 each.45) * 25. $240 favourable and $3.250 increase.41 . (1. If the Lamp Division chooses to buy all of its posts from the outside supplier instead of the Post Division.900 favourable.000)*30 and (1092 .000)*40 Bloom's Level: Apply Difficulty: Medium Learning Objective: 8 143.680 favourable.Learning Objective: 3 Chapter 11 . C.000 units.000 decrease. $1. what will be the change in operating income for the company as a whole? A. Further suppose that an outside supplier is willing to provide the Lamp Division with basic posts at $1. $1.

000 favourable. $200 favourable and $3.537.500*2/40)*35 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 8 146. D.050 unfavourable and $1. $21. Variance = (2. D.00 favourable.00 favourable.00 favourable.000)*30 and (2.00 favourable. (Appendix 11A) What were the sales quantity variances for Model X and Model Y.A. $1.00 unfavourable.260 unfavourable and $1.000 favourable.100*1/2)*40 Bloom's Level: Apply Difficulty: Hard Learning Objective: 8 144.596 unfavourable.1. $1. $19. CM = (1. for last year? A. $1.875.500 favourable and $2. $1. Which of the following is the main assumption that is made about managers in general in .375.1. C.008 . respectively.40. (52. D.092 .100*1/2)*30 and (1. (1.875. $18.2.260 favourable and $1.000*40)/2.496 favourable.00 unfavourable.50 favourable.680 favourable. C. $18.375.680 unfavourable. B. $21. B.900 favourable. $18.500 .100*1/2 . D. $240 favourable and $3.250 favourable and $1. avg. $1.Reporting for Control 11-64 145. C.100 52.000 = 35.680 favourable.500 favourable and $2. $1. (Appendix 11A) What was the market share variance for last year? A.100*1/2 . (2.375.000)*40 Bloom's Level: Apply Difficulty: Hard Learning Objective: 8 Chapter 11 . $21. C.50 unfavourable. (Appendix 11A) What was the market volume variance for last year? A.000) * 2/40 * 35 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 8 147.875. $16.2.000*30 + 1. B. B.687.

Store N had sales of $180.000. C.000 11. Leis Retail Company has two stores: M and N. D. Reardon Retail Company consists of two stores: A and B. $28. $20. C. Managers at the local/divisional level have access to better information for operational decisions. $31. B.. $16. B.000 for the month.000. Top managers at corporate headquarters have access to better information for operational decisions. Managers at the local/divisional level will act in the best interest of the organization.000.000.000.000. D. CM for B = 200. Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 Learning Objective: 6 Chapter 11 . If net income for the company was $15. Segment margin B = 31.support of decentralization? A. Store A had sales of $80.000 = 20. what were the traceable fixed expenses in Store B? A.000 .80. a segment margin of 30%.000.000.Reporting for Control 11-65 148.000. and a segment margin of $11.36 . The company as a whole had sales of $200. a contribution margin ratio of 36%. During March. a contribution margin ratio of 30%. During March. Traceable FC for B = 48.000 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 149. Top managers at corporate headquarters will act in the best interest of the organization.000*. and traceable fixed expenses of $26.000. and segment margins for the two stores totalling $31.20.000*. The company as .30 = 48.000.000.

(180.000 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 Chapter 11 .000/.000 .75 = 360.a whole had a contribution margin ratio of 25% and $120. $300. D.000 . as it encourages the manager to make investment decisions that are more consistent with the interests of the company as a whole.000. Some managers believe that residual income is superior to return on investment as a means of measuring performance.000) = 100. TRUE Bloom's Level: Understand Difficulty: Easy Learning Objective: 4 Learning Objective: 5 152. what were the total variable expenses in Store M for the month? A. $140. B.25 * .000*. or reducing operating assets. In responsibility accounting. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 151.000.3 + 26. $260.000 in total contribution margin. reducing expenses. The return on investment can ordinarily be improved by either increasing sales. Total VC = 120.Reporting for Control 11-66 True / False Questions 150. VC of M = 360.000. Based on this information. each segment in an organization should be charged with the costs for which it is responsible and over which it has control plus its share of common organizational costs.000. $360.100. VC of N = 180.000.000. TRUE Bloom's Level: Understand Difficulty: Easy Learning Objective: 4 . C.

TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 4 156. Residual income is the operating income that an investment centre earns above the minimum required return on the investment in operating assets. a change in total sales will NOT affect ROI. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 4 155. The use of return on investment as a performance measure may lead managers to make decisions that are NOT in the best interests of the company as a whole. which the divisions otherwise would have to provide for themselves.Reporting for Control 11-67 154. There is a growing trend toward greater centralization for effective control as more businesses go global. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 Learning Objective: 2 . TRUE Bloom's Level: Understand Difficulty: Easy Learning Objective: 5 157. Allocations of corporate headquarters expenses to divisions used in return on investment calculations should be limited to the cost of those actual services provided by central headquarters. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 4 Chapter 11 . Since the sales figure is neutral in the return on investment (ROI) formula.153. ROI = Margin x Turnover.

TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 160.Reporting for Control 11-68 158. An increase in appraisal costs will usually result in an increase in internal failure costs.Reporting for Control 11-69 . TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 161. TRUE Bloom's Level: Understand Difficulty: Easy Learning Objective: 7 Chapter 11 . a company should usually try to redistribute its quality costs more toward prevention and appraisal. Quality of conformance is the degree to which an actual product meets its design specifications and is free of defects or other problems that may affect appearance or performance.Chapter 11 . To minimize its total quality costs. Prevention costs and appraisal costs are incurred in an effort to keep poor quality of conformance from occurring. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 159.

(Appendix 11A) A favourable sales volume variance for a single-product firm necessarily implies a favourable market share variance. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 Chapter 11 .162. TRUE Bloom's Level: Remember Difficulty: Easy Learning Objective: 7 165. Ordinarily. Granting subordinates autonomy and profit responsibility almost invariably also grants them the right to make mistakes. TRUE Bloom's Level: Understand Difficulty: Hard Learning Objective: 2 Learning Objective: 3 167. Appraisal costs are incurred to identify defective products before they are shipped to customers. External failure costs result when a defective product is shipped to a customer. managers are NOT aware of the magnitude of their quality costs since these costs cut across departmental lines and are not normally tracked and accumulated by the cost system. FALSE Bloom's Level: Understand Difficulty: Hard Learning Objective: 8 . TRUE Bloom's Level: Remember Difficulty: Easy Learning Objective: 7 163.Reporting for Control 11-70 166. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 7 164. Internal failure costs result when a defective product is used within the company.

Reporting for Control 11-71 170. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 8 171. (Appendix 11A) If two products are close substitutes. (Appendix 11B) Order-filling marketing costs tend to respond directly to changes in activity while order-getting marketing costs tend to be discretionary and fixed in the short-run. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 9 . (Appendix 11A) If two products are poor substitutes.168. the calculation of a separate market volume variance and a separate market share variance for each product is NOT useful. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 8 Chapter 11 . (Appendix 11A) A favourable sales volume variance for a substitute product in a multiple-product firm does NOT necessarily imply a favourable sales mix variance for that substitute product. (Appendix 11A) If two products are good substitutes. TRUE Bloom's Level: Understand Difficulty: Hard Learning Objective: 8 169. FALSE Bloom's Level: Understand Difficulty: Hard Learning Objective: 8 172. the sales quantity variance for each product can be analyzed further into a market volume variance and a market share variance. the sales volume variance for each product can be split into a sales quantity variance and a sales mix variance.

TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 9 Chapter 11 . TRUE Bloom's Level: Remember Difficulty: Easy Learning Objective: 6 175. A balanced scorecard should contain every performance measure that can be expected to influence a company's profits. Many firms tend to adopt a focus or a niche strategy instead of either a cost leadership or a differentiation strategy. The emphasis in the balanced scorecard is on improvement rather than meeting a preset standard. Process time is the only value-added component of throughput time.173. TRUE Bloom's Level: Remember Difficulty: Easy Learning Objective: 6 177. (Appendix 11B) Order-getting marketing costs cannot be easily controlled through the use of standard costs and flexible budgets. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 6 176. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 6 .Reporting for Control 11-72 174.

TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 3 180. FALSE Bloom's Level: Understand Difficulty: Hard Learning Objective: 1 181. When an intermediate market price for a transferred item exists. an increase in sales should increase operating income by an amount equal to the sales multiplied by the segment margin ratio. Fixed costs that are traceable to a segment may become common if the segment is divided into smaller units. The salary paid to a store manager is a traceable fixed expense of the store.Chapter 11 . TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 . the transfer price to other divisions should include opportunity costs. TRUE Bloom's Level: Understand Difficulty: Easy Learning Objective: 1 183. FALSE Bloom's Level: Understand Difficulty: Hard Learning Objective: 3 179. Assuming that a segment has both variable expenses and traceable fixed expenses.Reporting for Control 11-73 178. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 Chapter 11 . When a division is operating at full capacity. Segmented statements for internal use should be prepared in the contribution format. it represents a lower limit on the charge that should be made on transfers between divisions.Reporting for Control 11-74 182.

Division O had a segment margin of $9.184. Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 Chapter 11 . Hatch Company has two divisions: O and E. The following data were gathered on activities last month: Required: .000 and variable costs equal to 70% of sales.000. a segment margin of $25. Traceable fixed costs for Division E were $19. The Winter Products Division of American Sports Corporation produces and markets two products for use in the snow: Sleds and Saucers. prepare segmented income statements showing the Total as well as amounts for Division 0 and E. Hatch Company as a whole had a contribution margin of 40%.Reporting for Control 11-76 186.000 and sales of $200. Common costs of $10. TRUE Bloom's Level: Remember Difficulty: Easy Learning Objective: 1 Chapter 11 .000. Given this data. During the year just ended.000.Reporting for Control 11-75 Essay Questions 185. Only those costs that would disappear over time if a segment were eliminated should be considered traceable costs of the segment.

Allocate the total break-even sales between the two products. e. Prepare a segmented income statement in the contribution format for last month. This is the standard case where break-even sales can be calculated separately for each . b. showing both "Amount" and "Percent" columns for the division as a whole and for each product. if necessary. the results of the segmented income statement prepared in part (a) above. Again. Calculate the total break-even sales (in both units AND dollars) for last month. Allocate the total break-even sales between the two products. c. assuming that none of the fixed production costs and fixed selling expenses is traceable. Refer to the original data and.Reporting for Control 11-77 a. Calculate the total break-even sales (in both units AND dollars) for last month. the results of the segmented income statement prepared in part (a) above. the total administrative expenses of the division are not traceable to the two products. if necessary. b. This is the main difficulty. All fixed expenses have to be traceable to the two products in order to calculate separate break-even sales for each product. Why might it be very difficult to calculate separate break-even sales for each product? c. d. assuming that the "allocated" amounts of the division's administrative expenses are fixed and actually traceable. The expenses are rather common as indicated in the segmented income statement. How reasonable are the total break-even sales numbers calculated in parts (c) and (d) given the actual results for last month? Chapter 11 . However. d. refer to the original data and.a.

The IT Corporation produces and markets two types of electronic calculators: Model 11 and Model 12. Calculate the total break-even sales (in both units AND dollars) for last month. the results of the segmented income statement prepared in part (a) above. The following data were gathered on activities last month: Required: a. . Refer to the original data and. Prepare a segmented income statement in the contribution format for last month. b. assuming that none of the fixed production costs and fixed selling expenses is traceable. the company reported positive profits when actual sales exceeded the break-even sales. The total break-even sales numbers are reasonable in both cases because they are less the reported total actual sales volume. showing both "Amount" and "Percent" columns for the company as a whole and for each model.Reporting for Control 11-79 187. if necessary.Reporting for Control 11-78 e.product because there are no common or joint costs. Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 Chapter 11 . In other words. Allocate the total break-even sales between the two models. Why might it be very difficult to calculate separate break-even sales for each model? c. Chapter 11 .

This is the standard case where break-even sales can be calculated separately for each product because there are no common or joint costs. Again. the total administrative expenses of the division are not traceable to the two products. d. if necessary. Allocate the total break-even sales between the two models. b. assuming that the "allocated" amounts of the company's administrative expenses are actually traceable. The expenses are rather common as indicated in the segmented income statement. e. However. Calculate the total break-even sales (in both units AND dollars) for last month. Chapter 11 .d. All fixed expenses have to be traceable to the two products in order to calculate separate break-even sales for each product.Reporting for Control 11-80 a.Reporting for Control 11-81 e. refer to the original data and. c. How reasonable are the total break-even sales numbers calculated in parts (c) and (d) given the actual results for last month? Chapter 11 . The total break-even sales numbers are reasonable in both cases because they are less the . This is the main difficulty. the results of the segmented income statement prepared in part (a) above.

reported total actual sales volume. the company reported positive profits when actual sales exceeded the break-even sales. Financial data for Beaker Company for last year appear below: The company paid dividends of $2. Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 Chapter 11 . The "Investment in Cedar Company" on the statement of financial position represents an investment in the stock of another company. Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Learning Objective: 5 . In other words.100 last year. and return on investment for last year.Reporting for Control 11-82 188. turnover.Reporting for Control 11-83 a) Compute the company's margin. Required: Chapter 11 . What was the company's residual income last year? a) Operating assets do not include investments in other companies or in undeveloped land. b) The Board of Directors of Beaker Company have set a minimum required return of 20%.

Chapter 11 . The following data have been extracted from the year-end reports of two companies: . Financial data for Bingham Company for last year appear below: The "Investment in Carr Company" on the statement of financial position represents an investment in the stock of another company.Reporting for Control 11-84 189. What was the company's residual income last year? a) Operating assets do not include investments in other companies or in undeveloped land. b) The Board of Directors of Beaker Company have set a minimum required return of 15%. turnover.Chapter 11 .Reporting for Control 11-85 Required: a) Compute the company's margin.Reporting for Control 11-86 Bloom's Level: Apply Difficulty: Hard Learning Objective: 4 Learning Objective: 5 190. and return on investment for last year. Chapter 11 .

Reporting for Control 11-88 192. Bloom's Level: Analyze Difficulty: Medium Learning Objective: 4 Chapter 11 . Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 . and external failure costs. internal failure costs.Company X and Company Y: Required: Fill in the missing data on the above table. Bloom's Level: Analyze Difficulty: Medium Learning Objective: 4 Chapter 11 . Galant Company's quality cost report is to be based on the following data: Required: Prepare a quality cost report in good form with separate sections for prevention costs. The following data have been extracted from the year-end reports of two companies: Company X and Company Y: Required: Fill in the missing data on the above table. appraisal costs.Reporting for Control 11-87 191.

and external failure costs. Galben Company's quality cost report is to be based on the following data: Required: Prepare a quality cost report in good form with separate sections for prevention costs. internal failure costs.Chapter 11 . Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 Chapter 11 .Reporting for Control 11-91 195. and external failure costs.Reporting for Control 11-90 194. internal failure costs. appraisal costs. Galati Company's quality cost report is to be based on the following data: Required: Prepare a quality cost report in good form with separate sections for prevention costs.Reporting for Control 11-89 193. Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 Chapter 11 . Harvie Company's quality cost report is to be based on the following data: Required: . appraisal costs.

In the next year Harui should see a decline in both internal and external failure costs due to the efforts of this year especially due to the implementation of preention and appraisal efforts. b. and external failure costs. internal failure costs. appraisal costs.Reporting for Control 11-93 197. Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 Chapter 11 . Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 Chapter 11 . and external failure costs. b) If Harui's efforts to ensure quality conformance are working. . internal failure costs. appraisal costs. how would you expect the Quality Cost Report next year to compare with this one? Chapter 11 .Reporting for Control 11-92 196. appraisal costs.Prepare a quality cost report in good form with separate sections for prevention costs. Harwood Company's quality cost report is to be based on the following data: Required: Prepare a quality cost report in good form with separate sections for prevention costs. Harui Company's quality cost report is to be based on the following data: Required: a) Prepare a quality cost report in good form with separate sections for prevention costs. and external failure costs. internal failure costs.Reporting for Control 11-94 a.

Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 Chapter 11 . and external failure costs.Reporting for Control 11-96 199. Godunov Company's quality cost report is to be based on the following data: Required: Prepare a quality cost report in good form with separate sections for prevention costs. and external failure costs. appraisal costs. internal failure costs. internal failure costs.Reporting for Control 11-95 198. appraisal costs. Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 . Falstaff Company's quality cost report is to be based on the following data: Required: Prepare a quality cost report in good form with separate sections for prevention costs. Bloom's Level: Analyze Difficulty: Medium Learning Objective: 7 Chapter 11 .The total quality costs will decrease each year providing the dollars spent toward prevention and appraisal continue to work.

The carpets are sold by rolls. The following is a summary of the company's activities for last year: Required: a) Assume the two grades of carpet are close substitutes. c) Comment on the appropriateness of the assumption of close substitution between the two grades of carpet. internal failure costs.Reporting for Control 11-97 200.Reporting for Control 11-99 .Reporting for Control 11-98 201. Comment also on the effect. appraisal costs. Bloom's Level: Apply Difficulty: Medium Learning Objective: 7 Chapter 11 . (Appendix 11A) Iraj Company retails two grades of Persian carpets: Grade X and Grade Y. Calculate the sales volume variance for each grade of carpet and analyze each into a sales mix variance and a sales quantity variance. and external failure costs. on the analysis in part a) above if this assumption is considered inappropriate. Chapter 11 .Chapter 11 . if any. Rigoletto Company's quality cost report is to be based on the following data: Required: Prepare a quality cost report in good form with separate sections for prevention costs. b) Analyze the sum of the sales quantity variance into its two components: market volume variance and market share variance.

20 are the budgeted mix proportions of Grade X and Grade Y. then each grade of carpet is assumed to compete in a separate and different market or industry.040 is the weighted-average budgeted contribution margin per roll: (0. The sales volume variance for each grade can still be calculated.For the following.000) = $640 + $400 = $1. Grade Y appears to belong to a class of its own with a very high contribution margin. This grade may be serving and competing in a different market. Bloom's Level: Analyze Difficulty: Hard Learning Objective: 8 .040 c) The assumption of close substitution between the two grades of carpet may be difficult to justify.10 are the actual mix proportions and 0. respectively. For example.90 and 0.Reporting for Control 11-100 Note that the sum of the sales mix variance and sales quantity variance for each grade of carpet equals the sales volume variance for the grade. If the assumption of close substitution is considered inappropriate. That is: b) Analysis of the total sales quantity variance into a market volume and a market share variance: * $1. instead of lumping both together as done in part b) above. but any further analysis into market volume and market share variances will be for each grade of carpet. Chapter 11 .20 x $2.80 x $800) + (0. a) Sales volume variances: Analysis of the sales volume variance into a sales mix variance and a sales quantity variance is as follows: Sales mix variances: Sales quantity variances: * 0.80 and 0. F = favourable and U = unfavourable.

which it presently is producing.Chapter 11 . Required: a) What is the range of transfer prices within which both the divisions' profits would increase as a result of agreeing to the transfer of 20. and requires $12 per unit in variable production costs. In order to have time and space to produce the new castings. The RB4 sells for $30 per unit.Reporting for Control 11-102 a) From the perspective of the Castings Division. profits would increase as a result of the transfer providing that: Transfer price > Variable cost + Opportunity cost . Production and sales of this casting would drop by 20% if the new casting is produced.000 special castings each year on a continuing basis. The company is now producing and selling 100.000 castings per year from the Castings Division to the Machine Products Division? b) Is it in the best interests of Larinore Corporation for this transfer to take place? Explain. The special castings would require $10 per unit in variable production costs. Larinore Corporation has a Castings Division that does casting work of various types.Reporting for Control 11-101 202. The Machine Products Division has a bid from an outside supplier of $29 per unit for the castings. The company's Machine Products Division has asked the Castings Division to provide it with 20.000 units of the RB4 each year. the Castings Division would have to cut back production of another casting: the RB4. Chapter 11 . Boxing and shipping costs for the new special casting would be only $1 per unit. Boxing and shipping costs of the RB4 are $4 per unit.

the transfer should take place. and requires $25 per unit in variable production costs. The Machine Products Division has a bid from an outside supplier of $30 per unit for the castings. but the cost of purchasing them from the outside supplier is $29. the Castings Division would have to cut back production of another casting: the NW2. Boxing and .000 special castings each year on a continuing basis. From the viewpoint of the entire company. Transfer price < $29 Combining the two requirements. the company's profits increase by $4 for each of the castings that are used within the company rather than sold on the outside market. divided by the number of units transferred: Opportunity cost = [($30 . the cost of transferring the units within the company is $25.$4) x 20. The NW2 sells for $40 per unit. Transfer price > ($10 + $1) + $14 = $25 From the viewpoint of the purchasing division. In order to have time and space to produce the new casting. Yes. Therefore. The company's Machine Products Division has asked the Castings Division to provide it with 10.Reporting for Control 11-103 203. which it presently is producing.$12 . Bloom's Level: Evaluate Difficulty: Hard Learning Objective: 3 Chapter 11 . Geneva Corporation has a Castings Division that does casting work of various types. the transfer price must be less than the cost of buying the units from the outside supplier.000 = $14 Therefore.The opportunity cost is the contribution margin on the lost sales. we get the following range of transfer prices: $25 < Transfer price < $29 b.000]/20. The special castings would require $20 per unit in variable production costs.

$25 . within which both the divisions' profits would increase as a result of agreeing to the transfer of 10. Therefore. if any. profits would increase as a result of the transfer providing that: Transfer price > Variable cost + Opportunity cost The opportunity cost is the contribution margin on the lost sales. divided by the number of units transferred: Opportunity cost = [($40 . b) No.shipping costs of the NW2 are $4 per unit. we find that no feasible range of transfer prices exists under current conditions.Reporting for Control 11-104 a) From the perspective of the Castings Division. Bloom's Level: Evaluate Difficulty: Hard Learning Objective: 3 . From the viewpoint of the entire company. Boxing and shipping costs for the new special casting would be only $2 per unit. Production and sales of this casting would drop by 10% if the new casting were produced. the transfer should not take place. The company is now producing and selling 100. Required: a) What is the range of transfer prices.000 units of the NW2 each year. but the cost of purchasing them from the outside supplier is $30.000 = $11 Therefore.$4) x 10. the transfer price must be less than the cost of buying the units from the outside supplier. Transfer price > ($20 + $2) + $11 = $33 From the viewpoint of the purchasing division. Transfer price < $30 Combining the two requirements. the company's profits decrease by $3 for each casting that is produced within the company rather than purchased in the outside market.000]/10. Chapter 11 .000 castings per year from the Castings Division to the Machine Products Division? b) Is it in the best interests of Geneva Corporation for this transfer to take place? Explain. the cost of transferring the units within the company is $33.

000 + $40*X.Reporting for Control 11-105 204. unfavourable. where X represents the expected number of units of its only product to be manufactured and sold. however. Reported actual results for February were as follows: *Actual industry sales volume was 60. b) Calculate the sales volume variance and analyze it into market-size (industry volume) variance and market-share variance.000 units. Both were. (Appendix 11A) Yukon Company expressed the total expenses (Y) component of its master budget for March with the cost formula Y = $100. Required: a) Calculate the flexible budget variance and analyze it into sales price variance and cost/expense variance(s). the sales manager reduced prices probably to increase market share. would you recommend a bonus be paid to the sales manager? Why or why not? Chapter 11 .Chapter 11 . c) On the basis of your analysis in parts (a) and (b).000 units based on an estimated industry volume of 50.Reporting for Control 11-106 a) Flexible budget variance Per unit amounts for calculations: b) Numbers for calculations c) No bonus would be recommended. In a growing market. The budgeted average selling price per unit was $65 for budgeted sales volume 5. .000 units. The sales manager had the most influence on two variances: sales price and market-share. This did not work because the company lost market share.

would you conclude recommend a bonus be paid to the sales manager? Why or why not? d) How successful was the marketing manager in controlling the cost of the marketing activity? Explain.000 units Actual results for January were as follows: Required: a) (Appendix 11A) Calculate the flexible budget variance and analyze it into sales price variance and cost/expense variance(s). b) (Appendix 11A) Calculate the sales volume variance and analyze it into market-size (industry volume) variance and market-share variance.Chapter 11 .Reporting for Control 11-107 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 8 Chapter 11 .Reporting for Control 11-108 205. c) (Appendix 11A) Assume that the marketing manager has direct influence in setting selling prices. . On the basis of your analysis in part (b). (Appendices 11A and 11B) The following is a summarized master budget that Moose Jaw Company prepared for February: *Based on estimated industry volume (market-size) of 180.

Bloom's Level: Analyze Difficulty: Hard Learning Objective: 8 Learning Objective: 9 Chapter 12 .Reporting for Control 11-109 a) Flexible budget variance b) Chapter 11 . the variable portion which had a favourable spending variance.Chapter 11 . d) The marketing manager was equally successful in controlling marketing expenses. in particular.Reporting for Control 11-110 c) Notwithstanding reduced sales of 600 units. a bonus should be paid to the marketing manager for increasing the company's market share from budgeted 5% to 6%.Relevant Costs for Decision Making 12-1 Chapter 12 . The manager was on target regarding the fixed marketing expense. This performance is impressive when the manager was also able to increase selling prices in a declining market.

. C. What should a firm faced with a production constraint do to maximize total contribution margin? A. C. D. Promote those products having the highest unit contribution margins. Consider a decision facing a firm of either accepting or rejecting a special offer for one of its products. Which of the following costs are always relevant in decision making? A. Promote those products having the highest contribution margins and contribution margin ratios. Sunk costs. Common fixed overhead that will continue if the special offer is NOT accepted.Relevant Costs for Decision Making 12-2 3. C.Relevant Costs for Decision Making Multiple Choice Questions 1. Variable costs. Bloom's Level: Remember Difficulty: Easy Learning Objective: 1 2. Promote those products having the highest contribution margin ratios. B. Avoidable costs. Fixed costs. B. D. Bloom's Level: Understand Difficulty: Easy Learning Objective: 3 4. B. Promote those products having the highest contribution margin per unit of constrained resource. Every machine and person in the plant is working at the maximum possible rate. Bloom's Level: Understand Difficulty: Easy Learning Objective: 1 Learning Objective: 2 Chapter 12 . Which of the following best describes a plant operating at capacity? A. B. D. Fixed overhead that will be avoided if the special offer is accepted. Variable overhead. Which of the following costs is NOT relevant? A. Direct materials. Only some specific machines or processes are operating at the maximum rate possible.

Pay overtime to workers assigned to workstations located after the bottleneck in the production process. B. Subcontract work that would otherwise require use of the bottleneck. C. D. C. Bloom's Level: Remember Difficulty: Medium Learning Objective: 2 8. Managers should produce those products with the highest contribution margin in order to deal with the constrained resource. bottleneck)? A. Fixed manufacturing cost of the component. A vertically integrated firm is more dependent on its suppliers than a firm that is NOT . Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 7. C. What is the opportunity cost of making a component part in a factory with no excess capacity? A. D. Fixed costs will need to change to accommodate increased demand. One of several products produced from a common input.e. Any product produced by a firm with more than one product line. Any product that consists of several parts. Which of the following is NOT an effective way of dealing with a production constraint (i. Any product involved in a make or buy decision. Bloom's Level: Understand Difficulty: Hard Learning Objective: 2 Learning Objective: 3 5. Cost of the production given up in order to manufacture the component. Variable manufacturing cost of the component. Pay overtime to workers assigned to the bottleneck. D. B. Consider the following statements: I. Reduce the number of defective units produced at the bottleneck.C. What is a joint product? A. D. Net benefit foregone from the best alternative use of the capacity required. B.Relevant Costs for Decision Making 12-3 6. Bloom's Level: Understand Difficulty: Medium Learning Objective: 3 Chapter 12 ..

000. Re-machine and $25. II. III only. A vertically integrated firm realizes profits from the parts it is "making" instead of "buying" as well as profits from its regular operations. and what are the total relevant costs for that alternative? A.000 = 4. If the lanterns are re-machined for $5. D.1. The Lantern Corporation has 1. Which of the above statements represent advantages to a firm that is vertically integrated? A. the lanterns could be sold for scrap for $1.5.000 .Relevant Costs for Decision Making 12-4 9.000. I only. a special order . I and II only.000.000. 240. III. Scrap and $19. Relay Corporation manufactures batons. C. Which alternative is more desirable.000. Alternatively. Based on Relay's predictions for next year. Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 Chapter 12 .000 . Many firms feel they can control quality better by making their own parts.000 batons will be sold at the regular price of $5. Total relevant cost to remachine are $5. Re-machine and $5.000 advantage to re-machine.00 each. B.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 10. B. Scrap and $20.000 obsolete lanterns that are carried in inventory at a manufacturing cost of $20.000. C.000.000. 9. D. they could be sold for $9. II and III only.000 batons a year at a variable cost of $750. Relay can manufacture 300.000 and a fixed cost of $450.vertically integrated.000. In addition.

) A. $60. 15. C. Total fixed costs would be unaffected by this order.55) + 15.000 increase. Jordan expects its regular sales next year to be 18. C. A summary of operating results for last year follows: A foreign distributor has offered to buy 15. B. $36. If Jordan accepts this offer and rejects some business from regular customers so as not to exceed capacity.was placed for 60. $855. what would be the total operating income next year? (Assume that the total fixed costs would be the same no matter how many units are produced and sold.000 units at $90 per unit next year.000]*60. B.55) .000.000. $180.000.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 . $390.Relevant Costs for Decision Making 12-5 11. D.000*(100 .000 batons to be sold at a 40% discount off the regular price. The manufacturing capacity of Jordan Company's facilities is 30.000 decrease. $30. D.000 units a year.40) . By what amount would the company's operating income be increased or decreased as a result of the special order? A.000.000/300.000 increase. [5 * (1 -.000 increase.000*(90 .495. $840.000 units.750. $705.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 2 Chapter 12 .

Relevant Costs for Decision Making 12-6 12. The contribution margin in the department is $50. Wagner's unit product cost based on the full capacity of 200. A study has been conducted to determine if one of the departments in Parry Company should be discontinued. Fixed .000 units has been received from a foreign distributor. what should be the minimum acceptable selling price per unit? A. Wagner has sufficient idle capacity to manufacture the additional units. 4 + 5 + 6*(1 . Twothirds of the manufacturing overhead is fixed and would not be affected by this order. D. $18. $16.Chapter 12 . $14. Assume that direct labour is an avoidable cost in this decision. C. $15. In negotiating a price for the special order.2/3) + 3 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 12 .000 per year. The only selling costs that would be incurred on this order would be $3 per unit for shipping. Wagner Company sells Product A for $21 per unit.Relevant Costs for Decision Making 12-7 13. B.000 units is as follows: A special order offering to buy 20.

50. C.Relevant Costs for Decision Making 12-8 . D.000 per year. An increase of $10.000. .000 Bloom's Level: Apply Difficulty: Easy Learning Objective: 1 Learning Objective: 2 14. An increase of $30.140. Total sales of the product are $200. A decrease of $10.000. the company's overall operating income per year would change by how much? A.000). An increase of $20. An increase of $25. It is estimated that $40.000.000 per year.000 per year. the company's overall operating income per year would change by how much? A. A study has been conducted to determine if Product A should be dropped.000 of these fixed expenses will continue even if the product is dropped. A decrease of $10.10.000. Total fixed expenses charged to the product are $90.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 12 .40. Add avoidable costs (90.expenses charged to the department are $65.000. These data indicate that if the department were discontinued. These data indicate that if Product A is dropped. Lost CM = 200.000 .000). B. C.000.000.000.000 = . A decrease of $25. A decrease of $20. Decreased Operating Income of 10.000 per year. total variable expenses are $140. The company estimates that $40.000 = (60. D.000 .000 of these fixed expenses could be eliminated if the department is discontinued.000 + 40. B.

000 cannot be avoided. B. Manor Company plans to discontinue a department that has a contribution margin of $24. D.21.000 of fixed costs.70. An increase of $24. A decrease of $3.000.000 .000 + (48. C. Lusk Company produces and sells 15. C.000. A decrease of $24.000) Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 12 . An increase of $10.000 cannot be avoided. D. Gata Co. A decrease of $60.000 in fixed expenses charged to Product A would continue even if the product were discontinued. What would be the effect of discontinuing the department on Manor's overall operating income? A. What would be the .000) Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 16. A study has been conducted concerning whether Product A should be discontinued.000.Relevant Costs for Decision Making 12-9 17.000 and $48. These data indicate that if Product A were discontinued. An increase of $3. the company's overall monthly operating income would change by how much? A.000.000.24. An increase of $20.000.000 in fixed costs. . and variable expenses are $14 per unit. plans to discontinue a department that has a $48.000.000. The selling price of Product A is $20 per unit. $21.15.000 of the $100. $42.000*(20 . Of the fixed costs.000 contribution margin and $96.000 . A decrease of $20. Of these fixed costs. The study shows that $70. (.14) + (100.15.000 units of Product A each month. B.

effect of discontinuing the department on Gata's overall operating income? A. Given these data.000.000 .000). A decrease of $6. An increase of $48.000 in fixed costs. B. ($60. An increase of $6.Relevant Costs for Decision Making 12-10 19.000.000.000. D. ($75. what would be the overall company's operating income (loss) if the Eastern Division were eliminated? A.000 in total. . the direct fixed costs associated with this division could be avoided.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 12 . C. 15. A decrease of $48. Manor Company plans to discontinue a department that has a contribution margin of $25. ($155.000.000 and $50. However.000 + (96. Of the fixed costs. B.000.000) Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 18.000.000). If the Eastern Division were eliminated. The divisions have the following revenues and expenses: The management of Cook is considering the elimination of the Eastern Division.48. . The Cook Company has two divisions: Eastern and Western.000 cannot be eliminated. A decrease of $4. corporate costs would still be $305. B.000 .170. $21.42. What would be the effect on the operating income of Manor Company of discontinuing this department? A.000). $15. D. An increase of $4. C.

Green Company produces 1. Pitkin Company produces a part used in the manufacture of one of its products. D.000 decrease. D. $2.000 increase. which are used in the assembly of one of its products. The unit product cost of these parts is: The part can be purchased from an outside supplier for $20 per unit.Relevant Costs for Decision Making 12-11 21.000 .000) Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 20.000. . $5.25. computed as follows: An outside supplier has offered to provide the annual requirement of 10. $1.000 decrease. Assume that direct labour is an avoidable cost in this decision. An increase of $25. What will be the annual impact on the company's operating income of buying the part from the outside supplier? A. two-thirds of the fixed manufacturing costs can be eliminated. If the part is purchased from the outside supplier. C. The unit product cost of the part is $33. what will be the per-unit dollar advantage or disadvantage of purchasing the parts from the outside supplier? A.20]*1. $1.000.000 increase. .000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 12 . Based on these data. A decrease of $25.000 of the parts for only $27 each.21.C. $1 advantage. The company estimates that 30% of the fixed manufacturing overhead costs above will continue if the parts are purchased from the outside supplier.000 parts per year. B.000 + (50. [(12 + 9*2/3) .

$3 advantage. Cost to make = 12 + 8 + 3 + 10*(1 -.000. Assume that direct labour is an avoidable cost in this decision. C. $720. 60% of the fixed manufacturing overhead costs would continue regardless of what decision is made. what would be the total relevant costs to make the part? A.000 units of a certain part to use in one of its products.000*[(4 + 16 + 8 + 10*(1 -. 20. In addition. $560. D. Cardinal Company needs 20. $1 disadvantage. D. Cardinal would not have any use for the released capacity.B.27 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 12 . $640. $4 disadvantage. $760. If Cardinal were to buy the part from Oriole instead of making it.30) = $30.000.000. In deciding whether to make or buy the part.000.Relevant Costs for Decision Making 12-12 22.60)] Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 . B. C. The following information is available: Cost to Cardinal to make the part: Oriole Company has offered to sell this part to Cardinal Company for $36 each. Advantage to buy = 30 .

(2 + 8 + 4 + 6*1/3)*5. Golden has determined that two-thirds of the fixed manufacturing overhead will continue even if Part 10541 is purchased from Brown. the unit product cost of Part 10541 is as follows: Brown Company has offered to sell Golden 5. B. which is used in one of its products. what are the relevant costs to Golden of manufacturing the parts internally? A.Relevant Costs for Decision Making 12-14 24.Relevant Costs for Decision Making 12-13 23. To determine whether to accept Brown's offer. The . $95.Chapter 12 .000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 12 .000.000 units of Part 10541 for $19 a unit.000.000 units of Part 10541. Golden. Assume that direct labour is an avoidable cost in this decision. has been manufacturing 5. C. The following standard costs pertain to a component part manufactured by Ashby Company: The company can purchase the part from an outside supplier for $25 per unit. Inc. D. $70. At this level of production. $80.000.000. $90.

000 lower. $2.000 higher. $19.000 higher. C. $276. A. C.Relevant Costs for Decision Making 12-15 25.000 higher. Assume that direct labour is an avoidable cost in this decision. If SP Company decides to continue making the motor. If SP Company decides not to make the motors.50 + 5. The SP Company makes 40.60) Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 12 . The average cost per motor at this level of activity consists of: An outside supplier recently began producing a comparable motor that could be used in the sewing machine. B. The price offered to SP Company for this motor is $18. how much higher or lower would net income be than if the motors are purchased from the outside suppler? Assume that direct labour is a variable cost in this company.manufacturing overhead is 60% fixed. $15. there would be no other use for the production facilities.000 motors to be used in the production of its sewing machines. and total fixed factory overhead costs would not change. What would be the relevant amount of the standard cost per unit in a decision of whether to make the part internally or buy it from the external supplier? A. $178. [18 . $92. 2 + 5 + 20*(1 -.(5. D.000 Bloom's Level: Apply . $86. D. $27. and this fixed portion would not be affected by this decision.60 + 4.75)]*40. B.

Relevant Costs for Decision Making 12-17 27. Manico Company produces three products—X. and Y third. & Z—with the following characteristics: The company has only 2. L and C: The company can only perform 65. C. Orders for X first. CM/hr.000 machine hours available each month. D. in what sequence should orders be filled if the company wants to maximize its total contribution margin? A. B. B.000. Z consecutively = 8/5.Relevant Costs for Decision Making 12-16 26.820. C. $910. X second. and Z third. and Y third. What is the largest possible total contribution margin that can be realized each period? A. 9/6 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 Chapter 12 . Consider the following production and cost data for two products.000 machine setups each period due to limited skilled labour. $845.000. 4/3. $975. D.Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 12 . X second. $1. Y. If demand exceeds the company's capacity.000. Orders for Z first and no orders for X or Y. . Y. Orders for Z first. and there is unlimited demand for each product.000. for X. Z second. Orders for Y first.

000.000/8 = 8. What is the correct course of action regarding Product A? A. Joint product costs total $60.50 per unit. It should be processed further. It should be sold at the split-off point.500. and C—from a single raw material input. It should be sold at the split-off point. Product A can be sold at the split-off point for $40. and 15. Products A. It should be discontinued since revenues after further processing are less than total joint . 120/8.125 units of C at $120 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 28. since further processing will result in a loss of $2. C. and C are produced from a single raw material input. Incremental cost = 12. since this will increase profits by $2. C = 130/10.500 each period. Incremental Revenue = (5 .2)*5. D. since this will increase profits by $12. 65. 10. It should be processed further.500 each period. since further processing would result in a loss of $0. What is the correct course of action regarding Product A? A. from which 5. 15. The Wyeth Company produces three products—A.000.000 . B.500 and then sold for $5 per unit. or it can be processed further at a total cost of $15.000. B.000 annually. B.000 units of C can be produced each period.000.500 = 2.12.CM/setup for L. The raw material costs are $90.000 units of A. Product A can be sold at the split-off point for $2 per unit.000 and then sold for $58. or it can be processed further at a cost of $12.500 each period.000 = 15.500 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 12 .Relevant Costs for Decision Making 12-18 29.000 units of B.

C.Relevant Costs for Decision Making 12-20 The following are the Wyeth Company's unit costs of making and selling an item at a volume of 10.Relevant Costs for Decision Making 12-19 30. 30 .000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 12 .7 = 3. and Z from a single raw material input in a joint production process.product costs. 58.15.21 .40. which represents the company's capacity: . It should be sold at the split-off point.7. It should be processed further only if its share of the total joint product costs is less than the incremental revenues from further processing. Y. Option C D. It should be processed further and then sold.000 . B. WP Company produces products X.7 = . Y.000.19 .1 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 12 .24 . D.50 = 0. Which of the products should be processed beyond the split-off point? A. Z = 29 . Option B C. Option A B.50.000 . 29 . Option D X. Budgeted data for the next month is as follows: The cost of the joint raw material input is $149.000 units per month.

($500). $6. D. $1. $400. Assume the company has 50 units left over from last year that have small defects and which will have to be sold at a reduced price as scrap. An order has been received from a customer in a foreign market for 1. The variable selling and administrative costs would have to be incurred for this special order as well as all other sales. How much will the company's operating income be increased or (decreased) if it prices the 1.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 12 .00. Fixed costs.500.50.000 and 10. Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 .000 units per month. B.50. 31. B. The order would not affect current sales. Only selling and administrative expenses are relevant. (6 . are constant within the relevant range between 8. What cost is relevant as a guide for setting a minimum price on these defective units? A.000 units in the special order at $6 each? A.50 .Relevant Costs for Decision Making 12-21 32. C.2 -. D.000 units per month. This would have no effect on the company's other sales. $2.Present sales amount to 9. $5.000 units.1. $3.1 . both manufacturing and selling and administrative. C.000. $1. Assume direct labour is a variable cost.50.50)*1.

$20. $0. $10. 33. What is the sunk cost in this situation? A. The original cost of inventory is sunk. the calculators can be sold in their present condition for $11.000. C. $26.800.200. Bloom's Level: Apply Difficulty: Easy Learning Objective: 1 Chapter 12 . B.000. 30. (10.10. $30. $67. What is the net advantage or disadvantage to the company from upgrading the calculators? A. D. D.800.000 disadvantage. C.000. C.000 .200 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 35. $8.11. At what selling price per unit would the company be as well off as if it just sold the calculators in their present condition? A. $53. $8. If these calculators are upgraded at a total cost of $10.Relevant Costs for Decision Making 12-22 34. $11. $8. B.000 + 11. Assume that Tolar decides to upgrade the calculators.000 .200)/400 Bloom's Level: Apply Difficulty: Hard Learning Objective: 1 Learning Objective: 2 . D.800 advantage. they can be sold for a total of $30.The Tolar Company has 400 obsolete desk calculators that are carried in inventory at a total cost of $26. As an alternative.200. B.000 disadvantage. $18.000 advantage.

D. $14.000 jigs per month through regular channels at a selling price of $11 each. $7. At what selling price per unit should Immanuel be indifferent between accepting or rejecting the special offer? A. $7. the company is selling 80. [7 . C. however. The company has a production capacity of 90. For these regular sales. B.000 jigs per month with total fixed production costs of $144. it will incur shipping costs of $0. $1. $3. 4.6 . At present. Immanuel will not incur any selling expense.30 per unit.30)]*6.(4.600. $12. B.400.800.60 + . $4. If Immanuel accepts this special order.30 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 .90.000.000 jigs to be shipped at the end of the month at a selling price of $7 each. Chapter 12 .+ . the cost for one jig is: If the special order is accepted. what will be the increase in the monthly operating income? A.Relevant Costs for Decision Making 12-23 36.The Immanuel Company has just obtained a request for a special order of 6.40. $6. C.40.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 37. D.600.70.

$7. Assume direct labour is a variable cost.60 .000 units per month.000. However.4. are constant within the relevant range of 30.000 Homs next year at 15% off the regular selling price.600(#57) .000*(11 . .1. A special order has been received at Varone from the Fairview Company to purchase 8. and Varone would have no use for it after the special order was filled.000 Homs per year. and all other conditions remain the same.Chapter 12 .Relevant Costs for Decision Making 12-24 38. what will be the change in monthly operating income? A. the variable selling expense will be reduced by 25%. The company has the capacity to produce 40. Varone would have to purchase a specialized machine to engrave the Fairview name on each Hom in the special order. both manufacturing and selling. If Immanuel accepts the special order. Suppose that total regular sales of jigs are 85. $5.000 increase. The total fixed costs. D.000 Homs per year. $3. $14. 12. B.600 decrease. Per-unit costs to produce and sell one Hom at that activity level follow: The regular selling price for one Hom is $60.000 to 40.400 decrease. This machine would cost $12. C. If this special order is accepted.200 increase.1) Bloom's Level: Apply Difficulty: Hard Learning Objective: 1 Learning Objective: 2 The Varone Company makes a single product called a Hom.

Relevant Costs for Decision Making 12-25 39.25)]*8. C.000 increase. $68..15) .8*(1 .000 Bloom's Level: Apply Difficulty: Hard Learning Objective: 1 Learning Objective: 2 40. D.000 increase. what would be the effect on operating income next year due to accepting this order? A. $52. 20 + 10 + 5 + 8*(1 .20 .000/8. B.Relevant Costs for Decision Making 12-26 .000 increase. $39. [60*(1 .12..60.000 Homs next year through regular channels and the special order is accepted at 15% off the regular selling price. at what special order price from Fairview should Varone be economically indifferent between either accepting or not accepting this special order? A.000 .20.00.000 Bloom's Level: Apply Difficulty: Hard Learning Objective: 1 Learning Objective: 2 Chapter 12 . B.000 decrease.25) + 12. $80. If Varone can expect to sell 32..10 .50. D. $24. C. $42.000 Homs next year through regular channels.5.Chapter 12 . If Varone can expect to sell 32. $51. $48.

.400.960 Homs next year through regular channels and the special order is accepted for 15% off the regular selling price. $13.960 .20 .000 units to be delivered this month at a special discounted price. $35. B. 68. Chapter 12 . $33.8.10 per unit. $48. The variable selling and administrative expense would be $1.000)] * (60 . and the special discounted price on the special order is $76.Relevant Costs for Decision Making 12-27 42.41.[37. C. what would be the effect on operating income next year due to accepting this order? A.480 increase.320 increase. D. C. $35.10 . The cost of producing and selling a single unit of this product at the company's normal activity level of 40.000. If Varone has an opportunity to sell 37. ($17. ($5.(40.000(#60) . D.480 decrease.000 .320 decrease. By how much would this special order increase (decrease) the company's operating income for the month? A.40 per unit.20 less per unit on this order than on normal sales.5 .000).000). This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. B. An order has been received from an overseas customer for 2. Suppose there is ample idle capacity to produce the units required by the overseas customer. $33.8) Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 Learning Objective: 2 Eley Company produces a single product.000 units per month is as follows: The normal selling price of the product is $86. Direct labour is a variable cost in this company.

90. $32. Suppose there is not enough idle capacity to produce all of the units for the overseas customer. 86. D.40 .8. B. What would be the opportunity cost of each unit delivered to the overseas customer? A.60 + 8.10 + 1.10 + (1.10 . $78.1.10. $9.10 .20)] + [(32.10.50*700)/2. $8.(1. The minimum acceptable price per unit for the special order is closest to which of the following? A.20.1.80 .42.10 + 1.80 .000 Bloom's Level: Apply Difficulty: Hard Learning Objective: 1 Learning Objective: 2 43. B.40.50. D.20)] * 2.Relevant Costs for Decision Making 12-28 44.10 . Suppose the company is already operating at capacity when the special order is received from the overseas customer.60 + 8.1. and accepting the special order would require cutting back on production of 700 units for regular customers. $86.80) Bloom's Level: Apply Difficulty: Hard Learning Objective: 1 Learning Objective: 2 Chapter 12 . C. known as a Tam: Clemson Company is trying to determine whether to discontinue the manufacture and sale of .60 . $69. [42.70.[76.(42. C.000] Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 Learning Objective: 2 The Clemson Company reported the following results last year for the manufacture and sale of one of its products. $7. $63.78.

5. $65. If the company discontinues the Tam product line. B. C.000.000 units. $55. B. income = 390. 6. C. $90.000 + 25.500 units.000 increase.000 = 300.390. D.000 . . How many Tams would have to be sold next year for the company to be as well off as if it just dropped the line and enjoyed the increase in contribution margin from other products? A. The operating results reported above for last year are expected to continue in the foreseeable future if the product is not dropped.65. there would be no change in the fixed manufacturing costs of the company.000 + 300.000 decrease. what will be the change in the annual operating income (loss)? A.000 decrease.000) Fixed costs avoided = 275.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 46. Change in op.Relevant Costs for Decision Making 12-29 45.000 . CM lost = 845.Tams.000 units. 6. Assume that discontinuing the manufacture and sale of Tams will have no effect on the sale of other product lines. The fixed manufacturing overhead represents the costs of production facilities and equipment that the Tam product shares with other products produced by Clemson.000 decrease. $70. Assume that discontinuing the Tam product would result in a $120. Chapter 12 .000 units. If the Tam product were discontinued. D.000 = (390.000 increase in the contribution margin of other product lines. 7.

Additional information regarding Cosmo's operations follows the statement: Three-quarters of each store's traceable fixed expenses are avoidable if the store were to be closed.000/6. C.CM/unit = 390. D.000 + 25. Management estimates that closing the Town Store would result in a 10% decrease in Mall Store sales. ($10.000*3/4= . while closing the Mall Store would not affect Town Store sales.000 . A decision by Cosmo Inc.10 + 40.000.000)/60 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 Learning Objective: 2 Chapter 12 . Units required = (275.800 Bloom's Level: Apply Difficulty: Hard Learning Objective: 1 Learning Objective: 2 .800).000 + 120. ($800). for November is presented below.48. The operating results for November are representative of all months.10.000).500 = $60.000*.Relevant Costs for Decision Making 12-30 47. to close the Town Store would result in what monthly increase (decrease) in Cosmo's operating income? A. Cosmo allocates common fixed expenses to each store on the basis of sales dollars. -36. B. $4. ($6. Condensed monthly operating income data for Cosmo Inc.

C. S. 48. > [(130 + 50)*3.130 .P. $249.51. $387. Results for last year for the manufacture and sale of Product J are as follows: Bingham Company anticipates no change in the operating result for Product J in the foreseeable .000 + 78.000.000 Bloom's Level: Evaluate Difficulty: Hard Learning Objective: 1 Learning Objective: 2 Bingham Company manufactures and sells Product J.000 + 75. D. what will be the increase in operating income resulting from this decision? A.78.75.000]/3.000 . $261.000 + 51. $222. $207. 3. $291.000*(309 .000 per year.000 .Relevant Costs for Decision Making 12-31 The Western Company is considering the addition of a new product to its current product lines.Relevant Costs for Decision Making 12-32 49. $240. B. The expected cost and revenue data for the new product are as follows: If the new product is added to the existing product line. the contribution margin of the other existing product lines is expected to drop $78.000. then sales of existing products will decline. Therefore.Chapter 12 . If the new product is added next year. Which lowest selling price per unit could be charged for the new product that would still make it economically desirable to add the new product? A. B. $183.50) .000 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 Learning Objective: 2 Chapter 12 . D.000.000. C.

000 decrease.000 increase.000 decrease.Relevant Costs for Decision Making 12-33 50. The company's total fixed factory overhead cost would not be affected by this decision.000 increase. B. $145. $170. C.240. How many units of Product J would have to be sold next year for . If Bingham chooses to discontinue Product J. $25.000(#71) + 30. $145. $315. $120.000 .000 increase in the contribution margin of other product lines.000 Bloom's Level: Apply Difficulty: Hard Learning Objective: 1 Learning Objective: 2 51.000 increase.000 increase in the contribution margin of other product lines.(1. Assume that discontinuing Product J would result in a $30. If the company discontinues Product J.000 increase. -25. $5.000 + 180.000 decrease.future if the product is produced. what will be the change in annual operating income due to this decision? A. C.000) + 195. Assume that discontinuing the manufacture and sale of Product J will not affect the sale of other products. $145.600.000 . B. Bingham is re-examining all of its products and is trying to decide whether or not to discontinue the manufacture and sale of Product J.960.000 decrease. Chapter 12 . D. what will be the change in operating income next year due to this action? A. D. Assume that discontinuing Product J would result in a $100.000 Bloom's Level: Apply Difficulty: Hard Learning Objective: 1 Learning Objective: 2 Chapter 12 .Relevant Costs for Decision Making 12-34 52. .

53. Hadley needs 5.000 + 100. Because of a decline in sales. This idle capacity could be used by the company to make.000)/(400. D.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 12 . C.000) Bloom's Level: Apply Difficulty: Hard Learning Objective: 1 Learning Objective: 2 Hadley.10 per unit. the component is being purchased from an outside supplier at $7. What would be the change in the company's overall annual operating income that would result from making the component.125 units. 2. the company has 10.10 + 18.000)]*5. 15.the company to be as well off as if it just dropped Product J and enjoyed the increase in contribution margin from other products? A.000 per year.500 units.000 increase.500 units.000/5.(4.000 decrease. $14. 11. $5.000 + 180. $1. D. C. B.000 per year. At present. (195. one of the components used in its production process.000 increase. rather than buy. which would be allocated to this part.50 per unit. B.000 machine hours of idle capacity available each year. and additional supervisory costs would be $18.000 decrease. $17. Inc.000(CM from #71)/10.000 units of this component each year. Variable production cost for the component would be $4. Already existing fixed costs. makes a line of bathroom accessories. rather than buying it? A.50 . amount to $300.Relevant Costs for Decision Making 12-35 . 16. [7.875 units.

600 decrease. Chapter 12 .000 units of a certain component each year for use in one of its products. Assume that there is no other use for the capacity now being used to produce the component. The cost per unit for the component at this level of activity is as follows: Rodgers has received an offer from an outside supplier that is willing to provide 27.54. C. B. Assume that direct labour is a variable cost. $17.000. $19. D. D. $124. $20. [(4.000 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 Learning Objective: 2 The Rodgers Company makes 27.500 increase.000 decrease.000. B.000.25] * 27. If Rodgers Company were to purchase the components rather than making them internally.80) . what would be the impact on the company's annual operating income? A.000 units of this component each year at a price of $25 per component. $81.50 .Relevant Costs for Decision Making 12-36 55. (7.) A. $18.20 + 12 + 5. and the total fixed manufacturing overhead of the company would not be affected by this decision.000. $94. What would the annual cost of additional supervision have to be in order for Hadley to be economically indifferent to making or buying the component? (Assume all other conditions stay the same.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 .000 increase.4. $237.10)*5. C.

[22 + (35. How much of the unit product cost of $59.Relevant Costs for Decision Making 12-37 Aholt Company makes 40. even if the part were purchased from the outside supplier. $18. If the company accepts this offer.56. the facilities now being used to make the part could be used to make more units of a product that is in high demand.90 of the fixed manufacturing overhead cost being applied to the part would continue. $18. $21.100 of annual fixed manufacturing overhead would be avoided. C. $21. 57.000 units per year of a part that it uses in the products it manufactures.25] * 27.000 per year. $21.800 per year. However. all direct labour cost of the part would be avoided.400 decrease. what would be the impact on annual operating income due to accepting the offer? A.900 decrease. The additional contribution margin on this other product would be $264. If the part were purchased from the outside supplier.400 increase.100 + 64800)/27. If Rodgers chooses to buy the component from the outside supplier under these circumstances.000 . B.20 a unit. D. Assume that if the components were to be purchased from the outside supplier.900 increase.90 is relevant in the decision of whether to make . This fixed manufacturing overhead cost would be applied to the company's remaining products.000 Bloom's Level: Apply Difficulty: Hard Learning Objective: 1 Learning Objective: 2 Chapter 12 . The unit product cost of this part is computed as follows: An outside supplier has offered to sell the company all the parts that Aholt needs for $46. and the facilities now being used to make the component would be rented to another company for $64. $35.

46. $44.000). What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 40.60. D.70 . 38 + 264. B.20 + (24. C.000) .000.20] * 40. $38.60. D.000 Bloom's Level: Apply Difficulty: Hard Learning Objective: 1 Learning Objective: 2 .70 + 1. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it? A.or buy the part? A. [(38 + 264.90. $66.000). B. $264.90.000). ($548. C. ($64. C.20. 11.000 units required each year? A.50. $59.21. B. $22. $6.Relevant Costs for Decision Making 12-38 58.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 59.000/40. D.90) Bloom's Level: Apply Difficulty: Easy Learning Objective: 1 Learning Objective: 2 Chapter 12 .30 + 22. $35. $59.70.000/40. ($328.00.

25. B. The grinding machines are potentially a constraint in the production facility.500 minutes are available per month on these machines. CM/min. How many minutes of grinding machine time would be required to satisfy demand for all four products? A.000 minutes. These products have the following unit product costs: Additional data concerning these products are listed below.10 .500 minutes.40 .800 minutes.Relevant Costs for Decision Making 12-39 Brown Company makes four products in a single facility. D.700 minutes.15.Chapter 12 . Which product makes the LEAST profitable use of the grinding machines? A.60)/2 =$19. A total of 10.70 . C. Product D.4.000*1. 60. Direct labour is a variable cost in this company. C.10 + 2. B = (71.000*.50 .000*.17. Product A. 3.000*2 + 2. Product C. Product B. for each: A = (78. 11. D.Relevant Costs for Decision Making 12-40 61.2.60 . B.60 .19. 10.30 Bloom's Level: Apply Difficulty: Easy Learning Objective: 3 Chapter 12 . 10.70 + 4. 10.21 - .

525 C.70 = $41.10 .1 leaves 5. C.300 D.25.3 Less C 2.500. $336.20 .500 B.8. $0.50)/. Given the current capacity what is the greatest total contribution margin Brown Company can earn? A.10)/1. $570.5. D.90 .10 .9.10 = $20.30 = $98.90. Product B.15.25/min (#82) Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 64. see CM/minute #82 Bloom's Level: Apply Difficulty: Hard Learning Objective: 3 Chapter 12 .40 . Product C.3. Product D.Relevant Costs for Decision Making 12-41 63. $124.50 . What maximum amount (rounded to the nearest whole cent) should the company be willing to pay for one additional minute of grinding machine time if the company has made the best use of the existing grinding machine capacity? A. D= (62.000*.00 Bloom's Level: Apply Difficulty: Hard Learning Objective: 3 62.40 .80)/.3. Which product makes the MOST profitable use of the grinding machines? A.60 . $19.5. C. Additional units to be worked on would be A therefore pay up to $19.60.12.000*. $21.60 . $10.2.903 . B. C = (67. D.000*1.15. B.4545. Less D 4.7 less B 2. $330. Product A.850 units.57. Use of grinding machine time: Available is 10.700 hours for product A which only makes 2.

70 = 7.60)/1.000*2.545.1.50 + 2.68 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 .7. D. Data concerning these products appear below: The milling machines are potentially a constraint in the production facility. 65. D.50 .15.3 + 1. Product B. Which product makes the LEAST profitable use of the milling machines? A.30= 4.8.600 minutes are available per month on these machines.10 = 5. C = (20.30 .600 minutes. B = (30.000*3. 22.using (CM/unit from #82 numerator calculation: 4. 4. A total of 22.Relevant Costs for Decision Making 12-42 Crane Company makes four products in a single facility.000*29. Product C. C. 18. Product A. For each: A = (35. 9.3.238. C.529. How many minutes of milling machine time would be required to satisfy demand for all four products? A.80 1.30)/2.50 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 Chapter 12 .10 + 1. CM/min.3.80)/3.700 minutes.10 + 2. B.5 Bloom's Level: Apply Difficulty: Easy Learning Objective: 3 66.000*29.000*22.16. B.90 .850(#84) * 38.20 . 23.000 minutes.400 minutes.000*1.50 = 5.000*2.80 . D = (26 .50 . Product D.7 + 3.40 + 2.90)/2.

Relevant Costs for Decision Making 12-43 67. B.7 . D. C. Which product makes the MOST profitable use of the milling machines? A.3. Product C.55. B.5 = $6. $15. D. C. B. C. B.1. Product A. CM/DLH for A. D. 22. C. A.1.600 .67. B. 10/1. Product D. B. Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 68.100 minutes remaining to spend on product A.Chapter 12 . in which order should the company produce the three products? A. Since there is still demand for this product therefore spend up to $4. What maximum amount (rounded to the nearest whole cent) should the company be willing to pay for one additional minute of milling machine time if the company has made the best use of the existing milling machine capacity? A. see #87 CM/min. Bloom's Level: Analyze Difficulty: Hard Learning Objective: 3 The Madison Company produces three products with the following costs and selling prices: Chapter 12 . C. C. C.000*1.5 . Product B. A. $11.Relevant Costs for Decision Making 12-44 69. A. B. B.000*2.000*2. $0.00. A. 8/2 = $4 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 . $4.545/minute.1 = 12.00. If the number of direct labour hours is the production constraint. C = 9/1 = $9.

C.000 spindles of yarn are produced that can either be sold outright or processed into afghans.000 decrease. The spindles of yarn can then be sold directly to stores.000 spindles of yarn? A. $16.5 = $3. B = 10/2 = $5. CM/mh A= 9/4.(9 + 5)]*4.000 increase. A. A. If the number of machine hours is the production constraint. C. B.Relevant Costs for Decision Making 12-45 Austin Wool Products purchases raw wool and processes it into yarn. C. C.12) .000 decrease. B. $24. C = 8/2. D. $24. what will be the change in the monthly net operating income as compared to selling 4. [(32 .000 afghans each month. C. Each afghan requires one spindle of yarn. or they can be used by Austin Wool Products to make afghans. A. $16. D. B. B. Current cost and revenue data for the spindles of yarn and for the afghans are as follows: Each month 4.5 = $2. If Austin chooses to produce 4.20 Bloom's Level: Apply Difficulty: Medium Learning Objective: 3 Chapter 12 .000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 . B. C.70. B. A. in which order should Madison produce the three products? A. 71.000 increase.

000 afghans and zero spindles of yarn the total contribution margin would be closed to: A. $8.600). B. Each product may be sold at the split-off point or processed further. $40.000.9) Bloom's Level: Apply Difficulty: Hard Learning Objective: 1 Learning Objective: 2 Dowchow Company makes two products from a common input. 45.8 . $24. B. C.400.Relevant Costs for Decision Making 12-46 72.600 Bloom's Level: Apply Difficulty: Easy Learning Objective: 1 Learning Objective: 2 .000 . D.600. D. ($3.000.26.600. If Austin produced and sold 4.000. What is the net monetary advantage (disadvantage) of processing Product X beyond the split-off point? A.000. Joint processing costs up to the split-off point total $38.000*(32 .Chapter 12 . C. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. $60.000 . $27. Data concerning these products appear below: 73.400 a year. $22. 4. $1.22.

What is the net monetary advantage of processing Product Y beyond the split-off point? A. What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point? A. $29. (Appendix 12A) Which of the following items are included in the cost base under the absorption costing approach to cost-plus pricing? A.500. $3.3.000 . D.22.800. Option A B.000 .400. $25. $43.900. B.20.Chapter 12 . $7.Relevant Costs for Decision Making 12-47 74. D.900.Relevant Costs for Decision Making 12-48 76.400 Bloom's Level: Apply Difficulty: Easy Learning Objective: 1 Learning Objective: 2 75. Option C . C. B.500. $22.000. $45.600 Bloom's Level: Apply Difficulty: Hard Learning Objective: 1 Learning Objective: 2 Chapter 12 .900 . 26. $20. Option B C. C.400. 45.

what will happen to the markup under absorption costing? A. (Appendix 12A) Under time and material pricing. C.Relevant Costs for Decision Making 12-49 78. B. It will increase. Option C D. It will remain the same. including salary and fringe benefits. A loading charge. D. the material loading charge includes which of the following items? A. A charge for ordering and handling inventory items. Option D Bloom's Level: Understand Difficulty: Medium Learning Objective: 4 77. A profit element. D. C. (Appendix 12A) Holding all other things constant. Only the direct costs of the employee.D. (Appendix 12A) Under time and material pricing. what is(are) included in the time component? A. Option D Bloom's Level: Understand Difficulty: Medium Learning Objective: 4 79. It will decrease. Bloom's Level: Understand Difficulty: Medium Learning Objective: 4 Chapter 12 . The effect cannot be determined. if the unit sales increase. B. Option A B. Option B C. Bloom's Level: Understand Difficulty: Easy Learning Objective: 4 .

and administrative expenses each year? A.000. D.Relevant Costs for Decision Making 12-50 80. The target cost is the anticipated selling price less the desired profit.'s Product A: The company uses the absorption costing approach to cost-plus pricing.Chapter 12 . 0.60*(10. C. C. B. $200.000 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 4 Chapter 12 . $240. Inc.000. The technique is most useful in the manufacturing stage of a product. (Appendix 12A) Kircher.000. $300.000. B. the anticipated selling price of a product determines the maximum allowable cost for the product. Effective target costing is an integral part of continuous improvement (Kaizen costing) as a management philosophy. manufactures a product with the following costs: . what are the total selling. general. In target costing.000*50) . D.400. Bloom's Level: Understand Difficulty: Medium Learning Objective: 4 81.000*.Relevant Costs for Decision Making 12-51 82. $140.240. (Appendix 12A) Which of the following statements is NOT consistent with target costing? A. Based on these data. (Appendix 12A) The following information is available on Bruder Inc.15 .

000 in this product and expects a return on investment of 9%.200 in total for the year.36. The company has invested $220.03. $93.90. . B. $86. D. The target selling price based on the absorption costing approach would be closest to which of the following? A. C.000 in this product and expects a return on investment of 15%. $85.60. the unit product cost of a particular product is $61. Based on budgeted sales of 34. The pricing calculations are based on budgeted production and sales of 81. The company has invested $400.182. D. general. and administrative expenses for this product are budgeted to be $809.000 units next year.80.50*(1 +.50. Product Cost = 24. $71. The company's selling. Inc.166. B.31.000*2 + 1. $120.2836%. uses the absorption costing approach to costplus pricing to set prices for its products. $67. The target selling price for this product based on the absorption costing approach would be closest to which of the following? A. (Appendix 12A) Magner.15) + 81. $72.000 units per year.400]/(81.10 + 1.000*.Relevant Costs for Decision Making 12-52 83. $53. C.000 = 55.302836) Bloom's Level: Analyze Difficulty: Medium Learning Objective: 4 Chapter 12 .90 + 13.67.The company uses the absorption costing approach to cost-plus pricing.600/81. Markup = [(220.90 + 2.50) = 30.66.29.000*55. Selling price = 55.

000. 41%.000/16. and administrative expenses each year? A.09 + 809.Relevant Costs for Decision Making 12-53 84. (Appendix 12A) The Sloan Company must invest $120.Relevant Costs for Decision Making 12-54 85. 22%.80 * [1 + (400.200)/(34. rounded to the nearest percent? A.000*. what are the total selling.000*61.'s Product A: The company uses the absorption costing approach to cost-plus pricing.80)] Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Chapter 12 . B. Based on these data. D. what would be the markup percentage on absorption cost for Product X.000 + 72. $400.61.000 = 21.000. general. .000 units of Product X each year. C. (Appendix 12A) The following information is available on Browning Inc.000 to produce and market 16.000*21) Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Chapter 12 .000)/(16. 16%. Product cost = 7 + 5 + 4 + 80. $480. 29%.000*. Other cost information regarding Product X is as follows: If Sloan Company requires a 15% return on investment. B. Markup = (120.15 + 3*16.

(10 + 6 + 3 + 140. SGA = [.16 Bloom's Level: Analyze Difficulty: Hard Learning Objective: 4 Chapter 12 . B. what would be the target selling price per unit? A.000 units each year.60*(20.60)/60 = 60%.00. $720. (Appendix 12A) Marvel Company estimates that the following costs and activity would be associated with the manufacture and sale of one unit of product Y: If the company uses the absorption costing approach to cost-plus pricing and desires a 15% rate . $32.20. $41.000) * (1 + .C.000.000/20. C.60. D.500.60) Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Chapter 12 .000*. D. $640.000.Relevant Costs for Decision Making 12-56 87.000*60)] . $43.Relevant Costs for Decision Making 12-55 86. $36. (Appendix 12A) Cost data relating to the single product produced by the Jones Company are given below: The Jones Company uses the absorption costing approach with a desired markup of 60%.00. If the company plans to produce and sell 20. Markup = (90 .

30) Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 .70 + 14. 26%. B. 27.Relevant Costs for Decision Making 12-57 88. Markup = (540. B. 124. 15%. C.10 + 3. D. 34.000*54.10 + 3*14. (400. The markup on absorption cost would be closest to which of the following? A.of return on investment (ROI). The pricing calculations are based on budgeted production and sales of 14. D.2%.15 + 130.000*.000*.1%.000*25) Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Chapter 12 .000 + 163. 12%. C.000 units per year. Product cost = 14. what would be the required markup on absorption cost for product Y? A.200/14.800)/(14.0%.000)/(20.30. 38%.2%.000 in this product and expects a return on investment of 10%. The company has invested $540. (Appendix 12A) Joeston Corporation makes a product with the following costs: The company uses the absorption costing approach to cost-plus pricing.70 + 305.000 = 54. 10.

000 in this product and expects a return on investment of 12%. D.000 calculators each year. The company requires a 20% rate of return on investment on all new products. (360.33. $23. Based on budgeted sales of 86. To compete effectively.000*. In order to produce and sell 30. C.850. $16.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 Chapter 12 . (30.000)/(86. The company's selling.50. the calculator could not be priced at more than $40. (Appendix 12A) Straus Company.000. general. a manufacturer of electronic products.000*40 .50.33. D. 29.8%.000 in total for the year.000 units next year.60) Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 90.Relevant Costs for Decision Making 12-59 .8%.247. What would be the target cost per calculator? A. 12. 17.12 + 1. B. and administrative expenses for this product are budgeted to be $1.20)/30. $34.000*. B.000*81.4%.Relevant Costs for Decision Making 12-58 89.0%. the unit product cost of a particular product is $81. The company has invested $360. $28. the company would have to make an investment of $850. The markup on absorption cost for this product would be closest to which of the following? A.247.Chapter 12 . (Appendix 12A) Lacy Corporation uses the absorption costing approach to cost-plus pricing to set prices for its products. C.60. wants to introduce a new calculator. 18.

10) Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Chapter 12 .500. $43.Relevant Costs for Decision Making 12-60 93.00. The material loading charge is 15% for ordering.000*. would like to introduce a new electronic watch into the market. $410. C. $260. The time rate is $25 per hour. (Appendix 12A) Watkins Company uses time and material pricing. $64. $25. B. The time rate is $30 per hour. D. what would be the total charge for a job that requires 8 hours of labour time and $150 in parts? A. handling.75. (20. $430.25)/20.000 investment. C. The plan is to produce and sell 20. (Appendix 12A) Timax Company. $490.91. $39. handling. 8*25 + 150 + 150*(. Given these data. what would be the total charge for a .00. This would require a $500. B. and storing parts and 10% for the desired profit on materials.000 Bloom's Level: Apply Difficulty: Medium Learning Objective: 5 92. To compete effectively. What would be the target cost per watch? A.30 + . Given these data. a manufacturer of moderately priced time pieces. the watch could not be priced at more than $50. and storing materials and 25% for the desired profit on these materials. The company requires a return on investment of 25% on all new products.00.000 watches each year. D. (Appendix 12A) Dresser Company uses time and material pricing. The material loading charge is 30% for ordering.000*50 .

C.3123) Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Eckert Company uses the absorption costing approach to cost-plus pricing to set prices for its products.25) Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Dickson Company makes a product with the following costs: The company uses the absorption costing approach to cost-plus pricing.296. 96.800 in total for the year.40. $110.000 units per year. (Appendix 12A) The target selling price based on the absorption costing approach is closest to which of the following? A.000*.000 in this .2%.Relevant Costs for Decision Making 12-61 94. Chapter 12 . 65*(1 +.15 + 60.20 + 22.000)/(60.000*65) Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 95. Product cost = 18.000*1.90 + 1. Based on budgeted sales of 18. $190.10 + 1. 31. the unit product cost of a particular product is $60.95. The company has invested $320. $214.job that requires 3 hours of labour time and $80 in materials? A. D.0%. and administrative expenses for this product are budgeted to be $370.89.30 + 2. (Appendix 12A) The markup on absorption cost is closest to which of the following? A.30. C. 15. D.50. B.104.000 = 65.15 + . $85. D. general.0%. B.000/60. The pricing calculations are based on budgeted production and sales of 60. $182. $202. C. B. $84. 3*30 + 80 + 80*(. Markup = (320. 30. The company's selling.000 units next year. $56.5%. Direct labour is a variable cost in this company.000 in this product and expects a return on investment of 15%. The company has invested $260.

34.0%. $82. Costs associated with the new product would be: The company requires a 20% return on the investment in all products. . 11. 36. B. (Appendix 12A) The markup on absorption cost for this product would be closest to which of the following? A.800)/(18. 45.000 would be necessary to produce and sell 40.40) Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 97.7%. D. D.59.04.000*60.1%.product and expects a return on investment of 11%.1%. B.Relevant Costs for Decision Making 12-62 96. (Appendix 12A) The target selling price based on the absorption costing approach for this product would be closest to which of the following? A. Chapter 12 . C. (260. $81. C. The company uses the absorption costing approach to pricing. $110. $67.11 + 370.76.367365) Bloom's Level: Apply Difficulty: Easy Learning Objective: 4 Raymond Company estimates that an investment of $800.00.40*(1 +. 60.000*.000 units of Product S each year.

000*18) Bloom's Level: Apply .000*. C.000*37.000/60.000*5 + 240.000 = 18. 24. D. 37%. Markup = (800.5%. 59.000*. C.25. 37.0%.0%. (Appendix 12A) What is the markup percentage needed on Product S in order to achieve the company's required return on investment? A.Relevant Costs for Decision Making 12-64 Mercer Company is planning the introduction of a new product.Relevant Costs for Decision Making 12-63 98. 29%. 51.50. 25 + 60.000)/(40.5%.000 = 37.38.40) from calculations in #119 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Chapter 12 . B. $56.50*(1 +. Markup = (650. 50%. The following information relating to the product has been assembled: The company uses the absorption costing approach to pricing. Product cost = 12 + 360. product cost = 30 + 300. D.50) Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 99. $48. 100.Chapter 12 .50. $51. $52. (Appendix 12A) What is the target selling price based on the absorption costing approach? A. D. B. C. 12.000*3 + 300. (Appendix 12A) The markup percentage that would be needed on the new product is closest to which of the following? A.20 + 40.000/40.38.000)/(60. B. 40%.

TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 104.Relevant Costs for Decision Making 12-65 101.5949) from calculations in #121 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 True / False Questions 102. Future costs that do NOT differ among the alternatives are NOT relevant in a decision. One of the dangers of allocating common fixed costs to a product line is that such allocations can make the line appear less profitable than it really is.Relevant Costs for Decision Making . TRUE Bloom's Level: Understand Difficulty: Easy Learning Objective: 2 103. C. D.00. $32. $26. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 Chapter 12 . $22. 18*(1 +. $28.67.71.Difficulty: Medium Learning Objective: 4 Chapter 12 . (Appendix 12A) The target selling price for one unit of the new product is closest to which of the following? A.50. Variable costs are always relevant costs. B.

If by dropping a product a firm can avoid more in fixed costs than it loses in contribution margin. TRUE Bloom's Level: Understand Difficulty: Easy Learning Objective: 2 . The cost of resources that has no alternative use in a make or buy decision has an opportunity cost of zero. Only the variable costs identified with a product are relevant in a decision concerning whether to eliminate the product or not. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 110.12-66 105. TRUE Bloom's Level: Remember Difficulty: Easy Learning Objective: 1 107.Relevant Costs for Decision Making 12-67 109. A sunk cost is a cost that has already been incurred and cannot be avoided regardless of what action is chosen. TRUE Bloom's Level: Remember Difficulty: Easy Learning Objective: 1 106. TRUE Bloom's Level: Remember Difficulty: Easy Learning Objective: 2 108. The book value of old equipment is NOT a relevant cost in an equipment replacement decision. An avoidable cost is a cost that can be eliminated (in whole or in part) by choosing one alternative over another. then the firm is better off economically if the product is dropped. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 Chapter 12 .

it is profitable to continue processing a joint product after the split-off point so long as the incremental revenue from further processing exceeds the incremental costs of further processing. Joint production costs are relevant costs in decisions about what to do with a product from the split-off point onward in the production process. FALSE Bloom's Level: Understand Difficulty: Hard Learning Objective: 3 112. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 2 116. All other things equal. holding all other things constant. (Appendix 12A) The absorption costing approach to cost-plus pricing will result in attaining the company's required rate of return only if forecasted unit sales are realized. TRUE . FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 1 Learning Objective: 2 115. Two or more different products that are manufactured in the same production period are known as joint products. FALSE Bloom's Level: Remember Difficulty: Easy Learning Objective: 1 Chapter 12 .111. TRUE Bloom's Level: Understand Difficulty: Easy Learning Objective: 2 114.Relevant Costs for Decision Making 12-68 113. Managers should pay little attention to bottleneck operations because they have limited capacity for producing output. Opportunity costs are recorded in the accounts of an organization.

TRUE Bloom's Level: Remember Difficulty: Medium Learning Objective: 3 118. holding all other things constant. Using the profitability index. holding everything else constant. (Appendix 12A) The markup over cost under the absorption costing approach would increase if the required rate of return increases. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 4 119. holding everything else constant. it is easy to decide which product is less profitable and should be de-emphasized.Bloom's Level: Understand Difficulty: Medium Learning Objective: 4 Chapter 12 . FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 4 120. TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 4 . (Appendix 12A) The time and material approach pricing will result in attaining the company's desired profit only if forecasted billable activity is realized. (Appendix 12A) The markup over cost under the absorption costing approach would increase if the unit product cost increases.Relevant Costs for Decision Making 12-69 117.

Required: a) How much of the unit product cost of $56. (Appendix 12A) If a company sells a product for less than its budgeted unit product cost under absorption costing. all of the direct labour cost of the part would be avoided.10 of the fixed manufacturing overhead cost that is being applied to the part would continue.000 per year. This fixed manufacturing overhead cost would be applied to the company's remaining products. the anticipated competitive market price of a product determines its maximum allowable product cost. the facilities now being used to make the part could be used to make more units of a product that is in high demand. $5. then the company will lose money.Relevant Costs for Decision Making 12-70 121. If the company accepts this offer.70 is relevant in the decision of whether to make or buy the part? . TRUE Bloom's Level: Understand Difficulty: Medium Learning Objective: 5 Chapter 12 .80 a unit.Chapter 12 . If the part were purchased from the outside supplier. FALSE Bloom's Level: Understand Difficulty: Medium Learning Objective: 4 122. (Appendix 12A) In target costing. Foster Company makes 20. The additional contribution margin on this other product would be $44. even if the part were purchased from the outside supplier.Relevant Costs for Decision Making 12-71 Essay Questions 123. However. The unit product cost of this part is computed as follows: An outside supplier has offered to sell the company all the parts that Foster needs for $51.000 units per year of a part that it uses in the products it manufactures.

The equipment would have a five-year useful life (the company uses straight-line depreciation) and a $50. The Hyatt Company is trying to decide whether it should purchase new equipment and continue to make its subassemblies internally or if production should be discontinued and the subassembly purchased from an outside supplier.000 units required each year? Chapter 12 .000 salvage value. Alternatively. the subassemblies could be purchased from an outside supplier. . The supplier has offered to provide the subassemblies for $9 each under a five-year contract.Relevant Costs for Decision Making 12-73 124.b) What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it? c) What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 20. New equipment for producing the subassemblies can be purchased at a cost of $400.Relevant Costs for Decision Making 12-72 a) Relevant cost per unit: b) Net advantage (disadvantage): c) Maximum acceptable purchase price: Bloom's Level: Analyze Difficulty: Hard Learning Objective: 1 Learning Objective: 2 Chapter 12 .000.

000 subassemblies are needed each year. Bloom's Level: Analyze .00 per unit general overhead cost is not relevant to the decision. the company should purchase the subassemblies from the outside supplier. Prepare an analysis of the two alternatives and make a recommendation to the management of the company of the appropriate course of action.000 per year) and direct materials cost per unit would not be affected by the new equipment.000 subassemblies per year. This cost will continue regardless of which alternative the company selects.Relevant Costs for Decision Making 12-74 The $2. The costs are based on a current activity level of 40. The cost of supervision is relevant because this cost can be avoided by purchasing the subassemblies.000 subassemblies per year: The new equipment would be more efficient and would reduce direct labour costs and variable overhead costs by 25%. Chapter 12 . The cost of the new equipment is relevant because the new equipment will not be purchased if the company decides to accept the outside supplier's offer. Supervision cost ($30. At the level of 40. The company's total general company overhead would not be affected by this decision. The depreciation of $0.90 per unit is not a relevant cost because it represents a sunk cost (in addition to the fact that the old equipment is worn out and must be replaced). The company has no other use for the space now being used to produce the subassemblies. Required: Assume that 40. Assume direct labour is a variable cost.Hyatt Company's present costs per unit of producing the subassemblies internally (with the old equipment) are given below.

Product C should be sold at split-off. J. Joint production costs of $92. Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 12 . Data for Benjamin's operations for the current year are as follows: Product R can be processed beyond the split-off point for an additional cost of $26. Each product may be sold at the split-off point or be processed further.Relevant Costs for Decision Making 12-75 125. Product J can be processed beyond the split-off point for an additional cost of $38.Relevant Costs for Decision Making 12-76 .000 per year are allocated to the products based on the relative number of units produced.000.000 and can then be sold for $105. Product C can be processed beyond the split-off point for an additional cost of $12. Benjamin Signal Company produces products R.000. and C from a joint production process. Required: Which products should be processed beyond the split-off point? Products R and J should be processed beyond the split-off point.000 and can then be sold for $117.000.Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 12 .000 and can then be sold for $57. Joint production costs are not relevant to the decision to sell at split-off or to process further.

The analysis of the alternatives appears below: Therefore. and R from a joint production process. Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 12 . the net disadvantage to purchasing and using the new machine would be $55. Required: Compute the total advantage or disadvantage of using the new machine instead of the old machine over the next four years. Product Q should be sold at split-off. Joint production costs of $81. Madison Optometry is considering the purchase of a new lens grinder to replace a machine that was purchased several years ago. Product Q can be processed beyond the split-off point for an additional cost of $35. Joint production costs are not relevant to the decision to sell at split-off or to process further.Relevant Costs for Decision Making 12-77 127.000 .000 and can then be sold for $65.126.000 and can then be sold for $25. Bowen Company produces products P.000.000. Required: Which products should be processed beyond the split-off point? Products P and R should be processed beyond the split-off point.000 and can then be sold for $50. Data for Bowen's operations for the current year are as follows: Product P can be processed beyond the split-off point for an additional cost of $10. Selected information on the two machines is given below: Ignore income taxes and the time value of money in this problem. Q. Product R can be processed beyond the split-off point for an additional cost of $6.000 per year are allocated to the products based on the relative number of units produced. Each product may be sold at the split-off point or be processed further.000.

An order has been received from an overseas customer for 2. What would be the opportunity cost of each unit delivered to the overseas customer? c) Suppose there is not enough idle capacity to produce all of the units for the overseas customer. Required: a) Suppose there is ample idle capacity to produce the units required by the overseas customer. Direct labour is a variable cost in this company. and the special discounted price on the special order is $66.300 units for regular customers.Relevant Costs for Decision Making 12-78 128.90 per unit. Juett Company produces a single product.10 less per unit on this order than on normal sales. By how much would this special order increase (decrease) the company's operating income for the month? b) Suppose the company is already operating at capacity when the special order is received from the overseas customer. Bloom's Level: Apply Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 12 . The cost of producing and selling a single unit of this product at the company's normal activity level of 70. The variable selling and administrative expense would be $1.000 units per month is as follows: The normal selling price of the product is $72. What would be the minimum acceptable price per unit for the special order? .10 per unit.000 units to be delivered this month at a special discounted price. and accepting the special order would require cutting back on production of 1. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs.000 higher than the total cost of using the old machine.because its total cost is $55.

Chapter 12 - Relevant Costs for Decision Making
12-79

a)
b) The opportunity cost is just the contribution margin on normal sales:
c) Minimum acceptable price:
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making
12-80

129. When Mr. Ding L. Berry, president and chief executive of Berry, Inc., first
saw the
segmented income statement below, he flew into his usual rage: "When will we
ever start
showing a real profit? I'm starting immediate steps to eliminate those two
unprofitable lines!"
*These traceable expenses could be eliminated if the product lines to which they
are traced
were discontinued.
Required:
Recommend which segments, if any, should be eliminated. Prepare a report in
good form to
support your answer.
A segmented income report, without the allocation of common fixed expenses,
will provide the
basis for deciding which segments to drop.
The only segment that possibly should be eliminated is segment W, which shows
a negative
segment margin of $2,000.

Chapter 12 - Relevant Costs for Decision Making
12-81
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2

130. Northern Stores is a retailer in British Columbia. The most recent monthly
income
statement for Northern Stores is given below:
Northern is considering closing Store I. If Store I is closed, one-fourth of its
traceable fixed
expenses would continue to be incurred. Also, the closing of Store I would result
in a 20%
decrease in sales in Store II. Northern allocates common fixed expenses on the
basis of sales
dollars and none of these costs would be saved if a store were shut down.
Required:
Compute the overall increase or decrease in the operating income of Northern
Stores if Store I
is closed.
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making
12-82

131. The Anaconda Mining Company currently is operating at less than 50% of
practical
capacity. The management of the company expects sales to drop below the
present level of
15,000 tonnes of ore per month very soon. The selling price per tonne of ore is
$2, and the
variable cost per tonne is $1. Fixed costs per month total $15,000.

Management is concerned that a further drop in sales volume will generate a loss
and,
accordingly, is considering the temporary suspension of operations until demand
in the metals
markets returns to normal levels and prices rebound. Management has
implemented a cost
reduction program over the past year that has been successful in reducing costs.
Nevertheless,
suspension of operations appears to be the only viable alternative. Management
estimates that
suspension of operations would reduce fixed costs from $15,000 to $5,000 per
month.
Required:
a) Why does management estimate that fixed costs will persist at $5,000 per
month although the
mine is temporarily closed?
b) At what sales volume should management suspend operations at the mine?
a) Some fixed costs will continue to be incurred despite the temporary closing of
the mine. Key
employees cannot be discharged because these employees will seek
employment elsewhere and
replacing them could prove to be quite costly. A skeleton staff would be needed
to perform
some administrative functions. Additionally, the maintenance of building and
equipment would
need to continue to prevent damage that would be costly to repair. Taxes and
insurance would
continue to be paid during the shut-down period.
b) Suspension of operations would be desirable when sales volume drops below
10,000 tonnes
as shown below:
Each tonne extracted contributes $1.00 per tonne towards fixed costs:
Sales volume necessary to recover $10,000 of fixed costs:

Chapter 12 - Relevant Costs for Decision Making
12-83
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making
12-84

132. Kramer Company makes 4,000 units per year of a part called an axial tap
for use in one of
its products. Data concerning the unit production costs of the axial tap follow:
An outside supplier has offered to sell Kramer Company all of the axial taps it
requires. If
Kramer Company decided to discontinue making the axial taps, 40% of the
above fixed
manufacturing overhead costs could be avoided. Assume that direct labour is a
variable cost.
Required:
a) Assume Kramer Company has no alternative use for the facilities presently
devoted to
production of the axial taps. If the outside supplier offers to sell the axial taps for
$65 each,
should Kramer Company accept the offer? Fully support your answer with
appropriate
calculations.
b) Assume that Kramer Company could use the facilities presently devoted to
production of the
axial taps to expand production of another product that would yield an additional
contribution
margin of $80,000 annually. What is the maximum price Kramer Company
should be willing to
pay the outside supplier for axial taps?
Chapter 12 - Relevant Costs for Decision Making
12-85

a) The analysis of the alternatives follows below:
* 40% x $20
The company should make the part rather than buy it from the outside supplier
because it costs
$4 less under that alternative.
b) The maximum acceptable price is $81 because that is the cost to the company
of making the
part itself when the opportunity cost is included:
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making
12-86

133. Glocker Company makes three products in a single facility. These products
have the
following unit product costs:
Additional data concerning these products are listed below.
The mixing machines are potentially a constraint in the production facility. A total
of 5,900
minutes are available per month on these machines.
Direct labour is a variable cost in this company.
Required:
a) How many minutes of mixing machine time would be required to satisfy
demand for all four
products?
b) How much of each product should be produced, rounded to the nearest whole
unit, to
maximize operating income
c) Up to how much should the company be willing to pay, rounded to the nearest
whole cent, for
one additional minute of mixing machine time if the company has made the best
use of the
existing mixing machine capacity?

Chapter 12 - Relevant Costs for Decision Making
12-87

a) Demand on the mixing machine:
Total time required for all products: 6,500 minutes
b) Optimal production plan:
c) The company should be willing to pay up to the contribution margin per minute
for the
marginal job, which is $13.95.
Bloom's Level: Analyze

Difficulty: Hard
Learning Objective: 3

Chapter 12 - Relevant Costs for Decision Making
12-88

134. Holt Company makes three products in a single facility. Data concerning
these products
follow:
The mixing machines are potentially a constraint in the production facility. A total
of 25,800
minutes are available per month on these machines.
Direct labour is a variable cost in this company.
Required:
a) How many minutes of mixing machine time would be required to satisfy
demand for all four
products?
b) How much of each product should be produced, rounded to the nearest whole
unit, to
maximize operating income?
c) Up to how much should the company be willing to pay, rounded to the nearest
whole cent, for
one additional minute of mixing machine time if the company has made the best
use of the
existing mixing machine capacity?

Chapter 12 - Relevant Costs for Decision Making
12-89

a) Demand on the mixing machine:
Total time required for all products: 26,700 minutes
b) Optimal production plan:
c) The company should be willing to pay up to the contribution margin per minute
for the
marginal job, which is $5.15.

Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 3

Chapter 12 - Relevant Costs for Decision Making
12-90

135. Redner, Inc. produces three products. Data concerning the selling prices
and unit costs of
the three products appear below:
Fixed costs are applied to the products on the basis of direct labour hours.
Demand for the three products exceeds the company's productive capacity. The
grinding
machine is the constraint, with only 2,400 minutes of grinding machine time
available this
week.
Required:
a) Given the grinding machine constraint, which product should be emphasized?
Support your
answer with appropriate calculations.
b) If there is still unfilled demand for the product that the company should
emphasize in part a)
above, up to how much should the company be willing to pay for an additional
hour of grinding
machine time?
a) The product to emphasize can be determined by computing the contribution
margin per unit
of the scarce resource, which in this case is grinding machine time.
Product L should be emphasized because it has the greatest contribution margin
per unit of the
scarce resource.
b) If additional grinding machine time is used to produce more of Product L, the
time would be
worth 60 x $5 = $300 per hour.

Chapter 12 - Relevant Costs for Decision Making
12-91
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 3

Chapter 12 - Relevant Costs for Decision Making
12-92

136. Iaci Company makes two products from a common input. Joint processing
costs up to the
split-off point total $42,000 a year. The company allocates these costs to the joint
products on
the basis of their total sales values at the split-off point. Each product may be
sold at the split-off
point or processed further. Data concerning these products appear below:
Required:
a) What is the net monetary advantage (disadvantage) of processing Product X
beyond the
split-off point?
b) What is the net monetary advantage (disadvantage) of processing Product Y
beyond the
split-off point?
c) What is the minimum amount the company should accept for Product X if it is
to be sold at
the split-off point?
d) What is the minimum amount the company should accept for Product Y if it is
to be sold at
the split-off point?
a) & b)
c) & d)
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2

Joint processing costs up to the split-off point total $200. Required: Which product or products should be sold at the split-off point. Harris Corp. and which product or products should be processed further? Show computations. Product K should be sold after further processing beyond the split-off point. The additional processing costs and sales value after further processing for each product (on an annual basis) are: The "Further Processing Costs" consist of variable and avoidable fixed costs. The pricing . (Appendix 12A) Qualls Company makes a product that has the following costs: The company uses the absorption costing approach to cost-plus pricing.Relevant Costs for Decision Making 12-93 137. Each product may be sold at the split-off point or processed further. Products J and L should be sold at the split-off point without any further processing. Bloom's Level: Analyze Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Chapter 12 . manufactures three products from a common input in a joint processing operation.000 per year.Chapter 12 .Relevant Costs for Decision Making 12-94 138. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point.

000 units per year. The company has invested $500. Required: a) Compute the markup on absorption cost.calculations are based on budgeted production and sales of 48. b) Compute the target selling price of the product using the absorption costing approach. The company has invested $360. Required: a) Compute the markup on absorption cost.Relevant Costs for Decision Making 12-95 139. a) b) Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 . (Appendix 12A) Riley Company makes a product that has the following costs: The company uses the absorption costing approach to cost-plus pricing. b) Compute the target selling price of the product using the absorption costing approach.000 in this product and expects a return on investment of 15%. a) b) Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Chapter 12 .000 in this product and expects a return on investment of 15%. The pricing calculations are based on budgeted production and sales of 48.000 units per year.

000 in this product and expects a return on investment of 15%. (Appendix 12A) Trevor Company is contemplating the introduction of a new product.Relevant Costs for Decision Making 12-96 140. can the company be assured that no loss will be sustained on the new product? Explain. (Appendix 12A) Ritchie Corporation manufactures a product that has the following costs: The company uses the absorption costing approach to cost-plus pricing.000 = 22. The company has invested $160. Required: a) Compute the markup on absorption cost.10 Bloom's Level: Apply Difficulty: Hard Learning Objective: 4 . The pricing calculations are based on budgeted production and sales of 37. b) Compute the target selling price.Relevant Costs for Decision Making 12-98 141. c) No.Chapter 12 . and a consequent loss for the company on the product. and costs turn out as projected.000 units per year. The company has gathered the following information concerning the product: The company uses the absorption costing approach to cost-plus pricing.700/37. Fixed Overhead = 817. sales volume may be less than the 12. Required: a) Compute the markup on absorption cost. resulting in inadequate contribution margin to cover fixed costs. b) Compute the target selling price of the product using the absorption costing approach.Relevant Costs for Decision Making 12-97 Bloom's Level: Analyze Difficulty: Medium Learning Objective: 4 Chapter 12 . Chapter 12 . c) If the price computed in part b) above is charged.000 units projected annually.

Required: a) Compute the markup on absorption cost. Gildersleeve Corporation manufactures a product that has the following costs: The company uses the absorption costing approach to cost-plus pricing. Chapter 12 . The company has invested $600. b) Compute the target selling price of the product using the absorption costing approach. The company has gathered the following information concerning the product: The company uses the absorption costing approach to cost-plus pricing. b) Compute the target selling price. Inc.Chapter 12 .000 units of the mower per year. Required: a) Compute the markup on absorption cost. the mower cannot be priced above $139.Relevant Costs for Decision Making 12-99 142. Management believes that in order to be competitive. The company requires a minimum return of 25% on its investments. Sales are expected to be 40.Relevant Costs for Decision Making 12-102 144. (Appendix 12A) Turnhilm.Relevant Costs for Decision Making 12-100 143. . The pricing calculations are based on budgeted production and sales of 30.000 units per year.000 in this product and expects a return on investment of 15%.000. (Appendix 12A) Green Hornet Company is contemplating the introduction of a new product. is considering adding a small electric mower to its product line. Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Chapter 12 . Launching the new product would require an investment of $8. Required: a) Compute the target cost of a mower.Relevant Costs for Decision Making 12-101 Bloom's Level: Apply Difficulty: Medium Learning Objective: 4 Chapter 12 .000.

000 units is $100 per unit.50%. and TQM) are not possible.000 . Another option is introducing the product at the same price as the competition but lowering the required minimum return on investment. what specific options are available to Turnhilm? c) Suppose. Another option is to charge the same price as the competition and earn a higher return on investment for Turnhilm's shareholders. Specifically.000 units unless the higher cost includes more features than the competition. that is: This option is more plausible than the first unless the company's cost of capital is much higher than the 25% required minimum return on investment. ($2. ($5. What other specific options are available to Turnhilm? Chapter 12 .000. A possible outcome of this strategy is price war which can result in significant losses for all including Turnhilm. the demand will be less than 40. c) One attractive option is price reduction to gain market share or force the competition to lower their price.000 units is only $80. Most likely.b) Suppose the target cost calculated in part (b) above is not attainable using the company's current manufacturing facilities.Relevant Costs for Decision Making 12-103 a) b) One option is for the company to go ahead and introduce the product but at a higher price than the competition and still desire a minimum return of 25% on its investments.000)).560.000))/40. using the company's current manufacturing facilities the average cost of producing the 40. The resulting return is about 29.50% (that is.000.000))/$8. The required minimum return is about 19. theory of constraints. the average cost of producing the 40. This option assumes cost reductions (using techniques such as activity-based management. Bloom's Level: Analyze Difficulty: Hard Learning Objective: 5 Chapter 12 .000)).Relevant Costs for Decision Making 12-104 . A price of $130 can accomplish this latter goal (that is. Besides abandoning the idea.000 + ($80 x 40.($80 x 40.

This option may be more attractive to Juanita because most of the incremental costs can be saved as well as the opportunity cost. Juanita has assembled the following data to make the decision: Required: a) Calculate the following in the context of Juanita's decision: (i) Total sunk costs (if any) (ii) Total differential or incremental costs (if any) (iii) Total opportunity costs (if any) b) What is your best estimate of the total cost to Juanita of earning an M. She has applied for admission to the M.B. Mexico. Chapter 12 .A program at Dalhousie University. she will resign and move to Halifax.000 annually as a marketing specialist in Mexico City. personal growth.A. What specific additional information would you need in order to make a rational decision to pursue and successfully complete the MBA program at Dalhousie? Explain. This may be especially relevant if benefits from network of classmates are important to Juanita. Juanita earns $68. enhanced reputation and network of classmates Reputation of the Dalhousie MBA program in comparison to other programs. degree if it will take her 12 months to complete the program? c). internet-based MBA from reputable universities). If accepted. Feasibility of obtaining similar (or even superior) qualification using nontraditional means (for example.000 (Juanita's annual salary forgone) b) Total cost to Juanita of earning an MBA degree c) Specific additional information required to make a rational decision includes: Expected benefits from having an MBA degree.Relevant Costs for Decision Making 12-105 a) (i) Total sunk costs are $600 (cost of two business suits purchased just prior to resigning) (ii) Total differential/incremental costs: Note: The auto expenses are not differential or incremental because they remain the same in Mexico City and Halifax.B. Suppose you are Juanita.145. Bloom's Level: Evaluate Difficulty: Hard . Nova Scotia. (iii) Total opportunity costs are $68. Examples are increased salary.

what can the crossfunctional team do to further reduce cost? Chapter 12 . The difference multiplied by 300.89% (i.000.Learning Objective: 1 Learning Objective: 2 Chapter 12 .Relevant Costs for Decision Making 12-107 a) Cost reduction target (Note: The currently feasible cost averages to $166.Relevant Costs for Decision Making 12-106 146.000. Benchmark the firm's production costs or activities to the best in its industry. Outsource some of the activities in which the firm does not have competitive advantage and that are also not the firm's sources of competitive advantage.000 units equals the total cost reduction target of $14.$41 million)/$45 million))) c) Possible actions to further reduce the costs of production include Eliminate or reduce non-value added activities. (($150 . is this a feasible product for iBurst Technology? Why or why not? c) Whether the cost reduction target is feasible or not.67 per unit ($50.000 exceeds the total target cost of $36. .000. b) If the cross-functional team believes the cost of the modem cannot be reduced by any more than 18%.e.000/300.67)/$150) or (($45 million . The maximum attainable cost of reduction percentage of 18% is less than the required cost reduction percentage of 28% ($14 million/$50 million.) b) Attainable cost Decision: The product is NOT feasible for any of the following reasons: The total attainable minimum cost of $41.000. (Appendix 12A) iBurst Technology is developing a high-speed modem to connect notebook computers with iSun's satellite-based data network.000.67 exceeds the average unit target cost of $120.000 units) which exceeds the average target unit cost of $120.) The maximum attainable cost reduction of $9 million is less than the required cost reduction target of $14 million. The required return of 20% on sales exceeds the maximum attainable return on sales of 8.000.$136. The crossfunctional team in charge of the project has assembled the following information: Required: a) Given the above information calculate the cost reduction target. The minimum attainable average unit cost of $136.

May consider reducing the required return on sale .May consider redesigning the product or re-configuring the value-added activities.