AIM 2302 Practice Exam I

Section I True/False

1) Management accounting is not regulated and not mandatory. If you do not want, then
you dont have to have a management accounting system in your firm. True / False

2) One of the roles of management accounting is to provide managers with information for
decision making and planning. True / False

3) The demands for cost information for the non-profit and governmental sector is very low
compared to the demands for cost information for the profit-seeking firms. True / False

4) Each step of a value chain, ideally, should contribute more to the ultimate value of the
product than its cost. True / False

5) An input based measure is a physical measure of activity, such as the number of units
produced or the amount of time spent being productive. True / False

6) The word cost can have different meanings depending upon the context. True / False

7) The cost of tires is considered as direct material cost for a truck. True / False

8) Administrative cost is considered as period cost and hence will be treated as an expense
in the period that it is incurred. True / False

9) The importance of manufacturing support costs has been steadily increasing in the past 30
years. True / False

10) Manufacturing support costs do not include indirect material costs and indirect labor
costs. True / False

11) Fixed costs are unaffected by changes in production levels in the short run.
True / False

12) Manufacturing support costs are also called prime costs since they are the most
important of the three categories of manufacturing costs. True / False

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Section II Multiple Choice

Use the following data for questions 1 through 5

For the month of September 2002, ABC&Co had the following cost data available:

Direct materials $350,000

Sales promotion costs 16,000
Indirect labor (production-related) 28,000
Administrative costs (sales-related) 25,000
Depreciation of factory equipment 68,000
Direct labor 39,000
Distribution costs 20,000
Indirect material (production-related) 45,000
Depreciation of factory machinery 24,000

1) The prime costs for the month of September equal:

a) $ 378,000
b) $ 389,000
c) $ 554,000
d) $ 61,000

2) The conversion costs for the month of September equal:

a) $ 378,000
b) $ 389,000
c) $ 554,000
d) $ 204,000

3) The period costs for the month of September equal:

a) $ 378,000
b) $ 204,000
c) $ 554,000
d) $ 61,000

4) Total manufacturing costs for the month of September equal:

a) $ 615,000
b) $ 204,000
c) $ 554,000
d) $ 165,000

5) The manufacturing support costs for the month of September equal:

a) $ 615,000
b) $ 204,000
c) $ 554,000
d) $ 165,000

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Use the following data to answer questions 6 through 8

Dr. Mick Finn charges a $400 fee for each procedure performed. The variable cost of each
procedure is $200. His total fixed costs are $8,000 per month.

6) How much revenue will Dr. Finn generate for the month of July if he performs 200 procedures?
a) $40,000
b) $80,000
c) $120,000
d) $160,000

7) How much profit will Dr. Finn generate for the month of July if he performs 200 procedures?
a) $32,000
b) $40,000
c) $80,000
d) $120,000

8) What is the breakeven point for the month of July?

a) 40 procedures
b) 30 procedures
c) 20 procedures
d) 10 procedures

9) Mixed (semi-variable) costs are costs that

a) increase with production volume
b) decrease with production volume
c) remain constant with changes in production volume
d) comprise both fixed and variable costs

10) If the production level decreases by 20%, then the unit variable cost
a) decreases by 20%
b) decreases by 25%
c) increases by 25%
d) remains the same

11) Production activity costs are classified into the following categories, except:
a) unit-related
b) batch-related
c) period-sustaining
d) business-sustaining

12) The main difference between management accounting and financial accounting is
a) that while the former is more for internal use by managers, the latter is focused on the
informational needs of outsiders to the organization
b) that while the former is more difficult, the latter is easy
c) that while the former is useful, the latter is useless
d) that while the former is regulated and mandated by the state government, the latter is
mandated and regulated by the federal government

13) Value chain means

a) the sequence of links that a manager has to manage for new investments
b) the sequence of people that work for the same manager
c) the set of value producing activities that stretches from raw materials to the final consumer
d) the sequence of accounts through which cash flows in an organization

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14) Product costs are
a) expensed as they are incurred
b) inventoriable costs
c) period costs
d) always difficult to cut down

Section III

1) Omega Corporation uses the following equation to estimate manufacturing support costs based
only on direct labor hours (DLH):

Support costs = $800,000 + ($40*DLH)

A consultant has developed the following equation that recognizes machine-hours (MH) as a driver
influencing support costs:

Support costs = $500,000 + ($35 * DLH) + ($60 * MH)

For the month of October, Omega expects to use 7,500 direct labor hours and 5,000 machine hours.

a) Estimate the total support cost for October using the equation that is based on DLH only.

b) Estimate the total support cost for October using the equation developed by the consultant.

2) Air Quality Systems, Inc. manufactures a component used in equipment that removes pollutants
from industrial emissions. The firm's fixed costs are $4,000,000 per year. The variable cost of each
component is $2,000, and the components are sold for $3,000 each.

a) Calculate the unit contribution margin for Air Quality Systems.

b) Calculate the breakeven point of Air Quality Systems in units