Manage Costs for Decision Making

4.
1 Questions
1) To support managers' decisions, accountants develop cost management systems that are
________.
A) also used by external users such as investors and lenders
B) computer programs with specialized accounting language
C) a collection of tools and techniques that identify how decisions affect costs
D) composed of at least 400 cost pools
Answer: C
2) External users of financial reports need ________ measures of inventory and cost of goods
sold. Internal users of financial reports need ________ cost information about products.
A) strategic; operational
B) operational; strategic
C) aggregate; detailed
D) detailed; aggregate
Answer: C
3) What is an example of a tool or technique that is used in a cost management system?

A) retail method
B) lower of cost or market rule
C) conservatism principle
D) cost-volume-profit analysis
Answer: D
4) A cost management system provides ________.

A) measures of inventory value and cost of goods sold for financial reporting
B) cost information for strategic management decisions
C) cost information for operational control
D) all of the above
Answer: D
5) Which of the following is an example of a strategic management decision that uses cost
information?
A) determining the ending balance of Merchandise Inventory for financial reporting to
external users
B) determining the product mix
C) assessing a cost control program in a factory
D) determining the amount of Cost of Goods Sold for financial reporting to external users
Answer: B
6) Which of the following is an example of using cost information for operational control?
A) determination of Cost of Goods Sold for the income statement
B) identification of capital assets to acquire for expansion purposes
C) selection of value-chain function to emphasize in corporate mission
D) evaluation of process improvement efforts in a manufacturing process
Answer: D
7) Which of the following is an example of a strategic management decision that uses cost
information?
A) determination of Cost of Goods Sold for the income statement
B) identification of value-chain function to outsource
C) evaluation of operational cost control program
D) assessment of process improvement efforts in quality control
Answer: B
4.2 Questions
1) A product such as Sure-Fine Graham Crackers, and a customer such as an Internet

customer, are both examples of ________.
A) cost accounting
B) cost management system
C) cost assignment
D) cost objects
Answer: D
2) To determine the cost of a product, which of the following are followed?

A) first step, cost assignment and second step, cost allocation
B) first step, cost accumulation and second step, cost assignment
C) first step, cost allocation and second step, cost apportionment
D) first step, cost absorption and second step, cost attribution
Answer: B
3) To determine the cost of serving a specific type of customer, such as the retail customer,
which of the following are followed?
A) first step, cost assignment and second step, cost allocation
B) first step, cost accumulation and second step, cost assignment
C) first step, cost allocation and second step, cost apportionment
D) first step, cost absorption and second step, cost attribution
Answer: B
4) If the Machining Department is the cost object, attaching costs to the Machining
Department is called ________.
A) cost pooling
B) cost accumulation
C) cost assignment
D) applying a cost driver
Answer: C
5) Which of the following types of organizations need cost accounting?
A) manufacturing firms and service organizations only
B) service organizations and nonprofit organizations only
C) manufacturing firms and nonprofit organizations only
D) all types of organizations
Answer: D
6) Which of the following statements is FALSE?

A) A cost may be defined as a sacrifice or giving up of resources for a particular purpose.
B) Costs are frequently measured by the monetary units that must be paid for goods and
services.
C) Only manufacturing firms need some form of cost accounting.
D) A cost accounting system typically has two processes that include cost accumulation and
cost assignment.
Answer: C
7) Which of the following statements about cost accounting systems is FALSE?

A) The cost accounting system provides the cost data that managers use for decision making.
B) The cost accounting system is the most fundamental component of a cost management
system.
C) A cost accounting system that provides accurate information is a key success factor for all
types of organizations.
D) Some types of organizations do not need cost accounting systems.
Answer: D
8) The process of collecting costs by some natural classification is called ________.

A) cost accounting
B) cost allocation
C) cost accumulation
D) cost assignment
Answer: C
4.3 Questions
1) Which of the following types of costs cannot be specifically and exclusively identified with
a cost object in an economically feasible manner?
A) variable costs
B) fixed costs
C) direct costs
D) indirect costs
Answer: D
2) The cost object is an upholstered chair made by craftsmen in a factory. An accountant can
identify the amount and cost of fabric used to manufacture the chair. This is called ________ a
________ to a cost object.
A) assigning; indirect cost

B) allocating; indirect cost
C) allocating; direct cost
D) tracing; direct cost
Answer: D
3) Today, in most manufacturing companies, workers oversee automated production

processes that produce many different products. With respect to the products manufactured,
the labor costs are considered to be ________.
A) direct labor costs
B) indirect production costs
C) direct production costs
D) period costs
Answer: B
4) To assign indirect costs to cost objects, which of the following methods is used?
A) cost pooling
B) cost accumulation
C) cost allocation
D) cost tracing
Answer: C
5) When allocating indirect production costs to cost objects, which of the following is/are a
cost-allocation base(s)?
A) some measure of input or output that determines the amount of cost to be allocated to a
cost object
B) a measure used to assign indirect costs to cost objects
C) a measure used to assign direct costs to cost objects
D) A and B
Answer: D
6) When allocating indirect production costs to cost objects, most cost-allocation bases are
________.
A) assigned to a cost object
B) accumulated for a cost object
C) traced to the cost object
D) cost drivers
Answer: D
7) When assigning indirect costs to a cost object, an ideal cost-allocation base measures
________.
A) the proportion of indirect costs to direct costs
B) the extent a particular cost is caused by a cost object
C) multiple cost drivers
D) the proportion of direct costs to indirect costs
Answer: B
8) An allocated cost is a(n) ________ assigned to a cost object using a ________.

A) direct cost; cost-allocation base
B) indirect cost; cost-allocation base
C) direct cost; cost pool
D) indirect cost; cost pool
Answer: B
9) How do we assign indirect costs to cost objects?

A) based on the proportion of indirect costs to total costs
B) based on the proportion of indirect costs to direct costs
C) in proportion to the cost object's use of a cost-allocation base
D) based on the amount of direct cost used by the cost object
Answer: C
10) The monthly indirect production cost is Depreciation Expense on Assembly Equipment of
$100,000. The cost allocation base is number of machine hours. The expected level of
production in a month is 10,000 machine hours. What is the amount of indirect production
cost per unit assigned to Product 1 and Product 2. Product 1 requires 10 machine hours per
unit. Product 2 requires 20 machine hours per unit.
Product 1 Product 2
A) $1 $2
B) $10 $20
C) $100 $200
D) none of the above
Answer: C
11) Which of these costs is a direct cost for a manufactured wood chair?
A) Rent Expense for factory building
B) Depreciation Expense on factory equipment
C) Wood used to manufacture chair
D) Salary Expense of factory supervisor
Answer: C
12) Which of the following costs is a direct cost for a manufactured product?
A) Depreciation Expense on factory equipment used for several products
B) Wages Expense of an assembly worker who works specifically on the product
C) Accountants who determine the product costs for all the products manufactured
D) Factory Supervisor Salary Expense where the supervisor oversees the production of
several different types of products
Answer: B
13) When a laptop computer is the cost object, the keyboard would be classified as a(n)
________.
A) direct cost
B) allocated cost
C) indirect cost
D) unallocated cost
Answer: A
14) When an automobile made in a Toyota factory is the cost object, the wages of the security
guard in the factory would probably be classified as a(n) ________.
A) direct production cost
B) indirect production cost
C) direct nonproduction cost
D) indirect nonproduction cost
Answer: B
15) When an upholstered chair is the cost object, minor materials, such as tacks and nails,
used to manufacture the chair would probably be classified as a(n) ________.
A) direct production cost
B) direct nonproduction cost
C) indirect production cost
D) indirect nonproduction cost
Answer: C
4.4 Questions
1) Which of the following purposes of cost allocation provides information for operational
control in an organization?
A) to compute income and asset valuations for financial reports
B) to compute Cost of Goods Sold for financial reports
C) to determine the number of cost drivers for a product
D) to provide the desired motivation and to give feedback for performance evaluation
Answer: D
2) If fixed production costs are not allocated to manufactured products, this conveys the idea
that ________.
A) fixed costs are not necessary to manufacture a product.
B) fixed costs are necessary to manufacture a product.
C) variable costs are less important than fixed costs to manufacture a product.
D) fixed costs are more important than variable costs to manufacture a product.
Answer: A
3) When companies develop cost management systems, which of the following purposes of
cost allocation usually dominates?
A) to predict the economic effects of strategic and operational control decisions
B) to provide the desired motivation and to give feedback for performance evaluation
C) to compute income and asset valuations for financial reporting
D) to justify costs or obtain reimbursement
Answer: C
4) Monthly indirect production costs are $400,000. The cost-allocation base for indirect costs is
machine hours. The budgeted capacity for the month is 40,000 machine hours. Product X used
5,000 machine hours, Product Y used 15,000 machine hours and Product Z used 20,000
machine hours. How much of the indirect costs are allocated to Products X and Y?
Product X Product Y
A) $2,500 $7,500
B) $5,000 $15,000
C) $50,000 $150,000
Answer: C
5) Rent Expense on the Factory Building of $100,000 is allocated to three departments. The
cost-allocation base for this expense is number of square feet, which equals 50,000 square feet.
Information for the three departments housed in the factory building are as follows:
Department Square Feet Cubic Feet
Department A 15,000 15,000
Department B 5,000 5,000
Department C 30,000 20,000
How much Rent Expense is allocated to the three departments?
Department A Department B Department C
A) $15,000 $5,000 $30,000
B) $37,500 $12,500 $50,000
C) $30,000 $10,000 $60,000
Answer: C
6) When determining the cost of a product, which of the following costs is often not allocated?
A) Customer Service Expense
B) Research and Development Expense
C) Marketing Expense
D) Administrative Salaries Expense
Answer: D
7) Depreciation Expense on the Heating and Air Conditioning Equipment for the factory of
$50,000 is allocated to five departments. The cost-allocation base for this expense is the
number of cubic feet, which equals 100,000 cubic feet. Information for five departments is
below:
Department Square Feet Cubic Feet
Department A 15,000 15,000
Department B 5,000 5,000
Department C 30,000 20,000
Department D 20,000 35,000
Department E 10,000 25,000
How much Depreciation Expense is allocated to Department A?
A) $2,500
B) $7,500
C) $15,000
D) $18,750
Answer: B
8) If the Production Department is the cost object, the salary of the factory supervisor is a(n)
________ cost for the department. If the product made in the factory is the cost object, the
salary of the factory supervisor is a(n) ________ cost for the product.
A) direct; indirect
B) indirect; direct
C) direct; direct
D) indirect, indirect
Answer: A
9) In general, many more costs are direct costs instead of indirect costs when the cost object is
a ________ instead of a(n) ________.
A) product; department
B) product; activity
C) product; resource
D) department; product
Answer: D
10) Which of the following is NOT a stated purpose of cost allocation?

A) Predict the economic effects of strategic and operational control decisions.
B) Obtain reimbursement.
C) Provide motivation to managers.
D) Determine product cost.
Answer: D
11) What is the final step in the four-step process to allocate indirect costs to cost objects?
A) Accumulate indirect costs for a period of time in a cost pool.
B) Select an allocation base for each cost pool.
C) Multiply the percentage of total cost-allocation units used for each cost object by the total
costs in the cost pool to determine the cost allocated to each cost object.
D) Measure the units of the cost-allocation base used for each cost object and compute the
total units used for all cost objects.
Answer: C
12) Unallocated costs ________.

A) are not recorded in the cost accounting system
B) do not have cost drivers that can be used to relate the costs to cost objects
C) have a direct relationship to a cost object
D) have an identifiable relationship with a cost object
Answer: B
4.5 Questions
1) Merchandising and manufacturing companies account for ________ in the same way.
A) design expenses
B) customer service expenses
C) selling expenses
D) all of the above
Answer: D
2) A merchandising firm has ________ inventory account(s). A manufacturing firm has

________ inventory account(s).
A) one; three
B) three; one
C) two; three
D) three; three
Answer: A
3) Factory overhead does NOT include ________.

A) electricity bill in factory
B) insurance Expense on factory building
C) supplies used in factory
D) wages of janitors in corporate headquarters
Answer: D
4) Indirect production costs do NOT include ________.

A) property taxes on factory building
B) rent expense on factory building
C) wages of security guards at corporate headquarters
D) wages of forklift truck operators in assembly area
Answer: C
5) In a merchandising company, ________.
A) selling and administrative costs are period costs
B) insurance expense on the corporate building is a product cost
C) Work-In-Process Inventory may be present
D) Finished Goods Inventory may be present
Answer: A
6) In a manufacturing company, ________.

A) inventoriable costs only become an expense when the company sells the inventory
B) inventoriable costs become an expense as soon as the company finishes manufacturing the
product
C) there is only one inventory account
D) period expenses are reported as expenses in a future period
Answer: A
7) When looking at a manufactured product, an example of an inventoriable cost is ________.

A) depreciation expense on office equipment in corporate office
B) insurance expense on vehicles used by sales staff
C) wages of plant security guard
D) clerical salaries in corporate office
Answer: C
8) For manufacturing companies, an example of a period cost is ________.

A) direct materials
B) research and development expense
C) direct labor
D) factory overhead
Answer: B
9) Goods undergoing the production process but not fully complete are called ________.
A) Merchandise Inventory
B) Raw Materials Inventory
C) Finished Goods Inventory
D) Work-in-Process Inventory
Answer: D
10) Which of the following is NOT an example of indirect production costs?

A) factory supplies
B) depreciation expense on factory building
C) depreciation expense on office equipment in corporate headquarters
D) wages of material handlers in factory
Answer: C
11) Which of the following is NOT a period expense in a merchandising firm?

A) Selling Expense
B) Administrative Expenses
C) R&D Expenses
D) Cost of Goods Sold
Answer: D
4.6 Questions
1) In a manufacturing company, product costs used for external reporting include ________.
A) direct material costs plus direct labor cost only
B) indirect production costs only
C) direct material costs plus direct labor cost plus indirect production costs
D) direct material costs plus nonproduction costs
Answer: C
2) Which of the following statements about period costs is FALSE?

A) Period costs refer to distribution costs and design costs.
B) Period costs include R&D expenses, marketing costs and customer service costs.
C) Merchandising and manufacturing firms treat period costs differently.
D) For merchandising firms, Cost of Goods Sold is not a period cost.
Answer: C
3) A merchandising firm reports ________ as a current asset on the balance sheet.

A) Raw Materials Inventory
B) Finished Goods Inventory
C) Work-in-Process Inventory
D) Merchandise Inventory
Answer: D
4) The computation for Cost of Goods Manufactured on the income statement is ________.
(Assume there are no Work-In-Process Inventories.)
A) direct materials used plus direct production costs
B) direct materials used plus direct labor plus indirect production costs
C) direct materials used plus direct labor
D) direct materials used plus direct labor minus indirect production costs
Answer: B
5) ________ would appear on an income statement of both a retailer and a manufacturer.

A) Direct materials used
B) Ending balance in Finished Goods Inventory
C) Selling expenses
D) Ending balance in Merchandise Inventory
Answer: C
6) In a manufacturing firm, which inventory account is NOT used?
A) Raw Materials Inventory
B) Work-In-Process Inventory
C) Finished Goods Inventory
D) Merchandise Inventory
Answer: D
7) The following information was taken from the accounting records of Henry Manufacturing
Company:
Direct materials purchased $75,000
Direct materials used $56,000
Direct manufacturing labor costs $20,000
Indirect manufacturing labor costs $10,000
Sales Salaries Expense $35,000
Miscellaneous Factory Expenses $5,000
Administrative Expenses $40,000
Finished Goods Inventory, beginning $10,000
Finished Goods Inventory, end $12,000
Work-In-Process Inventory, beginning 0
Work-In-Process Inventory, end 0
What is Cost of Goods Manufactured?
A) $86,000
B) $89,000
C) $91,000
D) $96,000
Answer: C
8) The following information was obtained from the accounting records of Stevenson
Incorporated:
Direct materials purchased $80,000
Direct manufacturing labor costs $12,000
Indirect manufacturing labor costs $11,000
Selling expenses $16,000
Administrative expenses $22,000
Factory utilities costs $20,000
Rental cost of factory machines $50,000
Work in process inventory, beginning 0
Work in process inventory, end 0
Finished goods inventory, beginning $10,000
Finished goods inventory, end $30,000
What is Cost of Goods Sold?
A) $57,000
B) $77,000
C) $127,000
D) $147,000
Answer: C
9) In a merchandising firm, the computation of Cost of Goods Sold does NOT use ________.
A) Merchandise Inventory, beginning balance
B) Merchandise Inventory, ending balance
C) purchases of raw materials
D) purchases of merchandise inventory
Answer: C
10) In a manufacturing firm, the computation of Cost of Goods Manufactured does NOT use
________.
A) Finished Goods Inventory, ending balance
B) indirect production costs
C) direct labor costs
D) direct materials used
Answer: A
11) Which of the following costs is NOT an inventoriable cost for a manufacturing firm?
A) Marketing Expense
B) Factory Supervisor's Salary Expense
C) Wages Expense for security guard in factory
D) Wages Expense for forklift operator in factory
Answer: A
4.7 Questions
1) Swanson Company has identified the following activities related to indirect production
costs:
Activity Activity Costs Cost Drivers
Machine Setup $180,000 1,500 setup hours
Materials Handling $50,000 12,500 pounds of materials
Electric Power $20,000 20,000 kilowatt hours
Swanson Company has obtained the following data concerning two products:
Product 1 Product 2
Number of units produced 4,000 20,000
Direct materials cost $20,000 $25,000
Direct labor cost $12,000 $20,000
Number of setup hours 100 120
Pounds of materials used 500 1,500
Kilowatt-hours 1,000 2,000
Using activity-based costing, what amount of machine setup cost is assigned to Products 1
and 2?
Product 1 Product 2
A) $12,000 $14,400
B) $30,000 $150,000
C) $50,000 $130,000
D) $81,818 $98,182
Answer: A
2) Stanley Company has identified the following activities related to indirect production
costs:
Stanley Company has obtained the following data concerning two products:
Product 1 Product 2
Using an activity-based costing system, what amount of materials handling cost is assigned to
Products 1 and 2?
Product 1 Product 2
A) $2,000 $6,000
B) $8,333 $41,667
C) $12,500 $37,500
D) $20,000 $30,000
Answer: A
3) Sandler Company has identified the following activities related to indirect production
costs:
Sandler Company has obtained the following data concerning two products:
Product A Product B
Using activity-based costing, what amount of electric power cost is assigned to Product A and
Product B?
Product A Product B
A) $1,000 $2,000
B) $3,333 $16,667
C) $5,000 $15,000
D) $6,667 $13,333
Answer: A
4) Goldman Company has identified the following activities related to indirect production
costs:
Goldman Company has obtained the following data concerning two products:
Product A Product B
Using activity-based costing, what is the total production cost per unit for Product A?
A) $8.00 per unit
B) $10.25 per unit
C) $11.75 per unit
D) $70.50 per unit
Answer: C
5) Godwin Company has identified the following activities related to indirect production
costs:
Godwin Company has obtained the following data concerning two products:
Product A Product B
Using activity-based costing, what is the total production cost per unit for Product B?
A) $1.12 per unit
B) $2.25 per unit
C) $3.00 per unit
D) $3.37 per unit
Answer: D
6) In activity-based costing systems, the system first accumulates indirect costs for ________,
and then assigns these costs to ________.
A) products; departments
B) products; territories
C) cost objects; types of customers
D) activities; cost objects
Answer: D
7) Activity-based costing systems should be used instead of traditional costing systems if

________.
A) indirect production costs are a large percentage of production costs
B) different products consume resources at different rates
C) only one product is produced
D) A and B
Answer: D
8) In two-stage activity-based costing systems, the cost objects in the first stage are ________
and the cost objects in the second stage are ________.
A) departments; products or services
B) departments; territories
C) resources; departments
D) activities; products or services
Answer: D
9) When using a two stage activity-based costing system, which of the following is NOT a
legitimate step?
A) Identify a cost pool for each significant activity.
B) Assign the indirect resource cost to the appropriate cost pool.
C) Allocate the costs in each pool to products or services using multiple cost drivers.
D) Select an allocation base for each cost pool.
Answer: D
10) ________ is a name for a system that first accumulates indirect resource costs for each of
the activities of an organization and then assigns the cost of each activity to the cost objects
that require that activity.
A) Activity-based management
B) Activity-based costing
C) Cost accounting
D) Activity-based cost allocation
Answer: B

A) Traditional costing systems generally assign only production costs to products.
B) Traditional costing systems use a single cost pool for all indirect production costs.
C) Traditional cost systems work well with simple production processes.
D) Traditional cost systems allocate a cost pool to cost objects using multiple cost drivers.
Answer: D
12) Activity-based costing systems should be adopted when ________.

A) indirect costs represent a small proportion of a product's total costs
B) indirect costs represent a large proportion of a product's total costs
C) a company makes one simple product
D) a company has a simple manufacturing process
Answer: B
13) Process maps are used ________.

A) to make investment decisions regarding capital assets
B) as a guide for strategic decisions
C) as a tool for managers to understand operations
D) for operational control
Answer: C
14) Slocum Company has determined the following information about a new product. The
manufacturing process used for the product is very complex and it has a higher proportion of
indirect costs than direct costs. The company wants a 100% markup on cost. The following
data is available:
Product cost according to traditional costing system $4.00 per unit
Product cost according to activity-based costing system $7.00 per unit
What price per unit should Slocum Company use for this new product?
A) $4.00
B) $7.00
C) $8.00
D) $14.00
Answer: D
15) Fandry Company has obtained the following data concerning a new product:
Production Costs, Using traditional costing method $3.00 per unit
Production Costs, Using activity-based costing method $5.00 per unit
Nonproduction Costs, Using activity-based costing method $2.50 per unit
Fandry Company wants the price of the new product to cover all costs plus a 100% markup.
The production process used for the low volume product is very complicated and it has a
higher proportion of indirect costs than direct costs.
What price per unit should Fandry Company charge for the new product?
A) $6.00
B) $10.00
C) $11.00
D) $15.00
Answer: D
4.8 Questions
1) ________ costs can be eliminated from a product. ________ costs cannot be eliminated from
a product but can be reduced.
A) Value-added; Non-value-added
B) Non-value-added; Value-added
C) Resource; Activity
D) Activity; Resource
Answer: B
2) All of the following are differences between GPK and activity-based costing systems
EXCEPT for ________.
A) GPK applies only variable costs to products. Activity-based costing systems apply fixed
and variable costs to products.
B) GPK focuses on cost centers. Activity-based costing systems focus on activities.
C) GPK may have thousands of cost centers. Activity-based costing systems may have only a
few activities.
D) GPK uses many cost pools. Activity-based costing systems use one cost pool.
Answer: D
3) A cost accounting system called GPK uses ________ cost pools to allocate ________.
A) 10-20; indirect manufacturing costs
B) 1-10; direct manufacturing costs
C) 400 to 2000; indirect manufacturing costs
D) 1-20; direct manufacturing costs
Answer: C
4) ________ use(s) the output of an activity-based cost accounting system to improve the
operational control of an organization.
A) Cost accounting
B) Cost-volume-profit models
C) Activity-based management
D) Traditional costing system
Answer: C
5) Which of the following is an example of a value-added cost to a manufactured product?

A) the cost of handling inventory
B) the cost of storing inventory
C) changing the setup of production-line operations
D) the depreciation expense of robots that assemble the product
Answer: D
6) All of the following can be sources of benchmarks EXCEPT for ________.

A) competitors
B) organization itself
C) organizations with dissimilar processes
D) organizations with similar processes
Answer: C
7) A hospital radiology department has the following activities:

Activity Number Activity Description
1 Repair X-ray equipment
2 Taking X-ray with X-ray equipment
3 Wait time between patients
4 Repeating an X-ray because the X-ray technician forgot to
load the film in the X-ray equipment
Which activity is a value-added activity?
A) Activity 1
B) Activity 2
C) Activity 3
D) Activity 4
Answer: B
8) Why are more organizations adopting activity-based costing systems?

A) Computer technology has increased the costs of developing and operating ABC systems.
B) Indirect costs are more important in automated manufacturing environments.
C) Less competition.
D) Less diversity in product mix offered to customers.
Answer: B
4.9 Questions
1) In designing an activity-based cost accounting system, what is the first step?

A) Collect data about costs and the physical flow of the cost-driver units.
B) Determine the relationships among cost objects, activities, and resources.
C) Determine the key components of the activity-based cost accounting system.
D) Calculate and interpret the new activity-based cost information.
Answer: C
2) Which of the following is NOT a valid step when designing an activity-based cost
accounting system?
A) Determine the key components of the system.
B) Determine the relationships between cost objects, activities, and resources.
C) Collect relevant data concerning costs and cost drivers.
D) Use a process map to identify areas for operational improvement.
Answer: D
3) Examples using activity-based costing generally show that traditional costing systems
________ high-volume, simple products and ________ low-volume, complex products.
A) undercost; overcost
B) overcost; undercost
C) undercost; undercost
D) overcost; overcost
Answer: B
4) When comparing traditional costing systems to activity-based costing systems, the analysis
reveals that ________.
A) high volume products are undercosted with traditional costing systems
B) high volume products are overcosted with traditional costing systems
C) low volume products are overcosted with traditional costing systems
D) both high volume and low volume products are undercosted with traditional costing
systems
Answer: B
5.1 Questions
1) Historical or past information has no ________ bearing on a decision made by

management. Historical or past information can have a(n) ________ bearing on a decision
made by management.
A) indirect; direct
B) direct; indirect
C) measurable; material
D) material; significant
Answer: B
2) Relevant information refers to ________ that will differ among the alternative courses of
action.
A) future costs only
B) future revenues only
C) past costs and revenues
D) future costs and revenues
Answer: D
3) Historical or past information can have an indirect bearing on a manager's decision

because ________.
A) the past decision resulted in a favorable outcome
B) it can help predict the future
C) the past decision resulted in a bonus for the manager
D) the manager wants to repeat the past decisions made some of the time
Answer: B
4) When managers make decisions, the accountant's primary role is ________.

A) making the decision
B) providing information that may be useful to the manager
C) uncertain because it depends on the decision being made
D) uncertain because it depends on the manager
Answer: B
5) Information is relevant in business decisions if it is a(n) ________.

A) expected future revenue or it differs among alternatives
B) expected future revenue and it differs among alternatives
C) past revenue and it differs among alternatives
D) expected future revenue that differs from past revenue
Answer: B
6) Cantrall Company is trying to decide which product to manufacture. Expected direct

materials costs are $4.00 per unit for each product. The expected direct labor costs are $2.00
per unit for one product and $4.00 per unit for another product. In choosing between the two
products, the direct materials costs are ________ and the direct labor costs are ________.
A) relevant; irrelevant
B) irrelevant; relevant
C) relevant; relevant
D) irrelevant; irrelevant
Answer: B
7) A company is trying to decide which product to manufacture. The following information is

available:
Costs Product A Product B
Direct Materials 1 $2.00 per unit $2.20 per unit
Direct Labor $0.70 per unit $0.70 per unit
Which product cost is irrelevant to the decision?

A) Direct Materials 1
B) Direct Materials 2
C) Direct Materials 3
D) Direct Labor
Answer: D
5.2 Questions
1) When managers make decisions, the decision process used has the following steps in the
order of occurrence:
A) Historical and Other Information, Prediction Model, Prediction, Decision Model, Decision,
Implementation, Feedback
B) Historical and Other Information, Decision Model, Prediction Method, Implementation,
Decision, Feedback
C) Historical and Other Information, Decision Model, Prediction Method, Decision,
Implementation, Feedback
D) Historical and Other Information, Prediction Method, Prediction, Decision Model,
Decision, Implementation, Feedback
Answer: D
2) When managers use the decision process to make decisions, which information is used to
make predictions about the amount of expected sales for Product XYZ?
A) historical data from the accounting system only
B) data outside the accounting system only
C) data outside the organization only
D) A and B
Answer: D
3) A manager is trying to decide which product to emphasize in promotion and advertising

efforts. Following the decision process used by managers, predictions about the amounts of
future sales of the two products are used as input to the ________.
A) prediction model
B) prediction method
C) decision model
D) evaluation model
Answer: C
4) When managers use the decision process to make decisions, what is the output after using
the prediction method?
A) decision
B) implementation
C) predictions
D) evaluation
Answer: C
5) If perfectly accurate and relevant information is not available for decision making, the
accountant should consider using information that is ________.
A) precise but irrelevant
B) imprecise but irrelevant
C) imprecise but relevant
D) imprecise but timely
Answer: C
6) In determining whether to purchase a labor-saving machine, extreme resistance to the

machine by employees would be a(n) ________.
A) relevant qualitative factor
B) relevant quantitative factor
C) irrelevant qualitative factor
D) irrelevant quantitative factor
Answer: A
7) In considering whether to produce a single product, the associated direct materials and
direct labor costs would probably be ________.
A) relevant qualitative factors
B) relevant quantitative factors
C) irrelevant qualitative factors
D) irrelevant quantitative factors
Answer: B
8) In decision making situations, ________ aspects may dominate quantitative aspects in

many decisions.
A) relevant
B) precision
C) accuracy
D) qualitative
Answer: D
9) What are the qualitative aspects of a decision?

A) those which are not relevant to a decision
B) those with a concrete dollar amount
C) those for which measurement in dollars and cents is difficult and imprecise
D) those which are always relevant to a decision
Answer: C
10) Which of the following statements is FALSE about information used for decision making?
A) Precise but irrelevant information is worthless for decision making.
B) Imprecise but relevant information can be useful for decision making.
C) Relevant information must be reasonably accurate but not precisely so.
D) Relevant information must be totally accurate or it is useless.
Answer: D
5.3 Questions
1) For internal decision-making purposes, many companies use the income statement using
the ________ approach. For external reporting, most companies use the income statement
using the ________ approach.
A) absorption; absorption
B) absorption; contribution
C) contribution; absorption
D) full costing; variable costing
Answer: C
2) It is misleading to use the absorption costing income statement to predict the effect of
changes in sales volume because ________.
A) variable production costs per unit do not change with small changes in sales volume
B) total fixed production costs do not change with small changes in sales volume
C) fixed production costs per unit do not change with small changes in sales volume
D) total variable production costs do not change with small changes in sales volume
Answer: B
3) Variable selling expenses affect the calculation of ________ on the contribution income
statement. Variable selling expenses do NOT affect the calculation of ________ on the
absorption income statement.
A) gross margin; contribution margin
B) operating income; contribution margin
C) contribution margin; gross margin
D) gross margin; operating income
Answer: C
4) Fixed selling expenses affect the calculation of ________ on the contribution income
statement.
Fixed selling expenses do NOT affect the calculation of ________ on the absorption income
statement.
A) contribution margin; gross margin
B) gross margin; contribution margin
C) operating income; gross margin
D) operating income; contribution margin
Answer: C
5) Fixed indirect production costs affect the calculation of ________ on the absorption income
statement. Fixed indirect production costs do NOT affect the calculation of ________ on the
contribution income statement.
A) contribution margin; gross margin

B) gross margin; contribution margin
C) operating income; gross margin
D) contribution margin; operating income
Answer: B
6) Variable administrative expenses affect the calculation of ________ on the contribution

income
statement. Variable administrative expenses do NOT affect the calculation of ________ on the
absorption income statement.
A) gross margin; contribution margin
B) contribution margin; gross margin
C) operating income; contribution margin
D) gross margin; operating income
Answer: B
7) Under absorption costing, all ________ costs are product or inventoriable costs.
A) indirect production
B) direct and indirect production
C) direct production
D) selling and administrative
Answer: B
8) Under the contribution approach to the income statement, the difference between sales and
________ is contribution margin.
A) cost of goods sold
B) manufacturing costs
C) all variable expenses
D) all fixed expenses
Answer: C
9) The contribution approach to the income statement emphasizes the distinction between
________.
A) value chain functions
B) different functional areas in a firm
C) different business segments
D) variable and fixed costs
Answer: D
10) Using absorption costing, the primary classifications of costs on the income statement are
by ________.
A) cost behavior patterns
B) manufacturing departments
C) major management functions
D) manufacturing segments
Answer: C
11) Santana Company has no beginning and ending inventories, and reports the following
information for its only product:
Direct labor $120,000
Fixed indirect manufacturing $60,000
Variable indirect manufacturing $20,000
Variable selling and administrative $50,000
Fixed selling and administrative $10,000
Units produced and sold 40,000
Santana Company uses the absorption approach to prepare the income statement. What is the
product cost per unit?
A) $11.00
B) $11.25
C) $12.00
D) $12.75
Answer: B
12) Camile Company has no beginning and ending inventories, and reports the following
data about its only product:
Selling price(per unit) $84
Camile Company uses the absorption approach to prepare the income statement. What is the
product cost per unit?
A) $20
B) $25
C) $27.50
D) $32.50
Answer: B
13) The contribution approach to the income statement offers several benefits to decision
makers. Which of the following is NOT a benefit of this approach?
A) This approach makes it easier to understand the impact of changes in sales volume on
operating income.
B) This approach stresses the role of fixed costs in operating income.
C) This approach is used with CVP analysis.
D) This approach is accepted by U.S. Generally Accepted Accounting Principles.
Answer: D
14) Sanchez Company has no beginning and ending inventories, and reports the following
Sanchez Company uses the absorption approach to prepare the income statement. What is the
manufacturing cost of goods sold?
A) $270,000
B) $300,000
C) $390,000
D) $500,000
Answer: B
15) Gonzalez Company has no beginning and ending inventories, and reports the following

Gonzalez Company uses the absorption approach to prepare the income statement. What is
the gross margin?
A) $0
B) $20,000
C) $100,000
D) $120,000
Answer: A
16) When absorption costing is used for the income statement, the difference between sales
and ________ is gross margin.
A) manufacturing cost of goods sold
B) selling expenses
C) selling and administrative expenses
D) variable expenses
Answer: A
17) Garcia Company has no beginning and ending inventories, and reports the following data
about its only product:
Garcia Company uses the absorption approach to prepare the income statement. What is the
operating income?
A) $2,060,000
B) $2,120,000
C) $2,240,000
D) $2,970,000
Answer: A
18) Gomez Company has no beginning and ending inventories, and reports the following
Gomez Company uses the contribution approach to prepare the income statement. What is
the operating income?
A) $1,890,000
B) $2,100,000
C) $2,190,000
D) $2,250,000
Answer: A
19) Under absorption costing, fixed manufacturing costs are used to calculate ________ on the
income statement.
A) contribution margin
B) manufacturing cost of goods sold
C) total variable costs
D) total fixed costs
Answer: B
20) The ________ approach is useful for short-run pricing decisions and the ________
approach is useful for long-run pricing decisions.
A) contribution; absorption
B) absorption; contribution
C) full costing; target costing
D) full costing; contribution
Answer: A
21) On the income statement, the absorption approach separates manufacturing costs from
________.
A) some nonmanufacturing costs
B) all nonmanufacturing costs
C) all variable costs
D) all fixed costs
Answer: B
22) Winter Company has no beginning and ending inventories, and reports the following
Winter Company uses the absorption approach to prepare the income statement. What is the
gross margin?
A) $740,000
B) $1,040,000
C) $1,100,000
D) $1,160,000
Answer: C
23) Latinovich Company has no beginning and ending inventories, and reports the following
Latinovich Company uses the contribution approach to prepare the income statement. What
is the contribution margin?
A) $600,000
B) $910,000
C) $930,000
D) $1,090,000
Answer: C
24) Zeman Company has no beginning and ending inventories, and reports the following
Zeman Company uses the contribution approach to prepare the income statement. What is
the contribution margin?
A) $150,000
B) $190,000
C) $250,000
D) $370,000
Answer: B
25) Schaefer Company has no beginning and ending inventories, and reports the following
Schaefer Company uses the contribution approach to prepare the income statement. What is
the contribution margin?
A) $100,000
B) $140,000
C) $200,000
D) $220,000
Answer: B
5.4 Questions
1) When evaluating short-term special order decisions, which of the following types of
income statements should be used?
A) method used for external reporting
B) method that follows U.S. Generally Accepted Accounting Principles
C) absorption approach
D) contribution approach
Answer: D
2) In special order situations, unit costs are useful for predicting total ________. In special
order situations, unit costs are not useful for predicting total ________.
A) mixed costs; step costs
B) step costs; mixed costs
C) variable costs; fixed costs
D) fixed costs; variable costs
Answer: C
3) Franklin Company uses activity-based costing, and normally produces 1,000,000 units per
month. At this level of production, the costs per unit are as follows:
Direct materials used $14
Direct labor $6
Variable indirect production $1
Setup costs $3
For 1,000,000 units, 500 setups are required at a cost of $6,000 per setup. The company has
received a special order for 100,000 units at $22 per unit. The company has excess capacity.
The company estimates that 5 setups will be required for the special order. What is the cost of
the special order?
A) $2,100,000
B) $2,130,000
C) $2,400,000
D) $2, 430,000
Answer: B
4) Oak Creek Company uses activity-based costing, and normally produces 1,000,000 units
per month. At this level of production, the costs per unit are as follows:
Direct materials used $15
Direct labor $6
Variable indirect production $1
Setup costs $5
For 1,000,000 units, 500 setups are required at a cost of $10,000 per setup. The company has
received a special order for 100,000 units at $22 per unit. The company has excess capacity.
The company estimates that 5 setups will be required for the special order. Variable selling
costs of $1 per unit will also be incurred for the special order. What is the cost of the special
order?
A) $2,300,000
B) $2,350,000
C) $2,700,000
D) $2,800,000
Answer: B
5) Which of the following items is usually NOT important to special order decisions?
A) affect of special order on regular business
B) whether idle capacity is available
C) total fixed costs
D) increase in variable costs per unit due to special order
Answer: C
6) Missouri Company has a current production capacity level of 200,000 units per month. At
this level of production, variable costs are $0.60 per unit and fixed costs are $0.50 per unit.
Current monthly sales are 173,000 units. Gates Company has contacted Missouri Company
about purchasing 20,000 units at $1.00 each. Current sales would not be affected by the
special order and no additional fixed costs would be incurred on the special order. If the
order is accepted, what is Missouri Company's change in profits?
A) $8,000 increase
B) $8,000 decrease
C) $10,000 increase
D) $10,000 decrease
Answer: A
7) Wisconsin Company has a current production capacity level of 200,000 units per month. At
this level of production, variable costs are $1.00 per unit and fixed costs are $0.50 per unit.
Current monthly sales are 164,500 units. Gates Company has contacted Wisconsin Company
about purchasing 20,000 units at $2.00 each. Current sales would not be affected by the
special order and no additional fixed costs would be incurred on the special order. Variable
costs would increase $0.10 per unit with the special order. If the order is accepted, what is
Wisconsin Company's increase in operating income?
A) $8,000
B) $18,000
C) $20,000
D) $24,000
Answer: B
8) Each month Fig Company produces 11,000 units of a product that sells for $18 per unit,
and has variable costs of $12 per unit. Total fixed costs for the month are $77,000. A special
order is received for 5,000 units at a price of $14 per unit. Fig Company has adequate capacity
for the special order. If Fig Company accepts the special order, what is the profit to Fig
Company from the special order?
A) $0
B) $10,000
C) $22,000
D) $99,000
Answer: B
9) Each month Newton Company produces 30,000 units of a product that has variable costs of
$70 per unit. Total fixed costs for the month are $99,000. A special order is received for 1,000
units at a price of $80 per unit. Newton Company has adequate capacity for the special order.
If Newton Company accepts the special order, what is the profit to Newton Company from
the special order?
A) $0
B) $6,700
C) $7,000
D) $10,000
Answer: D
10) Minnesota Company has no beginning and ending inventories, and has the following data
about its only product:
Fixed manufacturing costs $92,000
Fixed selling and administrative costs $69,000
Variable manufacturing costs $1,030,000
Variable selling and administrative costs $120,000
Assume there is excess capacity. The company has received a special order for 1,000 units at
$60.00 per unit. If the special order is accepted, what will be the effect on net income?
A) net income increases by $3,000
B) net income increases by $6,000
C) net income increases by $10,000
D) net income increases by $15,220
Answer: C
11) Dakota Company has been producing and selling 42,000 hats a year. There are no
beginning and ending inventories. The Dakota Corporation has the capacity to produce
52,000 hats. The following data is available:
Selling price per unit $30
Variable manufacturing costs per unit $13
Variable selling and administrative costs per unit $7
Total fixed manufacturing costs $126,000
Total fixed selling and administrative costs $84,000
If a special order is accepted for 10,000 hats at a price of $25 per unit, net income would
________.
A) increase by $20,000
B) increase by $50,000
C) increase by $90,000
D) decrease by $24,000
Answer: B
12) Arkansas Company has no beginning and ending inventories, and has obtained the
following data for its only product:
Variable factory overhead $140,000
Variable selling and administrative expenses $60,000
Fixed factory overhead $370,000
Fixed selling and administrative expenses $30,000
Assume there is excess capacity. There is a special order outstanding for 1,000 units at $40.00
per unit. If Arkansas Company accepts the special order, net income would ________.
C) decrease by $28,750
Answer: B
13) Kansas Company uses activity-based costing. The company produces and sells 20,000
units at $22 per unit. Kansas Company's product cost is calculated as follows:
Variable costs $10 per unit
Fixed costs $2 per unit
Setup costs $3 per unit
Total costs $15 per unit
A total of 500 setups at a cost of $120 per setup are required to produce the 20,000 units.
Kansas Company has received a special order to sell 5,000 units at $12 per unit. Kansas
Company has excess capacity available, but these 5,000 units would require 60 setups. If
Kansas Company accepts the special order, what is the increase or decrease in net income?
A) $0
B) decrease $5,000
C) decrease $15,000
D) increase $2,800
Answer: D
14) Nebraska Company uses activity-based costing. The company produces and sells 20,000
units at $20 per unit. Nebraska Company's product cost is calculated as follows:
Variable costs $8 per unit
Fixed costs $2 per unit
Setup costs $3 per unit
Total costs $13 per unit
A total of 500 setups at a cost of $120 per setup are required to produce the 20,000 units.
Nebraska Company has received a special order to sell 5,000 units at $11 per unit. Nebraska
Company has excess capacity available, but these 5,000 units would require 60 setups. If
Nebraska Company accepts the special order, what is Nebraska's increase in net income?
A) increase $5,000
B) increase $7,800
C) decrease $2,800
D) decrease $5,000
Answer: B
15) A small appliance manufacturer is deciding whether to accept or reject a special order for
1,750 appliances. There is sufficient capacity available for the special order. What is relevant
information for the decision whether to accept or reject the special order?
A) the cost of the parts for the 1,750 appliances
B) the supervisor's salary in the production area
C) the depreciation on assembly equipment
D) the accountant's salary
Answer: A
16) In a special order decision, which of the following costs are usually irrelevant to the
decision?
A) variable manufacturing costs
B) fixed manufacturing costs
C) variable selling costs
D) variable indirect production costs
Answer: B
5.5 Questions
1) In imperfect competition, if prices have little or no effect on sales volume, demand is

________.
A) stable
B) uniform
C) highly elastic
D) highly inelastic
Answer: D
2) In imperfect competition, firms should produce and sell units until the ________ equals the
________.
A) average revenue; marginal cost
B) marginal revenue; average revenue
C) average revenue; average cost
D) marginal revenue; marginal cost
Answer: D
3) In managerial accounting, ________ can be a reasonable approximation of marginal cost in

many situations.
A) fixed cost
B) mixed cost
C) step cost
D) variable cost
Answer: D
4) In perfect competition, all firms charge the same market price. The only decision for
managers is ________.
A) how to minimize costs
B) how to maximize average revenue
C) how much to produce
D) how to minimize marginal costs
Answer: C
5) ________ is the additional cost resulting from producing and selling one additional unit.
A) Marginal cost
B) Common cost
C) Opportunity cost
D) Target cost
Answer: A
6) Price elasticity measures the ________.

A) effect of sales volume changes on prices
B) effect of cost changes on prices
C) effect of price changes on sales volume
D) customers' attitudes toward price changes
Answer: C
7) In perfect competition, the profit-maximizing volume is the quantity at which ________.

A) marginal cost equals price
B) contribution margin equals fixed cost
C) marginal revenue equals price
D) price exceeds marginal cost
Answer: A
8) In perfect competition, additional sales will be profitable if ________.

A) the marginal cost is less than marginal revenue
B) sales price exceeds the variable product cost
C) total variable cost is less than sales price
D) the fixed cost equals the contribution margin
Answer: A
9) In imperfect competition, ________.

A) a firm will produce as many units as it can sell
B) the price a firm charges for a unit influences the quantity of units it sells
C) a firm does not have to reduce prices to generate additional sales
D) a firm should produce and sell units until the marginal revenue exceeds the marginal cost
Answer: B
5.6 Questions
1) In the long run, the selling price of a product should cover ________.
A) all variable costs only
B) all variable costs and some fixed costs
C) all fixed costs only
D) all variable costs and all fixed costs
Answer: D
2) Courts in the United States have ruled that pricing is predatory only if companies set prices
below the ________.
A) average full cost
B) average variable cost
C) average production cost
D) average fixed cost
Answer: B
3) Many managers set prices by cost plus pricing. What is cost plus pricing? Assume it is a
long run decision.
A) average cost per unit plus markup per unit
B) average target cost plus markup per unit
C) average cost per unit minus markup per unit
D) average target cost minus markup per unit
Answer: A
4) Predatory pricing occurs when a firm sets ________.

A) prices below the average cost for each product
B) prices below the production cost for each product
C) prices below their competitors' prices
D) prices so low that competitors are driven out of the market
Answer: D
5) Discriminatory pricing occurs when a firm sets ________.
A) prices below their competitors' prices
B) different prices for a product in different regions of the United States due to a cost
differential in providing the product
C) different prices for different customers for the same product or service
D) discounts for all customers if they pay within a certain number of days after purchase
Answer: C
6) In the short run, when managers set prices for products, the minimum selling price should
be equal to ________.
A) all variable costs of producing, selling and distributing the good or service
B) all fixed costs of producing, selling and distributing the good or service
C) all fixed and variable costs of producing, selling, and distributing the good or service
D) all manufacturing costs
Answer: A
5.7 Questions
1) Frequently, companies do not use a contribution approach to pricing because ________.

A) it promotes price stability
B) it provides the best defense for legal challenges
C) of a fear of underpricing products by using variable costs to price products
D) it is not sensitive to cost-volume-profit relationships
Answer: C
2) Which of the following is an advantage of the absorption approach to pricing products?

A) It displays variable and fixed cost behavior patterns.
B) It offers insights into the long run and short run effects of cutting prices on special orders.
C) It can easily address changes in sales volume.
D) It recovers all costs necessary for a firm to stay in business.
Answer: D
3) The total of all production costs plus the total of all ________ costs equals the full cost of a
product.
A) selling
B) distribution
C) distribution and marketing
D) selling and administrative
Answer: D
4) Kulvekowski Company has budgeted sales of $30,000 with the following budgeted costs:
Direct materials $6,300
Direct labor $4,100
What is the average target markup percentage for setting prices as a percentage of total costs?
A) 15.7%
B) 18.6%
C) 20.1%
Answer: B
5) Barber Company has budgeted sales of $30,000 with the following budgeted costs:
Direct labor $4,100
What is the average target markup percentage for setting prices as a percentage of total
variable costs?
A) 45%
B) 57%
C) 82%
Answer: C
6) Brankov Company has budgeted sales of $30,000 with the following budgeted costs:
Direct labor $4,100
What is the average target markup percentage for setting prices as a percentage of variable
manufacturing costs?
A) 53%
B) 76%
C) 113%
Answer: C
7) Butters Company has budgeted sales of $30,000 with the following budgeted costs:
Direct labor $4,100
What is the average target markup percentage for setting prices as a percentage of total
manufacturing costs?
A) 34%
B) 52%
C) 61%
Answer: B
5.8 Questions
1) In target costing, managers design a product so that the product's cost does not exceed
________.
A) the product's production costs
B) the product's nonproduction costs
C) the product's production and nonproduction costs
D) the product's target cost
Answer: D
2) How do managers obtain the target cost for a new product under consideration? Assume
the market price per unit is known and it cannot be influenced by management.
A) the sum of all production and nonproduction costs
B) the sum of all production costs
C) price per unit minus gross profit per unit
D) the sum of all variable costs
Answer: C
3) If the projected cost for a new product to be manufactured exceeds the target cost, what
measures can the company undertake to reduce the projected cost?
A) kaizen costing
B) value engineering
C) supplier negotiations
D) all of the above
Answer: D
4) Management cannot influence the price of a new product. The market price is $100 per
unit. The estimated production cost is $30 per unit. The estimated nonproduction cost is $40
per unit. If the gross profit is 40 percent of the market price, what is the target cost of the new
product?
A) $30
B) $40
C) $60
D) $70
Answer: C
5) Michigan Company has budgeted the following costs for the production of its only
product:
Direct Materials $35,000
Direct Labor 25,000
Variable indirect production costs 30,000
Fixed indirect production costs 15,000
Variable selling and administrative costs 7,500
Fixed selling and administrative costs 12,500
Total Costs $125,000
Michigan Company wants a profit of $50,000, and expects to produce 1,000 units. The market
price is $150 per unit. What is the target cost per unit of the product?
A) $100 per unit
B) $125 per unit
C) $150 per unit
D) $175 per unit
Answer: A
6) Illinois Company has budgeted the following costs for the production of its only product:
Direct Materials $35,000
Direct Labor 25,000
Variable indirect production costs 30,000
Fixed indirect production costs 15,000
Variable selling and administrative costs 7,500
Fixed selling and administrative costs 12,500
Total Costs $125,000
Illinois Company has a target profit of $40,000. The company will produce 1,000 units. The
market price is $160 per unit. What is the target cost per unit?
A) $40
B) $120
C) $125
D) $165
Answer: B
7) Chocolate Company is considering the production of a new product. Chocolate Company

has the following data available:
Expected sales(units) over product life 15,000
Variable production costs $42 per unit
Variable selling costs $16 per unit
Annual fixed production costs $15,000
Annual fixed selling costs $5,000
Research and development costs $184,000
What is the total variable cost of the product over the product life cycle?
A) $204,000
B) $716,000
C) $870,000
D) $880,000
Answer: C
8) Rainbow Company is considering the production of a new product. Rainbow Company

has the following data available:
Expected product life 5 years
Expected sales (units) over product life 2,000
What is the total fixed cost of the product over the product life cycle?
A) $20,000
B) $100,000
C) $116,000
D) $464,000
Answer: B
9) Bunch Company is considering the production of a new product. Bunch Company has the
following data available:
What is the total cost of the product over the product life cycle?
A) $116,000
B) $196,000
C) $264,000
D) $380,000
Answer: D
10) Sue Company is considering the production of a new product. Sue Company has the
following data available:
Selling price $200 per unit
What is the expected profit or (loss) of the product over the product life cycle?
A) $(40,000)
B) $20,000
C) $204,000
D) $880,000
Answer: B
6.1 Questions
1) Differential cost is the difference in ________ between two alternatives.

A) average cost
B) marginal cost
C) median cost
D) total cost
Answer: D
2) Differential revenue is the difference in ________ between two alternatives.

A) average revenue
B) marginal revenue
C) median revenue
D) total revenue
Answer: D
3) Incremental costs are the ________ generated by a proposed alternative.

A) additional revenues
B) additional revenues or reduced costs
C) reduced costs
D) additional costs or reduced revenues
Answer: D
4) Incremental benefits are the ________ generated by a proposed alternative.

A) reduced revenues
B) additional costs
C) additional profits
D) additional revenues or reduced costs
Answer: D
5) Johnston Company wants to double production of Product X from 1,000 units to 2,000
units. The variable manufacturing cost per unit is $10. The variable nonmanufacturing cost
per unit is $20. There are no fixed costs. The selling price per unit is $50. What is the
incremental cost of the proposed change?
A) $10,000
B) $20,000
C) $30,000
D) $60,000
Answer: C
6) Jeffrey Company wants to double production of Product X from 1,000 units to 2,000 units.
The variable manufacturing cost per unit is $10. The variable nonmanufacturing cost per unit
is $20. There are no fixed costs. The selling price per unit is $50. What is the incremental
revenue of the proposed change?
A) $10,000
B) $20,000
C) $30,000
D) $50,000
Answer: D
7) Marjorie Company has an idle machine that originally cost $200,000. The book value of the
machine is $100,000. The company is considering three alternative uses of the idle machine:
Alternative 1: Disposal of machine. Disposal value of machine is $50,000.
Alternative 2: Use the idle machine to increase production of Product A. Contribution margin
from additional sales of Product A is estimated to be $60,000.
Alternative 3: Use the idle machine to increase production of Product B. Contribution margin
from additional sales of Product B is estimated to be $70,000.
When considering Alternative 3, what is the opportunity cost of the idle machine?
A) $50,000
B) $60,000
C) $70,000
D) $110,000
Answer: B
8) Marianne Company has an idle machine that originally cost $200,000. The book value of
the machine is $100,000. The company is considering three alternative uses of the idle
machine:
When considering Alternative 2, what is the opportunity cost of the idle machine?
A) $50,000
B) $60,000
C) $70,000
D) $110,000
Answer: C
9) Nancy Company has an idle machine that originally cost $200,000. The book value of the
machine is $100,000. The company is considering three alternative uses of the idle machine:
When considering the opportunity cost of the idle machine, what is the net financial benefit
from Alternative 3?
A) $10,000
B) $20,000
C) $50,000
D) $70,000
Answer: A
10) When evaluating alternative uses of a capital asset, equivalent decisions are reached using
the opportunity cost approach and ________.
A) cost-volume-profit analysis
B) contribution margin approach
C) absorption costing approach
D) incremental analysis
Answer: D
11) A proposed project will require the use of ten machines in a company. Each machine has
five alternative uses. What is the simplest way to evaluate the desirability of the project?
A) incremental analysis
B) cost-volume-profit analysis
C) opportunity cost approach
D) scarce resource approach
Answer: C
12) The key to determining the financial difference between two alternative courses of action
is to identify the ________.
A) opportunity cost of each alternative
B) marginal cost
C) differential costs and revenues
D) joint cost of both alternatives
Answer: C
13) The term opportunity cost applies to a resource that a company ________.
A) is thinking about purchasing
B) already owns only
C) has committed to purchase only
D) already owns or has committed to purchase
Answer: D
14) An opportunity cost is ________.

A) the additional costs generated by a proposed alternative
B) the difference in total cost between two alternatives
C) a cash disbursement in the future
D) the maximum available benefit foregone by using a resource for a particular purpose
instead of the best alternative use
Answer: D
15) The salary foregone by a person who quits a job to start a business is an example of a(n)
________.
A) sunk cost
B) opportunity cost
C) depreciable cost
D) outlay cost
Answer: B
16) Nestle Company paid $130,000 for a machine used to mill oats. The annual contribution
margin from oat sales is $60,000. The machine could be sold for $80,000. The opportunity cost
of producing the oats is ________.
A) $20,000
B) $60,000
C) $80,000
D) $130,000
Answer: C
17) Sue is considering leaving her current position to open a coffee shop. Sue's current annual
salary is $83,000. Annual coffee shop revenue and costs are estimated at $260,000 and
$210,000, respectively. What is Sue's opportunity cost of staying at her current work position?
A) $50,000
B) $83,000
C) $210,000
D) $343,000
Answer: A
18) Mary is considering leaving her current position to open an ice cream shop. Mary's
current annual salary is $77,000. Annual ice cream shop revenue and costs are estimated at
$260,000 and $210,000, respectively. What is Mary's annual opportunity cost of starting the ice
cream shop?
A) $50,000
B) $77,000
C) $210,000
D) $260,000
Answer: B
6.2 Questions
1) In a make-or-buy decision for a part for a product, which of the following qualitative
factors play a role?
A) quality of purchased part
B) credit terms offered by supplier of part
C) timeliness of delivery of purchased part by supplier
D) all of the above
Answer: D
2) What is the most common value-chain function outsourced in most businesses?

A) production process
B) research and development
C) product design
D) corporate support
Answer: D
3) In make-or-buy decisions for a part for a product, relevant costs include ________.
A) some variable costs of making the part
B) all variable costs of making the part
C) fixed costs that can be avoided in the future if the part is purchased
D) B and C
Answer: D
4) In a make-or-buy decision, which of the following is the fundamental question that is

asked in making the decision?
A) What is the difference in present costs between the two alternatives?
B) What is the difference in present revenues between the two alternatives?
C) What is the difference in future revenues between the two alternatives?
D) What is the difference in future costs between the two alternatives?
Answer: D
5) Bonneville Company is producing a subassembly used in the production of a product. The

costs incurred for the subassembly follow:
Per Unit
Direct materials $6.00
Direct labor 4.00
Variable factory overhead 1.00
Fixed supervisor salary 3.00
Depreciation expense on factory equipment 2.00
General fixed factory overhead allocated 5.00
Total costs $21.00
The above per unit costs are based on 8,000 units. An outside supplier will provide 8,000
subassemblies for $19 per unit. The supervisor will be terminated if the subassemblies are not
produced in house. The idle factory will be used to manufacture another product with a
contribution margin of $60,000. What should Bonneville do?
A) make the subassemblies and save $20,000
B) make the subassemblies and save $40,000
C) buy the subassemblies and save $20,000
D) buy the subassemblies and save $40,000
Answer: C
6) Blue Company is a small company with limited expertise with customer service. Blue
Company has a contract with New Company to handle all of Blue Company's customer
service needs. For Blue Company, this is an example of ________.
A) technology transfer
B) technology osmosis
C) outsourcing
Answer: C
7) Fixed overhead costs that will continue regardless of a make-or-buy decision are ________
to the make-or-buy decision.
A) relevant
B) irrelevant
C) opportunity costs
D) incremental costs
Answer: B
8) When making a make-or-buy decision for a part used in a product, which of the following
item is relevant to the decision?
A) variable costs of making the part
B) contribution margin on new products manufactured in idle area not used for making part
C) rental income from idle plant when not making the part
D) all of the above
Answer: D
9) Buddy Company manufactures a part for its production cycle. The costs per unit for 5,000
units of the part are as follows:
Per Unit
Direct labor 5.00
Fixed factory overhead 4.00
Total costs $16.00
The fixed factory overhead costs are avoidable. Spalding Company has offered to sell 5,000
units of the same part to Buddy Company for $15 per unit. Assuming no other use for the
facilities, Buddy Company should ________.
A) make the part to save $5,000
B) make the part to save $15,000
C) buy the part from Spalding Company to save $5,000
D) buy the part from Spalding Company to save $15,000
Answer: C
10) Benton Company manufactures a part for its production cycle. The costs per unit for
38,000 units of the part are as follows:
Per Unit
Direct labor 5.00
Total costs $15.00
The fixed factory overhead costs are unavoidable. Assume no other use for the facilities. What
is the highest price Benton Company should pay for the part from an outside supplier?
A) $8
B) $11
C) $12
D) $15
Answer: B
11) Christian Company manufactures a part for its production cycle. The annual costs per
unit for 5,000 units of the part are as follows:
Per Unit
Direct labor 5.00
Total costs $14.00
he fixed factory overhead costs are unavoidable. Another company has offered to sell 5,000
units of the same part to Christian Company for $15 per unit. The facilities currently used to
make the part could be rented out to another manufacturer for $20,000 a year. Christian
Company should ________.
C) buy the part and rent facilities to save $5,000
D) buy the part and rent facilities to save $15,000
Answer: C
12) Laskowski Company manufactures a part for its production cycle. The annual costs per
unit for 5,000 units of the part are as follows:
Per Unit
Direct labor 5.00
Total costs $14.00
The fixed factory overhead costs are unavoidable. Hendricks Company has offered to sell
5,000 units of the same part to Laskowski Company for $14 per unit. The facilities currently
used for the part could be used to make 5,000 units annually of a new product that would
contribute $5 a unit to fixed expenses. No additional fixed costs would be incurred with the
new product. Laskowski Company should ________.
C) make the new product and buy the part to save $5,000
D) make the new product and buy the part to save $15,000
Answer: D
13) Krakowski Company manufactures a part for its production cycle. The costs per unit for
Per Unit
Direct labor 15.00
Total costs $61.00
The fixed factory overhead costs are unavoidable. Winters Company has offered to sell 10,000
units of the same part to Krakowski Company for $55 per unit. Assuming no other use for the
facilities, Krakowski Company should ________.
C) buy the part from Winters Company to save $40,000
D) buy the part from Winters Company to save $60,000
Answer: A
14) Corrao Company manufactures a part for its production cycle. The costs per unit for
Per Unit
Direct labor 13.00
Total costs $62.00
The fixed factory overhead costs are unavoidable. Assuming no other use for the facilities,
what is the highest price that Corrao Company should be willing to pay for the part?
A) $33
B) $47
C) $48
D) $62
Answer: C
15) Potter Company manufactures a part for its production cycle. The annual costs per unit
for 10,000 units of the part are as follows:
Per Unit
Direct labor 15.00
Total costs $61.00
The fixed factory overhead costs are unavoidable. Paulson Company has offered to sell 10,000
units of the same part to Potter Company for $60 per unit. The facilities currently used to
make the part could be rented out to another manufacturer for $100,000 per year. Potter
Company should ________.
C) buy the part and rent the facilities to save $10,000
D) buy the part and rent the facilities to save $25,000
Answer: C
16) Golden Company manufactures a part for its production cycle. The annual costs per unit
for 10,000 units of the part are as follows:
Per Unit
Direct labor 15.00
Total costs $51.00
The fixed factory overhead costs are unavoidable. Olson Company has offered to sell 10,000
units of the same part to Golden Company for $55 per unit. The facilities currently used to
make the part could be used to make 10,000 units per year of a new product that has a
contribution margin of $20 per unit. No additional fixed costs would be incurred with the
new product. Golden Company should ________.
C) make the new product and buy the part to save $60,000
D) make the new product and buy the part to save $140,000
Answer: C
17) Kaiman Company currently produces a key part at a total cost of $210,000. Annual
variable costs are $170,000. Of the annual fixed costs, $10,000 relate specifically to this part.
The remaining fixed costs are unavoidable.
Another manufacturer has offered to supply the part annually for $200,000. The facilities
currently used to manufacture the part could be used to manufacture a new product with an
expected contribution margin of $30,000 per year. Alternatively, the facilities could be rented
out at $60,000 per year. Given all of these alternatives, what is Kaiman Company's lowest net
relevant cost for the parts?
A) $130,000
B) $140,000
C) $170,000
D) $180,000
Answer: B
18) Dolphin Company currently produces 10,000 units of a key part at a total cost of $512,000
annually. Variable costs are $300,000 annually. Of the annual fixed costs, $140,000 relate
specifically to this part. The remaining fixed costs are unavoidable.
Another manufacturer has offered to supply the part for $48 per unit. The facilities currently
used to manufacture the part could be used to manufacture a new product with an expected
contribution margin of $30,000 per year. Alternatively, the facilities could be rented out at
$60,000 per year. Given all of these alternatives, what is Dolphin Company's lowest net
relevant cost for the parts?
A) $420,000
B) $440,000
C) $450,000
D) $480,000
Answer: A
19) Thompson Company currently produces 10,000 units of a key part at a total cost of
$512,000 annually. Annual variable costs are $300,000. Of the annual fixed costs, $140,000
relate specifically to this part. The remaining fixed costs are unavoidable.
Another manufacturer has offered to supply the part for $48 per unit. The facilities currently
used to manufacture the part could be used to manufacture a new product with an expected
contribution margin of $60,000 annually. Alternatively, the facilities could be rented out at
$70,000 annually. If Thompson Company makes the part, what is the annual opportunity cost
of the facilities?
A) $13,000
B) $28,000
C) $60,000
D) $70,000
Answer: D
20) Madison Company produces a part that is used in the manufacture of one of its products.
The costs associated with the production of 5,000 units of this part are as follows:
Direct labor 156,000
Variable factory overhead 72,000
Fixed factory overhead 168,000
Total costs $504,000
Of the fixed factory overhead costs, $72,000 are avoidable. Middleton Company has offered to
sell 5,000 units of the same part to Madison for $87.00 per unit. Assuming there is no other
use for the facilities, Madison Company should ________.
C) buy the part to save $24,000
D) buy the part to save $27,000
Answer: B
21) Davidson Company produces a part that is used in the manufacture of one of its products.
The costs associated with the production of 5,000 units of this part are as follows:
Direct labor 156,000
Of the fixed factory overhead costs, $72,000 are avoidable. Assuming there is no other use for
the facilities. What is the highest price Davidson Company should be willing to pay for 5,000
units of the part?
A) $264,000
B) $334,000
C) $406,000
D) $502,000
Answer: C
22) Gonzalez Company produces a part that is used in the manufacture of one of its products.
The annual costs associated with the production of 5,000 units of this part are as follows:
Direct labor 56,000
Of the fixed factory overhead costs, $72,000 are avoidable. Another company has offered to
sell 5,000 units of the same part to Gonzalez for $70.00 per unit. The facilities currently used
to make the part can be rented out to another manufacturer for $72,000 per year. What should
Gonzalez Company do?
A) Make the part to save $22,000.
B) Make the part to save $50,000.
C) Buy the part and rent the facilities to save $22,000.
D) Buy the part and rent the facilities to save $72,000.
Answer: C
23) Fast Company has just decided to outsource the production of a part for a product.
Assume Fast Company leaves the area of the manufacturing plant idle where it was
producing the outsourced part. It has no alternative uses of the plant. What is the opportunity
cost of the idle area of the manufacturing plant to Fast Company?
A) zero
B) definitely a negative number
C) the disposal value of the entire manufacturing plant
Answer: A
6.3 Questions
1) If a department in a department store is under consideration to be eliminated, unavoidable

fixed expenses are ________ to the decision.
A) incremental
B) marginal
C) relevant
D) irrelevant
Answer: D
2) Department A covers one section of a large factory building. Which of the following costs is
relevant to the decision to eliminate Department A?
A) Heating expenses of building allocated to Department A
B) General corporate overhead allocated to Department A
C) Depreciation Expense on store building allocated to Department A
D) Salary Expense of Supervisor in Department A; he only works in Department A
Answer: D
3) If a department in a grocery store is under consideration to be eliminated, which of the

following cost(s) is(are) NOT relevant to the decision?
A) avoidable fixed expenses
B) unavoidable costs
C) common costs
D) B and C
Answer: D
4) If a department in a department store is eliminated, ________ costs will not continue.

A) unavoidable
B) common
C) corporate
D) avoidable
Answer: D
5) Central Industries has three product lines: A, B and C. The following information is
available:
Product A Product B Product C
Sales $100,000 $90,000 $44,000
Variable costs 76,000 48,000 35,000
Contribution margin 24,000 42,000 9,000
Avoidable fixed costs 9,000 18,000 3,000
Unavoidable fixed costs 6,000 9,000 7,700
Operating income(loss) $9,000 $15,000 $(1,700)
Central Industries is thinking about dropping Product C because it is reporting a loss.
Assume Central Industries drops Product C and does not replace it. What will happen to
operating income?
A) increase by $600
Answer: C
6) Sahara Industries has three product lines: A, B and C. The following annual information is
available:
Sales $100,000 $90,000 $88,000
Variable costs 76,000 48,000 79,000
Sahara Industries is thinking about dropping Product C because it is reporting a loss. Assume
Sahara Industries drops Product C and the space formerly used to produce Product C is
rented out for $15,000 per year. What will happen to operating income?
D) increase by $15,000
Answer: B
7) Cesar Company has three product lines: A, B and C. The following annual information is
available:
Sales $100,000 $90,000 $44,000
Variable costs 76,000 48,000 35,000
Assume Cesar Company drops Product C. Cesar Company then doubles the production and
sales of Product B without increasing fixed costs. What will happen to operating income?
Answer: C
8) Bally Company has three product lines: A, B and C. The following annual information is
available:
Sales $60,000 $90,000 $24,000
Variable costs 36,000 48,000 20,000
Assume Bally Company drops Product C. What will happen to operating income?
D) decrease $1,400
Answer: C
9) The most recent income statement for the Venetian Branch of Palm Harbor Bank is
presented below:
Sales $57,000
Variable costs 31,500
Contribution margin 25,500
Avoidable fixed costs 13,500
Unavoidable fixed costs 20,000
Operating loss $(8,000)
Palm Harbor Bank is thinking about eliminating the Venetian Branch. If the branch is
eliminated, Palm Harbor Bank's operating income will ________.
Answer: C
10) The most recent income statement for the South Branch of First Financial Bank is
presented below:
Sales $57,000
Variable costs 31,500
Contribution margin 25,500
Avoidable fixed costs 13,500
Unavoidable fixed costs 18,000
Operating loss $(6,000)
First Financial Bank is thinking about eliminating the South Branch. If the branch is
eliminated, First Financial Bank's operating income will ________.
Answer: C
11) ________ are relevant in deciding whether to add or delete a department from a
department store.
A) Avoidable fixed expenses
B) Common costs
C) Unavoidable fixed expenses
D) None of the above
Answer: A
12) In deciding whether to add or delete a product or service, common costs are probably
________.
A) relevant and avoidable
B) relevant and unavoidable
C) irrelevant and avoidable
D) irrelevant and unavoidable
Answer: D
13) When deciding whether to add or delete a department, managers should keep the
department as long as ________ from the department exceeds ________.
A) contribution margin; variable costs
B) contribution margin; common costs
C) contribution margin; avoidable fixed costs
D) contribution margin; unavoidable fixed costs
Answer: C
14) In deciding whether to add or delete a product, the insurance expense associated with the
custom-built equipment used to produce the product is an ________ cost. Assume the
equipment will be sold if the company discontinues the product.
A) avoidable fixed
B) avoidable variable
C) unavoidable fixed
D) unavoidable variable
Answer: A
15) In deciding whether to add or delete a product, the salary of the plant manager is an
________. Assume the plant manager supervised the production of several products.
A) avoidable fixed cost
B) avoidable variable cost
C) unavoidable fixed cost
D) unavoidable variable cost
Answer: C
6.4 Questions
1) A company can sell any mix of Product A and Product B at full capacity. The company has
100,000 hours of capacity. The demand for each product exceeds the capacity. It takes one
hour to make one unit of Product A and two hours to make one unit of Product B. The
following information is available:
Product A Product B
Units produced from capacity available 100,000 50,000
Contribution margin per unit $20 $30
If capacity is the limiting factor, which product should be produced?
A) 0 units of Product A and 50,000 units of Product B
B) 20,000 units of Product A and 30,000 units of Product B
C) 30,000 units of Product A and 20,000 units of Product B
D) 100,000 units of Product A and 0 units of Product B
Answer: D
2) A company has 100,000 hours of capacity and manufactures two products, Product X and
Product Z. Neither product has enough demand to utilize the entire capacity, but the
combined demand of both products exceeds the capacity of the plant. It takes one hour to
make one unit of Product X and two hours to make one unit of Product Z. The following
information is available:
Product X Product Z
Units produced from capacity available 100,000 50,000
Contribution margin per unit $20 $30
What product or products should be made?
A) only make Product X
B) only make Product Z
C) make Product X to meet customer demand and then make Product Z
D) make Product Z to meet customer demand and then make Product X
Answer: C
3) A company has 10,000 hours of capacity and manufactures two products. Product 1 takes 2
hours per unit. Product 2 takes 3 hours per unit. The contribution margin per unit for Product
1 is $5. The contribution margin per unit for Product 2 is $6. The demand for either product
exceeds the factory capacity. Which product or products should be manufactured?
A) 3,000 units of Product 1 and 2,000 units of Product 2
B) 2,500 units of Product 1 and 3,333 units of Product 2
C) make 5,000 units of Product 1 and 0 units of Product 2
D) make 3,333 units of Product 2 and 0 units of Product 1
Answer: C
4) A company has 10,000 hours of capacity and manufactures two products. Product 1 takes 2
hours per unit. Product 2 takes 3 hours per unit. The contribution margin per unit for Product
1 is $5. The contribution margin per unit for Product 2 is $6. Neither product has enough
demand to use all of the plant capacity, but the demand for both products exceeds the plant
capacity. Which product or products should be manufactured?
A) 5,000 units of Product 1 and 0 units of Product 2
B) 0 units of Product 1 and 5,000 units of Product 2
C) make Product 1 first until meet customer demand, then make Product 2
D) make Product 2 first until meet customer demand, then make Product 1
Answer: C
5) ________ is the item that restricts or constrains the production or sale of a product.
A) A limiting factor
B) A scarce resource
C) Floor space
D) All of the above
Answer: D
6) If demand is the limiting factor, and there are no other scarce resources, managers should
emphasize the product with ________.
A) the highest selling price per unit
B) the lowest variable costs per unit
C) the highest contribution margin per unit
D) the highest contribution margin per hour
Answer: C
7) Bronski Corporation manufactures two products, Simple and Complex. The following
information was gathered:
Simple Complex
Selling price per unit $37.00 $26.00
Variable cost per unit 32.00 22.00
Total fixed costs are $18,000. Assume demand for either product exceeds the factory's
capacity. It takes one hour of production time to make Simple and two hours to make
Complex. The annual capacity of the plant is 10,000 hours. How many units of Simple and
Complex should Bronski Corporation produce and sell to maximize profits?
A) 0 units of Simple and 5,000 units of Complex
B) 6,000 units of Simple and 3,000 units of Complex
C) 10,000 units of Simple and 0 units of Complex
D) 3,000 units of Simple and 6,000 units of Complex
Answer: C
8) Watson Corporation manufactures two products, Simple and Complex. The following
annual information was gathered:
Simple Complex
Selling price per unit $47.00 $26.00
Variable cost per unit 42.00 22.00
Total annual fixed costs are $18,000. Assume demand for either product exceeds the factory's
capacity. It takes one hour to make one unit of Complex. However, Simple takes 50% longer
to manufacture when compared to Complex. Only 120,000 hours of plant capacity are
available. How many units of Simple and Complex should Watson Corporation produce and
sell in a year to maximize profits?
A) an equal number of Simple and Complex
B) 80,000 units of Simple and 0 units of Complex
C) 0 units of Simple and 120,000 units of Complex
D) either Simple or Complex; it does not matter
Answer: C
6.5 Questions
1) Which of the following is(are) characteristic(s) of joint products?

A) when two or more products can be identified before the split-off point.
B) when two or more products have significant sales value.
C) when two or more products are not separately identifiable as individual products until the
split-off point.
D) B and C
Answer: D
2) When manufacturing multiple products that are not initially separately identifiable,
manufacturing costs incurred after the split-off point are known as ________ costs.
A) joint
B) product
C) split-off
D) separable
Answer: D
3) The ________ is the juncture in manufacturing where the joint products become
individually identifiable.
A) joint processing juncture
B) split-off point
C) common point
D) joint processing point
Answer: B
4) ________ costs are costs of manufacturing two or more products that are not separately
identifiable as individual products until their split-off point.
A) Separable
B) Joint
C) Incremental
D) Sunk
Answer: B
5) Which of the following item is irrelevant to the decision whether to process joint products
beyond the split-off point?
A) separable costs
B) additional costs from further processing beyond the split-off point
C) additional revenue from further processing beyond the split-off point
D) joint costs
Answer: D
6) Which of the following cost is relevant to the decision whether to process joint products
beyond the split-off point?
A) joint costs
B) allocated joint costs
C) separable costs
D) additional revenue from further processing beyond split-off point
Answer: C
7) Joint products should be processed beyond the split-off point if ________.
A) sale of the products are guaranteed
B) additional revenue from further processing exceeds additional expenses from further
processing
C) additional revenue from further processing exceeds the joint costs
D) the marginal revenue of the joint products before the split-off point exceeds the marginal
cost of the joint products
Answer: B
8) Uptown Corporation has a joint process that produces three products: P, G and A. Each
product may be sold at split-off or processed further and then sold. Joint-processing costs for
a year amount to $20,000. Other data follows:
Sales Value Separable Processing Sales Value
Product at Split-Off Costs after Split-Off at Completion
P $32,000 $5,000 $39,000
G 16,500 7,500 29,000
A 6,400 8,000 10,000
Processing Product P beyond the split-off point will cause profits to ________.
A) be unchanged
Answer: B
9) Mayfair Corporation has a joint process that produces three products: P, G and A. Each
P $62,000 $5,000 $88,000
G 12,500 6,500 19,500
A 9,400 5,000 12,000
Processing Product G beyond the split-off point will cause profits to ________.
A) be unchanged
B) increase by $500
Answer: B
10) Southridge Corporation has a joint process that produces two products: A and B. Each
product may be sold at the split-off point or processed further and then sold. Joint-processing
costs for a year are $20,000.
Product A can be sold at the split-off point for $32,000. Alternatively, Product A can be
processed further and sold for $40,000. Additional processing costs are $5,000.
When deciding whether to sell Product A at the split-off point or to process further, the
________ is NOT relevant.
A) joint processing cost of $20,000
B) sales value at split-off of $32,000
C) sales value at completion of $40,000
D) additional processing cost of $5,000
Answer: A
11) Brookfield Corporation has a joint process that produces three products: X, Y and Z. Each
X $128,000 $16,000 $150,000
Y 75,000 26,000 99,000
Z 32,600 20,000 50,000
Processing Product X beyond the split-off point will cause profits to ________.
A) be unchanged
Answer: B
12) Boston Corporation has a joint process that produces three products: X, Y and Z. Each
X $128,000 $16,000 $160,000
Y 50,000 25,000 77,000
Z 25,600 20,000 40,000
Processing Product Y beyond the split-off point will cause profits to ________.
A) be unchanged
Answer: C
13) Cleveland Corporation has a joint process that produces three products: X, Y and Z. Each
X $128,000 $16,000 $140,000
Y 50,000 27,000 76,000
Z 25,600 10,000 40,000
To maximize profits, the corporation should process ________ further.
A) Product Z only
B) Product Y only
C) Product X only
D) Products X, Y and Z
Answer: A
14) Chicago Corporation has a joint process that produces three products: X, Y and Z. Each
X $128,000 $16,000 $152,000
Y 50,000 26,000 76,000
Z 25,600 20,000 40,000
Processing Product X beyond the split-off point will cause profits to ________.
A) be unchanged
Answer: B
15) DesPlaines Corporation has a joint process that produces three products: P, G and A. Each
a year amount to $25,000. The production level for each product is 10,000 units. Other data
follows:
P $12 $8 $20
G 10 4 17
A 15 6 19
If Product P is processed beyond the split-off point, profits will ________.
D) remain the same
Answer: D
16) Lisle Corporation has a joint process that produces three products: P, G and A. Each
follows:

P $12 $9 $21
G 10 3 17
A 15 6 19
Product G ________.
A) should be sold at split-off point to maximize profits
B) should be processed further to increase profits by $30,000
C) should be processed further to increase profits by $40,000
D) should be processed further to increase profits by $70,000
Answer: C
17) Downers Grove Corporation has a joint process that produces three products: P, G and A.
Each product may be sold at split-off or processed further and then sold. Joint-processing
costs for a year amount to $25,000. The production level for each product is 10,000 units.
Other data follows:
P $12 $10 $21
G 12 4 17
A 10 6 19
To maximize profits, Downers Grove Corporation should process ________ further.
A) Product P only
B) Product G only
C) Product A only
D) Products G and A only
Answer: D
18) Naperville Corporation has a joint process that produces three products: P, G and A. Each
follows:
P $12 $8 $21
G 10 4 17
A 15 6 19
Processing Product P beyond the split-off point will cause profits to ________.
A) be unchanged
Answer: B
19) Woodridge Corporation has a joint process that produces three products: P, G and A.
Each product may be sold at split-off or processed further and then sold. Joint-processing
costs for a year amount to $25,000. The production level for each product is 1,000 units. Other
data follows:
P $12 $9 $21
G 10 4 17
A 15 6 19
Assume Woodridge Corporation processes the joint products beyond the split-off point that
will maximize net income. Woodridge Corporation's net income is ________.
A) $12,000
B) $15,000
C) $17,000
D) $25,000
Answer: B
6.6 Questions
1) Equipment to be sold has a book value of $4,000. The cost of the equipment is $10,000. The
cash received at sale is $2,000. What is the gain or loss on disposal of the equipment?
A) loss on disposal of $2,000
B) loss on disposal of $4,000
C) loss on disposal of $6,000
D) gain on disposal of $2,000
Answer: A
2) When considering the replacement of old equipment, which of the following item is
relevant?
A) loss on disposal of old equipment
B) book value of old equipment
C) accumulated depreciation on old equipment
D) future maintenance costs of old equipment
Answer: D
3) Book value on a depreciable asset is defined as ________.
A) residual value less cost
B) residual value less accumulated depreciation
C) cost less accumulated depreciation
D) residual value
Answer: C
4) Which of the following costs is NOT relevant to an equipment replacement decision?

A) cost of new equipment
B) operating cost of new equipment
C) operating cost of old equipment(several years left)
D) cost of old equipment
Answer: D
5) Which of the following cost is relevant to an equipment replacement decision?

A) cost of old equipment
B) cost of new equipment
C) book value of old equipment
D) depreciation expense on old equipment
Answer: B
6) BEE Company is considering the replacement of a machine that is presently used in

production. Which of the following items are irrelevant to the replacement decision?
A) annual operating cost of the old machine (2 years left)
B) original cost of the new machine
C) disposal value of the old machine at time of replacement
D) original cost of old machine
Answer: D
7) Ernie Company is considering replacing a machine that is currently used in the production
process. The ________ is irrelevant to the replacement decision.
A) cost of the new machine
B) disposal value of old machine
C) book value of old machine
D) annual operating cost of old machine (2 years left)
Answer: C
8) Benson Company is considering the replacement of a machine that is presently used in

production. The following data are available:
Old Machine New Machine
Original cost $57,000 $35,000
Useful life in years 17 5
Current age in years 12 0
Book value $39,000 -
Disposal value now $8,000 -
Disposal value in 5 years 0 0
Annual cash operating costs $7,000 $4,000
Adding all five years together, the total relevant costs to consider if the new machine is
purchased is ________.
A) $12,000
B) $27,000
C) $47,000
D) $55,000
Answer: C
9) Gray Lake Company is considering the replacement of a machine that is presently used in
Adding all five years together, the total relevant costs to consider if the old machine is not
replaced is ________.
A) $22,000
B) $31,000
C) $35,000
D) $39,000
Answer: C
10) Inverness Company is considering the replacement of a machine that is presently used in
Adding all five years together, what is the difference in total relevant costs between the old
machine and the new machine?
A) $12,000
B) $15,000
C) $22,000
D) $37,000
Answer: A
11) Amanda Company is considering the replacement of a machine that is presently used in
Original cost $200,000 $160,000
Adding all five years together, the total relevant costs to consider if the new machine is
purchased is ________.
A) $70,000
B) $100,000
C) $198,000
D) $230,000
Answer: C
12) Park Ridge Company is considering the replacement of a machine that is presently used
in production. The following data are available:
Original cost $200,000 $160,000
Adding all five years together, the total relevant costs to consider if the old machine is kept is
________.
A) $32,000
B) $68,000
C) $80,000
D) $100,000
Answer: D
13) Gurnee Company is considering the replacement of a machine that is presently used in
Original cost $200,000 $160,000
dding all five years together, what is the difference in total relevant costs between the old and
new machines?
A) $12,000
B) $30,000
C) $98,000
D) $130,000
Answer: C
14) The gain or loss on the disposal of equipment is determined by ________.

A) subtracting the book value of the old equipment to the cost of the new equipment
B) subtracting the disposal value of the old equipment to the book value of the old equipment
C) subtracting the book value of the old equipment from the cash received for the old
equipment
D) subtracting the book value of the old equipment from the cost of the new equipment
Answer: C
15) Sunbury Company is considering the replacement of a machine that is presently used in
Adding all five years together, the total relevant costs to consider if the old machine is kept
are ________.
A) $30,000
B) $50,000
C) $52,000
D) $60,000
Answer: D
6.7 Questions
1) When choosing between two alternatives, what of the following are relevant costs?
A) future variable costs that are the same under two alternatives
B) future variable costs that are different under two alternatives
C) future fixed costs that are different under two alternatives
D) B and C
Answer: D
2) The following is a useful rule of thumb when making operational decisions. Managers
should NOT use ________.
A) variable cost per unit
B) total variable costs
C) fixed cost per unit
D) total fixed costs
Answer: C
3) LL Company produces and sells a product that has variable costs of $9 per unit and fixed
costs of $200,000 per year. If production decreases from 50,000 to 40,000 units, the total cost
per unit will ________.
A) increase by $1
B) increase by $13
C) decrease by $1
D) decrease by $14
Answer: A
4) Melissa Company produces and sells a product that has variable costs of $8 per unit and
fixed costs of $240,000 per year. If 20,000 units are produced and sold in a year, what is the
total cost per unit?
A) $5
B) $8
C) $12
D) $20
Answer: D
5) Zach Company produces and sells a product that has variable costs of $7 per unit and fixed
costs of $200,000 per year. If 40,000 units are produced and sold in a year, what is the total
cost per unit?
A) $7
B) $10
C) $12
D) $17
Answer: C
6) Joshua Company produces and sells a product that has variable costs of $7 per unit and
fixed costs of $200,000 per year. If production increases from 20,000 units to 25,000 units, the
total cost will ________.
B) decrease by $2 per unit
C) decrease by $8 per unit
D) stay the same
Answer: B
6.8 Questions
1) Managers may be tempted to make decisions that are not in the best interests of the
company because ________.
A) performance measures in use reward them for decisions that are in the best interests of the
company
B) performance measures in use reward them for decisions that are not in the best interests of
the company
C) the managers do not understand the use of decision-making tools
D) the managers are evaluated several times each year
Answer: B
2) A widespread problem in practice is that the decision model used by managers for
________ and the model used by their superiors in ________ are different.
A) outsourcing; incremental analysis
B) outsourcing; differential analysis
C) decision making; performance evaluation
D) operational decisions; joint costing
Answer: C
7.1 Questions
1) Which of the following statements about budgets and budgeting is FALSE?

A) Budgets help coordinate financial and operational activities.
B) The vast majority of managers use budgeting as an effective cost management tool.
C) Budgeting is the process of formulating an organization's plans.
D) Managers do not use budgets for performance evaluation.
Answer: D
2) In practice, when developing a budget, two extremes used for guidance are ________ and
________.
A) participative budget; zero-base budget
B) strategic budget; long-range budget
C) financial planning budget; strategic budget
D) zero-base budget; activities of current or prior period
Answer: D
3) A major benefit of effective budgeting is that ________.

A) it compels managers to think ahead
B) it aids managers in communicating objectives to employees
C) it provides benchmarks to evaluate subsequent performance
D) all of the above
Answer: D
4) A(n) ________ starts with the assumption that current activities in a company will not
automatically continue in the next period.
A) activity-based budget
B) strategic budget
C) master budget
D) zero-base budget
Answer: D
5) The most effective budget processes facilitate communication from top management to
________ and from lower level managers and employees to ________.
A) the SEC; the audit committee
B) stockholders; creditors
C) lower level managers and employees; top management
D) creditors; stockholders
Answer: C
6) Potential problems that can limit the benefits of budgeting do NOT include ________.
A) low levels of employee participation in the budget process
B) incentives to lie and cheat in the budget process
C) difficulties in obtaining accurate sales forecasts
D) an emphasis on functional budgeting
Answer: D
7) A major drawback of using historical results for judging current performance is that
________.
A) past results may be inaccurate
B) results may refer to a different manager
C) inefficiencies may be concealed in past results
D) managers may have cooked the books
Answer: C
7.2 Questions
1) Factors that affect employee acceptance of budgets include ________.

A) perceived attitude of top management towards budgeting
B) level of participation by employees in budget process
C) degree of alignment between budget and employees' performance goals
D) all of the above
Answer: D
2) Misalignment between the ________ stressed in budgets and ________ used to reward
employees and managers can limit the advantages of budgeting.
A) performance goals; participative goals
B) performance goals; performance measures
C) sales goals; bonuses
D) resource goals; bonuses
Answer: B
3) One way to reduce negative attitudes of managers toward budgets is by ________.

A) zero-based budgeting
B) activities-based budgeting
C) long range planning
D) participative budgeting
Answer: D
4) ________ budgeting is when budgets are formulated with the active involvement of all
affected employees.
A) Rolling
B) Team
C) Participative
D) Zero-based
Answer: C
7.3 Questions
1) Budgeting can result in incentives to lie and cheat that undermine ________.
A) a company's ethical standards
B) a company's value chain
C) standard of objectivity promulgated by the Institute of Management Accountants
Answer: A
2) Managers may ________ their budgeted costs or ________ their budgeted revenue to create
a budget target that is easier to achieve.
A) understate; overstate
B) overstate; understate
C) understate; understate
D) overstate; overstate
Answer: B
3) Which of the following is NOT a reason for budgetary slack?
A) to buffer managers from budget cuts imposed by top management
B) to provide protection against cost increases or revenue shortfalls due to unforeseen events
C) to facilitate attainment of performance goals
D) to impose a formal structure for planning purposes
Answer: D
4) Misuse of budgets can lead to incentives to cheat and lie. Cheating and lying may take the
form of ________.
A) making short-run decisions to increase profits that are not in the company's best long-run
interests
B) budgetary slack
C) decreasing profits when actual profits significantly exceed the profit target
D) all of the above
Answer: D
5) How can a company avoid lying by employees when preparing a budget?

A) reward good budget forecasts
B) reward good performance against the budget
C) reward good budget forecasts and reward good performance against the budget
D) reward good recipes for cooking the books
Answer: C
7.4 Questions
1) Where does a company find forecasted financial statements for a five to ten year period?
A) strategic plan
B) master budget
C) rolling budget
D) long-range plan
Answer: D
2) A company identifies the following goals and objectives:

Increase sales 10 percent each year.
Increase profits 5 percent each year.
Increase total plant assets 5 percent each year.
Which of the following budgets identifies the overall goals and objectives of an organization?
A) sales budget
B) master budget
C) strategic plan
D) financial planning model
Answer: C
3) A manager has several forecasts of sales corresponding to different levels of advertising.
The manager decides to implement $1 million of advertising in the next fiscal year. At this
level of advertising, the manager uses the ________ in the ________.
A) sales goal; sales forecast
B) sales budget; sales forecast
C) sales forecast; sales goal
D) sales forecast; sales budget
Answer: D
4) Which schedule gives the expected sales under a given set of conditions?
A) sales goal
B) sales budget
C) sales forecast
D) master budget
Answer: C
5) Important factors used to forecast sales for a company include all of the following items
EXCEPT ________.
A) changes in firm's prices
B) general economic conditions
C) changes in product mix
D) layout of production equipment
Answer: D
6) Decisions made during long-range planning include ________.

A) addition or deletion of product line
B) location of new plant
C) purchase of equipment
D) all of the above
Answer: D
7) No matter how many technical experts a company uses in forecasting, the sales budget
should ultimately be the responsibility of the ________.
A) economists
B) CEO
C) line managers
D) market research staff
Answer: C
8) Which of the following statements is FALSE about a strategic plan?

A) A strategic plan does not deal with a specific time period.
B) A strategic plan does not produce forecasted financial statements.
C) A strategic plan guides day-to-day operations.
D) A strategic plan provides an overall framework for a long-range plan.
Answer: C
9) Which of the following statements about long-range plans is FALSE?

A) Long-range plans provide forecasted financial statements for five to ten year periods.
B) Long-range plans guide day-to-day operations.
C) Companies coordinate long-range plans with capital budgets.
D) A decision made during long-range planning is the acquisition of a plant building.
Answer: B
10) Which of the following budgets identifies the overall goals and objectives of the
organization?
A) capital budget
B) cash budget
C) master budget
D) strategic plan
Answer: D
11) When examining a master budget, where does a company find the planned expenditures
for facilities and equipment?
A) operating expense budget
B) capital budget
C) operating budget
D) purchases budget
Answer: B
7.5 Questions
1) Which budget guides day-to-day operations in a business?

A) sales budget
B) strategic plan
C) master budget
D) long-range plan
Answer: C
2) In a master budget, the schedule of cash disbursements for operating expenses is used to
prepare the ________.
A) capital budget
B) purchases and cost of goods sold budget
C) sales budget
D) cash budget
Answer: D
3) In a master budget, the schedule of cash disbursements for purchases of inventory is used
to prepare the ________.
B) purchases budget
C) capital budget
D) cash budget
Answer: D
4) In a master budget, a capital budget is used to prepare the ________.

A) sales budget
B) budgeted income statement
C) purchases and cost of goods sold budget
D) cash budget
Answer: D
Diff: 2
5) The master budget is a detailed and comprehensive analysis of the ________ of the
________ plan.
A) first month; activity-based strategic
B) first month; strategic
C) first year; continuous
D) first year; long-range
Answer: D
6) The two main components of the master budget are the ________.
A) cash budget and the capital budget
B) purchases budget and the budgeted income statement
C) budgeted income statement and the budgeted balance sheet
D) operating budget and the financial budget
Answer: D
7) The ________ budget focuses on the budgeted income statement and the supporting
schedules.
A) financial
B) operating
C) operating expense
D) purchases and cost of goods sold
Answer: B
8) Which of the following is NOT a component of the operating budget?

A) sales budget
B) operating expense budget
C) capital budget
D) budgeted income statement
Answer: C
9) Which of the following is NOT a component of the operating budget?

A) capital budget
C) budgeted income statement
D) operating expense budget
Answer: A
10) Which of the following is NOT a component of the financial budget?

A) capital budget
B) cash budget
C) budgeted balance sheet
D) budgeted income statement
Answer: D
11) Which of the following is a component of the financial budget?

A) budgeted balance sheet
B) budgeted income statement
C) sales budget
D) purchases budget
Answer: A
12) The financial budget includes ________.

A) the capital budget and the sales budget only
B) the capital budget and the budgeted income statement only
C) the capital budget, the cash budget and the budgeted balance sheet
D) the cash budget and the purchases budget only
Answer: C
7.6 Questions
1) The final output of the operating budget is ________.

A) budgeted statement of stockholders' equity
B) budgeted balance sheet
D) budgeted statement of cash flows
Answer: C
2) The final output of the financial budget is ________.

A) budgeted statement of stockholders' equity
B) budgeted balance sheet
D) budgeted statement of cash flows
Answer: B
3) What is the sequence of steps(order of preparation) for the operating budget?

A) sales budget, operating expense budget, purchases and cost of goods sold budget
B) sales budget, capital budget, operating expense budget
C) sales budget, purchases and cost of goods sold budget, schedule of cash collections from
customers, operating expense budget
D) sales budget, schedule of cash collections from customers, purchases and cost of goods
sold budget, schedule of cash disbursements for purchases, operating expense budget
Answer: D
4) What is the sequence of steps(order of preparation) for the financial budget?

A) sales budget, capital budget, cash budget, budgeted income statement
B) sales budget, operating expense budget, purchases and cost of goods sold budget
C) capital budget, cash budget, budgeted balance sheet
D) disbursements for purchases, disbursements for operating expenses, cash budget
Answer: C
5) What is the sequence of steps in preparing the master budget?

A) Output from the financial budget is used to prepare the operating budget.
B) Output from the operating budget is used to prepare the financial budget.
C) Output from the financial budget is used to prepare the budgeted income statement.
D) Output from the financial budget is used to prepare the operating expense budget.
Answer: B
7.7 Questions
1) Which budget is used to develop the schedule of cash disbursements for operating
expenses?
A) purchases and cost of goods sold budget
B) cash disbursements budget
C) operating expense budget
D) cash budget
Answer: C
2) What item is NOT a line item on the purchases and cost of goods sold budget?
A) purchases of inventory
B) sales
C) beginning inventory
D) desired ending inventory
Answer: B
3) The schedule of cash disbursements for purchases uses the ________.
A) sales budget
C) schedule of cash disbursements for operating expenses
D) purchases and cost of goods sold budget
Answer: D
4) The schedule of cash collections from customers has ________.

A) cash sales only
B) collections on credit sales only
C) A and B
D) budgeted purchases
Answer: C
5) The schedule of cash disbursements for operating expenses does NOT have ________.
A) rent expense
B) insurance expense
C) wages expense
D) amortization expense on patents
Answer: D
6) When preparing the budgeted income statement, which of the following is the source for
the amount of Cost of Goods Sold?
A) sales budget
C) schedule of disbursements for operating expense
Answer: D
the amount of operating expenses?
A) schedule of disbursements for operating expenses
B) purchases budget
C) schedule of disbursements for purchases
Answer: D
the amount of sales?
A) sales budget
B) purchases budget
D) schedule of cash collections from customers
Answer: A
9) The first step in preparing the master budget is the ________.
A) cash budget
B) capital budget
D) sales budget
Answer: D
10) The first step in preparing the financial budget is the ________.
A) cash budget
B) capital budget
D) sales budget
Answer: B
11) For next year, David Company has budgeted sales of 8,000 units, target ending inventory
of 1,000 units and a beginning inventory of 300 units. How many units should be purchased?
A) 5,700
B) 6,300
C) 7,700
D) 8,700
Answer: D
12) Matthew Company has a sales budget for next month of $400,000. Cost of goods sold is
expected to be 40% of sales. All units are paid for in the month following purchase. The
beginning inventory is $5,000 and an ending inventory of $12,000 is desired. Beginning
accounts payable is $76,000. The cost of goods sold for next month is ________.
A) $140,000
B) $160,000
C) $172,000
D) $220,000
Answer: B
13) Michael Company has a sales budget for next month of $300,000. Cost of goods sold is
expected to be 50% of sales. All units are paid for in the month following purchase. The
beginning inventory is $10,000 and an ending inventory of $12,000 is desired. Beginning
accounts payable is $76,000. The purchases for next month are ________.
A) $138,000
B) $140,000
C) $150,000
D) $152,000
Answer: D
14) Benjamin Company has the following data:
Month Budgeted Sales
January $108,000
February 132,000
March 144,000
April 120,000
Cost of goods sold average 60% of sales. The inventory at December 31 was $19,440. Desired
ending inventory levels are 20% of next month's sales at cost. What is the desired ending
inventory value at February 28?
A) $15,840
B) $17,280
C) $26,400
D) $28,800
Answer: B
15) Downstairs Company has the following sales budget for the last six months of 2010:
July $100,000
August 80,000
September 110,000
October 80,000
November 100,000
December 94,000
Historically, the cash collection of sales has been as follows:
65% of sales collected in month of sale
25% of sales collected in month following sale
8% of sales collected in second month following sale
2% of sales uncollectible
What are the expected cash collections of sales in October?
A) $79,500
B) $85,900
C) $92,400
D) $99,500
Answer: B
16) Upstairs Company has the following data:

January $108,000
February 132,000
March 144,000
April 120,000
The gross profit rate is 40% of sales and ending inventory at December 31 was $19,440.
Desired ending inventory levels are 30% of next month's sales at cost. What are the expected
total purchases for February?
A) $79,200
B) $81,360
C) $102,960
D) $105,120
Answer: B
17) Sebring Company has the following data:

April $40,000
May 44,000
June 50,000
July 52,000
August 48,000
The cost of goods sold percentage is 70% of sales and the desired ending inventory level is
25% of next month's sales at cost. ________ was the beginning inventory on May 1.
A) $3,300
B) $7,700
C) $8,750
D) $11,000
Answer: B
18) Segal Company has the following data:

May $46,000
June 50,000
July 52,000
August 49,000
25% of next month's sales at cost. What is the beginning inventory on August 1?
A) $4,200
B) $8,450
C) $9,800
D) $10,400
Answer: C
19) Bronkov Company has the following data:

May $46,000
June 50,000
July 52,000
August 48,000
25% of next month's sales at cost. What are the expected total purchases for June?
A) $17,500
B) $32,500
C) $32,825
D) $40,950
Answer: C
20) Audrey Company has the following data:

May $46,000
June 50,000
July 52,000
August 48,000
The cost of goods sold percentage is 65% of sales and the desired ending inventory is 25% of
next month's sales at cost. What are the total purchases budgeted for July?
A) $33,150
B) $33,800
C) $41,600
D) $42,250
Answer: A
21) Santelle Company expects August sales to be $30,000. Approximately 40% of sales are
cash sales. Collection of credit sales are 50% in the month of sale, 40% in the month following
sale and 5% two months following sale. The remaining 5% is uncollectible. ________ is the
expected cash collection in August from August sales.
A) $9,000
B) $12,000
C) $21,000
D) $36,000
Answer: C
22) Hoover Company expects June sales to be $30,000. Of these sales, credit sales are expected
to be $12,000. Collection of credit sales are 50% in the month of sale, 40% in the month
following sale and 5% two months following sale. The remaining 5% is uncollectible.
________ is the expected cash collection in June from June sales.
A) $9,200
B) $14,000
C) $17,200
D) $24,000
Answer: D
23) Bush Company expects May sales to be $20,000. Approximately 40% of sales are cash
sales. Collection of credit sales are 50% in the month of sale, 40% in the month following sale
and 5% two months following sale. The remaining 5% is uncollectible. ________ is the
expected cash collection in May from May sales.
A) $4,000
B) $6,000
C) $8,000
D) $14,000
Answer: D
24) The following sales budget has been prepared:

Month Cash Sales Credit Sales
September $167,000 $123,000
October 225,000 180,000
November 330,000 210,000
December 135,000 190,000
Collections of credit sales are 50% in the month of sale, 40% in the month following sale, and
10% two months following sale. No uncollectible accounts are expected. What are the
estimated cash collections in December?
A) $135,000
B) $197,000
C) $325,000
D) $332,000
Answer: D
25) Stickel Company has the following sales budget:

September $100,000 $200,000
October 125,000 190,000
November 207,000 199,000
December 67,000 144,000
Collection of credit sales are 50% in the month of sale, 40% in the month following sale, and
10% two months following sale. No uncollectible accounts are expected. What is the expected
balance of Accounts Receivable at October 31?
A) $95,000
B) $110,000
C) $115,000
D) $180,000
Answer: C
26) Slowinski Company has the following sales budget:

September $100,000 $300,000
October 125,000 180,000
November 130,000 210,000
December 135,000 190,000
estimated cash collections in November?
A) $130,000
B) $197,000
C) $327,000
D) $337,000
Answer: D
27) Corbin Company has prepared the following sales budget:

September $99,000 $250,000
October 225,000 180,000
November 310,000 210,000
December 94,000 170,000
balance in Accounts Receivable at November 30?
A) $77,500
B) $105,000
C) $123,000
D) $210,000
Answer: C
28) Dooley Company has prepared the following sales budget:

September $123,000 $210,000
October 140,000 200,000
November 167,000 260,000
December 189,000 190,000
estimated cash collections in October from October sales?
A) $125,000
B) $140,000
C) $230,000
D) $240,000
Answer: D
29) John Company has the following sales budget:

September $100,000 $200,000
October 125,000 180,000
November 130,000 210,000
December 135,000 190,000
balance in Accounts Receivable at December 31?
A) $95,000
B) $116,000
C) $190,000
D) $210,000
Answer: B
30) Rodney Company has the following sales budget:

September $100,000 $250,000
October 125,000 180,000
November 130,000 210,000
December 135,000 190,000
estimated cash collections in September from September sales?
A) $100,000
B) $200,000
C) $225,000
D) $250,000
Answer: C
31) Donnie Company has the following information:

January $80,000
February 85,000
March 92,000
April 79,000
Budgeted Operating Expenses Per Month
Wages $15,000
Advertising 12,000
Depreciation 3,000
Other expenses 4% of sales
All cash expenses are paid as incurred. What are the total operating expenses budgeted for
the month of January?
A) $30,000
B) $30,040
C) $31,200
D) $33,200
Answer: D
32) Atkinson Company has the following information:

January $76,000
February 85,000
March 92,000
April 80,000
Wages $15,000
Advertising 12,000
Depreciation 3,000
Other expenses 4% of sales
All cash expenses are paid as incurred. What are the total operating expenses budgeted for
the month of April?
A) $3,160
B) $30,000
C) $33,200
D) $33,680
Answer: C
33) Jupiter Company has the following information:

January $76,000
February 85,000
March 100,000
April 79,000
Wages $15,000
Advertising 12,000
Depreciation 3,000
Sales Commissions 4% of sales
All cash expenses are paid as incurred. What are the budgeted total cash disbursements for
operating expenses in March?
A) $3,680
B) $30,000
C) $31,000
D) $34,000
Answer: C
34) Venus Company has the following information:

January $90,000
February 85,000
March 92,000
April 79,000
Wages $15,000
Advertising 12,000
Depreciation 3,000
Sales Commission 4% of sales
All cash expenses are paid as incurred. What are the total cash disbursements budgeted for
operating expenses for the month of January?
A) $28,200
B) $30,000
C) $30,600
D) $33,600
Answer: C
35) Paulson Company's expected sales for April are $29,000. Other information follows:
Budgeted Operating Expenses Amount
Wages $4,000
Advertising 1,680
Depreciation 1,440
Rent 2,560
Promotion 5% of sales
What are the total expected operating expenses for April?
A) $6,240
B) $9,680
C) $9,690
D) $11,130
Answer: D
36) Potter Company's expected sales for April are $29,000. Other information follows:
Wages $4,000
Advertising 1,680
Depreciation 1,440
Rent 2,560
Promotion 5% of sales
All cash expenses are paid as incurred. What are the expected total cash disbursements for
operating expenses for April?
A) $6,240
B) $9,680
C) $9,690
D) $11,130
Answer: C
37) Paul Company's expected sales for April are $27,600. Other information follows:
Wages $2,000
Advertising 1,680
Patent amortization 1,440
Rent 2,560
Marketing 5% of sales
Which of the following operating expenses is a noncash expense?
A) Advertising
B) Rent
C) Patent amortization
D) Wages
Answer: C
38) Mark Company has the following information:

Month Budgeted Purchases
January $40,000
February 29,000
March 30,520
April 29,480
May 27,680
Purchases are paid as follows:
10% in the month of purchase
50% one month after purchase
40% two months after purchase
What is the estimated cash disbursement in March from January purchases?
A) $3,052
B) $12,000
C) $14,500
D) $16,000
Answer: D
39) Christian Company has the following information:

January $26,800
February 29,000
March 30,520
April 29,480
May 27,680
What is the expected balance in Accounts Payable at March 31?
A) $2,900
B) $18,312
C) $30,520
D) $39,068
Answer: D
40) Healing Company has the following information:

January $56,800
February 49,000
March 30,520
April 35,480
May 27,680
What is the estimated cash disbursement in May from April purchases?
A) $11,072
B) $11,792
C) $13,840
D) $17,740
Answer: D
41) May Company has the following information:

January $33,000
February 37,000
March 31,000
April 30,000
May 27,680
What is the expected balance in Accounts Payable on April 30?
A) 0
B) $7,500
C) $20,250
D) $30,000
Answer: B
42) Marjorie Company has the following information:

January $25,000
February 19,000
March 33,000
April 27,000
May 27,680
What are the estimated cash disbursements in March?
A) $22,500
B) $24,750
C) $29,500
D) $39,000
Answer: C
43) Margaret Company has the following information:

January $26,800
February 29,000
March 30,520
April 29,480
May 27,680
What is the expected balance in Accounts Payable on May 31?
A) $2,948
B) $11,792
C) $24,912
D) $36,704
Answer: D
44) Mary Company has the following information:

January $26,800
February 29,000
March 30,520
April 29,480
May 27,680
A) $14,740
B) $17,508
C) $26,948
D) $29,716
Answer: D
45) ________ expense is driven by sales volume.

A) Rent
B) Insurance
C) Depreciation
D) Sales commission
Answer: D
46) The Wehr Company is preparing a budgeted income statement. The dollar amount of
Wages Expense put on the income statement can be found on the ________.
A) purchases budget
B) sales budget
C) schedule of cash disbursements for purchases
Answer: D
7.8 Questions
1) Which of the following budget(s) has(have) the disbursement for a planned purchase of
equipment?
C) cash budget only
D) cash budget and capital budget
Answer: D
2) On the cash budget, how do we obtain the available cash balance?

A) beginning cash balance
B) minimum cash balance desired
C) total cash increase from financing plus net cash receipts and disbursements
D) beginning cash balance minus minimum cash balance desired
Answer: D
3) On a cash budget, if available cash balance plus net cash receipts and disbursements is
negative, ________.
A) repayment of loan is suggested
B) repayment of loan is required
C) borrowing is necessary
D) borrowing is not necessary
Answer: C
4) When preparing a budgeted balance sheet, the balance for the inventory account is found
on the ________.
A) sales budget
B) cash budget
Answer: D
5) When preparing a budgeted balance sheet, the balance in the cash account is found on the
________.
A) sales budget
B) cash budget
D) capital budget
Answer: B
6) When preparing a budgeted balance sheet, the balance in the equipment account is derived
from information in the ________.
B) capital budget
C) purchases and cost of goods sold budget
D) schedule of cash disbursements for operating expenses
Answer: B
7) The financial budget is used by managers to ________.

A) manage financial affairs
B) manage employee hiring patterns
C) manage the cash balance
D) plan for future stock dividends
Answer: C
8) The total amount of cash collections from customers by month appears on the ________.
A) sales budget
C) cash budget
D) budgeted balance sheet
Answer: C
9) Jensen Company is preparing a cash budget for the month of June. The following
Cash Balance, May 31, 2015 $10,000
Cash collections from customers in June 76,000
Cash paid for merchandise in June 42,000
Paid operating expenses in June 17,000
Purchase furniture for cash in June 5,000
Depreciation expense in June 2,000
Amortization expense in June 3,000
The minimum cash balance desired is $10,000. What are the net cash receipts and
disbursements for the month of June?
A) $7,000
B) $10,000
C) $12,000
D) $17,000
Answer: C
10) Wininger Company is preparing a cash budget for the month of June. The following
Paid operating expenses in June 12,000
The minimum cash balance desired is $10,000. What is the deficiency of cash before financing
at June 30, 2015?
A) $(1,000)
B) $(3,000)
C) $(7,000)
D) $(11,000)
Answer: A
11) Goller Company is preparing a cash budget for the month of June. The following
Cash paid for operating expenses in June 12,000
The minimum cash balance desired is $10,000. What is the cash balance on June 30, 2015?
A) $9,000
B) $10,000
C) $11,000
D) $19,000
Answer: D
12) Cornish Company is preparing a cash budget for the month of June. The following
Cash paid for equipment in June 20,000
Cash dividend paid in June 5,000
The minimum cash balance desired is $5,000. What are the net cash receipts and
disbursements for the month of June?
A) $(2,000)
B) $(3,000)
C) $(22,000)
D) $(32,000)
Answer: C
13) Cornell Company is preparing a cash budget for the month of June. The following
Cash paid for land in June 10,000
Patent amortization expense in June 5,000
Cash dividend paid in June 5,000
The minimum cash balance desired is $5,000. What is the deficiency of cash before financing
at June 30, 2014?
A) $(5,000)
B) $(6,000)
C) $(11,000)
D) $(12,000)
Answer: B
14) Warbel Company is preparing a cash budget for the month of June. The following
Paid cash dividend in June 5,000
The minimum cash balance desired is $5,000. What is the cash balance on June 30, 2015?
A) $8,000
B) $9,000
C) $10,000
D) $13,000
Answer: B
15) ________ usually prepare and use the operating budget. ________ focus on the financial
budget.
A) Sales managers; the board of directors
B) Controllers and treasurers; line operating managers
C) Line operating managers; controllers and treasurers
D) The audit committee; the board of directors
Answer: C
16) Budgets that focus on the budgeted cost of activities required to produce and sell
products are called ________.
A) strategic budgets
B) master budgets
C) activity-based budgets
D) rolling budgets
Answer: C
17) The activity-based budgeting system emphasizes ________.

A) the resources needed by a company
B) the preparation of budgets by function
C) the attainment of long-range goals
D) activities and their consumption of resources
Answer: D
18) ________ models are mathematical models that can react to any set of assumptions about
sales, costs and product mix.
A) Strategic
B) Long-range
C) Financial planning
D) Operating budget
Answer: C
7.9 Questions
1) Systematically varying budget data input to determine the effects of each change on the
budget is called ________ analysis.
A) operating budget
B) financial budget
C) sensitivity
D) master budget
Answer: C
2) A spreadsheet can be used to prepare ________.

A) the operating budget
B) the financial budget
C) schedules from the master budget
D) all of the above
Answer: D
8.1 Questions
1) An example of a favorable variance is ________.

A) actual revenues are less than expected revenues
B) actual expenses are less than expected expenses
C) actual material prices are greater than expected material prices
D) expected labor costs are less than actual labor costs
Answer: B
2) Spending less than budgeted for maintenance costs will result in a(n) ________ variance.
When actual revenues exceed budgeted revenues, this results in a(n) ________ variance.
A) unfavorable; unfavorable
B) unfavorable; favorable
C) favorable; unfavorable
D) favorable; favorable
Answer: D
3) Unfavorable variances ________ represent bad decisions made by managers.

A) always
B) sometimes
C) never
Answer: B
8.2 Questions
1) A budget prepared for one expected level of activity is called a ________.

A) flexible budget
B) static budget
C) variable budget
D) rolling budget
Answer: B
2) A budget prepared for different levels of activity is called a ________.

A) rolling budget
B) operating budget
C) flexible budget
D) static budget
Answer: C
3) The static budget is based on the ________ level of output and the flexible budget is based
on the ________ level of output.
A) actual; expected
B) expected; actual
C) expected; planned
D) actual; projected
Answer: B
8.3 Questions
1) To calculate the numbers in a flexible budget, managers use ________.

A) cost functions developed from regression analysis
B) flexible budget formulas
C) cost functions obtained from the high-low method
D) all of the above
Answer: D
2) When preparing a flexible budget income statement, ________ costs are constant at
different levels of activity.
A) variable
B) step
C) contributed
D) fixed
Answer: D

A) Flexible budgets are prepared for a range of activity.
B) Flexible budgets are matched to actual levels of activity.
C) A flexible budget is also called a variable budget.
D) Flexible budgets are based on different assumptions about cost behavior than those used
for static budgets.
Answer: D
4) Oroz Company had the following information available:

Expected Costs and Selling Price Based on 5,000 units:
Fixed manufacturing costs per unit $20
Expected production level 5,000 units
In the flexible budget at 10,000 units, what is the total manufacturing cost?
A) $250,000
B) $420,000
C) $520,000
D) $700,000
Answer: B
5) Perez Company had the following information available:

Expected Costs and Selling Price Based on 5,000 Units:
Fixed manufacturing costs per unit $20
Expected production level 5,000 units
In the flexible budget at 15,000 units, what is the total manufacturing cost?
A) $480,000
B) $580,000
C) $680,000
D) $780,000
Answer: B
6) Huntsman Company's variable selling and administrative expenses are $48,000 at a

production level of 6,000 units. If the production level is 8,000 units, what are the variable
selling administrative expenses?
A) $48,000
B) $56,000
C) $64,000
D) $80,000
Answer: C
7) Which of the following is used to develop flexible budgets?

A) fixed overhead variances
B) static budget variances
C) flexible budget variances
D) cost functions
Answer: D
8) A company that has an activity-based costing system with multiple cost drivers will
prepare a(n) ________ budget.
A) financial planning
B) short-range planning
C) activity-based flexible
D) strategic
Answer: C
9) When should a company use an activity-based flexible budget with multiple cost drivers
instead of a simple flexible budget with one cost driver?
A) when a significant portion of costs vary with only one cost driver
B) when a significant portion of costs vary with the number of units of output
C) when a significant portion of costs vary with the number of units of sales
D) when a significant portion of costs vary with cost drivers other than units of output
Answer: D
10) Perez Company uses activity-based costing. The company is trying to estimate the costs of
the processing activity in the factory. The company has developed the following flexible
budget formula:
Y = $10.50X + $13,000
Where: Y = Total processing cost per quarter and X = Number of machine hours
If 10,000 machine hours are used next quarter, total variable costs are ________ and total fixed
costs are ________.
A) $105,000; $13,000
B) $105,000; $130,000,000
C) $113,000; $130,000,000
D) $10.50; $13,000
Answer: A
11) Garcia Company planned to produce 12,000 units. This level of activity required 40 setups
at a cost of $18,000 plus $500 per setup. Actual production was 10,000 units, requiring 15
setups. Actual setup cost was $26,000. What is the static budget amount for total setup costs?
A) $21,000
B) $25,500
C) $26,000
D) $38,000
Answer: D
12) Sanchez Company planned to produce 12,000 units. This level of activity required 20
setups at a cost of $22,000 plus $500 per setup. Actual production was 10,000 units, requiring
15 setups. Actual setup cost was $26,000. At 10,000 units, what is the flexible budget amount
for total setup costs?
A) $7,500
B) $22,000
C) $26,000
D) $29,500
Answer: D
8.4 Questions
1) The activity-level variance for fixed costs equals zero when ________.
A) the actual level of output equals the static budget level of output
B) the actual level of output is greater than the static budget level of output
C) the actual level of output is less than the static budget level of output
D) all of the above
Answer: D
2) In the relevant range, the sales-activity variance for fixed costs is always ________.
A) greater than the flexible budget variance
B) less than the flexible budget variance
C) greater than the static budget variance
D) zero
Answer: D
3) The static budget variance is the difference between the ________ and the ________.
A) amounts for the flexible budget; amounts for the static budget
B) flexible budget variance; activity level variance
C) actual results; amounts for the static budget
D) actual results; amounts for the flexible budget
Answer: C
4) The static budget variance is equal to the sum of ________ and ________.
A) direct materials variance; direct labor variance
B) fixed overhead variance; variable overhead variance
C) flexible budget variance; activity-level variance
D) direct materials price variance; direct materials quantity variance
Answer:
5) Kilsdonk Company has the following information available:

Budgeted cost of direct materials at 900,000 units $900,000
Actual cost of direct materials at 820,000 units $840,000
Actual level of output(units) 820,000
Planned level of output(units) 900,000
The cost driver of product costs is units of output. What is the static budget variance for direct
material costs?
A) $20,000 Unfavorable
B) $20,000 Favorable
C) $60,000 Favorable
D) $60,000 Unfavorable
Answer: C
6) Margaret Duffy Company has the following information available:

Actual cost of direct materials at 820,000 units $840,000
Actual level of output(units) 820,000
Planned level of output(units) 900,000
The cost driver of product costs is units of output. What is the flexible budget variance for
direct material costs?
Answer: A
7) Corrao Company had a static budgeted operating income of $8.6 million. Actual operating
income was $6.4 million. The flexible budget operating income at the actual level of output is
$7,000,000. What is the static-budget variance of operating income?
A) $1.6 million Favorable
B) $1.6 million Unfavorable
C) $2.2 million Favorable
D) $2.2 million Unfavorable
Answer: D
8) For the current year, LeBombard Company's static budget sales were $225,000. Actual sales
for the current year were $220,000. Actual sales last year were $219,000. Expected sales last
year were $225,000. What is the static budget variance for sales in the current year?
A) $5,000 Favorable
B) $5,000 Unfavorable
C) $6,000 Favorable
Answer: B
9) Differences between the actual results and the flexible budget at the actual level of output
achieved are ________ variances.
A) static budget
B) activity budget
C) flexible budget
D) operating budget
Answer: C
10) Conner Company has the following information:

Actual operating loss at 5,000 units $(11,000)
Budgeted operating income at 5,000 units $5,000
Planned level of operations 10,000 units
Actual level of operations 5,000 units
Assume units of output are the cost driver for product costs. What is the static budget
variance for operating income?
C) $23,000 Unfavorable
D) $23,000 Favorable
Answer: C
11) Potter Company has the following information:

Actual operating loss at 5,000 units $(11,000)
Planned level of operations 10,000 units
Actual level of operations 5,000 units
Assume the cost driver of product costs is units of production. What is the flexible budget
variance for operating income?
Answer: C
12) Assume sales are the cost driver for product costs. The difference between the static
budget amount for sales and the flexible budget amount for sales at the actual level of sales is
called the ________. The difference between the flexible budget amount for sales at the actual
level of sales and the actual amount for sales is called the ________.
A) static variance; flexible budget variance
B) master variance; flexible budget variance
C) quantity variance; static budget variance
D) sales activity variance; flexible budget variance
Answer: D
13) Differences between actual results and the static budget at the original planned level of
output are ________ variances.
A) flexible budget
B) financial budget
C) operating budget
D) static budget
Answer: D
14) Flexible budget variances are the deviations of actual results from the ________.
A) flexible budget amounts for the achieved level of activity
B) flexible budget amounts for the static level of activity
C) static budget amounts for the expected level of activity
D) static budget amounts for last year's level of activity
Answer: A
15) The amount of actual operating income may differ from the static budget amount for
operating income because ________.
A) actual output levels were not the same as in the static budget
B) actual variable costs were higher than expected variable costs
C) actual fixed costs were higher than expected fixed costs
D) all of the above
Answer: D
16) Which is NOT a reason for a static budget variance?

A) Actual sales volume was higher than projected sales volume.
B) Actual variable costs were higher than static budget variable costs.
C) Actual fixed costs were higher than static budget fixed costs.
D) Actual sales volume in current period was higher than projected sales volume in last
period.
Answer: D
17) If sales are the cost driver, unfavorable flexible budget variances result from ________.
A) actual costs exceeding planned costs
B) planned costs exceeding actual costs
C) actual sales exceeding planned sales
D) planned sales exceeding actual sales
Answer: A
18) Flexible budget variances are the difference between the actual results and ________.
A) the static budget for the planned level of output
B) the flexible budget for the planned level of output
C) the flexible budget for the actual level of output
D) the master budget for the planned level of output
Answer: C
19) The following data are for Pablo Corporation:

Flexible Budget for
Actual Static Budget Actual Sales Activity
Units 18,000 16,000 18,000
Sales $360,000 $320,000 $360,000
Variable costs 234,000 192,000 216,000
Contribution margin $126,000 $128,000 $144,000
Fixed costs 76,000 80,000 80,000
Operating income $50,000 $48,000 $64,000
The flexible budget variance for operating income is ________.
A) $2,000 Favorable
Answer: D
20) The following data are for California Closets:

Flexible Budget for
Units 18,000 16,000 18,000
Sales $360,000 $320,000 $360,000
Variable costs 234,000 192,000 216,000
Fixed costs 76,000 80,000 80,000
The sales activity variance for operating income is ________.
A) $14,000 Favorable
Answer: C
21) The following data are for Sandy Corporation:

Flexible Budget for
Units 18,000 16,000 18,000
Sales $360,000 $320,000 $360,000
Variable costs 234,000 192,000 216,000
Fixed costs 76,000 80,000 80,000
The static budget variance for operating income is ________.
A) $2,000 Favorable
Answer: A
22) If the flexible budget variance was $6,000 Favorable and the sales activity variance was
$3,000 Favorable, then the static budget variance was ________.
A) $3,000 Favorable
C) $9,000 Favorable
Answer: C
23) Who is usually responsible for sales activity variances for income?
A) operating managers in factory
B) marketing managers
C) research and development function
D) product design function
Answer: B
24) If the sales activity variance was $8,000 Favorable and the static budget variance was
$10,000 Favorable, then the flexible budget variance was ________.
A) $2,000 Favorable
Answer: A
25) The sales activity variance for ________ will always be zero.
A) sales
B) contribution margin
C) variable costs
D) fixed costs
Answer: D
26) Brad Company planned to produce 12,000 units. This level of production required 20
15 setups. Actual setup cost was $26,000. What is the static budget variance for setup costs?
A) $2,000 Favorable
C) $2,500 Favorable
Answer: A
27) Leshan Company planned to produce 12,000 units. This level of production required 20
15 setups. Actual setup cost was $26,000. What is the flexible budget variance for setup costs?
A) $500 Favorable
B) $500 Unfavorable
C) $2,000 Favorable
Answer: B
28) Which statement would NOT be a reason for a flexible budget variance?
A) Material prices were different than expected.
B) Labor prices were different than expected.
C) Actual volume of activity was different than expected.
D) Amount of labor used per unit of output was different than expected.
Answer: C
8.5 Questions
1) One variance often influences another variance. If the direct materials price variance is
favorable, then it is possible that this variance will cause ________.
A) the direct materials quantity variance to be unfavorable
B) the direct labor price variance to be unfavorable
C) the direct labor price variance to be favorable
D) the direct materials quantity variance to be favorable
Answer: A
2) Which of the following is NOT an example of efficient performance?

A) Direct labor hours used per unit were less than expected.
B) Direct material used per unit was less than expected.
C) More outputs were achieved with less inputs than predicted.
D) More outputs were produced than expected.
Answer: D
3) Purple Rain Company planned to sell 35,000 units. Actual sales were 30,000 units. Based on
this information, Blue Company was ________.
A) efficient
B) inefficient
C) effective
D) ineffective
Answer: D
4) Yellow Cake Company planned to produce and sell 900 units at a total cost of $180,000.
Actual production and sales were 900 units at a cost of $170,000. The company was ________.
A) efficient and ineffective
B) inefficient and ineffective
C) inefficient and effective
D) efficient and effective
Answer: D
5) ________ is the degree to which an organization minimizes the ________ used to achieve an
objective.
A) Efficiency; costs
B) Efficiency; resources
C) Effectiveness; resources
D) Effectiveness; costs
Answer: B
6) When a firm meets a sales goal, it is said to be ________. When a firm incurs more direct
material costs to manufacture products than expected, the firm is said to be ________.
A) effective; ineffective
B) efficient; inefficient
C) effective; inefficient
D) efficient; ineffective
Answer: C
7) A favorable materials price variance can affect all of the following variances except
________.
A) labor rate variance
B) labor efficiency variance
C) materials quantity variance
D) flexible budget variance for direct materials
Answer: A
8) Which of the following statements about perfection standards is TRUE?

A) It is generally believed that they have a negative influence on employee morale.
B) They are expressions of the most efficient performance possible.
C) They usually result in unfavorable variances.
D) All of the above
Answer: D
9) Variances should be investigated if they ________.

A) are favorable
B) are unfavorable
C) are smaller than the variances in the prior period
D) exceed certain dollar amounts or percentage deviations from the budget
Answer: D
8.6 Questions
1) The following information is available for Munter Manufacturing Company.

-- Direct materials price standard is $3.25 per pound.
-- Direct materials quantity standard is six pounds per finished unit.
-- Budgeted production is 25,000 finished units.
-- 175,000 pounds of direct materials were purchased for $525,000.
-- 175,000 pounds of direct materials were used in production.
-- 25,600 finished units of product were produced.
What is the direct materials price variance?
Answer: B
2) The following information is available for Maher Manufacturing Company.

-- Direct materials price standard is $3.25 per pound.
-- Direct materials quantity standard is six pounds per finished unit.
-- Budgeted production is 25,000 finished units.
-- 175,000 pounds of direct materials were purchased for $525,000.
-- 175,000 pounds of direct materials were used in production.
-- 25,600 finished units of product were produced.
What is the direct materials quantity variance?
Answer: C
3) The following information is presented for the Marathon Manufacturing Company.

— Direct labor rate standard is $11.55.
— Direct labor efficiency standard is 2.5 hours per unit.
— Budgeted production is 1,200 units.
— Production required 2,910 direct labor hours at a cost of $33,174.
— Actual production is 1,150 units.
What is the direct labor price variance?
A) $172.50 Favorable
B) $180.00 Unfavorable
C) $436.50 Favorable
D) $435.50 Unfavorable
Answer: C
4) The direct materials price variance reflects the effects of ________.

A) changing input prices, holding the quality of outputs constant
B) changing input quantities, holding the input price constant
C) changing input prices, holding the quantity of inputs constant
D) changing input quantities, while changing the input price
Answer: C
5) The following information is presented for the Maybeel Manufacturing Company.

— Direct labor rate standard is $11.55.
— Direct labor efficiency standard is 2.5 hours per unit.
— Budgeted production is 1,200 units.
— Production required 2,910 direct labor hours at a cost of $33,174.
— Actual production is 1,150 units.
What is the direct labor efficiency variance?
A) $404.25 Favorable
B) $404.25 Unfavorable
C) $1,039.50 Favorable
D) $1,039.50 Unfavorable
Answer: B
6) Johnsen Company reported a flexible budget variance for direct labor of $8,000 Favorable
for the current year. If the direct labor price variance was $2,000 Unfavorable, what was the
direct labor efficiency variance?
B) $6,000 Favorable
Answer: C
7) Christian Company reported a flexible budget variance for direct materials costs of $10,000
Favorable for the current year. If the direct materials price variance was $2,000 Favorable,
what was the direct materials quantity variance?
B) $8,000 Favorable
Answer: B
8) A company has the following information available about one of its products:
Standard price per pound of input $25
Actual price per pound of input $24
Standard inputs per unit of output 3 pounds
Actual units of output 2,770
Direct Materials Quantity Variance $250 F
How many pounds of material were used?
A) $8,300
B) $8,310
C) $8,320
D) $8,330
Answer: A
9) A company has the following information available about one of its products:
Standard price per pound of input ?
Actual price per pound of input $27
Actual units of output 3,000
Direct Materials Price Variance $18,000 F
Actual pounds of input used 9,000
What is the standard price per pound of input?
A) $25
B) $27
C) $29
D) $33
Answer: C
10) Beckowski Company had the following information available for its specialty product:
Standards for one unit of product:
Direct Materials: 5 pounds at $2 per pound
Direct Labor: 0.50 hour at $16 per hour
Materials and Labor Used to produce 8,500 units:
Direct Materials: 46,000 pounds at ? per pound
Direct Labor: 4,000 hours at $16.80 per hour
If the Direct Materials Price Variance is $4,600 Unfavorable, what is the actual cost per pound
of direct materials used?
A) $1.80
B) $1.90
C) $2.00
D) $2.10
Answer: D
11) Parrish Company had the following information available for its specialty product:
irect Labor: 0.50 hour at $16 per hour
Direct Materials: ? pounds at $2.10 per pound
Direct Labor: 4,000 hours at $16.80 per hour
If the Direct Materials Quantity Variance is $7,000 Unfavorable, what is the actual quantity of
direct materials used?
A) 7,000
B) 42,500
C) 46,000
D) 47,000
Answer: C
12) Cornell Company had the following information available for its specialty product:
Direct Materials: 46,000 pounds at $3 per pound
Direct Labor: 4,000 hours at ? per hour
If the Direct Labor Price Variance is $4,600 Unfavorable, what is the actual labor rate per
hour?
A) $16.00
B) $16.50
C) $17.10
D) $17.15
Answer: D
13) Gollerowski Company had the following information available for its specialty product:
Direct Materials: 46,000 pounds at 4 per pound
Direct Labor: ? hours at $17 per hour
If the Direct Labor Efficiency Variance is $4,000 Unfavorable, what are the actual number of
hours worked?
A) $4,000
B) $4,250
C) $4,400
D) $4,500
Answer: D
14) The quantity variance for direct materials can be computed by multiplying the standard
price by the difference between the ________.
A) standard inputs allowed and expected inputs allowed at actual output
B) quantity of inputs actually used and the quantity of inputs that should have been used for
the expected output
C) standard inputs allowed and expected inputs allowed for expected output
D) quantity of inputs actually used and the quantity of inputs that should have been used for
actual output
Answer: D
15) Rate variances are the same as ________ variances. Efficiency variances are the same as
________ variances.
A) spending; effective
B) activity; static
C) usage; quantity
D) price; quantity
Answer: D
16) A ________ is most likely to be held accountable for price variances for direct materials.
A) machine operator
B) production supervisor
C) purchasing manager
D) marketing director
Answer: C
17) In which of the following scenarios can Eastman Company NOT have favorable flexible
budget variance for direct materials?: When direct material price variance is ________, and
when direct material quantity variance is ________,
A) favorable; unfavorable
B) unfavorable; favorable
C) unfavorable; unfavorable
D) favorable; favorable
Answer: C
18) If the direct labor price variance is $800 Favorable and the direct labor usage variance is
$700 Unfavorable, then ________.
A) the flexible budget variance for direct labor is $100 Favorable
B) actual total wages paid were $800 more than expected
C) actual labor hours were less than expected
D) actual material prices were less than expected
Answer: A
19) The following information is for Brankov Corporation:

Direct Materials (measured in pounds)
Standard price per unit of input $20
Actual price per unit of input $18
Actual units of input 8,300 pounds
Actual units of output 2,770 units
What is the flexible budget variance for direct materials?
A) $16,400 Favorable
Answer: C
20) Barber Company produces 2,500 units. Each unit was expected to require 2 labor hours at
a cost of $10 per hour. Total labor cost was $52,250 for 4,750 hours worked. Direct labor is
measured in labor hours. What is the direct labor price variance?
A) $2,500 Favorable
C) $4,750 Favorable
Answer: D
21) Butters Company produces 2,500 units. Each unit was expected to require 2 labor hours at
a cost of $10 per hour. Total labor cost was $52,250 for 4,750 hours worked. Direct labor is
measured in labor hours. What is the direct labor quantity variance?
A) $2,500 Favorable
C) $2,750 Favorable
Answer: A
\
22) Ivanovich Company produces 2,500 units. Each unit was expected to require 2 labor hours
at a cost of $10 per hour. Total labor cost was $52,250 for 4,750 hours worked. Direct labor is
measured in labor hours. What is the flexible budget variance for direct labor?
A) $2,250 Favorable
C) $7,500 Favorable
Answer: B
23) The Cheeseman Company makes tables and the following standards have been
developed:
Standard Inputs Expected Standard Price Expected
For Each Unit of Output Per Unit of Input
Direct Materials 10 pounds $4 per pound
Direct Labor 3 hours $16 per hour
Production of 230 tables was expected in July, but 250 tables were actually completed. Direct
materials purchased and used were 2,200 pounds at an actual price of $4.50 per pound. Direct
labor cost for the month was $10,620, and the actual pay per hour was $18.00. What is the
direct material price variance for July?
A) $800 Favorable
B) $800 Unfavorable
C) $1,100 Favorable
Answer: D
24) The Cornell Company makes tables for which the following standards have been
developed:
Production of 200 tables was expected in July, but 220 tables were actually completed. Direct
direct material quantity variance for July?
A) $800 Favorable
B) $800 Unfavorable
C) $880 Favorable
D) $880 Unfavorable
Answer: A
25) The Matthew Company makes tables for which the following standards have been
developed:
Direct Materials 17 pounds $5.20 per pound
Production of 200 tables was expected in May, but 220 tables were actually completed. Direct
direct labor price variance for the month of May?
A) $1,180 Favorable
C) $1,200 Favorable
Answer: B
26) The Quinn Company makes tables for which the following standards have been
developed:
Production of 200 tables was expected in June, but 220 tables were actually completed. Direct
direct labor quantity variance for the month of June?
A) $1,120 Favorable
C) $1,260 Favorable
Answer: A
27) The Brucker Company makes mugs for which the following standards have been
developed:
Direct Materials 5 ounces $2 per ounce
Direct Labor 1.5 hours $8 per hour
Production of 400 mugs was expected in July, but 440 mugs were actually completed. Direct
materials purchased and used were 2,100 ounces at an actual price of $2.30 per ounce. Direct
labor cost for the month was $5,310, and the actual pay per hour was $9.00. What is the direct
material price variance for July?
A) $400 Favorable
B) $400 Unfavorable
C) $630 Favorable
D) $630 Unfavorable
Answer: D
28) The Savage Company makes mugs for which the following standards have been
developed:
material quantity variance for July?
A) $200 Favorable
B) $200 Unfavorable
C) $220 Favorable
D) $220 Unfavorable
Answer: A
29) The Tulip Company makes mugs for which the following standards have been developed:
Production of 400 mugs was expected in August, but 440 mugs were actually completed.
Direct materials purchased and used were 2,100 ounces at an actual price of $2.20 per ounce.
Direct labor cost for the month was $5,310, and the actual pay per hour was $9.00. What is the
direct labor price variance for August?
A) $420 Favorable
B) $420 Unfavorable
C) $590 Favorable
D) $590 Unfavorable
Answer: D
30) The Banks Company makes mugs for which the following standards have been
developed:
labor quantity variance for July?
A) $560 Favorable
B) $560 Unfavorable
C) $630 Favorable
D) $630 Unfavorable
Answer: A
31) In a manufacturing area of a firm, poor product design and problems with the quality of
materials will, more than likely, result in a(n) ________ variance or ________ variance.
A) unfavorable material efficiency; unfavorable labor usage
B) favorable material efficiency; unfavorable labor price
C) unfavorable material price; unfavorable labor rate
D) unfavorable material price; unfavorable labor usage
Answer: A
8.7 Questions
1) Variable overhead efficiency variances are unfavorable when ________.
A) the actual cost-driver activity exceeds the standard activity allowed for the actual output
B) the actual cost-driver activity is less than the standard activity allowed for the actual
output
C) the actual cost-driver activity exceeds the standard activity allowed for the static budget
output
D) the actual cost-driver activity is less than the standard activity allowed for the static
budget output
Answer: A
2) Simmons Company has the following information available for variable overhead costs.
Direct labor hours are the cost driver for variable overhead costs.
Actual variable overhead costs $4,700
Standard variable overhead costs $1.20 per hour
Actual direct labor hours 3,750 hours
Standard direct labor hours per unit 5 hours
Units produced 700
What is the variable overhead spending variance?
A) $200 Favorable
B) $200 Unfavorable
C) $500 Favorable
D) $500 Unfavorable
Answer: B
3) Dooley Company has the following information available for variable overhead costs.
Units produced 700
What is the variable overhead efficiency variance?
A) $300 Favorable
B) $300 Unfavorable
C) $500 Favorable
D) $500 Unfavorable
Answer: B
4) Indian Company has the following information available for variable overhead costs.
Units produced 1,000
A) $880 Favorable
C) $3,880 Favorable
Answer: A
5) Switsdorf Company has the following information available for variable overhead costs.
Units produced 1,000
What is the variable overhead efficiency variance?
A) $1,000 Favorable
C) $2,000 Favorable
D) $3,000 Favorable
Answer: D
6) At 60,000 machine hours, Norwall Company's static budget for variable overhead costs is
$180,000. At 60,000 machine hours, the company's static budget for fixed overhead costs is
$300,000. Machine hours are the cost driver of all overhead costs. The static budget is based
on 60,000 machine hours. At 60,000 machine hours, the company produces 40,000 units. The
following data is available:
Actual units produced and sold 42,000
Actual machine hours 64,000
Actual fixed overhead costs $302,400
B) $6,400 Favorable
C) $1,000 Favorable
Answer: B
7) The flexible budget variance for variable overhead costs is composed of a(n) ________
variance and a(n) ________ variance.
A) efficiency; effective
B) spending; rate
C) quantity; efficiency
D) spending; efficiency
Answer: D
8) The variable overhead efficiency variance depends on whether the quantity of the cost
driver used is more or less than ________.
A) the standard amount of output for the expected amount of output
B) the quantity allowed for the expected amount of output
C) the quantity allowed for the static budget amount of output
D) the standard quantity allowed for the actual output
Answer: D
9) The variable overhead spending variance combines ________ and ________ effects.
A) price; quantity
B) price; efficiency
C) efficiency; sales activity
D) rate; sales activity
Answer: A
10) Variable overhead efficiency variances are unfavorable when actual cost driver activity
exceeds the ________.
A) standard cost-driver activity allowed for the actual output
B) activity allowed for the expected output
C) activity allowed for the planned output
D) activity allowed for last period's output
Answer: A
8.8 Questions
1) For fixed overhead costs, the spending variance is ________ equal to the flexible-budget
variance.
A) always
B) sometimes
C) never
D) indeterminate
Answer: A
2) Wendel Company has actual fixed overhead costs of $14,700. Fixed overhead costs based
on the flexible budget and the actual use of the cost driver are $14,400. Actual variable
overhead costs are $14,500. What is the flexible-budget variance for fixed overhead costs?
A) $300 Favorable
B) $300 Unfavorable
C) $100 Favorable
D) $100 Unfavorable
Answer: B
3) Wetzel Company has actual fixed overhead costs of $14,500. Fixed overhead costs based on
the flexible budget and the standard use of the cost driver are $14,400. Actual variable
overhead costs are $14,700. Flexible budget costs for variable overhead costs are $15,000.
What is the flexible-budget variance for fixed overhead costs?
A) $100 Favorable
B) $100 Unfavorable
C) $300 Favorable
D) $300 Unfavorable
Answer: B
4) The efficiency variance for fixed overhead costs ________.

A) is greater than the flexible budget variance for fixed overhead costs
B) is greater than the spending variance for fixed overhead costs
C) is greater than the flexible budget variance for variable overhead costs
D) does not exist
Answer: D
5) At 60,000 machine hours, Clark Company's static budget for variable overhead costs is
$180,000. At 60,000 machine hours, the company's static budget for fixed overhead costs is
$300,000. Machine hours are the cost driver of all overhead costs. The static budget is based
on 60,000 machine hours. At 60,000 machine hours, the company produces 40,000 units. The
following data is available:
Actual units produced and sold 42,000
Actual machine hours 64,000
Actual fixed overhead costs $302,400
What is the fixed overhead spending variance?
B) $2,400 Favorable
C) $1,000 Favorable
Answer: A
6) The flexible budget variance for fixed overhead costs equals the ________ variance.
A) efficiency
B) spending
C) static budget
D) operating budget
Answer: B
7) Sloth Company reports the following information for the last year of operations:
Actual fixed overhead costs(7,000 units) $77,000
Budgeted fixed overhead costs(10,000 units) 80,000
Planned level of operations(in units) 10,000
Actual level of operations(in units) 7,000
What is the fixed overhead spending variance?
A) $3,000 Favorable
Answer: A
9.1 Questions
1) Elements of the planning and control process for a management control system do NOT
include ________.
A) measure, monitor and report
B) plan and execute
C) evaluate and reward
D) feedback and control
Answer: D
Diff: 1
LO: 9-1
AACSB: Reflective thinking skills
Learning Outcome: None
2) Planning in the management control system does NOT include ________.
A) defining goals
B) establishing plans to achieve goals
C) carrying out plans to achieve goals
D) measuring performance measures
Answer: D
Diff: 1
LO: 9-1
3) The organizational goal of a hotel chain is to increase customer satisfaction. Which of the
following is NOT a valid performance measure to meet the organizational goal?
A) number of repeat customers
B) number of complaints by customers
C) occupancy rate
D) average room rate
Answer: D
Diff: 1
LO: 9-1
4) ________ is the logical integration of techniques to gather and use data for planning and
control decisions and to evaluate performance.
A) An internal control system
B) A quality control system
C) A financial reporting system
D) A management control system
Answer: D
Diff: 1
LO: 9-1
5) A management control system includes the techniques to gather and use information to
________.
A) motivate employee behavior
B) evaluate performance
C) make planning and control decisions
D) all of the above
Answer: D
Diff: 1
LO: 9-1
6) Which of the following is the first and most basic component in a management control
system?
A) the organization's long-range budget
B) the organization's goals
C) the stockholders' goals
D) managerial effort
Answer: B
Diff: 1
LO: 9-1
7) ________ are characteristics or attributes that managers must achieve to drive the
organization toward its goals.
A) Nonfinancial performance measures
B) Targets
C) Key success factors
D) Objectives
Answer: C
Diff: 1
LO: 9-1
8) Which of the following statements about performance measures is FALSE?

A) Organizational goals without performance measures do not motivate managers.
B) Every performance measure used to evaluate employees should be consistent with
organizational goals.
C) An ideal management control system should include at least one performance measure
related to every goal.
D) Performance measures become more specific at higher levels of the organization.
Answer: D
Diff: 2
LO: 9-1
9) A hotel has the following organizational goal: Increase employee satisfaction. Which one of
the following is the best performance measure of the organizational goal?
A) number of new employees trained
B) turnover rate of hotel employees
C) overall rating on employee service on guest satisfaction survey
D) percent of guests writing complaints about employees
Answer: B
Diff: 1
LO: 9-1
AACSB: Analytic skills
9.2 Questions
1) Most employees perform better when performance reports lead to ________.

A) goal congruence
B) managerial effort
C) managerial control
D) personal rewards
Answer: D
Diff: 1
LO: 9-2
2) To design a management control system that meets an organization's needs, managers

must identify what motivates employees, ________ and ________.
A) develop performance measures based on these employee motivators; establish a
monitoring and reporting structure for the performance measures
B) develop performance measures to encourage managerial effort; establish a monitoring and
reporting structure for productivity
C) develop performance measures that meet organizational objectives; establish an
accounting system to measure productivity
D) develop performance measures based on goal congruence; establish an accounting system
to measure goal congruence
Answer: A
Diff: 2
LO: 9-2
3) Which of the following statements about managerial effort is FALSE?

A) Managerial effort is the exertion towards a goal.
B) Goal congruence must be accompanied by managerial effort.
C) Managerial effort includes all conscious actions that result in more efficiency and
effectiveness.
D) Managerial effort does not have to accompany goal congruence.
Answer: D
Diff: 2
LO: 9-2
4) Goal congruence exists when ________.

A) short-run goals and long-run goals are the same
B) employees respond to incentives created by a management control system and make
decisions that help meet the goals of the organization
C) the management control system reflects the organization's goals
D) performance reports are used constructively
Answer: B
Diff: 2
LO: 9-2
5) ________ is the drive for some selected goal that creates effort and action toward that goal.
A) Goal congruence
B) Managerial effort
C) Motivation
D) Personal rewards
Answer: C
Diff: 1
LO: 9-2
6) To increase and improve employees' work efforts in organizations, organizations should

link ________ to ________ such as bonuses.
A) motivation; goal congruence
B) managerial effort; key success factors
C) managerial control; motivation
D) performance measures; personal rewards
Answer: D
Diff: 2
LO: 9-2
7) Which of the following statements about performance reports and variances is FALSE?
A) They are most effective when managers use them positively to encourage employees to
improve performance.
B) When they are used negatively, employees will resist and undermine these techniques.
C) These tools should be used to find weaknesses and deficiencies in employees'
performance.
D) These tools should be used constructively to influence behavior.
Answer: C
Diff: 2
LO: 9-2
9.3 Questions
1) Which one of the following is NOT a nonfinancial performance measure of customer

satisfaction on a commercial airline?
A) number of lost bag reports
B) number of flights cancelled
C) number of employees with advanced degrees
D) number of flights on time
Answer: C
Diff: 1
LO: 9-3
2) Organizational learning can NOT be monitored by ________.

A) employee training time
B) employee turnover
C) employee satisfaction scores on internal surveys
D) percentage of employees with children
Answer: D
Diff: 1
LO: 9-3
3) For most organizations, an effective management control system requires performance

measures that are ________ and ________.
A) rolling; static
B) flexible; static
C) strategic; continuous
D) financial; nonfinancial
Answer: D
Diff: 2
LO: 9-3
4) An example of a nonfinancial goal is ________.

A) increase customer satisfaction
B) increase profits
C) increase segment margin
D) increase required return on investment
Answer: A
Diff: 2
LO: 9-3
5) Effective performance measures have all the following characteristics EXCEPT ________.
A) used consistently and regularly in evaluating and rewarding employees
B) readily understood by employees
C) balance long-term and short-term concerns
D) unaffected by the actions of managers
Answer: D
Diff: 2
LO: 9-3
6) ________ performance measures are often ________ indicators that arrive too late to
prevent problems in organizations.
A) Nonfinancial; leading
B) Nonfinancial; lagging
C) Financial; leading
D) Financial; lagging
Answer: D
Diff: 2
LO: 9-3
7) In most organizational settings, superior ________ performance usually follows from

superior ________ performance.
A) financial; nonfinancial
B) nonfinancial; financial
C) financial; strategic
D) nonfinancial; strategic
Answer: A
Diff: 2
LO: 9-3
8) The components of a successful organization are organizational learning, business process

improvement, ________ and ________.
A) profitability; organizational culture
B) profitability; customer satisfaction
C) customer satisfaction; financial strength
D) goal congruence; managerial effort
Answer: C
Diff: 2
LO: 9-3
9.4 Questions
1) ________ costs include those costs that a manager's decisions and actions can influence to a
reasonable degree.
A) uncontrollable
B) controllable
C) third party
D) allocated
Answer: B
Diff: 2
LO: 9-4
Learning Outcome: Discuss responsibility accounting
2) ________ costs provide evidence about a manager's performance. ________ costs do not
provide evidence about a manager's performance.
A) Allocated; unallocated
B) Controllable; uncontrollable
C) Uncontrollable; controllable
D) Allocated; third party
Answer: B
Diff: 2
LO: 9-4
3) Which of the following statements about responsibility centers is FALSE?

A) Responsibility centers usually have one goal.
B) Management control systems monitor responsibility center goals.
C) Responsibility centers are usually classified according to their managers' primary financial
responsibility.
D) Cost centers, profit centers and investment centers are all examples of responsibility
centers.
Answer: A
Diff: 2
LO: 9-4
4) In a(n) ________ center, managers are responsible for costs only.

A) profit
B) cost
C) investment
D) accounting
Answer: B
Diff: 2
LO: 9-4
5) Managers in profit centers are responsible for controlling ________ and ________.
A) costs; invested capital
B) revenues; invested capital
C) revenues; costs
D) expenses; invested capital
Answer: C
Diff: 2
LO: 9-4
6) A ________ refers to the set of activities assigned to a manager or a group of managers or

other employees.
A) internal control system
B) management control system
C) responsibility center
D) quality control report
Answer: C
Diff: 2
LO: 9-4
7) A(n) ________ cost is any cost that management cannot reasonably affect within a given
time span.
A) controllable
B) quality
C) uncontrollable
D) opportunity
Answer: C
Diff: 2
LO: 9-4
8) Costs uncontrolled by a segment manager should be ________ when evaluating the

performance of the segment manager.
A) considered
B) weighed heavily
C) weighed lightly
D) ignored
Answer: D
Diff: 2
LO: 9-4
9) A responsibility center for which separate measures of revenues and costs are obtained is
called a(n) ________.
A) cost center
B) contribution center
C) contribution margin center
D) segment
Answer: D
Diff: 2
LO: 9-4
10) The manager of a(n) ________ responsibility center is responsible for the revenues, costs
and invested capital from the center.
A) profit
B) cost
C) investment
D) accounting
Answer: C
Diff: 1
LO: 9-4
9.5 Questions
1) Wingate Company has the following information available for three divisions of the
company:
Division A Division B Division C
Sales $250,000 $400,000 $350,000
Variable expenses 52% 30% 40%
Fixed expenses controllable by division manager $60,000 $200,000 $175,000
Fixed expenses controllable by others $10,000 $5,000 $7,500
Unallocated expenses for all three divisions are $22,000. What is the contribution by Division
A?
A) $28,000
B) $50,000
C) $60,000
D) $120,000
Answer: B
Diff: 3
LO: 9-5
2) Wininger Company has the following information available for the past quarter:
Sales $250,000 $400,000 $350,000
Unallocated expenses for all three divisions are $22,000. What is the contribution controllable
by the division manager in Division B?
A) $53,000
B) $75,000
C) $80,000
D) $280,000
Answer: C
Diff: 3
LO: 9-5
3) Wetzel Company has the following information available for the past quarter:
Sales $250,000 $400,000 $350,000
Unallocated expenses for all three divisions are $22,000. What is the contribution controllable
by the division manager in Division C?
A) $5,500
B) $27,500
C) $35,000
D) $210,000
Answer: C
Diff: 3
LO: 9-5
4) Wendell Company has the following information available for the past quarter:
Sales $250,000 $400,000 $350,000
Unallocated expenses for all three divisions are $25,000. What is the contribution by Division
C?
A) $2,500
B) $27,500
C) $35,000
D) $210,000
Answer: B
Diff: 3
LO: 9-5
5) A manager at a local home improvement store is considering the following costs. Which of
the following is a cost controllable by the manager?
A) Salaries of public relations staff at corporate headquarters
B) Salaries of attorneys at corporate headquarters
C) Salary of treasurer of company
D) Salary of head cashier
Answer: D
Diff: 2
LO: 9-5
6) A grocery store manager is responsible for the operating performance of three grocery
stores in a small city. From the manager's point of view, which of the following is NOT a
controllable cost?
A) cost of advertising for grocery stores sent to residents in local area
B) cost of advertising for grocery stores included in local newspaper
C) cost of flyers with grocery store coupons sent to local residents
D) insurance premium on three store buildings
Answer: D
Diff: 2
LO: 9-5
7) A grocery store manager is responsible for the operating performance of a grocery store.
From the manager's point of view, which of the following is NOT a controllable cost?
A) temporary stocking staff hired to reorganize products in every aisle
B) supplies in break room that include coffee, cups, donuts, cookies and stirring sticks
C) fee charged by pest management company to apply pesticide
D) rent expense on store building
Answer: D
Diff: 2
LO: 9-5
8) A company manufactures household furniture at several different plants. When preparing

segmented income statements for each plant, unallocated costs do NOT include ________.
A) Salaries of attorneys at corporate office
B) Salaries of human resources staff at corporate office
C) Advertising initiated at corporate office
D) Depreciation expense on testing equipment in plant
Answer: D
Diff: 2
LO: 9-5
9) Financial performance of a manager is measured by ________. Financial performance of a

segment is measured by ________.
A) contribution by segment; contribution margin
B) contribution margin; net income of segment
C) contribution controllable by segment manager; contribution by segment
D) contribution margin; contribution controllable by segment manager
Answer: C
Diff: 2
LO: 9-5
10) Classifying costs as controllable or uncontrollable by a segment manager is ________ and

________.
A) objective; easily undertaken
B) objective; subject to controversy
C) subjective; easily undertaken
D) subjective; subject to controversy
Answer: D
Diff: 1
LO: 9-5
11) The following information pertains to the East Division of Saturn Company:
Net sales $21,000
Variable costs:
Cost of merchandise sold 10,300
Operating expenses 3,700
Fixed costs:
Controllable by segment manager 2,400
Controllable by others 1,000
Unallocated costs 600
The contribution margin of the East Division is ________.
A) $7,000
B) $7,700
C) $8,000
D) $10,700
Answer: A
Diff: 2
LO: 9-5
12) The following information pertains to the West Division of Burger Company:
Net sales $6,000
Variable costs:
Operating expenses 450
Fixed costs:
The contribution margin of the West Division is ________.
A) $2,750
B) $3,650
C) $4,350
D) $4,550
Answer: D
Diff: 2
LO: 9-5
13) The following information is available for Paperback Books Inc. and its two divisions,
Books and Periodicals:
Whole Books Periodicals
Company Division Division
Division
Net Sales $100,000 $60,000 $40,000
Fixed Costs Controllable
By Division Manager 26,500 22,500 4,000
Fixed Costs Not Controlled
Variable Costs:
Cost of Merchandise Sold 24,500 17,500 7,000
Operating Expenses 26,400 20,000 6,400
Unallocated Costs 7,000
What is the contribution margin for the Books Division?
A) $15,000
B) $22,500
C) $32,500
D) $42,500
Answer: B
Diff: 2
LO: 9-5
14) The following information is available for Half Price Books Inc. and its two divisions,
Books and Periodicals:
Whole Books Periodicals
Company Division Division
Net Sales $100,000 $50,000 $50,000
Fixed Costs Controllable
Fixed Costs Not Controlled
Variable Costs:
Cost of Merchandise Sold 24,500 17,500 7,000
Operating Expenses 17,400 10,000 7,400
Unallocated Costs 4,000
What is the contribution margin for the Periodicals Division?
A) $29,600
B) $32,600
C) $35,600
D) $43,000
Answer: C
Diff: 2
LO: 9-5
15) Assume you are preparing an income statement with different segments. To calculate the
contribution by segment, take contribution controllable by segment manager minus ________.
A) unallocated costs
B) variable operating expenses
C) fixed costs controllable by others(not segment manager)
D) fixed costs controllable by segment manager
Answer: C
Diff: 2
LO: 9-5
16) To calculate income before taxes for a segmented company as a whole, take contribution
by segments and subtract ________.
A) allocated costs
B) unallocated costs
C) costs controllable by segment managers
D) costs controllable by third parties
Answer: B
Diff: 2
LO: 9-5
17) Assume you are preparing income statements for different segments. Which of the
following is NOT a fixed cost controllable by a segment manager?
A) salespersons' salaries for segment
B) advertising costs in local paper to promote segment
C) training costs for new employees at segment
D) segment manager's salary
Answer: D
Diff: 2
LO: 9-5
18) When preparing segmented income statements, fixed costs controllable by others, and not
the segment manager, include ________.
A) depreciation on building used by a segment
B) local advertising costs for a segment
C) local promotion costs for a segment
D) salary of supervisor of sales staff for a segment
Answer: A
Diff: 2
LO: 9-5
19) Segment contribution margin less ________ describes the segment contribution that is
controllable by segment managers.
A) fixed costs controllable by segment managers
B) fixed costs controlled by others(not segment managers)
C) unallocated costs
D) uncontrollable costs
Answer: A
Diff: 2
LO: 9-5
20) The following information pertains to the Midwest Division of Clearly Natural Company:
Net Sales $25,000
Variable Costs:
Fixed costs:
The contribution controllable by a segment manager is ________.
A) $7,100
B) $7,700
C) $11,100
D) $12,700
Answer: D
Diff: 2
LO: 9-5
21) The following information pertains to the Northern Division of Johnson Company:
Net Sales $21,000
Variable Costs:
Fixed costs:
Unallocated costs 7,600
The contribution by segment is ________.
A) $7,100
B) $7,700
C) $8,700
D) $11,100
Answer: B
Diff: 2
LO: 9-5
22) The following information pertains to the Southern Division of Olson Company:
Net Sales $5,250
Variable Costs:
Fixed costs:
Controllable by segment manager 600
The contribution controllable by a segment manager is ________.
A) $2,350
B) $2,500
C) $3,000
D) $3,350
Answer: C
Diff: 2
LO: 9-5
23) The following information pertains to the Southern Division of Swenson Company:
Net Sales $5,000
Variable Costs:
Fixed costs:
Controllable by segment manager 600
Controllable by others 250
The contribution by segment is ________.
A) $2,350
B) $2,500
C) $2,750
D) $3,350
Answer: B
Diff: 2
LO: 9-5
24) The following information is available for Halquist Stone Company and its two divisions,
Crushed Stone and Fieldstone.
Whole Crushed
Company Stone Fieldstone
Net sales $100,000 $60,000 $40,000
Fixed costs controllable by
Division Manager 16,500 12,500 4,000
Fixed costs controlled by others 8,000 5,000 3,000
Variable costs:
Cost of merchandise sold 24,500 17,500 7,000
Operating expenses 16,400 10,000 6,400
What is the contribution controllable by the manager of the Crushed Stone Division?
A) $20,000
B) $32,500
C) $35,000
D) $42,500
Answer: A
Diff: 2
LO: 9-5
25) The following information is available for Stonefield Inc. and its two divisions, Crushed
Stone and Fieldstone.
Whole Crushed
Company Stone Fieldstone
Net sales $100,000 $50,000 $50,000
Variable costs:
What is the contribution controllable by the manager of the Fieldstone Division?
A) $29,600
B) $32,600
C) $36,000
D) $36,600
Answer: B
Diff: 2
LO: 9-5
26) The following information is available for Bargain Books and its two divisions, Textbooks
and Fiction Books.
Whole Fiction
Company Textbooks Books
Net sales $100,000 $60,000 $40,000
Variable costs:
What is the contribution by segment for the Textbooks Division?
A) $15,000
B) $20,000
C) $32,500
D) $42,500
Answer: A
Diff: 2
LO: 9-5
27) The following information is available for Nobelski Books and its two divisions,
Textbooks and Tablets.
Whole
Company Textbooks Tablets
Net sales $100,000 $50,000 $50,000
Variable costs:
What is the contribution by segment for the Tablets Division?
A) $28,600
B) $29,600
C) $32,600
D) $36,600
Answer: B
Diff: 2
LO: 9-5
28) The following information is available for Discounted Supplies Inc. and its two divisions,
Durable Goods and Nondurable Goods.
Whole Durable Nondurable
Company Goods Goods
Net sales $100,000 $60,000 $40,000
Variable costs:
What is the income before taxes for the company as a whole?
A) $15,000
B) $29,600
C) $33,600
D) $34,600
Answer: C
Diff: 2
LO: 9-5
29) When preparing segmented income statements, unallocated costs include ________.
A) costs controlled by others(not segment managers)
B) central corporate costs
C) costs controllable by segment managers
D) costs traced to segments
Answer: B
Diff: 2
LO: 9-5
30) The financial performance of a segment manager is evaluated by ________.
A) contribution margin of segment
B) contribution margin of segment less fixed costs controllable by others
C) contribution margin of segment less fixed costs controllable by segment manager
D) contribution by segment
Answer: C
Diff: 2
LO: 9-5
31) When preparing segmented income statements, unallocated costs do NOT include
________.
A) cost of public relations department
B) salaries of top management
C) corporate level advertising
D) segment level advertising
Answer: D
Diff: 2
LO: 9-5
32) To evaluate the financial performance of a segment, and not the financial performance of
the segment's manager, use ________.
A) income before taxes
B) contribution by segment
C) contribution controllable by segment managers
D) contribution margin by segment
Answer: B
Diff: 2
LO: 9-5
41) Costs for a department store in Austin, Texas are listed below. The headquarters of the
company are located in Dallas, Texas. From the view of the store manager in Austin, identify
each cost as one of the following:
A. Variable cost
B. Fixed cost controllable by store manager
C. Fixed cost controllable by others (not store manager)
D. Unallocated cost
_____ 1. Insurance on Austin store

_____ 2. Sales supervisor's salary in Austin store
_____ 3. Depreciation expense on Austin store
_____ 4. Corporate-level advertising costs
_____ 5. Temporary sales staff wages in Austin store
_____ 6. Cost of merchandise sold in Austin store
_____ 7. Local advertising costs for Austin store
_____ 8. CEO salary
_____ 9. Salary of store manager in Austin store
_____ 10. Public relations department at corporate headquarters
_____ 11. Supplies for break room in Austin store
_____ 12. Salaries of attorneys at corporate headquarters
_____ 13. Salaries of accountants at corporate headquarters
_____ 14. Wages of janitors at Austin store
_____ 15. Wages of janitors at corporate headquarters
Answer:
1. C
2. B
3. C
4. D
5. A
6. A
7. B
8. D
9. C
10. D
11. A
12. D
13. D
14. A
15. D
9.6 Questions
1) Which of the following is NOT an appraisal cost for quality control?

A) inspection and testing of purchased materials
B) product quality audits
C) maintenance of test equipment
D) training program for material suppliers
Answer: D
Diff: 2
LO: 9-6
2) Which of the following is NOT a prevention activity for quality control?

A) improvements in production processes
B) engineering analyses to improve product design for better manufacturing
C) inspection of incoming materials
D) quality training of employees
Answer: C
Diff: 2
LO: 9-6
3) In the area of quality control, which of the following statement(s) about Six Sigma is(are)
TRUE?
A) The focus is on measuring the number of defects in a production process.
B) It is a data-driven approach to eliminate defects.
C) The goal is to eliminate all defects in the production process.
D) All of the above
Answer: D
Diff: 1
LO: 9-6
4) To identify defective products, companies incur inspection costs or ________ costs.

A) prevention
B) appraisal
C) internal failure
D) external failure
Answer: B
Diff: 2
LO: 9-6
5) ________ costs involve efforts to improve product design for more efficient production
processes.
A) Prevention
B) Appraisal
C) Internal failure
D) External failure
Answer: A
Diff: 2
LO: 9-6
6) The traditional approach to quality control in the United States was to ________.
A) inspect products upon completion and reject or rework the defective products
B) prevent defects before they occur
C) set tolerance standards of zero defects
D) emphasize customer satisfaction over product quality
Answer: A
Diff: 2
LO: 9-6
7) Costs of defective components or products that are scrapped or reworked are examples of
________ costs.
A) prevention
B) appraisal
C) internal failure
D) external failure
Answer: C
Diff: 2
LO: 9-6
8) ________ is the effort to insure that products perform according to customer requirements.
A) Cycle time
B) Managerial effort
C) Production control
D) Quality control
Answer: D
Diff: 2
LO: 9-6
9) The ________ report is a report that displays the financial impact of quality.
A) performance
B) cost of quality
C) cycle time
D) production control
Answer: B
Diff: 1
LO: 9-6
10) The ________ chart is the statistical plot of measures of various product quality
dimensions or attributes.
A) cycle-time
B) productivity-control
C) quality-control
D) throughput-time
Answer: C
Diff: 1
LO: 9-6
11) Total quality management (TQM) ________.

A) does not advocate high quality levels for all products
B) is not used in the development of organizational goals
C) promotes maximizing the cost of quality
D) focuses on the prevention of defects and on the achievement of customer satisfaction
Answer: D
Diff: 2
LO: 9-6
12) Inspection costs of incoming raw materials are ________ costs.

A) prevention
B) appraisal
C) internal failure
D) external failure
Answer: B
Diff: 2
LO: 9-6
13) Rework costs for manufactured products are a form of ________ costs.
A) prevention
B) appraisal
C) internal failure
D) external failure
Answer: C
Diff: 2
LO: 9-6
14) Warranty costs are a form of ________ costs.

A) prevention
B) appraisal
C) internal failure
D) external failure
Answer: D
Diff: 2
LO: 9-6
15) Which of the following costs is NOT an appraisal cost for quality control?
A) inspection of purchased materials
B) testing of purchased materials
C) warranty
D) product quality audit
Answer: C
Diff: 2
LO: 9-6
16) Which of the following is NOT a type of quality costs?

A) prevention
B) appraisal
C) internal failure
D) development
Answer: D
Diff: 1
LO: 9-6
17) External failure costs associated with quality control do NOT include ________.
A) field repairs
B) rework
C) customer returns of goods
D) warranty expense
Answer: B
Diff: 1
LO: 9-6
18) Lower cycle times often lead to ________ quality products and ________ defect rates.
A) lower; lower
B) lower; higher
C) higher; higher
D) higher; lower
Answer: D
Diff: 2
LO: 9-6
19) An alternative term for cycle time is ________ time.

A) productivity
B) manufacturing
C) throughput
D) production
Answer: C
Diff: 1
LO: 9-6
20) Decreasing cycle time ________.

A) results in a lower-quality product
B) creates reduced flexibility in the production process
C) results in slower reactions to customer requests
D) requires smooth-running processes
Answer: D
Diff: 2
LO: 9-6
21) Which of the following statements about productivity is FALSE?

A) Productivity is a measure of outputs divided by inputs.
B) The fewer inputs needed to produce a given output, the more productive the organization.
C) Inputs and outputs are difficult to measure.
D) Productivity measures can be compared over time without making adjustments for
inflation.
Answer: D
Diff: 2
LO: 9-6
22) Smiley Company has the following results:

Rolls of film processed 350,000
Sales revenue $1,200,000
Direct labor hours worked 5,500
Direct labor cost $47,000
If productivity is measured using the number of rolls of film processed per direct labor hour,
what is the productivity of Smiley Company?
A) $3.43 per roll
B) $260.87 per direct labor hour
C) 2,553% of direct labor cost
D) 63.64 rolls per direct labor hour
Answer: D
Diff: 2
LO: 9-6
23) Little Rock Corporation and Memphis Corporation are movie companies. Comparative
data for 20X0 and 20X1 are given below:
Little Rock Memphis
Corporation Corporation
Sales revenue 20X0 $8,000,000 $4,400,000
20X1 9,600,000 6,175,000
Number of employees 20X0 10,000 5,500
20X1 9,000 6,500
Assume that each 20X0 dollar is equivalent to 1.60 of each 20X1 dollar, due to inflation.
Taking inflation into account, what is Little Rock Corporation's 20X0 productivity measure in
terms of revenue per employee?
A) $1,083.08
B) $1,280.00
C) $1,422.22
D) $1,600.00
Answer: B
Diff: 2
LO: 9-6
24) Lorna Corporation and Carol Corporation are moving companies. Comparative data for
20X4 and 20X5 are given below:
Lorna Carol
Corporation Corporation
Sales revenue 20X4 $8,400,000 $4,400,000
20X5 9,900,000 6,175,000
Number of employees 20X4 8,000 5,500
20X5 10,000 6,500
Assume that each 20X4 dollar is equivalent to 1.75 of each 20X5 dollar, due to inflation.
Taking inflation into account, what is Lorna Corporation's 20X4 productivity measure in
terms of revenue per employee?
A) $950.00
B) $990.00
C) $1,050.00
D) $1,837.50
Answer: D
Diff: 2
LO: 9-6
9.7 Questions
1) A popular approach to performance measurement that integrates financial and

nonfinancial measures and links them to the organization's goals and objectives is called the
________.
A) balanced scorecard
B) contribution approach
C) quality control approach
D) TQM approach
Answer: A
Diff: 2
LO: 9-7
Learning Outcome: Discuss and calculate various performance measures used by
management such as ROI, residual income and balanced scorecards
2) The balanced scorecard focuses management attention on the ________.

A) measures of productivity
B) measures that drive an organization to achieve its goals
C) measures that increase cycle time
D) measures that decrease quality costs
Answer: B
Diff: 2
LO: 9-7
3) The classic balanced scorecard developed by Robert Kaplan and David Norton includes
four categories of key performance indicators. Which of the following items is NOT one of the
categories used by Kaplan and Norton?
A) financial
B) customers
C) innovation and learning
D) quality control
Answer: D
Diff: 2
LO: 9-7
4) The balanced scorecard is a system that strikes a balance between ________ and ________
performance measures.
A) financial; nonfinancial
B) strategic; nonstrategic
C) innovative; tutorial
D) goal-oriented; strategic-oriented
Answer: A
Diff: 2
LO: 9-7
9.8 Questions
1) Management control systems in nonprofit organizations will probably never be as highly

developed as those in profit-seeking firms. Which of the following is NOT a reason for this to
occur?
A) Organizational goals are less clear in nonprofit organizations.
B) Employees in nonprofit organizations have different motivation drivers and incentive
drivers than their counterparts in profit-seeking firms.
C) There is less competitive pressure to improve management control systems in nonprofit
organizations.
D) There are low levels of discretionary fixed costs in nonprofit organizations.
Answer: D
Diff: 1
LO: 9-8
2) Why do most nonprofit organizations face substantial difficulties in implementing

management control systems?
A) The outputs of nonprofit organizations are easy to measure.
B) It is difficult to measure the quantity of outputs from nonprofit organizations.
C) It is difficult to measure the quality of outputs from nonprofit organizations.
D) B and C
Answer: D
Diff: 2
LO: 9-8

Manage Costs for Decision Making

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Manage Costs for Decision Making

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4.

3) What is an example of a tool or technique that is used in a cost management system?

4) A cost management system provides ________.

1) A product such as Sure-Fine Graham Crackers, and a customer such as an Internet

2) To determine the cost of a product, which of the following are followed?

6) Which of the following statements is FALSE?

7) Which of the following statements about cost accounting systems is FALSE?

8) The process of collecting costs by some natural classification is called ________.

A) assigning; indirect cost

3) Today, in most manufacturing companies, workers oversee automated production

8) An allocated cost is a(n) ________ assigned to a cost object using a ________.

9) How do we assign indirect costs to cost objects?

10) Which of the following is NOT a stated purpose of cost allocation?

12) Unallocated costs ________.

2) A merchandising firm has ________ inventory account(s). A manufacturing firm has

3) Factory overhead does NOT include ________.

4) Indirect production costs do NOT include ________.

6) In a manufacturing company, ________.

7) When looking at a manufactured product, an example of an inventoriable cost is ________.

8) For manufacturing companies, an example of a period cost is ________.

10) Which of the following is NOT an example of indirect production costs?

11) Which of the following is NOT a period expense in a merchandising firm?

2) Which of the following statements about period costs is FALSE?

3) A merchandising firm reports ________ as a current asset on the balance sheet.

5) ________ would appear on an income statement of both a retailer and a manufacturer.

7) Activity-based costing systems should be used instead of traditional costing systems if

11) Which of the following statements is FALSE?

12) Activity-based costing systems should be adopted when ________.

13) Process maps are used ________.

5) Which of the following is an example of a value-added cost to a manufactured product?

6) All of the following can be sources of benchmarks EXCEPT for ________.

7) A hospital radiology department has the following activities:

8) Why are more organizations adopting activity-based costing systems?

1) In designing an activity-based cost accounting system, what is the first step?

1) Historical or past information has no ________ bearing on a decision made by

3) Historical or past information can have an indirect bearing on a manager's decision

4) When managers make decisions, the accountant's primary role is ________.

5) Information is relevant in business decisions if it is a(n) ________.

6) Cantrall Company is trying to decide which product to manufacture. Expected direct

7) A company is trying to decide which product to manufacture. The following information is

Which product cost is irrelevant to the decision?

3) A manager is trying to decide which product to emphasize in promotion and advertising

6) In determining whether to purchase a labor-saving machine, extreme resistance to the

8) In decision making situations, ________ aspects may dominate quantitative aspects in

9) What are the qualitative aspects of a decision?

A) contribution margin; gross margin

6) Variable administrative expenses affect the calculation of ________ on the contribution

Direct materials used $300,000

1) In imperfect competition, if prices have little or no effect on sales volume, demand is

3) In managerial accounting, ________ can be a reasonable approximation of marginal cost in

6) Price elasticity measures the ________.

7) In perfect competition, the profit-maximizing volume is the quantity at which ________.

8) In perfect competition, additional sales will be profitable if ________.

9) In imperfect competition, ________.

4) Predatory pricing occurs when a firm sets ________.

1) Frequently, companies do not use a contribution approach to pricing because ________.

2) Which of the following is an advantage of the absorption approach to pricing products?

7) Chocolate Company is considering the production of a new product. Chocolate Company

8) Rainbow Company is considering the production of a new product. Rainbow Company

1) Differential cost is the difference in ________ between two alternatives.

2) Differential revenue is the difference in ________ between two alternatives.

3) Incremental costs are the ________ generated by a proposed alternative.

4) Incremental benefits are the ________ generated by a proposed alternative.

8) An allocated cost is a(n) assigned to a cost object using a .