6.

Guidelines for ethical behavior for management accountants require

A. Management accountants maintain professional competence.
B. Management accountants disclose confidential information to competitors.
C. Management accountants eliminate all potential limitations before communicating
recommendations.
D. Management accountants ignore conflicts of interest.

Discussion: Competence is one ethical value in the Institute of Management Accountants ethical
standards. Management accountants maintain confidentiality unless disclosure is required by law. Full
disclosure of limitations is required, but no one can eliminate all limitations on recommendations.
Management accountants disclose conflicts of interest.

7. Institute of Management Accountants supports ethical practices by

A. Staffing an ethics hotline for its members
B. Representing its members in legal cases
C. Investigating corporate ethical lapses
D. Requiring members to report unethical conduct to their supervisors.

Discussion: The Institute of Management Accountants has an ethical hotline to provide an objective
consultation to members.

Chapter 2

1. The wages of factory maintenance personnel would usually be considered to be a

A. Direct labor cost
B. Manufacturing overhead cost
C. Administrative cost
D. Selling cost

Discussion: Maintenance is an indirect labor cost, which is a part of manufacturing overhead.

2. Conversion costs include

A. Manufacturing overhead costs
B. Direct material costs
C. Sales commission costs
D. Advertising costs

Discussion: Conversion costs include the product costs of direct labor and manufacturing overhead.

3. Which of the following costs is an example of a period rather than a product cost?
A. Depreciation on production equipment
B. Salaries of salespersons
C. Wages of production machine operators
D. Insurance on production equipment
Discussion: A, C, and D are product costs; salaries within selling & administrative costs are period costs.
4. Last month 10,000 units of a product were manufactured, and the total cost per unit was $60. At this
level of production the variable cost is $30 per unit and the fixed cost is $30 per unit. If 10,500 units are
manufactured the next month, and the costs remain within the same relevant range,
A. Total variable cost will remain unchanged.
B. Fixed costs will increase in total
C. Variable cost per unit will increase
D. Total cost per unit will decrease

Discussion: Numerically the unchanging fixed cost is $30 * 10,000 = $300,000. The cost for 10,500 units
= 10,500 units * $30 variable cost + fixed cost of $300,000 = $315,000 + $300,000 = $615,000. The total
cost per unit is $615,000 / 10,500 units = $58.57. Alternatively, when production increases, fixed costs
PER UNIT decrease because the same fixed cost is spread over more units, so total cost per unit will
decrease.

5. The following costs were incurred in September:

Direct materials $39,000
Direct labor 23,000
Manufacturing overhead 17,000
Selling expenses 14,000
Administrative expenses 27,000
Prime costs during the month totaled
A. $79,000
B. $120,000
C. $62,000
D. $40,000

Discussion: Prime costs ae direct labor and direct material costs.

6. ABC Corporation sells its product for $195.70 per unit. In 2015 the company had total sales in units
of 6,000. The total costs were the following:
Variable cost of sales $457,800
Fixed cost of sales 100,000
Variable selling & administrative costs 108,500
Fixed selling & administrative costs 512,400
What is the best estimate of the total contribution margin?
A. $4,600
B. $507,800
C. $607,900
D. $616,400

Discussion: Total Contribution Margin = Total Sales – Total Variable Costs; Total Sales = 195.70 * 6000 =
1174200. Total Variable Costs = 457,800 + 108,500 = 566,300. Contribution Margin = 1171200-566300
= 607,900