Test Bank File Convert

4.
A strategy is:
i. another name for a long-term objective
ii. the same as an objective
Chapter 01 Testbank Key iii. a means by which an organisation plans to meet its mission and achieve its objectives
A. i
B. ii
C. iii
D. i and ii
1. What type of accounting system is part of an organisation's management information system for internal use only?
A. Financial accounting
B. Management accounting AACSB: Reflective
C. Governmental accounting Difficulty: Medium
D. All of the given answers Learning Objective: 1.06 Explain the basic concepts of strategy and how management accounting systems can support strategies
5. Which of the following is not an objective of management accounting?

AACSB: Reflective A. Providing information for making decisions
Difficulty: Easy B. Providing information for planning
Learning Objective: 1.03 Describe the major differences between management accounting and financial accounting information C. Providing information for control
D. Providing information for profit and loss statements
2. Which of the following statement/s about management accounting is/are true?
i. It is a part of an organisation's management information system.
ii. It is relied on by managers to plan and control an organisation's operations. AACSB: Reflective
iii. It is relied on by external users to make investment decisions. Difficulty: Medium
A. i and ii Learning Objective: 1.06 Explain the basic concepts of strategy and how management accounting systems can support strategies
B. i, ii and iii
C. iii
D. ii 6. Planning is:
A. comparing actual performance against targets
B. setting objectives and formulating plans for future operations
C. measuring the performance of managers against preset targets
AACSB: Reflective D. motivating managers towards achieving organisational goals
Difficulty: Easy
Learning Objective: 1.02 Define management accounting in terms of value creation
AACSB: Reflective
3. Which of the following statement/s about management accounting is/are true? Difficulty: Easy
i. It is concerned only with information obtained from the accounting records. Learning Objective: 1.08 Explain how planning and control mechanisms can be used to support resource management
ii. It is concerned with financial and non-financial information.
iii. It can provide information useful for making decisions.
A. i 7. 'Control' involves:
B. i and ii A. formulating details of operations and finances for the next financial year
C. ii and iii B. comparing actual performance against targets
D. ii C. deciding whether to expand activities
D. All of the given answers
AACSB: Reflective
Difficulty: Medium AACSB: Reflective
Learning Objective: 1.02 Define management accounting in terms of value creation Difficulty: Medium
Learning Objective: 1.08 Explain how planning and control mechanisms can be used to support resource management
8. Part of the planning process involves: 13. Which of the following is necessary for management accounting information to be useful?
A. formulating details of operations and finances for the next financial year A. It must report to external users.
B. comparing actual performance against targets B. It must develop a framework of principles and guidelines.
C. making a choice between available alternatives C. It must adapt to accommodate changes in the business environment.
D. measuring the performance of managers against preset targets D. It must focus on the enterprise in its entirety.
AACSB: Reflective AACSB: Reflective

Difficulty: Medium Difficulty: Easy
Learning Objective: 1.08 Explain how planning and control mechanisms can be used to support resource management Learning Objective: 1.11 Identify the organisational responses and management accounting responses to changes in the business environment
9. The role of management accounting is to: 14. Both financial and management accounting:
A. provide information to parties outside the organisation A. draw on data from the organisation's basic information system.
B. provide information to managers within the organisation. B. provide information for external users.
C. provide information to government agencies. C. must comply with Australian accounting standards.
D. All of the given answers D. rely exclusively on historical data.

Difficulty: Easy Difficulty: Easy
Learning Objective: 1.02 Define management accounting in terms of value creation Learning Objective: 1.02 Define management accounting in terms of value creation
10. Budgeting can be used in an organisation to: 15. Which of the following statements regarding management accounting information is false?
A. motivate managers to achieve organisational goals. A. The cost of providing the information must be considered in the light of the benefits received from the information.
B. control operations. B. All information derived is necessary despite the cost.
C. provide managers with information for making decisions and planning. C. The information entails both costs and benefits.
D. All of the given answers D. The cost of the information includes the time spent by the user to read, understand and use the information.

Learning Objective: 1.08 Explain how planning and control mechanisms can be used to support resource management Learning Objective: 1.10 Describe the factors that may influence the design of management accounting systems including behavioural issues, cost–
benefit trade-offs and the implications of contingency and institutional theories
11. The benefits of management accounting information include:

A. improved decisions. 16. A management accountant should be concerned with:
B. more effective planning. A. providing daily information on physical measures of operational performance.
C. greater efficiency of operations. B. assisting in interdepartmental communications.
D. All of the given answers C. developing and implementing information systems.
AACSB: Reflective
Difficulty: Easy AACSB: Reflective
Learning Objective: 1.10 Describe the factors that may influence the design of management accounting systems including behavioural issues, cost– Difficulty: Medium
benefit trade-offs and the implications of contingency and institutional theories Learning Objective: 1.04 Explain where management accountants are located in organisations
12. Management accounting: 17. The largest professional organisation for management accountants in Australia is the:
A. must comply with Australian accounting standards. A. CPA Australia.
B. focuses primarily on the needs of managers internal to the organisation. B. Australian Accounting Association.
C. provides information for parties external to the organisation. C. Institute of Chartered Accountants in Australia.
D. involves reports focusing on the enterprise in its entirety. D. Certified Institute of Management Accountants.

Learning Objective: 1.02 Define management accounting in terms of value creation Learning Objective: 1.13 Discuss the professional qualifications that are relevant to becoming an accountant, and the ethical standards to which
accountants must adhere
18. Which of the following does not represent the ethics of professional accountants? 22. Which of the following statement/s is/are false? Management accountants should:
A. Competence and confidentiality i. help in the provision of physical data to managers.
B. Integrity and objectivity ii. be included in the management of information systems.
C. Professional scepticism and efficiency iii. present their information in monetary terms only.
D. Objectivity and confidentiality iv. help to ensure effective interdepartmental communications.
A. i and ii
B. iii and iv
C. iii
AACSB: Ethics D. iv
Difficulty: Easy
Learning Objective: 1.13 Discuss the professional qualifications that are relevant to becoming an accountant, and the ethical standards to which
AACSB: Reflective
Difficulty: Medium
19. Which of the following statements regarding the competence of an accountant is true? The accountant must: Learning Objective: 1.03 Describe the major differences between management accounting and financial accounting information
A. strive continually to improve technical services and keep knowledge up-to-date.
B. not breach the trust of clients and employers.
C. not disclose information acquired in the course of professional work, except where there is a legal or 23. Which of the following are management accounting responses to the changing business environment?
professional duty to disclose. A. Activity-based costing.
D. at all times safeguard the interest of the clients and employers, provided it does not conflict with their B. E-commerce.
duty to the community. C. Supplier cost analysis.
D. A and C.
AACSB: Ethics
Difficulty: Easy
AACSB: Reflective
Difficulty: Easy
Learning Objective: 1.11 Identify the organisational responses and management accounting responses to changes in the business environment
20. Which of the following statements is an element of confidentiality?

24. Which of the following are ethical standards for management accountants?
i. Accountants must not disclose information acquired in the course of their work.
i. Competence
ii. Accountants must disclose information if there is a professional duty to do so.
ii. Objectivity
iii. Accountants may not use information gained in the course of their work for their own or another's personal advantage.
iii. Confidentiality
A. i
iv. Integrity
B. ii
A. i, ii, iii and iv
C. iii
B. ii, iii and iv
D. i, ii and iii C. i, ii and iv
D. i, iii and iv
AACSB: Ethics
Difficulty: Easy
Learning Objective: 1.13 Discuss the professional qualifications that are relevant to becoming an accountant, and the ethical standards to which AACSB: Ethics
accountants must adhere Difficulty: Easy
21. The focus of management accounting over time has changed. Which is the correct historical order for the
following foci?
25. The costs of providing information to management should be less than the benefits. Which of the following are
i. Cost
costs of management accounting information?
ii. Profitability
i. Salary cost of management accounting personnel
iii. Resource management
ii. Computer operating costs
iv. Waste reduction
iii. Managers' time in reading and acting on the information
A. i, ii, iii and iv
A. i, ii and iii
B. ii, iii, i and iv
B. ii and iii only
C. i, ii, iv and iii
C. i and iii only
D. i, iii, iv and ii
D. None of the given answers
AACSB: Reflective
AACSB: Reflective
Difficulty: Easy
Difficulty: Easy
Learning Objective: 1.12 Describe how the focus of management accounting has evolved
Learning Objective: 1.10 Describe the factors that may influence the design of management accounting systems including behavioural issues, cost–
26. Which of the following statements is correct? 30. Choose the statement that best completes this sentence: 'Traditional management accounting focuses on …'
A. The primary objective of a firm's management is to increase the firm's value.
B. The management accounting system needs to accumulate information from both internal and external sources. A. budgets, financial performance measures and cost control.
C. Managers may be faced with a conflict between increasing customer value and increasing shareholder value. B. financial performance measures, external reporting and cost elimination.
D. All the given statements are correct. C. non-financial performance measures, external reporting and cost control.
D. external reporting, labour-related activity measures and cost elimination.
AACSB: Reflective
Learning Objective: 1.02 Define management accounting in terms of value creation Difficulty: Easy
Learning Objective: 1.11 Identify the organisational responses and management accounting responses to changes in the business environment
27. Strategies:
A. are directions that a firm intend to take in the long term. 31.
B. describe the way the firm competes.
C. are the same as objectives and goals. Which of the following would not be likely as a consistent focus for a firm following a product differentiation strategy?
D. are independent of the firm's mission statement.
A. Quality
B. Delivery
AACSB: Reflective C. Product innovation
Difficulty: Easy D. Cost reduction
Learning Objective: 1.06 Explain the basic concepts of strategy and how management accounting systems can support strategies
AACSB: Reflective
28. Which of the following statements is correct? Difficulty: Easy
A. Management accounting is a subset of cost accounting. Learning Objective: 1.06 Explain the basic concepts of strategy and how management accounting systems can support strategies
B. Cost accounting is a subset of management accounting.
C. Cost accounting is no longer required in today's competitive environment.
D. Management accounting in today's environment is the same as it was many years ago. 32. Choose the statement that best completes this sentence: 'All management accounting information …'
A. has a focus on past costs.
B. has a focus on future costs.
AACSB: Reflective
C. is collected as required by internal management of the firm.
Difficulty: Medium D. is constrained by the requirements of the Australian Accounting Standards.
Learning Objective: 1.03 Describe the major differences between management accounting and financial accounting information
29. AACSB: Reflective

Difficulty: Easy
Which of the following is the most logical sequence for a commencing organisation?
33. Which of the following statements is correct?

A. Control, feedback, planning A. A financial controller is only responsible for financial accounting.
B. Planning, control, feedback B. The primary role of the finance function of an organisation is to liaise with banks and financial intuitions
C. Feedback (feedforward), planning, control, feedback to obtain finance to fund operations.
D. Control, planning, feedback C. In some organisations, management accountants are located in factories.
D. Management accountants are responsible for external reporting as well as providing information to internal managers.
AACSB: Reflective
Difficulty: Medium
AACSB: Reflective
Difficulty: Medium
Learning Objective: 1.04 Explain where management accountants are located in organisations
34. The 'vision' of an organisation: 39. Animus Ltd is a mining company operating in Australia. The company has recently developed a new
A. refers to the desired future state of an organisation. environmental management accounting system. According to institutional theory:
B. refers to a statement that defines the purpose of the organisation. A. the new system is likely to be the result of the Australian culture of being environmentally conscious and the
C. refers to specific statements of objective, upon which goals can be set. fact that negative environmental impacts can result in significant fines to the company.
D. is only useful for non profit organisations. B. the new system is likely to be the result of gaining legitimacy and to imitate other mining companies who are
'doing the right thing'.
C. the new system is likely to be the result of stringent government regulations.
D. the new system is likely to be the result of careful, rational, cost-benefit analysis.
AACSB: Reflective
Difficulty: Medium
AACSB: Reflective
Difficulty: Medium
35. Animus Ltd is a mining company. Which of the following is an example of a decision relating to formulating Learning Objective: 1.10 Describe the factors that may influence the design of management accounting systems including behavioural issues, cost–
Animus Ltd's corporate strategy? benefit trade-offs and the implications of contingency and institutional theories
A. Should Animus Ltd operate in the mining industry only, or expand to heavy machinery manufacturing and distribution?
B. Should Animus Ltd compete based on price or product differentiation?
C. Should Animus Ltd hire a new financial controller? 40. Eddy Gunn is a management accountant. Which of the following is most likely to be Eddy's responsibility?
D. Should Animus Ltd develop a new management accounting system? A. Providing an environmental assurance report for his company's shareholders
B. Compiling the company tax return
C. Ensuring that the internal accounting system is compliant with generally accepted accounting standards
D. Developing a production cost report for each of the company's three production lines
AACSB: Reflective
Difficulty: Medium
AACSB: Reflective
Difficulty: Medium
36. Animus Ltd is a mining company. Which of the following is an example of a business strategy decision? Learning Objective: 1.03 Describe the major differences between management accounting and financial accounting information
A. Should Animus Ltd operate in the mining industry only or expand to heavy machinery manufacturing and distribution?
B. Should Animus Ltd compete based on price or product differentiation?
C. Should Animus Ltd hire a new financial controller? 41. Which of the following is not a widely recognised professional accounting body?
D. Should Animus Ltd develop a new management accounting system? A. The Institute of Production Accountants
B. CPA Australia
C. The Institute of Chartered Accountants
D. The Institute of Management Accountants
AACSB: Reflective
Difficulty: Medium
AACSB: Reflective
Difficulty: Medium
37. Animus Ltd is a mining company. Which of the following is an example of 'planning'? Learning Objective: 1.13 Discuss the professional qualifications that are relevant to becoming an accountant, and the ethical standards to which
A. Awarding bonuses to Aimus Ltd's top performing executives accountants must adhere
B. Setting production targets for the company's new mines
C. Developing correction actions to respond to lower-than-expected production levels in the existing mines
42. Which of the following changes in the business environment have led to the emergence of virtual organisations?
D. Pursuing legal actions against environmental activists who stole mining equipment
A. Rapid advances in technology
B. Increases in outsourcing and reliance on various forms of business networks
C. Increased global mobility in labour
AACSB: Reflective D. Reliance on creating mutually strategic business alliances
Difficulty: Medium
AACSB: Reflective
38. Animus Ltd is a mining company. Which of the following is an example of 'control'? Difficulty: Medium
A. Awarding bonuses to Aimus Ltd's top performing executives Learning Objective: 1.01 Describe the changes that have taken place in the business environment in recent years
B. Setting production targets for the company's new mines
C. Developing correction actions to respond to lower-than-expected production levels in the existing mines.
D. Pursuing legal actions against environmental activists who stole mining equipment.
AACSB: Reflective
Difficulty: Medium
43. Which of the following changes in the business environment have led to more complicated relationships and 48. Objectivity in management accounting
business structures? What is meant by the following statement? 'The objectivity of the management accounting process is largely a myth.'
A. Rapid advances in technology
B. Increases in outsourcing and reliance on various forms of business networks Accountants have wide areas of discretion in the selection, processing and recording of data. Various data can be used
C. Increased global mobility in labour for different purposes. In addition, the same data can be used simultaneously for different purposes such as planning,
D. Reliance on creating mutually strategic business alliances decision making or controlling.
AACSB: Reflective AACSB: Communication

Learning Objective: 1.01 Describe the changes that have taken place in the business environment in recent years Difficulty: Hard
44. Management accounting focuses on:

A. compliance with the accounting standards. 49. Management accounting and decision making
B. meeting the needs of external users. Give an example of management accounting information that could help a manager make each of the following decisions:
C. effective and efficient management of resources. i. The managing director of a car rental company is deciding whether to add luxury cars to the rental car fleet.
D. financial data only. ii. The production manager in an assembly plant is deciding whether to have routine maintenance
performed on a machine weekly or fortnightly.
iii. The manager of a department store is deciding on the number of security personnel to employ to reduce shoplifting.
iv. The local council is deciding whether to build an addition to the local library.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 1.05 Describe the major processes that management accounting systems use to create value and manage resources Note: any correct answers are possible since only one example is requested.
i. Estimates of any operating costs associated with the proposed luxury cars would be relevant. For example,
estimates of the cost of petrol, routine maintenance and insurance on the new vehicles would be useful.
45. Modern management accounting systems include techniques that support an organisation's: ii. Data about the cost of maintaining the machine weekly or fortnightly would be relevant. In addition, the
A. strategy. production manager should consider information about the likely rates of defective products under each maintenance
B. mission. alternative.
C. goals. iii. Estimates of the cost of lost merchandise due to shoplifting and the cost of employing security personnel
D. decisions. would be relevant to this decision.
iv. Estimates of the cost of building the library addition as well as estimated benefits to the population from having
the addition would be useful. In estimating the benefits, some value judgments may need to be made about the benefits
to the public from having additional library space and more books.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 1.07 Recognise how various management accounting techniques have been developed to support a firm's competitive advantage
AACSB: Communication
AACSB: Reflective
46. If a firm's senior management decide to follow a differentiation strategy, their focus should be to NOT concentrate on: Difficulty: Hard
A. product quality.
B. product delivery.
C. product innovation.
50. Explain how the management accountant, with the use of computer technology, can provide information that
D. product costs.
will be useful for the management and control of operational tasks.
AACSB: Reflective
Difficulty: Easy
With the aid of computers, management accountants are able to provide information that is accurate, timely and relevant to the
Learning Objective: 1.07 Recognise how various management accounting techniques have been developed to support a firm's competitive advantage
managers they are serving. For example they can provide information such as number of units produced, number of rejects and time
lost on a daily basis, and ensure a regular flow of information between sales and production.
47. The firm's primary accounting system that produces financial data for external users is governed by:
A. accounting standards.
B. all of the choices are correct. AACSB: Communication
C. generally accepted accounting principles. AACSB: Technical
Difficulty: Hard
D. traditional accounting conventions.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 1.09 Explain how costing systems can provide information to support a range of operational and strategic decisions
51. 'As global competition increases, businesses are being pressured to reach higher levels of productivity to price 53.
their products and services competitively.' Explain how management accountants can play a role in helping management
meet these challenges. Jasmine Dol is a junior management accountant at Hey Hey Toys Ltd. Jasmine is given the task of compiling a cost-benefit analysis
report on whether the company should purchase an expensive new machine from Beta Ltd, where her brother is the new sales
The systems that management accountants can help to develop are: manager. Jasmine did not tell anyone in Hey Hey Toys about her brother's new job. In preparing her report, Jasmine overstates the
i. Total quality management—builds a high level of quality into production and all management processes qualitative benefits and understates the costs associated with this new machine, in order to help her brother make his first sale as the
new sales manager.
within an organisation. Discuss why and how Jasmine has deviated from the IFAC's code of ethics.
ii. Just-in-time management—an approach to inventory management whereby inventory that is required in
production is delivered just in time to be used in the production process.
iii. Activity-based management—focuses on identifying and eliminating activities that add no value to the
product or service from the customer's perspective (e.g. reworking, spoilage).
The following are some key points:

AACSB: Communication Integrity – Jasmine did not tell anyone about the conflict of interest, and therefore did not demonstrate 'integrity'
AACSB: Reflective Objectivity – in overstating the benefits and understating the costs, Jasmine is clearly biased in her analysis, and is not acting in the
Difficulty: Hard company's best interests.
Learning Objective: 1.01 Describe the changes that have taken place in the business environment in recent years
Learning Objective: 1.12 Describe how the focus of management accounting has evolved
52. List and define four ethical standards that are part of the IFAC's Code of Professional Conduct. AACSB: Ethics
Difficulty: Medium
Note: Answers may include any four of the following:

■ Integrity. Members must be straightforward and honest in professional and 54.
business relationships. Integrity also implies fair dealing and truthfulness.
■ Objectivity. Members must not compromise their professional or business judgement because of bias, conflict of interest Identify and contrast management accounting and financial accounting information
or the undue influence of others.
■ Professional competence and due care. Members must maintain professional knowledge and skill at the level required to
ensure that clients or employers receive competent professional service, and act diligently in accordance with applicable technical and
professional standards when providing their services.
■ Confidentiality. Members must not disclose outside the firm or employing organisation confidential information acquired as a
result of professional and business relationships without specific authority from the client or employer unless there is a legal duty to do
so. Members must not use confidential information acquired as a result of professional and business relationships to their personal
advantage or the advantage of third parties.
■ Professional behaviour. Members must comply with relevant laws and regulations and avoid any action or omission that may
bring discredit to the profession.
Difficulty: Hard
AACSB: Reflective
Difficulty: Medium
55. Behavioural issues are not taken into consideration when developing management accounting systems. 61. The increased information needs of modern organisations have meant that management accounting has
FALST had to change its focus over the years.
TRUT
AACSB: Reflective
Learning Objective: 1.10 Describe the factors that may influence the design of management accounting systems including behavioural issues, cost– Difficulty: Easy
benefit trade-offs and the implications of contingency and institutional theories Learning Objective: 1.01 Describe the changes that have taken place in the business environment in recent years
56. Organisations prepare a mission statement that describes the desired future position and/or goals of the organisation. 62. The costing system is the part of the accounting information system that is common to both financial and
FALST management accounting.
TRUT
AACSB: Reflective
Difficulty: Easy
AACSB: Reflective
Difficulty: Easy
57. The systems and procedures implemented to provide regular information to assist with control are called
control systems. 63. Accountants with a CPA qualification are only able to work as financial accountants.
TRUT FALST

Learning Objective: 1.08 Explain how planning and control mechanisms can be used to support resource management Learning Objective: 1.13 Discuss the professional qualifications that are relevant to becoming an accountant, and the ethical standards to which
58. When a firm adopts a strategy of being a low-cost producer and sells its products at a price lower than its
competitors, the firm is said to be using a strategy of cost leadership. 64. Staff management and line management both have indirect responsibilities to the operations of an organisation.
TRUT FALST

Learning Objective: 1.06 Explain the basic concepts of strategy and how management accounting systems can support strategies Learning Objective: 1.12 Describe how the focus of management accounting has evolved
59. The theory that suggests that a firm's management accounting system is influenced by factors such as the 65. Value creation is a central focus for managers and only refers to shareholder value.
external environment and technology is called contingency theory. FALST
TRUT
AACSB: Reflective
AACSB: Reflective Difficulty: Easy
Difficulty: Easy Learning Objective: 1.02 Define management accounting in terms of value creation
66. Senior accountants are also known as the finance manager or financial controller.
TRUT
60. There is no overlap between the two accounting streams management and financial accounting.
FALST
AACSB: Reflective
Difficulty: Easy
AACSB: Reflective Learning Objective: 1.04 Explain where management accountants are located in organisations
Difficulty: Easy
67.
Budgets provide information to help manage resources and are supported by the financial accounting function.
Chapter 01 Testbank Summary
FALST
Category # of Qu
AACSB: Reflective estions
Difficulty: Easy AACSB: Communication 7
Learning Objective: 1.05 Describe the major processes that management accounting systems use to create value and manage resources
AACSB: Ethics 5
AACSB: Reflective 60
AACSB: Technical 1
Difficulty: Easy 38
Difficulty: Hard 5
Difficulty: Medium 24
Learning Objective: 1.01 Describe the changes that have taken place in the business environment in recent years 4
Learning Objective: 1.02 Define management accounting in terms of value creation 9
Learning Objective: 1.03 Describe the major differences between management accounting and financial accounting inform 8
ation
Learning Objective: 1.04 Explain where management accountants are located in organisations 3
Learning Objective: 1.05 Describe the major processes that management accounting systems use to create value and ma 2
nage resources
Learning Objective: 1.06 Explain the basic concepts of strategy and how management accounting systems can support str 9
ategies
Learning Objective: 1.07 Recognise how various management accounting techniques have been developed to support a fi 2
rm's competitive advantage
Learning Objective: 1.08 Explain how planning and control mechanisms can be used to support resource management 8
Learning Objective: 1.09 Explain how costing systems can provide information to support a range of operational and strate 1
gic decisions
Learning Objective: 1.10 Describe the factors that may influence the design of management accounting systems including 7
behavioural issues, cost–benefit trade-offs and the implications of contingency and institutional theories
Learning Objective: 1.11 Identify the organisational responses and management accounting responses to changes in the b 3
usiness environment
Learning Objective: 1.12 Describe how the focus of management accounting has evolved 3
Learning Objective: 1.13 Discuss the professional qualifications that are relevant to becoming an accountant, and the ethic 9
al standards to which accountants must adhere
Chapter 02 Testbank Key
1. Which of the following statements is false?

i. Qualitative information is not relevant for planning purposes.
ii. Production costs are important for planning purposes, but selling and administration costs are not.
iii. Information on revenues is not important for planning purposes.
A. i
B. iii
C. i and iii
D. i, ii and iii
AACSB: Reflective
Difficulty: Easy
Learning Objective: 2.01 Describe the components of traditional and modern management accounting systems
5. If production increases, variable cost will:
A. remain constant on a per unit basis.
2. Which of the following statements is true? B. increase by a variable amount.
A. The word cost has the same meaning in all situations in which it is used. C. vary on a per unit basis.
B. Cost data, once classified and recorded, can be used for any purpose. D. remain unchanged.
C. Different cost concepts and classifications are used for different purposes.
AACSB: Reflective
Difficulty: Medium
Learning Objective: 2.04 Classify costs according to their behaviour—that is, as variable or fixed
AACSB: Reflective
Difficulty: Medium
Learning Objective: 2.03 Explain what is meant by different costs for different purposes
6. As activity level decreases, unit variable cost:
A. increases proportionately with activity.
3. Which of the following statements is true? A cost is: B. decreases proportionately with activity.
A. always an expense. C. remains constant.
B. always an asset. D. decreases by a fixed amount.
C. can be either an expense or an asset.
D. always a liability.
AACSB: Reflective
Difficulty: Medium
AACSB: Reflective
Difficulty: Medium
Learning Objective: 2.10 Describe the cost flows in a manufacturing business and prepare a schedule of cost of goods manufactured, a schedule of cost
of goods sold and an income statement for a manufacturer 7. As activity level increases, total variable costs:
A. increase proportionately with activity.
B. decrease proportionately with activity.
4. Variable costs:
C. increase by a fixed amount.
A. vary indirectly with changes in activity level. D. decrease by a fixed amount.
B. vary directly with changes in activity level.
C. vary on a per unit basis.
D. vary indirectly with changes in activity level AND vary on a per unit basis.
AACSB: Reflective
Difficulty: Easy
AACSB: Reflective
Difficulty: Easy
Learning Objective: 2.04 Classify costs according to their behaviour—that is, as variable or fixed 8. Fixed costs:
A. vary directly with changes in activity level.
B. in total remain unchanged as activity levels change.
C. vary on a per unit basis.
D. B and C
AACSB: Reflective
Difficulty: Medium
9. Which of the following is not an example of a variable cost?

A. Straight-line depreciation on a machine expected to last 5 years.
B. Wages paid to assembly line workers at a local manufacturing plant.
C. Timber used to make outdoor furniture.
D. Commissions paid to sales personnel.
AACSB: Reflective
Difficulty: Medium
10. Which of the following statements is false? 15. Costs that can be significantly influenced by a particular manager are:
A. Costing is common to both traditional and modern management accounting. A. product costs.
B. Activity-based costing is common to both traditional and modern management accounting. B. period costs.
C. Performance measurement is common to both traditional and modern management accounting. C. controllable costs.
D. Modern performance measurement covers a range of critical success factors. D. administrative costs.

Learning Objective: 2.01 Describe the components of traditional and modern management accounting systems Learning Objective: 2.06 Classify costs as controllable or uncontrollable
11. Which is the correct order of cost incurrence in the value chain? 16. Which of the following is not an example of a manufacturing overhead?
A. R&D, Product design, Manufacturing, Marketing, Distribution, Customer support A. Assembly line workers' wages
B. R&D, Product design, Customer support, Marketing, Distribution, Manufacturing B. Factory rent
C. R&D, Product design, Manufacturing, Distribution, Customer support, Selling C. Depreciation of factory machinery
D. R&D, Product design, Manufacturing, Distribution, Marketing, Customer support D. Factory lighting

Difficulty: Easy Difficulty: Medium
Learning Objective: 2.07 Classify costs according to the segments of the value chain Learning Objective: 2.08 Analyse costs using the classifications commonly used in manufacturing businesses
12. Costs that can be traced to a particular cost object are called: 17. Product costs are:
A. direct costs. A. expended as they are incurred.
B. indirect costs. B. inventoriable costs.
C. product costs. C. period costs.
D. manufacturing costs. D. expended as they are incurred AND inventoriable costs.

Learning Objective: 2.05 Classify costs as direct or indirect Learning Objective: 2.10 Describe the cost flows in a manufacturing business and prepare a schedule of cost of goods manufactured, a schedule of cost
of goods sold and an income statement for a manufacturer
13. Indirect costs:

A. cannot be traced to a particular cost object. 18. Costs that are expended during the period in which the costs are incurred are called:
B. cannot be economically traced to a particular cost object. A. product costs.
C. are always variable costs. B. inventoriable costs.
D. are always fixed costs. C. period costs.
D. indirect costs.
AACSB: Reflective
Learning Objective: 2.05 Classify costs as direct or indirect Difficulty: Easy
Learning Objective: 2.09 Explain the different definitions of product cost used in external accounting reports and for decision making
14. Whether a cost is classified as direct or indirect will depend on:

A. the nature of the cost object. 19. Which of the following costs of a manufactured product is a period cost?
B. whether the cost can be economically traced to the cost object. A. Direct material
C. whether the organisation is in a manufacturing or service industry B. Manufacturing overhead
D. the nature of the cost object AND whether the cost can be economically traced to the cost object. C. Indirect material
D. Sales commission
AACSB: Reflective
Learning Objective: 2.05 Classify costs as direct or indirect Difficulty: Medium
20. Which of the following is not a period cost?
A. Marketing costs
B. Administrative costs
C. Research and development
D. Factory overheads
AACSB: Reflective
Difficulty: Medium
21. Cost of goods purchased includes the:

A. purchase cost.
B. transportation inward cost.
C. storage cost.
D. purchase cost AND transportation inward cost.
AACSB: Reflective
The prime costs are:
Difficulty: Medium
of goods sold and an income statement for a manufacturer A. $190 000.
B. $40 000.
C. $150 000.
22. Product costs comprise: D. $142 000.
A. direct materials, direct labour and manufacturing overhead.
B. direct materials and manufacturing overhead.
C. direct labour and manufacturing overhead. AACSB:
Analytical
D. direct materials and direct labour. Difficulty: Medium
Learning Objective: 2.08 Analyse costs using the classifications commonly used in manufacturing businesses
AACSB: Reflective
Difficulty: Easy
The conversion costs are: The product costs are:
A. $150 000. A. $15 000

B. $142 000. B. $182 000
C. $182 000. C. $190 000
D. $190 000. D. $332 000
AACSB: AACSB:
Analytical Analytical
Difficulty: Medium Difficulty: Medium
Learning Objective: 2.08 Analyse costs using the classifications commonly used in manufacturing businesses Learning Objective: 2.08 Analyse costs using the classifications commonly used in manufacturing businesses
The period costs are: The non-manufacturing costs are:
A. $15 000 A. $15 000

B. $20 000 B. $70 000
C. $190 000 C. $182 000
D. $372 000 D. $372 000
AACSB: AACSB:
Learning Objective: 2.09 Explain the different definitions of product cost used in external accounting reports and for decision making Learning Objective: 2.08 Analyse costs using the classifications commonly used in manufacturing businesses
28. Indirect material, indirect labour and other manufacturing costs that are neither direct labour nor direct
material costs are classified as:
A. manufacturing overhead.
B. product costs.
C. prime costs.
D. manufacturing overhead AND product costs.
AACSB: Reflective
Difficulty: Medium
29. Indirect materials include:

A. materials that are incorporated into the finished product.
B. materials required for the production process, which do not become an integral part of the finished product.
C. direct materials that are so insignificant in cost that it becomes unimportant to trace their costs to specific products.
D. materials required for the production process, which do not become an integral part of the finished product AND
direct materials that are so insignificant in cost that it becomes unimportant to trace their costs to specific products.
AACSB: Reflective
Difficulty: Medium
30. On-costs on direct labour are classified as:
A. direct labour.
B. indirect labour.
C. manufacturing overhead.
D. either direct labour or indirect labour depending on the decision made by the firm.
AACSB: Reflective
Difficulty: Easy
31. Depreciation of factory equipment would be classified as:

A. indirect material.
B. indirect labour.
D. a sundry expense.
AACSB: Reflective
Difficulty: Easy
32. Idle time is:

A. frequently an avoidable cost.
B. classified as overhead.
C. caused by events such as equipment breakdown and new set-ups of production runs.
D. All of the given answers.
AACSB: Reflective
Difficulty: Easy
The product costs are:

33. Unless overtime and idle time are caused by a particular job, they are treated as:
A. a part of direct labour expense.
A. $90 000.
B. a part of manufacturing overhead.
B. $83 000.
C. associated with a particular product.
C. $65 000.
D. a part of manufacturing overhead AND associated with a particular product.
D. $63 000.
AACSB:
AACSB: Reflective Analytical
Difficulty: Easy Difficulty: Hard
34. The flow of manufacturing costs through the system is:

A. raw materials inventory; work in process inventory; finished goods inventory; cost of goods sold.
B. raw materials inventory; work in process inventory; cost of goods sold; finished goods inventory.
C. work in process inventory; raw materials inventory; finished goods inventory; cost of goods sold.
D. raw materials inventory; finished goods inventory; work in process inventory; cost of goods sold.
AACSB: Reflective
Difficulty: Easy
The period costs are: The prime costs are:
A. $0. A. $30 000.

B. $7000. B. $50 000.
C. $25 000. C. $65 000.
D. $30 500. D. $50 500.
AACSB: AACSB:
Difficulty: Hard Difficulty: Hard
Learning Objective: 2.09 Explain the different definitions of product cost used in external accounting reports and for decision making Learning Objective: 2.08 Analyse costs using the classifications commonly used in manufacturing businesses
The conversion costs are: The manufacturing overhead is:
A. $34 500. A. $14 500.

B. $29 500. B. $15 000.
C. $20 000. C. $9500.
D. $35 000. D. $9000.
AACSB: AACSB:
40. In the manufacturing firm, inventories consist of:

A. raw materials, cost of goods manufactured during the period and finished goods.
B. raw materials, work in process and finished goods.
C. raw materials, finished goods and cost of goods sold.
D. cost of goods manufactured and cost of goods sold.
AACSB: Reflective
Difficulty: Easy
41. To calculate the cost of goods sold during the period, you would use which of the following equations? 45. Barrister and Company began July with a finished goods inventory of $10 000. The cost of goods manufactured
A. Beginning finished goods + cost of goods manufactured + ending finished goods during the month was $85 000 and the ending finished goods inventory was $20 000.
B. Ending finished goods + cost of goods manufactured – beginning finished goods The cost of goods sold during July was:
C. Beginning finished goods + cost of goods manufactured – ending finished goods A. $55 000.
D. Beginning finished goods + ending finished goods – cost of goods manufactured B. $75 000.
C. $95 000.
D. $105 000.
AACSB: Reflective
Difficulty: Easy
of goods sold and an income statement for a manufacturer AACSB:
Analytical
Difficulty: Medium
42. Work in process inventories are composed of: of goods sold and an income statement for a manufacturer
A. direct materials.
B. direct labour.
C. manufacturing overhead. 46. Lenco Industries has cost of goods manufactured of $65 000 in May. The finished goods inventory at the end
D. All of the given answers of May was $20 000 and the cost of goods sold during May was $75 000.
The inventory in finished goods at the beginning of May was:
A. $5000.
B. $30 000.
AACSB: Reflective C. $10 000.
Difficulty: Easy D. $20 000.
AACSB:
43. Barrett Industries began the month of June with a finished goods inventory of $15 000. The finished goods Analytical
inventory at the end of June was $10 000 and the cost of goods sold during the month was $20 000. Difficulty: Medium
The cost of goods manufactured during the month of June was: Learning Objective: 2.10 Describe the cost flows in a manufacturing business and prepare a schedule of cost of goods manufactured, a schedule of cost
A. $15 000
B. $25 000
C. $20 000 47. As manufacturing companies become more automated, their cost structure will change so that:
D. $5000
A. variable costs increase, fixed costs decrease.
B. variable costs decrease, fixed costs decrease.
C. variable costs decrease, fixed costs increase.
AACSB: D. there is no change in the ratio of variable to fixed costs.
Analytical
Difficulty: Medium
AACSB: Reflective
Difficulty: Medium
44. Fairchild Pty Ltd began April with a finished goods inventory of $25 000. The cost of goods manufactured
during the month was $40 000 and the cost of goods sold during April was $50 000.
The inventory remaining in finished goods at the end of April was: 48. Traditional cost management systems use production volume as the measure of activity. Modern systems might
A. $35 000. use which of the following as activity measures?
B. $25 000. A. Number of batches
C. $20 000. B. Number of customers
D. $15 000. C. Number of product lines
AACSB:
Analytical AACSB: Reflective
Difficulty: Medium Difficulty: Hard
Learning Objective: 2.10 Describe the cost flows in a manufacturing business and prepare a schedule of cost of goods manufactured, a schedule of cost Learning Objective: 2.01 Describe the components of traditional and modern management accounting systems
49. Which of the following terms accurately describes all three manufacturing costs (i.e. direct materials, direct 53. Which of the following statements is correct in relation to determining whether a cost is direct or indirect?
labour and manufacturing overhead)? A. The wider the definition of the cost object, the more costs that will be indirect costs.
A. Product costs B. The number of cost items that can be classified as direct costs does not depend on the definition of cost objects.
B. Variable costs C. The narrower the definition of the cost object, the more costs that will be direct costs.
C. Direct costs D. The wider the definition of the cost object, the more costs that will be direct costs.
D. Both direct costs and product costs
AACSB: Reflective
AACSB: Reflective Difficulty: Hard
Difficulty: Hard Learning Objective: 2.05 Classify costs as direct or indirect
54. Choose the statement that best completes this sentence: 'Traditional management accounting focuses on …'
50. The monthly cost of renting manufacturing equipment is:
A. budgeting systems, financial performance measures and cost control.
A. part of conversion cost and a period cost.
B. financial performance measures, external reporting and cost elimination.
B. part of prime cost and an inventoriable cost.
C. non-financial performance measures, external reporting and cost control.
C. part of prime cost and a period cost.
D. part of conversion cost and an inventoriable cost. D. external reporting, labour-related activity measures and cost elimination.
AACSB: Reflective
AACSB: Reflective
Difficulty: Medium
Difficulty: Hard
51. With respect to the flow of manufacturing costs through the accounts, what does the ending balance of 55. Eldervale Winery is a producer of premium wine. Which of the following is an example of an upstream cost?
work in process account show? A. The costs associated with storing wine barrels.
A. The total costs for completed jobs. B. The costs associated with designing the labels on a wine bottle.
B. The total costs for incomplete jobs. C. The costs associated with delivering products to customers.
C. The amount of costs incurred for the period. D. The costs associated with quality inspection.
D. The amount of cost to be transferred to cost of goods sold.
AACSB: Reflective
Difficulty: Medium
AACSB: Reflective Learning Objective: 2.07 Classify costs according to the segments of the value chain
Difficulty: Easy
56. Eldervale Winery is a producer of premium wine. Which of the following is NOT an example of an upstream cost?
A. The costs associated with marketing a new range of wine in an international trade fair
52. Which of the following statements correctly completes this sentence? 'For a firm that manufactures floor tiles, B. The costs associated with researching a new variety of grapes
when the tiles are completed and ready for sale …' C. The costs associated with testing a new wine barrel
D. The costs associated with negotiating with and managing the farmers who supply the grapes
A. there is no change in the value of the firm's assets.
B. the firm's total assets are decreased.
C. the firm's total cost of the goods sold is increased.
D. the firm's work in process inventory is increased. AACSB: Reflective
Difficulty: Medium
Learning Objective: 2.07 Classify costs according to the segments of the value chain
AACSB: Reflective
Difficulty: Medium 57. Eldervale Winery is a producer of premium wine. Which of the following is an example of a downstream cost?
Learning Objective: 2.10 Describe the cost flows in a manufacturing business and prepare a schedule of cost of goods manufactured, a schedule of cost A. The costs associated with storing wine for customers
B. The costs associated with designing the labels on a wine bottle
C. The costs associated with researching a new variety of grapes
D. The costs associated with quality testing
AACSB: Reflective
Difficulty: Medium
58. Eldervale Winery is a producer of premium wine. Which of the following is NOT an example of a downstream cost? 62. Sally Strong is the production manager of Eldervale Winery. Her role includes overseeing the production and
A. The costs associated with random quality check during the wine production process bottling processes of Eldervale Winery's three product lines: sparkling wine, red wine and white wine. Which of the
B. The costs associated with the sales team travelling to a wine show to promote Eldervale wine following is most likely an example of an uncontrollable cost for Sally?
C. The costs associated with delivering wine to customers A. The costs associated with bottling wine
D. The costs associated with answering customer inquiries on the differences between wine varieties B. The costs associated with advertising Eldervale wine on national TV
C. The costs associated with moving wine from the barrels to the bottling area
D. The costs associated with quality testing
AACSB: Reflective
Difficulty: Medium
AACSB: Reflective
Difficulty: Medium
Learning Objective: 2.05 Classify costs as direct or indirect
59. Mydas Ltd operates a large factory which manufactures three types of motor vehicles, including family cars,
sports cars and motorcycles. If the cost object is a motorcycle, which of the following is a direct cost?
A. The costs of wheels on the motorcycle 63. Sally Strong is the production manager of Eldervale Winery. Her role includes overseeing the production and
B. The salary of the factory general manager bottling processes of Eldervale Winery's three product lines: sparkling wine, red wine and white wine. Which of the
C. The salary of the factory quality inspector following is most likely to be an example of a controllable cost for Sally?
D. The windscreen wipers on a family car A. The costs associated with bottling wine
B. The costs associated with advertising Eldervale wine on national TV
C. The costs associated with liaising with distributors to export wine to China
D. The costs associated with obtaining finance from banks
AACSB: Reflective
Difficulty: Medium
AACSB: Reflective
Difficulty: Medium
60. Mydas Ltd operates a large factory which manufactures three types of motor vehicles, including family sedans, Learning Objective: 2.05 Classify costs as direct or indirect
sports cars and motorcycles. If the cost object is a family car, which of the following is an indirect cost?
A. The costs of wheels on the motorcycle
B. The salary of the factory general manager 64. Production costs assist management to determine:
C. The wages of the quality inspector whose job is to inspect each family car A. sales revenue.
D. The windscreen wipers on a family car B. cost of goods sold.
C. gross profit.
D. net profit.
AACSB: Reflective
Difficulty: Medium
AACSB: Reflective
Difficulty: Easy
Learning Objective: 2.02 Explain why management accountants focus particularly on costs
61. A responsibility centre:
A. refers to a unit of business where all the associated costs are considered as 'direct costs'.
B. refers to a unit of a business where the manager is held accountable for activities and performance. 65. When raw materials are purchased by a manufacturer, those costs will be recorded in the general ledger as:
C. is another term for 'business division'. A. cost of goods sold.
D. is a term applicable only to manufacturing companies. B. manufacturing costs.
C. inventory.
D. conversion costs.
AACSB: Reflective
Difficulty: Medium
AACSB: Reflective
Difficulty: Easy
Learning Objective: 2.02 Explain why management accountants focus particularly on costs
C. cost analysis.
In the short term, which of the following costs would be classified as uncontrollable? D. cost approximation.
A. Raw materials
AACSB: Reflective
B. Stationery expenses Difficulty: Easy
C. Loan interest Learning Objective: 3.01 Explain the relationships between cost estimation, cost behaviour and cost prediction
D. Entertainment expenses
2. Forecasting a cost at a particular level of activity is called:

AACSB: Reflective
Difficulty: Medium
A. cost estimation.
Learning Objective: 2.06 Classify costs as controllable or uncontrollable B. cost prediction.
C. cost behaviour.
D. cost functions.
67. Classifying responsibility centre costs as controllable or uncontrollable can enhance:
A. performance evaluation.
B. cost accounting.
C. budget reporting. AACSB: Reflective
Difficulty: Easy
D. financial reporting. Learning Objective: 3.01 Explain the relationships between cost estimation, cost behaviour and cost prediction
3. A cost that has both a fixed and variable component is called a:

AACSB: Reflective A. step-fixed cost.
Difficulty: Easy
Learning Objective: 2.06 Classify costs as controllable or uncontrollable B. step-variable cost.
C. semivariable cost.
D. discretionary cost.
68. Resources that are surrendered to achieve a particular objective in business are known as:
A. resources.
B. expenses.
AACSB: Reflective
C. assets. Difficulty: Easy
D. costs. Learning Objective: 3.05 Define and analyse the behaviour of the following types of costs: variable, fixed, step-fixed, semivariable (or mixed) and
curvilinear
AACSB: Reflective 4. A cost that remains unchanged in total as the activity level (or cost driver) changes is called a:
Difficulty: Medium A. fixed cost.
B. variable cost.
C. step-fixed cost.
69. Costs that are incurred to obtain future benefits beyond 12 months are known as: D. step-variable cost.
A. assets.
B. liabilities.
C. revenue. AACSB: Reflective
D. expenses. Difficulty: Easy
Learning Objective: 3.05 Define and analyse the behaviour of the following types of costs: variable, fixed, step-fixed, semivariable (or mixed) and
curvilinear
AACSB: Reflective
Difficulty: Easy
1. The relationship between cost and activity is called:

A. cost prediction.
B. cost behaviour.
5. A cost that changes in total in direct proportion to a change in the cost driver is a: 8. Fixed costs per unit:
A. variable cost. A. is unrelated to activity levels.
B. fixed cost. B. change as activity varies.
C. semivariable cost. C. remain unchanged as activity level changes.
D. step-variable cost. D. None of the given answers

Learning Objective: 3.05 Define and analyse the behaviour of the following types of costs: variable, fixed, step-fixed, semivariable (or mixed) and Learning Objective: 3.05 Define and analyse the behaviour of the following types of costs: variable, fixed, step-fixed, semivariable (or mixed) and
curvilinear curvilinear
6. 9. Costs that remain fixed over wide ranges of activity but jump to a different amount outside that range are called:
A. step-fixed costs.
A manufacturer plans to increase production within the relevant range of activity. What behaviour can the B. step-variable costs.
company expect for each of the following? C. semivariable costs.
D. curvilinear costs.
Fixed cost per unit Variable cost per unit

AACSB: Reflective
Difficulty: Easy
A. Learning Objective: 3.05 Define and analyse the behaviour of the following types of costs: variable, fixed, step-fixed, semivariable (or mixed) and
No change Increase curvilinear
B.
Increase No change 10. The fixed costs per unit are $10 when a company makes 10 000 units. What are the per unit fixed costs when
12 500 units are produced?
A. $6.00
C.
Decrease Increase
B. $12.00
C. $10.00
D. $ 8.00
D.
Decrease No change
AACSB:
Analytical
Difficulty: Medium
AACSB: Learning Objective: 3.05 Define and analyse the behaviour of the following types of costs: variable, fixed, step-fixed, semivariable (or mixed) and
Analytical curvilinear
Difficulty: Medium
curvilinear
11. The variable costs per unit are $4 when a company makes 10 000 units. What are the per unit variable costs
when 8000 units are produced?
7. Variable cost per unit: A. $6.00
A. increases in direct proportion to changes in the cost driver. B. $4.00
B. decreases in direct proportion to changes in the cost driver. C. $4.50
C. remains unchanged as the level of the cost driver changes. D. $5.00
D. increases, but not in direct proportion to changes in the cost driver.
AACSB:
Analytical
AACSB: Reflective Difficulty: Medium
Difficulty: Easy Learning Objective: 3.05 Define and analyse the behaviour of the following types of costs: variable, fixed, step-fixed, semivariable (or mixed) and
Learning Objective: 3.05 Define and analyse the behaviour of the following types of costs: variable, fixed, step-fixed, semivariable (or mixed) and curvilinear
curvilinear
12. Total costs are $140 000 when 10 000 units are made. Of this amount, variable costs are $4 per unit. What 16. The relevant range is that range of activity where:
are the total costs when 8000 units are produced? A. management may not find it important to concern itself.
A. $140 000 B. management does not expect the firm to operate.
B. $136 000 C. fixed costs remain unchanged.
C. $132 000 D. the expected costs exceed the benefits from the activity.
D. $124 000
AACSB: Reflective
AACSB: Difficulty: Easy
Analytical Learning Objective: 3.06 Explain the importance of the relevant range when using a cost behaviour pattern for cost prediction
Difficulty: Medium
curvilinear
17. Within the relevant range of activity, costs:
A. can be estimated with reasonable accuracy.
B. exhibit decreasing marginal cost patterns.
13. Total costs are $80 000 when 8000 units are made. Of this amount, variable costs are $48 000. What are the
C. exhibit increasing marginal cost patterns.
total costs when 10 000 units are produced?
A. $ 92 000
B. $ 98 000
C. $100 000
D. $108 000 AACSB:
Analytical
Difficulty: Medium
Learning Objective: 3.06 Explain the importance of the relevant range when using a cost behaviour pattern for cost prediction
AACSB:
Analytical
Difficulty: Medium 18. 18.
curvilinear
As a firm begins to operate outside the relevant range, the accuracy of cost estimates for fixed and variable costs:
14. Which per unit cost does the slope of the total cost line represent?
A. Fixed Fixed Variable
B. Variable
C. Semivariable A.
D. Step-variable Increase Increase
B.
AACSB: Increase Decrease
Analytical
Difficulty: Medium
curvilinear C.
Decrease Decrease
15. The level of activity within which fixed costs remain unchanged is called the:
D. Do not change
A. extreme range.
B. relevant range.
C. activity range. AACSB:
D. relevant range AND activity range. Analytical
Difficulty: Medium
Learning Objective: 3.06 Explain the importance of the relevant range when using a cost behaviour pattern for cost prediction
AACSB: Reflective
Difficulty: Easy
19. Which of the following describes a cost-estimation method that involves a careful examination of the ledger accounts?
Learning Objective: 3.06 Explain the importance of the relevant range when using a cost behaviour pattern for cost prediction A. Least squares regression
B. Visual fit
C. Account classification
D. Multiple regression
AACSB: Reflective
Difficulty: Easy
Learning Objective: 3.08 Describe the following approaches to cost estimation: managerial judgment (including account classification), the engineering
method, and quantitative analysis (including high–low, and simple and multiple regression) 20. Which of the following describes a method of cost estimation in which a cost line is drawn through a scatter
diagram to help the analyst visualise the relationship between cost and activity?
A. Least squares regression
B. High–low
C. Visual fit
D. Multiple regression
AACSB: Reflective
Difficulty: Easy
Learning Objective: 3.09 Estimate cost functions using the high–low method and regression analysis
21. Within the relevant range, a curvilinear cost function can be graphed as a:
A. straight line.
B. set of straight lines.
C. solid line.
D. curved line.
AACSB: Reflective
Difficulty: Easy
curvilinear
22. The method of cost estimation that fits a cost line between two data points is:
A. least squares regression.
B. high–low.
C. account classification.
D. multiple regression.
AACSB: Reflective
Difficulty: Easy
23. The method of cost estimation that minimises the sum of the squared deviations between the cost line and
the data points is:
A. least squares regression.
B. visual fit.
C. account classification.
AACSB: Reflective
Difficulty: Easy
24. In regression analysis, the variable that is being predicted is: 28. Yang Manufacturing makes a product called Yin. The relevant range of operations is between 2500 units and 10
A. the independent variable. 000 units of Yin per month. Per unit costs at two activity levels are as follows: 5000 units at $17.00 per unit; 7500 units
B. the dependent variable. at
C. the explanatory variable. $13.00 per unit. Determine the cost formula that expresses the behaviour of Yang's total costs:
D. the dependent variable AND the explanatory variable.
A.
Y $60 000 + $5X
AACSB: Reflective
Difficulty: Easy
B.
25. Technical Engineering presently leases a copying machine on a monthly basis. The lease agreement requires a Y $20 000 + $13X
fixed fee each month in addition to a charge per copy. Technical Engineering made 2400 copies and paid a total of $162
in rent in September and in October they paid $195 for 3500 copies. Determine Technical Engineering's variable cost per
copy. A. $0.06 C.
B. $0.04
C. $0.03 Y $45 000 + $4X
D. $0.01
D.
AACSB: Y $40 000 + $9X

Analytical
Difficulty: Medium
AACSB:
26. Technical Engineering presently leases a copying machine on a monthly basis. The lease agreement requires a Analytical
fixed fee each month in addition to a charge per copy. Technical Engineering made 2400 copies and paid a total of $162 Difficulty: Hard
in rent in September and in October they paid $195 for 3500 copies. Determine Technical's monthly fixed fee.
A. $138
B. $ 90 29. Yang Manufacturing makes a product called Yin. The relevant range of operations is between 2500 units and 10
C. $ 66 000 units of Yin per month. Per unit costs at two activity levels are as follows: 5000 units at $17.00 per unit; 7500 units
D. $ 55 at
$13.00 per unit. Determine their total cost if Yang produces 10 000 units.
A. $130 000
AACSB: B. $125 000
Analytical C. $110 000
Difficulty: Medium D. $100 000
27. Technical Engineering presently leases a copying machine on a monthly basis. The lease agreement requires a AACSB:
fixed fee each month in addition to a charge per copy. Technical made 2400 copies and paid a total of $162 in rent in Analytical
September and in October they paid $195 for 3500 copies. Determine the total amount that would be paid for 1800 Difficulty: Hard
copies.
A. $120
B. $138
C. $144
D. $163
AACSB:
Analytical
Difficulty: Hard
30. 30. 31. 31.
The Longreach Toy Factory has determined machine hours to be the cost driver of the company's electricity costs. During the first six The Longreach Toy Factory has determined machine hours to be the cost driver of the company's electricity costs. During the first six
months of the year, the company incurred the following electricity costs: months of the year, the company incurred the following electricity costs:
Using the high–low method, estimate the variable cost per machine hour.
Using the high–low method, determine the cost formula that expresses the cost behaviour of the company's electricity costs.
A. $8.38
B. $7.44 A.
C. $5.50
D. None of the given answers Y = $3735 + $6.20X
AACSB: B.
Analytical
Difficulty: Medium
Learning Objective: 3.09 Estimate cost functions using the high–low method and regression analysis Y = $1664 + $8.38X
C.
Y = $4760 + $5.00X
D.
Y = $4400 + $5.50X
AACSB:
Analytical
Difficulty: Medium
32. A regression model in which more than one independent variable is used to predict the dependent variable is called a:
A. simple regression model.
B. multiple regression model.
C. dependent model.
D. B and C
AACSB: Reflective
Difficulty: Easy
33. Which of the following are problems frequently encountered in data collection? 37. In activity-based costing analysis, the manufacturing manager's salary is classified as a:
A. Outliers A. unit cost.
B. Missing data B. batch cost.
C. Mismatched time periods C. product cost.
D. All of the given answers D. facility cost.
AACSB: Reflective AACSB:

Difficulty: Easy Analytical
Learning Objective: 3.10 Explain some of the issues that arise in estimating cost functions in practice, including data collection problems, learning curve Difficulty: Medium
effects, and cost–benefit evaluations Learning Objective: 3.03 Introduce the unit, batch, product and facility level hierarchy of costs and cost drivers
34. Which of the following statements is true concerning cost estimation methods? 38. In activity-based costing analysis, direct materials are classified as a:
A. Cost behaviour is always assumed to depend on more than one cost driver. A. unit cost.
B. Cost behaviour patterns are curvilinear. B. batch cost.
C. Costs and benefits of using sophisticated and costly cost-estimation methods must be evaluated. C. product cost.
D. Cost behaviour is always assumed to depend on more than one cost driver AND costs and benefits of D. facility cost.
using sophisticated and costly cost-estimation methods must be evaluated.
AACSB:
AACSB: Reflective Analytical
Learning Objective: 3.03 Introduce the unit, batch, product and facility level hierarchy of costs and cost drivers Learning Objective: 3.03 Introduce the unit, batch, product and facility level hierarchy of costs and cost drivers
35. If a very short time period, such as a week, is used for a regression study, rather than a longer period 39. In activity-based costing analysis, set-up costs are classified as a:
such as a month: A. unit cost.
A. coping with inflation becomes more difficult. B. batch cost.
B. accounting measurement errors are more likely. C. product cost.
C. time and motion studies will be required to supplement the cost and volume data. D. facility cost.
D. coping with inflation becomes more difficult AND time and motion studies will be required to supplement the
cost and volume data.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 3.03 Introduce the unit, batch, product and facility level hierarchy of costs and cost drivers
AACSB: Reflective
Difficulty: Medium
Learning Objective: 3.10 Explain some of the issues that arise in estimating cost functions in practice, including data collection problems, learning curve
effects, and cost–benefit evaluations 40. In activity-based costing analysis, package design is classified as a:
A. unit cost.
B. batch cost.
36. In assessing the costs and benefits of using a particular cost driver, which of the following must be taken into account? C. product cost.
D. facility cost.
i. The availability of cost data.
ii. The time frame for analysing the cost behaviour.
iii. Whether it is a fixed or variable cost.
AACSB: Reflective
A. i
Difficulty: Medium
B. ii Learning Objective: 3.03 Introduce the unit, batch, product and facility level hierarchy of costs and cost drivers
C. i and ii
D. i and iii
41. In which approach to costs estimation, is task analysis used?
A. Account classification
B. Engineering method
AACSB: Reflective C. High–low method
Difficulty: Medium
Learning Objective: 3.10 Explain some of the issues that arise in estimating cost functions in practice, including data collection problems, learning curve D. Managerial judgement
effects, and cost–benefit evaluations
AACSB: Reflective
Difficulty: Easy
method, and quantitative analysis (including high–low, and simple and multiple regression)
42. In which approach to cost estimation, is least squares used? 46. When using regression analysis to determine estimated costs, what criteria are necessary to evaluate a
A. Engineering method particular regression line?
B. High–low method A. Closeness to pre-analysis guess
C. Regression analysis B. Goodness of fit
D. Managerial judgement C. Coefficient of determination
D. Goodness of fit AND coefficient of determination
AACSB: Reflective
Learning Objective: 3.08 Describe the following approaches to cost estimation: managerial judgment (including account classification), the engineering Difficulty: Medium
method, and quantitative analysis (including high–low, and simple and multiple regression) Learning Objective: 3.09 Estimate cost functions using the high–low method and regression analysis
43. Which of the following statements are assumptions underlying cost estimation? 47. 47.
A. Cost behaviour depends on one or a few activities.
B. All costs are production driven. In the regression formula Y = a + bX, b is:
C. There is a strong correlation between the cost and the cost driver.
D. Cost behaviour depends on one or a few activities AND there is a strong correlation between the cost and
the cost driver. A. the slope of the line.
B. the cost driver.
C. the intercept on the vertical axis.
AACSB: Reflective
D. the dependent variable.
Difficulty: Medium
method, and quantitative analysis (including high–low, and simple and multiple regression) AACSB: Reflective
Difficulty: Easy
44. Which of the following are valid reasons for a firm not using objective techniques?
i. Data may not be available. 48. Which of the following statements is most complete and correct?
ii. Cost estimates are sufficiently accurate for the firm's purposes. A. Activity-based costing uses non-volume-based cost drivers only.
iii. Accountants may be ignorant of appropriate techniques. B. Activity-based costing uses volume-based cost drivers.
iv. The firm gives low priority to cost estimation. C. Activity-based costing recognises that both volume-based and non-volume-based cost drivers may be appropriate.
A. i and ii D. None of the given answers.
B. i, ii and iii
C. ii, iii and iv
D. i, ii and iv
AACSB: Reflective
Difficulty: Easy
AACSB: Reflective
Difficulty: Medium
Learning Objective: 3.08 Describe the following approaches to cost estimation: managerial judgment (including account classification), the engineering 49. For a fixed cost, as volume increases:
A. the cost behaviour depends on the type of fixed cost involved.
B. total fixed costs remain constant and fixed costs per unit increase.
45. Which of the following are important in estimating the cost of machine maintenance? C. both total fixed costs and fixed costs per unit remain constant.
D. total fixed costs remain constant and fixed costs per unit decrease.
A. The relevant range
B. The time period selected
C. The cost driver selected
D. All of the given answers AACSB: Reflective
Difficulty: Medium
curvilinear
AACSB: Reflective
Difficulty: Medium
50. Consider the following equation: 52. For a manufacturer of kitchens, which of the following would you expect to be a fixed cost?
Total cost = fixed costs + (cost driver rate × cost driver A. Hourly labour cost of employee installing kitchens
quantity) If a cost can be estimated using this equation, it is B. Material for kitchen benchtops
probably a:
C. Adhesive for benchtops
A. fixed cost.
D. Rent of factory premises
B. variable cost.
C. mixed or semivariable cost.
D. non-linear cost.
AACSB: Reflective
Difficulty: Medium
AACSB: Reflective curvilinear
Difficulty: Medium
curvilinear 53. For a manufacturer of kitchens, which of the following would you expect to be a direct cost?
A. Hourly labour cost of employees installing kitchens
B. Material for kitchen benchtops
51. 51.
C. Hourly labour cost of employees installing kitchens AND material for kitchen benchtops
D. Rent of factory premises
Lawson Lumber uses the high–low method to estimate electricity cost, which varies in relation to machine hours. Based on the
following data, how would the cost function be stated if ‘X' is the number of machine hours?
AACSB: Reflective
Difficulty: Medium
curvilinear
54. Which of the following increases as volume of activity decreases?

A. Fixed cost per unit
B. Variable cost per unit
C. Total fixed cost
D. Total variable cost
A.
AACSB: Reflective
$525 + $0.35 X Difficulty: Medium
curvilinear
B. 55. Which of the following is not an example of a cost driver for a delivery truck?
A. Location of customers
$300 + $0.50 X B. Depreciation
C. Litres of fuel used
D. Number of customers
C.
$500 + $0.50 X
AACSB: Reflective
Difficulty: Medium
D. Learning Objective: 3.02 Explain the concept of cost drivers, including volume-based and non-volume-based cost drivers
$470 + $0.35 X
AACSB:
Analytical
Difficulty: Medium
56. Which of the following is an example of an engineered cost? 61. 61.
A. Direct materials
B. Advertising Which of the following statements about the coefficient of determination (R2) is correct?
C. Insurance
D. Factory supervisor's salary
A.
R2 is a measure of economic plausibility.

AACSB: Reflective
Difficulty: Easy
Learning Objective: 3.07 Define and provide examples of engineered, committed and discretionary costs
B.
57. Which term describes a cost resulting from the existence of the organisational structure and premises used
by the firm? The higher the R2, the more confident we are when using a regression model to predict costs.
A. Discretionary
B. Fixed
C. Committed C.
D. Engineered
R2 is a measure of data accuracy.
AACSB: Reflective D.
Difficulty: Easy
Learning Objective: 3.07 Define and provide examples of engineered, committed and discretionary costs R2 is a useful measure only for simple regressions.
58. Which of the following would always be a mixed (semivariable) cost for a firm?
A. Raw materials because it includes direct and indirect materials
B. Direct labour AACSB: Reflective
C. Manufacturing overhead Difficulty: Easy
D. Raw materials AND manufacturing overhead
AACSB: Reflective
Difficulty: Medium
curvilinear
59. An example of a discretionary cost for a firm that manufactures furniture is:
A. direct material.
B. advertising.
C. labour.
D. glue and nails.
AACSB: Reflective
Difficulty: Medium
Learning Objective: 3.07 Define and provide examples of engineered, committed and discretionary costs
60. Eldervale Winery is a producer of premium wine. Which of the following is an example of a unit level cost?
A. The cost of the labels on each bottle of wine
B. The cost of designing the labels on a wine bottle
C. Advertising costs
D. Costs of delivering wine to customers
AACSB: Reflective
Difficulty: Easy
62. 62. 63. 63.
The results of the regression analysis to estimate delivery costs are as follows: The results of the regression analysis to estimate delivery costs are as follows:
Which of the following statements represent a valid conclusion based on the above regression analysis output? Which of the following is an appropriate cost equation based on the above regression output?
A. 54.4% of transportation cost can be explained by the number of cargos. A.

B. The F-statistic is considered significant; therefore, the relationship in the regression is unlikely to happen by chance.
C. The p-value associated with the intercept suggests that the delivery costs are entirely variable. Delivery costs = $366.39 + $0.58 X1, where X1 is the number of cargos.
D. Given the t-statistic, number of cargos is a poor cost driver of delivery cost.
B.
AACSB: Reflective
Difficulty: Medium
Learning Objective: 3.11 After studying the appendix, use Microsoft Excel® to estimate and evaluate a regression equation Delivery costs = $0.662 + $2.985 X1, where X1 is the number of cargos.
C.
Delivery costs = $242.51 + $1.74 X1, where X1 is the number of cargos.
D.
Delivery costs = $48861.07 + $1.74 X1, where X1 is the number of cargos.

AACSB: Reflective 65. 65.
Difficulty: Medium
Learning Objective: 3.11 After studying the appendix, use Microsoft Excel® to estimate and evaluate a regression equation The following is an extract of a cost report for Big Whale Car Wash for the six months from June to November. Management considers
the activities in these six months as within the relevant range for the purpose of cost estimation.
64. 64.
The following is an extract of a cost report for Big Whale Car Wash for the six months from June to November. Management considers
The car washing labour cost is a:
A. variable cost.
B. fixed cost.
C. step-fixed cost.
D. semi-variable.
AACSB:
A. variable cost. Analytical
B. fixed cost. Difficulty: Medium
C. step-fixed cost. curvilinear
D. Semi-variable cost.
AACSB: 66. 66.

Analytical
Difficulty: Medium The following is an extract of a cost report for Big Whale Car Wash for the six months from June to November. Management considers
curvilinear
A. variable cost.
B. fixed cost.
C. step-fixed cost.
D. semi-variable.
AACSB:
Analytical
Difficulty: Medium
curvilinear
67. ‘Time and motion studies' refers to: 71. When estimating cost behaviours, the appropriateness of the drivers can be tested by measuring the strength
A. the process in which managers use their judgment to estimate the time it takes to carry out each individual work of the relationship between
task, in order to estimate cost. A. past costs and their selected cost driver.
B. the process in which employees complete timesheets each day; the timesheets then form the basis for cost estimation. B. past costs and future costs.
C. the process in which employees are observed when they undertake work tasks; these observations are then C. past costs and predicted costs.
used to estimate cost. D. predicted costs and their selected driver.
D. the process in which the cost of work tasks are compared over time and across different divisions.
AACSB: Reflective
Difficulty: Medium Learning Objective: 3.04 Describe the different roles that cost driver analysis can play in management accounting
72. To test the significance of a result using the regression equation as a whole and to assess that the result is not
due to random factors, management would consider the result of the
68. When a manager notices an outlier during the cost estimation process, the appropriate response is to: A. F-statistic.
A. no response is required, unless multiple outliers are observed. B.
B. attempt to identify the reasons for the outlier.
C. divide the outlier by the standard deviation, before including the outlier in the regression model adjusted R2.
D. re-collect all the data, as an outlier indicates that the data has been corrupted.
C. p-value.
D. co-efficient.
AACSB: Reflective
Difficulty: Medium
AACSB: Reflective
Difficulty: Medium
Learning Objective: 3.11 After studying the appendix, use Microsoft Excel® to estimate and evaluate a regression equation
69. An activity or factor that causes costs to be incurred is known as a
A. cost prediction.
B. cost estimation. 73. 73.
C. cost driver.
D. cost behaviour. Truweight Ltd has introduced a new line of weight machines for the catering industry which has required additional steps in the
production line. During the first two months of production the labour time for the weight machines was as follows:
AACSB: Reflective
Difficulty: Easy
Learning Objective: 3.02 Explain the concept of cost drivers, including volume-based and non-volume-based cost drivers
70. The main reason for analysing cost behaviour is to

A. provide estimates of cost behaviour.
B. provide estimates for cost predictions.
C. provide a timeframe for analysing cost behaviour.
D. provide estimates of cost behaviour for cost predictions.
The learning curve percentage is
A. 10 per cent.
AACSB: Reflective B. 90 per cent.
Difficulty: Easy C. 100 per cent.
Learning Objective: 3.04 Describe the different roles that cost driver analysis can play in management accounting
D. 110 per cent.
AACSB: Analytic
Difficulty: Medium
Learning Objective: 3.12 After studying the appendix, describe the impact of learning curve effects on the estimation of cost behaviour
74. 74. 1. Product costing is the process of:
A. accumulating the costs of a production process.
Truweight Ltd has introduced a new line of weight machines for the catering industry which has required additional steps in the
B. assigning costs to a firm's products.
production line. During the first two months of production the labour time for the weight machines was as follows: C. placing a value on fixed assets owned by a producer.
D. accumulating the costs of a production process AND assigning costs to a firm's products.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 4.01 Explain the role of product costing systems
2. Under Australian accounting standards, manufactured products are generally:

A. valued at market value and expensed in the period made.
B. valued at market value and expensed in the period sold.
The average labour time per unit for February was C. valued at cost and expensed in the period made.
D. valued at cost and expensed in the period sold.
A. 1800 hours.
B. 100 hours.
C. 90 hours.
D. 80 hours. AACSB: Reflective
Difficulty: Easy
Learning Objective: 4.03 Outline the flow of costs through the manufacturing accounts used in product costing
Learning Objective: 4.09 After studying the appendix, explain how inventories must be valued for external financial reporting
AACSB: Analytic
Difficulty: Medium
Learning Objective: 3.12 After studying the appendix, describe the impact of learning curve effects on the estimation of cost behaviour
3. Consider the following statements regarding product cost information.
i. Product cost information is necessary for planning, cost control and providing information for making decisions.
75. Define the term ‘relevant range' and explain its importance to understanding cost behaviour. ii. Product cost information is not necessary to justify rate increases that are subject to the approval of
government authorities.
The relevant range is the range of activity within which management expects the organisation to operate. This can be iii. Product cost information is necessary to value inventory on the balance
based on experience and/or sales projections. sheet. Which of the statement/s is/are correct?
The reason that this term is important is because management need not concern itself or waste precious time with A. i, ii and iii
extremely high or low levels of activity that are unlikely to occur. Statistical measures such as regression also limit the B. i and ii
scope to an organisation's relevant range. C. i and iii
D. iii
Learning Objective: 3.06 Explain the importance of the relevant range when using a cost behaviour pattern for cost prediction Difficulty: Medium
Learning Objective: 4.02 Describe why managers need different measures of product costs for different purposes
76. Compare and contrast the following types of costs:

i. Variable and step-variable 4. Manufacturing costs consist of:
ii. Fixed and step-fixed A. direct materials.
B. conversion costs.
i. A variable cost changes in total in direct proportion to the change in activity level or cost drivers (direct C. downstream costs.
material). A step- variable cost is nearly variable, but it increases in small steps, instead of continuously (e.g. additional D. direct materials and conversion costs, but not downstream costs.
direct labour).
ii. A fixed cost remains unchanged as the activity level varies in total (e.g. rent). A step-fixed cost remains fixed
over a sizeable range of activity, but steps up for activities outside that range (e.g. the salaries of hiring additional AACSB: Reflective
employees). Difficulty: Easy

5. As production takes place, all manufacturing costs are debited to the: 9.
A. work in process inventory account.
B. manufacturing overhead account. The following data apply to Stratford Ltd
C. cost of goods sold account.
D. finished goods account.
AACSB: Reflective
Difficulty: Easy
Calculate the amount of direct materials used during the year.

6. When products are completed, their product costs are transferred from work in process inventory to the:
A. manufacturing overhead accounts.
A. $36 500
B. finished goods account.
B. $42 500
C. cost of goods sold account. C. $47 500
D. indirect labour account.
D. $53 500
AACSB: Analytical
Difficulty: Easy Learning Objective: 4.03 Outline the flow of costs through the manufacturing accounts used in product costing
10.
7. To transfer work in process inventory to finished goods inventory:
A. debit finished goods and credit work in process. The following data apply to Stratford Ltd
B. debit work in process and credit finished goods.
C. add direct labour to the work in process inventory.
D. add direct labour and direct materials to the finished goods inventory.
AACSB: Reflective
Difficulty: Easy
8. Cost of goods sold is closed into the income summary account:

A. at the end of the production cycle.
B. when the product is sold.
C. at the end of the accounting period, along with other expenses and revenues of the period.
D. at no time.
Predetermined overhead rate—200 per cent of direct labour cost
Calculate the amount of direct labour cost incurred during the year.
AACSB: Reflective A. $20 000

Difficulty: Easy B. $18 000
C. $10 000
AACSB: Analytical
Difficulty: Medium
Learning Objective: 4.04 Use basic techniques to allocate manufacturing overhead costs to products
11. 13. Manufacturing overhead:
A. consists of direct material and direct labour costs.
The following data apply to Stratford Ltd B. is easily traced to jobs.
C. should not be assigned to individual jobs because it bears no obvious relationship to them.
D. is a heterogeneous pool of indirect production costs that can include gas and electricity costs and depreciation.
AACSB: Reflective
Difficulty: Easy
14. A predetermined overhead rate is calculated as follows:

A. budgeted manufacturing overhead/budgeted amount of cost driver.
What was the actual manufacturing overhead incurred during the year?
B. budgeted amount of cost driver/budgeted manufacturing overhead.
C. budgeted manufacturing overhead/budgeted amount of non-manufacturing overhead.
A. $22 000
D. budgeted manufacturing overhead/ budgeted total expenses.
B. $20 000
C. $18 000
D. $16 000
AACSB: Reflective
Difficulty: Easy
AACSB: Analytical Learning Objective: 4.04 Use basic techniques to allocate manufacturing overhead costs to products
Difficulty: Medium
15. Which of the following statements is not correct regarding work in process?
12. A. Work in process is partially completed inventory.
B. Work in process consists of direct labour, direct material and allocated manufacturing overhead.
The following data apply to Stratford Ltd C. Work in process is debited as product costs are incurred.
D. Work in process is credited when goods are sold.
AACSB: Reflective
Difficulty: Easy
16. The debit side of the manufacturing overhead account is used to accumulate:
A. actual manufacturing overhead costs as they are incurred throughout the accounting period.
B. overhead applied, to work in process inventory.
C. predetermined overhead.
D. overapplied overhead.
Calculate the cost of goods manufactured during the year.

AACSB: Reflective
A. $62 500 Difficulty: Easy
B. $67 500
C. $70 500
D. $72 500
AACSB: Analytical
Difficulty: Medium
Learning Objective: 4.07 Prepare a schedule of cost of goods manufactured and a schedule of cost of goods sold, and understand the relationship
between these reports and external accounting reports
17. Gratis Company Ltd applies overhead based on direct labour hours in their printing department. At the 21. If manufacturing overhead is overapplied for the period, a method to bring the balance of the manufacturing
beginning of the year, the company estimated that manufacturing overhead would be $550 000, direct labour hours overhead account to zero would be:
would be 100 000 and direct labour cost would be $1 100 000 in the printing department. What is the printing A. debit cost of goods sold, credit manufacturing overhead.
department's predetermined overhead rate for the year? B. debit work in process inventory, credit manufacturing overhead.
A. $0.18 per direct labour hour C. debit manufacturing overhead, credit raw materials inventory.
B. $0.50 per direct labour hour D. debit manufacturing overhead, credit cost of goods sold.
C. $2.00 per direct labour hour
D. $5.50 per direct labour hour
AACSB: Reflective
Difficulty: Medium
AACSB: Analytical
Difficulty: Easy
22. The estimates used to calculate the predetermined overhead rate:
A. will generally prove to be incorrect to some degree.
18. Brainpower Pty Ltd is an advertising agency that uses a job costing system. Brainpower applies overhead to jobs B. will usually result in a non-zero balance left in the manufacturing overhead account at the end of the year.
based on direct professional labour hours. At the beginning of the year, overhead was estimated to be $75 000, direct C. are likely to result in either overapplied or underapplied overhead.
professional labour hours were estimated to be 15 000, and direct professional labour cost was projected to be $225 D. All of the given answers.
000. During the year, Brainpower incurred actual overhead of $80 000, actual direct labour hours of 14 500 and actual
direct labour cost of $222 000. What was Brainpower's overapplied or underapplied overhead during the year?
A. $5000 underapplied
B. $5000 overapplied AACSB: Reflective
Difficulty: Medium
C. $7500 underapplied Learning Objective: 4.04 Use basic techniques to allocate manufacturing overhead costs to products
D. $7500 overapplied
23. When underapplied or overapplied overhead is allocated among the three accounts work in process, finished
goods and cost of goods sold, this process is called:
AACSB: Analytical
Difficulty: Medium
A. proration.
Learning Objective: 4.04 Use basic techniques to allocate manufacturing overhead costs to products B. just-in-time costing.
C. zero-based costing.
D. overhead application.
19. Process costing is normally used when:
A. large numbers of different products are manufactured.
B. large numbers of nearly identical products are manufactured.
C. small numbers of nearly identical products are manufactured. AACSB: Reflective
Difficulty: Easy
D. the fixed costs of manufacturing exceed the variable cost of manufacturing. Learning Objective: 4.04 Use basic techniques to allocate manufacturing overhead costs to products
24. When underapplied or overapplied manufacturing overhead is prorated, to which of the following
AACSB: Reflective
Difficulty: Medium
accounts can amounts be assigned?
Learning Objective: 4.05 Distinguish between job costing and process costing and understand in which situations job costing or process costing may be A. Direct materials, manufacturing overhead and direct labour
the most appropriate costing system B. Cost of goods sold, work in process and finished goods
C. Direct materials, finished goods and cost of goods sold
D. Direct materials, work in process inventory and finished goods inventory
20. If a manufacturer underestimated the manufacturing overhead budget and overestimates the activity base for
the year, what is the result?
A. Overapplied factory overhead
B. Underapplied factory overhead AACSB: Reflective
C. Overstated finished goods inventory Difficulty: Easy
D. Understated work in process inventory
AACSB: Reflective
Difficulty: Medium
25. If the manufacturing overhead account has a credit balance, then 29. Leisure Life manufactures a variety of sporting equipment. The firm's predetermined overhead application
A. manufacturing overhead is overapplied. rate was 150 per cent of direct labour cost. Job 101 included direct materials of $15 000 and direct labour of $6000.
B. manufacturing overhead is underapplied. The manufacturing overhead applied to Job 101 during the year was
C. cost of goods sold is understated. A. $4000.
D. manufacturing overhead is underapplied AND cost of goods sold is understated. B. $6000.
C. $8000.
D. $9000.
AACSB: Reflective
Difficulty: Easy
AACSB: Analytical
Difficulty: Easy
26. To accumulate costs under job costing
A. the cost of direct labour is assigned to each production job.
B. the cost of direct material is assigned to each production job. 30. Leisure Life manufactures a variety of sporting equipment. The firm's predetermined overhead application
C. the cost of manufacturing overhead is allocated to each production job. rate was 150 per cent of direct labour cost. Job 104 included direct material of $20 000 and total costs were $25 000.
D. All of the given answers The manufacturing overhead applied to Job 104 to date is
A. $5000.
B. $2000.
C. $3000.
AACSB: Reflective D. $2500.
Difficulty: Easy
Learning Objective: 4.05 Distinguish between job costing and process costing and understand in which situations job costing or process costing may be
the most appropriate costing system
AACSB: Analytical
Difficulty: Easy
27. Total manufacturing cost includes Learning Objective: 4.04 Use basic techniques to allocate manufacturing overhead costs to products
A. direct material and direct labour in a job costing system.
B. direct labour and manufacturing overhead in a process costing system.
C. direct material, direct labour and manufacturing overhead in both job costing and process costing. 31. Which of the following is true regarding job costing?
D. direct labour and manufacturing overhead in both a job costing and a process costing system. A. It is a type of product costing system used for small numbers of products produced in distinct batches.
B. It is used exclusively in manufacturing environments.
C. It is used for continuous mass production of products.
D. It is used exclusively for products of a similar nature.
AACSB: Reflective
Difficulty: Easy
AACSB: Reflective
Difficulty: Medium
28. The assignment of direct labour costs to individual jobs is based on the most appropriate costing system
A. actual total payroll costs divided equally among all the jobs in process.
B. estimated total payroll costs divided equally among all the jobs in process.
C. the actual time spent on each job multiplied by the wage rate. 32. In which of the following industries could process costing be used?
D. the estimated time spent on each job multiplied by the wage rate. A. Petroleum refining
B. Food processing
C. Paper mills
AACSB: Reflective
Difficulty: Easy
Learning Objective: 4.06 Use job costing to estimate product costs; describe the procedures and source documents, and prepare journal entries to
record costs under a job costing system
AACSB: Analytical
Difficulty: Easy
33. In which of the following industries could job costing be used? 37. Which of the following statements is most complete and correct?
A. Machine shop and specialty manufacturing A. Job costing traces costs to departments and process costing traces costs to products.
B. Bread making B. Job costing develops the cost of products and process costing develops the costs of processes.
C. Cement production C. Both job and process costing develop the cost of products.
D. Food processing D. Both job and process costing are concerned with the cost of departments.
AACSB: Analytical AACSB: Reflective

Learning Objective: 4.05 Distinguish between job costing and process costing and understand in which situations job costing or process costing may be Learning Objective: 4.05 Distinguish between job costing and process costing and understand in which situations job costing or process costing may be
the most appropriate costing system the most appropriate costing system
34. Which of the following statements is false? 38. Which of the following statements is false?
A. In job costing, costs are accumulated by job order. i. Job costing accumulates costs by jobs or batches.
B. In process costing, the cost per unit is found by averaging the costs incurred over the units produced. ii. Process costing accumulates costs by departments or processes.
C. In process costing, the production costs are assigned to each unit produced. iii. Process costing accumulates costs for specific time periods.
D. In job costing, the cost of each unit of a particular job is found by dividing the total cost of the job by the iv. Job costing accumulates costs by departments.
number of units in the job. A. i and ii
B. ii
C. iv
D. iii and iv
AACSB: Analytical
Difficulty: Easy
AACSB: Reflective
Difficulty: Easy
35. In the valuation of inventory at the end of an accounting period, the following costs are included: the most appropriate costing system
A. manufacturing costs.
B. manufacturing and upstream costs.
C. manufacturing and downstream costs. 39. If a manufacturing firm ends the year with underapplied overhead, one method of treatment is
D. manufacturing, upstream and downstream costs. A. debit manufacturing overhead, credit cost of goods sold.
B. debit cost of goods sold, credit manufacturing overhead.
C. debit work in process, credit manufacturing overhead.
D. debit finished goods inventory, credit manufacturing overhead.
AACSB: Reflective
Difficulty: Easy
AACSB: Reflective
Difficulty: Easy
36. Managers using costing data for making decisions will usually use the following data in product cost information. Learning Objective: 4.01 Explain the role of product costing systems
A. Manufacturing costs
B. Manufacturing and upstream costs
C. Manufacturing and downstream costs 40. On completion of products under a job cost system, costs are transferred as follows:
D. Manufacturing, upstream and downstream costs A. Debit finished goods inventory, credit work in process
B. Debit work in process, credit finished goods inventory
C. Debit cost of goods sold, credit work in process inventory
D. Debit work in process inventory, credit cost of goods sold
AACSB: Reflective
Difficulty: Easy
Learning Objective: 4.01 Explain the role of product costing systems
AACSB: Reflective
Difficulty: Easy
41. Product costs may be used for which of the following purposes? 44. Which of the following would appear on the debit side of the overhead account?
i. Valuation of inventories A. Actual overhead cost incurred in the period
ii. Management decision making B. Overhead applied (charged) to production
iii. Pricing decisions C. Overapplied overhead for the period
iv. Cost control D. Actual overhead cost incurred in the period AND overapplied overhead for the period
A. i and ii
B. ii, iii and iv
C. i, ii and iii
AACSB: Reflective
D. All of the given answers Difficulty: Medium
AACSB: Reflective 45. Which of the following would appear on the credit side of the overhead account?
Difficulty: Easy
Learning Objective: 4.02 Describe why managers need different measures of product costs for different purposes A. Actual overhead cost incurred in the period
B. Overhead applied (charged) to production
C. Underapplied overhead for the period
42. Which of the following industries are likely to be using process costing? D. Overhead applied (charged) to production AND underapplied overhead for the period
i. Petroleum
ii. Computer manufacture
iii. Sugar refining
AACSB: Reflective
iv. Furniture manufacture Difficulty: Medium
A. i and ii Learning Objective: 4.04 Use basic techniques to allocate manufacturing overhead costs to products
B. ii and iii
C. i and iii
D. ii and iv 46. In calculating its predetermined overhead rate, a firm incorrectly called some items of indirect labour ‘direct
labour'. Since the firm uses direct labour costs as the basis for application of overhead costs, the effect of this error is
to
A. underestimate the overhead rate.
AACSB: Reflective B. overestimate the overhead rate.
Difficulty: Medium
C. underestimate direct labour costs.
the most appropriate costing system D. underestimate the denominator used for allocating overhead.
43. 43.
AACSB: Reflective
Difficulty: Medium
Select the relevant information from the following, and calculate the cost of goods available for sale: Learning Objective: 4.04 Use basic techniques to allocate manufacturing overhead costs to products
47. Which of the following statements correctly completes this sentence? ‘For a manufacturing firm, when
goods are completed and ready for sale '
A. the firm's total assets are increased.
B. the firm's total assets are decreased.
C. there is no change in the value of the firm's assets.
D. the firm's work in process inventory is increased.
Total manufacturing costs were $5390. AACSB: Reflective

Difficulty: Medium
Cost of goods available for sale is:
A. $5300
B. $5320
C. $5920
AACSB: Reflective
Difficulty: Medium
48. 48. 50. 50.
Howard Corporation has a job order costing system. The following debits (credits) appear in the firm's work in process account for the Richardson & Sons purchased direct material worth $15 000 during the most recent period. At the end of the period the direct material
month of June: account balance was $6000 larger than the beginning balance. Cost of goods sold was $150 000. Overhead is applied at 50 per cent of
direct labour cost. Other account balances are:
What is the amount of prime cost added to production for the period?
Overhead is applied at 90 per cent of direct labour cost. There is only one job still in process at the end of June, and this job has been
charged with $2250 factory overhead. What was the amount of direct materials charged to that job?
A. $9000
A. $2250 B. $29 000
B. $2500 C. $33 000
C. $4250 D. $36 000
D. $9000
AACSB: Analytical
Difficulty: Hard
AACSB: Analytical Learning Objective: 4.03 Outline the flow of costs through the manufacturing accounts used in product costing
Difficulty: Hard
51. 51.
49. For a particular period, Petersen's opening and closing work in process balances were $20 000 and $14 000 The following information relates to Wells Fargo for July 2008:
respectively. Direct materials used was $200 000 and overhead applied was $130 000. Cost of goods manufactured was
$490 000. What was the amount of direct labour cost incurred for the period?
A. $148 000
B. $154 000
C. $160 000
D. $504 000
AACSB: Analytical
Difficulty: Hard
Assuming underapplied or overapplied overhead is transferred to cost of goods sold at the end of the period, which of the
following would be the entry to the cost of goods sold account?
A. $80 000 debit

B. $80 000 credit
C. $40 000 credit
D. $40 000 debit
AACSB: Analytical
Difficulty: Medium
52. The amount of overhead applied to jobs using a predetermined (budgeted) rate is rarely equal to the actual 55. Which of the following costs should be considered when managers are making short term profitability
cost of overhead incurred for a period. Which of the following is not a valid explanation for this? analysis decisions?
A. Actual spending for overhead is not equal to budgeted spending for overhead. A. Marketing costs
B. Actual use of the overhead allocation base is not equal to the budgeted use of the allocation base. B. Design costs
C. Budget estimates of overhead were unrealistically low. C. Research and development costs
D. Direct costs were unexpectedly high. D. None of the above

Learning Objective: 4.04 Use basic techniques to allocate manufacturing overhead costs to products Learning Objective: 4.02 Describe why managers need different measures of product costs for different purposes
53. 53. 56. Which of the following costs should managers focus on when making long term strategic pricing decisions?
A. Marketing costs
A firm's total overhead incurred for the year was $40 000, and at year-end the overhead component of WIP, FG and COGS were as B. Design costs
follows: C. Research and development costs
D. All of the above
AACSB: Reflective
Difficulty: Easy
Learning Objective: 4.02 Describe why managers need different measures of product costs for different purposes
57. Which of the following statements about product costing is false?

A. Product costs may differ depending on the decision context.
If underapplied or overapplied overhead is to be prorated, what is the amount (to the nearest dollar) that will be transferred to
B. Organisations should aim to have only one product costing system.
WIP because of the proration?
C. In designing a product costing system, managers need to make a careful assessment of costs and benefits
associated with each element of the product cost.
A. Credit WIP with $945
D. Both current costs and future costs are relevant for managerial decisions.
B. Debit WIP with $945
C. Credit WIP with $974
D. Debit WIP with $974
AACSB: Reflective
Difficulty: Medium
AACSB: Analytical Learning Objective: 4.02 Describe why managers need different measures of product costs for different purposes
Difficulty: Medium
Learning Objective: 4.10 Prorate underapplied or overapplied overhead to various inventory accounts
58. Bambie Ltd. applies overheads based on direct labour hours. The company has budgeted 50 000 direct labour
54. If the work in process inventory has increased during the period, which of the following statements is definitely true? hours at a cost of $10 per hour, and manufacturing overhead of $750 000 in the assembly division for the year. The
A. Cost of goods sold will be greater than cost of goods manufactured. actual direct labour hours used for the year turns out to be 47 000 hours. What is the applied overhead for the year?
B. Cost of goods manufactured will be greater than cost of goods sold. A. $705 000
C. Total manufacturing costs for the period will be greater than cost of goods manufactured. B. $70 500
D. Total manufacturing costs for the period will be less than cost of goods manufactured. C. $750 000
D. 500 000
AACSB: Reflective
Difficulty: Medium AACSB: Analytical
Learning Objective: 4.03 Outline the flow of costs through the manufacturing accounts used in product costing Difficulty: Easy
59. Which of the following about using proration to dispose of underapplied or overapplied overhead is correct? 63. Valuing inventories using net realisable value method requires managers to:
A. Proration is a less accurate method than closing the account to COGS, because it arbitrarily allocates A. estimate sales value of the components of the merchandise, less any anticipated conversion costs.
overhead between the COGS account, WIP account, and finished goods account. B. estimate costs of the merchandise based on the most recent job cost sheets.
B. Proration is a less accurate method than closing the account to COGS, because the process affects three C. estimate sales value of the merchandise less any anticipated costs of completing and selling the products.
accounts rather than just one account. D. estimate sales value of the merchandise, disregarding any anticipated costs of completing and selling the products.
C. Proration is a more accurate method than closing the account to COGS, because it recognises that
over/under estimation of overhead rate affects more than just the COGS account.
D. Proration is a more accurate method than closing the account to COGS, because the potential distortion is
spread out over three accounts. AACSB: Reflective
Difficulty: Easy
AACSB: Reflective
Difficulty: Medium
64. In a company where products undergo a number of separate processes, the process costing system
Learning Objective: 4.05 Distinguish between job costing and process costing and understand in which situations job costing or process costing may be A. is not appropriate and job costing system should be used instead.
the most appropriate costing system B. aggregates the costs of different processes and averages them out when calculating product costs.
C. requires the costs of undergoing different production processes to be determined simultaneously.
D. requires the costs of products that have completed processing in the earlier department to be transferred
60. Snoozo Moozo manufactures bed frames and mattresses that are custom-made to a person's height and weight. to the subsequent department.
It is a publicly listed company and therefore must comply with any applicable Australian accounting standards. Which of
the following statements is most correct?
A. Snoozo Moozo should use job costing as it is more applicable to their production process.
B. Snoozo Moozo should use process costing as it is more applicable to their production process. AACSB: Reflective
C. Snoozo Moozo should use process costing as it is more applicable to their production process and it is required Difficulty: Easy
under applicable accounting standards. the most appropriate costing system
D. Snoozo Moozo may use either job costing or processing cost, as both are acceptable under applicable
accounting standards and both methods can result in accurate production costs.
65. 65.
The following data apply to Brewers Ltd

AACSB: Reflective
Difficulty: Medium
61. A list of all materials required for a particular job is most commonly referred to as
A. a source document.
B. a bill of materials.
C. a purchase order.
D. a schedule of goods manufactured.
AACSB: Reflective
Difficulty: Easy

62. Snoozo Moozo manufactures bed frames and mattresses that are custom-made to a person's height and weight.
Last week, Stevie Oslow, a bed frame specialist, reported spending 35 hours working on a number of bed frames,
including 5 hours overtime. Barry is paid $20 per hour ordinarily, and $30 per hour when working overtime. Which of the A. $122 000
following journal entries are most appropriate in accounting for Barry's wages for the 35 hours? B. $135 000
A. Credit Wage Payable $750, Debit WIP $750 C. $145 000
B. Credit Wage Payable $750, Debit WIP $700, Debit Manufacturing overhead $50 D. $150 000
C. Credit Wage Payable $750, Debit WIP $600, Debit Manufacturing overhead $150
D. Credit Wage Payable $600, Credit other expenses $150, Debit WIP $750
AACSB: Analytical
Difficulty: Medium
AACSB: Analytical
Difficulty: Medium
66. 66.
The following data apply to Easy Chairs Ltd 69. Management can hold department managers responsible for costs incurred in their area by
A. tracking production costs to production departments.
B. dividing total production costs by the number of production areas.
C. keeping work in process to a minimum in each area.
D. employing experienced production managers.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 4.08 Estimate product costs using a basic process costing system, and prepare journal entries to record costs
70. 70.
Under AASB102 Inventories the cost of inventory must include
A. administration and selling costs.

B. transportation and handling costs.
C. storage costs.
D. abnormal wastage costs.
A. $420 000
B. $405 000
C. $385 000 AACSB: Reflective
D. $370 000 Difficulty: Medium

AACSB: Analytical
Difficulty: Medium
67. Which of the following factors influences management's approach to process costing?
A. The degree to which products are identical in their consumption of direct materials 1.
B. The existence of work in process inventory at the end of the accounting period
C. The degree to which products are identical in their specific production processes Wages paid to a supervisor in a factory are a part of:
Prime cost Conversion cost

AACSB: Reflective
Difficulty: Medium
Learning Objective: 4.08 Estimate product costs using a basic process costing system, and prepare journal entries to record costs
A.
68. In the general ledger, the production costs are transferred through the work in process inventory accounts to Yes No
A. production costs account.
B. costs of goods sold account. B.
C. finished goods inventory account. Yes Yes
D. work in process account.
C.
No No
AACSB: Reflective
Difficulty: Medium
Learning Objective: 4.08 Estimate product costs using a basic process costing system, and prepare journal entries to record costs D.
No Yes
AACSB: Reflective
Difficulty: Easy
4. Under Australian accounting standards, which methods can be used to prepare the departmental production report?
Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved A. Weighted average, first in first out and standard costing
B. Last in first out, first in first out and standard costing
C. Last in first out, standard costing, weighted average
2. Which of the following are components of conversion costs? D. First in first out, last in first out, weighted average and standard costing
A. Direct labour and direct materials
B. Indirect materials and manufacturing overhead
C. Direct labour and manufacturing overhead
AACSB: Analytical
D. Direct labour and indirect labour Difficulty: Medium
Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of
process costing
AACSB: Reflective
Difficulty: Medium 5. Rex Company Ltd had 4000 units in work in process at 1 April. During April, 11 000 units were completed. At
Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved
30 April, 5000 units remained in work in process. How many units were started during April?
A. 11 000
3. Which of the following represents a correct sequence in preparing a departmental production report? B. 5000
C. 12 000
A. Analysis of physical flow of units, computation of unit costs, calculation of equivalent units and analysis of total costs
D. 16 000
B. Analysis of physical flow of units, calculation of equivalent units, computation of unit costs and analysis of total costs
C. Analysis of total costs, calculation of equivalent units, computation of unit costs and analysis of physical flow of units
D. Analysis of total costs, analysis of physical flow of units, computation of unit costs and calculation of equivalent units
AACSB: Analytical
Difficulty: Medium
AACSB: Reflective process costing
Difficulty: Easy
6. Assuming that there was no beginning work in process inventory and the ending work in process inventory is
50 per cent complete as to conversion costs, the number of equivalent units as to conversion costs would be
A. the same as the units completed.
B. the same as the units placed in process.
C. less than the units completed.
D. less than the units placed in process.
AACSB: Analytical
Difficulty: Medium
process costing
7. Which of the following represents the production units used to calculate equivalent units under the weighted
average method?
A. Work to date on ending work in process + units started and completed.
B. All units completed + work to date on ending work in process.
C. Work to complete beginning work in process + work to date on ending work in process.
D. Work to complete beginning work in process + units completed – work done on ending work in process.
AACSB: Reflective
Difficulty: Easy
process costing
8. Rebex Chemical Company manufactures Compound 2 in two sequential departments. On June 1, Department 11. What is the inventory formula that shows the physical flow of production units during a given month,
2 had 3000 units, which were 50 per cent complete as to conversion cost. During June, 15 000 units were completed under the weighted average method?
and transferred from Department 1. On June 30, Department 2 had 4000 units, which were 20 per cent complete as to A. Physical units in beginning work in process + units started – units completed and transferred out = units in
conversion costs. How many units were completed and transferred from Department 2 during the month of June? ending work in process.
A. 11 000 B. Units in beginning work in process + units completed and transferred out + units started = units in ending
B. 12 500 work in process.
C. 14 000 C. Units started + units completed and transferred out + units in ending work in process = units in beginning
D. 15 700 work in process.
D. Units in beginning work in process – units started + units completed and transferred out = units in ending
work in process.
AACSB: Analytical
Difficulty: Medium
process costing AACSB: Reflective
Difficulty: Easy
process costing
9. Softcloth Textile Pty Ltd manufactures a variety of fabrics. The Weaving Department had 1000 units in work in
process on April 1, which were 20 per cent complete as to conversion costs. During April, 8000 units were completed
and transferred. On April 30, 4000 units remained in work in process 50 per cent complete as to conversion costs. Using 12. The major difference between weighted average and FIFO is
the weighted average method process costing, calculate the equivalent units of conversion for the month of April. A. how completed and transferred units are treated.
A. 12 000 B. how ending inventory is treated.
B. 9000 C. how beginning inventory is treated.
C. 9800 D. how current period costs are treated.
D. 10 000
AACSB: Reflective
AACSB: Analytical Difficulty: Easy
Difficulty: Medium Learning Objective: 5.03 Assign total production costs for a department to completed units and WIP inventory using the FIFO method of process costing
process costing
13. A company starts work on 1000 physical units and completes 75 per cent of conversion activity. The costs are
$1500 for conversion and $5000 for direct material. What is the cost per equivalent unit for conversion?
10. Softcloth Textile Pty Ltd manufactures a variety of fabrics. The Weaving Department had 1000 units in work in A. $1.00 per unit
process on April 1, which were 20 per cent complete as to conversion costs. During April, 8000 units were completed and B. $1.50 per unit
transferred. On April 30, 4000 units remained in work in process 50 per cent complete as to conversion costs. Using the C. $2.50 per unit
FIFO method of process costing, calculate the equivalent units of conversion for the month of April. D. $2.00 per unit
A. 9000
B. 9800
C. 10 000
D. 12 000 AACSB: Analytical
Difficulty: Easy
process costing
AACSB: Analytical
Difficulty: Medium
Learning Objective: 5.03 Assign total production costs for a department to completed units and WIP inventory using the FIFO method of process costing 14. A company starts work on 1000 physical units and completes 75 per cent of conversion activity. The costs are
$1500 for conversion and $5000 for direct material. What is the cost per equivalent unit for direct material?
A. $10.00 per unit
B. $5.00 per unit
C. $6.00 per unit
D. $6.67 per unit
AACSB: Analytical
Difficulty: Easy
process costing
15. 15. 17. 17.
If the FIFO method is used, the cost of beginning work in process should be included in: Given the following information, use the weighted average method to calculate cost per equivalent unit for the following materials.
Unit Cost Cost of units transferred out
A.
No Yes
B. A. $0.427
No No B. $0.4235
C. $0.55
C. D. $0.327
Yes No
D. AACSB: Analytical
Difficulty: Easy
Yes Yes Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of
process costing
AACSB: Reflective
Difficulty: Easy
18. Equivalent unit calculations are necessary to allocate manufacturing costs between:
Learning Objective: 5.03 Assign total production costs for a department to completed units and WIP inventory using the FIFO method of process costing A. cost of goods manufactured and ending work in process.
B. beginning work in process and units completed.
C. cost of goods manufactured and beginning work in process.
16. 16. D. cost of goods manufactured and cost of goods sold.
Which of the following are needed to calculate ending work in process under process costing?
AACSB: Reflective
Difficulty: Easy
Unit cost Equivalent units Cost in beginning work in process Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of
process costing
19. The FIFO method is a more accurate method than weighted average because:
A. A. it does not require the calculation of equivalent units.
No No Yes B. the costs of current period are not combined with the costs of the prior period.
C. it considers prior period costs during the current period.
B. D. it must be computerised in order to obtain accurate calculations.
Yes Yes No
C.
Yes Yes Yes AACSB: Reflective
Difficulty: Easy
Learning Objective: 5.03 Assign total production costs for a department to completed units and WIP inventory using the FIFO method of process costing
D.
Yes No No
AACSB: Reflective
Difficulty: Easy
process costing
20. 20. 23. In both job and process costing, the journal entry to record cost of goods sold is.
A. debit finished goods inventory and credit cost of goods sold.
Costs are accumulated by a responsibility centre for control purposes when using: B. debit finished goods inventory and credit work in process.
C. debit cost of goods sold and credit work in process.
D. debit cost of goods sold and credit finished goods inventory.
Job order costing Process costing
AACSB: Reflective
Difficulty: Easy
A.
Yes Yes 24. Which of the following statements about operation costing is true?
i. Conversion costs are accumulated by department.
B. ii. Direct material costs are accumulated by batch.
Yes No iii. It is a hybrid product costing system.
A. i, ii and iii
C. B. ii and iii
No Yes C. i and iii
D. i and ii
D.
Costs are irrelevant for control purposes
AACSB: Reflective
Difficulty: Easy
AACSB: Reflective Learning Objective: 5.05 Assign total production costs for a department to completed units and WIP inventory under a common hybrid costing system
Difficulty: Medium called ‘operation costing'
Learning Objective: 5.06 Recognise and explain important issues that influence the design of process costing and operation costing, including the use of
predetermined overhead and conversion costs and standard costs; determining the degree of completion; and the relevance of process costing for
responsibility accounting and for service firms
21. In both job and process costing, the journal entry to record predetermined overhead is.
A. debit work in process and credit raw materials inventory, salaries payable and manufacturing overhead.
B. debit work in process and credit manufacturing overhead applied.
C. debit manufacturing overhead and credit work in process and raw materials inventory.
D. debit manufacturing overhead and credit work in process inventory.
AACSB: Reflective
Difficulty: Easy
22. In both job and process costing, the journal entry to record completed goods is.
A. debit work in process and credit manufacturing overhead.
B. credit finished goods inventory and debit cost of goods sold.
C. debit finished goods inventory and credit work in process.
D. debit work in process inventory and credit finished goods inventory.
AACSB: Reflective
Difficulty: Easy
25. 25. 26. 26.
South River Chemicals Pty Ltd manufactures a product called Zybek. Direct materials are added at the beginning of the process and South River Chemicals Pty Ltd manufactures a product called Zybek. Direct materials are added at the beginning of the process and
conversion activity occurs uniformly throughout the process. The following data pertains to the month of May. conversion activity occurs uniformly throughout the process. The following data pertain to the month of May.
Using the FIFO method of process costing, calculate the equivalent units of direct materials and conversion activity for the month
of May.
A. DM 75 000; CC 69 400
Using the weighted average method of process costing, calculate the equivalent units of direct materials and conversion costs for the
month of May.
B. DM 75 000; CC 60 400
C. DM 60 000; CC 60 400
D. DM 68 000; CC 69 400
A. DM 75 000; CC 69 400
B. DM 75 000; CC 60 400 AACSB: Analytical
C. DM 60 000; CC 60 400 Difficulty: Medium
D. DM 68 000; CC 69 400 Learning Objective: 5.03 Assign total production costs for a department to completed units and WIP inventory using the FIFO method of process costing
AACSB: Analytical
Difficulty: Medium
process costing
27. 27. 28. 28.
South River Chemicals Pty Ltd manufactures a product called Zybek. Direct materials are added at the end of the process and South River Chemicals Pty Ltd manufactures a product called Zybek. Direct materials are added at the end of the process and
conversion activity occurs uniformly throughout the process. The following data pertain to the month of May. conversion activity occurs uniformly throughout the process. The following data pertain to the month of May.
Using the weighted average method of process costing, calculate the equivalent units of direct materials and conversion costs for the Using the FIFO method of process costing, calculate the equivalent units of direct materials and conversion activity for the month
month of May. of May.
A. DM 75 000; CC 69 400 A. DM 75 000; CC 69 400

B. DM 75 000; CC 60 400 B. DM 60 000; CC 60 400
C. DM 60 000; CC 60 400 C. DM 68 000; CC 69 400
D. DM 68 000; CC 69 400 D. None of the given answers
AACSB: Analytical AACSB: Analytical

Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of Learning Objective: 5.03 Assign total production costs for a department to completed units and WIP inventory using the FIFO method of process costing
process costing
29. 29. 30. 30.
Healthy Flavour is a food processing company that makes a product called Health Nut soup in two processes—blending and Healthy Flavour is a food processing company that makes a product called Health Nut soup in two processes—blending and
condensing. The output of the blending department is transferred to the condensing department. All materials are added at the condensing. The output of the blending department is transferred to the condensing department. All materials are added at the
beginning of the blending process, and conversion activity occurs uniformly throughout both processes. The following data pertain beginning of the blending process, and conversion activity occurs uniformly throughout both processes. The following data pertain
to the month of April in the blending department. to the month of April in the blending department.
Using the FIFO method of process costing, calculate the cost per equivalent unit of conversion activity for the month of April.
Using the FIFO method of process costing, calculate the equivalent units of direct materials for the month of April.
A. $0.5048
A. 60 000 B. $0.4169
B. 58 000 C. $0.4381
C. 55 000 D. None of the given answers
D. 50 000
AACSB: Analytical
AACSB: Analytical Difficulty: Medium
Difficulty: Easy Learning Objective: 5.07 Calculate product costs and prepare journal entries to record the flow of costs in a process costing system with sequential
Learning Objective: 5.07 Calculate product costs and prepare journal entries to record the flow of costs in a process costing system with sequential production departments
production departments
31. In which of the following ways is normal spoilage accounted for?

A. Expensed in the period in which it occurred
B. Included as part of the unit cost of output
C. Written off to cost of goods sold
D. Included in inventory valuation until year-end and then written off
AACSB: Reflective
Difficulty: Medium
Learning Objective: 5.04 Account for the costs of normal and abnormal spoilage under the weighted average method of process costing
32. In which of the following ways is abnormal spoilage accounted for? 35. Operational costing is appropriate where
A. Expensed in the period in which it occurred i. there are different material inputs.
B. Included as part of the unit cost of output ii. there are common material inputs.
C. Written off to cost of goods sold iii. processes are identical.
D. Included in inventory valuation until year-end and then written off iv. different combinations of specific processes apply to different products.
A. i and ii
B. ii and iii
C. ii and iv
AACSB: Reflective
Difficulty: Easy
D. i and iv
33. 33. AACSB: Reflective

Difficulty: Medium
Learning Objective: 5.05 Assign total production costs for a department to completed units and WIP inventory under a common hybrid costing system
The following data apply to Zilch Ltd in its mixing department for the month of April. All material is introduced at the start of the called ‘operation costing'
process and conversion occurs evenly through the process. Spoilage occurred at the midpoint in the process.
36. Operation costing is appropriate for products with the following characteristics.
i. Repetitive mass production
ii. Individual products
iii. Large batches with repetitive processes
iv. Some unique features, some common features
A. i and iii
B. i and iv
C. ii and iii
D. iii and iv
AACSB: Reflective
Difficulty: Easy
called ‘operation costing'
Using the weighted average method, what are the equivalent units for conversion? 37. Which of the following firms are more likely to use operational costing techniques?
i. Oil refineries
ii. Food processors
A. 85 000 iii. Large scale clothing manufacturers
B. 75 000 iv. Tourist operators
C. 77 000 A. i and ii
D. 82 000 B. ii and iii
C. i and iii
AACSB: Analytical
D. ii and iv
Difficulty: Medium
AACSB: Reflective
34. Abnormal spoilage costs assist management to Difficulty: Medium
A. control costs. called ‘operation costing'
B. control quality.
C. hold supervisors responsible.
AACSB: Reflective
Difficulty: Medium
38. Inventory valuation in operation costing requires 42. 42.
A. direct materials and conversion costs being traced to processes.
B. direct material and conversion costs being traced to batches. Process costing systems are suitable for firms that produce
C. direct materials traced to batches and conversion costs traced to processes. i. homogeneous products.
ii. heterogeneous products.
D. direct materials traced to processes and conversion costs traced to batches. iii. individual products.
iv. repetitive products.
AACSB: Reflective
Difficulty: Easy A. i and iii
Learning Objective: 5.05 Assign total production costs for a department to completed units and WIP inventory under a common hybrid costing system B. i and iv
called ‘operation costing' C. ii and iv
D. i and ii
39. Which of the following statement/s is/are true?
A. Weighted average costs provide a better basis for cost control than FIFO costs. AACSB: Reflective
B. Weighted average costs provide a better basis for performance evaluation than standard costs. Difficulty: Easy
C. Cost per equivalent unit provides a measure of production efficiency.
D. Weighted average costs provide a better basis for cost control than FIFO costs AND cost per equivalent unit
provides a measure of production efficiency. 43. The establishment of predetermined conversion costs for operation costing requires which of the following.
i. Budgeted level of the cost driver
ii. Budgeted direct labour costs
AACSB: Reflective iii. Budgeted manufacturing overhead costs
Difficulty: Easy A. i
Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved B. i and ii
C. i, ii and iii
D. i and iii
40. The technical term for costs moving between one department and the next in a multidepartment process is
A. transferred costs.
B. transferred out costs.
C. transferred in costs. AACSB: Reflective
D. prior costs. Difficulty: Easy
AACSB: Reflective 44. Assume material is added at the beginning of a process, and the beginning WIP inventory is 30 per cent
Difficulty: Easy complete as to conversion costs. Using the FIFO method of costing, the total equivalent units for material for this
Learning Objective: 5.07 Calculate product costs and prepare journal entries to record the flow of costs in a process costing system with sequential process during this period is equal to
A. units started this period in this process.
B. units started this period in this process plus 70 per cent of beginning inventory.
41. Which of the following inventory valuation method/s is/are less suited to cost control? C. beginning inventory this period for the process.
A. Weighted average costs D. units started this period in this process plus the beginning inventory.
B. First in first out cost
C. Standard costs
D. Weighted average costs AND standard costs AACSB: Reflective
Difficulty: Medium
AACSB: Reflective
Difficulty: Medium 45. Assume material is added at the beginning of a process, and the beginning WIP inventory is 30 per cent
complete as to conversion costs. Using the weighted average method of costing, the total equivalent units for material
for this process during this period is equal to
A. units started this period in this process.
B. units started this period in this process plus 70 per cent of beginning inventory.
C. beginning inventory this period for the process.
D. units started this period in this process plus the beginning inventory.
AACSB: Reflective
Difficulty: Medium
46. In a process costing system the cost of abnormal spoilage should be: 50. 50.
A. prorated between units transferred out and ending inventory.
B. included in the cost of units transferred out. Raphael's Refining uses a FIFO process costing system. For a particular period, its opening inventory consisted of 100 items (60 per
C. treated as a loss in the period incurred. cent complete as to conversion costs) whose costs were $1600 made up of material $300 and conversion cost $1300. During the
D. ignored. month, 1000 items were started and 950 were completed. Ending inventory of WIP was one-third complete. There was no spoilage.
Costs placed in process during the month were materials $1785 and conversion costs $13 865. Materials are added at the halfway
point. What is the amount of cost that would be allocated to goods completed in the period?
AACSB: Reflective
Difficulty: Easy A. $16 513
B. $16 900
C. $16 150
47. For a firm, which produces its product through two processes, the costs in opening work in process for Process D. $14 913
2 are best described as
A. prior process costs. AACSB: Analytical
B. transferred in costs. Difficulty: Hard
C. prior period costs.
D. conversion costs.
51. 51.
AACSB: Reflective South River Chemicals Pty Ltd manufactures a product called Zybek. Direct materials are added at the beginning of the process and
Difficulty: Easy conversion activity occurs uniformly throughout the process. The following selected data pertain to the month of May.
Learning Objective: 5.07 Calculate product costs and prepare journal entries to record the flow of costs in a process costing system with sequential
48. For a firm, which produces its product through two processes, the costs transferred into Process 2 from Process 1
can be described as
A. prior process costs.
B. transferred in costs.
C. prior period costs.
D. prior process costs AND transferred in costs.
AACSB: Reflective
Difficulty: Easy
49. Raphael's Refining uses a weighted average process costing system. For a particular period, its opening inventory
What are the unit costs for the period (rounded to two decimal places) assuming weighted average costing?
consisted of 100 items (60 per cent complete as to conversion costs) whose costs were $1600 made up of material $300
and conversion cost $1300. During the month, 1000 items were started and 950 were completed. Ending inventory of
WIP was one-third complete. There was no spoilage. Costs placed in process during the month were materials $1600 and
conversion costs $13 700. Materials are added at the halfway point. What is the amount of cost that would be allocated A. DM $7.38; CC $17.03
to goods completed in the period? B. DM $6; CC $14.78
A. $14 615 C. DM $7.38; CC $14.78
B. $16 513 D. DM $6; CC $17.03
C. $16 900
D. $16 150 AACSB: Analytical
Difficulty: Medium
AACSB: Analytical
Difficulty: Hard
process costing
52. 52. 54. Collins Chemicals produces a compound through two processes. For its second process for a particular period,
Collins had an opening WIP inventory of 100 units halfway through the process; 2300 units completed in the period; and
South River Chemicals Pty Ltd manufactures a product called Zybek. Direct materials are added at the beginning of the process and a closing WIP inventory of 400 units three-quarters of the way through the process. Materials are added at the beginning
conversion activity occurs uniformly throughout the process. The following data pertain to the month of May. of the process and conversion costs are incurred uniformly. Calculate the equivalent units for transferred in costs for the
period if the firm used FIFO costing.
A. 2300
B. 2400
C. 2500
D. 2600
AACSB: Reflective
Difficulty: Medium
55. Heara Ltd manufactures metal sheets and uses the weighted average method process costing. On 1 May the
Rolling Department had 2000 units work in progress, which were 20 per cent completed as to conversion costs. During
May 10 000 units were completed and transferred out. The remaining work in progress on 30 May was 50 per cent
complete in terms of conversion rate. If the equivalent unit is 12 000 units, what is the 30 May work in progress?
A. 4000 units
What are the unit costs for the period (rounded to two decimal places) assuming FIFO costing? B. 2000 units
C. 8000 units
D. 5000 units
A. DM $7.25; CC $15.62
B. DM $5.90; CC $13.55
C. DM $5.90; CC $15.62
D. None of the given answers AACSB: Analytical
Difficulty: Hard
process costing
AACSB: Analytical
Difficulty: Medium
56. Heara Ltd manufactures metal sheets, and uses the weighted average method process costing. On 1 May the
Rolling Department had 3000 units work in progress, which were 50 per cent completed as to conversion costs. During
53. Collins Chemicals produces a compound through two processes. For its second process for a particular period, May 8000 units were completed and transferred out. The remaining work in progress on 30 May was 2000 units, at 50
Collins had an opening WIP inventory of 100 units halfway through the process; 2300 units completed in the period; and per cent complete in terms of conversion rate. What is the equivalent unit of conversion?
a closing WIP inventory of 400 units three-quarters of the way through the process. Materials are added at the beginning A. 1000 units
of the process and conversion costs are incurred uniformly. Calculate the equivalent units for transferred in costs for the B. 2000 units
period if the firm used weighted average costing. C. 7500 units
A. 2300 D. 9000 units
B. 2500
C. 2600
D. 2700
AACSB: Analytical
Difficulty: Medium
process costing
AACSB: Reflective
Difficulty: Medium
57. Heara Ltd manufactures metal sheets, and uses the FIFO process costing. On 1 May the Rolling Department 61. Eldervale Winery produces premium wine in the Hunter Valley. During the bottling process, small amount of
had 3000 units work in progress, which were 50 per cent completed as to conversion costs. During May 8000 units spillage is often unavoidable. How should the costs associated with the spillage be treated?
were completed and transferred out. The remaining work in progress on 30 May was 2000 units at 50 per cent A. It should be included in the work in progress.
complete in terms of conversion rate. What is the equivalent unit of conversion? B. It should be expensed in the period the cost is incurred.
A. 2000 units C. It should be ignored in the work in progress account and reported only in the internal production reports.
B. 7500 units D. It should be expensed immediately under the FIFO method, but included in the work in progress in the
C. 9000 units weighted average method.
D. 10 500 units
AACSB: Reflective
Difficulty: Medium Learning Objective: 5.04 Account for the costs of normal and abnormal spoilage under the weighted average method of process costing
process costing
62. Owl's Hours produces herbal tea and prides itself in having one of the largest ranges of herbal teas in Australia. It
sells more than 50 varieties of tea leaves with a wide range of prices (depending on where the tea leaves are grown).
58. The difference in cost per equivalent units between the weighted average method and the FIFO method The production processes of its products is simple, but vary depending on whether the tea is sold as loose leaves (which
A. will be higher if there is no beginning work in process. requires packing tea leaves in various sized boxes) or tea bags (which requires additional process in packaging tea in
B. will be higher if there is no ending work in process. specially designed tea bags). Owl's Hours decides to use an operation costing system. This decision is
C. will disappear if there is no beginning work in process. A. correct, because the company uses a large variety of tea leaves as direct materials and yet has simple
D. will be lower if there is no ending work in process. production processes.
B. correct, because the company uses a large variety of tea leaves as direct materials and the different products
require different sequences of processes.
C. incorrect, because the different production lines require the tea leaves to be packaged in very distinctive methods.
AACSB: Reflective
Difficulty: Easy D. incorrect, because the company has a very homogenous product – it produces and sells only tea.
59. Latta Coffee Ltd has two main processes: roasting and packaging. Roasted coffee beans are transferred to the AACSB: Reflective
Difficulty: Medium
packaging department before the final product is shipped to customers. The following information for the month of April Learning Objective: 5.05 Assign total production costs for a department to completed units and WIP inventory under a common hybrid costing system
for the Roasting department is available: total cost of goods completed and transferred from Roasting department to called ‘operation costing'
Packaging department is $25 000; ending work in progress in April is $1000; number of equivalent units of conversion is
5000 units.
Which of the following journal entries is appropriate at the end of April? 63. Banana Shirts produces t-shirts in large batches. Most of its t-shirts are made of regular cotton, although some
A. Debit Packaging Department $26 000, Credit Roasting Department $26 000 are made from ethically produced cotton. The manufacturing process is relatively simple; most t-shirts go through similar
B. Debit Packaging Department $25 000, Credit Roasting Department $25 000 processes; the main difference is whether the t-shirt requires embroidery or printing. The most appropriate costing
C. Debit Roasting Department $26 000, Credit Packaging Department $26 000 system for Banana Shirts is
D. Debit Roasting Department $25 000, Credit Packaging Department $25 000 A. process costing system.
B. job costing system.
C. operation costing systems.
D. both job costing system and operation costing system are appropriate.
AACSB: Reflective
Difficulty: Easy
process costing
AACSB: Reflective
Difficulty: Medium
60. Eldervale Winery produces premium wine in the Hunter Valley. Jasmine Droll, the vineyard manager who is called ‘operation costing'
responsible for overseeing the grape harvest, ignores company guidelines and decides to hire some inexperienced
harvest workers. As a result a lot of good grapes are wasted. For the purpose of product costing, the losses
associated with this grape wastage should be treated as
A. unethical spoilage.
B. abnormal spoilage.
C. normal spoilage.
D. overhead labour costs.
AACSB: Reflective
Difficulty: Medium
64. Which of the following is not required when calculating the equivalent units for
conversion? i Percentage of conversion for ending work in progress
ii Percentage of conversion for physical units that have been completed and transferred out of the department 68. At Hilltop Dairy Producers Pty Ltd, an employee ignored the standard sterilising procedures before beginning the
iii. Cost of direct materials new batch of low fat milk causing the batch to curdle. This would be regarded as
A. i only A. spoilage.
B. i and ii B. normal spoilage.
C. i, ii and iii C. expected spoilage.
D. i and iii D. abnormal spoilage.

Difficulty: Medium Reflective
Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved Difficulty: Easy
65. Management uses predetermined overhead costs when costs and cost drivers are
69. When accounting for the costs of abnormal spoilage at the end of the period, the costs of abnormal spoilage are
A. reliable.
B. predictable. A. included as part of the cost of unit completed.
C. unstable. B. expensed as loss on abnormal spoilage in the current period.
D. stable. C. included in the cost of finished goods.
D. expensed as closing work in process in the current period.
AACSB: Reflective
Difficulty: Easy AACSB:
Learning Objective: 5.06 Recognise and explain important issues that influence the design of process costing and operation costing, including the use of Reflective
predetermined overhead and conversion costs and standard costs; determining the degree of completion; and the relevance of process costing for Difficulty: Medium
responsibility accounting and for service firms Learning Objective: 5.04 Account for the costs of normal and abnormal spoilage under the weighted average method of process costing
66. Process costing is only suitable for products that are 70. Which of the following product features would best suit a hybrid costing system?
A. heterogeneous. A. Identical and unique features
B. homogeneous. B. Identical and very similar features
C. harmonious. C. Some unique and common features
D. None of the given answers D. Some unique and individual features

Difficulty: Medium Reflective
Learning Objective: 5.06 Recognise and explain important issues that influence the design of process costing and operation costing, including the use of Difficulty: Medium
predetermined overhead and conversion costs and standard costs; determining the degree of completion; and the relevance of process costing for Learning Objective: 5.05 Assign total production costs for a department to completed units and WIP inventory under a common hybrid costing system
responsibility accounting and for service firms called ‘operation costing'
67. Standard costs are based on estimates of cost of materials, labour and overheads. Standard costs are also known as Chapter 08 Testbank Key
A. actual costs.
B. forecasted costs.
C. expected costs.
D. budgeted costs.
A. Traditional costing systems tend to over cost high-volume product lines.
AACSB: Reflective
B. Traditional costing systems tend to create a product cost distortion problem.
Difficulty: Easy C. In traditional costing, the high-volume products are often subsidising the low-volume products.
Learning Objective: 5.06 Recognise and explain important issues that influence the design of process costing and operation costing, including the use of D. Traditional product costing systems recognise a range of non-volume-based cost drivers.
predetermined overhead and conversion costs and standard costs; determining the degree of completion; and the relevance of process costing for
responsibility accounting and for service firms
AACSB: Reflective
Difficulty: Easy
Learning Objective: 8.01 Explain the problems associated with traditional costing systems

5. Which of the following can signal the need for a new product costing system?
A. Bids won and lost are difficult to explain.
A. Under traditional costing, product cost distortions will be relatively insignificant if overhead costs are a small B. Competitors' high-volume products are priced unreasonably low.
proportion of product cost. C. Our low-volume products are priced low compared to competitors.
B. Activity-based costing will significantly improve the product cost accuracy where overhead costs are a small D. All of the given answers.
proportion of total costs.
C. Activity-based costing will significantly improve product cost accuracy where there is significant product diversity.
D. Upstream and downstream costs are often a significant part of a product's costs.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 8.02 Recognise common indicators of an outdated product costing system
AACSB: Reflective
Difficulty: Easy
Learning Objective: 8.01 Explain the problems associated with traditional costing systems 6. A resource driver is:
A. a factor that causes a cost.
B. a unit of work performed within the organisation.
3. Which of the following statements regarding activity-based costing (ABC) is false? C. used to estimate the cost of resources consumed by an activity.
A. ABC can be used to measure the cost of cost objects. D. a factor that causes a cost AND is used to estimate the cost of resources consumed by an activity.
B. ABC can be used to analyse the profitability of customers.
C. ABC is not an appropriate tool for analysing non-manufacturing costs.
D. ABC evolved as a response to problems with traditional costing systems.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 8.03 Describe both the costing view and the activity-management view of the activity-based costing (ABC) model
AACSB: Reflective
Difficulty: Easy
Learning Objective: 8.01 Explain the problems associated with traditional costing systems 7. A cost driver:
A. is a factor that causes a cost.
B. may also be a resource driver.
4. Which of the following can signal the need for a new product costing system? C. is a unit of work performed within the organisation.
A. Line managers do not believe reported product costs. D. is a factor that causes a cost AND may also be a resource driver.
B. Complex products have high reported profitability while more basic high-volume products show small margins
or even losses.
C. Overhead rates are high and increasing.
D. All of the given answers. AACSB: Reflective
Difficulty: Easy
AACSB: Reflective
Difficulty: Easy 8. Activity management:
Learning Objective: 8.02 Recognise common indicators of an outdated product costing system A. is another name for activity-based costing.
B. is the same as the comprehensive activity-based product costing system.
C. uses activity information to monitor and control what is happening in a business.
D. None of the given answers.
AACSB: Reflective
Difficulty: Easy
9. Which of the following statements is/are true? 13. Activity-based costing has most to offer where:
i. Activity management requires analysis of overhead activities only. A. overhead is high and volume driven.
ii. Activity management requires analysis of all activities. B. overhead is high and non-volume driven.
iii. Activity management requires identification of detailed activities, rather than broad activities. C. overhead is low and non-volume driven.
A. iii D. direct labour is a major proportion of total costs.
B. ii
C. i and iii
D. ii and iii
AACSB: Reflective
Difficulty: Easy
Learning Objective: 8.07 Recognise which types of organisations can gain the greatest benefits from activity-based costing
AACSB: Reflective
Difficulty: Easy
Learning Objective: 8.03 Describe both the costing view and the activity-management view of the activity-based costing (ABC) model 14. Consider the following statements. Traditional costing systems can produce distorted product costs if:
i. overheads are driven by non-volume factors.
ii. overheads are a minor part of the product cost.
10. Characteristics of activity-based costing include: iii. it fails to recognise non-manufacturing costs as product
A. a greater number of overhead cost application bases compared to traditional costing systems. costs. Which of the statements is true?
B. the overhead cost application bases are likely to be more accurate cost drivers than would be the case in A. i
traditional costing systems. B. ii
C. the simplicity of the system makes it easy to implement. C. iii
D. a greater number of overhead cost application bases compared to traditional costing systems AND the overhead D. i and iii
cost application bases are likely to be more accurate cost drivers than would be the case in traditional costing systems.
AACSB: Reflective
Difficulty: Easy Learning Objective: 8.07 Recognise which types of organisations can gain the greatest benefits from activity-based costing
15. Consider the following statements. Activity-based costing is more difficult in a service business because:
11. Companies are likely to benefit from activity-based costing systems if: i. service businesses have a low proportion of overhead in their total costs.
A. they have wide variations in the volume of individual production runs and setups are costly. ii. service businesses tend to have a higher level of facility costs than most manufacturers.
B. they have a narrow range of products with similar volumes and setups are costly. iii. it is often difficult to identify service activities because they are
C. they have a narrow range of products and setups are not costly. non-repetitive. Which of the above statements is true?
D. None of the given answers. A. i
B. ii
C. ii and iii
D. i, ii and iii
AACSB: Reflective
Difficulty: Medium
AACSB: Reflective
Difficulty: Easy
12. Consider the following statements. Which of the statements is true? Learning Objective: 8.12 Describe the difficulties of implementing activity-based costing in service organisations
A. As the activity-based system accuracy increases, the cost of inferior decisions based on distorted product
costs decreases.
B. As the activity-based system accuracy increases, the costs of implementing and operating the system increase. 16. Consider the following statements.
C. As the activity-based system accuracy increases, the total cost from inferior decisions and the cost to i. The optimal product costing system is the most accurate system.
implement and operate the system decrease. ii. The optimal product costing system is the one that minimises the cost of poor decisions from inferior information.
D. As the activity-based system accuracy increases, the cost of inferior decisions based on distorted product iii. The optimal product costing system is the most
costs decreases AND as the activity-based system accuracy increases, the costs of implementing and operating the expensive one. Which of the statements is true?
system increase. A. i
B. ii
C. iii
AACSB: Reflective
Difficulty: Easy
AACSB: Reflective
Difficulty: Medium
17. In a simple activity-based product costing system: 21. An activity cost pool:
A. direct material, direct labour, manufacturing overhead and non-manufacturing overhead are assigned to products A. is a combination of a number of activities.
on an activity basis. B. must be made up of activities at the same level.
B. direct material is traced using a traditional approach, while direct labour, manufacturing overhead C. can only be used at the product level.
and non- manufacturing overhead are assigned to products on an activity basis. D. is a combination of a number of activities AND must be made up of activities at the same level.
C. direct material and direct labour are traced using a traditional approach, manufacturing overhead is assigned
on an activity basis and non-manufacturing overhead is expensed as it is incurred.
D. direct material, direct labour and manufacturing overhead are traced using a traditional approach,
and non- manufacturing overhead is assigned on an activity basis. AACSB: Reflective
Difficulty: Easy
Learning Objective: 8.05 Use the activity-based costing model to measure the overhead costs of activities and assign these activity costs to products
AACSB: Reflective
Difficulty: Easy
22. 22.
Learning Objective: 8.04 Describe the different approaches to activity-based costing, which include different subsets of costs
Quality Carvings manufactures furniture. They have decided to develop an activity-based costing system. Shown below is each activity,
its cost and the activity driver used to assign these costs to products.
18. Calculate the cost per unit for setup for one run of 10 000 units if setup labour is $20 per hour and 10
hours are required to set up.
A. $0.04 per unit.
B. $0.06 per unit.
C. $2.00 per unit.
D. $0.02 per unit.
AACSB: Analytical
Difficulty: Easy
19. Calculate the activity cost per unit of activity driver if the activity cost is $3500, the activity driver is the
number of batches and the total quantity of the activity driver is 1750 batches. Under an activity-based costing system, what is the activity cost per unit of activity driver for processing orders?
A. $3.00 per batch.
B. $1.50 per batch.
C. $2.00 per batch. A. $93.33
D. $2.50 per batch. B. $25.20
C. $25.40
D. $62.00
AACSB: Analytical
Difficulty: Easy AACSB: Analytical
Learning Objective: 8.05 Use the activity-based costing model to measure the overhead costs of activities and assign these activity costs to products Difficulty: Easy
20. Calculate the cost of processing one sales order if the total activity cost is $1 720 000 p.a., the activity driver
is the number of orders received and the annual quantity of the activity driver is
43 000 orders.
A. $20 per order.
B. $25 per order.
C. $40 per order.
D. $50 per order.
AACSB: Analytical
Difficulty: Easy
Quality Carvings manufactures furniture. They have decided to develop an activity-based costing system. Shown below is each activity, Summer Ice Pty Ltd is a manufacturer of a range of ice cream products. The following is a list of activities, costs and quantities
its cost and the activity driver used to assign these costs to products. of activity drivers for a number of activities that occur in the factory.
Under an activity-based costing system, what is the activity cost per unit of activity driver for making patterns?
Under an activity-based system, what is the activity cost per unit of activity division for packing into containers?
A. $4.73
B. $10.00 A. $0.06
C. $17.50 B. $0.05
D. $21.50 C. $0.02
D. $0.04
AACSB: Analytical
Learning Objective: 8.05 Use the activity-based costing model to measure the overhead costs of activities and assign these activity costs to products Difficulty: Easy
24.
26. In an activity-based costing system, a bill of activities will include:
Summer Ice Pty Ltd is a manufacturer of a range of ice cream products. The following is a list of activities, costs and quantities A. a charge for allocated overhead.
of activity drivers for a number of activities that occur in the factory. B. the activity cost per unit of activity driver.
C. the quantity of activity consumed.
D. the activity cost per unit of activity driver AND the quantity of activity consumed.
AACSB: Reflective
Difficulty: Medium
27. Which of the following is not a useful broad category of cost classification in activity-based costing?
A. The unit level activity.
B. The batch level activity.
C. The facility level activity.
D. The differential level activity.
Under an activity-based costing system, what is the activity cost per unit of activity driver for measuring ingredients?
A. $12.90 AACSB: Reflective

B. $15.00 Difficulty: Easy
C. $13.80
D. $14.00
AACSB: Analytical
Difficulty: Easy
28. Which of the following are examples of batch level activities?
A. Machine setup.
B. Materials handling.
C. Machining.
D. Machine setup AND materials handling.
AACSB: Reflective
Difficulty: Easy
29. Consider the following statements regarding traditional costing systems.

i. All overhead costs are assumed to be driven by volume of production.
ii. All product costs are direct costs.
iii. Traditional costing systems tend to distort product costs when numerous products are made that vary
in their production requirements.
Which statement/s is/are true?
A. i
B. ii and iii The following information pertains to each product line of CD players:
C. i and iii
D. ii
AACSB: Reflective
Difficulty: Easy
30. Consider the following statements.

i. Product diversity creates problems in product costing because diverse products tend to utilise productive
activities in very different ways.
ii. Overhead costs that are not incurred at the unit level create product-costing problems because they do not Under an activity-based product costing system, what is the cost per unit of Cheap?
vary with measures such as direct labour hours or machine hours.
iii. Product diversity exists when a single product, such as pens, are made in different
colours. Which of the above statement/s is/are true? A. $141.00
A. i B. $272.00
B. ii C. $164.00
C. i and ii D. $228.24
D. i and iii
AACSB: Analytical
Difficulty: Hard
AACSB: Reflective
Difficulty: Medium
The level of activity for the year is:
The following information pertains to each product line of CD players:
Under an activity-based costing system, what is the activity cost per unit of activity driver for machine setups?
A. $5000 per setup.

Under an activity-based product costing system, what is the cost per unit of Econo (to the nearest dollar)? B. $2500 per setup.
C. $1200 per setup.
D. $1667 per setup.
A. $272
B. $282
AACSB: Analytical
C. $228 Difficulty: Easy
D. $320 Learning Objective: 8.05 Use the activity-based costing model to measure the overhead costs of activities and assign these activity costs to products
AACSB: Analytical
Difficulty: Hard
Under an activity-based costing system, what is the activity cost per unit of activity driver for assembly?
Under an activity-based costing system, what is the activity cost per unit of activity driver for material handling?
A. $2.00 per part. A. $4.80 per part

B. $16.67 per part. B. $24 per direct labour hour
C. $2.50 per part. C. $10 per part
D. $5.00 per part. D. $10 per direct labour hour
AACSB: Analytical
AACSB: Analytical
Difficulty: Easy
Difficulty: Easy
Under an activity-based costing system, what is the activity cost per unit of activity driver for finishing? Under an activity-based costing system, what is the total cost of lounge chairs for the year?
A. $7.50 per direct labour hour. A. $1 710 000

B. $30.00 per direct labour hour. B. $1 410 000
C. $25.00 per unit. C. $890 000
D. $30.00 per unit. D. $1 150 000

Learning Objective: 8.05 Use the activity-based costing model to measure the overhead costs of activities and assign these activity costs to products Learning Objective: 8.05 Use the activity-based costing model to measure the overhead costs of activities and assign these activity costs to products
40. Which of the following statements is true? Indicators of problems with product cost systems exist when:
i. non-manufacturing costs that are product related become insignificant.
ii. the proportion of manufacturing overhead not driven by production volume increases.
iii. there is an increase in product diversity.
A. i
B. ii
C. iii
D. ii and iii
AACSB: Reflective
Difficulty: Easy
41. Which of the following statements, as indicators of product cost systems, are out of date?
i. Highly profitable products are difficult to make.
ii. Competitors' prices appear to be very low.
iii. The market easily absorbs price increases.
A. i
B. i and iii
C. ii and iii
D. i, ii and iii
AACSB: Reflective
Difficulty: Easy
Under an activity-based costing system, what is the total cost of patio chairs for the year? Learning Objective: 8.02 Recognise common indicators of an outdated product costing system
A. $1 150 000 42. The benefits arising from the introduction of activity-based costing are likely to be greater where:
B. $890 600 i. overhead is a large proportion of total cost.
C. $1 710 000 ii. implementation costs are not high due to the support of advanced IT systems.
D. $590 000 iii. batches are of a similar size.
A. i and ii
B. i and iii
AACSB: Analytical
C. ii and iii
Difficulty: Medium
Learning Objective: 8.05 Use the activity-based costing model to measure the overhead costs of activities and assign these activity costs to products D. None of the given answers
39. Traditional product costing systems result in inaccurate product costs when:
AACSB: Reflective
A. direct labour increases.
Difficulty: Medium
B. the proportion of direct labour and raw material increases. Learning Objective: 8.07 Recognise which types of organisations can gain the greatest benefits from activity-based costing
C. product diversity increases.
D. the proportion of direct labour and raw material increases AND product diversity increases.
43. Which of the following are usually included in traditional cost systems?
i. Direct material is traced to products.
ii. Non-manufacturing costs are assigned to products.
AACSB: Reflective
Difficulty: Medium
iii. Manufacturing overhead is allocated using a production-volume-based cost driver.
Learning Objective: 8.01 Explain the problems associated with traditional costing systems A. i
B. ii
C. iii
D. i and iii
AACSB: Reflective
Difficulty: Easy
44. Which of the following are common production volume measures? 47. Which of the following are indicators of an outdated costing system?
i. Direct labour hours. i. Products which are difficult to make have high profit margins.
ii. Machine hours. ii. Competitors prices appear unrealistically low.
iii. Direct material cost. iii. Customers are not deterred by price increases.
A. i and ii iv. A lot of time is spent on special product cost projects.
B. ii and iii A. i, ii and iii
C. i and iii B. ii, iii and iv
D. iii only C. i, iii and iv
D. i, ii, iii and iv
AACSB: Reflective
Learning Objective: 8.01 Explain the problems associated with traditional costing systems Difficulty: Easy
45. Recent developments in manufacturing and marketing have resulted in significant changes to cost
manufacturing structures. Which of the following statements is/are false? 48. In which of the following may a traditional costing system result?
i. The proportion of direct labour increases. A. The product costs are distorted.
ii. The proportion of manufacturing overhead increases. B. Complex products are under-costed.
iii. Product diversity decreases. C. Simple products are over-costed.
iv. The proportion of non-volume-related manufacturing overheads increases. D. All the given answers.
A. i and ii
B. i and iii
C. ii and iii
AACSB: Reflective
D. iii and iv Difficulty: Medium
AACSB: Reflective 49. One of the results of the inaccuracies arising from traditional costing systems may be:
Difficulty: Easy
Learning Objective: 8.01 Explain the problems associated with traditional costing systems A. overhead costs are overapplied.
B. overhead costs are underapplied.
C. actual overheads exceed overhead applied.
46. Recent increases in downstream costs have occurred because of: D. overhead costs are underapplied AND actual overheads exceed overhead applied.
i. increased advertising and product promotion.
ii. increased customer servicing.
iii. increased competition.
AACSB: Reflective
iv. increases in product design. Difficulty: Medium
A. i and ii Learning Objective: 8.02 Recognise common indicators of an outdated product costing system
B. ii and iii
C. iii and iv
D. i, ii and iii 50. Despite the obvious advantages of ABC, many firms are still reluctant to implement it. What are the reasons
for this reluctance?
i. Uncertainty about the benefits of ABC.
ii. The opinion that the current system serves all the firm's needs.
AACSB: Reflective iii. Lack of resources to implement ABC.
Difficulty: Easy
Learning Objective: 8.01 Explain the problems associated with traditional costing systems A. i and ii
B. ii and iii
C. i and iii
D. i, ii and iii
AACSB: Reflective
Difficulty: Easy
Learning Objective: 8.08 Outline various design issues to be considered when implementing activity-based costing, including budgeted versus actual
costs, implementation of activity-based costing as a ‘project’ and the inclusion of other cost objects
51. Which of the following statements is/are true? 55. A cost driver is:
i. Both traditional cost systems and ABC focus on resources supplied. A. a collection of cost pools.
ii. Plant and equipment is an example of a committed resource under an ABC system. B. a cost-allocation base chosen arbitrarily.
iii. Committed resources always equal resources used. C. any factor that caused costs to be incurred.
A. i D. costs that behave in a similar manner.
B. ii
C. iii
D. ii and iii
AACSB: Reflective
Difficulty: Easy
AACSB: Reflective
Difficulty: Easy
Learning Objective: 8.09 Explain the implications of spare capacity for estimating the cost of activities 56. Appropriate cost-driver identification depends on:
A. a cause-and-effect relationship existing between the cost driver and costs of the activity.
B. the number of cost pools used.
52. Behavioural issues may be important in implementing an ABC system. Which of the following are some C. homogeneity of cost pools.
of the methods employed to minimise adverse outcomes? D. the number of products produced or services provided.
i. Use a top down approach.
ii. Use a bottom up approach.
iii. Ensure all employees have a sense of ownership in the system.
AACSB: Reflective
A. i and ii Difficulty: Easy
B. ii and iii Learning Objective: 8.02 Recognise common indicators of an outdated product costing system
C. iii
D. i and iii
57. Volume-based measures may be used to apply overhead when:
A. production runs are of various sizes and overhead costs are directly proportional to the size of the run.
B. production runs are of various sizes but each run has a constant setup time.
AACSB: Reflective C. purchasing costs are related to the number of purchase orders not the number of items bought.
Difficulty: Easy
Learning Objective: 8.10 Appreciate the importance of 'behavioural issues' in implementing activity-based costing D. material handling costs are driven by the number of materials issued to production, and components
are used differentially by different products.
53. Which of the following are limitations of ABC?

i. The system requires significantly more data.
AACSB: Reflective
ii. The system requires extensive updating if the product range changes. Difficulty: Hard
iii. The inclusion of facility level costs greatly increases the accuracy of cost per unit. Learning Objective: 8.01 Explain the problems associated with traditional costing systems
A. i and ii
B. i and iii
C. i, ii and iii 58. Direct labour hours or direct labour dollars are suitable overhead allocation bases when:
D. None of the given answers A. overhead costs are insignificant.
B. direct labour details are readily available.
C. direct material costs are highly correlated with direct labour hours.
D. they have been used satisfactorily in the past.
AACSB: Reflective
Difficulty: Medium
Learning Objective: 8.08 Outline various design issues to be considered when implementing activity-based costing, including budgeted versus actual
costs, implementation of activity-based costing as a ‘project’ and the inclusion of other cost objects
AACSB: Reflective
Difficulty: Medium
54. Which of the following statements best completes this sentence: 'Activity-based costing…'
A. asserts that cost behaviour can best be determined if the split between fixed and variable cost is ignored.
59. Which of the following is not an indicator of a company whose costing system needs to be more accurate?
B. has replaced standard costing as the preferred method of allocating costs to products.
A. Competitors' prices seem unrealistically low.
C. is based on allocating fixed overheads based on the elements that drive them.
B. Products that are difficult to make have low profit margin.
D. emphasises the need to obtain a better understanding of the behaviour of overhead costs.
C. At the end of the year, there is a significant amount of overapplied overhead.
D. Customers are not deterred by a significant increase in prices.
AACSB: Reflective
Difficulty: Medium
Learning Objective: 8.03 Describe both the costing view and the activity-management view of the activity-based costing (ABC) model AACSB: Reflective
Difficulty: Easy
60. Twista Manufacturing has the following activities and activity costs per year: Machining ($20 000); Forklifting
($10 000); machine setup ($32 000) and quality inspection ($40 000). The operation starts with setting up the
machines; each batch of products requires a different setup. This is followed by machining, where the cost of machining
varies directly with the number of machine hours. Forklifts are used to move the work in progress around. Because
quality is important, an inspection is carried out for each batch of products.
The following information is also available:
Number of machine hours per year: 20 000 machine hours
Number of forklift moves per year: 500 moves
Number of batches per year: 4000 batches
Each year, Twista Manufacturing produces 5000 units of Product X. These units of Product X require 5000 machine
hours, 120 moves and 500 batches to produce. The direct materials and direct labour together cost $15 per unit of
Product X. The forklifting costs and machine set up costs allocated to Product X are:
Which of the following activities should be grouped together in the same activity cost pool? A. $2400 and $4000.
A. Machining and machine set up. B. $5000 and $9000.
B. Machine set up and quality inspection. C. $2400 and $5000.
C. Forklifting and quality inspection. D. $5000 and $4000.
D. Machining and forklifting.
AACSB: Analytical
Difficulty: Medium Learning Objective: 8.05 Use the activity-based costing model to measure the overhead costs of activities and assign these activity costs to products
63. Twista Manufacturing has the following activities and activity costs per year: Machining ($20 000); Forklifting ($10
61. Twista Manufacturing has the following activities and activity costs per year: Machining ($20 000); Forklifting 000); machine setup ($32 000), and quality inspection ($40 000). The operation starts with setting up the machines;
($10 000); machine setup ($32 000), and quality inspection ($40 000). The operation starts with setting up the each batch of products requires a different setup. This is followed by machining, where the cost of machining varies
machines; each batch of products requires a different setup. This is followed by machining, where the cost of machining directly with the number of machine hours. Forklifts are used to move the work in progress around. Because quality is
varies directly with the number of machine hours. Forklifts are used to move the work in progress around. Because important, an inspection is carried out for each batch of products.
quality is important, an inspection is carried out for each batch of products. The following information is also available:
The following information is also available: Number of machine hours per year: 20 000 machine hours
Number of machine hours per year: 20 000 machine hours Number of forklift moves per year: 500 moves
Number of forklift moves per year: 500 moves Number of batches per year: 4000 batches
Number of batches per year: 4000 batches Each year, Twista Manufacturing produces 5000 units of Product X. These units of Product X require 5000 machine
Each year, Twista Manufacturing produces 5000 units of Product X. These units of Product X require 5000 machine hours, 120 moves and 500 batches to produce. The direct materials and direct labour together cost $15 per unit of
hours, 120 moves and 500 batches to produce. The direct materials and direct labour together cost $15 per unit of Product X.
Product X. The machining costs and quality inspection costs allocated to each unit of Product X are:
Which of the following are the correct activity rates for machining and quality inspection? A. $0.16 and $0.32
A. $1 per machine hour and $2 per machine hour. B. $1 and $2
B. $5 per batch and $10 per batch. C. $0.5 and $1
C. $2400 and $5000. D. $1 and $1
D. $1 per machine hour, and $10 per batch.
AACSB: Analytical
Difficulty: Medium Learning Objective: 8.05 Use the activity-based costing model to measure the overhead costs of activities and assign these activity costs to products
67. Cofission Electronics make small electronic parts. The management accountant at Cofission, Jasmine Vake,
decides to implement an activity-based costing (ABC) system. She lists the following points to support her decision:
i. The recent cost report shows that the ratio of prime costs to manufacturing overhead cost is approximately 1:3.
ii. Cofission is a small company.
iii. Cofission has three product lines: basic parts (parts that are common to many products and many
suppliers), customised parts (electronic parts that are highly customised to very specialised electric motors),
prototypes (where Cofission Electronics need to design as well as manufacture these specialised electronic parts).
iv. Cofission Electronics has recently implemented a flexible manufacturing system; this practically eliminates any
setup costs; with this system, product customisation takes very little additional time.
You are not convinced that all of the above points support Jasmine's decision. Which of the above points support the use
of ABC in Cofission?
The total cost for one unit of Product X is: A. i, ii and iii
A. $20.10 B. ii, iii and iv
B. $18.28 C. i and iii
C. $5.10 D. iii and iv
D. $3.28
AACSB: Analytical
Difficulty: Medium
AACSB: Analytical Learning Objective: 8.05 Use the activity-based costing model to measure the overhead costs of activities and assign these activity costs to products
Difficulty: Hard
68. Cofission Electronics make small electronic parts. The management accountant at Cofission, Jasmine Vake,
65. Puff Animal Hospital looks after the health of household pets such as dogs, cats, birds and rabbits. The hospital decides to implement an activity-based costing (ABC) system. She lists the following points to support her decision:
wants to use an activity based costing system to allocate costs to each animal case it handles. These cases tend to vary i. The recent cost report shows that the ratio of prime costs to manufacturing overhead cost is approximately 1:3
in their complexity: some pets are here for a regular check ups and immunisation; other pets have emergencies that ii. Cofission is a small company.
require surgery. Some pets are very exotic and require the attention of the supervisor vet; others are common animals iii. Cofission has three product lines: basic parts (parts that are common to many products and many
with common problems such that only the junior vets are needed. Puff Animal Hospital is quite large; on average there suppliers), customized parts (electronic parts that are highly customized to very specialized electric motors),
are five vets, a general assistant, and two receptionists on duty at one time. prototypes (where Cofission Electronics need to design as well as manufacture these specialized electronic parts).
Which of the following is NOT a reason that supports the use of activity-based costing at Puff Animal Hospital? iv. Cofission Electronics has recently implemented a flexible manufacturing system; this practically eliminates any
A. There are a variety of different activities involved for cases that vary in complexity. setup costs; with this system, product customization takes very little additional time.
B. It is easy to trace the time each vet spent on different animals. You are not convinced that all of the above points support Jasmine's decision. Which of the above points contradict
C. The hospital is large and therefore likely to have a lot of indirect costs. Jasmine's decision?
D. Some cases require surgery which means using surgery facilities; other cases do not. A. i and ii
B. i
i C.
AACSB: Reflective i, ii and iv

Difficulty: Medium
D. ii and iv
66. Puff Animal Hospital looks after the health of household pets such as dogs, cats, birds and rabbits. The hospital
wants to use an activity based costing system to allocate costs to each animal case it handles. These cases tend to vary AACSB: Reflective
in their complexity: some pets are here for a regular check ups and immunization; other pets have emergencies that Difficulty: Hard
require surgery. Some pets are very exotic and require the attention of the supervisor vet, others are common animals Learning Objective: 8.07 Recognise which types of organisations can gain the greatest benefits from activity-based costing
with common problems such that only the junior vets are needed. Puff Animal Hospital is quite large; on average there
are five vets, a general assistant, and two receptionists on duty at one time.
Which of the following is an example of a facility sustaining activity for Puff Animal Hospital? 69. Which of the following rates would not be used to assign manufacturing overhead costs to products?
A. The supervisor vet supervises junior vets in some of the more complex cases. A. Activity-based rates
B. Processing invoices. B. Facility rates
C. The general vet gives health checks for small dogs. C. Plantwide rates
D. The general assistant cleans the hospital. D. Departmental rates

Difficulty: Hard Difficulty: Easy
Learning Objective: 8.05 Use the activity-based costing model to measure the overhead costs of activities and assign these activity costs to products Learning Objective: 8.06 Explain the differences between product costs prepared under activity-based costing and those prepared under traditional
costing systems
70. When moving from a traditional costing system to an activity-based system, there is a significant improvement
in the accuracy of the product costs because:
A. simple activity costing assumes that all manufacturing overhead costs are driven by the volume of production. 74. When using average costs in activity-based costing, which of the following costs, are not divided by the
B. simple activity-based costing allocates overheads based on the cost per activity driver. number of units produced to estimate the cost per unit of product?
C. improved identification of cost drivers results in more accurate allocation of manufacturing overheads to products. A. Unit level
D. simple activity-based costing allocates overheads based on the cost per activity driver, resulting in more B. Batch level
accurate allocation of manufacturing overheads to products. C. Facility level
D. Product level
AACSB: Reflective
Difficulty: Medium
Learning Objective: 8.06 Explain the differences between product costs prepared under activity-based costing and those prepared under traditional
costing systems
71. Activity based costing focuses on the cost of resources:
A. budgeted.
B. used. 1. The budget is:
C. committed. A. a short-term plan.
D. supplied. B. more detailed than a strategic plan.
C. not influenced by strategic decisions.
D. a short-term plan AND more detailed than a strategic plan.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 8.09 Explain the implications of spare capacity for estimating the cost of activities
AACSB: Reflective
Difficulty: Easy
Learning Objective: 9.01 Understand how the budgeting process fits into the wider strategic planning processes of an organisation
72. When introducing an activity-based costing system which of the following actions are recommended
for the changeover to be successful?
A. Increased involvement of non-accounting staff in the design and implementation stages. 2. The five primary purposes of a budget are:
B. Preparation of a change management plan that considers behavioural issues. A. planning, allocating resources; facilitating communication and coordination; controlling profit and operations;
C. A bottom-up approach to encourage staff to own the new system and to see it as a tool to help them with their work. evaluating performance and providing incentives.
D. All of the answers are recommended. B. planning; allocating resources; facilitating communication and coordination; controlling profit and
operations; and allocating overhead costs.
C. planning; allocating resources; facilitating communication and coordination; controlling profit and
operations; and evaluating competition.
AACSB: Reflective
Difficulty: Medium D. planning; allocating resources; controlling profit and operations; providing incentives; evaluating
Learning Objective: 8.10 Appreciate the importance of 'behavioural issues' in implementing activity-based costing performance; and allocating overhead costs.
73. Plant, equipment and supervision that have been supplied in advance for use in production are known as:
A. supplied resources. AACSB: Reflective
Difficulty: Easy
B. committed resources. Learning Objective: 9.02 Explain the five major purposes of the budgeting process
C. used resources.
D. budgeted resources.
3. The purposes of a budget include:
A. planning.
B. facilitating communication and coordination.
AACSB: Reflective
Difficulty: Easy C. controlling profit and operations, and evaluating performance and providing incentives.
Learning Objective: 8.09 Explain the implications of spare capacity for estimating the cost of activities D. All of the given answers
AACSB: Reflective
Difficulty: Easy
Learning Objective: 9.02 Explain the five major purposes of the budgeting process
4. A company's plan for the acquisition of long-term assets, such as buildings and equipment, is called a
A. capital expenditure budget.
B. master budget.
C. financial budget.
5. Which of the following involves decisions about the types of businesses and markets that an organisation
operates in, and about how those businesses and activities will be financed?
D. profit plan.
A. Sales forecasting
B. Strategic planning
C. Financial statement forecasting
AACSB: Reflective D. Financial planning
Difficulty: Easy
Learning Objective: 9.04 Understand the various components that make up an annual budget
AACSB: Reflective
Difficulty: Easy
6. The annual financial budget is also called a

A. capital budget.
B. master budget.
C. long-range budget.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 9.03 Understand how budgets are developed and used in responsibility accounting systems
7. A budget that is continually updated by periodically adding a new incremental time period such as a
quarter, and dropping the period just completed is a
A. short-range budget.
B. long-range budget.
C. capital budget.
D. rolling budget.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 9.05 Discuss the importance of assumptions and predictions in budgeting
8. Budgeted financial statements include:

A. a budgeted profit and loss statement.
B. a budgeted balance sheet.
C. a cash budget.
D. All of the given options
AACSB: Reflective
Difficulty: Easy
9. Budgets that cover a particular period of time, longer than a year, are
A. short-range budgets.
B. long-range budgets.
C. rolling budgets.
D. continuous budgets.
AACSB: Reflective
Difficulty: Easy
10. Past sales levels and trends, general economic trends, and political and legal events are all used for AACSB: Reflective
A. sales forecasting. Difficulty: Easy
B. resource allocation. Learning Objective: 9.11 Complete the major budgeting schedules for a manufacturing organisation
C. financial budgets.
D. resource budgets.
15. Which of the following encompasses a detailed plan for using the basic factors of production material,
labour and overhead to produce a product or provide a service?
A. Budget financial statement
AACSB: Reflective B. Sales forecast
Difficulty: Easy C. Operating budget
D. Cash budget
11. A slightly inaccurate sales forecast, since it comes at the beginning of the budgeting process
A. has an insignificant influence on the other schedules comprising the annual financial budget. AACSB: Reflective
B. should not influence the accuracy of the other schedules comprising the annual financial budget at all. Difficulty: Easy
C. has a distorting effect on the other estimates in the budget. Learning Objective: 9.11 Complete the major budgeting schedules for a manufacturing organisation
D. slightly influences the sales figure and the budgeted financial statements and influences no other figures.
16. Which of the following indicate/s the overall financial results of the organisation's planned operations for the
budget period?
AACSB: Reflective A. Sales forecast
Difficulty: Medium B. Budgeted financial statements
C. Cash budget
12. For a manufacturing business, a production budget, including budgets for direct material, direct
labour and manufacturing overhead are part of the
A. sales budgets. AACSB: Reflective
B. operating budgets. Difficulty: Easy
C. budgeted financial statements. Learning Objective: 9.04 Understand the various components that make up an annual budget
D. budgeted balance sheets.
17. The typical starting point in the sales forecasting process is
A. the sales level of the preceding year.
AACSB: Reflective B. input from key executives.
Difficulty: Easy C. economic trends.
Learning Objective: 9.11 Complete the major budgeting schedules for a manufacturing organisation
D. the sales manager's best guess.
13. A manufacturer prepares a production budget. The comparable budget for a retail or wholesale business would
be a budget for AACSB: Reflective
A. sales. Difficulty: Easy
B. purchases. Learning Objective: 9.07 Complete the major budgeting schedules for a service organisation
C. direct materials.
D. direct labour.
18. A cash budget
A. is appropriate for a business in any industry.
B. shows expected cash receipts and planned payments.
AACSB: Reflective C. shows expected sales and planned expenses.
Difficulty: Medium D. is appropriate for a business in any industry AND shows expected cash receipts and planned payments.
Learning Objective: 9.06 Describe the similarities and differences in the operating budgets prepared by manufacturers, retailers and wholesalers, and
service firms
AACSB: Reflective
14. Based on the production budget, the manufacturer develops budgets for Difficulty: Easy
A. direct labour. Learning Objective: 9.06 Describe the similarities and differences in the operating budgets prepared by manufacturers, retailers and wholesalers, and
B. direct materials. service firms
D. All of the given options
19. Which of the following shows the schedule of cash payments for the materials and services the firm 23. 23.
purchased on account, and all cash payments for services that are paid in advance or paid at the time of purchase?
A. Selling and administrative expense budget BeActive Sporting Goods sells tandem bicycles. The following data was taken from the most recent quarterly sales forecast.
B. Cash payments budget
C. Cash receipts budget
D. Overhead budget
AACSB: Reflective
Difficulty: Easy
Learning Objective: 9.07 Complete the major budgeting schedules for a service organisation
20. Which of the following includes the cash receipts and cash payments and discloses a firm's financial plans? BeActive's cost for one bicycle is $125. How many units should the company purchase in May?
A. Cash budget
B. Selling and administrative expense budget
C. Budgeted financial statement A. 1478
D. None of the given answers B. 1672
C. 1575
D. 1562
AACSB: Reflective
Learning Objective: 9.07 Complete the major budgeting schedules for a service organisation Difficulty: Medium
21. A budget that includes indirect materials, indirect labour and other indirect manufacturing costs is
A. an overhead budget. 24. 24.
B. a cash budget.
C. an administrative expense budget. BeActive Sporting Goods sells tandem bicycles. The following data was taken from the most recent quarterly sales forecast.
D. a summary budget.
AACSB: Reflective
Difficulty: Easy
22. A budget that includes sales revenue, cost of goods sold, operating expenses and net profit is a
A. budgeted profit and loss statement.
B. budgeted balance sheet.
BeActive's cost for one bicycle is $125. What dollar amount should the company budget for June purchases?
C. budgeted statement of changes in financial position.
D. budgeted statement of cash flows.
A. $153 125
B. $154 750
AACSB: Reflective C. $204 625
Difficulty: Easy D. $207 875
AACSB: Analytical
Difficulty: Medium
25. 25. 27. 27.
Vebco manufactures a product requiring 0.5 grams of platinum per unit. The cost of platinum is approximately $360 per gram. Vebco Lee's Appliances forecasts the following sales figures for the next four months.
maintains an ending inventory of platinum equal to 10 per cent of the following month's production. The following data were taken
from the most recent quarterly production budget.
Cash sales average 10 per cent of total sales and credit sales are collected 50 per cent in the month of sale and 50 per cent in the
Determine the cost of platinum purchased in August. month following sale. What is Lee's estimated accounts receivable balance on July 31?
A. $195 840 A. $150 000

B. $200 160 B. $135 000
C. $391 680 C. $75 000
D. $400 320 D. $67 500

Difficulty: Hard Difficulty: Medium
Learning Objective: 9.07 Complete the major budgeting schedules for a service organisation Learning Objective: 9.07 Complete the major budgeting schedules for a service organisation
26. 26. 28. 28.
Lee's Appliances forecasts the following sales figures for the next four months. The Grainger Company's Budgeted Profit and Loss Statement reflects the following amounts:
Cash sales average 10 per cent of total sales and credit sales are collected 50 per cent in the month of sale and 50 per cent in the
month following sale. What are the estimated cash collections in May?
A. $215 000
B. $207 500 Sales are collected 50 per cent in the month of sale, 30 per cent in the month following sale, 19 per cent in the second month
C. $195 000 following sale and 1 per cent is uncollectible. The uncollectible accounts are expensed at the end of the year.
D. $82 500 Grainger pays for purchases by the fifth of the month following purchase, to take advantage of the 3 per cent discount allowed.
On January 1, Grainger had a cash balance of $88 000 and an accounts receivable balance of $58 000; $35 000 on account will be
collected in January with the remaining balance to be collected in February. Grainger had an accounts payable balance of $72 000 on
AACSB: Analytical January 1. Invoices are recorded at their gross amount.
Difficulty: Medium
The monthly expense figures include $5000 in monthly depreciation. The expenses are paid for in the month
incurred. What is Grainger's expected cash balance at the end of January?
A. $92 000
B. $94 160
C. $87 000
D. $89 160
AACSB: Analytical
Difficulty: Hard
29. 29. 31. 31.
Telcer & Company had 3000 units in finished goods inventory on December 31. Following is a partial production budget for January to On January 1, Bandy Manufacturing plans to introduce a product called Handy Dandy. The company plans to sell each unit of Handy
March. Dandy for $25.00. Management has forecast the following in sales units for the first three months.
Each unit of Handy Dandy requires 2 kg of Dingaling and 1 hour of direct labour. Management wants to end each month with a
Handy Dandy inventory level equal to 10 per cent of the following month's sales, and a Dingaling inventory equal to 5 per cent of the
How many units does the company expect to sell in January? following month's production. Dingaling can be purchased for $3 per kg and direct labour costs are estimated to be $5.00 per hour.
How many kilograms of Dingaling should be purchased in January? Bandy plans to have no inventory of Dingaling on January 1:
A. 6900
B. 8900 A. 78 520
C. 9400 B. 72 800
D. 9900 C. 72 680
D. 78 400
AACSB: Analytical
Difficulty: Medium
Learning Objective: 9.11 Complete the major budgeting schedules for a manufacturing organisation AACSB: Analytical
Difficulty: Medium
30. 30.
32. 32.
On January 1, Bandy Manufacturing plans to introduce a product called Handy Dandy. The company plans to sell each unit of Handy
Dandy for $25.00. Management has forecast the following in sales units for the first three months. On January 1, Bandy Manufacturing plans to introduce a product called Handy Dandy. The company plans to sell each unit of Handy
Dandy for $25.00. Management has forecast the following in sales units for the first three months.
Each unit of Handy Dandy requires 2 kg of Dingaling and 1 hour of direct labour. Management wants to end each month with a
Handy Dandy inventory level equal to 10 per cent of the following month's sales and a Dingaling inventory equal to 5 per cent of the Each unit of Handy Dandy requires 2 kg of Dingaling and 1 hour of direct labour. Management wants to end each month with a Handy
following month's production. Dingaling can be purchased for $3 per kg and direct labour costs are estimated to be $5.00 per hour. Dandy inventory level equal to 10 per cent of the following month's sales, and a Dingaling inventory equal to 5 per cent of the
How many units should Bandy Manufacturing produce in February? following month's production. Dingaling can be purchased for $3 per kg and direct labour costs are estimated to be $5.00 per hour.
What amount should be budgeted for direct labour in February?
A. 32 000
B. 27 300 A. $160 000
C. 28 000 B. $146 000
D. 29 200 C. $140 000
D. $134 000
AACSB: Analytical
Learning Objective: 9.11 Complete the major budgeting schedules for a manufacturing organisation Difficulty: Medium
33. 33. 36. To communicate budget procedures and deadlines to employees throughout the organisation, the
manager responsible for managing the budget often develops and disseminates a
On January 1, Bandy Manufacturing plans to introduce a product called Handy Dandy. The company plans to sell each unit of Handy A. budget manual.
Dandy for $25.00. Management has forecast the following in sales units for the first three months. B. sales forecast.
C. memorandum.
D. budget schedule.
AACSB: Reflective
Each unit of Handy Dandy requires 2 kg of Dingaling and 1 hour of direct labour. Management wants to end each month with a Difficulty: Easy
Learning Objective: 9.08 Describe a typical organisation's process of budget administration
Handy Dandy inventory level equal to 10 per cent of the following month's sales, and a Dingaling inventory equal to 5 per cent of the
following month's production. Dingaling can be purchased for $3 per kg and direct labour costs are estimated to be $5.00 per hour.
What are Bandy Manufacturing's budgeted prime costs in January?
37. In preparing and using any budget, it is important that managers keep in mind the
A. assumptions and predictions upon which the budget is based.
A. $235 560 B. present value of future cash flow.
B. $294 000 C. budgeted profit and loss statement.
C. $385 000 D. ‘bottom line'.

Difficulty: Hard Difficulty: Easy
Learning Objective: 9.11 Complete the major budgeting schedules for a manufacturing organisation Learning Objective: 9.07 Complete the major budgeting schedules for a service organisation
34. The person responsible for managing the budget process 38. The difference between the revenue or cost projection that a person provides and a realistic estimate of the
A. is responsible for specifying the process by which budget data will be gathered. revenue or cost is called
B. collects information and prepares the annual financial budget. A. passing the buck.
C. communicates budget procedures and deadlines to employees throughout the organisation. B. budgetary slack.
D. All of the given answers C. participative budgeting.
D. resource allocation processing.
AACSB: Reflective
Learning Objective: 9.08 Describe a typical organisation's process of budget administration Difficulty: Easy
Learning Objective: 9.09 Discuss the behavioural consequences of budgets: participative budgeting, budgetary slack and budget difficulty
35. Consider the following statements about budget administration.

i. Regardless of size, the budgeting process in all organisations must be a formal process. 39. People create budgetary slack because
ii. The budget manual is prepared to communicate budget procedures and deadlines to employees A. their performance will look better if they beat the budget.
throughout the organisation. B. it helps them cope with uncertainty.
iii. Good internal control procedures require that the manager responsible for managing the budget process C. they believe their budget requests will be cut.
be an individual other than the chief accountant. D. All of the given answers
Which statement/s is/are true?
A. i
B. ii
AACSB: Reflective
C. iii Difficulty: Medium
D. i and iii Learning Objective: 9.09 Discuss the behavioural consequences of budgets: participative budgeting, budgetary slack and budget difficulty
AACSB: Reflective
Difficulty: Medium
Learning Objective: 9.08 Describe a typical organisation's process of budget administration
40. When employees throughout an organisation are meaningfully involved in the budget-setting process, this is 44. The position where the firm's goals and employees' aims coincide is called
referred to as A. participative budgeting.
A. budgeting slack. B. goal achievement.
B. participative budgeting. C. goal congruence.
C. padding the budget. D. budgetary achievement.
D. employee-based budgeting.
AACSB: Reflective
Difficulty: Medium Learning Objective: 9.09 Discuss the behavioural consequences of budgets: participative budgeting, budgetary slack and budget difficulty
45. Which of the following does budget preparation require to achieve optimum outcomes?
41. Consider the following statements about zero-base budgeting. i. Top-down budgeting
i. The budget for virtually every activity in an organisation is initially set to the level that existed during the previous year. ii. Bottom-up budgeting
ii. The budget helps identify areas of waste and redundant activities. iii. Participative budgeting
iii. The budget must be justified in terms of its continued A. i
usefulness. Which statement/s is/are true? B. ii and iii
A. i, ii and iii C. i and iii
B. i and ii D. i, ii and iii
C. ii and iii
D. iii
AACSB: Reflective
Difficulty: Easy
AACSB: Reflective
Difficulty: Medium
Learning Objective: 9.10 Understand zero-base budgeting and program budgeting
46. Suppose that the departmental manager deliberately underestimates the level of sales activity by 10 000 units.
What is this practice called?
42. Program budgeting A. Budgetary participation
A. is similar to line item budgeting. B. Appropriate caution
B. relates budget performance to the achievement of objectives. C. Budgetary slack
C. develops qualitative performance criteria rather than quantitative criteria. D. Allowance for uncertainty
D. focuses on inputs rather than outputs.
AACSB: Reflective
Difficulty: Easy Learning Objective: 9.09 Discuss the behavioural consequences of budgets: participative budgeting, budgetary slack and budget difficulty
43. Which of the following statements are true if optimum benefit is to be derived from the budget process?
A. Employees participate in the development of the budget.
B. Targets should include slack to enable easy achievement.
C. Rewards are not required.
D. Employees participate in the development of the budget AND rewards are not required.
AACSB: Reflective
Difficulty: Easy
47. 47. 50. 50.
The following is the forecast level of inventory (in units) for Aardvark Ltd. Budgeted sales for ABC Company are as follows:
If the company plans to sell 320 000 units, how many will they need to produce during the period?
All stock is marked up to sell at its invoice cost plus 25 per cent. On average 60 per cent of credit sales are collected in the month
A. 330 000 of sale, 35 per cent in the month following sale and the remainder is uncollectible. Budgeted total cash receipts for November are:
B. 315 000
C. 305 000
D. 320 000 A. $1 675 000
B. $1 875 000
C. $1 280 000
AACSB: Analytical
Difficulty: Medium D. None of the given answers
AACSB: Analytical
Difficulty: Medium
48. The usual order of steps in preparing a budget is Learning Objective: 9.07 Complete the major budgeting schedules for a service organisation
A. production budget, sales budget, budgeted income statement.
B. sales budget, production budget, budgeted income statement.
C. budgeted income statement, production budget, sales budget. 51. A production budget
D. budgeted income statement, sales budget, production budget. A. is based on projected purchases as disclosed by the purchases budget.
B.
does not make provision for production planning by determining what products will be made.
AACSB: Reflective
Difficulty: Easy
C. contributes to scheduling labour requirements.
D. is not used to review available production capacity.
49. 49.
AACSB: Reflective
Budgeted sales for ABC Company are as follows: Difficulty: Medium
52. XYZ has budgeted to sell 100 000 units of P for February 2008. It has an opening inventory of 20 000 units of P
and would like a closing inventory of 30 000 units. Each unit of P requires 2 kg of raw material Y. Inventory of Y at the
beginning of the month is 5000 kg. Assuming the sales budget is met and the desired closing inventory of P is
achieved, how many kilograms of Y need to be purchased during February, in order to have a closing balance of 8000
kg?
All stock is marked up to sell at its invoice cost plus 25 per cent. On average 60 per cent of credit sales are collected in the month A. 113 000
of sale, 35 per cent in the month following sale and the remainder is uncollectable. The budgeted cost of goods sold for the month B. 117 000
of October is: C. 223 000
D. 183 000
A. $1 360 000
B. $1 425 000
AACSB: Analytical
C. $1 520 000 Difficulty: Medium
D. None of the given answers Learning Objective: 9.07 Complete the major budgeting schedules for a service organisation
AACSB: Analytical
Difficulty: Easy
53. Which of the following is not typically a responsibility centre for a manufacturing firm? 56. 56.
A. Cost centre
B. Profit centre Carter Manufacturers have budgeted sales for the coming months as follows.
C. Investment centre
D. Inventory centre
AACSB: Reflective
Difficulty: Easy
Learning Objective: 9.03 Understand how budgets are developed and used in responsibility accounting systems
54. The Z Company has prepared a sales budget for 40 000 units for a three-month period. The company desires a
closing finished goods inventory of 12 000 units, and closing direct material inventory of 14 000 units at the end of the The firm has decided that to avoid losing customers because of production hold-ups it will in future maintain a finished goods
quarter. There is no beginning finished goods inventory, but beginning inventory of direct materials is 2000 units. It inventory on hand equal to one-fifth of the following month's budgeted sales. At 31 December, the company had in finished goods
takes two units of direct material to make one unit of finished product. The number of units of direct material to be stock 10 000 units. What is budgeted production for the quarter January–March?
purchased during the quarter is
A. 52 000.
B. 104 000. A. 530 000 units
C. 118 000. B. 830 000 units
D. 116 000. C. 670 000 units
D. 680 000 units

Difficulty: Medium Difficulty: Hard
Learning Objective: 9.11 Complete the major budgeting schedules for a manufacturing organisation Learning Objective: 9.11 Complete the major budgeting schedules for a manufacturing organisation
55. 55. 57. Assume for a firm that budgeted production for July and August is 180 000 and 200 000 units respectively. It
takes half a kilogram of direct material to make one unit of finished product. Materials inventory is maintained at 10 per
Sales of 50 000 finished products are budgeted for Tracey Company. Four kilograms of direct material are required for each finished cent of the next month's budgeted production needs. If the 30 June inventory of materials was 5000 kg, how many
unit. Actual beginning and desired ending inventories of direct material and finished goods are as follows. kilograms of direct material should be purchased during July?
A. 105 000 kg
B. 195 000 kg
C. 90 000 kg
D. 95 000 kg
All products are finished at the end of the period, so there is no work in process at the beginning and end of the period. How AACSB: Analytical
many kilograms of direct material is the company planning to purchase? Difficulty: Hard
A. 218 000 58. Which of the following items should be taken into account when setting budgets?
B. 214 000 A. Positive behaviour of employees is more likely to result if the budgetary process is participative.
C. 186 000 B. The budget goals should not be so tight that they are unachievable.
D. 184 000 C. The goals of the individual sections' budget should be aligned with the firm's goals.
AACSB: Analytical
Difficulty: Medium
AACSB: Reflective
Difficulty: Medium
59. Which of the following items would not be taken into account when preparing a firm's cash budget? 63. Which of the following statements is false?
A. Depreciation on motor vehicles A. A top-down budgeting system is more efficient than a bottom-up budgeting system.
B. Provision for doubtful debts B. A top-down budgeting system is more likely to result in unrealistically difficult budget targets.
C. Discount allowed C. A bottom-up budgeting system is less likely to result in budget padding.
D. Depreciation on motor vehicles AND provision for doubtful debts D. A bottom-up budgeting systems is more likely to result in employee empowerment.

Learning Objective: 9.07 Complete the major budgeting schedules for a service organisation Learning Objective: 9.09 Discuss the behavioural consequences of budgets: participative budgeting, budgetary slack and budget difficulty
60. Which of the following are unlikely to influence the sales forecast? 64. Jasmine Coy is a barista at Tosa Cafe, which is known for its quality coffee. Her manager has set a very difficult
A. Past sales levels cost target. As a result, Jasmine uses lower quality coffee beans which results in poor quality coffee. This is an example
B. Past production levels of
C. Economic trends A. Budget slack.
D. The pricing policy of the company B. Goal incongruence.
C. Lack of employee empowerment.
D. Short range budgeting.
AACSB: Reflective
Difficulty: Easy
service firms AACSB: Reflective
Difficulty: Medium
61. Strawman Ltd runs tutoring classes for high school students. The maximum number of students a weekly tutorial
class can take is 15. Each tutor, who is paid a per semester salary of $20 000 including on-costs, can manage up to 5 65. EasySleep Inn is a chain of medium-priced hotels. Each year during the budgeting process, the manager of each
classes per week per semester. Assuming that this semester there are 350 students enrolled. What is the budgeted salary hotel in the chain has to submit a capital expenditure request, justifying the amounts of expenditure they request. Top
for tutors this semester? management then makes a decision on whether to fund each capital expenditure request. This is an example of which
A. $100 000 purpose of budgeting?
B. $93 333 A. Controlling profit
C. $20 000 B. Allocating resources
D. $6428 C. Empowering employees
D. Evaluating performance and providing incentives
AACSB: Analytical
Difficulty: Medium
Learning Objective: 9.07 Complete the major budgeting schedules for a service organisation AACSB: Reflective
Difficulty: Medium
62. Top-down budgeting refers to

A. a budgeting system that begins with sales forecasts and works downwards to the raw materials budget. 66. 66.
B. a budgeting systems that begins with budgeting the facility-level costs.
C. a budgeting system where senior managers impose budget targets on junior managers. Which of the following is/are likely to lead to budget
D. a budgeting system where there are frequent communications between top and bottom managers. acceptance? i Targets are developed with employee inputs.
ii Employees are held responsible for activities that they can control.
iii Budget is cascaded down from corporate level to the various responsibility centres.
AACSB: Reflective
Difficulty: Easy
A. i only
B. i and ii
C. i and iii
D. ii and iii
AACSB: Reflective
Difficulty: Easy
67. Which of the following is an example of padding the budget? 71. Insurance Plus provides their sales staff with a base salary and commissions. When the various departments'
A. Overestimating sales actual performance exceeds the budgeted sales figures an additional bonus is paid. This is an example of
B. Underestimating labour costs A. facilitating communication and coordination.
C. Overestimating direct material costs B. controlling profit and operations.
D. Underestimating capital expenditure C. evaluating performance and providing incentives.
D. allocating resources.
AACSB: Reflective
Learning Objective: 9.09 Discuss the behavioural consequences of budgets: participative budgeting, budgetary slack and budget difficulty Difficulty: Easy
68. Christina Wadat is a sales manager at Walter Booksellers. She believes that the sales revenue will most likely to be
$500 000 this coming year. However, she decides to build in budget slack of 10 per cent. The amount of sales revenue 72. 72.
she inputs into the company's sales budget is
A. $450 000. A 'Rolling Budget' is also known as a
B. $500 000.
C. $550 000.
D. 600 000. A. revised budget.
B. reformed budget.
C. current budget.
D. continuous budget.
AACSB: Analytical
Difficulty: Medium
AACSB: Reflective
Difficulty: Easy
Learning Objective: 9.05 Discuss the importance of assumptions and predictions in budgeting
69. Zero-based budgeting refers to
A. a budgeting system that has very uncertain assumptions.
B. a new budgeting system for a company that has not had a budget before. 73. As the starting point in the budgeting process, managers need to understand the strategy of the
C. a budgeting system where all activity costs are based on estimates only. organisation, to enable them to formulate a budget that supports the organisation's
D. a budgeting system where all activities are initially set to zero and will not be continued unless they are clearly justified. A. mission statement.
B. strategic plan.
C. forecasts.
D. vision.
AACSB: Reflective
Difficulty: Easy
AACSB: Reflective
Difficulty: Medium
70. Which of the following benefits is not provided by the budgeting process? Learning Objective: 9.05 Discuss the importance of assumptions and predictions in budgeting
A. Benchmarks
B. Performance evaluation
C. Competitive strategy 74. Which of the following external factors would not be considered when forecasting sales for a furniture manufacturer?
D. Facilitates communication A. General economic trends
B. Rising Australian dollar
C. Increasing foreign aid
D. Consumer's disposable income
AACSB: Reflective
Difficulty: Medium
AACSB: Reflective
Difficulty: Medium
service firms
75. Which of the following budgets is usually prepared at the start of the budgeting process? C. Budgetary analysis and data analysis
A. Production budget D. Cost analysis and budgetary analysis
B. Annual budget
C. Operating budget
D. Sales budget AACSB: Reflective
Difficulty: Easy
Learning Objective: 10.02 Describe the analysis of historical data and engineering methods of setting standards
AACSB: Reflective
Difficulty: Easy
service firms
1. A control system comprises

A. a predetermined or standard performance level.
B. a measure of actual performance.
C. a comparison between standard and actual performance.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 10.01 Explain how standard costing can be used to help control costs and manage resources more effectively
2. A cost variance is
A. the difference between the cost of a product and its selling price.
B. a measure of risk.
C. the difference between the actual cost and the standard cost.
D. the difference between actual costs in two successive time periods.
AACSB: Reflective
Difficulty: Easy
3. A standard cost is
A. the actual cost of a unit of production.
B. a budget for the production of one unit of a product or service.
C. useful in calculating equivalent units.
D. the average cost within the industry.
AACSB: Reflective
Difficulty: Easy
4. Which of the following are methods for setting standards?

A. Historical data analysis and cost analysis
B. Task analysis and analysis of historical data
5. Which of the following statements is false concerning the two ways to set standards? 9. Which of the following statements about perfection standards is false?
A. Time and motion studies are part of the task analysis method. A. Some managers believe that perfection standards encourage a higher level of performance.
B. The usefulness of the historical data analysis method is reduced by changes in production methods. B. Some managers believe that perfection standards discourage workers who may then not perform as well.
C. The task analysis method is future oriented rather than past oriented. C. Some managers believe that perfection standards will encourage workers to sacrifice quality in order to
D. The task analysis method and the analysis of historical data method cannot be used together. achieve the quantity standard.
D. Perfection standards are generally accepted by managers as the best type of standard.
AACSB: Reflective
Learning Objective: 10.02 Describe the analysis of historical data and engineering methods of setting standards Difficulty: Easy
Learning Objective: 10.03 Explain how the use of perfection standards and practical standards may impact behaviour
6. Legacy Company Ltd has determined that 1 unit of its product requires 1.5 hours of direct labour in the
assembly department and 1 hour in the finishing department. Assemblers are paid $8.00 per hour and finishers are 10. Which of the following statements is/are true?
paid $9.00 per hour. Determine the standard labour cost of one unit. A. Many service organisations cannot use standard costing because their services are non-repetitive.
A. $22.50 B. Practical standards are also known as attainable standards.
B. $17.00 C. Practical standards incorporate a certain amount of inefficiency, such as that caused by an occasional
C. $20.00 machine breakdown.
D. $21.00 D. All of the given answers

Learning Objective: 10.04 Develop standard costs for direct material and direct labour Learning Objective: 10.03 Explain how the use of perfection standards and practical standards may impact behaviour
7. Which of the following statements is false regarding perfection standards? 11. A material price variance is
A. They are attained only under optimum operating conditions. shown by A.
B. These standards assume peak efficiency, lowest input prices and best quality materials attainable.
C. These standards motivate some employees to achieve the lowest cost possible. AP(PQ – SQ).
D. The benefits of these standards have been proven and are irrefutable.
B.
AACSB: Reflective (AP – SP).

Difficulty: Medium
C.
8. A standard that assumes a production process is as efficient as practical under normal operating conditions is
A. a perfection standard. PQ (AP – SP).
B. an attainable standard.
C. an average standard.
D. (PQ – SQ) (AP – SP).
D. an operating standard.
AACSB: Reflective
Difficulty: Easy
AACSB: Reflective Learning Objective: 10.05 Calculate and interpret the direct material price and quantity variances, and the direct labour rate and efficiency variances
Difficulty: Easy
12. A material quantity variance is shown by 15. A labour rate variance is shown by
A. A.
SP (AQ – SQ). AH (AR – SR).
B. B.
(SQ) (AQ). (AH – SH),
C. C.
(AQ – SQ). (AH – SH) (AR – SR),
D. D.
(AQ – SQ) (AP – SP). AR (AH – SH),

Learning Objective: 10.05 Calculate and interpret the direct material price and quantity variances, and the direct labour rate and efficiency variances Learning Objective: 10.05 Calculate and interpret the direct material price and quantity variances, and the direct labour rate and efficiency variances
13. Which of the following statements is/are true? 16. A labour efficiency variance is
A. The standard cost per unit of materials is used to calculate a materials price variance. shown by A.
B. The standard cost per unit of materials is used to calculate a materials usage variance.
C. The standard cost per unit of materials cannot be determined until the end of the period. (AR) (AR).
D.
The standard cost per unit of materials is used to calculate a materials price variance AND the standard cost per unit of materials is B.
used to calculate a materials usage variance.
SR (AH – SH).
C.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 10.05 Calculate and interpret the direct material price and quantity variances, and the direct labour rate and efficiency variances (AH – SH).
14. Which department typically is responsible for an unfavourable materials price variance? D.
A. Purchasing
B. Engineering AH (AR – SR).
C. Production
D. Receiving
AACSB: Reflective
Difficulty: Easy
AACSB: Reflective Learning Objective: 10.05 Calculate and interpret the direct material price and quantity variances, and the direct labour rate and efficiency variances
Difficulty: Easy
Learning Objective: 10.08 Understand how control can be achieved through assigning responsibility for certain variances to particular managers
17. Which of the following statements is/are true? 20. 20.
A. The standard direct labour hours per unit of output are used to calculate a labour rate variance.
B. The standard direct labour hours per unit of output are used to calculate a labour efficiency variance. Given the following information, calculate the direct labour rate variance.
C. The standard direct labour hours per unit of output cannot be determined until the end of the period.
D. All of the given answers.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 10.05 Calculate and interpret the direct material price and quantity variances, and the direct labour rate and efficiency variances
18. An unfavourable labour efficiency variance indicates that A. $17 250 (U)
A. standard hours exceed actual hours. B. $20 700 (U)
B. actual hours exceed standard hours. C. $21 000 (F)
C. standard rate times standard hours exceeds actual rate times actual hours. D. $20 700 (F)
D. actual rate exceeds standard rate.
AACSB: Analytical
Difficulty: Easy
AACSB: Reflective
Difficulty: Medium
21. 21.
19. 19. The following data relates to QA

firm. Cost standards:
Given the following information, calculate the materials price variance:
Actual results:
7800 units were produced.
A. $2800 (F)
B. $2800 (U)
C. $6000 (U)
D. $6000 (F)
Calculate the direct material quantity variance.
AACSB: Analytical
Difficulty: Medium A. $750 (F)
B. $800 (F)
C. $750 (U)
D. $780 (F)
AACSB: Analytical
Difficulty: Easy
22. 22. 24. 24.
The following data relates to QA The following data relates to QA

firm. Cost standards: firm. Cost standards:
Actual results: Actual results:

7800 units were produced. 7800 units were produced.
Calculate the direct material price variance, based on the quantity of materials purchased. Calculate the direct labour rate variance.
A. $2310 (U) A. $8010 (F)

B. $2500 (U) B. $8000 (U)
C. $2500 (F) C. $8020 (F)
D. $2000 (U) D. $7800 (F)

23. 23. 25. 25.
The following data relates to QA The following data relates to QA

firm: Cost standards: firm. Cost standards:
Actual results: Actual results:

7800 units were produced. 7800 units were produced.
Calculate the direct material price variance, based on the quantity of materials purchased. Calculate the labour efficiency variance.
A. $8000 (F)
A. $2310 (F) B. $8000 (U)
B. $2310 (U) C. $8250 (U)
C. $2500 (U) D. $8250 (F)
D. $2500 (F)
AACSB: Analytical
Difficulty: Easy Learning Objective: 10.05 Calculate and interpret the direct material price and quantity variances, and the direct labour rate and efficiency variances
26. 26. 29. Cultco Company Ltd has set the following direct material standards per unit of product: 2.5 kg @ $3.00 per kg;
$7.50 per unit. During April, actual direct material purchased and used amounted to 8000 kg at a cost of $3.10 per kg.
I Wear Optometry determined the following variances had occurred during the month of September: Actual production amounted to 3000 units. Determine Cultco's direct material quantity variance.
A. $2300 (U)
B. $1500 (U)
C. $800 (U)
D. $500 (U)
The company made 1600 pairs of eyeglasses during the month using 2000 direct labour hours. The standard wage rate per hour is
$14.50. Determine the standard wages for September's output.
AACSB: Analytical
Difficulty: Medium
A. $22 750
B. $34 800
C. $29 000 30. Cultco Company Ltd has set the following direct material standards per unit of product: 2.5 kg @ $3.00 per kg;
D. $23 200 $7.50 per unit. During April, actual direct material purchased and used amounted to 8000 kg at a cost of $3.10 per kg.
Actual production amounted to 3000 units. Determine the total material variance.
A. $2300 (U)
AACSB: Analytical B. $11 500 (U)
Difficulty: Medium
Learning Objective: 10.05 Calculate and interpret the direct material price and quantity variances, and the direct labour rate and efficiency variances C. $800 (U)
D. $750 (U)
27. 27.
AACSB: Analytical
I Wear Optometry determined the following variances had occurred during the month of September: Difficulty: Hard
31. Twister Pty Ltd has set direct labour standards of 3 hours per unit and $5 per hour. During the month 2900
The company made 1600 pairs of eyeglasses during the month using 2000 direct labour hours. The standard wage rate per hour is hours at a total cost of $17 400 were used to produce 1000 units. Determine the direct labour efficiency variance.
$14.50. What is the number of standard hours allowed for one pair of eyeglasses? A. $100 (F)
B. $100 (U)
C. $500 (F)
A. 1 hour D. $500 (U)
B. 1600 hours
C. 1 hour 15 minutes
D. Insufficient data to determine
AACSB: Analytical
Difficulty: Easy
AACSB: Analytical
Difficulty: Medium
32. Twister Pty Ltd has set direct labour standards of 3 hours per unit and $5 per hour. During the month 2900
hours at a total cost of $17 400 were used to produce 1000 units. Determine the direct labour price variance.
28. Cultco Company Ltd has set the following direct material standards per unit of product: 2.5 kg @ $3.00 per kg; A. $2400 (U)
$7.50 per unit. During April, actual direct material purchased and used amounted to 8000 kg at a cost of $3.10 per kg. B. $2400 (F)
Actual production amounted to 3000 units. Determine Cultco's direct material price variance. C. $2900 (U)
A. $1500 (U) D. $2900 (F)
B. $800 (U)
C. $750 (U)
D. $500 (U)
AACSB: Analytical
Difficulty: Easy
AACSB: Analytical
Difficulty: Medium
33. Twister Pty Ltd has set direct labour standards of 3 hours per unit and $5 per hour. During the month 2900 37. A direct labour efficiency variance cannot be caused by
hours at a total cost of $17 400 were used to produce 1000 units. Determine the total direct labour variance. A. producing fewer finished units than originally planned.
A. $2400 (F) B. poor quality raw materials.
B. $2900 (F) C. employee inefficiency.
C. $2900 (U) D. an out-of-date labour time standard.
D. $2400 (U)
AACSB: Reflective
Difficulty: Medium Learning Objective: 10.07 Understand how to determine the causes of variances, and when to take corrective actions
38. Which of the following statements regarding standard costing is/are true?
34. Management by exception is best defined as A. Standard costing is useful in diagnosing organisational performance.
A. controlling actions of subordinates through acceptance by them of management techniques. B. Standard costing is useful in performance appraisal.
B. investigating unfavourable variances. C. Standard costing is useful in determining employee pay bonuses.
C. devoting management time to follow up only on significant variances. D. All of the given answers.
D. controlling costs so that non-zero variances are quite exceptional.
AACSB: Reflective
Difficulty: Easy Learning Objective: 10.01 Explain how standard costing can be used to help control costs and manage resources more effectively
Learning Objective: 10.06 Explain several methods that can be used for assessing the significance of standard cost variances
39. Which of the following statements regarding variances is/are true?

35. When considering the significance of cost variances, managers should not consider The actions that create a favourable direct material price variance
A. relative size of the variances. i. can result in an unfavourable direct material quantity variance
B. recurring variances. ii. are likely to create an unfavourable direct labour rate variance
C. the trends of the variances. iii. can result in an unfavourable direct labour efficiency variance
D. favourable or unfavourable status of the variances. A. i
B. i and ii
C. i and iii
D. ii and iii
AACSB: Reflective
Difficulty: Medium
AACSB: Reflective
Difficulty: Easy
36. What is the most viable rule of thumb for choosing variances that should be investigated? Learning Objective: 10.08 Understand how control can be achieved through assigning responsibility for certain variances to particular managers
A. Greater than $10 000 or greater than 10 per cent of standard cost
B. Greater than 50 per cent of
standard C. 40. The manager generally responsible for the direct material price variance is the
A. sales manager.
Never investigate favourable variances B. production supervisor.
C. purchasing manager.
D. personnel manager.
D.
Always investigate unfavourable variances

AACSB: Reflective
Difficulty: Easy
Learning Objective: 10.08 Understand how control can be achieved through assigning responsibility for certain variances to particular managers
AACSB: Reflective
Difficulty: Easy
41. The production supervisor generally does not influence the 45. If Company XYZ purchased 30 000 kg of brass metal at an actual price of $7.10 per kg (standard price is
A. direct material quantity variance. $7.00 per kg), the entry to the direct material price variance should be
B. direct labour rate variance. A. $3000 debit.
C. direct labour efficiency variance. B. $3000 credit.
D. direct material price variance. C. $1500 debit.
D. $1500 credit.
AACSB: Reflective
Learning Objective: 10.08 Understand how control can be achieved through assigning responsibility for certain variances to particular managers Difficulty: Easy
Learning Objective: 10.11 Prepare journal entries to account for direct material and direct labour cost variances
42. 42.
46. Which of the following journal entries correctly represents the recording of an unfavourable material price variance?
Which of the following statements is false? A. Direct material debit, materials price variance and accounts payable credit.
B. Direct material and materials price variance debit, accounts payable credit.
C. Direct material debit, work in process and accounts payable credit.
A. Standard costs are used for product costing. D. Direct materials debit, accounts payable credit.
B. Standard costs provide a benchmark against which actual costs can be compared.
C. Standard costs are actual costs.
D. Standard costs are used for control.
AACSB: Reflective
Difficulty: Easy
AACSB: Reflective Learning Objective: 10.11 Prepare journal entries to account for direct material and direct labour cost variances
Difficulty: Medium
47. A company using a standard costing system uses an actual quantity of 1100 kg of material at an actual cost of
$1.20 per kg. The standard quantity allowed was 1000 kg at a standard cost of $1.00 per kg. After the goods are
43. Under a standard costing system completed and transferred from work in process inventory, what is the cost of direct material that would appear in
A. standard costs are entered into the work in process and finished goods inventory account. finished goods inventory?
B. actual costs are entered into work in process inventory account while standard costs are entered into the A. $1000
finished goods account. B. $1100
C. the raw material inventory account is based on standard quantities and standard cost. C. $1200
D. actual costs are entered into raw material and work in process inventory account. D. $1320

Learning Objective: 10.11 Prepare journal entries to account for direct material and direct labour cost variances Learning Objective: 10.11 Prepare journal entries to account for direct material and direct labour cost variances
44. Which of the following statements is/are true? 48. A company using a standard costing system uses an actual quantity of 520 direct labour hours at an actual cost of
A. Variances are temporary accounts. $5.90 per hour. The direct labour hours quantity allowed was 500 hours at a standard cost of $6.00 per hour. What is the
B. Variance accounts may be closed to cost of goods sold. cost of direct labour that would appear in work in process inventory?
C. Favourable variances are recorded as a credit entry. A. $3068
D. All of the given answers. B. $3120
C. $2950
D. $3000
AACSB: Reflective
Difficulty: Easy
AACSB: Reflective
Difficulty: Easy
49. A favourable labour rate variance leads to a 51. 51.
A. credit to the labour rate variance account.
B. debit to the labour rate variance account. Flexer Company Ltd has set the following standards for the production of one unit of product. Normal production each month is
C. larger than standard debit to work in process. 500 units.
AACSB: Reflective
Difficulty: Easy
During June, actual production amounted to 420 units. All direct material was purchased and used this month. Actual cost
amounted to:
50. 50.
Flexer Company Ltd has set the following standards for the production of one unit of product. Normal production each month is
500 units.
Determine the standard material quantity allowed for June production.
A. 4000 kg
B. 8 kg
During June, actual production amounted to 420 units. All direct material was purchased and used this month. Actual cost C. 3360 kg
amounted to: D. 3500 kg
AACSB: Analytical
Difficulty: Easy
Determine the direct material price for June production.

52. 52.
A. $875 (U) Flexer Company Ltd has set the following standards for the production of one unit of product. Normal production each month is
B. $840 (F) 500 units.
C. $840 (U)
D. $875 (F)
AACSB: Analytical
Difficulty: Easy
amounted to:
Determine the direct material quantity variance for June production.
A. $35 (U)
B. $875 (U)
C. $910 (U)
D. $875 (F)
AACSB: Analytical
Difficulty: Easy
53. 53. 55. 55.
Flexer Company Ltd has set the following standards for the production of one unit of product. Normal production each month is Flexer Company Ltd has set the following standards for the production of one unit of product. Normal production each month is
500 units. 500 units.
During June, actual production amounted to 420 units. All direct material was purchased and used this month. Actual cost During June, actual production amounted to 420 units. All direct material was purchased and used this month. Actual cost
amounted to: amounted to:
Determine the direct labour rate variance for June production. Determine the standard direct labour hours allowed for June production.
A. $280 (U) A. 2000 hours

B. $172 (U) B. 1720 hours
C. $200 (U) C. 420 hours
D. $168 (U) D. 1680 hours

54. 54. 56. Which of the following statements is false?

A. Standard cost systems use budgeted costs of direct material and direct labour.
Flexer Company Ltd has set the following standards for the production of one unit of product. Normal production each month is B. Variances provide a means of performance evaluation and rewards for employees.
500 units. C. A standard costing system is usually more expensive than an actual costing system.
D. Variances provide motivation for employees to adhere to standards.
AACSB: Reflective
Difficulty: Easy
amounted to:
A. Unfavourable variances represent the costs of producing inefficiently.
B. Unfavourable variances (after closing to cost of goods sold) cause cost of goods sold to be higher.
C. Unfavourable variances are recorded as a credit entry.
D. Significant unfavourable variances should be investigated by managers.
Determine the direct labour efficiency variance for June production.
A. $452 (U) AACSB: Reflective

Difficulty: Medium
B. $172 (U) Learning Objective: 10.06 Explain several methods that can be used for assessing the significance of standard cost variances
C. $280 (U) Learning Objective: 10.11 Prepare journal entries to account for direct material and direct labour cost variances
D. $284 (F)
AACSB: Analytical
Difficulty: Easy
58. Which of the following statements is/are false? 62. Which of the following statements is a definition of standard quantity of direct materials allowed for a period?
A. All favourable variances represent the costs of producing efficiently. Standard quantity of direct materials is
B. Favourable variances (after closing to cost of goods sold) cause cost of goods sold to be lower. A. the number of units of material that should have been used for expected (budgeted) production.
C. Significant favourable variances do not need to be investigated by managers. B. the number of units of material that were used for actual production.
D. All favourable variances represent the costs of producing efficiently AND significant favourable variances do not C. the number of units of material that should have been used for actual production.
need to be investigated by managers. D. the number of units of material required for each unit of production.

Learning Objective: 10.06 Explain several methods that can be used for assessing the significance of standard cost variances Learning Objective: 10.04 Develop standard costs for direct material and direct labour
63. 63.
59. Which of the following statements is true with regard to variances requiring investigation?
i. Favourable variances do not need to be investigated. A particular firm with zero material inventory purchased 30 000 kg of material and used 25 000 kg. For control purposes, it is
ii. Large variances should be investigated. recommended that firms calculate the material price variance at the time of purchase. The variance could alternatively be calculated
iii. Consistent trends in variances should be investigated. at the time of usage of that material. Which of the following statements most correctly reflects a comparison of the two methods for
A. i this firm?
B. ii
C. i and ii
D. ii and iii A. Whether calculated on purchase or usage, both variances will be favourable.
B. Whether calculated on purchase or usage, both variances will be unfavourable.
C. The variance calculated on purchase will be larger than the variance calculated on usage, but in the same
direction (favourable/unfavourable).
AACSB: Reflective D. The variance calculated on purchase will be smaller than the variance calculated on usage, but in the same
Difficulty: Easy
Learning Objective: 10.07 Understand how to determine the causes of variances, and when to take corrective actions direction (favourable/unfavourable).
AACSB: Reflective
60. A firm's purchasing manager bought poor quality material at a large saving. Because of the lower quality of Difficulty: Medium
material, more scrap was produced and because of the extra labour hours required an additional employee had to be Learning Objective: 10.05 Calculate and interpret the direct material price and quantity variances, and the direct labour rate and efficiency variances
hired to assist in the cutting operation. Assuming only the facts given, what variance(s) would result?
A. Favourable material price
B. Favourable material price; unfavourable material quantity; unfavourable labour efficiency 64. In which of the following circumstances would it be acceptable to record the material price variance at the
C. Favourable material price; unfavourable material quantity; unfavourable labour efficiency; unfavourable labour rate time of usage of the materials?
D. Favourable material price; unfavourable labour efficiency A. Where a fixed contract price is in place for the purchase of materials for a period.
B. Where the purchasing manager is held accountable for all material price variances.
C. Where the purchasing manager has little control over the price paid.
D. Both where a fixed contract price is in place for the purchase of materials for a period AND where the
AACSB: Reflective purchasing manager has little control over the price paid.
Difficulty: Medium
Learning Objective: 10.07 Understand how to determine the causes of variances, and when to take corrective actions
AACSB: Reflective
61. For a particular period a firm worked a larger number of overtime hours than planned in order to complete a Difficulty: Hard
larger than usual number of job orders. The jobs were all completed within the standard time allowed for each job. Learning Objective: 10.05 Calculate and interpret the direct material price and quantity variances, and the direct labour rate and efficiency variances
Assuming only the facts given, what variance(s) would result from these facts?
A. Unfavourable labour rate; unfavourable labour efficiency
B. Unfavourable labour efficiency; unfavourable material quantity variance 65. Which of the following statements regarding allowances for spoilage and/or inefficiency is not correct?
C. Unfavourable labour rate; unfavourable labour efficiency; unfavourable material quantity A. When allowances are not included within the standards, any inefficiencies are highlighted as unfavourable variances.
D. None of the given answers B. When allowances are not included within the standards, any inefficiencies are highlighted as favourable variances.
C. Firms would never set standards that included an allowance for spoilage.
D. When allowances are not included within the standards, any inefficiencies are highlighted as favourable variances
AND firms would never set standards that included an allowance for spoilage.
AACSB: Reflective
Difficulty: Medium
AACSB: Reflective
Difficulty: Easy
Learning Objective: 10.04 Develop standard costs for direct material and direct labour
66. A department's budgeted output for a 4-week period was 500 units at a standard cost of $100 per unit. The 70. 70.
actual production was 450 units and the firm's ledger revealed actual costs for the month to be $50 200. The standard
production cost for the period is Selected data about a firm's materials follows.
A. $50 000.
B. $50 200.
C. $45 000.
D. insufficient information to determine.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 10.04 Develop standard costs for direct material and direct labour What amount would be debited to materials account for the purchase of material?
67. When material price variances are recognised at the time of material purchase, direct materials used are A. $780
A. credited to the materials account at standard cost. B. $750
B. debited to the work in process account at actual prices. C. $720
C. credited to the materials account at actual cost. D. $810
D. debited to the materials account at standard cost.
AACSB: Analytical
Difficulty: Easy
AACSB: Reflective
Difficulty: Easy
71. 71.
68. A material price variance of $5000 (unfavourable) for a period has been calculated. The actual unit price was Selected data about a firm's materials follows.
$9.00. The actual quantity of material used was 6000. The standard quantity of materials was 5000. Calculate the
standard unit price for a unit of raw materials for the period (round where necessary).
A. $5.00
B. $8.00
C. $8.17
D. $9.83
AACSB: Analytical
What amount would be debited to work in process account for materials used?
Difficulty: Easy
A. $660
B. $630
69. Which of the following could not be an explanation of the labour efficiency variance for a firm whose variances C. $600
for the period included an unfavourable material price variance and a favourable labour efficiency variance? D. None of the given answers
A. Standards are out of date.
B. If the unfavourable material price variance was due to better quality materials being purchased, this in turn
could lead to less waste of materials. AACSB: Analytical
Difficulty: Easy
C. A timesaving improvement to the material-handling techniques has not yet been incorporated into the standard. Learning Objective: 10.11 Prepare journal entries to account for direct material and direct labour cost variances
D. Deliberate inefficiency.
72. When using the statistical control chart to investigate variances

A. managers should only investigate variances that are beyond the critical value.
AACSB: Reflective
Difficulty: Medium B. managers should only investigate variances that are fall below the critical value over a number of consecutive periods.
Learning Objective: 10.07 Understand how to determine the causes of variances, and when to take corrective actions C. any variances that go beyond the critical values are likely to be the result of random events such as employee illness.
D. managers should estimate the critical values by averaging the variances over a number of periods.
AACSB: Reflective
Difficulty: Medium
73. Jasmine Morron is examining a statistical control chart on the recent cost report of her manufacturing 76. Jay Bole is in the process of developing a standard for the labour cost of one unit of Product X. According to the
company. Jasmine is focusing on one specific process, the labour efficiency variance of polishing. She determines that design manual, it takes a skilled worker 30 minutes to produce one unit of Product X when the workshop is operating at
the critical values for this process are $1000. Which of the following statements is correct? peak condition. However, Product X is quite complex, and even a skilled worker operating in high efficiency often needs
A. Jasmine should investigate only unfavourable variances that are larger than $1000. another 5 minutes to adjust the tools, re-oil the machine, and rework some aspects of the product. A skilled worker is
B. Any variances of less than $1000 are likely to be the result of random events. paid
C. Jasmine should investigate unfavourable variances of any size, and favourable variances that are larger than $1000. $30 per hour, while the company pays 20 per cent on-costs on top of this.
D. Jasmine should investigate any variances that are larger than $500. Jay decides to develop a practical standard. The standard labour cost for one unit of Product X is
A. $15.
B. $17.50.
C. $18.
AACSB: Reflective D. $21.
Difficulty: Medium
AACSB: Analytical
74. Jasmine Morron is examining a statistical control chart on the recent cost report of her manufacturing company. Difficulty: Medium
Jasmine is focusing on one specific process, the labour efficiency variance of polishing. She determines that the critical Learning Objective: 10.03 Explain how the use of perfection standards and practical standards may impact behaviour
values for this process are $1000. The labour efficiency variances for the last 6 months were all favourable: $500F
(July),
$600F (August), $750F (September), $880F (October), $900F (November) and $990F (December). Jasmine decides not 77. When developing a perfection standard for direct labour, a manager should include which of the
to investigate these variances. Do you agree with her decision? following? i Labour on-costs
A. Yes, because all the variances are below the critical value. ii Occasional inefficiencies and machine breakdowns
B. Yes, because all the variances are below the critical value and are favourable. iii A minimal acceptable idle time
C. No, because there is a trend of the variances increasing steadily over time. A. i
D. No, she should investigate the variances in November and December because they are both within 10% of the B. i and ii
critical value. C. iii
D. i and iii
AACSB: Reflective
Learning Objective: 10.07 Understand how to determine the causes of variances, and when to take corrective actions Difficulty: Easy
75. Jay Bole is in the process of developing a standard for the labour cost of one unit of Product X. According to the
design manual, it takes a skilled worker 30 minutes to produce one unit of Product X when the workshop is operating at 78. Dexter Surgical Tools has set the following direct labour standard: 0.5 hours at $20 per hour, for each unit of Tool
peak condition. However, Product X is quite complex and even a skilled worker operating in high efficiency often needs #11. The company plans to produce 1200 units of Tool #11 in July; however, the actual production was 1000 units and
another 5 minutes to adjust the tools, re-oil the machine and rework some aspects of the product. A skilled worker is only 900 units were actually sold. The actual labour cost for July was $22 per hour.
paid The labour efficiency variance for July was
$30 per hour, while the company pays 20 per cent on-costs on top of this. A. $1200 Favourable.
Jay decides to develop a perfection standard. The standard labour cost for one unit of Product X is B. $1200 Unfavourable.
A. $15. C. $1000 Favourable.
B. $17.50. D. $1000 Unfavourable.
C. $18.
D. $21.
AACSB: Analytical
Difficulty: Easy
AACSB: Analytical
Difficulty: Medium
79. Dexter Surgical Tools has set the following direct labour standard: 0.5 hours at $20 per hour, for each unit of Tool
#11. The company plans to produce 1200 units of Tool #11 in July; however, the actual production was 1000 units and
only 900 units were actually sold. The actual labour cost for July was $22 per hour.
Which of the following is a likely explanation for the July labour efficiency variance?
A. The standard was set incorrectly.
B. A machine breakdown has resulted in unanticipated inefficiencies.
C. The production level was smaller than expected.
D. Both incorrectly set standards and a machine breakdown are likely explanations.
AACSB: Reflective
Difficulty: Medium
80. Dexter Surgical Tools has set the following perfection direct labour standard: 0.5 hours at $20 per hour, for each
unit of Tool #11. The company plans to produce 1200 units of Tool #11 in July; however, the actual production was 1000
units and only 900 units were actually sold. The actual labour cost for July was $22 per hour.
If Dexter Surgical Tools decides to use a practical standard instead of the perfection standard, the labour efficiency
variance is likely to
A. remain unchanged.
B. increase.
C. decrease.
D. not enough information.
AACSB: Reflective
Difficulty: Medium
81. Companies sometimes develop standards based on historical data. Which of the following statements about
this approach is correct?
A. This is an appropriate approach for mature production process.
B. This is an appropriate approach for processes that are labour intensive.
C. This is an inappropriate approach because it is a relatively more expensive approach to standard setting.
D. This approach is only acceptable for manufacturing companies.
AACSB: Reflective
Difficulty: Easy
82. Which of the following is not a desired outcome from allowing managers to participate in the setting of standards?
A. Greater confidence in the accuracy of the standard
B. Increased commitment to standards
C. Easily attained standards
AACSB: Reflective
Difficulty: Medium
Learning Objective: 10.09 Describe how the use of standard costing and variance reporting may impact individuals' behaviours
83. When a manager receives a bonus based on meeting the standards and achieving increased efficiencies which of
the following could be an undesired outcome?
A. Increased profit
B. Satisfied customers
C. Reduced employee theft
D. Lower quality raw materials
AACSB: Reflective
Difficulty: Medium
Learning Objective: 10.09 Describe how the use of standard costing and variance reporting may impact individuals' behaviours
Difficulty: Medium
84. Standard costs can be used for Learning Objective: 11.01 Distinguish between static and flexible budgets
A. controlling costs and products.
B. controlling budgets and products.
C. control and products. 2. A static budget is always:
D. control and product costing. A. based on a specific planned activity level.
B. based on a range of activity within which the firm may operate.
C. the same as a flexible budget.
D. based on maximum capacity.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 10.10 Explain how standard costs are used in product costing
AACSB: Reflective
Difficulty: Easy
85. In a standard costing system all inventories are recorded at Learning Objective: 11.01 Distinguish between static and flexible budgets
A. actual cost.
B. standard cost.
C. budgeted cost. 3. Which of the following statements is true?
D. purchase cost. A. In a standard costing system, standard costs can only be used for cost control.
B. In a standard costing system, standard costs can only be used for product costing.
C. In a standard costing system, standard costs are used for both cost control and product costing.
D. In a normal costing system, standard costs are used for cost control and normal costs are used for product costing.
AACSB: Reflective
Difficulty: Easy
AACSB: Reflective
Difficulty: Easy
86. As production takes place, the product costs are added to the Learning Objective: 11.09 Outline the criticisms and advantages of standard costing
A. raw materials inventory account.
B. work in process inventory account.
C. finished goods inventory account. 4. Which of the following formulas is the relationship between activity and total budgeted overhead cost is
D. cost of goods sold account. represented by?
A. Budgeted variable overhead cost per unit × total activity units
B. Budgeted variable overhead cost per unit + budgeted fixed overhead cost
C. (Budgeted variable overhead cost per unit × total activity units) + budgeted fixed overhead costs
AACSB: Reflective D. (Budgeted fixed overhead cost per unit × total activity units) + (budgeted variable overhead cost per unit × total
Difficulty: Medium activity units)
87. An debit balance in the direct material price variance account or direct labour price variance accounts would cause AACSB: Reflective
the costs of goods sold to Difficulty: Easy
A. increase. Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume
variances
B. decrease.
C. stay the same.
D. have no impact.
1. Which of the following statements on flexible budgets is false?

A. It enables companies to control overhead costs.
B. It can be used to calculate direct material and direct labour variances.
C. It is the same as a static budget.
D. It provides a useful basis for comparison between actual and expected costs for a given level of activity.
AACSB: Reflective
5. When a flexible budget is used, a decrease in the actual production level within a range of activity would 7.
A. decrease variable cost per unit.
B. decrease total variable costs. A flexible budget is appropriate for a:
C. increase variable cost per unit.
D. decrease fixed cost per unit.
Sales commission budget Direct material budget Variable overhead

budget
AACSB: Reflective
Difficulty: Easy
A.
Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume Yes No Yes
variances
B.
Yes Yes Yes
6.
C.
Star Company is preparing a flexible budget for 2008 and the following maximum capacity estimates for department Z are: No Yes No
D.
No No No
AACSB:
Analytical
Difficulty: Easy
Learning Objective: 11.01 Distinguish between static and flexible budgets
Assume that Star's normal capacity is 80 per cent of maximum capacity. What would be the total factory overhead rate per direct labour
hour in a flexible budget at normal capacity? 8.
A. $6.00 A flexible budget for Heath Company for 5 000 hours is shown below:
B. $6.50
C. $7.50
AACSB:
Analytical
Difficulty: Easy
Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume
variances What are the total overhead costs for 10 000 hours?
A. $35 000
B. $45 000
C. $50 000
D. $60 000
AACSB:
Analytical
Difficulty: Easy
variances
9. The predetermined fixed overhead rate is found by
A. budgeted total overhead / actual total activity.
B. actual fixed overhead / planned activity measure. Which of the following is used in the computation of the variable overhead spending variance?
C. budgeted fixed overhead / planned activity measure.
D. budgeted fixed overhead / actual activity measure.
Flexible budget based on standard S
Actual variable factory overhead
hours t
a
AACSB: Reflective
Difficulty: Easy n
Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume d
variances a
r
d
10. Overhead application refers to v
a
A. the addition of overhead cost to work in process inventory as a product cost. r
B. a system of allocating manufacturing cost to products. i
C. static budget applications. a
D. Both the addition of overhead cost to work in process inventory as a product cost AND a system of b
allocating manufacturing cost to products. l
e
o
v
e
AACSB: Reflective r
Difficulty: Easy
Learning Objective: 11.04 Apply overheads to work in process under a standard costing system
h
e
a
d
11. The activity measure for overhead allocation should be one r
A. that varies in a similar pattern to the way that variable overhead varies. a
B. that follows a fixed pattern. t
C. that has a magnitude that never changes. e
D. that is always based on units produced, not on hours used.
A.
No Yes No
AACSB: Reflective B.
Difficulty: Medium
No No No
Learning Objective: 11.02 Explain the advantages of a flexible budget for performance evaluation and control
C.
Yes No Yes
D.
Yes Yes Yes
AACSB: Reflective
Difficulty: Easy
variances
13. In a standard costing system, the total manufacturing overhead variance is measured as
A. the difference between applied overhead based on actual output and actual overhead cost incurred.
B. the difference between actual overhead costs for two subsequent periods.
C. the difference between overhead costs in the flexible budget for two subsequent periods.
D. the difference between standard overhead applied and the overhead cost in the flexible budget.
AACSB: Reflective
Difficulty: Easy
variances Dean Company used a standard cost system to prepare the following budget at normal capacity for the month of May.
Actual data for May were as follows:
Determine the fixed overhead budget and volume variances.
Budget Volume
A.
$5000 F $5000 U
B.
$5000 U $0
C.
$5000 U $5000 F
D.
$0 $5000 U
AACSB:
Analytical
Difficulty: Medium
variances
15. Assume the number of machine hours is the cost driver for variable overhead. The difference between the actual
variable overhead and the flexible budget for variable overhead (based on standard machine hours allowed for actual
output) is the Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume
variances
A. volume variance.
B. net overhead variance.
C. efficiency variance. 17. The difference between the actual manufacturing overhead and the manufacturing overhead applied to
D. sum of variable spending and efficiency variances. production is the
A. sum of spending, efficiency, budget and volume variances.
B. efficiency variance.
AACSB: Reflective
C. spending variance.
Difficulty: Easy D. volume variance.
variances
AACSB: Reflective
16. Difficulty: Easy
variances
Which of the following is used in the calculation of the variable overhead spending variance?
Standard
Flexible
Flexible budget based on

on standard ead
overh actual hours
hours ction
applie
allowed
produ
A.
Yes Yes
B.
Yes No
C.
No Yes
D.
No No
variable
budget based
d to
AACSB: Reflective
Difficulty: Easy
18. Which of the following cannot cause an unfavourable variable overhead efficiency variance?
A. Using more direct labour hours or direct machine hours than the standard quantity, given actual output.
B. Higher than expected production accomplished in less than the standard machine hours allowed.
C. Using more of the variable overhead item, such as electricity, than the standard amount allowed.
AACSB: Reflective
Difficulty: Medium
variances
What is Security Door's flexible budget for variable overhead costs for the actual output?
19. 19.
DBC Company applies fixed overhead at $8 per machine hour. During the year actual fixed overhead amounted A. $600 000
to $75 000 and the standard machine hours allowed for units produced was 11 000. Budgeted fixed overhead B. $540 000
was $80 000. Which of the following is the best description of the items used to calculate the volume variance? C. $495 000
D. $432 000
AACSB:
Budgeted FOH Applied FOH Actual FOH Analytical
Difficulty: Medium
A. variances
$80 000 $88 000 ignore
B. 21.
$88 000 $88 000 ignore
Security Doors has a standard variable overhead rate of $4 per direct labour hour. The standard quantity of direct labour per unit of
C. production is 3 hours. The company's static budget was based on 50 000 units. Actual results for the year are as follows.
$88 000 $75 000 ignore
D.
ignore $88 000 $75 000
AACSB:
Analytical What was Security Door's variable overhead spending variance?
Difficulty: Easy
variances
A. $45 000 favourable
B. $60 000 favourable
C. $15 000 unfavourable
D. $45 000 unfavourable
AACSB:
Analytical
Difficulty: Medium
variances
The standards were set based on a capacity of 20 000 machine hours.
During the year, 5100 units were produced.

What was Security Door’s variable overhead efficiency variance?

What was Carvelle's fixed overhead volume variance?

AACSB:
Analytical
Difficulty: Medium
Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume A. $4000 favourable
variances B. $1000 unfavourable
C. $2000 favourable
D. $4000 unfavourable
23.
Carvelle Cabinets set the following standard cost per unit for 2008. AACSB:
Analytical
Difficulty: Medium
variances
What was Carvelle's fixed overhead budget variance?
A. $2000 unfavourable
B. $7000 unfavourable
C. $5000 unfavourable
D. $4000 favourable
AACSB:
Analytical
Difficulty: Medium
variances
What was the amount of total overhead (fixed and variable) applied to work in process inventory during 2008?
What was Carvelle's variable overhead spending variance?
A. $356 400
B. $365 750
C. $367 200
D. $370 750
C. $4800 favourable
D. $7350 favourable
AACSB:
Analytical
Difficulty: Easy AACSB:
Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume Analytical
variances Difficulty: Easy
variances
How many units had Carvelle budgeted to produce?
What was Carvelle's variable overhead efficiency variance? A. 5100

B. 5000
C. 20 000
A. $4800 favourable D. Insufficient information to determine
C. $7350 unfavourable
AACSB:
Analytical
Difficulty: Easy
AACSB: variances
Analytical
Difficulty: Easy
variances 29.
Carvelle Cabinets set the following standard cost per unit for 2008.
What was the total amount of under/overapplied overhead for the firm?
A. $3550 under
B. $3550 over
C. $3550 debit
D. Both A and C
AACSB:
Analytical
Difficulty: Medium
variances
Learning Objective: 11.07 Prepare journal entries to account for manufacturing overhead under standard costing
30. Atrex Company determined that its variable overhead spending variance was $10 000 unfavourable for the year. 34. Why is the budget variance the real control variance, for fixed overhead?
Actual variable overhead was $100 000 for the year. Variable overhead is applied based on machine hours. The standard A. It compares budgeted expenditures with budgeted fixed overhead costs.
rate per machine hour was $9. The standard quantity of machine hours allowed for good output was 9000. What was B. It compares actual expenditures with budgeted fixed overhead costs.
the actual quantity of machine hours used? C. It compares actual expenditures with budgeted variable overhead costs.
A. 12 222 D. It compares the static budget with the flexible budget.
B. 11 000
C. 10 000
D. 9000
AACSB: Reflective
Difficulty: Easy
variances
AACSB:
Analytical
Difficulty: Medium
Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume 35. The fixed overhead budget variance compares
variances A. actual variable overhead with actual fixed overhead.
B. budgeted variable overhead with budgeted fixed overhead.
C. actual fixed overhead with budgeted fixed overhead.
31. What can create the variable overhead efficiency variance? D. actual total cost of units produced with the budgeted production.
A. Efficient or inefficient usage of a specific component of variable overhead (e.g. electricity)
B. Production of units for finished goods inventory versus production for sale
C. Efficient or inefficient use of the cost driver (e.g. machine hours) for variable overhead
D. A difference between the planned level of output and the actual level of output AACSB: Reflective
Difficulty: Easy
variances
AACSB: Reflective
Difficulty: Medium
Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume 36. When does budgeted fixed overhead differ from applied fixed overhead? (Assume the number of machine hours
variances is the activity base.)
A. During any period in which the number of standard machine hours allowed differs from the budgeted or planned
activity level.
32. Which of the following statements is false? B. It always differs.
A. An unfavourable variable overhead spending variance can result from paying a higher than expected price for C. During any period in which actual overhead costs exceed planned overhead costs.
variable overhead items. D. During any period in which budgeted production equals planned production.
B. A favourable variable overhead spending variance can result from using less of the variable overhead items
than expected at the actual activity level.
C. An unfavourable variable overhead spending variance can result from producing fewer units than expected
at the actual activity level. AACSB: Reflective
D. The spending variance is the real control variance for variable overhead. Difficulty: Medium
variances
AACSB: Reflective
Difficulty: Medium
37. Which of the following best describes the cost of underutilising productive capacity?
Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume A. Lost sales of products that are produced.
variances B. Lost contribution margin of products that are not produced.
C. An implicit cost that is inevitable.
D. There is no cost.
33. Budgeted fixed overhead is the basis for controlling fixed overhead because
A. it provides the benchmark against which actual expenditure is compared.
B. fixed overhead does not change as production activity varies.
C. budgeted fixed overhead is the same at all activity levels in the flexible budget. AACSB: Reflective
D. All of the given answers Difficulty: Easy
variances
AACSB: Reflective
Difficulty: Easy
variances
38. As overall productive activity changes, the following should move in the same direction, in roughly the 42. Which of the following statements is true for a standard cost system?
same proportion: A. Applied fixed manufacturing overhead is recorded as a debit to the manufacturing overhead account.
A. total variable overhead cost; standard variable overhead rate. B. Overapplied fixed overhead is always debited to cost of goods sold.
B. total variable overhead cost; fixed overhead budget variance. C. Underapplied fixed overhead is always credited to finished goods inventory.
C. cost driver; total variable overhead cost. D. Applied fixed manufacturing overhead is recorded as a debit to the work in process inventory account.
D. cost driver; fixed overhead cost.
AACSB: Reflective
Difficulty: Easy Learning Objective: 11.07 Prepare journal entries to account for manufacturing overhead under standard costing
variances
43. When is the predetermined fixed overhead rate used?
A. To apply fixed overhead to the cost of goods manufactured.
39. Which of the following interpretations of an unfavourable fixed overhead volume variance is correct? B. To apply fixed overhead to the work in process inventory account.
A. It measures the cost of underutilising productive capacity. C. To apply fixed overhead to the cost of goods sold.
B. It is overapplied overhead. D. To prepare the budget.
C. It is similar to a favourable variable overhead efficiency variance.
D. It has no use for control purposes.
AACSB: Reflective
Difficulty: Easy
AACSB: Reflective Learning Objective: 11.07 Prepare journal entries to account for manufacturing overhead under standard costing
Difficulty: Medium
variances 44. To which ledger account are the standard costs of direct material, direct labour and manufacturing
overhead charged?
A. Not used at all.
40. An overhead cost performance report is composed of the
B. Used for variances only.
A. actual and budgeted costs for each overhead item.
C. Entered into work in process inventory.
B. variable overhead spending and efficiency variances.
D. Entered into a standard control account.
C. fixed overhead budget variance along with actual and budgeted costs for each overhead item.
D. variable overhead spending and efficiency variances, fixed overhead budget variance, and actual and budgeted
costs for each overhead item.
AACSB: Reflective
Difficulty: Easy
AACSB: Reflective
Difficulty: Easy
Learning Objective: 11.06 Prepare an overhead cost performance report
41. Since variances are temporary accounts, how are they usually handled?
A. Closed directly to cost of goods sold at the end of each month.
B. Closed directly to cost of goods sold at the end of each accounting period.
C. Closed directly to cost of goods manufactured at the end of each accounting period.
D. Closed directly to profit and loss account at the end of the year.
AACSB: Reflective
Difficulty: Easy
Bozo Pty Ltd uses a standard costing system for product costing. The company uses direct labour hours as the cost driver to apply Master Products has the following information at the end of the year:
overhead costs. The following amounts were budgeted for the year:
Calculate the total standard overhead rate per direct labour hour (variable and fixed).
A. $0.125
B. $4.06 What is Master Product's sales price variance?
C. $8.00
D. $8.20
A. $3000 favourable
B. $7500 favourable
AACSB: C. $7000 favourable
Analytical
Difficulty: Easy
variances
AACSB:
Analytical
Difficulty: Easy
46. Learning Objective: 11.11 After studying the appendix, calculate and interpret the sales price and sales volume variances
Framlingham uses a standard costing system for product costing. The company uses direct labour hours as the cost driver to apply
overhead costs. The following amounts were budgeted for the year: 48.
Master Products has the following information at the end of the year.
The following were the actual results:
Calculate the variable overhead spending variance.

What is Master Product's sales volume variance?
AACSB: A. $10 000 unfavourable

Analytical B. $4000 unfavourable
Difficulty: Easy
Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume C. $4400 favourable
variances D. $3000 unfavourable
AACSB:
Analytical
Difficulty: Easy
Learning Objective: 11.11 After studying the appendix, calculate and interpret the sales price and sales volume variances
Calculate the amount of overhead cost applied to work in process inventory.

Calculate the fixed overhead volume variance.
A. $1 520 000
A. $24 000 favourable B. $1 536 000
B. $24 000 unfavourable C. $1 550 000
C. $34 000 favourable D. $1 600 000
AACSB:
AACSB: Analytical
Analytical Difficulty: Medium
Difficulty: Medium Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume
Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume variances
variances
The following were the actual results: The following were the actual results:
Calculate the total amount of underapplied or overapplied manufacturing overhead. Calculate the amount of fixed overhead budget variance.
A. $80 000 underapplied A. $10 000 favourable

B. $64 000 underapplied B. $10 000 unfavourable
C. $50 000 overapplied C. $24 000 favourable
D. $24 000 underapplied D. $34 000 unfavourable
AACSB: AACSB:
Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume
variances variances
The following were the actual results: The following were the actual results:
Calculate the amount of variable overhead spending variance. Calculate the amount of variable overhead efficiency variance.
A. $25 000 favourable A. $25 000 favourable

B. $15 000 unfavourable B. $25 000 unfavourable
C. $25 000 unfavourable C. $15 000 favourable
D. $15 000 favourable D. $15 000 unfavourable
AACSB: AACSB:
Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume
variances variances
55. Which of the following statements relating to standard costs is false?

A. Standard costs result in more stable product costs.
B. Standard costs enable management to concentrate on significant variances.
C. Standard costs provide a valid basis for cost comparisons.
D. Standard costs cannot be used for external reporting.
AACSB: Reflective
Difficulty: Easy
56. Which of the following is not an advantage of standard costing?

A. Standard costing provides a basis for sensible cost comparisons.
B. Standard costing provides a means of performance evaluation.
C. Standard costing can be a motivational tool for employees.
D. Once standards have been set, they need not be revised, resulting in a more efficient accounting department.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 11.09 Outline the criticisms and advantages of standard costing
A. Standard costing systems do not indicate the causes of the variances.
B. Standard costing systems enable the production of timely performance reports. Use the following data to determine the company's variable overhead spending variance for March.
C. Standard costing systems may create undesirable behaviour.
D. Standard costing systems tend to forget the importance of product quality and customer service.
AACSB: Reflective
Difficulty: Easy
58. Which of the following criticisms of standard costing systems is false?

A. Variances concentrate on results rather than causes.
B. Standard costing systems concentrate on activities.
C. Standard costing systems place too much emphasis on direct labour costs and efficiency.
D. Standard costing systems are too narrowly defined.
A. $500 favourable
AACSB: Reflective
Difficulty: Easy
C. $4500 favourable
Learning Objective: 11.09 Outline the criticisms and advantages of standard costing D. $4500 unfavourable
AACSB:
59. When using activity-based costing, we recognise four types of activity costs: unit level, batch level, product Analytical
level and facility level. Under activity-based budgeting, which of the following types of cost would be ‘flexed'? Difficulty: Easy
A. Product level Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume
variances
B. Batch level
C. Unit level
63.
Use the following data to determine the company's fixed overhead volume variance for March.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 11.10 Understand how activity-based budgeting provides a more accurate form of budgeting than does conventional budgeting
60. The sales price variance equals:

A. (actual sales price – budgeted sales price) × budgeted sales volume.
B. (actual sales price – budgeted sales price) × actual contribution margin.
C. (actual sales price – budgeted sales price) × actual sales volume.
D. (actual sales volume – budgeted sales volume) × budgeted contribution margin.
AACSB: Reflective
Difficulty: Easy
A. $10 000 overapplied

61. The sales volume variance equals: B. $10 000 underapplied
A. (actual sales volume – budgeted sales volume) × actual sales price. C. $20 000 overapplied
B. (actual sales volume – budgeted sales volume) × actual contribution margin. D. $20 000 underapplied
C. (actual sales volume – budgeted sales volume) × budgeted contribution margin.
D. (actual sales price – budgeted sales price) × budgeted sales volume. AACSB:
Analytical
Difficulty: Medium
AACSB: Reflective variances
Difficulty: Easy
The following table provides information about a company's production. Universal Pty Ltd used a standard cost system to prepare the following budget at normal operating capacity for the month of
January 2007.
If variable costs increased in 2005 by 10 per cent and fixed overheads increased in 2006 by 20 per cent, what was the variable cost Actual data for January 2007 were as follows:
per unit in 2004?
A. $3.35
B. $3.40
C. $3.45 Using the two-way analysis of overhead variances, what is the total of the fixed budget variance and the variable overhead spending
D. $3.50 variance for January 2007?
AACSB:
Analytical A. $3000 favourable
Difficulty: Hard B. $5000 favourable
variances
C. $9000 favourable
65. AACSB:
Analytical
The following table provides information about a company's production. Difficulty: Hard
variances
67. A favourable overhead efficiency variance is the result of

A. actual outputs exceeding actual inputs within the framework of a flexible budget.
B. standard outputs allowed for actual inputs exceeding the flexible budget inputs.
C. the flexible budget for actual input exceeding the actual costs incurred.
If variable costs increased in 2005 by 10 per cent and fixed overheads increased in 2006 by 20 per cent, what was the estimated
D. standard inputs allowed for actual outputs achieved exceeding the actual inputs within the framework of a
total cost in 2006? flexible budget.
A. $447 600 AACSB: Reflective

B. $472 800 Difficulty: Easy
C. $504 200 Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume
D. More than $514 400 variances
AACSB: 68. The budgeted costs per unit for a company are fixed costs $2 per unit; variable costs $3 per unit. What is the
Analytical expected cost of producing 1005 units?
Difficulty: Hard
Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume A. $2013
variances B. $5025
C. $3017
D. Insufficient information to determine
AACSB: Reflective
Difficulty: Medium
variances
69. Adams Corporation has developed the following flexible budget formula for annual indirect labour cost: Total cost = 71. 71.
$4800 + 50c per machine hour. Operating budgets for the current month are based on 20 000 hours of planned machine
time. Calculate the amount of indirect labour costs included in this planning budget. Z Company uses a variable costing system. There was no opening or closing stock. The following data is available:
A. $7200
B. $10 000
C. $14 400
AACSB:
Analytical
Difficulty: Easy
Learning Objective: 11.03 Prepare a flexible overhead budget, using both a formula and a report format
70. 70.
Z Company uses a variable costing system. There was no opening or closing stock. The following data is available.
Use this data to determine Z's sales volume variance:
B. $18 000 unfavourable
D. $18 000 favourable
AACSB:
Analytical
Difficulty: Medium
Use this data to determine Z's sales price variance. 72. Which of the following statements is correct?
A. Budgeted hours and standard hours are always the same.
B. Budgeted hours and standard hours are never the same.
A. $2000 favourable C. Budgeted hours and standard hours will be the same when budgeted production equals actual production.
B. $10 000 unfavourable D. Budgeted hours and standard hours are both related to budgeted production levels.
D. $10 000 favourable
AACSB: Reflective
AACSB: Difficulty: Medium
Analytical Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume
Difficulty: Medium variances
73. Which of the following statements is correct?

A. A flexible budget is calculated for actual activity level only.
B. A static budget can be calculated for a number of activity levels.
C. A static budget is prepared for budgeted activity level only.
D. Both A and C
AACSB: Reflective
Difficulty: Easy
74. Which of the following statements is incorrect? 78. Felter Company uses a standard costing system based on direct labour hours. Last month, Felter Company
A. The company's fixed overhead costs can be expressed as a flexible budget formula. used more electricity and indirect materials than planned. This is likely to result in
B. The company's variable costs can be expressed as a flexible budget formula. A. unfavourable variable overhead efficiency variance.
C. The company's total production costs can be expressed as a flexible budget formula. B. unfavourable variable overhead efficiency variance and unfavourable variable overhead spending variance.
D. A cost must have a fixed and a variable component before it can be expressed as a flexible budget formula. C. unfavourable variable overhead efficiency variance and unfavourable fixed overhead variance.
D. unfavourable variable overhead spending variance.
AACSB: Reflective
Learning Objective: 11.03 Prepare a flexible overhead budget, using both a formula and a report format Difficulty: Medium
variances
75. A particular company incurs actual overhead of $10 per unit produced. The company's budgeted (standard)
overhead cost per unit produced is $9 per unit. Overhead is applied based on machine hours. If the company's actual
machine hours worked was 1000, and standard hours allowed for units produced in the period was 1100 hours, what 79. Felter Company uses a standard costing system based on direct labour hours. Last month, Felter Company used
amount would be debited to work in process for overhead if the company used actual costing, normal costing and more direct labour hours than planned, while the production level was consistent with expectations. This is likely to
standard costing respectively? result in
A. $11 000; $9 900; $9 000 A. unfavourable fixed overhead variance and unfavourable variable overhead spending variance.
B. $11 000; $9 000; $9 900 B. unfavourable fixed overhead variance and unfavourable variable overhead efficiency variance.
C. $10 000; $9 900; $9 000 C. unfavourable variable overhead spending variance.
D. $10 000; $9 000; $9 900 D. unfavourable variable overhead efficiency variance.
AACSB: Reflective, AACSB: Reflective

Analytical Difficulty: Medium Difficulty: Medium
Learning Objective: 11.01 Distinguish between static and flexible budgets Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume
variances
76. Which of the following statements about activity-based budgeting (ABB) is incorrect?
80. The fixed overhead volume variance
A. ABB is based on the estimated cost of activities, while conventional budgeting is based on estimated costs
A. is useless, as it does not serve a control purpose. Rather, it is calculated only as a difference between total
of line items.
fixed overhead variance and fixed overhead budget variance.
B. ABB starts with estimating the costs of resources, while conventional costing starts with estimating sales.
B. is useless for control purposes, but allows managers to estimate capacity costs.
C. ABB is generally a more accurate planning tool than conventional budgeting.
C. is useless for control purposes, but useful for product costing purposes.
D. ABB focuses on resource consumption rather than resource acquisition.
D. is useful only when conducting two-way overhead variance analyses.
AACSB: Reflective
Learning Objective: 11.10 Understand how activity-based budgeting provides a more accurate form of budgeting than does conventional budgeting Difficulty: Easy
variances
77. Which of the following is not a limitation of standard costing system?

A. Standard costing system takes a process perspective rather than a departmental perspective. 81. A three-way overhead variance analysis refers to
B. Standard costing system becomes outdated easily. A. a variance analysis comprising three variances, including overhead spending variance, variable overhead
C. Standard costing systems do not encourage continuous improvement efficiency variance, fixed overhead volume variance.
D. Standard costing system focuses on the consequences rather than the causes of variances. B. a variance analysis comprising three variances, including variable overhead spending variance, variable
overhead efficiency variance, and fixed overhead budget variance.
C. a variance analysis that requires managers to estimate each variance using information from three
different independent sources.
AACSB: Reflective
Difficulty: Easy D. a variance analysis that requires managers to average the variances calculated over three accounting periods.
AACSB: Reflective
Difficulty: Easy
variances
82. Felter Company sold 8000 units of Product X last month. The actual production level was 9000 units. The 86. Which of the following budgets allow managers to select the most appropriate benchmark for cost control?
budget selling price was $10, but the sales manager had to discount the products by 20 per cent before managing to A. Manufacturing budget
sell these units. The sales price variance is B. Static budget
A. $16 000 unfavourable. C. Flexible budget
B. $20 000 unfavourable. D. Overhead budget
C. $16 000 favourable.
D. $20 000 favourable.
AACSB: Reflective
Difficulty: Easy
AACSB:
Analytical
Difficulty: Easy
Learning Objective: 11.11 After studying the appendix, calculate and interpret the sales price and sales volume variances 87. When preparing the flexible overhead budget which of the following activities would be the most suitable to use
as the standard input measure for measuring electricity for a car manufacturer?
A. Depreciation of machinery
83. Felter Company reported that the total variance between actual and budgeted total contribution margin in April was B. Factory rent
$1000 favourable. The sales price variance was $5000 favourable. The fixed overhead budget variance was $1200 C. Direct labour hours
unfavourable. The sales volume variance was D. Machine hours
A. $4000 unfavourable.
B. $4000 favourable.
C. $5200 unfavourable.
D. $5200 favourable. AACSB: Reflective
Difficulty: Medium
AACSB:
Analytical 88. In a standard costing system, overhead is applied to inventory using the
Difficulty: Medium A. flexible overhead rate.
Learning Objective: 11.11 After studying the appendix, calculate and interpret the sales price and sales volume variances B. standard overhead rate.
C. flexible variable rate.
D. standard variable rate.
84. An unfavourable fixed overhead budget is likely to the result of
A. an unexpected increase in factory rent.
B. an unexpected increase in electricity rate.
C. an incorrect application of fixed overhead rate. AACSB: Reflective
D. an unexpected increase in factory rent and an unexpected increase in electricity rate. Difficulty: Easy
Learning Objective: 11.04 Apply overheads to work in process under a standard costing system
AACSB: Reflective 89. The focus of most variance reports is to highlight the differences between
Difficulty: Medium A. budgeted expenditure and actual expenditure.
Learning Objective: 11.05 Calculate and interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume B. budgeted expenditure and flexible expenditure.
variances
C. budgeted revenue and actual revenue.
D. budgeted revenue and flexible revenue.
85. Which of the following statements about variable overhead variances is correct?
A. Variable overhead efficiency variance highlights any inefficient uses of variable indirect costs such as electricity.
B. Variable overhead efficiency variance is not a useful control tool.
AACSB: Reflective
C. Variable overhead spending variance is useful only as a product costing tool. Difficulty: Easy
D. Variable overhead spending variance may be caused by lower than expected usage of direct labour hours. Learning Objective: 11.06 Prepare an overhead cost performance report
90. Flexible budgets can be used by service organisations to

AACSB: Reflective A. plan overhead costs.
Difficulty: Easy B. control overhead costs.
variances C. determine product costing.
D. plan and control overhead costs.
AACSB: Reflective
Difficulty: Medium
Learning Objective: 11.08 Apply flexible budgets in a service environment
91. Which of the following are service organisations not required to do? C. fixed costs / unit contribution margin.
A. Plan overhead costs D. variable costs / unit contribution margin.
B. Control overhead costs
C. Determine product costing
D. Plan and control overhead costs AACSB: Reflective
Difficulty: Easy
Learning Objective: 18.01 Calculate the break-even point in sales units using the CVP equation
AACSB:
Reflective
Difficulty: Medium
Learning Objective: 11.08 Apply flexible budgets in a service environment
1. The concept of cost volume profit analysis is based on classifying costs as

A. fixed and variable costs.
B. variable product and period costs.
C. product controllable and uncontrollable costs.
D. fixed and variable costs AND variable product and period costs.
AACSB: Reflective
Difficulty: Easy
2. The break-even point is that level of activity where

A. total revenue equals total cost.
B. total revenue equals fixed cost.
C. total revenue equals variable cost.
D. total revenue equals product cost.
AACSB: Reflective
Difficulty: Easy
3. The contribution margin per unit is calculated as the difference between

A. sales revenue per unit and fixed cost per unit.
B. sales revenue per unit and variable cost per unit.
C. sales revenue per unit and product cost per unit.
D. fixed cost per unit and variable cost per unit.
AACSB: Reflective
Difficulty: Easy
4. The break-even point is calculated by

A. sales volume × unit selling price / sales volume × unit variable cost.
B. variable costs / total revenue.
5. Ribco Company Ltd makes and sells only one product. The unit contribution margin is $6, and the break-even 9. The firm's fixed costs are $60 000, variable cost per unit is $15 and selling price per unit is $20. The break-even
point in unit sales is 24 000. What are the company's fixed expenses? point in units is
A. $400 000 A. 1715.
B. $14 400 B. 3000.
C. $40 000 C. 4000.
D. $144 000 D. 12 000.

Learning Objective: 18.01 Calculate the break-even point in sales units using the CVP equation Learning Objective: 18.01 Calculate the break-even point in sales units using the CVP equation
6. The contribution margin ratio is (all on a per unit basis) 10. The firm's fixed costs are $60 000, variable cost per unit is $15 and selling price per unit is $20. The break-even
A. the difference between the selling price and the variable cost. point in sales dollars is
B. variable cost divided by selling price. A. $80 000.
C. contribution margin divided by selling price. B. $120 000.
D. contribution margin divided by fixed cost. C. $240 000.
D. $300 000.
AACSB: Reflective
Learning Objective: 18.02 Calculate the contribution margin ratio, and use it to find the break-even point in sales dollars Difficulty: Easy
Learning Objective: 18.02 Calculate the contribution margin ratio, and use it to find the break-even point in sales dollars
7. The break-even point in sales dollars can be calculated by dividing

A. fixed expenses by the unit contribution margin. 11. The firm's fixed costs are $60 000, variable cost per unit is $15 and selling price per unit is $20. The
B. variable expenses by the unit contribution margin. contribution margin percentage is
C. fixed expenses by the contribution margin ratio. A. 2.5%.
D. variable expenses by the contribution margin ratio. B. 25%.
C. 33%.
D. 400%.
AACSB: Reflective
Difficulty: Easy
AACSB: Analytical
Difficulty: Easy
8.
The firm's fixed costs are $60 000, variable cost per unit is $15 and selling price per unit is $20. The contribution margin per unit is 12. Epex Pty Ltd makes a single product. Annual fixed expenses are $48 000 and the contribution margin ratio is
30 per cent. What volume in sales dollars is necessary for Epex to achieve a target profit of $15 000?
A. $63 000
A. $5. B. $90 000
B. $15. C. $160 000
C. $20. D. $210 000
D. $35.

Learning Objective: 18.01 Calculate the break-even point in sales units using the CVP equation Learning Objective: 18.04 Use the break-even formula to determine the sales units or sales revenue required to achieve a target net profit
13. If the contribution margin is $10, the selling price per unit is $25 and the fixed costs are $45 000, what is the 17. Suppose variable expenses were to decrease by $3.00 per unit. What effect would this have on the cost volume
number of units that must be sold to break even? profit analysis?
A. 4500 A. The unit contribution margin would rise by $3.00.
B. 4000 B. The break-even point in units would increase.
C. 3000 C. The break-even point in units would decrease.
D. 1800 D. The unit contribution margin would rise by $3.00 AND the break-even point in units would decrease.

Learning Objective: 18.01 Calculate the break-even point in sales units using the CVP equation Learning Objective: 18.05 Apply CVP analysis to determine the effect on profits of changes in fixed costs, variable costs, sales prices and sales volume
14. If the contribution margin is $10, the selling price per unit is $25 and the fixed costs are $45 000, to earn a 18. Which of the following changes will affect the unit contribution margin?
targeted net profit of $50 000 the total dollar value of sales must be at least A. Changes in fixed cost
A. $10 000. B. Changes in variable cost per unit
B. $112 500. C. Changes in selling price per unit
C. $122 500. D. Both changes in variable cost per unit AND changes in selling price per unit
D. $237 500.
AACSB: Reflective
Difficulty: Easy Learning Objective: 18.01 Calculate the break-even point in sales units using the CVP equation
Learning Objective: 18.04 Use the break-even formula to determine the sales units or sales revenue required to achieve a target net profit
19. Suppose the selling price per unit increased from $5.00 to $6.00 per ticket. What effect would this have on
15. The difference between the budgeted sales revenue and the break-even sales revenue is the the cost volume profit analysis?
A. unit contribution margin. A. The contribution margin would increase.
B. contribution margin percentage. B. The contribution margin would decrease.
C. safety margin. C. The break-even point in units would decrease.
D. operating leverage. D. The contribution margin would increase AND the break-even point in units would decrease.

Learning Objective: 18.05 Apply CVP analysis to determine the effect on profits of changes in fixed costs, variable costs, sales prices and sales volume Learning Objective: 18.05 Apply CVP analysis to determine the effect on profits of changes in fixed costs, variable costs, sales prices and sales volume
16. Suppose fixed expenses were to increase by 5.9 per cent. How would this affect the break-even point?
A. The break-even point in units would rise 5.9 per cent.
B. The break-even point in dollars would rise 11.8 per cent.
C. The break-even point in dollars would rise by more than 5.9 per cent.
D. The break-even point in dollars would fall by more than 5.9 per cent.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 18.05 Apply CVP analysis to determine the effect on profits of changes in fixed costs, variable costs, sales prices and sales volume
20. (p. 857) Assume that selling price is greater than variable cost. Now suppose the selling price and the 23. Under an activity-based costing system, the break-even point in units is calculated by
variable cost per unit increase by $5.00. What effect would these changes have on the contribution margin in A. total non-volume activity cost / selling price per unit – fixed cost per unit.
dollars and on the contribution margin ratio? B. total non-volume activity cost / selling price per unit – unit level cost per unit.
C. total non-volume activity cost / contribution margin per unit.
D. total fixed costs / contribution margin per unit.
Dollar contribution margin Contribution margin ratio
AACSB: Reflective
A. Difficulty: Easy
Increase Increase Learning Objective: 18.09 Use activity-based approaches within CVP analysis and understand the limiting assumptions implicit in this analysis
B.
Decrease Decrease
24. Which of the following are advantages of an activity-based costing approach to cost volume profit (CVP)
analysis as compared to a CVP analysis based on traditional product costing?
A. Unit variable costs are recognised more clearly.
C. B. Fixed costs are viewed as fixed only with respect to changes in sales and production volume, but not as
No change No change fixed with respect to changes in other cost drivers such as number of set-ups and number of material moves.
C. The assumption in traditional CVP analysis that sales and production volumes are equal can be relaxed.
D. D. Unit variable costs are recognised more clearly AND fixed costs are viewed as fixed only with respect to changes
No change Decrease in sales and production volume, but not with respect to changes in other cost drivers such as number of set-ups and
number of material moves.
AACSB: Reflective
Difficulty: Medium
AACSB: Reflective
Difficulty: Medium
Learning Objective: 18.09 Use activity-based approaches within CVP analysis and understand the limiting assumptions implicit in this analysis
21. The total contribution margin is calculated as the difference between

A. sales price and variable cost per unit. 25. Which of the following assumptions is made when doing a cost volume profit analysis based on
B. sales price and fixed cost per unit. activity-based costing?
C. total revenue and total variable cost. A. Sales volume equals production volume.
D. total revenue and total cost. B. As production volume changes, the number of set-ups, inspections, material moves etc. does not change.
C. The purchase price of raw materials per unit remains constant.
D. Sales volume equals production volume AND the purchase price of raw materials per unit remains constant.
AACSB: Reflective
Difficulty: Easy
AACSB: Reflective
Difficulty: Medium
22. Cost volume profit analysis is based on certain general assumptions. Which of the following statements about
these assumptions is/are true?
A. The price of the product will remain constant as volume varies within the relevant range. 26. The extent to which an organisation uses fixed costs in its cost structure is called
B. Expenses can be categorised as fixed, variable or semivariable. A. financial leverage.
C. Total fixed costs remain constant and unit variable cost remains unchanged as activity varies. B. operating leverage.
D. All of the given answers C. fixed cost leverage.
D. operating leverage AND fixed cost leverage.
AACSB: Reflective
Difficulty: Medium
AACSB: Reflective
Learning Objective: 18.08 Describe the limitations and potential uses of CVP analysis in practice
Difficulty: Easy
Learning Objective: 18.11 Explain the concepts of cost structure and operating leverage, and measure operating leverage
27. If total costs remain the same, the smaller the proportion of fixed costs in a firm's cost structure 31. 31.
A. the greater the impact on profit from a percentage change in sales volume.
B. the smaller the impact a percentage change in sales volume will have on profit. Maxie Pty Ltd makes and sells two types of shoes, Plain and Fancy. Product data is as follows:
C. the lower the contribution margin.
D. the smaller the impact a percentage change in sales volume will have on profit AND the lower the contribution margin.
AACSB: Reflective
Difficulty: Medium
Learning Objective: 18.11 Explain the concepts of cost structure and operating leverage, and measure operating leverage Sixty per cent of the sales in units are Plain and annual fixed expenses are $45 000.
Determine the weighted average unit contribution margin.
28. If the operating leverage factor is known, which of the following can be determined?
A. Contribution margin ratio A. $17.00
B. Contribution margin in dollars B. $9.25
C. Break-even point in sales dollars C. $9.00
D. Percentage change in profit for a given percentage change in sales D. $4.80
AACSB: Analytical
Difficulty: Easy
AACSB: Reflective Learning Objective: 18.06 Calculate the break-even point and prepare a profit volume graph where there are multiple products
Difficulty: Medium
32. 32.
29. Alclear Pool & Spa presently provides a weekly maintenance service to 150 homes. Variable costs amount to
approximately $12 per week for labour, mileage, chemicals and other supplies. Fixed costs are approximately $13 000 per Maxie Pty Ltd makes and sells two types of shoes: Plain and Fancy. Product data is as follows:
quarter (13 weeks). Customers pay $270 per quarter for the weekly service. All contracts are written for one quarter (13
weeks).
Determine the number of customers (rounded) to break even.
A. 95
B. 103
C. 114
D. 197 Sixty per cent of the sales in units are Plain and annual fixed expenses are $45 000 and the sales mix remains constant.
Determine the total number of units Maxie Pty Ltd must sell to break even.
AACSB: Analytic A. 9375

Difficulty: Medium B. 5000
C. 4737
D. 2647
30. Alclear Pool & Spa presently provides a weekly maintenance service to 150 homes. Fixed costs are approximately
$13 000 per quarter (13 weeks). Customers pay $270 per quarter for the weekly service. All contracts are written for AACSB: Analytical
one quarter (13 weeks). Now assume the contracts with customers are restructured such that the price per quarter is Difficulty: Medium
$300 and the contribution margin percentage is 57 per cent. Assume the tax rate is 25 per cent. Learning Objective: 18.06 Calculate the break-even point and prepare a profit volume graph where there are multiple products
Determine the sales dollars (to the nearest $100) necessary to obtain an after-tax profit of $9600 per
quarter. A. $39 600
B. $45 300
C. $52 900
D. $90 200
AACSB: Analytical
Difficulty: Medium
Learning Objective: 18.07 Include income taxes in CVP analysis
33. 33. 35. 35.
Maxie Pty Ltd makes and sells two types of shoes, Plain and Fancy. Product data is as follows: Maxie Pty Ltd makes and sells two types of shoes, Plain and Fancy. Product data is as follows:
Sixty per cent of the sales in units are Plain and annual fixed expenses are $45 000 and the sales mix remains constant. Sixty per cent of the sales in units are Plain and annual fixed expenses are $45 000 and the sales mix remains constant. Assume an
Determine the number of units of Plain and Fancy respectively that Maxie Pty Ltd must sell to break even. income tax rate of 20 per cent.
How many units of Plain must Maxie Pty Ltd sell to earn an after tax profit of $18 000?
A. 2000; 3000
B. 0; 5000 A. 4500
C. 5000; 0 B. 7875
D. 3000; 2000 C. 3960
D. 8437
AACSB: Analytical
Learning Objective: 18.06 Calculate the break-even point and prepare a profit volume graph where there are multiple products Difficulty: Medium
Learning Objective: 18.06 Calculate the break-even point and prepare a profit volume graph where there are multiple products
34. 34.
36. 36.
Maxie Pty Ltd makes and sells two types of shoes, Plain and Fancy. Product data is as follows:
Maxie Pty Ltd makes and sells two types of shoes, Plain and Fancy. Product data is as follows:
Sixty per cent of the sales in units are Plain and annual fixed expenses are $45 000 and the sales mix remains constant.
How many units of Fancy must Maxie Pty Ltd sell to earn a target profit of $31 500?
Sixty per cent of the sales in units are Plain and annual fixed expenses are $45 000 and the sales mix remains constant. Assume an
income tax rate of 20 per cent.
The break-even point for this data is 5000 units in total. How will the calculation of the break-even point change (if at all) if the
A. 3400
relative percentages of the products in the mix change from 60 per cent Plain shoes to 40 per cent Fancy shoes?
B. 2000
C. 7286
D. 8500
A. The break-even point in total will not change. The only change will be the relative number of each of the units.
B. Neither the break-even point in total nor the relative number of each of the units to produce at break-even will change.
AACSB: Analytical C. The break-even point will change because the calculation above assumes a constant mix, namely 60 per cent to
Difficulty: Medium 40 per cent.
D. The break-even point will be higher.
AACSB: Reflective
Difficulty: Medium
37. 37. 38. 38.
Econ Pty Ltd produced and sold 45 000 units of a single product last year. Data concerning the year's profit and loss statement are as Econ Pty Ltd produced and sold 45 000 units of a single product last year. Data concerning the year's profit and loss statement is as
follows: follows:
What was Econ's total contribution margin for the year? What was Econ's break-even point (rounded) in unit sales?
A. $495 000 A. 36 000

B. $540 000 B. 24 000
C. $724 500 C. 25 411
D. $810 000 D. 26 832

Learning Objective: 18.01 Calculate the break-even point in sales units using the CVP equation Learning Objective: 18.01 Calculate the break-even point in sales units using the CVP equation
39. 39. 40. 40.
Econ Pty Ltd produced and sold 45 000 units of a single product last year. Data concerning the year's profit and loss statement is as Econ Pty Ltd produced and sold 45 000 units of a single product last year. Data concerning the year's profit and loss statement is as
follows: follows:
What was Econ's break-even point in dollar sales? What was Econ's operating leverage?
A. $720 000 A. 4
B. $762 330 B. 5
C. $1 080 000 C. 6
D. $1 134 000 D. 7

Learning Objective: 18.01 Calculate the break-even point in sales units using the CVP equation Learning Objective: 18.11 Explain the concepts of cost structure and operating leverage, and measure operating leverage
41. 41. 42. 42.
Econ Pty Ltd produced and sold 45 000 units of a single product last year. Data concerning the year's profit and loss statement is as Econ Pty Ltd produced and sold 45 000 units of a single product last year. Data concerning the year's profit and loss statement is as
follows: follows:
Assuming sales revenue increases by 15 per cent, what will be the percentage increase in profit before income tax? Assuming all cost relationships will remain constant for the coming year, how many units must be sold for the company to earn
an after-tax profit of $180 000 if the income tax rate is 40 per cent?
A. 15%
B. 45% A. 45 000
C. 60% B. 47 500
D. 75% C. 61 000
D. 70 000
AACSB: Analytical
Difficulty: Hard AACSB: Analytical
Learning Objective: 18.11 Explain the concepts of cost structure and operating leverage, and measure operating leverage Difficulty: Hard
43. Under activity-based costing systems, break-even point in units treats which costs as included in the numerator?
i. Batch costs
ii. Product costs
iii. Faculty level costs
A. i and ii
B. i and iii
C. ii and iii
AACSB: Reflective
Difficulty: Easy
44. The firm uses activity-based costing and has the following cost structure: selling price $50, batch cost $20 47. 47.
000, unit level costs $30 per unit, facility costs $120 000 and product costs $60 000. What is the break-even point in
units? ‘Goal seek' analysis provides for which of the following?
A. 6000 i. An output for a given set of inputs
ii. Required inputs for a given output
B. 7000 iii. A range of outputs for a range of inputs
C. 9000
D. A. i
B. ii
10 000 C. iii
AACSB: Reflective
Difficulty: Easy Learning Objective: 18.10 Explain how financial planning models can be used for sensitivity analysis and to develop more sophisticated profit models
48. Which of the following do limitations of cost volume profit include?

45. Cost volume profit analysis, including customer-related costs, must incorporate which of the following costs: i. Not all costs can be classified as fixed or variable.
i. market level costs ii. Revenue changes may not be linear.
ii. customer level costs iii. Sales volume is the only cost driver.
iii. order level costs iv. Inventory levels do not change.
iv. batch level costs A. i and ii
A. i and ii B. i and iii
B. ii and iii C. i, ii and ii
C. i, ii and iii D. All of the given answers
AACSB: Reflective
Difficulty: Easy Learning Objective: 18.08 Describe the limitations and potential uses of CVP analysis in practice
49. Which of the following are assumptions of cost volume profit analysis?
46. Which of the following statements applies to cost volume profit and sensitivity analysis? i. Sales mix is constant.
i. Only one variable is changed. ii. External factors do not change.
ii. All variables are changed. iii. Fixed costs change with sales volume.
iii. One or more variables are changed. iv. Variable costs are constant per unit of sales.
iv. Only one set of variables need be assessed. A. i, ii and iii
A. i B. ii, iii and iv
B. ii C. i, ii and iv
C. iii D. All of the given answers
D. iv
AACSB: Reflective
Difficulty: Easy Learning Objective: 18.08 Describe the limitations and potential uses of CVP analysis in practice
Learning Objective: 18.10 Explain how financial planning models can be used for sensitivity analysis and to develop more sophisticated profit models
50. Your local pizza parlour has annual fixed costs of $20 000, the pizza price is $8 and the unit variable cost $4. 54. Would you expect the following to be high or low in a labour-intensive firm: (1) operating leverage, (2) safety
What is the contribution margin ratio? margin and (3) profit potential?
A. 40% A. Low, high, low
B. 45% B. Low, low, high
C. 50% C. High, low, high
D. 60% D. High, low, low

Learning Objective: 18.01 Calculate the break-even point in sales units using the CVP equation Learning Objective: 18.11 Explain the concepts of cost structure and operating leverage, and measure operating leverage
51. If break-even sales volume is $40 000 and contribution margin $7500, what is the net 55. Would you expect the following to be high or low in an automated firm: (1) safety margin, (2) operating leverage and
profit? A. $7500 (3) profit potential?
B. $32 500 A. Low, high, high
C. $0 B. High, high, low
D. Insufficient information to determine C. Low, high, low
D. High, low, low
AACSB: Reflective
Learning Objective: 18.01 Calculate the break-even point in sales units using the CVP equation Difficulty: Medium
52. Would you expect the following to be high or low in a labour-intensive industry: (1) operating leverage, (2)
break-even point and (3) safety margin? 56. Nesto sells two products: X and Y. The contribution margin ratio for X is 40 per cent and for Y is 50 per cent.
A. High, high, low If the proportion of sales of X decreases, what will happen to the weighted average contribution margin?
B. Low, low, high A. Increase
C. Low, low, low B. Decrease
D. High, high, high C. Remain the same
D. Changes in sales volume do not affect weighted average contribution margin
AACSB: Reflective
Learning Objective: 18.11 Explain the concepts of cost structure and operating leverage, and measure operating leverage Difficulty: Easy
53. 53.
57. Which of the following will increase a company's break-even point?
Would you expect the following to be high or low in an automated firm: (1) level of fixed costs, (2) level of risk and (3) break-even A. Increasing the contribution margin per unit
point? B. Increasing the variable cost per unit
C. Reducing the company's total fixed costs
D. Increasing the selling price per unit
A. High, high, high
B. Low, high low
C. High, high, low
D. Low, low, high AACSB: Reflective
Difficulty: Easy
AACSB: Reflective
Difficulty: Medium
58. The contribution margin ratio is calculated as 62. Cost volume profit analysis is a popular tool in practice. Why is it so popular?
A. total contribution margin / total sales revenue. A. It is a simple tool that can be used for long-run decision making.
B. total profit / sales revenue. B. It is a simple tool to apply and is suitable for short-run decision making.
C. contribution margin per unit / selling price per unit. C. It can be employed in all types of firms.
D. total contribution margin / total sales revenue AND contribution margin per unit / selling price per unit. D. It is a simple tool to apply and is suitable for short-run decision making AND it can be employed in all types of firms.

Learning Objective: 18.01 Calculate the break-even point in sales units using the CVP equation Learning Objective: 18.08 Describe the limitations and potential uses of CVP analysis in practice
59. 59. 63. Which of the following is the most precise definition of the operating leverage factor? The operating leverage
factor measures
For a firm that would break even at $200 000 sales and earn a profit of $30 000 at sales of $250 000, which of the following A. the proportion of fixed costs in a firm's cost structure.
statements is always true? B. the proportion of variable costs in a firm's cost structure.
C. the effect that an increase (decrease) in sales volume will have on profit.
D. the proportion of fixed costs in a firm's cost structure AND the proportion of variable costs in a firm's cost structure.
A. Fixed costs are $80 000.
B. The selling price is $2 per unit.
C. Profit at sales of $300 000 would be $80 000.
D. The contribution margin is 60 per cent of sales. AACSB: Reflective
Difficulty: Easy
AACSB: Analytical
AACSB:
Reflective 64. A firm has an operating leverage factor of 4. This means that
Difficulty: Medium A. if sales revenue increased by 2 per cent, profit would increase by 4 per cent.
B. if sales revenue increased by 2 per cent, profit would increase by 8 per cent.
C. if sales revenue increased by 2 per cent, profit would increase by 2 per cent.
60. A firm is reorganising and reclassifying its cost structure. The firm previously classified the item ‘glue and nails' D. profit would increase by 4 times the dollar increase in sales revenue.
as indirect material. The firm is considering now tracing this cost directly to products and treating ‘glue and nails' as
direct material. What is the effect on the break-even point (if any) of that change, provided all other items remain
unchanged? AACSB: Analytical
A. The break-even point will not change. Difficulty: Easy
B. The break-even point will increase. Learning Objective: 18.11 Explain the concepts of cost structure and operating leverage, and measure operating leverage
C. The break-even point will decrease.
D. The break-even point will change but without actual figures, it is impossible to say in what direction the change will be.
65. The operating leverage factor is calculated as
A. total profit / sales revenue.
B. contribution margin per unit / selling price per unit.
AACSB: Reflective C. contribution margin / net profit.
Difficulty: Medium D. contribution margin / total fixed costs.
61. A firm is reorganising and reclassifying its cost structure. What is the effect on the break-even point (if any) if
AACSB: Reflective
direct labour costs are reduced and fixed indirect labour costs are increased, provided all other items remain Difficulty: Easy
unchanged? Learning Objective: 18.11 Explain the concepts of cost structure and operating leverage, and measure operating leverage
A. The break-even point will increase.
B. The break-even point will decrease.
C. The break-even point will change but without actual figures, it is impossible to say in what direction the change will be. 66. The margin of safety is the difference between
D. It is not possible to determine whether the break-even point will change or will remain the same. A. contribution margin and net profit before tax.
B. budgeted contribution margin and actual contribution margin.
C. budgeted sales revenue and actual sales revenue.
D. budgeted sales revenue and break-even sales revenue.
AACSB: Reflective
Difficulty: Medium
AACSB: Reflective
Difficulty: Easy
67. 67. 69. 69.
A firm produces products A and B. The following data is available: Cost volume profit applied to the service industry
Selling price per unit is $20 A and $25 B A nursing home has the following annual budget:
Variable costs per unit is $11 A and $18 B
Sixty percent of sales in units are expected to be product A. Fixed costs are expected to be $82 000. Calculate the break-even level of
sales in units.
A. 2460 A; 1312 B
B. 3000 A; 2000 B
C. 6000 A; 4000 B
D. 18 000 A; 14 000 B
AACSB: Analytical
Difficulty: Medium
68. Cost volume profit applied to the service industry.

A hotel has 10 000 room nights available per annum, charges $50 per room per night, pays fixed costs of $150 000 Calculate the budgeted contribution margin ratio.
per annum and variable costs of $16 for each night a room is occupied. If the price per room per night is increased by
5 per cent, the break-even occupancy rate as a percentage (rounded) is
A. 38%.
A. 3%
B. 41%.
B. 22%
C. 44%.
C. 25%
D. 50%.
D. 33.33%
AACSB: Analytical
Difficulty: Medium Learning Objective: 18.02 Calculate the contribution margin ratio, and use it to find the break-even point in sales dollars
70. 70. 71. 71.
Cost volume profit applied to the service industry Cost volume profit applied to the service industry
A nursing home has the following annual budget: A nursing home has the following annual budget:
Calculate the budgeted break-even point in inpatient days. Which of the following statements is correct if fixed administration costs were increased by $50 000 and all other matters remained
the same?
A. 7333 days
B. 22 000 days A. The break-even point in inpatient days would increase.
C. 25 000 days B. The contribution would decrease.
D. None of the given answers C. The net profit would increase.
D. There would be no change in break-even point.
AACSB: Analytical
Difficulty: Medium
AACSB: Analytical
Difficulty: Easy
72. 72.
A firm makes and sells three standard products in a specific product mix. All three products are made using the same production
facilities. The following budgeted data for the coming year is available.
Total annual fixed costs $348 000

Tax rate 40%
The break-even sales units for products 1, 2 and 3 are
A. 1200; 3000; 1800.

B. 3600; 9000; 5400.
C. 2400; 6000; 3600.
D. Can only determine the total break-even point, not the units of each product
AACSB: Analytical
Difficulty: Medium
73. 73. 75. Cost volume profit analysis is based on the separation of fixed and variable costs. The analysis can be stated
as an equation as follows: P = a(b – c) – d. In this statement of the equation, P is the profit, and
A firm makes and sells three standard products in a specific product mix. All three products are made using the same production
facilities. The following budgeted data for the coming year is available. A.
b is the price per unit; c is the variable cost per unit; a is the number of units produced; d is the fixed cost.
B.
b is the number of units produced; c is the fixed cost; a is the price per unit; d is the variable cost per unit.
Total annual fixed costs $348 000

Tax rate 40% C.
What sales revenue would be required for each of the three products to earn a profit of $139 200 after tax?
b is the fixed cost; c is the number of units produced; a is the variable cost per unit; d is the price per unit.
A. $400 000; $600 000; $480 000

B. $296 000; $740 000; $444 000 D.
C. $200 000; $300 000; $240 000
All of the given answers are incorrect because they all refer to the number of units produced. In fact, profit is determined according
D. $800 000; $1 200 000; $960 000
to the number of units sold.
AACSB: Analytical
Difficulty: Hard
AACSB: Reflective
Difficulty: Easy
74. 74.
A firm makes and sells three standard products in a specific product mix. All three products are made using the same production 76. Cost volume profit (CVP) analysis is based on a number of limiting assumptions. Which of the following is not
facilities. The following budgeted data for the coming year is available.
one of the assumptions of the CVP model?
A. Production units equal sales units over the period.
B. If the firm has a product mix, the mix remains constant.
C. Cost behaviour is linear over the relevant range.
D. CVP analysis only applies to a single-product firm.
AACSB: Reflective
Total annual fixed costs $348 000 Difficulty: Easy
Tax rate 40%
Calculate the margin of safety for the firm.
77. Which of the following statements is most correct with respect to the assumptions of the cost volume profit model?
A. The assumptions of the model are realistic.
A. $1 776 000
B. The assumptions of the model are unrealistic, and therefore the model has little usefulness.
B. $1 664 000
C. It is not possible to state whether the assumptions of the model are realistic or unrealistic.
C. $1 332 000
D. The assumptions of the model are unrealistic, but the model has great usefulness in certain
circumstances, as evidenced by its use in practice.
AACSB: Analytical
Difficulty: Hard
Learning Objective: 18.07 Include income taxes in CVP analysis AACSB: Reflective
Difficulty: Easy
78. Which of the following statements about the cost-volume-profit graph is false? 80. 80.
A. It can be used to identify both profit areas and loss areas.
B. It shows the relevant range of total revenue. Chelonia Ltd manufactures small robot toys. It plans to introduce a new product, Speedie the robot tortoise. The following activity
C. It cannot be used to make managerial decisions involving step-wise costs. cost information is available:
D. It can be used to identify break-even points.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 18.03 Prepare a cost volume profit graph and a profit volume graph, and explain how they may be used
Learning Objective: 18.04 Use the break-even formula to determine the sales units or sales revenue required to achieve a target net profit
79. 79.
Chelonia Ltd manufactures small robot toys. It plans to introduce a new product, Speedie the robot tortoise. The following activity It is expected that each unit of Speedie will sell for $23. The direct material cost for unit is $10. What is the break-even point in
cost information is available: units? (For simplicity, assume that you can have partial moves and partial batches – that is, no need to round up the number of
batches and the number of moves.)
A. 518 units
B. 1000 units
C. 1250 units
D. 2850 units
AACSB: Analytical
Difficulty: Hard
It is expected that each unit of Speedie will sell for $23. The direct material cost for unit is $10. What is the contribution margin
per units?
(For simplicity, assume that you can have partial moves and partial batches – that is, no need to round up the number of batches
and the number of moves.)
A. $21
B. $13
C. $11
D. $4
AACSB: Analytical
Difficulty: Easy
81. 81. 83. Chelonia Ltd manufactures small robot toys. It plans to introduce two products, Speedie and Spunkie. It is
anticipated that the product mix will be 40% Speedie and 60% Spunkie. One unit of Speedie will be sold for $100, with
Chelonia Ltd manufactures small robot toys. It plans to introduce a new product, Speedie the robot tortoise. The following activity variable cost equals $40. For a unit of Spunkie, the selling price will be $120 and the variable cost is $70. The fixed cost
cost information is available: for producing the two products is $108 000. What is the break even point?
A. Speedie: 1200 units; Spunkie: 800 units
B. Speedie: 800 units, Spunkie: 1200 units
C. Speedie: 1800 units; Spunkie: 2160 units
D. Speedie: 2160 units, Spunkie: 1800 units
AACSB: Analytical
Difficulty: Medium
It is expected that each unit of Speedie will sell for $23. The direct material cost for unit is $10. Assuming a tax rate of 40%, how 84. Chelonia Ltd manufactures small robot toys. It plans to introduce two products, Speedie and Spunkie. It is
many units of Speedie must Chelonia Ltd produce and sell to make an after-tax profit of $12 000? anticipated that the product mix will be 40% Speedie and 60% Spunkie. One unit of Speedie will be sold for $100, with
(For simplicity, assume that you can have partial moves and partial batches – that is, no need to round up the number of batches variable cost equals $40. For a unit of Spunkie, the selling price will be $120 and the variable cost is $70. The fixed cost
and the number of moves.) for producing the two products is $108 000. The company plans to include a safety margin of $20 000 before tax.
Assuming a tax rate of 30%, what should be the budgeted sales?
A. Speedie: 1012 units; Spunkie: 1517 units
A. 1000 units B. Speedie: 1517 units, Spunkie: 1012 units
B. 1818 units C. Speedie: 948 units; Spunkie: 1422 units
C. 4250 units D. Speedie: 1422 units, Spunkie: 948 units
D. 6250 units
AACSB: Analytical AACSB: Analytic

Learning Objective: 18.09 Use activity-based approaches within CVP analysis and understand the limiting assumptions implicit in this analysis Learning Objective: 18.05 Apply CVP analysis to determine the effect on profits of changes in fixed costs, variable costs, sales prices and sales volume
82. Chelonia Ltd manufactures small robot toys. It plans to introduce a new product, Spunkie, which is a
solar-powered robot jellyfish. Initially, Chelonia Ltd plans to sell each unit of Spunkie for $95, with an expectation that 85. In general, an increase in fixed cost while the contribution margin remains unchanged will
2500 units can be sold. The variable cost per unit is $30. The management accountant at Chelonia Ltd is exploring the A. increase the break even point.
idea of making some modification to Spunkie which will cost $2 per unit. This modification can allow them to increase B. decrease the break even point, but only if the safety margin is positive.
the price to $100. This however will lower the demand to 2000 units. Should Chelonia Ltd reduce the price of Spunkie? C. either increase or decrease the break even point, depending on operation leverage.
A. Yes, as the modified model will increase per unit contribution margin by $3. D. have no impact on break even point.
B. Yes, as the modified model will increase both the sales revenue and the contribution margin.
C. No, while the modified model will increase the contribution margin per unit, the lower sales volume results
in a net decrease in profit.
D. No, while the modified model will increase sales revenue, the lower contribution margin per unit will result AACSB: Reflective
Difficulty: Easy
in lower overall net profit. Learning Objective: 18.05 Apply CVP analysis to determine the effect on profits of changes in fixed costs, variable costs, sales prices and sales volume
86. Which of the following statements about the safety margin is correct?
AACSB: Reflective
Difficulty: Medium i. All else being equal, the safety margin is higher when the break even point
Learning Objective: 18.05 Apply CVP analysis to determine the effect on profits of changes in fixed costs, variable costs, sales prices and sales volume is lower. ii The safety margin depends on the budgeted revenue
iii The safety margin is unaffected by fixed cost.
A. i and ii
B. i and iii
C. ii and iii
D. All three statements are correct
AACSB: Reflective
Difficulty: Easy
87. Chelonia Ltd manufactures small robot toys. It plans to introduce a new product, Spunkie, which is a
solar-powered robot jellyfish. The break even point for Spunkie is 1500 units at $100 per unit. Assuming that the safety
margin is $2000, what are the budgeted sales (in units)? 91. 91.
A. 1540 units
B. 1530 units If a firm has $482 500 in fixed costs, a target net profit of $80000 and targeted sales volume of 12 500 units, the unit
C. 1520 units contribution margin would be
D. 1500 units
A. 6.03.
B. 6.40.
AACSB: Analytical C. 38.60.
Difficulty: Easy
D. 45.00.
AACSB: Reflective
88. The break-even point in units can be seen on a CVP graph at the intersection of Difficulty: Easy
A. the fixed cost line and the total revenue line. Learning Objective: 18.04 Use the break-even formula to determine the sales units or sales revenue required to achieve a target net profit
B. the total revenue line and the total cost line.
C. the fixed cost line and the total cost line.
D. the total revenue line and the profit/loss line. 92. When management runs several CVP analyses with different combinations of estimates this is known as
A. variation analysis.
B. sensitivity analysis.
C. advanced CVP analysis.
AACSB: Reflective D. goal-seek analysis.
Difficulty: Easy
AACSB: Reflective
89. On a CVP graph the vertical distance between the total revenue and total costs lines represents the Difficulty: Easy
A. sales volume. Learning Objective: 18.10 Explain how financial planning models can be used for sensitivity analysis and to develop more sophisticated profit models
B. fixed costs.
C. variable costs.
D. profit or loss. 93. Which of the following approaches enables management to apply specific changes in assumptions and data and
then to examine the effect of those changes on the output?
A. Traditional CVP analysis
B. Goal-seek approach
AACSB: Reflective C. What-if analysis
Difficulty: Easy D. Sensitivity analysis
90. 90. AACSB: Reflective

Difficulty: Easy
If a firm has $482 500 in fixed costs, a unit contribution margin of $45 and targeted sales volume of 12 500 units, the target net Learning Objective: 18.10 Explain how financial planning models can be used for sensitivity analysis and to develop more sophisticated profit models
profit would be

A. 1737.
B. 13 402.
C. 80 000.
D. 10 722.
1. Which of the following statements about the management accountant's role in the decision-making process is/are true?
AACSB: Reflective i. The management accountant is primarily responsible for selecting an alternative in the decision-making process.
Difficulty: Easy ii. The management account is primarily responsible for collecting the data in the decision-making process.
Learning Objective: 18.04 Use the break-even formula to determine the sales units or sales revenue required to achieve a target net profit iii. The management accountant is sometimes involved in developing a decision model in the decision-making process.
A. i
B. i and ii
C. i and iii
D. ii and iii
AACSB: Reflective
4. What term is used to describe factors in a decision problem that cannot be expressed effectively in numerical terms?
Difficulty: Medium A. Qualitative
Learning Objective: 19.01 Describe the steps in the decision-making process, and the management accountant's role in that process B. Quantitative
C. Sensitive
D. Uncertain
2. Which of the following statements about the decision-making process is/are true?
i. The first step in the decision-making process is to define or clarify a decision problem into clear terms that
can be addressed.
ii. Before alternatives can be identified, the necessary data must first be collected. AACSB: Reflective
Difficulty: Easy
iii. After the alternatives are identified, the criterion on which a decision will be made must be specified. Learning Objective: 19.01 Describe the steps in the decision-making process, and the management accountant's role in that process
A. i
B. ii
C. iii 5. Decision problems involving accounting data are specified in:
D. All of the given answers A. qualitative terms.
B. quantitative terms.
C. financial aspects.
D. accounting aspects.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 19.01 Describe the steps in the decision-making process, and the management accountant's role in that process
AACSB: Reflective
Difficulty: Easy
3. When the objectives of the decision are in conflict, one objective may be specified as the decision criterion Learning Objective: 19.01 Describe the steps in the decision-making process, and the management accountant's role in that process
and the other objectives are established as:
A. differential criteria.
B. irrelevant criteria. 6. Criteria measured utilising quantitative terms include objectives such as:
C. constraints. A. profit maximisation or cost minimisation.
D. opportunity costs. B. cost minimisation and employee morale.
C. increased sales and improved quality.
D. cost minimisation and employee morale; increased sales and improved quality.
AACSB: Reflective
Difficulty: Easy
AACSB: Reflective
Difficulty: Easy
7. An accounting information system should be designed to provide useful information. To be useful the
information must be:
A. qualitative not quantitative.
B. unique and unavailable through other sources.
C. historical in nature and not purport to predict the future.
D. relevant, accurate and timely.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 19.03 Describe the characteristics of relevant information
8. If a management accountant is trying to decide whether a cost is relevant to a decision, he or she should
consider the cost relevant if:
A. it is a historical cost precise in nature.
B. it is a historical cost that is the same among all alternatives.
C. it is an expected future cost that is the same for each alternative.
D. it is an expected future cost that is different for each alternative.
AACSB: Reflective
Difficulty: Easy
9. The most common trade-off in a decision situation is between information: 13. Which of the following statements about relevant information is/are true?
A. accuracy and relevance. i. An accountant can use past prices, previous market demand and previous cost data to predict future
B. relevance and timeliness. costs when repetitive decisions are made.
C. accuracy and timeliness. ii. No relevant information is available within an organisation's information system for unique decisions.
D. sensitivity and relevance. iii. It is important to segregate relevant data from irrelevant data because it is possible to overload
management with information.
A. i
B. ii
AACSB: Reflective
C. ii and iii
Difficulty: Easy
Learning Objective: 19.03 Describe the characteristics of relevant information D. i and iii
10. In order for information to be relevant, the decision to be made must have an effect on:
AACSB: Reflective
i. future cost or revenues.
Difficulty: Easy
ii. past cost or revenues. Learning Objective: 19.03 Describe the characteristics of relevant information
iii. the timeliness of information.
A. i
B. ii 14. Which of the following statements about relevant information is/are true?
C. iii i. For information to be relevant, it must relate to the future.
D. i and ii ii. For information to be relevant, it must differ between the alternatives.
iii. For information to be relevant, it must be completely accurate.
A. i
B. i and ii
AACSB: Reflective C. i and iii
Difficulty: Easy
Learning Objective: 19.03 Describe the characteristics of relevant information D. All of the given answers
11. In order to be relevant to a decision, cost or benefit information must involve , rather than .
AACSB: Reflective
A. a past event; a future event
Difficulty: Easy
B. actual data; estimated data Learning Objective: 19.03 Describe the characteristics of relevant information
C. a future event; a past event
D. a past event; a current event
15. 15.
In a decision to keep or replace a piece of equipment, calculate the total yearly expense of keeping the old equipment using
AACSB: Reflective the following data.
Difficulty: Easy
12. Which of the following statements is/are true?

i. Accurate but irrelevant information is still useful for decision making.
ii. Relevant, accurate, but not timely information is not useful in decision making.
iii. Relevant information that is known to have some weaknesses in accuracy still is useful in decision making.
A. i
B. ii
C. i and ii
D. ii and iii
A. $105 000
B. $25 000
AACSB: Reflective C. $95 000
Difficulty: Medium
Learning Objective: 19.03 Describe the characteristics of relevant information D. $130 000
AACSB: Analytical
Difficulty: Easy
16. The primary advantage of differential analysis is that it: 21. Manufacturers sometimes sell products at less than full price for a special order. The analysis of such
A. clearly shows the difference between the costs and benefits of the alternatives. decisions focuses on:
B. is much easier to formulate than total cost. A. fixed cost.
C. reduces the cost of one alternative by the cost of another. B. relevant benefits.
D. only considers relevant costs. C. relevant costs.
D. both relevant benefits and relevant costs.
AACSB: Reflective
Learning Objective: 19.04 Identify relevant information, including giving the appropriate treatment to sunk costs and opportunity costs Difficulty: Easy
Learning Objective: 19.05 Select and analyse relevant information for special order decisions
17. Opportunity cost is best defined as:

A. the amount of money that is paid for something. 22. 22.
B. the amount of money that is paid for something, considering inflation.
C. the highest valued benefit given up in making a choice. Which of the following statements about variable and fixed expenses, as they relate to relevance, is/are true?
D. all of the benefits that are given up in making a choice. i. Variable expenses may or may not be relevant costs.
ii. Variable expenses are always relevant.
iii. Fixed expenses are never relevant.
AACSB: Reflective
Difficulty: Easy A. i
Learning Objective: 19.04 Identify relevant information, including giving the appropriate treatment to sunk costs and opportunity costs B. i and iii
C. iii
D. ii and iii
18. Opportunity cost may also be described as:
A. a foregone benefit.
B. a comparative cost. AACSB: Reflective
Difficulty: Medium
C. a frontier cost. Learning Objective: 19.03 Describe the characteristics of relevant information
D. an alternative cost.
23. Rapid Growth Pty Ltd is presently operating at full capacity. They received a special order that, if
accepted, would require refusing some sales to regular customers. Which of the following factors should
AACSB: Reflective
Difficulty: Easy
management consider when making their decision?
Learning Objective: 19.04 Identify relevant information, including giving the appropriate treatment to sunk costs and opportunity costs
19. The book value of an asset such as equipment is an example of: Variable costs of special order Fixed costs of equipment Opportunity costs
A. a future cost.
B. a differential cost. A.
C. an opportunity cost. Yes Yes Yes
D. a sunk cost.
B.
Yes Yes No
AACSB: Reflective
Difficulty: Easy C.
Yes No Yes
20. In decision making, opportunity costs are: D.

A. unimportant costs. Yes No No
B. historical costs.
C. relevant costs.
D. future costs. AACSB: Reflective
Difficulty: Easy
AACSB: Reflective
Difficulty: Easy
24. A special order generally should be accepted if: 27. 27.
A. its revenue exceeds allocated fixed costs, regardless of the variable costs associated with the order.
B. excess capacity exists and the revenue exceeds all variable costs associated with the order. A firm has the following cost data per unit.
C. excess capacity exists and the revenue exceeds allocated fixed costs.
D. the revenue exceeds variable costs, regardless of available capacity.
AACSB: Reflective
Difficulty: Medium
25. 25. Calculate fixed costs per unit.
When excess capacity exists, the only relevant cost associated with a special order will usually be which cost?
A. $0.75
B. $1.75
A. Fixed cost C. $2.25
B. Variable cost D. $3.25
C. Administrative cost
D. Allocated fixed cost AACSB: Analytical
Difficulty: Easy
Learning Objective: 19.06 Select and analyse relevant information for decisions about whether to make or buy a product
AACSB: Reflective
Difficulty: Easy
28. 28.
26. Which of the following statements regarding short-term decisions is true? A firm has the following cost data per unit.
A. Fixed costs must only be considered on a per unit basis.
B. Fixed costs will actually behave as variable costs when they are unitised for special decisions.
C. Unitised fixed costs are valid only for make or buy decisions.
D. Unitised fixed costs are misleading because they appear to behave as variable costs when in fact they are not.
AACSB: Reflective
Difficulty: Medium
Learning Objective: 19.11 Identify the pitfalls to avoid when using accounting data in decisions
Calculate total cost per unit.
A. $3.25
B. $4.25
C. $1.75
D. $2.25
AACSB: Analytical
Difficulty: Easy
29. The manager of Big Mac Ltd is considering the purchase of equipment to make hamburgers that will reduce 33. 33.
annual operating costs by $1500. The equipment will cost $6000 and will have a useful life of five years with no resale
value. The new equipment will replace equipment purchased five years ago at a cost of $10 000, that has a book value Xebex Pty Ltd is considering whether to make or buy a component used in the production of Faz Machines. The annual cost of
of $5000 and no resale value. What will be the net effect on profit for the next five years in total if the new equipment is producing the 100 000 components used by the company is as follows.
purchased? (Ignore tax effects.)
A. $7500 increase
B. $4500 decrease
C. $3500 decrease
D. $1500 increase
If Xebex were to discontinue production of the component, direct fixed manufacturing costs would be reduced by 80 per
cent. Xebex should buy the 100 000 components if the cost of purchasing per unit is less than what amount?
AACSB: Analytical
Difficulty: Medium
Learning Objective: 19.04 Identify relevant information, including giving the appropriate treatment to sunk costs and opportunity costs A. $4.50
B. $4.00
C. $3.80
30. Jaspar Ltd has 1000 units in inventory that cost $2.00 per unit to produce. Due to changing technology, the D. $3.00
sales department is having difficulty selling the product. It will cost $500 to scrap the units. The company should
consider any price over:
A. $2000. AACSB: Analytical
Difficulty: Medium
B. $2500. Learning Objective: 19.06 Select and analyse relevant information for decisions about whether to make or buy a product
C. $1500.
D. $0.
34. 34.
Xebex Pty Ltd is considering whether to make or buy a component used in the production of Faz Machines. The annual cost of
AACSB: Analytical
producing the 100 000 components used by the company is as follows.
Difficulty: Medium
31. Mod Clothiers makes women's clothes. It costs $28 000 to produce 5000 pairs of polka-dot polyester pants. They
have been unable to sell the pants at their usual price of $50.00. The company is evaluating two alternatives. They could
sell the pants 'as is' for a total of $15 000 or they could modify the pants at a cost of $3000 and sell them for a total of If Xebex were to discontinue production of the component, direct fixed manufacturing costs would be reduced by 80 per
$20 000. cent. What are the irrelevant costs in the decision?
What would be the effect on profit of modifying the pants and selling them as opposed to selling 'as is'?
A. $8000 decrease
B. $11 000 decrease A. $50 000
C. $2000 increase B. $70 000
D. $3000 increase C. $80 000
D. $100 000

Learning Objective: 19.04 Identify relevant information, including giving the appropriate treatment to sunk costs and opportunity costs Learning Objective: 19.06 Select and analyse relevant information for decisions about whether to make or buy a product
32. Mod Clothiers makes women's clothes. It costs $28 000 to produce 5000 pairs of polka-dot polyester pants. 35. Sunshine Products is a multiproduct firm. The revenues of a single product are $200 000 when 10 000 units are
They have been unable to sell the pants at their usual price of $50.00. The company is evaluating two alternatives. sold. Variable costs are $16 per unit. Direct fixed expenses of $25 000 consist primarily of depreciation on equipment
They could sell the pants 'as is' for a total $15 000 or they could modify the pants and sell them for a total of $20 000. specialised to the product. By what amount will Sunshine Products' cash flow change if the product is dropped?
At what cost to modify each pair of pants, would Mod Clothiers be indifferent between the two alternatives? A. $200 000 decrease
A. $0.40 B. $160 000 decrease
B. $0.50 C. $40 000 decrease
C. $0.75 D. $15 000 decrease
D. $1.00
AACSB: Analytical
Difficulty: Easy Learning Objective: 19.06 Select and analyse relevant information for decisions about whether to make or buy a product
36. Holt Pty Ltd presently makes 20 000 units of a certain part to use in production. The cost to make the part is 38. 38.
$20 per unit including $15 in variable costs and $5 in fixed overhead applied. If Holt buys the part from Bricker, the cost
would be Sound Systems reported the following results from the sale of 24 000 radios:
$18 per unit and the released facilities could not be used for any other activity. Eighty per cent of the fixed overhead would
continue. Determine the relevant costs to make the part.
A. $320 000
B. $360 000
C. $380 000
D. $300 000
AACSB: Analytical
Difficulty: Medium Sound Systems expects similar operating results during the current year. Rhythm Systems has offered to purchase 3000 radios at $16
Learning Objective: 19.06 Select and analyse relevant information for decisions about whether to make or buy a product each. Sound Systems estimates approximately 5000 additional units could be made with the capacity currently available in the factory.
The owner of Sound Systems is in favour of accepting the order. She feels it would be profitable because no variable selling costs will
be incurred. The plant manager is against acceptance because his 'full cost' of production is $17.
37. 37. Determine the change in profit if the special order is accepted.
SloGrowth has idle capacity. They have received a special order for 2000 units at a price of $6 per unit. Currently production and sales
are budgeted for 20 000 units without considering the special order. Budget information for the year is presented below. A. $3000 increase
B. $12 000 increase
C. $12 000 decrease
D. $36 000 decrease
AACSB: Analytical
Cost of goods sold includes $20 000 of fixed manufacturing cost. Determine the effect on profit if the special order is accepted.
Difficulty: Easy
A. Remains the same

B. Increase by $2000 39. Generally, joint costs are not relevant in decision making after split-off because:
C. Decrease by $2000 A. they do not help increase the sales.
D. Decrease by $1000 B. they increase the sales margin only marginally.
C. they do not change regardless of any decision.
D. joint costs reflect opportunity costs.
AACSB: Analytical
Difficulty: Easy
AACSB: Reflective
Difficulty: Easy
Learning Objective: 19.08 Explain how to treat joint product costs in decisions about whether to sell a product or process it further
40. In the relative sales value method, joint costs are allocated between products:
A. in proportion to their sales value at split-off point.
B. in proportion to their profit margin at split-off point.
C. in proportion to the separable costs at split-off point.
D. in proportion to cost of production of a joint product.
Difficulty: Easy
41. Contribution margin per machine hour can be calculated by dividing: 45. Consider the situation where an activity-based costing system is in use rather than a traditional volume-based
A. machine hours required per unit by sales margin per unit. costing system. Which of the following statements is/are true?
B. contribution margin per unit by machine hours required per unit. A. The relevant cost decision model would be inappropriate if activity-based costing is used.
C. machine hours required per unit by contribution margin per unit. B. The relevant cost decision model is still appropriate, but a different decision criterion must be used.
D. total machine hours required by total contribution margin. C. The data collection and analysis step is going to be affected by the use of non-volume-related cost drivers.
D. The relevant cost decision model would be inappropriate if activity-based costing is used AND the data
collection and analysis step is going to be affected by the use of non-volume-related cost drivers.
Difficulty: Easy
AACSB: Reflective
Difficulty: Easy
42. Product costs incurred after the split-off point are called: Learning Objective: 19.09 Complete relevant cost analysis using activity-based costing
A. separable processing costs.
B. joint product cost.
C. by-product costs. 46. Consider a situation where an activity-based costing system is in use rather than a traditional volume-based
D. scrap costs. costing system. Which of the following statements is/are true?
A. The use of activity-based costing eliminates the need to consider qualitative factors.
B. When an activity-based costing system is used, facility level costs will have to be analysed differently than
under a traditional volume-based costing system.
AACSB: Reflective C. When an activity-based costing system is used, unit level costs will have to be analysed differently than
Difficulty: Easy when a traditional volume-based costing system is used.
43. Lido Products produces two products (A and B) from a joint process. The joint cost of production is $80 000.
Five thousand units of Product A can be sold at split-off for $20 per unit or processed further at an additional cost of AACSB: Reflective
$20 000 and sold for $25 per unit. Ten thousand units of Product B can be sold at split-off for $15 per unit or processed Difficulty: Easy
further at an additional cost of $20 000 and sold for $16 per unit. Learning Objective: 19.09 Complete relevant cost analysis using activity-based costing
What is the difference in profit if Lido decides to process further Product A, instead of selling it at split-off?
A. $25 000 increase
B. $5000 increase 47. When a joint production process results in two or more products being produced simultaneously, the
C. $21 000 increase products are termed:
D. $27 000 decrease A. joint products.
B. split-off products.
C. by-products.
D. separable products.
AACSB: Analytical
Difficulty: Easy
AACSB: Reflective
Difficulty: Easy
44. Lido Products produces two products (A and B) from a joint process. The joint cost of production is $80 000. Learning Objective: 19.08 Explain how to treat joint product costs in decisions about whether to sell a product or process it further
Five thousand units of Product A can be sold at split-off for $20 per unit or processed further at an additional cost of
$20 000 and sold for $25 per unit. Ten thousand units of Product B can be sold at split-off for $15 per unit or processed
further at an additional cost of $20 000 and sold for $16 per unit. 48. Which of these statements about joint cost allocation is false?
What is the difference in profit if Lido decides to process further Product B, instead of selling it at split-off? A. It is useful in deciding whether to process further a joint product after split-off.
A. $10 000 increase B. It is not useful in making accurate profit determination about individual joint products from given data.
B. $20 000 increase C. It can be accomplished using the physical units method approach.
C. $10 000 decrease D. It can be used to value inventory.
D. $58 000 decrease
AACSB: Reflective
Difficulty: Easy
AACSB: Analytical Learning Objective: 19.08 Explain how to treat joint product costs in decisions about whether to sell a product or process it further
Difficulty: Easy
49. A chocolate company uses the weight of joint products as the allocation basis. This type of cost allocation is the: 53. A joint product with very little value relative to other joint products is termed a:
A. relative sales value method. A. negligible product.
B. net realisable value method. B. accounted loss.
C. physical units method. C. by-product.
D. joint cost allocation method. D. scrap.

Learning Objective: 19.08 Explain how to treat joint product costs in decisions about whether to sell a product or process it further Learning Objective: 19.12 Use various approaches to allocate joint costs to products, and evaluate the usefulness of these approaches for managerial
decision making
50. The joint cost allocation method that recognises the revenues at split-off but does not consider any further
processing costs is the: 54. The joint cost allocation method that is not based on the economic characteristics of the joint products is the:
A. relative sales value method. A. joint cost allocation method.
B. net realisable value method. B. relative sales value method.
C. joint cost allocation method. C. physical units method.
D. constant gross margin method. D. net realisable value method.

Learning Objective: 19.08 Explain how to treat joint product costs in decisions about whether to sell a product or process it further Learning Objective: 19.12 Use various approaches to allocate joint costs to products, and evaluate the usefulness of these approaches for managerial
decision making
51. The joint cost allocation method that ensures that the gross margin for each product is identical is the:
55. An appropriate way to account for by-products is to:
A. relative sales value method.
A. subtract the net realisable value of the by-products from the cost of the joint process.
B. net realisable value method.
B. deduct the by-product's sales value at split-off from the production cost of the main products.
C. joint cost allocation method.
C. allocate a portion of the joint cost to the by-product.
D. constant gross margin method.
D. subtract the net realisable value of the by-products from the cost of the joint process AND/OR deduct the
by-product's sales value at split-off from the production cost of the main products.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 19.12 Use various approaches to allocate joint costs to products, and evaluate the usefulness of these approaches for managerial AACSB: Reflective
decision making Difficulty: Easy
Learning Objective: 19.12 Use various approaches to allocate joint costs to products, and evaluate the usefulness of these approaches for managerial
decision making
52. The method under which the relative magnitude of the final products' net realisable values is used to allocate
the joint cost is the:
A. net realisable value method.
B. constant gross margin method.
C. relative sales value method.
D. physical units method.
AACSB: Reflective
Difficulty: Easy
decision making
56. 56. 58. 58.
Lipex Pty Ltd produces two products (A and B) from a particular joint process. Each product may be sold at the split-off point or A firm incurs manufacturing costs totalling $240 000 in process 1 to produce the following three beverages emerging from that
processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable process at the split-off point.
and traceable to the products involved. Joint production costs for the year were $60 000. Sales values and costs are as follows.
Apple juice: sold immediately it emerges from Process 1 without further processing for $0.70 litre.
Apple cider: processed further in Process 2 with an additional cost of $0.66667 litre, then sold for $1.50
litre. Apple pulp: processed further in Process 3 with an additional cost of $1.50 litre, then sold for $3.50
litre.
The following data relates to the period in which the joint costs were incurred.
Allocate the joint production costs based on the physical units method. What are the joint costs assigned to product A?
A. $25 714
B. $20 339
C. $34 286
D. $30 000
AACSB: Analytical What is the amount of joint cost that would be allocated to apple juice if the physical measures method had been used?
Difficulty: Easy
decision making
A. $120 000
B. $80 000
57. 57. C. $84 000
D. $130 000
Lipex Pty Ltd produces two products (A and B) from a particular joint process. Each product may be sold at the split-off point or
processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable AACSB: Analytical
and traceable to the products involved. Joint production costs for the year were $60 000. Sales values and costs are as follows. Difficulty: Easy
decision making
Allocate the joint production costs based on the physical units method. What are the joint costs assigned to product B?
A. $25 714
B. $20 339
C. $34 286
D. $39 661
AACSB: Analytical
Difficulty: Easy
decision making
59. 59. 61. 61.
A firm incurs manufacturing costs totalling $240 000 in process 1 to produce the following three beverages emerging from that A firm incurs manufacturing costs totalling $240 000 in process 1 to produce the following three beverages emerging from that
process at the split-off point. process at the split-off point:
Apple juice: sold immediately it emerges from Process 1 without further processing for $0.70 litre. Apple juice: sold immediately it emerges from Process 1 without further processing for $0.70 litre.
Apple cider: processed further in Process 2 at an additional cost of $0.66667 litre, then sold for $1.50 Apple cider: processed further in Process 2 at an additional cost of $0.66667 litre, then sold for $1.50
litre. Apple pulp: processed further in Process 3 at an additional cost of $1.50 litre, then sold for $3.50 litre. Apple pulp: processed further in Process 3 at an additional cost of $1.50 litre, then sold for $3.50
litre. litre.
The following data relates to the period in which the joint costs were incurred. The following data relates to the period in which the joint costs were incurred.
What is the amount of joint cost that would be allocated to apple juice if the constant gross margin method had been used?
What is the amount of joint cost that would be allocated to apple juice if the relative sales value method had been used?
A. $120 000
A. $120 000
B. $91 000
B. $80 000
C. $84 000
C. $84 000
D. $80 000
D. Insufficient information to determine
AACSB: Analytical
AACSB: Analytical Difficulty: Hard
Difficulty: Easy Learning Objective: 19.12 Use various approaches to allocate joint costs to products, and evaluate the usefulness of these approaches for managerial
Learning Objective: 19.12 Use various approaches to allocate joint costs to products, and evaluate the usefulness of these approaches for managerial decision making
decision making
62. A joint cost is:

60. 60.
A. a cost of a single process that yields two or more products or services simultaneously.
B. a cost that is not directly attributable to the production of any specific good or service.
A firm incurs manufacturing costs totalling $240 000 in process 1 to produce the following three beverages emerging from that
process at the split-off point.
C. a cost shared by more than one process in a manufacturing cycle.
Apple juice: sold immediately it emerges from Process 1 without further processing for $0.70 litre. D. All of the given answers
Apple cider: processed further in Process 2 at an additional cost of $0.66667 litre, then sold for $1.50
litre Apple pulp: processed further in Process 3 at an additional cost of $1.50 litre, then sold for $3.50
litre.
The following data relates to the period in which the joint costs were incurred. AACSB: Reflective
Difficulty: Easy
63. One method of treating by-products is to:

A. treat the by-product in the same way as the main products.
B. allocate all joint costs to both products and by-products.
C. adjust the cost of the joint products by subtracting the net realisable value of the by-product from the joint costs.
D. adjust the cost of the joint products by subtracting the cost of the by-product from the joint costs.
What is the amount of joint cost that would be allocated to apple juice if the net realisable value method had been used?
AACSB: Reflective
Difficulty: Easy
A. $120 000 Learning Objective: 19.08 Explain how to treat joint product costs in decisions about whether to sell a product or process it further
B. $80 000
C. $84 000
D. $91 000
AACSB: Analytical
Difficulty: Medium
decision making
64. An opportunity cost is defined as: 67. 67.
A. the profit of the next best alternative foregone.
B. the additional revenue if we do not drop the product. A company produces products A, B and C and the profit and loss statement for the past twelve months shows the following
C. the additional (incremental) cost of accepting the order. (in thousands) details.
D. not being relevant if there is excess capacity.
AACSB: Reflective
Difficulty: Easy
65. Which of the following statements is true of relevant costs?

A. Variable costs are always relevant.
B. Sunk costs are never relevant.
C. If costs are the same under two alternatives, they are not relevant.
D. Sunk costs are never relevant AND if costs are the same under two alternatives, they are not relevant.
AACSB: Reflective
Difficulty: Easy
The company is considering dropping Product C. If it does this, the fixed costs will remain the same except that the firm will be able
to rent out excess factory space at $30 000 per annum. If other revenue and cost figures remained the same, what would be the
66. Why are joint costs never relevant in deciding whether to sell a product at split-off or process it further? effect on annual profit of dropping Product C?
A. Because they are sunk costs
B. Because they are the same under both alternatives
C. Because they have already been allocated to joint products A. 0
D. Because they are sunk costs AND because they are the same under both alternatives B. Increase of $30 000
C. Increase of $40 000
D. Decrease of $10 000
AACSB: Reflective
Learning Objective: 19.08 Explain how to treat joint product costs in decisions about whether to sell a product or process it further Difficulty: Medium
Learning Objective: 19.07 Select and analyse relevant information for decisions to add or delete a product or department
68. Which of the following is a correct statement regarding the link between decision making and
performance evaluation?
A. Managers are rewarded for good decisions; therefore there is always an incentive for mangers to make
the best decision for the firm.
B. Where managers are rewarded by financial variables such as bottom-line profit, there is often an
incentive for managers to avoid a decision that may be in the best interests of the firm but reduce their
segment's bottom line.
C. Managers can be relied on to always make decisions that are in the interests of the firm as a whole.
D. Decision making and performance evaluation are separate issues for the managers of firms and are seldom related.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 19.10 Discuss how incentives can influence the way that managers make decisions
69. For which of the following should joint costs and joint cost allocations not be used? 73. Which of the following is a correct quantitative decision-rule with respect to whether to drop a product?
A. Inventory valuation A. If the product has a positive contribution margin, then do not drop the product.
B. Comparing profitability of joint products B. If the product is showing a net loss, the product should be dropped.
C. Rewarding managers of processes beyond split-off point C. If the profit of the firm without the product is higher than with the product, the product should be dropped.
D. Both comparing profitability of joint products AND rewarding managers of processes beyond split-off point D. If the product has a positive contribution margin, then do not drop the product AND if the profit of the firm
without the product is higher than with the product, the product should be dropped.
AACSB: Reflective
Learning Objective: 19.08 Explain how to treat joint product costs in decisions about whether to sell a product or process it further Difficulty: Medium
Learning Objective: 19.07 Select and analyse relevant information for decisions to add or delete a product or department
70. A firm currently makes a component, and requires 30 000 of them for the coming year's production. Another
supplier has offered the part at a delivered price of $3 per unit. It would cost $3000 to check purchased units for 74. 74.
quality. Product costs per unit for the past year were $2.35 variable and $1 fixed based on 30 000 units. If the
component was bought, fixed overhead would be reduced by $6000, the cost of leasing specialised equipment. The A firm produces three items from a single process in batches containing 40 units A (a by-product); 100 units B; 100 units C.
space vacated by the equipment can be rented for $4000 for the year. Which of the following statements is the correct Separable costs and selling prices are:
quantitative analysis of the make or buy decision?
A. The buy option costs $12 500 more than the make option.
B. The buy option costs $12 500 less than the make option.
C. The buy option costs $10 500 more than the make option.
D. The firm is indifferent between the two options.
AACSB: Analytical Joint process costs are $30 000 per batch.
Difficulty: Medium What is the amount of joint costs that would be allocated to B using the net realisable value method and treats by-product revenue as
Learning Objective: 19.06 Select and analyse relevant information for decisions about whether to make or buy a product a reduction of the cost of the principal products?
71. A firm currently makes a component, and requires 30 000 for the coming year's production. Another supplier A. $7000
has offered the part at a delivered price of $3 per unit. It would cost $3000 to check purchased units for quality. Product B. $7500
costs per unit for the past year were $2.35 variable and $1 fixed based on 30 000 units. If the component was bought, C. $15 000
fixed overhead would be reduced by $6000, the cost of leasing specialised equipment. The space vacated by the D. $14 000
equipment can be rented for $4000 for the year. At what level of units of production is the firm indifferent between
making and buying?
A. 30 000 units AACSB: Analytical
Difficulty: Medium
B. 10 769 units
C. 4615 units decision making
D. 20 000 units
75. When considering the allocation of joint costs, which of the following statements (if any) is false?
A. If there are no beginning inventories and all products are sold at the split-off point, the relative sales value
AACSB: Analytical method and the constant gross margin percentage methods yield the same results.
Difficulty: Medium
Learning Objective: 19.06 Select and analyse relevant information for decisions about whether to make or buy a product B. In order to use the actual sales value at split-off method, management does not have to determine which
products will be produced beyond the split-off point or what separable costs will be incurred.
C. A problem with the physical measures method of allocation is that it may not be related to the product's
72. For a firm that currently makes a particular component, which of the following are qualitative factors that ability to produce revenue.
would be considered following a quantitative analysis in favour of buying? D. The cause–effect criterion is the key principle in allocating costs when joint costing is used.
A. Buying increases uncertainty, in particular with respect to timely availability of the component.
B. Buying surrenders control over product design and quality.
C. Employee morale would be affected if a decision to buy meant dismissing staff.
AACSB: Reflective
D. All of the given answers Difficulty: Medium
decision making
AACSB: Reflective
Difficulty: Easy
76. 76. 78. 78.
C Limited produces two products (A and B) from a particular joint process. Each product may be sold at split-off or may be Zoota Ltd makes four products: Alta, Bepha, Delma and Gamta. The selling price and per unit costs are show below.
further processed. Joint production costs for the year amounted to $60 000. Sales values and costs are as follows.
If the joint production costs were assigned using the relative sales value method the joint costs allocated to A would be:
A. $20 339.
B. $27 383.
C. $27 857.
D. $0: all joint costs are allocated to B.
AACSB: Analytical
Difficulty: Easy
77. 77.
C Limited produces two products (A and B) from a particular joint process. Each product may be sold at split-off or may be
further processed. Joint production costs for the year amounted to $60 000. Sales values and costs are as follows. *Alta and Delma share the same factory; therefore, monthly rent is allocated equally between the two products. Other allocated
monthly fixed costs include administrative costs, which are allocated based on a $2/unit charge.
Zoota Ltd decides to drop Delma because it is unprofitable. Christina Bobo, the management accountant of Zoota Ltd, suggests that by
dropping Delma the company can save $1 x 5000 = $5000 a month. Your assessment of Christina's suggestion is:
A. Christina is correct in her quantitative assessment; although she needs to also consider the qualitative factors.
If the joint production costs were assigned using the net realisable value method, the joint costs allocated to B would be: B. Christina is incorrect because by dropping Delma, the company actually loses $3 per unit.
C. Christina is incorrect, because by dropping Delma, the company actually loses $1 per unit.
D. Christina is incorrect, because Delma is currently at break-even point.
A. $23 964.
B. $32 143. AACSB: Analytical
C. $32 617. Difficulty: Hard
D. $39 661. Learning Objective: 19.07 Select and analyse relevant information for decisions to add or delete a product or department
AACSB: Analytical
Difficulty: Easy
decision making
79. 79. 80. 80.
Zoota Ltd makes four products: Alta, Bepha, Delma and Gamta. The selling price and per unit costs are show below. Zoota Ltd makes four products: Alta, Bepha, Delma and Gamta. The selling price and per unit costs are show below.
*Alta and Delma share the same factory; therefore, monthly rent is allocated equally between the two products. Other allocated *Alta and Delma share the same factory; therefore, monthly rent is allocated equally between the two products. Other allocated
monthly fixed costs include administrative costs, which are allocated based on a $2/unit charge. monthly fixed costs include administrative costs, which are allocated based on a $2/unit charge.
Zoota Ltd is planning to downsize by focusing on the two most profitable products, Bepha and Gamta, while discontinuing Alta What will be the company's total fixed cost (excluding rent) after Delma is dropped (assuming that sales volume = production volume)?
and Delma. Which of the following are the correct assessments of the relevance of the items listed?
A. $30 000
A. Raw materials for both products (relevant), selling price of both products (relevant), allocated fixed cost B. $40 000
for both products (relevant) C. $50 000
B. Raw materials for both products (relevant), selling price of both products (relevant), allocated rent for both D. $60 000
products (relevant)
C. Raw materials for both products (relevant), selling price of both products (irrelevant), allocated rent for both
products (irrelevant) AACSB: Analytical
Difficulty: Easy
D. Raw materials for both products (relevant), allocated rent for both products (irrelevant), allocated fixed cost Learning Objective: 19.07 Select and analyse relevant information for decisions to add or delete a product or department
for both products (relevant)
81. Kragle Ltd manufacturers a number of specialised electronic components, including the advanced X1000. Kragle
AACSB: Analytical
Difficulty: Easy Ltd has the capacity to produce 10 000 units of X1000 per year. Currently it is operating at 80 per cent capacity. The
Learning Objective: 19.07 Select and analyse relevant information for decisions to add or delete a product or department selling price for X1000 is $100 per unit. The variable cost per unit is $30. Fixed cost allocated to producing X1000 is
$200 000 per year. Kragle Ltd receives a special order for 2000 units of X1000. The opportunity cost associated with
taking this special order is:
A. $0.
B. $60 000.
C. $140 000.
D. $200 000.
AACSB: Analytical
Difficulty: Medium
82. Kragle Ltd manufacturers a number of specialised electronic components, including the advanced X1000. Kragle 86. Sleepo Ltd has been manufacturing only one type of alarm clock, the PlainSnooze model. The company is
Ltd has the capacity to produce 10 000 units of X1000 per year. Currently it is operating at 80 per cent capacity. The considering developing some modifications to make another, more advanced model. Two options are available: the
selling price for X1000 is $100 per unit. The variable cost per unit is $30. Fixed cost allocated to producing X1000 is ToughSnooze and the MusicSnooze. Both ToughSnooze and MusicSnooze will start with the same processes as the
$200 000 per year. Kragle Ltd receives a special order for 3000 units of X1000. The opportunity cost associated with PlainSnooze model, but with additional advanced functions. ToughSnooze has a voice activated snooze function, as well
taking this special order is: as an 'indestructible' aluminium casing, created for people who throw their alarm clocks around. The MusicSnooze also
A. $0. has a voice activated snooze function, but instead of the tough aluminium casing, it has a 'music choice' function.
B. $30 000. In choosing between making the ToughSnooze or the MusicSnooze, which of the following costs are relevant?
C. $70 000. i The cost of building the PlainSnooze model.
D. $100 000. ii. The cost of building a voice activated snooze
function. iii The cost of building an 'indestructible'
aluminium cover. iv The cost of building the 'music
choice' function.
AACSB: Analytical A. i, ii, iii and iii
Difficulty: Medium
Learning Objective: 19.05 Select and analyse relevant information for special order decisions B. ii and iii
C. ii, iii and iv
D. iii and iv
83. North Central Publishing is considering outsourcing its printing process. Which of the following are relevant
for this outsourcing decision?
i The rent associated with the freed-up space when the printing equipment is
AACSB: Reflective
sold ii Supplier's financial stability Difficulty: Easy
iii The carrying amount of the printing equipment Learning Objective: 19.04 Identify relevant information, including giving the appropriate treatment to sunk costs and opportunity costs
A. ii and iii
B. i and ii
C. i and iii 87. Which of the following statements in relation to making tactical decisions is incorrect?
D. i, ii and iii A. Future costs are always relevant.
B. Sunk costs are always irrelevant.
C. Allocated and unitised fixed costs are generally irrelevant.
D. Opportunity cost is relevant when there is no excess capacity.
AACSB: Reflective
Difficulty: Medium
AACSB: Reflective
Difficulty: Easy
84. Which of the following is not a characteristic of a tactical decision? Learning Objective: 19.11 Identify the pitfalls to avoid when using accounting data in decisions
A. It is a short term decision.
B. It usually does not involve changing the capacity of the company.
C. It is difficult to reverse. 88. Which of the following steps in the decision making process would be primarily the responsibility of the
D. Qualitative factors are relevant. management accountant?
A. Identifying the alternative courses of actions
B. Specifying the decision criterion
C. Selecting a course of action
AACSB: Reflective D. Clarifying the problem
Difficulty: Easy
Learning Objective: 19.02 Explain the differences between tactical decisions and long-term decisions
AACSB: Reflective
85. Which of the following is least likely to be classified as a tactical decision?
Difficulty: Easy
A. Buying a new factory. Learning Objective: 19.02 Explain the differences between tactical decisions and long-term decisions
B. Outsourcing factory security.
C. Discontinuing an unprofitable product model.
D. Selling or disposing of a by-product 89. A well-designed activity-based system helps managers because the costs are analysed in more detail and identify:
A. volume-based costs.
B. non-volume-based costs.
C. overheads and volume-based costs.
AACSB: Reflective D. volume-based and non-volume-based costs.
Difficulty: Medium
Learning Objective: 19.02 Explain the differences between tactical decisions and long-term decisions
AACSB: Reflective
Difficulty: Medium
Learning Objective: 19.09 Complete relevant cost analysis using activity-based costing
90. When cost allocations are used to encourage the sales managers to push the higher margin products this
action will link:
A. decision making and budgeting.
B. decision making and management performance evaluation.
C. budgeting and management performance.
D. budgeting and targets.
AACSB:
Reflective
Difficulty: Easy
91. When a costing system has been designed explicitly to influence certain decisions, this will:
A. discourage efficiency.
B. encourage efficiency.
C. discourage biases.
D. encourage biases.
AACSB:
Reflective
Difficulty: Easy
92. Which of the following costs would not be recorded in the cost accounting system?
A. Sunk costs
B. Unitised costs
C. Opportunity costs
D. Allocated costs
AACSB:
Reflective
Difficulty: Easy
Learning Objective: 19.11 Identify the pitfalls to avoid when using accounting data in decisions
93. Which of the following would be a relevant cost that would need to be considered for pricing a special order?
A. Additional set-up costs for the special order
B. Existing fixed manufacturing overhead
C. Non-manufacturing costs that will not change even if the special order is accepted
D. All of the costs are relevant costs
AACSB:
Reflective
Difficulty: Medium

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4.

5. Which of the following is not an objective of management accounting?

AACSB: Reflective AACSB: Reflective

AACSB: Reflective AACSB: Reflective

AACSB: Reflective AACSB: Reflective

11. The benefits of management accounting information include:

AACSB: Reflective AACSB: Reflective

20. Which of the following statements is an element of confidentiality?

29. AACSB: Reflective

33. Which of the following statements is correct?

AACSB: Reflective AACSB: Communication

44. Management accounting focuses on:

The following are some key points:

Note: Answers may include any four of the following:

AACSB: Reflective AACSB: Reflective

AACSB: Reflective AACSB: Reflective

Chapter 02 Testbank Key

1. Which of the following statements is false?

9. Which of the following is not an example of a variable cost?

AACSB: Reflective AACSB: Reflective

AACSB: Reflective AACSB: Reflective

AACSB: Reflective AACSB: Reflective

13. Indirect costs:

14. Whether a cost is classified as direct or indirect will depend on:

21. Cost of goods purchased includes the:

A. $150 000. A. $15 000

A. $15 000 A. $15 000

29. Indirect materials include:

31. Depreciation of factory equipment would be classified as:

32. Idle time is:

The product costs are:

34. The flow of manufacturing costs through the system is:

A. $0. A. $30 000.

A. $34 500. A. $14 500.

40. In the manufacturing firm, inventories consist of:

2. Forecasting a cost at a particular level of activity is called:

3. A cost that has both a fixed and variable component is called a:

Chapter 03 Testbank Key

1. The relationship between cost and activity is called:

AACSB: Reflective AACSB: Reflective

Fixed cost per unit Variable cost per unit

AACSB: Y $40 000 + $9X

AACSB: Reflective AACSB:

54. Which of the following increases as volume of activity decreases?

R2 is a measure of economic plausibility.

A. 54.4% of transportation cost can be explained by the number of cargos. A.

Delivery costs = $48861.07 + $1.74 X1, where X1 is the number of cargos.

The car washing labour cost is a:

AACSB: 66. 66.

The car washing labour cost is a:

70. The main reason for analysing cost behaviour is to

2. Under Australian accounting standards, manufactured products are generally:

76. Compare and contrast the following types of costs:

Chapter 04 Testbank Key

Calculate the amount of direct materials used during the year.

8. Cost of goods sold is closed into the income summary account:

AACSB: Reflective A. $20 000

14. A predetermined overhead rate is calculated as follows:

Calculate the cost of goods manufactured during the year.

AACSB: Analytical AACSB: Reflective

Total manufacturing costs were $5390. AACSB: Reflective

A. $80 000 debit

AACSB: Reflective AACSB: Reflective