1. (TCO 1) Evaluating customer reaction of the trade-off of giving up some features of a product for a lower price would best fit which category of management decisions under activity-based management? (Points : 5) Pricing and product-mix decisions Cost reduction decisions Design decisions Discretionary decisions

Question 2. 2. (TCO 1) Bristol Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray nozzle is $200,000. The budgeted number of nozzles to be inserted is 80,000. What is the budgeted indirect cost allocation rate for this activity? (Points : 5)

$3.00 $2.50 $2.00 $3.50

Question 3. 3. (TCO 2) Fixed overhead costs include (Points : 5)

the cost of sales commissions. property taxes paid on plant facilities. indirect materials. energy costs.

Question 4. 4. (TCO 2) Information pertaining to Brenton Corporation's sales revenue is presented in the following table:

	February	March	April
Cash Sales	$160,000	$150,000	$120,000
Credit Sales	300,000	400,000	280,000
Total Sales	$460,000	$550,000	400,000

Management estimates that 5% of credit sales are not collectible. Of the credit sales that are collectible, 75% are collected in the month of sale and the remainder in the month following the sale. Cost of purchases of inventory each month is 80% of the next month's projected total sales. All purchases of inventory are on account; 50% are paid in the month of purchase, and the remainder is paid in the month following the purchase. Brenton's budgeted total cash receipts in April are (Points : 5)

$448,000. $414,500. $431,600. $328,000.

Question 5. 5. (TCO 2) Budgeting provides all of the following EXCEPT (Points : 5)

a means to communicate the organization's short-term goals to its members. support for the management functions of planning and coordination. a means to anticipate problems. an ethical framework for decision making.

Question 6. 6. (TCO 3) The cost components of an air conditioner include $35 for the compressor, $15 for the sheet-molded compound frame, and $100 per unit for assembly. The factory machines-and-tools cost is $80,000. The company expects to produce 1,500 air conditioners in the coming year. What cost function best represents these costs? (Points : 5)

y = 1500 + 126.5X y = 1,500 + 55,000X y = 80,000 + 150X y = 55,000 + 126.50X

Question 7. 7. (TCO 3) Which cost estimation method analyzes accounts in the subsidiary ledger as variable, fixed, or mixed using qualitative methods? (Points : 5)

Quantitative analysis method Industrial engineering method Account analysis method Conference method

Question 8. 8. (TCO 4) A computer system installed last year is an example of a(n) (Points : 5)

avoidable cost. differential cost. relevant cost. sunk cost.

Question 9. 9. (TCO 5) The theory of constraints is used for cost analysis when (Points : 5)

a manufacturing company produces multiple products and uses multiple manufacturing facilities and/or machines. using a long-term time horizon. operating costs are assumed fixed. All of the above

Question 10. 10. (TCO 5) Keeping the bottleneck operation busy and subordinating all nonbottleneck operations to the bottleneck operation involves (Points : 5)

keeping the bottleneck resource busy at least 90% of the time. maximizing the contribution margin of the nonbottleneck operation. having the workers at the nonbottleneck operation or machine improving their productivity. None of the above

Question 11. 11. (TCO 6) What type of cost is the result of an event that results in more than one product or service simultaneously? (Points : 5)

By-product cost Joint cost Main costs Separable cost

Question 12. 12. (TCO 6) When a product is the result of a joint process, the decision to process the product past the split-off point further should be influenced by (Points : 5)

the total amount of the joint costs. the portion of the joint costs allocated to the individual products. the extra revenue earned past the split-off point. the extra operating income earned past the split-off point.

Question 13. 13. (TCO 7) Life-cycle budgeting is particularly important when (Points : 5)

the development period for R & D is short and inexpensive. there are significant nonproduction costs. most costs are locked in during production. a low percentage of costs are incurred before any revenues are received.

Question 14. 14. (TCO 7) Each month, Haddon Company has $300,000 total manufacturing costs (20% fixed) and $125,000 distribution and marketing costs (75% fixed). Haddon's monthly sales are $600,000. The markup percentage on full cost to arrive at the target (existing) selling price is (Points : 5)

25%. 41%. 80%. 20%.

Question 15. 15. (TCO 8) Transfer prices should be judged by whether they promote (Points : 5)

goal congruence. the balanced scorecard method. a high level of subunit autonomy in decision making. Both A and C are correct.

Question 16. 16. (TCO 8) The seller of Product A has no idle capacity and can sell all it can produce at $25 per unit. Outlay cost is $10. What is the opportunity cost, assuming the seller sells internally? (Points : 5)

$10 $16 $15 $24

Question 17. 17. (TCO 8) A benefit of using a market-based transfer price is the (Points : 5)

profits of the transferring division are sacrificed for the overall good of the corporation. profits of the division receiving the products are sacrificed for the overall good of the corporation. economic viability and profitability of each division can be evaluated individually. None of the above

Question 18. 18. (TCO 9) To guide cost allocation decisions, the fairness or equity criterion is (Points : 5)

the criterion often cited in government contracts. superior when the purpose of cost allocation is for economic decisions. used more frequently than the other criteria. the primary criterion used in activity-based costing.

Question 19. 19. (TCO 9) The Hassan Corporation has an electric mixer division and an electric lamp division. Of a $50,000,000 bond issuance, the electric mixer division used $24,000,000 and the electric lamp division used $26,000,000 for expansion. Interest costs on the bond totaled $1,500,000 for the year. What amount of interest costs should be allocated to the electric mixer division? (Points : 5)

$4,200,000 $14,000,000 $1,050,000 $720,000

Question 20. 20. (TCO 10) An important advantage of the net-present-value method of capital budgeting over the internal rate-of-return method is (Points : 5)

the net-present-value method is expressed as a percentage. the net present values of individual projects can be added to determine the effects of accepting a combination of projects. there is no advantage. Both A and B are correct.

Question 21. 21. (TCO 10) Upper Darby Park Department is considering a new capital investment. The cost of the machine will be $200,000. The annual cost savings if the new machine is acquired will be $40,000. The machine will have a 5-year life, at which time the terminal disposal value is expected to be $20,000. Upper Darby Park Department is assuming no tax consequences. If Upper Darby Park Department has a required rate of return of 10%, which of the following is closest to the present value of the project? (Points : 5)

-$35,950 -$150,000 $14,060 -$12,418

Question 22. 22. (TCO 11) An advantage of financial cost of quality measures is that they (Points : 5)

are often easy to quantify and understand. provide immediate short-run feedback on whether quality improvement efforts have, in fact, succeeded in improving quality. direct attention to physical processes and therefore focus attentions on the precise problem areas needing improvement. provide a single, summary measure of quality performance.

Question 23. 23. (TCO 11) Regal Products has a budget of $900,000 in 20X6 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $60,000 in variable costs. The new method will require $20,000 in training costs and $150,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 150,000 units. Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $30,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company's average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories. What is the net change in the budget of prevention costs if the procedures are automated in 20X6? Will management agree with the changes? (Points : 5)

$138,000 increase, no $78,000 increase, yes $60,000 increase, no $110,000 decrease, yes

Question 24. 24. (TCO 12) The costs associated with storage are an example of which cost category? (Points : 5)

Carrying costs Ordering costs Quality costs Labor costs

Question 25. 25. (TCO 12) Liberty Celebrations, Inc., manufactures a line of flags. The annual demand for its flag display is estimated to be 100,000 units. The annual cost of carrying one unit in inventory is $1.60, and the cost to initiate a production run is $80. There are no flag displays on hand but Liberty had scheduled 70 equal production runs of the display sets for the coming year, the first of which is to be run immediately. Liberty Celebrations has 250 business days per year. Assume that sales occur uniformly throughout the year and that production is instantaneous. If Liberty Celebrations does not maintain a safety stock, the estimated total carrying cost for the flag displays for the coming year is (Points : 5)

$1,800. $2,000. $1,600. $5,600.