1.Which of the following is normally included in product cost under the variable costing method?

a.Direct materials cost, direct labour cost, but NOT manufacturing overhead cost.

b.Prime cost but NOT conversion cost.

c.Prime cost and all conversion cost.

d.Direct materials cost, direct labour cost, and variable manufacturing overhead cost.

2.Operating income determined using absorption costing can be reconciled to operating income determined using variable costing by computing the difference between which of the following?

a.Fixed manufacturing overhead costs are deferred in or released from inventories.

b.Gross margin (absorption costing method) and contribution margin (variable costing method).

c.Sales as recorded under the variable costing method and sales as recorded under the absorption costing method.

d.Discretionary costs included in the beginning and ending inventories.

3.During the most recent year, Evans Company had an operating income of $90,000 using absorption costing and $84,000 using variable costing. The fixed manufacturing overhead application rate was $6 per unit. There were no beginning inventories. If 13,000 units were produced last year, what were the sales in units for last year?

a.6,000 units.

b.12,000 units.

c.14,000 units.

d.15,000 units.

4.What is a continuous (or perpetual) budget?

a.It is a strategic plan that does not change.

b.It is prepared for a range of activities so that the budget can be adjusted for changes in activity.

c.It is used in companies that experience no change in sales.

d.It is a plan that is updated monthly or quarterly, dropping one period and adding another.

5.Walsh Company expects sales of Product W to be 50,000 units in April, 50,000 units in May, and 70,000 units in June. The company desires that the inventory on hand at the end of each month be equal to 40% of the next month's expected unit sales. There were 15,000 units of Product W in the ending inventory on March 31. Given this information, what should be Walsh Company's production of Product W for the month of April?

a.50,000 units.

b.70,000 units.

c.55,000 units.

d.75,000 units.

6.The Waverly Company has budgeted sales for next year as follows:

First

Second

Third

Fourth

Sales in Units

12,000

14,000

20,000

20,000

The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in units. The finished goods inventory at the start of the year is 11,000 units. What should be the scheduled production for the third quarter?

a.19,500 units.

b.20,000 units.

c.20,500 units.

d.21,000 units.

7.Which of the following refers to standards that allow for no machine breakdowns or other work interruptions and that require peak efficiency at all times?

a.Ideal standards.

b.Normal standards.

c.Practical standards.

d.Budgeted standards.

8.A labour efficiency variance resulting from the use of poor quality materials should be charged to which/whom?

a.The production manager.

b.The purchasing agent.

c.The engineering department.

d.Manufacturing overhead.

9.All other things being equal, which of the following is a consequence of an increase in a division's traceable fixed expenses?

a.The overall company operating income will remain the same.

b.The division's contribution margin ratio will decrease.

c.The division's segment margin will decrease.

d.The division's segment margin ratio will remain the same.

10.Johnson Company operates two plants: Plant A and Plant B. Johnson Company reported for the year just ended a contribution margin of $55,000 for Plant A. Plant B had sales of $200,000 and a contribution margin ratio of 50%. Net operating income for the company was $10,000 and traceable fixed costs for the two plants totalled $50,000. What were Johnson Company's common fixed costs for last year?

a.$75,000.

b.$95,000.

c.$45,000.

d.$55,000.

11.Which of the following best describes a plant operating at capacity?

a.Managers should produce those products with the highest contribution margin in order to deal with the constrained resource.

b.Every machine and person in the plant is working at the maximum possible rate.

c.Fixed costs will need to change to accommodate increased demand.

d.Only some specific machines or processes are operating at the maximum rate possible.

12.Which of the following is NOT an effective way of dealing with a production constraint (i.e., bottleneck)?

a.Reduce the number of defective units produced at the bottleneck.

b.Pay overtime to workers assigned to workstations located after the bottleneck in the production process.

c.Pay overtime to workers assigned to the bottleneck.

d.Subcontract work that would otherwise require the use of the bottleneck.

13.Why are the net present value and internal rate of return methods of capital budgeting superior to the payback method?

a.Because they reflect the effects of depreciation and income taxes.

b.Because they are easier to implement.

c.Because they require less input.

d.Because they consider the time value of money.

14.Which of the following statements about the evaluation of an investment having uneven cash flows using the payback method is correct?

a.It requires the use of a sophisticated calculator or computer software.

b.It will produce essentially the same results as those obtained through the use of discounted cash flow techniques.

c.It CANNOT be done.

d.It can be done only by matching cash inflows and investment outflows on a year-by-year basis.

True/False

15.The payback method of making capital budgeting decisions gives full consideration to the time value of money.

TrueFalse

16.If new equipment is replacing old equipment, any salvage received from sale of the old equipment should not be considered in computing the payback period of the new equipment.

True False

17.Allocations of corporate headquarters expenses to divisions used in return on investment calculations should be limited to the cost of those actual services provided by central headquarters, which the divisions otherwise would have to provide for themselves.

TrueFalse

18.The return on investment can ordinarily be improved by either increasing sales, reducing expenses, or reducing operating assets.

TrueFalse

19.Service departments, such as accounting, finance, general administration, legal, and personnel, are usually considered to be cost centres. In addition, manufacturing facilities are often considered to be cost centres.

TrueFalse

20.A flexible budget is "flexible" in the sense that a budget can be prepared for any level of activity, but once a budget is set the budget figures are not changed if actual activity later proves to be different than budgeted activity.

TrueFalse