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ACCT3313 FINAL EXAM 1. The most effective basis for cost allocation exists when which one of the following can be determined? A. Cost shifting. B. Benefit received. C. Equity share. D. Cause and effect relationship. E. Ability to bear. 2. An alternative concept of fairness in cost allocation, absent the cause-and-effect basis, includes: A. Ability-tobear. B. Efficienc y. C. Different costs for different purposes. D. Consisten cy. 3. The direct method of departmental cost allocation ignores: A. The managers' bias. B. Accrual accounting. C. Tax implications. D. Long-term implications. E. Reciprocal flows. 4. The reciprocal method of departmental cost allocation is preferred over the step method because it takes into account all the reciprocal flows between: A. The service departments. B. The producing departments. C. Multiple products. D. Competing departments. E. Similar, but separate, products. 5. In making decisions about whether to sell or further process joint products, allocation of common or joint costs is: A. Essenti al. B. Usefu l. C. Irreleva nt. D. Is useful depending on the method chosen. E. Is the only way to get the true total product cost. 6. By-product costing that uses the asset recognition method(s) creates: A. Expense recognition in the current period. B. A distortion of net income. C. An adjustment on the income statement. D. An inventory value in the period in which the by-products are produced. E. A result that is not compatible with GAAP. Neary Co. produces three products X, Y, and Z from a 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 and traceable to the products involved. Last year all three products were processed beyond split-off. Joint production costs for the year were $80,000. Sales values and costs needed to evaluate Neary's production policy follow. 7. The amount of joint costs allocated to product X using the physical measure method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar): A. $19,28 0. B. $42,45 0. C. $23,22 2. D. $48,95 0. E. $56,00 0. 8. Which of the following statements best describes a by-product? A. A product that is produced from material that would otherwise be scrap. B. A product that has a selling price similar to that of the main product. C. A product created along with the main product whose sales value does not cover its cost of production. D. A product that usually produces a small amount of revenue when compared to the main product's revenue. E. A product that has a lower unit selling price than the main unit. 9. For the purposes of cost accumulation, which of the following are identifiable as different individual products before the split-off point? A. Option A B. Option B C. Option C D. Option D 10. The identification of cost drivers is perhaps the most important step in developing the cost estimate because: A. It is the first step in cost estimation. B. It is the final step in cost estimation. C. There may be a number of relevant drivers, some not immediately obvious. D. The other steps are easier to execute. E. It requires much more time than the other steps. 11. The independent variable in regression analysis is: A. The cost to be estimated. B. The cost driver used to estimate the value of the dependent variable. C. Hard to define because of its independence. D. Usually expressed as a range of values. E. Always a volume-based cost driver. 12. High-low and regression cost estimation methods are alike in that they both: A. Have an intercept term and a slope term. B. Have an intercept term but not a slope term. C. Have a slope term but not an intercept term. D. Use all data points. E. Use only a few selected data points. Audio Zone Co. needs to prepare pro forma financial statements for the next fiscal year. To do so, the company must forecast its total overhead cost. The actual machine hours and total overhead cost are presented below for the past six months. 13. Using the high-low method, unit variable overhead cost is calculated to be: A. $1.4 0 B. $1. 50 C. $1. 60 D. $1. 70 E. $1. 80 14. Using the high-low method, total monthly fixed overhead cost is calculated to be: A. $2,62 6. B. $2,69 8. C. $2,51 2. D. $2,90 7. E. $2,83 3. 15. Nellibell's Caf bakes croissants that are sold to local restaurants and grocery stores in the Columbia, South Carolina area. When 600 croissants are baked, the average cost is $0.70. When 720 croissants are baked, the average cost is $0.65. What is the total cost when 670 croissants are baked? A. $56 8. B. $58 8. C. $44 8. D. $53 2. E. $50 0. 16. CVP analysis for revenue and cost planning has the primary objective of: A. Maximizing revenue. B. Minimizing costs. C. Both revenue maximization and cost minimization. D. Achieving a desired level of sales and profits. E. Consistently producing sales above the breakeven level. 17. The breakeven point is: A. The sales volume at which revenues equal total cost plus an operating profit of zero. B. The sales volume at which revenues equal variable cost and profit is zero. C. The sales volume at which revenues equal fixed cost and profit is zero. D. The point at which revenues meet the budget target. E. The sales volume at which the total contribution margin exceeds total variable costs. 18. CVP analysis using activity-based costs will tend to shift some costs from fixed to variable classifications, resulting in: A. Lower breakeven sales. B. Higher breakeven sales. C. Higher or lower breakeven sales, depending on batch size. D. A higher contribution margin per unit. E. A lower contribution margin per unit. 19. The CVP profit-planning model assumes that over the relevant range of activity: A. Only revenues are linear. B. Only revenues and fixed costs are linear. C. Only revenues and variable costs are linear. D. Variable cost per unit decreases because of increases in productivity. E. Both revenues and total costs are linear. Grant's Western Wear is a retailer of western hats located in Atlanta, Georgia. Although Grant's carries numerous styles of western hats, each hat has approximately the same price and invoice purchase cost, as shown below. Sales personnel receive large commissions to encourage them to be more aggressive in their sales efforts. Currently the economy of Atlanta is really humming, and sales growth at Grant's has been great. However, the business is very competitive, and Grant has relied on its knowledgeable and courteous staff to attract and retain customers, who otherwise might go to other western wear stores. Also, because of the rapid growth in sales, Grant is finding it more difficult to manage certain aspects of the business, such as restocking of inventory and hiring and training new salespeople. 20. The annual breakeven point in unit sales is calculated to be: A. 15,000 units. B. 14,000 units. C. 16,000 units. D. 13,000 units. E. 17,000 units. 21. The annual breakeven point in dollar sales is calculated to be: A. $504,00 0. B. $576,00 0. C. $468,00 0. D. $612,0 00. E. $540,00 0. 22. If 24,000 hats were sold, Grant's operating income would be: A. $100,8 00. B. $115,2 00. C. $93,60 0. D. $108,0 00. E. $122,4 00. For the current year, Power Cords Corp. expected to sell 42,000 industrial power cords. Fixed costs were expected to total $1,650,000; unit sales price was expected to be $3,750; and unit variable costs were budgeted at $2,250. 23. Power Cords Corp.'s margin of safety (MOS) in units is: A. 48,80 0. B. 39,00 0. C. 40,90 0. D. 36,10 0. E. 32,50 0. 24. Power Cord Corp.'s margin of safety (MOS) in sales dollars is: A. $153,375,0 00. B. $187,550,0 00. C. $159,295,0 00. D. $171,100, 000. E. $142,925,0 00. 25. Power Cord Corp.'s margin of safety ratio (MOS%) is (rounded to two decimal points): A. 91.59 %. B. 97.38 %. C. 90.71 %. D. 99.47 %. E. 93.15 %. 26. Unless properly controlled, a "bottom-up" budgeting process can lead to: A. Excessively tight (i.e., difficult-to-achieve) budgets. B. Easy budget targets. C. Excessive downward communication. D. Reduced incentives for participation. E. Reduced levels of "budgetary slack." 27. Budgeting provides all of the following except: A. A means to communicate the organization's short-term goals to its employees. B. Support for management functions of planning and coordinating activities of the organization. C. A means to anticipate problems. D. An ethical framework for decisionmaking. E. A basis for motivating employee behavior. 28. Financial budgets include the: A. Pro forma balance sheet. B. Projected income statement. C. Budgeted selling and administrative expenses. D. Sales budget. E. Budgeted retained earnings statement. 29. Joe's Mart policy is to have 20% of the next month's sales on hand at the end of the current month. Projected sales for August, September, and October are 25,000 units, 20,000 units, and 30,000 units, respectively. How many units must be purchased in September? A. 16,000. B. 17,000. C. 22,000 . D. 26,000. E. 28,000. 30. Cripe Corporation maintains ending inventory for each month at 5% of the following month's sales. It predicted the following sales (in units) for the first four months of the coming year: How many units should be produced in March? A. 2,81 0. B. 2,85 0. C. 2,97 0. D. 2,99 0. E. 4,25 0. 31. LeMinton Company expects the following credit sales for the first five months of the year: January, $25,000; February, $40,000; March, $30,000; April, $36,000, May $40,000. Experience has shown that payment for the credit sales is received as follows: 60% in the month of sale, 25% in the first month after sale, 12% in the second month after sale, and the remainder is uncollectible. How much cash can LeMinton Company expect to collect in March as a result of credit sales? A. $18,00 0. B. $28,60 0. C. $30,00 0. D. $31,00 0. E. $32,04 0. 32. The Johann's Professional Service Company expects 70% of sales for cash and 30% on credit. The company collects 80% of its credit sales in the month following sale, 15% in the second month following sale, and 5% are not collected. Expected sales for June, July, and August are $48,000, $54,000, and $44,000, respectively. What are the company's expected total cash receipts in August? A. $45,92 0. B. $61,40 0. C. $87,60 0. D. $50,4 00 E. $15,1 20 33. Committed or "sunk" costs are generally: A. Not fixed. B. Small in amount. C. The result of prior bad decisions. D. Those that have been incurred in the past. E. Recoverable in trade. 34. All the following are characteristic of relevant costs except: A. They are generally variable. B. They are not committed. C. They are different in amount for different options. D. They are costs that will be incurred in the future. E. They are inventory-related costs. 35. The major problem with relevant cost determination is that it fails to recognize the: A. Impact of variable costs in the long run. B. Long-term nature of most product-related decisions. C. "Sunk" nature of most fixed product costs. D. Short-term nature of most product-related decisions. E. Need to calculate costs more precisely. 36. The value chain analysis used in connection with the make-or-buy decision often leads a firm to make use of: A. Activity-based costing (ABC). B. Cost-volume profit (CVP) analysis. C. Outsourcing options. D. Relevant cost-based pricing. E. Value stream accounting. Walman Corp. manufactures products X, Y, and Z from a joint production process. Joint costs are allocated to products on the basis of relative sales value at the split-off point. Additional information is as follows: 37. Product X's sales value at the split-off point is: A. $306,00 0. B. $135,0 00. C. $340,00 0. D. $150,0 00. E. $233,00 0. Preston Industries, Inc. currently manufactures part QX100, which is used in several products it produces. Monthly production costs for 10,000 units of QX100 are as follows: Accounting has estimated that 20% of the fixed overhead costs assigned to QX100 would not be needed if the company chose to purchase the part from an outside supplier. Preston has the option of purchasing the part from an outside supplier at $16.00 per unit. 38. If the company accepts the offer from the outside supplier, the monthly avoidable costs (costs that would no longer be incurred) would be: A. $32,0 00 B. $82,0 00 C. $158,0 00 D. $190,0 00 E. $110,0 00 39. The maximum price that Preston should be willing to pay the outside vendor for each unit of QX100 is: A. $10. 00 B. $11. 00 C. $15. 00 D. $15. 80 E. $16. 00 Diamond Company has three product lines, A, B, and C. The following financial information is available: 40. Diamond is thinking of dropping Product Line C because it is reporting an operating loss. Assuming the company drops Product Line C and does not replace it, operating income for the firm will: A. Be unchanged B. Increase by $1,200 C. Increase by $1,500 D. Decrease by $1,500 E. Decrease by $2,700 41. The capital budgeting method(s) that is (are) most likely to provide consistency between data for capital budgeting and data for subsequent performance evaluation is (are) the: A. Payback period. B. Discounted cash flow (DCF) methods. C. Book (i.e., accounting) rate of return method. D. Discounted payback period. E. Cash-flow proxy method. 42. The time value of money is explicitly considered in which of the following capital budgeting method(s)? A. Payback method. B. Net present value (NPV) method. C. Operating cash-flow method. D. Book (accounting) rate of return method. E. Residual income method. 43. Results from the net present value (NPV) method and the internal rate of return (IRR) method may differ between projects if the projects differ in all of the following except: A. Required initial investment. B. Cash-flow pattern. C. Cost of capital (i.e., discount rate). D. Length of useful life of the two projects. E. Book (accounting) rate of return on the two projects. Omaha Plating Corporation is considering purchasing a machine for $1,500,000. The machine is expected to generate a constant after-tax income of $100,000 per year for 15 years. The firm will use straight-line (SL) depreciation for the new machine over 10 years with no residual value. 44. What is the payback period for the new machine, under the assumption that cash inflows occur evenly throughout the year? A. 4 years. B. 5 years. C. 6 years. D. 10 years. E. 15 years. 45. What is the annual accounting (book) rate of return (rounded to two decimal places) on the initial investment? A. 6.67 %. B. 10.00 %. C. 13.33 %. D. 16.67 %. E. 23.33 %. Quip Corporation wants to purchase a new machine for $300,000. Management predicts that the machine will produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses the straight-line depreciation and expects the machine to have a residual value of $50,000. Quip's combined income tax rate, t, is 40%. 46. What is the net after-tax cash inflow in Year 1 from the proposed investment? A. $72,00 0. B. $92,00 0. C. $96,00 0. D. $102,0 00. E. $120,0 00. 47. What is the net income (after tax) in Year 3 if the proposed investment is undertaken? A. $28,00 0. B. $36,00 0. C. $42,00 0. D. $70,00 0. E. $72,00 0. 48. What is the payback period for the new machine (rounded to the nearest one-tenth of a year)? Assume that the cash inflows occur evenly throughout the year. A. 2.7 years. B. 3.0 years. C. 3.3 years. D. 3.6 years. E. 4.2 years. 49. What is the annual book (accounting) rate of return for the proposed investment, based on the initial investment? A. 12 %. B. 14 %. C. 17 %. D. 20 %. E. 24 %. 50. What is the estimated book (accounting) rate of return for the proposed investment, based on average investment? A. 12 %. B. 14 %. C. 17 %. D. 24 %. E. 34 %