Question 23

Operating leverage is related to which of the following?

	a.	manufacturing costs versus selling costs
	b.	estimated costs versus actual costs
	c.	total revenues versus total costs
	d.	fixed costs versus variable costs

2 points

Question 24

If a company has fixed costs and is operating above the breakeven point, when sales increase by 15%, profits will

	a.	increase by more than 15%.
	b.	increase by less than 15%.
	c.	increase by 15%.
	d.	decrease by less than 15%.

2 points

Question 25

One of the reasons that companies allocate costs is to discourage managers from exploring the use of externally provided services.

True

False

2 points

Question 26

The more costs that are allocated to a cost plus contract, the more the supplier will be paid under the contract.

True

False

2 points

Question 27

In the direct method of allocating costs, service department costs are allocated only to other service departments, not to the production departments.

True

False

2 points

Question 28

Allocating actual service department costs allows the service departments to pass on the costs of inefficiencies to the production departments.

True

False

2 points

Question 29

ABC is less likely than traditional costing systems to undercost complex, low-volume products.

True

False

2 points

Question 30

1.Activity-based management uses benchmarking to compare the cost of an activity in one organization to the cost for a similar activity in another organization.

True

False

2 points

Question 31

Which of the following is not a reason that companies allocate costs?

	a.	to calculate the full cost of products for financial reporting purposes
	b.	to discourage managers from using external suppliers
	c.	to reduce the frivolous use of company resources
	d.	to provide information needed by managers to make appropriate decisions

2 points

Question 32

Which of the following is not a step in the cost allocation process?

	a.	List the steps in the production process.
	b.	Select an allocation base to relate the cost pools to the cost objectives.
	c.	Form cost pools.
	d.	Identify the cost objectives.

2 points

Question 33

Which of the following statements about cost pools is not true?

	a.	The costs in each of the cost pools should be homogeneous or similar.
	b.	Managers must make a cost-benefit decision when determining how many cost pools are appropriate.
	c.	Only four different kinds of costs may be included in a single cost pool.
	d.	More cost pools usually provide more accurate information, but are more expensive.

2 points

Question 34

Managers are correct when they perceive that almost all cost allocations are

	a.	insignificant.
	b.	arbitrary.
	c.	designed to make them look bad.
	d.	unnecessary.

2 points

Question 35

Companies which use only one or two cost pools rather than several cost pools

	a.	may have seriously distorted product costs.
	b.	will have higher record-keeping costs.
	c.	will be able to more accurately price products to cover the cost and generate a profit.
	d.	are likely to be using ABC.

2 points

Question 36

Yesteryear Gift Shop produces pottery figurines. Utility costs are allocated to products based on the amount of time spent on the pottery wheel. Utility costs of $3,000 per month are budgeted and the store anticipates spending 7,500 minutes on the pottery wheel each month. If a vase uses 18 minutes on the pottery wheel how much of the utility costs will be allocated to each vase?

	a.	$72.00
	b.	$4.50
	c.	$45.00
	d.	$7.20

4 points

Question 37

The Starbright Company makes alarm clocks. Information on the product is as follows:

Clocks

Sales $180,000

Direct Materials 60,000

Direct Labor 20,000

Overhead costs are allocated at the rate of 120% of material costs. Company gross profits are:

	a.	$28,000.
	b.	$37,000.
	c.	$100,000.
	d.	$40,000.

4 points

Question 38

When deciding whether to eliminate a segment, the segment should generally be kept if its contribution margin less avoidable fixed costs is positive.

True

False

2 points

Question 39

Assume that boots normally sell for $90 per pair. An exporter has approached Park about buying 1,000 pairs of boots for a one-time export deal for $80 per pair. Park's variable cost per pair is $35.00, however, $3.00 per unit of the normal variable cost could be avoided on this sale, but Park would have to pay a fixed cost $4,000 to have the boots shipped. Park has capacity to produce this order, and no regular sales will be affected. If Park accepts this order:

	a.	Profits will decrease by $10,000
	b.	Profits will increase by $41,000
	c.	Profits will increase by $44,000
	d.	Profits will increase by $48,000

4 points

Question 40

Glam Company makes two products from a joint input that have the following information: Product X: 50,000 units produced; sales value per unit at split off is $10; total additional processing costs are $400,000; and the sales value per unit after additional processing is $15. Product Y: 30,000 units produced; sales value per unit at split off is $8; total additional processing costs are $300,000; and the sales value per unit after additional processing is $20. The joint cost incurred to produce the two products to the split off point is $600,000. How much joint cost should be allocated to Product X using the relative sales value at split off as the allocation method?

	a.	$600,000
	b.	$342,857
	c.	$405,405
	d.	$194,595

4 points

Question 41

Using the information from the Glam Co., which products (X or Y) should be processed further?

	a.	X
	b.	Y
	c.	Neither
	d.	Both

4 points

Question 42

When deciding between two alternatives, the preferred alternative always has

	a.	no opportunity costs.
	b.	greater revenues than the other alternatives.
	c.	less expense than the other alternatives.
	d.	greater incremental profit than the other alternatives.

2 points

Question 43

Which of the following is not a term used to describe the additional costs incurred as a result of selecting one decision alternative over another?

	a.	sunk costs
	b.	differential costs
	c.	relevant costs
	d.	incremental costs

2 points

Question 44

A company is trying to decide whether to sell partially completed goods in their current state or incur additional costs to finish the goods and sell them as complete units. Which of the following is not relevant to the decision?

	a.	the costs incurred to process the units to this point
	b.	the selling price of the completed units
	c.	the selling price of the partially completed units
	d.	the costs that will be incurred to finish the units

2 points

Question 45

A company is currently making a necessary component in house (the company is producing the component for its own use). The company has received an offer to buy the component from an outside supplier. A machine is being rented to make the component. If the company were to buy the component, the machine would no longer be rented. The rent on the machine, in relation to the decision to make or buy the component, is:

	a.	avoidable and therefore relevant.
	b.	sunk and therefore not relevant.
	c.	avoidable and therefore not relevant.
	d.	unavoidable and therefore relevant.