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01. Which of the following best describes activity-based costing?

Select one:

a.

It is selling price less variable cost

b.

It is a more precise analysis of overhead than break-even analysis

c.

It is an estimate of business sustaining costs

d.

It is useful where all products cause similar costs

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02. Which of the following best describes the importance of understanding cost behaviour?

Select one:

a.

It is necessary for sales forecasting

b.

it is an integral part of the master budget

c.

it is necessary for accurate production volume forecasting

d.

it is necessary for understanding cost/volume relationships

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03. The point where total cost equals sales revenues is a definition of which of the following?

Select one:

a.

a mixed cost

b.

sales forecasting

c.

activity-based costing

d.

the break-even point

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04. Which of the following is true if a company sells more products than the break-even level?

Select one:

a.

It will make an operating profit

b.

It will pay a lot of tax

c.

It can accurately predict its profit levels

d.

It can use activity-based costing

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05. If a cost is identical under each alternative under consideration within a given decision context, the cost is considered:

Select one:

a.

A sunk cost

b.

An opportunity cost

c.

An outlay cost

d.

An irrelevant cost

06. Which of the following terms best describes future costs that differ among competing alternatives?

Select one:

a.

Absorption costs

b.

Relevant costs

c.

Replacement costs

d.

Variable overhead costs

07. Which of the following best describes a typical participative budget?

Select one:

a.

It is NOT subject to review by higher levels of management since to do so would contradict the participative aspect of the budgeting processing.

b.

It is NOT subject to review by higher levels of management except in specific cases where the input of higher management is required.

c.

It is subject to review by higher levels of management in order to prevent the budgets from becoming too loose.

d.

It is NOT critical to the success of a budgeting program.

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08. Which of the following variances in a comprehensive performance report using the flexible budget concept is the most appropriate for measuring efficiency of operations?

Select one:

a.

Sales volume variance.

b.

Contribution margin variance.

c.

Flexible budget variance.

d.

Total static budget variance.

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09. There are various budgets within the master budget. One of these budgets is the production budget. Which of the following best describes the production budget?

Select one:

a.

It details the required direct labour hours.

b.

It details the required raw materials purchases.

c.

It is calculated based on the sales budget and the desired ending finished goods inventory.

d.

It summarizes the costs of producing units for the budget period.

Clear my choice

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10. For which of the following can variances between actual and budgeted be used?

Select one:

a.

To alert managers to potential problems and available opportunities

b.

To inform managers about how well the company has implemented its strategies

c.

To signal that company strategies are ineffective

d.

All of these answers are correct.

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11. Which of the following would be the best option to help management reduce budgetary slack?

Select one:

a.

Incorporate stretch or challenge targets

b.

Use external benchmark performance measures

c.

Award bonuses for achieving budgeted amounts

d.

Reduce projected cost targets by 10% across all areas

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12. A maintenance manager is MOST likely responsible for which of the following responsibility centres?

Select one:

a.

revenue centre

b.

investment centre

c.

cost centre

d.

profit centre

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13. A manager of a revenue center is responsible for all of the following EXCEPT:

Select one:

a.

service quality and units sold

b.

the acquisition cost of the product or service sold

c.

selling price, product mix, and promotional activities

d.

investments of excess cash

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14. A manager of a profit center is responsible for all of the following EXCEPT:

Select one:

a.

sales revenue

b.

the cost of merchandise purchased for resale

c.

expanding into new geographic areas

d.

selling and marketing costs

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15. Monica's Mantles has a strategic objective of offering high quality mantles to discerning customers who are prepared to pay a premium price, only if top of the line materials are used to make the mantles. Monica's Mantles has secured lower grade materials at a substantially lower price. Which of the following best assesses this performance action?

Select one:

a.

a good thing, as reduced cost of sales increases gross margin % and is in line with strategic objectives

b.

a bad thing, as reduced cost of sales may increase gross margin %, but it is not in line with strategic objectives

c.

a good thing, as it enables price reductions and sales volume increases

d.

a bad thing, as profitability will decline

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16. Monica's Mantles planned to design new mantles to keep ahead of fashion trends. This would appear in which section of the balanced scorecard?

Select one:

a.

Financial perspective

b.

Customer perspective

c.

Internal operations perspective

d.

Learning & growth perspective

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17. Monica's Mantles planned to spend $100,000 designing new mantles to keep ahead of fashion trends. The company actually spent $75,000 resulting in fewer new designs. Which of the following is the best assessment of this action?

Select one:

a.

a good thing, as the company underspent its budget

b.

a good thing, as keeping ahead of fashion trends is not important

c.

a bad thing, as it will reduce the operating profit

d.

a bad thing, as it means the company is not moving towards achieving its strategic objective

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18. What is a transfer price?

Select one:

a.

The amount charged for a product or service that one division provides another

b.

The amount charged for goods and services offered to the government

c.

An amount charged to cover the costs associated with import/export taxes

d.

The amount charged the final consumer to cover all costs incurred along the value chain

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Rymore Company has provided the following:

	July	August
Sales in Units	1,500	1,600

Cost A	$35,000	$36,000
Cost B	$16,000	$16,000
Cost C	$67,500	$72,000

19. Which of the following classifications best describes the behaviour of Cost A?

Select one:

a.

Mixed.

b.

Variable.

c.

Fixed.

d.

Opportunity cost.

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20. At an activity level of 6,000 units, the cost for maintenance is $7,200; at 10,000 units, the cost for maintenance is $11,600. Using the high-low method, what is the cost formula for maintenance?

Select one:

a.

$1.16 per unit

b.

$1.20 per unit

c.

$600 plus $1.10 per unit

d.

$1,200 plus $1.10 per unit

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Prater Company has provided the following data:

	This Year	Last Year
Units Sold	300,000	250,000
Sales Revenue	$1,300,000	$1,050,000
Less:Cost of Goods Sold	$ 910,000	$ 735,000
Gross Margin	$ 390,000	$ 315,000
Less:Operating Expenses	$ 272,000	$ 260,000
Operating Income	$ 118,000	$ 55,000

21. What is the best estimate of the company's variable operating expense per unit?

Select one:

a.

$0.24 per unit

b.

$0.91 per unit

c.

$0.96 per unit

d.

$4.17 per unit

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22. Scott Company's variable expenses are 72% of sales. The company's break-even point in sales is $2,450,000. If sales are $60,000 below the break-even point, what operating loss would the company report?

Select one:

a.

$43,200

b.

$60,000

c.

$16,800

d.

$626,000.

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23. Perry Company reported operating profits of $4,200; and total variable expenses of$66,000. Variable costs per unit are $6 per unit. The unit contribution margin was $3.00. What is the break-even point in units for Perry Company?

Select one:

a.

11,000.

b.

9,600.

c.

22,000.

d.

12,400.

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24. Carver Company produces a product that sells for $30. Variable manufacturing costs are $15 per unit. Fixed manufacturing costs are $5 per unit based on the current level of activity, and fixed selling and administrative costs are $4 per unit. A selling commission of 10% of the selling price is paid on each unit sold. What is the contribution margin per unit?

Select one:

a.

$3

b.

$15

c.

$8

d.

$12

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The Clemson Company reported the following results last year for the manufacture and sale of one of its products, known as a Tam:

Sales (6,500 Tams at $130 each)	$845,000
Variable Cost of Sales	$390,000
Variable Distribution Costs	$ 65,000
Fixed Advertising Expense	$275,000
Salary of Product Line Manager	$ 25,000
Fixed Manufacturing Overhead	$145,000
Operating Income (Loss)	($55,000)

Clemson Company is trying to determine whether to discontinue the manufacture and sale of Tams. The operating results reported above for last year are expected to continue in the foreseeable future if the product is not dropped. The fixed manufacturing overhead represents the costs of production facilities and equipment that the Tam product shares with other products produced by Clemson. If the Tam product were discontinued, there would be no change in the fixed manufacturing costs of the company.

25. Assume that discontinuing the manufacture and sale of Tams will have no effect on the sale of other product lines. If the company discontinues the Tam product line, what will be the change in the annual operating income (loss)?

Select one:

a.

$55,000 decrease

b.

$65,000 decrease

c.

$70,000 increase

d.

$90,000 decrease

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Use the following information to answer questions 26-27:

The Rodgers Company makes 27,000 units of a certain component each year for use in one of its products. The cost per unit for the component at this level of activity is as follows:

Direct Materials	$ 4.20
Direct Labour	$12.00
Variable Manufacturing Overhead	$ 5.80
Fixed Manufacturing Overhead	$ 6.50

Rodgers has received an offer from an outside supplier that is willing to provide 27,000 units of this component each year at a price of $25 per component. Assume that direct material and direct labour are variable costs.

26. Assume that there is no other use for the capacity now being used to produce the component, and the total fixed manufacturing overhead of the company would not be affected by this decision. If Rodgers Company were to purchase the components rather than making them internally, what would be the impact on the company's annual operating income?

Select one:

a.

$81,000 decrease

b.

$94,500 increase

c.

$124,000 increase

d.

$237,600 decrease

Clear my choice

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27. Assume that if the components were to be purchased from the outside supplier, $35,100 of annual fixed manufacturing overhead would be avoided, and the facilities now being used to make the component would be rented to another company for $64,800 per year. If Rodgers chooses to buy the component from the outside supplier under these circumstances, what would be the impact on annual operating income due to accepting the offer?

Select one:

a.

$18,900 increase

b.

$18,900 decrease

c.

$21,400 increase

d.

$21,400 decrease

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28. Relay Corporation manufactures batons. Relay can manufacture 300,000 batons a year at a variable cost of $750,000 and a fixed cost of $450,000. Based on Relay's predictions for next year, 240,000 batons will be sold at the regular price of $5.00 each. In addition, a special order was placed for 60,000 batons to be sold at a 40% discount off the regular price. Total fixed costs would be unaffected by this order. By what amount would the company's operating income be increased or decreased as a result of the special order?

Select one:

a.

$30,000 increase

b.

$36,000 increase

c.

$60,000 decrease

d.

$180,000 increase

Clear my choice

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Budgeted sales in Allen Company over the next four months are given below:

	September	October	November	December
Budgeted Sales	$100,000	$160,000	$180,000	$120,000

29. Twenty-five percent of the company's sales are for cash, and 75% are on account. Collections for sales on account follow a stable pattern as follows: 50% of a month's sales are collected in the month of sale, 30% are collected in the month following sale, and 15% are collected in the second month following sale. The remainder is uncollectible. Given these data, what should be cash collections for December?

Select one:

a. $120,000.

b. $133,500

c.$138,000

d.$153,000

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30. Walsh Company expects sales of Product W to be 60,000 units in April, 75,000 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. Due to excessive production during March, there were 25,000 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?

Select one:

a. 60,000 units.

b. 65,000 units.

c. 66,000 units.

d. 75,000 units.

Question 31

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Pardise Company plans the following beginning and ending inventory levels (in units) for July:

	July 1	July 31
Raw Material	40,000	50,000
Work in Process	10,000	10,000
Finished Goods	80,000	50,000

Two units of raw material are needed to produce each unit of finished product.

31. If 500,000 finished units were to be manufactured during July, what would be the units of raw material needed to be purchased?

Select one:

a.

900,000 units.

b.

1,000,000 units.

c.

1,010,000 units.

d.

1,020,000 units.

Clear my choice

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Roberts Enterprises has budgeted sales in units for the next five months as follows:

June	4,500 units
July	7,100 units
August	5,300 units
September	6,700 units
October	3,700 units

Past experience has shown that the ending inventory for each month must be equal to 10% of the next month's sales in units. The inventory on May 31 contained 410 units. The company needs to prepare a production budget for the second quarter of the year.

32. What is the opening inventory in units for September?

Select one:

a.

370 units.

b.

530 units.

c.

670 units.

d.

6,700 units.

Clear my choice

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Use the following information to answer questions 33-34:

Pollitt Potato Packers has a flexible budget for manufacturing overhead that is based on direct labour hours. The following overhead costs appear on the flexible budget at the 200,000-hour level of activity:

Variable Overhead Costs (total):
Packing Supplies	$120,000
Indirect Labour	$180,000
Fixed Overhead Costs (total):
Utilities	$100,000
Insurance	$ 40,000
Rent	$ 20,000

33. At an activity level of 180,000 direct labour hours what amount would the flexible budget estimate for indirect labour cost?

Select one:

a.

$108,000

b.

$144,000

c.

$162,000

d.

$180,000

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34. At an activity level of 160,000 direct labour hours what amount would the flexible budget estimate for the utilities?

Select one:

a.$ 80,000

b.$100,000

c.$120,000

d.$160,000

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Use the following information to answer questions 35-37:

Isadore Hospital bases its budgets on patient-visits. The hospital's static budget for July appears below:

Budgeted number of patient-visits ......... 7,700 Budgeted variable overhead costs: Supplies (@ $4.60 per patient-visit) ....... $ 35,420 Laundry (@ $7.20 per patient-visit) 55,440 Total variable overhead cost.. 90,860 Budgeted fixed overhead costs: Salaries... . . 46,200 Occupancy costs 67,760 Total fixed overhead cost. 113,960 Total budgeted overhead cost. $204,820 Actual results for the month were: Actual number of patient-visits 7,800 Supplies.......... $38,250 Laundry $61,240 Salaries... $46,190 Occupancy costs $65,650