Standard Costs and the Balanced Scorecard c. $5.00.

d. $7.20.
10-1. A standard is:
10-8. The actual direct labour rate per hour was:
a. unrelated to budgeting since standards are used for control purposes
only. a. $6.00.
b. normally set at the ideal rather than the practical level of cost, efficiency, b. $6.50.
or quantity. c. $8.00.
c. normally not applied to the variable portion of overhead. d. $8.60.
d. the budgeted cost for one unit of product.
10-9. The labour rate variance was:
10-2. The materials price variance should be computed:
a. $2,280 favourable.
a. when materials are purchased. b. $2,280 unfavourable.
b. when materials are used in production. c. $920 favourable.
c. based upon the amount of materials used in production when only a d. $920 unfavourable.
portion of materials purchased is actually used.
d. based upon the difference between the actual quantity of inputs and the 10-10. Webber, Inc. gathers the following information about it operations:
standard quantity allowed for output times the standard price. Throughput time, 4 hours; Delivery cycle time, 8 hours; Process time, 1
hour; Queue time, 2 hours. Webber's manufacturing cycle efficiency (MCE)
10-3. Which of the following represents value-added time in the is:
manufacturing cycle?
a. 50%.
a. Inspection Time. b. 75%.
b. Queue Time. c. 25%.
c. Move Time. d. 12%.
d. Process Time.
Segment Reporting, Profitability Analysis, and Decentralization
10-4. The throughput time, or velocity of production, consists of:
12-1. Which of the following costs is not deducted from sales to arrive at the
a. Process Time. divisional segment margin?
b. Inspection Time and Move Time.
c. Process Time, Inspection Time, and Move Time. a. Traceable fixed expenses.
d. Process Time, Inspection Time, Move Time, and Queue Time. b. Common fixed expenses.
c. Direct materials.
10-5. Questions 5 - 9 refer to the following: d. Direct labour.
Dark Company uses standard costing for the single product the company
makes and sells. The following data are for the month of April: 12-2. The performance of the manager of East Division is measured by
residual income. Which of the following would increase the manager's
1. Actual cost of direct material purchased and used: $62,400. performance measure?

2. Material price variance: $4,800 unfavourable. a. Increase in sales.

b. Decrease in average operating assets.
3. Total materials variance: $14,400 unfavourable. c. Increase in minimum required return.
d. Decrease in net operating income.
4. Standard cost per pound of material: $6.
12-3. Western, Inc. consists of two districts, East and West. The company
5. Standard cost per direct labour hour: $8. as a whole had sales of $300,000, a contribution margin ratio of 20%, and a
segment margin totaling $25,000. East District had sales of $80,000 during
6. Actual direct labour hours: 3,800 hours. July, a contribution margin ratio of 35%, and a segment margin of $10,000. If
the net income of Western for July is $11,000, the traceable fixed costs in
7. Labour efficiency variance: $1,600 favourable. West District must have been:

8. Standard number of direct labour hour per unit of product: 2. a. $17,000

b. $18,000
9. Total labour variance: $680 unfavourable. c. $52,000
d. $14,000
The total number of units of product produced during April was:
12-4. Kartoom, Inc. has two divisions, East and West. Assume the following
a. 8,000. data for the two divisions for 2000:
b. 12,000.
c. 2,000. East Division West Division
d. 3,800.
Sales $40,000 $85,000
10-6. The standard quantity of material allowed to produce one unit of
product was: Variable cost as a percentage of sales 60% 80%

a. 1 lb.
Segment margin $5,000 $12,500
b. 4 lbs.
c. 6 lbs.
If total net income for the Kartoom was $9,000 for 2000, then the total fixed
d. 2 lbs.
costs (traceable and common) for the year were:
10-7. The actual material cost per pound was:
a. $17,500.
b. $8,500.
a. $6.50.
c. $15,500.
b. $6.00.
d. $24,000.
12-5. Segmented income statements are most meaningful to managers c. promote those products having the highest contribution margin per
when they are prepared: unit of a constrained resource.
d. promote those products having the highest contribution margins and
a. on an absorption cost basis. contribution margin ratios.
b. on a cost behaviour (contribution) basis.
c. on a cash basis. 13-4. Two or more products produced from a common input are termed:
d. in a single-step format.
a. common costs.
12-6. The Northern Division of the Kimball Company reported the following b. joint products.
data for last year: Sales, $800,000; Shareholders' Equity, $250,000; c. joint costs.
Operating Expenses, $600,000; Average Operating Assets, $400,000; d. by-products.
Interest Expense, $40,000; Minimum Required Rate of Return, 14%; Taxes
Expense, $50,000; The return on investment last year for the Northern 13-5. In a decision to sell or process further beyond the split-off point, a
Division was: manager should base the decision on:

a. 50% a. the amount of joint product costs allocated.

b. 80% b. the incremental revenue attainable beyond the split-off point.
c. 27.5% c. the incremental cost incurred beyond the split-off point.
d. 44% d. the incremental operating income attainable beyond the split-off
point.
12-7. The residual income for the Northern Division last year was:
13-6. The Regal, Inc. makes 35,000 motors to be used in the production of
a. $112,000. its sewing machines. The cost per motor at this level of activity would
b. $144,000. include: Direct materials, $4.50; Direct labour, $4.60; Variable factory
c. $110,000. overhead, $3.75; Fixed factory overhead, $3.45. An outside supplier recently
d. $56,000. began producing a comparable motor for the sewing machine. The price to
Regal for this motor is $15. If Regal decided not to make the motors, there
12-8. Questions 8 -10 refer to the following: Sales, $750,000; Gross Margin, would be no other use for the production facilities. If Regal decides to
$65,000; Net Operating Income, $45,000; Shareholders' Equity. $75,000; continue making the motor, how much higher or lower would net income be
Average Operating Assets, $250,000; Residual Income, $15,000. The than if the motors are purchased from the outside supplier?
margin for the past year was:
a. $72,250 higher.
a. 6.00% b. $45,500 lower.
b. 8.67% c. $311,500 higher.
c. 10.00% d. $120,750 higher.
d. 8.00%
13-7. The WorldCo has two divisions: North and South. The divisions have
12-9. The return on investment for the past year was: the following revenues and expenses:

a. 6% North South
b. 30%
c. 18% Sales $450,000 $400,000
d. 26%
Variable costs 225,000 150,000
12-10. The turnover for the past year was:
Direct fixed costs 130,000 105,000
a. 1.4
b. 3.3
c. 10.0 Allocated corporate costs 120,000 95,000
d. 3.0
Net income (loss) (25,000) 50,000

The management of WorldCo is considering the elimination of the North

Relevant Costs for Decision Making Division. If the North Division were eliminated, the direct fixed costs
associated with this division could be avoided. Given these data, the
13-1. In the decision to replace an old machine with a new machine, which elimination of the North Division would result in an overall company net
of the following would be considered a relevant cost? income (loss) of:

a. The book value of the old equipment. a. $50,000.

b. Amortization expense on the old equipment. b. ($70,000).
c. The loss on the disposal of the old equipment. c. $25,000.
d. The current disposal price for the old equipment. d. ($75,000).

13-2. The decision to drop a product line should be based on:
a. the fact that the product line shows a net loss over several periods.
b. the ability of the firm to eliminate some fixed costs as a result of dropping
the product.
c. whether the fixed costs that can be avoided by dropping the product line
are less than the contribution margin that will be lost.
d. whether the fixed costs that can be avoided by dropping the product
line are greater than the contribution margin lost.
13-3. To maximize total contribution margin, a firm should:
a. promote those products having the highest unit contribution margins.
b. promote those products having the highest contribution margin ratios.
13-8. Jack's Personal Devices makes and sells hand-held computers. Each
computer regularly sells for $200. The following cost data per computer are
based on a full capacity of 12,000 computers produced each period: Direct
materials. $75; Direct labour, $55; Factory Overhead (75% variable, 25%
unavoidable fixed), $48. A special order has been received by Jack's for a
sale of 2,500 computers to an overseas customer. The only selling costs that
would be incurred on this order would be $10 per computer for shipping.
Jack's is now selling 7,200 computers through regular distributors each
period. What should be the minimum selling price per computer in
negotiating a price for this special order?
a. $200.
b. $166.
c. $178.
d. $176.
13-9. Questions 9 - 10 refer to the following: Welter, Inc. is considering the
addition of a new line of product to its current product lines. The expected
cost and revenue data for the new product are as follows: Annual sales,
2,500 units. Selling price per unit, $304. Variable costs per unit: Production,
$125 and Selling, $49. Avoidable traceable fixed costs per year: Production,
$50,000 and Selling, $75,000. Unavoidable allocated corporate costs per
year, $55,000. If the new product is added to the existing product line, the
contribution margin of the other existing product lines is expected to drop
$65,000 per year. If the new product line is added next year, the increase in
net income resulting from this decision would be:
a. $325,000.
b. $200,000.
c. $145,000.
d. $135,000.
13-10. What is the lowest selling price per unit that could be charged for the
new product line and still make it economically desirable to add the new
product line?
a. $246.
b. $224.
c. $232.
d. $282.
Capital Budgeting Decisions
14-1. An investment project for which the net present value is $300 would
result in which of the following conclusions?
a. The net present value is too small; the project should be rejected.
b. The investment project promises slightly more than the required
rate of return.
c. The net present value method is not suitable for evaluating this project;
the time-adjusted rate of return method should thus be employed in
analyzing this project.
d. The investment project should only be accepted if net present value is
zero; a positive net present value indicates an error(s) in the estimates
associated with the analysis of this investment.
14-2. Working capital required for an investment project would be
considered as:
a. a cash outflow at the inception of the project with no discounting required.
b. a cash inflow at the end of the term of the investment project when
working capital is released, discounted back to the inception of the project at
the appropriate rate.
c. both a cash outflow at the inception of the project and a cash inflow at the
end of the term of an investment project resulting in an offsetting of two
equal amounts that has no effect on the net present value analysis.
d. described in both item a and item b above.
14-3. The net present value method:
a. makes no allowance for recovery of the original investment.
b. requires the deduction of amortization in order to provide for the recovery
of the original investment.
c. provides for recovery of the original investment since each inflow is
allocated between a return of principal and interest.
d. only makes allowance for return on the investment.
14-4. The evaluation of an investment having uneven cash flows using the
payback method:
a. cannot be done.
b. can be done only by matching cash inflows and investment outflows
on a year-by-year basis.
c. will produce essentially the same results as those obtained through the
use of discounted cash flow techniques.
d. requires the use of a sophisticated calculator or computer software.
14-5. In which of the following situations would a project be acceptable
under the internal rate of return method? 1. The internal rate of return is
equal to the cost of capital. 2. The internal rate of return is greater than the
cost of capital. 3. The internal rate of return is less than or equal to the cost
of capital.
a. Only 1.
b. Only 3.
c. Both 1 and 3.
d. Both 1 and 2.
14-6. Anthony operates a part time auto repair service. He estimates that a
new diagnostic computer system will result in increased cash inflows of
$1,500 in Year 1, $2,100 in Year 2, and $3,200 in Year 3. If Anthony's cost of
capital is 10%, then the most he would be willing to pay for the new
computer system would be:
a. $4,599.
b. $5,502.
c. $5,638.
d. $5,107.
14-7. Which of the following capital budgeting techniques implicitly assumes
that the cash flows are reinvested at the company's minimum required rate
of return? Net present value/Internal rate of return
a. Yes/Yes
b. Yes/No
c. No/Yes
d. No/No
14-8. Questions 8 - 9 refer to the following: BillyBob,Inc. has gathered the
following data on a proposed investment project: Investment in amortizable
equipment, $150,000; Annual cash flows, $ 40,000; Useful life of the
equipment, 10 years; Cost of capital, 10%. The company uses straight-line
amortization on all equipment. The payback period for the investment would
be:
a. 0.27 years.
b. 3.75 years.
c. 10.00 years.
d. 2.13 years.
14-9. The simple rate of return on the investment would be:
a. 26.67%.
b. 16.67%.
c. 36.67%.
d. 10.00%.
14-10. Which of the following statements is accurate regarding the ranking
of projects using the net present value method?
a. Projects can never be ranked using the net present value method.
b. The net present value of one project cannot be compared directly to
the net present value of another project unless the investments in the
projects are of equal size.
c. The net present value of one project can be compared directly to the net
present value of another project even when the investments in the projects
are not of equal size.
d. All projects, regardless of size, can be ranked using the net present value
method.