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1. Generally Accepted Accounting Principles (GAAP) require the use of which accounting method for external
reporting?
a. absorption costing.
b. variable costing.
c. transfer price costing.
d. responsibility costing.
e. all of these are acceptable for GAAP.
2. Variable costing is
a. a good way to value inventories for the balance sheet.
b. used for external reporting purposes.
c. not useful for companies with multiple segments.
d. a useful tool for management decision making.
e. can only be used by start-up companies.
4. When monthly production volume is constant and sales volume is less than production, income determined
with variable costing procedures will
a. always be greater than income determined using absorption costing.
b. always be less than income determined using absorption costing.
c. be equal to income determined using absorption costing.
d. be equal to contribution margin per unit times units sold.
5. When production is less than sales volume, income under absorption costing will be ____ income using variable
costing procedures.
a. greater than
b. less than
c. equal to
d. randomly different than
6. Inventory values calculated using variable costing as opposed to absorption costing will generally be
a. equal.
b. less.
c. greater.
d. twice as much.
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8. All of the following costs are included in inventory under absorption costing except
a. direct materials.
b. direct labor.
c. fixed selling expenses.
d. fixed factory overhead.
Figure 8-1.
10. Last year, Fabre Company produced 20,000 units and sold 18,000 units at a price of $12. Costs for last year
were as follows:
Fixed factory overhead is applied based on expected production. Last year, Fabre expected to produce 20,000
units.
Refer to Figure 8-1. Assuming that beginning inventory was zero, what is the value of ending inventory under
absorption costing?
a. $5,480
b. $4,500
c. $10,900
d. $12,600
e. $5,750
11. Refer to Figure 8-1. Assuming that beginning inventory was zero, what is the value of ending inventory under
variable costing?
a. $3,300
b. $2,500
c. $5,000
d. $3,720
e. $7,200
12. Refer to Figure 8-1. What is operating income for last year under absorption costing?
a. $41,000
b. $67,520
c. $85,900
d. $111,300
e. $45,000
13. Refer to Figure 8-1. What is operating income for last year under variable costing?
a. $111,800
b. $91,780
c. $82,200
d. $78,400
e. $66,350
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Figure 8-2.
14. Loring Company had the following data for the month:
Fixed overhead is $4,000 per month; it is applied to production based on normal activity of 2,000 units. During the
month, 2,000 units were produced. Loring started the month with 300 units in beginning inventory, with unit
product cost equal to this month's unit product cost. A total of 2,100 units were sold during the month at price of
$14. Selling and administrative expense for the month, all fixed, totaled $3,600.
Refer to Figure 8-2. What is the unit product cost under absorption costing?
a. $8.60
b. $10.60
c. $8.20
d. $10.20
e. $7.20
15. Refer to Figure 8-2. What is operating income under variable costing?
a. $3,540
b. $7,980
c. $11,340
d. −$540
e. $3,740
16. Refer to Figure 8-2. What is the unit product cost under variable costing?
a. $8.60
b. $10.60
c. $8.20
d. $10.20
e. $7.20
17. Refer to Figure 8-2. What is operating income under absorption costing?
a. $3,540
b. $7,980
c. $11,340
d. −$540
e. $3,740
Figure 8-4.
18. The following information pertains to Mayberry Corporation:
Refer to Figure 8-4. What is the value of the ending inventory using the absorption costing method?
a. $240,000
b. $360,000
c. $600,000
d. $420,000
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19. Refer to Figure 8-4. Absorption costing income would be ____ variable costing income.
a. $150,000 greater than
b. $150,000 less than
c. $240,000 less than
d. $240,000 greater than
20. Refer to Figure 8-4. What is the value of the ending inventory using the variable costing method?
a. $240,000
b. $360,000
c. $350,000
d. $420,000
Figure 8-5.
21. Sanders Company has the following information for last year:
Refer to Figure 8-5. What is the value of ending inventory for Sanders using the absorption costing method?
a. $360,000
b. $280,000
c. $220,000
d. $380,000
22. Refer to Figure 8-5. What is the income for Sanders using the absorption costing method?
a. $520,000
b. $480,000
c. $1,200,000
d. $500,000
23. Refer to Figure 8-5. What is the cost of ending inventory for Sanders using the variable costing method?
a. $300,000
b. $280,000
c. $120,000
d. $260,000
24. Refer to Figure 8-5. What is the income for Sanders using the variable costing method?
a. $420,000
b. $480,000
c. $520,000
d. $500,000
Figure 8-6.
25. Bailey Company incurred the following costs in manufacturing desk calculators:
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During the period, the company produced and sold 2,000 units.
Refer to Figure 8-6. What is the inventory cost per unit using absorption costing?
a. $104
b. $77
c. $84
d. $32
26. Refer to Figure 8-6. What is the inventory cost per unit using variable costing?
a. $52
b. $66
c. $72
d. $50
Figure 8-7.
27. Ramon Company reported the following units of production and sales for June and July:
Units
Month Produced Sold
June 100,000 90,000
July 100,000 105,000
Income under absorption costing for June was $40,000; income under variable costing for July was $50,000. Fixed
costs were $600,000 for each month.
Refer to Figure 8-7. How much was income for July using absorption costing?
a. $50,000
b. $20,000
c. $80,000
d. $40,000
Chapter 10
Standard Costing
28. Standards based on the amount of input that should be used per unit of output are called
a. quantity standards.
b. price standards.
c. ideal standards.
d. currently attainable standards.
e. kaizen standards.
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31. Which of the following is true regarding historical experience in standard setting?
a. It provides very rigorous guidelines.
b. Operating personnel may not be able to achieve operating standards based on historical experience.
c. It should be used with caution because it can perpetuate inefficiencies.
d. Standards based on historical experience are better than standards based on engineering studies.
e. None of these.
36. Standard cost systems can enhance operational control through the use of
a. efficiency variances which indicate the need for corrective action.
b. price variances which indicate the need for better spending control.
c. standard costs which indicate the desired cost of a unit of input.
d. actual costs which indicate the price received for units sold.
e. All of these.
37. Which of the following is true regarding standard cost systems in manufacturing environments that emphasize
continuous improvement and just-in-time manufacturing and purchasing?
a. The standard cost system enhances the operational control.
b. The materials price variance may encourage the purchasing department to buy in smaller quantities to
reduce inventories.
c. Variances can be computed and presented in reports to higher-level managers.
d. The operational level will benefit from the detailed computation of variances.
e. None of these.
38. In a standard cost system, costs are assigned to all of the following, except for
a. direct materials.
b. direct labor.
c. variable overhead.
d. fixed overhead.
e. none of these.
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39. The standard cost system differs from the actual cost system in the assignment of
a. direct materials.
b. direct labor.
c. overhead.
d. all of the manufacturing inputs.
e. none of the manufacturing inputs.
40. Which of the following is not true regarding normal costing systems?
a. A normal costing system predetermines overhead costs.
b. A normal costing system assigns direct materials and direct labor to products using a predetermined
rate.
c. In a normal costing system overhead is assigned using a budgeted rate and actual activity.
d. A normal costing system has less capacity for control than a standard costing system.
e. All of these statements are true.
41. Which of the following is not an advantage of standard costing over normal costing and actual costing?
a. A greater capacity for control.
b. Ability to easily distinguish the FIFO and weighted average methods of accounting for beginning
inventory costs.
c. Computing a unit cost for each equivalent unit cost category is not necessary.
d. Providing for readily available unit cost information.
e. All of these are advantages of standard costing.
Figure 10-1.
42. Flying High Company manufactures model airplanes. During the month, it manufactured 10,000 airplanes.
Each one used an average of 6.5 direct labor hours and an average of 1.5 sheets of aluminum. It normally
manufactures 7,500 airplanes. Materials and labor standards for making the airplanes are:
Refer to Figure 10-1. Compute the standard hours allowed for a volume of 10,000 airplanes.
a. 60,000 hours
b. 420,000 hours
c. 70,000 hours
d. 65,000 hours
43. Refer to Figure 10-1. Compute the standard number of sheets of aluminum allowed for a volume of 10,000
airplanes.
a. 15,000 sheets
b. 10,000 sheets
c. 7,500 sheets
d. 11,250 sheets
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45. The difference between the actual cost of the input and its planned cost is
a. the total budget variance.
b. the usage variance.
c. the price variance.
d. the efficiency variance.
e. the budget variance.
46. Which of the following is true concerning the materials price variance?
a. It is the difference between the actual and standard unit price of an input multiplied by the number of
inputs used.
b. It is the difference between the actual and standard unit price of an output multiplied by the number
of inputs used.
c. It is the difference between the actual and standard unit price of an input multiplied by the number of
inputs purchased.
d. It is the difference between the actual and standard unit price of an output multiplied by the number
of inputs purchased.
e. None of these.
47. The usage variance is the difference between the actual and standard quantity of inputs
a. multiplied by the standard unit price of the input.
b. budgeted multiplied by the standard unit price of the input.
c. multiplied by the actual unit price of the input.
d. purchased multiplied by the actual unit price of the input.
e. None of these.
49. All of the following are true regarding variance investigation except
a. the investigation should be undertaken only if the anticipated benefits are greater than the expected
costs.
b. managers must consider whether a variance will recur.
c. it is difficult to assess the costs and benefits of variance analysis on a case-by-case basis.
d. variances are not investigated unless they are large enough to be of a concern.
e. every variance is investigated.
51. Acme Company's standard cost is $500,000. The allowable deviation is ±10%. Its actual costs for three months
are
January $520,000
February $550,000
March $575,000
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The upper and lower control limits are, respectively,
a. $550,000 and $450,000
b. $500,000 and $450,000
c. $550,000 and $500,000
d. $575,000 and $520,000
Figure 10-2.
48. Highland Company's standard cost is $250,000. The allowable deviation is ±10%. Its actual costs for six
months are
January $235,000
February 220,000
March 245,000
April 265,000
May 270,000
June 280,000
Refer to Figure 10-2. The upper and lower control limits are, respectively,
a. $250,000 and $225,000
b. $305,000 and $195,000
c. $275,000 and $250,000
d. $275,000 and $225,000
49. Refer to Figure 10-2. The actual cost which is higher than the upper control limit is
a. $220,000
b. $280,000
c. $265,000
d. $235,000
50. Refer to Figure 10-2. The actual cost which is lower than the lower control limit is
a. $220,000
b. $280,000
c. $265,000
d. $235,000
51. The Clark Company makes a single product and uses standard costing. Some data concerning this product for
the month of May follow:
The variable overhead rate variance for May was closest to:
A. $2,290 F
B. $2,290 U
C. $1,710 F
D. $1,710 U
52. The actual direct labor rate for May in dollars per hour was closest to:
A. $12.50
B. $12.00
C. $11.75
D. $11.50
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53. The total standard cost for direct labor for May was closest to:
A. $168,000
B. $180,000
C. $120,000
D. $161,000
54. The total standard cost for variable overhead for May was closest to:
A. $56,000
B. $40,000
C. $60,000
D. $50,000
55. The standard hours allowed to make one unit of finished product are:
A. 1.0
B. 1.2
C. 1.5
D. 2.0
56. The following data pertain to operations concerning the product for the last month:
58. The following standards for variable overhead have been established for a company that makes only one
product:
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60. The Upton Company uses a standard costing system in which variable overhead is assigned to production on
the basis of standard direct labor-hours. Data for the month of February include the following:
63. What is the variable overhead efficiency variance for the month?
A. $504 U
B. $1,120 U
C. $1,120 F
D. $1,144 F
67. If output increases by 50% and is still within the relevant range
a. total fixed costs will increase by 50%.
b. per-unit fixed cost will remain the same.
c. total variable costs will increase by 50%.
d. net income will increase by 50%.
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Figure 3-6.
68. Taran Company incurred the following costs for the months of January and February.
Refer to Figure 3-6. From the information above we can assume that
a. insurance and depreciation are fixed costs.
b. output decreased from January to February.
c. output stayed the same from January to February.
d. insurance is a mixed cost.
69. Refer to Figure 3-6. Assume that output was 5,000 units in January and 10,000 units in February, utility cost is
a mixed cost, and the fixed cost of utilities was $3,000. What was the variable rate per unit of output for utilities
cost?
a. $0.60
b. $0.40
c. $0.20
d. $0.30
70. Refer to Figure 3-6. If output was 5,000 units in January and 10,000 units in February we can assume that
a. utilities and materials are variable costs.
b. utilities, insurance, and depreciation are fixed costs.
c. insurance and depreciation are mixed costs.
d. materials are the only variable cost.
71. Ruskin Company had utilities cost of $95,000 at an output level of 30,000 units. The utilities cost was a mixed cost and the
portion was $50,000. What would the estimate of total utilities cost be at an output level of 40,000 units?
a. $65,000
b. $95,000
c. $110,000
d. $125,000
Figure 3-3.
72. Okafor Company manufactures skis. The management accountant wants to calculate the fixed and variable
costs associated with the leasing of machinery. Data for the past four months were collected.
Machine
Month Lease cost hours
April $21,000 550
May 16,500 420
June 19,000 510
July 22,230 570
Refer to Figure 3-3. Using the high-low method calculate the variable rate for the lease cost
a. $38.18
b. $38.20
c. $61.50
d. $37.25
73. Refer to Figure 3-3. Using the high-low method calculate the fixed cost of leasing
a. $482
b. $516
c. $420
d. $456
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74. Refer to Figure 3-3. What would Okafor Company's cost formula be to estimate the cost of leasing within the
relevant range?
a. total lease cost = $456 + ($38.20 × machine hours)
b. total lease cost = $516 + ($38.18 × machine hours)
c. total lease cost = $420 + ($37.25 × machine hours)
d. none of these are correct
75. Refer to Figure 3-3. What would the estimate of Okafor Company's total lease cost be at a level of 500
machine hours?
a. $19,606
b. $19,556
c. $16,464
d. $18,546
Figure 3-10.
76. The following cost formula was developed using the monthly data for an accounting firm.
80. If variable costs per unit decrease, sales volume at the break-even point will
a. decrease.
b. stay constant.
c. double.
d. increase.
81. Contribution margin ratio can be calculated in all of the following ways except
a. fixed costs / Contribution margin per unit.
b. 1 − Variable cost ratio.
c. contribution margin per unit / price.
d. total contribution margin / Total sales.
e. All of these are correct.
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82. Assume the following information:
84. If the selling price per unit increases, the break-even point in units will
a. decrease.
b. increase.
c. remain the same.
d. remain the same; however, contribution per unit will decrease.
85. Patricia Company produces two products, X and Y, which account for 60% and 40%, respectively, of total sales
dollars. Contribution margin ratios are 50% for X and 25% for Y. Total fixed costs are $120,000. What is Patricia's
break-even point in sales dollars?
a. $300,000
b. $328,767
c. $342,856
d. $375,000
86. Clean Company sells its product for $80. In addition, it has a variable cost ratio of 60% and total fixed costs of
$8,000. What is the break-even point in sales dollars for Baker Company?
a. $4,800
b. $32,000
c. $20,000
d. $8,000
87. Sarah Smith, a sole proprietor, has the following projected figures for next year:
88. The ratio of fixed expenses to the contribution margin ratio is the
a. indifference point.
b. break-even point in units.
c. fixed cost ratio.
d. break-even point in sales.
e. sensitivity analysis.
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89. If the contribution margin per unit decreases, the break-even point in units
a. will increase.
b. will decrease.
c. will remain the same.
d. cannot be determined from the information given.
90. The income statement for Thomas Manufacturing Company for the current year is as follows:
91. Dirth Company sells only one product at a regular price of $7.50 per unit. Variable expenses are 60% of sales
and fixed expenses are $30,000. Management has decided to decrease the selling price to $6.00 in hopes of
increasing its volume of sales. What is the contribution margin ratio when the selling price is reduced to $6 per
unit?
a. 25%
b. 40%
c. 75%
d. 60%
92. If the contribution margin ratio increases, the break-even point in sales dollars will
a. increase.
b. decrease.
c. remain the same.
d. double.
93. Dirth Company sells only one product at a regular price of $7.50 per unit. Variable expenses are 60% of sales
and fixed expenses are $30,000. Management has decided to decrease the selling price to $6.00 in hopes of
increasing its volume of sales. What is the sales dollars level required to break even at the old price of $7.50?
a. $75,000
b. $12,000
c. $18,000
d. $50,000
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96. Which statement is true about cost-volume profit (CVP) analysis?
a. CVP analysis is a powerful tool for planning and decision making.
b. CVP analysis allows managers to do sensitivity analysis by examining the impact of various prices or
cost levels on profit.
c. CVP analysis shows how revenues, expenses, and profits behave as volume changes.
d. CVP analysis can be used in both single-product and multi-product firms.
e. All of these statements are true.
97. Melody Company sells a product for $14, variable costs are $10 per unit, and total fixed costs are $5,040.
What is the break-even point in units?
a. 640
b. 1,260
c. 210
d. 360
e. 504
98. Melody Company sells a product for $14, variable costs are $10 per unit, and total fixed costs are $5,040.
What is the per unit contribution margin?
a. $14
b. $10
c. $24
d. $4
100. Stepford Company makes dolls. The price is $10 and the variable expense per unit is $6. What is the
contribution margin ratio?
a. 62.5%
b. 37.5%
c. 55%
d. 40%
e. 60%
Figure 4-1.
Foster Company makes power tools. The budgeted sales are $420,000, budgeted variable costs are $147,000, and
budgeted fixed costs are $227,500.
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103. Refer to Figure 4-1. What is the variable cost ratio?
a. 54%
b. 35%
c. 89%
d. 19%
e. 50%
104. Refer to Figure 4-1. What is the break-even point in sales dollars?
a. $350,000
b. $420,000
c. $650,000
d. $780,000
e. $567,000
Figure 4-4.
107. Yerke Company makes jungle gyms and tree houses for children. For jungle gyms, the price is $120 and variable
expenses are $90 per unit. For tree houses, the price is $200 and variable expenses are $100.
Total fixed expenses are $253,750. Last year, Yerke sold 12,000 gyms and 4,000 tree houses.
Refer to Figure 4-4. Using the lowest whole numbers, what is the sales mix of gyms and tree houses?
a. 4:1
b. 3:1
c. 3:2
d. 2:3
e. 1:4
108. Refer to Figure 4-4. Now suppose that Yerke expects tree house demand to increase from 4,000 to 8,000
units. What is the new (combined, overall or package) contribution margin ratio (rounded to two decimal places)?
a. 38%
b. 62%
c. 40%
d. 60%
e. 50%
109. Refer to Figure 4-4. Now suppose that Yerke expects tree house demand to increase from 4,000 to 8,000
units. What is the number of jungle gyms sold at break-even?
a. 1,750
b. 668
c. 2,625
d. 1,002
e. 875
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110. Refer to Figure 4-4. Now suppose that Yerke expects tree house demand to increase from 4,000 to 8,000
units. What is the number of tree houses sold at break-even?
a. 1,750
b. 668
c. 2,625
d. 1,002
e. 875
110. Refer to Figure 4-4. Now suppose that Yerke expects tree house demand to increase from 4,000 to 8,000
units. What is the sales revenue at break-even?
a. $411,250
b. $253,700
c. $1,076,250
d. $665,000
e. $140,000
111. Biggers Company expects the following results for the next accounting period:
Sales $240,000
Variable costs 135,000
Fixed costs 40,000
Expected production and sales in units 3,000 units
The sales manager believes sales could be increased by 400 units if advertising expenditures were increased by
$10,000. If advertising expenditures are increased and sales increase by 400 units, the effect on operating income
will be a(n)
a. decrease of $4,000.
b. increase of $22,000.
c. increase of $4,000.
d. increase of $30,000.
e. cannot be determined from data given.
Figure 4-6.
112. Shorter Company had originally expected to earn operating income of $130,000 in the coming year. Shorter's degree of
operating leverage is 2.4. Recently, Shorter revised its plans and now expects to increase sales by 20% next year.
Refer to Figure 4-6. What is the percent change in operating income expected by Shorter in the coming year?
a. 8.33%
b. 48.0%
c. 20.0%
d. 54.17%
e. 30.0%
113. Refer to Figure 4-6. What is Shorter's revised expected operating income for the coming year?
a. $192,400
b. $156,000
c. $312,000
d. $130,000
e. $62,400
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114. Problem Solving:
Neuman Company, which has only one product, has provided the following data concerning
its most recent month of operations:
The company produces the same number of units every month, although the sales in units
vary from month to month. The company's variable costs per unit and total fixed costs have
been constant from month to month.
Required:
a. Prepare a contribution format income statement for the month using variable costing.
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