FINAL EXAM MCQs - COST MANAGEMENT

Multiple Choice

True or false: No distinction is made between normal and abnormal scrap because no cost is assigned to scrap

b) False

The decision rule in a sell-or-process-further decision (i.e., whether the products should be sold at the split-off point or processed further) is: process further as long as the incremental revenue from processing exceeds:

a) incremental processing costs.

Bartok Motors Inc. operates as a multidivisional company. The Cantata Division purchases most of its motors from the Concerto Division.

The Concerto Division:

• sells motors to external customers for $890 has variable costs of $620 per motor

• has sufficient excess capacity to satisfy the Cantata Division's motor requirements

Which of the following statements BEST describes acceptable transfer pricing at Bartok Motors Inc.?

a ) The minimum transfer price the Concerto Division is willing to accept on sales to the Cantata Division is $620.

To prevent inventory shortages, Coco manufacturing, known for its production and sale of lamp, enforces a policy requiring that 40% of the following month's budgeted sales be available in stock by the end of each month. The budgeted sales of products for the next three months are as follows:

Budgeted sales (in units)

January: 8,000

February: 9,000

March: 7,000

What is the budgeted production volume for February

a ) 8,200 units

True or False: The flexible-budget variance may be the result of inaccurate forecasting of the quantity of units sold.

a) True

6. Which of the following is NOT a benefit of life cycle reporting?

b) The differences in when the bulk of product costs are incurred are highlighted.

7. The first step in developing next year's master budget for a manufacturing company is to project which of the following?

b) Next year's sales budget to decide next year's sales volume.

A manufacturer processes 100,000 kilograms of direct materials to produce two products:

Product A and Product B. Here is the information at split-off point:

Product A

Units Produced: 20,000

Weight (kg) per unit: 3 kg

Selling price per unit: $20

Product B

Units Produced: 4,000

Weight (kg) per unit: 10 kg

Selling price per unit: $30

The costs incurred before the split-off point were $1,000,000, and the costs incurred beyond the split-off point were 800,000. Using the physical measures method, what are the joint costs allocated to products A and B (rounding to the nearest dollar)?

a) Product A: 600,000; Product B: 400,000

Chao Products currently sells small boats for $360. It has costs currently assigned to it of $280. Chao's curent sales volume is 10,000 units per year. A competitor is bringing a new small boat to market that will sell for $320. Management believes Chao must lower the price to $320 to compete in the market for smal boats. Marketing believes that the new price will cause sales volume to increase by 10 percent, even with a new competitor in the market.

What is Chao's target cost if the company wants to maintain its income level (i.c., the same amount of operating income)?

d) $247.3

True or False: Dumping occurs when a dominant company charges low prices in an effort to drive competitors out of the market.

a ) True

A company had monthly sales volume of 2,000 units and sold each unit at the selling price of $90. The company had a favorable flexible budget variance of $15,000, an unfavorable selling price variance of $10,000, and an unfavorable sales volume variance of $60,000.

What was the static budget variance?

c) $45,000 unfavorable

Which of the following situations may result in a favorable material price variance and an

unfavorable material quantity variance?

b) Lower-quality materials were purchased at a discount, resulting in excessive waste.

Which one of the following events will decrease a company's break-even point?

c) An increase in the selling price

Walace Manufacturing is approached by a European customer to fulfill a one-time-only

special order for a product similar to one offered to domestic customers, Walace

Manufacturing has excess capacity to fulfill the special order. The following per unit data

apply for sales to regular customers. What is the change in operating profits if the one-time-only special order for 1,000 units is accepted for $180 a unit by Walace?

Variable costs:

Direct materials $50

Direct labour 30

Manufacturing support 35

Marketing costs 15

Fixed costs:

Manufacturing support 45

Marketing costs 15

Total costs: $190

Markup (50%): 95

Targeted selling price $285

a) $50,000 increase in operating profits

Dr. Francis Finn performs a certain procedure for $400. The fixed costs are $8,000 and the variable costs are $200 per procedure. What is the margin of safety (in dollars) assuming the procedure is performed 200 times.

b) $64,000

Ben Tool Company is a tool manufacturer. Production capacity i s 3,000 units per month; however, they are considering alternative ways to increase capacity to 3,500 units. One of the alternatives involves purchasing new equipment. In this alternative, there are two choices:

machine A will provide increased capacity of 4,000 units per month, with unit costs of $14 at capacity, and machine B will increase capacity to 3,600 units per month with unit costs of $15 at capacity. Both machines are adequate since Ben's does not intend to go beyond the 3,500 units per month level for the foreseeable future relevant information for this decision includes

d) all the above answers.

Which of the following differentiates job costing from proceed crosting?

c) Process costing is used when each unit of output is identienl, and job costing deals with

unique products not produced in batches.

If the cost of an activity increases with each hour of machine time, it is most likely to be which of the following?

a) Output unit-level cost

Which of the following is the main difference between actual costing and normal costing?

d) normal costing uses budgeted indirect cost rates.

Companies that attempt to achieve zero defects in the manufacturing process treat all spoilage as which of the following?

d) abnormal spoilage