Midterm Practice Questions

Match each cost to one category: DM (direct materials), DL (direct labour), MOH (manufacturing overhead), S (selling), A (administrative). (a) Leather used in handbags. (b) Wages of the sewing staff. (c) Factory supervisor's salary. (d) Fuel for delivery vans. (e) CEO's salary. (f) Depreciation on factory machines. (g) Thread and glue used in assembly. (h) Television advertising. (i) Head-office rent. (j) Wages of the factory janitor.

A manufacturer reports direct materials $45,000, direct labour $30,000 and manufacturing overhead $50,000 for the month. Calculate prime cost, conversion cost and total manufacturing cost.

Raw materials: beginning $15,000, purchases $65,000, ending $20,000. Direct labour $40,000. Manufacturing overhead applied $80,000. Work in process: beginning $20,000, ending $25,000. Finished goods: beginning $30,000, ending $45,000. Compute direct materials used, total manufacturing cost, cost of goods manufactured and cost of goods sold.

A company produced 6,000 units at a full manufacturing cost of $30 per unit and sold 5,000. Selling expenses were $18,000 and administrative expenses $12,000. What is the cost of ending inventory, what is cost of goods sold, and how much is expensed as period cost?

(Multi-select) For a manufacturer, which of the following are period costs? (a) Sales commissions. (b) Depreciation on factory equipment. (c) Property taxes on the corporate head office. (d) Direct materials. (e) Advertising.

Monthly factory rent is $24,000 (fixed) and variable cost is $5 per unit. Find total cost and cost per unit at 8,000 units and at 12,000 units, and say what happens to each type of cost per unit.

(Multiple choice) As activity rises within the relevant range, which statement is correct? (A) Total fixed cost rises and fixed cost per unit is constant. (B) Total variable cost is constant and variable cost per unit rises. (C) Total fixed cost is constant and fixed cost per unit falls. (D) Total variable cost rises and variable cost per unit falls.

Match each item to differential (D), sunk (S), opportunity (O) or not relevant (N) when a hospital replaces an old x-ray machine with a new blood-test machine. (a) The purchase price of the old machine two years ago. (b) Electricity to run the old machine, which stops if it is replaced. (c) The salary of the radiology department manager, who stays either way. (d) The sale proceeds forgone if the old machine is kept. (e) The cost of installing shielding in the old machine's room last year.

A department store reports for its Apparel Department: cost of sales $90,000, sales commissions $7,000 and the department manager's salary $8,000. The store also has store utilities of $11,000 and a store manager's salary of $12,000. What are the direct costs of the Apparel Department? What are the direct costs of the store (all four of these)?

A firm owns a machine bought for $90,000 (book value now $50,000). It can be sold today for $20,000. A new machine costs $60,000 and saves $12,000 per year in operating costs over five years. Identify the sunk costs and the relevant items, and state the net financial advantage of replacing over five years (ignore the time value of money and taxes).

(Matching) Label each statement as financial (F) or managerial (M) accounting. (a) Prepared for the tax authorities. (b) Emphasizes the future. (c) Must follow GAAP. (d) Emphasizes relevance and timeliness over precision. (e) Reports on segments such as product lines and regions. (f) Mandatory.

Classify each as planning, directing and motivating, controlling or decision making. (a) Developing the budget for next year. (b) Comparing the monthly actual results with the budget. (c) Assigning today's work shifts and resolving a dispute between employees. (d) Choosing between two supplier bids.

(Fill in the blank) In the planning and control cycle, comparing actual results with the plan produces ______, and the report that does this is called a ______ report.

(Matching) Match each customer value proposition to its description: customer intimacy, operational excellence, product leadership. (a) Low-cost products or reliable services. (b) Exceptional quality and innovation. (c) Outstanding customer service.

Put the value chain in order: customer service, manufacturing, research and development, distribution, marketing, product design.

(Matching) Enterprise risk management identifies risks and reduces them with controls. Match the risk to the control. Risks: (a) an employee steals assets, (b) customer information is stolen from computer files, (c) a supplier strike halts raw materials, (d) a website malfunctions. Controls: (1) test thoroughly before going live, (2) use two or more suppliers, (3) segregation of duties, (4) firewalls.

(Fill in the blank) The CPA Canada code of ethics focuses on professional behaviour, competence, ______, integrity and ______.

(Multiple choice) Corporate social responsibility means that an organization (A) obeys the law, (B) maximizes shareholder profit, (C) considers the needs of all stakeholders and goes beyond legal compliance with voluntary actions, (D) follows GAAP.

A manager is paid a bonus based only on this year's profit. Give two unintended consequences and two controls.

(Multiple choice) Which best describes intrinsic motivation and cognitive biases? (A) Motivation from rewards; errors in arithmetic. (B) Motivation from within a person; distorted thought processes everyone has. (C) Motivation from bonuses; deliberate fraud. (D) Motivation from the boss; accounting errors.

A manager facing a profit target reclassifies some period costs as product costs. Explain the effect and whether it is ethical.

Glue used in assembly is a small, hard-to-trace cost per unit. How should it be classified, and why?

A seniors' meal program has a leased van, gasoline for the van, rent on the whole centre and a driver paid by the hour. Classify each as direct or indirect to the program, and as fixed or variable with respect to the number of seniors served.

A utility charges a fixed fee of $50 per month plus $0.04 per kWh. What is the total bill for 3,000 kWh, and which letter in Y = a + bX is each part of the charge?

Maintenance costs and machine hours for six months were: January 400 hours, $6,380; February 520, $7,040; March 610, $7,820; April 350, $5,950; May 700, $8,400; June 480, $6,980. Use the high-low method to find the variable cost per hour, the fixed cost per month, and the predicted cost for 550 hours.

(Multiple choice) In the high-low method, the two data points are chosen as (A) the highest and lowest total cost, (B) the highest and lowest activity levels, (C) the first and last periods, (D) the two periods closest to the average.

A hospital had 2,400 lab hours at a total cost of $19,800 in its busiest month and 1,200 hours at $13,200 in its slowest month. Estimate the cost of 1,800 hours.

A service firm's total overhead is $212,000 at 10,000 billable hours and $248,000 at 16,000 hours. Overhead consists of office supplies (variable, $2.00 per hour), rent (fixed, $120,000 per year) and vehicle costs (mixed). Estimate total overhead at 14,000 hours.

A scattergraph of a hospital's maintenance cost against patient-days has a vertical intercept of $12,000, and the line passes through $15,000 at 1,000 patient-days. Write the cost formula and estimate the cost at 1,300 patient-days.

(Multiple choice) Why can the high-low method give a poor estimate when a scattergraph shows the data points scattered around a line? (A) It uses all points but ignores the fixed cost. (B) It uses only two points, which may not represent the pattern, so its line can have the wrong slope and intercept. (C) It cannot be used with mixed costs. (D) It always overestimates variable cost.

Sales are $100,000. Cost of goods sold is $70,000, of which $45,000 is variable and $25,000 is fixed. Selling and administrative expenses are $20,000, of which $8,000 is variable and $12,000 is fixed. Prepare both income statements and compare gross margin to contribution margin.

(Matching) Match each term to its definition: step-variable cost, committed fixed cost, discretionary fixed cost, mixed cost. (a) A long-term fixed cost that cannot be reduced much in the short term, such as depreciation on equipment. (b) A fixed cost that managers can change in the short term, such as advertising. (c) A cost of a resource obtained in large chunks that changes only with wide changes in activity, such as maintenance workers. (d) A cost with both fixed and variable parts, such as a utility bill.

(Multiple choice) How does a fixed cost differ from a step-variable cost? (A) A fixed cost changes in every period. (B) A step-variable cost has wider steps and cannot be adjusted in the short run. (C) A fixed cost has wider steps and is harder to adjust in the short run than a step-variable cost. (D) They are identical.

(Multi-select) Which statements are true within the relevant range? (a) Total fixed cost is constant. (b) Total variable cost is constant. (c) Variable cost per unit is constant. (d) Fixed cost per unit varies with activity. (e) Total variable cost varies in direct proportion to activity.

(Multiple choice) Which organization is most likely to have a high proportion of fixed costs and few variable costs? (A) A merchandiser. (B) A public utility with a large equipment investment. (C) A consulting firm paid by the hour. (D) A catering business.

A company rents office space in 1,000-square-foot blocks at $30,000 per year per block. What is the annual cost for 1,400 square feet and for 2,100 square feet, and what does the pattern illustrate?

(Fill in the blank) The first step in analyzing a mixed cost is to prepare a ______, which shows the relationship between cost on the vertical axis and ______ on the horizontal axis.

(Matching) Match each method of separating fixed from variable cost to its description: account analysis, engineering approach, high-low method, least-squares regression. (a) Each account is classified as fixed or variable using the analyst's knowledge. (b) Costs are estimated from a study of production methods and the material, labour and overhead needed. (c) Uses only the highest and lowest activity periods. (d) Uses all data points and minimizes squared deviations.

(Multiple choice) Which trend explains why many firms now have a higher share of fixed costs? (A) Rising raw material prices. (B) Automation and software replacing hourly (variable) wages with equipment and system costs. (C) Falling interest rates. (D) Smaller order sizes.

Prepare the contribution-format income statement for 4,000 lamps, and give the unit contribution margin, the CM ratio and the variable expense ratio.

Find the break-even point in units and in dollars.

How many lamps and how many sales dollars are needed for a before-tax profit of $40,000?

The company wants an AFTER-tax profit of $42,000 and its tax rate is 30%. How many lamps must it sell, and what are the sales dollars?

Calculate the margin of safety in dollars, as a percentage of sales and in units.

Compute the degree of operating leverage. If sales rise 15%, by what percentage will net operating income rise, and what will it be?

Management proposes an extra $12,000 of advertising that should raise sales by 10% (to 4,400 lamps). Will net operating income increase?

A higher-quality part raises variable cost by $4 per lamp (to $52) and lifts sales to 4,600 lamps. What happens to net operating income?

The company is considering a 10% price cut (to $72) with an additional $8,000 of advertising, expecting sales of 5,200 lamps. Evaluate it.

Fixed sales salaries of $18,000 are replaced by a $3 per lamp commission, and sales rise 5% to 4,200 lamps. Is the change worthwhile?

If the price is cut to $72 with no other change, how many lamps must be sold to keep the original income of $32,000?

(Work backwards) A company has sales of $500,000, variable expenses of $300,000 and net operating income of $60,000. Find fixed expenses, break-even sales and the margin of safety in dollars.

Sales rise by $50,000 and fixed expenses do not change. If the CM ratio is 40%, by how much does net operating income change?

(Matching) On a CVP graph with units on the horizontal axis and dollars on the vertical axis, match: (a) a horizontal line, (b) a line starting at the fixed-cost level and sloping up at the variable cost per unit, (c) a line starting at the origin and sloping up at the price, (d) the intersection of (b) and (c). Choices: total sales, total expenses, fixed expenses, break-even point.

(Multi-select) Which are assumptions of CVP analysis? (a) Selling price is constant. (b) Costs are linear and can be split into variable and fixed. (c) In a multi-product firm, the sales mix is constant. (d) In a manufacturer, inventories do not change. (e) Variable cost per unit rises with volume.

Company A has a CM ratio of 60% and fixed expenses of $120,000; Company B has a CM ratio of 30% and fixed expenses of $30,000. Both have sales of $300,000. Compare their operating leverage, and what happens to each if sales rise or fall 10%?

(Multiple choice) Which statement about the margin of safety and operating leverage is true? (A) Margin of safety percentage equals DOL. (B) Margin of safety percentage equals 1 / DOL. (C) DOL is the same at every sales level. (D) DOL is lowest near break-even.

(Multi-select) Which changes lower the break-even point, holding everything else constant? (a) A higher selling price. (b) A lower variable cost per unit. (c) A higher fixed expense. (d) A lower fixed expense.

Find each product's CM and CM ratio, the sales mix, the overall (weighted-average) CM ratio, net operating income, and the break-even sales dollars in total and for each product.

(Units version) Product X sells for $50 with variable cost of $30; Product Y sells for $80 with variable cost of $55. Fixed expenses are $154,000 and the mix is 60% X and 40% Y in UNITS. Find break-even units in total and for each product.

How many sales dollars does Northpeak need to earn a before-tax profit of $147,000, assuming the same mix?

Total sales stay at $600,000 but the mix shifts to 60% A and 40% B. What happens to the overall CM ratio, net operating income and break-even sales?

A student averages the two CM ratios (40% and 55%) to get 47.5% and uses it for break-even. What is wrong?

Calculate Northpeak's margin of safety in dollars and as a percentage, and in dollars of Product B.

(Multiple choice) In a multi-product break-even calculation, the result is valid only if (A) every product has the same CM ratio, (B) the sales mix stays constant, (C) fixed expenses are allocated to products, (D) prices fall as volume rises.

Using the units data from Q2, suppose the company actually sells 5,000 units of X and 3,000 units of Y. Calculate net operating income and the sales mix in units, and say whether the break-even computed in Q2 still applies.

After-tax target: Northpeak wants an after-tax profit of $73,500 and the tax rate is 25%. Find the required sales dollars.

A three-product firm has fixed expenses of $110,000. Product A: sales $100,000, CM ratio 30%. Product B: sales $200,000, CM ratio 50%. Product C: sales $200,000, CM ratio 20%. Find the overall CM ratio, break-even sales, and break-even sales of Product A.

(Multiple choice) If the company can promote only one product and has plenty of capacity, which product should it push to raise profit the most per dollar of sales? (A) The one with the highest sales price. (B) The one with the highest CM ratio. (C) The one with the lowest variable cost per unit. (D) The one with the lowest fixed cost.

Prepare the segmented contribution income statement: CM and segment margin for each division and the company, then company net operating income.

Management allocates the $50,000 of common costs to the divisions in proportion to sales. What profit does each division now show, and should West be dropped?

(Multi-select) Which of the following are TRACEABLE fixed costs of a segment (a division)? (a) The division manager's salary. (b) The CEO's salary. (c) Depreciation on equipment used only by the division. (d) Corporate image advertising. (e) Advertising for the division's products.

East's sales rise by 10% ($40,000) with no change in fixed expenses. By how much does East's segment margin change?

(Multiple choice) Which measure is the best gauge of the long-run profitability of a segment? (A) Contribution margin. (B) Segment margin. (C) Gross margin. (D) Net operating income after allocating common costs.

A division has two product lines. Line P: sales $180,000, variable expenses $90,000, traceable fixed expenses $40,000. Line Q: sales $120,000, variable expenses $78,000, traceable fixed expenses $30,000. Fixed expenses of $14,000 are common to the two lines but traceable to the division. Find each product line's margin, the divisional margin and the total fixed expenses traceable to the division.

(Multiple choice) An airline's landing fee for a flight is traceable to the flight. For the first-class, business-class and economy sections of that flight, the landing fee is (A) traceable to each section, (B) a common cost, (C) a variable cost, (D) not a cost.

(Multi-select) Which are hindrances to proper cost assignment to segments? (a) Omitting costs from parts of the value chain such as R&D or customer service. (b) Using inappropriate methods to assign traceable costs. (c) Dividing common costs arbitrarily among segments. (d) Using the contribution format.

(Work backwards) A company has total contribution margin of $250,000, traceable fixed expenses of $140,000 and common fixed expenses of $25,000. What is the company's net operating income, and what is the total of the segment margins?

(Multi-select) Which are advantages of decentralization? (a) Top management is freed to focus on strategy. (b) Decisions are made by people with the most up-to-date detail. (c) Faster response to customers. (d) Lower-level managers may pursue objectives that clash with the organization's. (e) Lower-level managers are trained and motivated.

(Fill in the blank) A segment is any part of an organization about which a manager seeks ______, ______ or profit data.

(Multi-select) Which two categories of cost are NEVER relevant to a decision? (a) Sunk costs. (b) Avoidable costs. (c) Future costs that do not differ between the alternatives. (d) Differential costs. (e) Opportunity costs.

A traveller can drive or take the train for a 200 km each-way trip (400 km round trip). Driving costs: gasoline $0.20 per km, maintenance $0.06 per km, tires $0.01 per km, parking at the destination $30 per day for 2 days, annual depreciation $3,000 and annual insurance $1,800 (the car is driven 12,000 km per year). The round-trip train fare is $150. Which is cheaper financially?

A company sells 6,000 units. Direct labour is $9 per unit. A rented machine for $4,000 per year would cut direct labour to $6 per unit. Using the differential approach, should it rent the machine, and at what volume does renting break even?

Should the Jackets line be dropped?

If the Jackets line is dropped, the floor space could be used for another product with a segment margin of $90,000. Does the answer change?

(Multiple choice) The decision rule for dropping a segment is: drop it only if (A) the segment shows a net loss, (B) its allocated costs exceed its sales, (C) the avoidable fixed costs saved exceed the contribution margin lost, (D) its CM ratio is below the company's.

A firm makes 12,000 units of a part a year. Per unit: direct materials $6, direct labour $4, variable overhead $2. Fixed: the supervisor's salary $36,000 (avoidable if the part is bought), depreciation on special equipment $24,000 (no resale value) and allocated general factory overhead $48,000 (unchanged either way). A supplier offers the part at $14. Make or buy? What is the most it should pay?

Suppose the supplier's price in Q7 is $16, and if the part is bought, the freed space and equipment could be rented out for $20,000 a year. What is the best decision?

(Multiple choice) Which is a strategic reason to MAKE a part rather than buy it? (A) A supplier can pool demand from many companies and gain economies of scale. (B) Better quality control and a smoother flow of parts. (C) The firm lacks the skills. (D) Fixed costs would fall.

(Fill in the blank) A firm that carries out more than one activity of the value chain, such as making its own components, is said to be ______.

(Multi-select) A firm is deciding whether to drop a product line. Which of these are relevant? (a) The line's contribution margin. (b) The line manager's salary, which would be eliminated. (c) Depreciation on equipment that has no resale value. (d) General administration that is allocated to the line but would remain. (e) Rent on a building space that would be released.

(Multiple choice) Why is the differential approach usually preferred to preparing a full income statement for each alternative? (A) It is required by GAAP. (B) There is rarely enough information to prepare complete statements for each alternative, and mixing in irrelevant items causes confusion. (C) It always gives a different answer. (D) It includes sunk costs.

Should Kite Co. accept the special order? By how much does operating income change?

A manager says, "Our full cost per kite is $28, so we should not sell at $21." Explain what is wrong with that reasoning.

What is the minimum acceptable price per kite for the order (a) if there are no extra fixed costs, and (b) if the order requires a special tool costing $12,000 that has no other use?

Suppose the plant's capacity were only 14,000 kites, so accepting the 4,000-kite order would displace 2,000 regular sales. Should the order be accepted?

(Multi-select) Which qualitative factors should management consider before accepting a special order at a low price? (a) The effect on the price expectations of regular customers. (b) The risk of breaching price-discrimination laws. (c) Whether the order uses up capacity needed by regular customers. (d) The colour of the packaging. (e) Whether it might lead to more business later.

(Work backwards) A firm makes 15,000 lenses at $50 with capacity of 30,000. Variable production cost is $10 per lens and fixed production cost is $270,000. A special order for 10,000 lenses requires an imprinting machine costing $50,000 with no further use; no selling costs apply. What is the minimum price per lens?

Is the machine a constraint? Which product should be emphasized, and what weekly production plan maximizes total contribution margin?

A manager wants to produce all the S first because it has the higher unit CM ($20 against $12) and the higher CM ratio (40% against 30%). What total CM results, and why is that wrong?

What is the most Pelican should be willing to pay per extra machine hour (above its normal cost), and how much extra CM would 120 extra minutes add?

What production mix maximizes CM, and what is the total CM?

What is the most the firm should pay per extra board foot above the usual lumber price?

(Multi-select) Which are ways to manage (relax) a constraint? (a) Work overtime or add a shift. (b) Subcontract some production. (c) Reduce defective units made on the bottleneck. (d) Move workers from non-bottleneck areas. (e) Reduce fixed costs.

(Fill in the blank) When a firm has more than one constraint, the best mix is found using ______ ______.

(Multiple choice) In choosing a product mix under a single constraint, fixed costs are usually (A) allocated to each product, (B) ignored because they do not change with the mix, (C) added to the variable cost, (D) divided by the constraint.

(Multi-select) Which businesses would most likely use job-order costing? (a) An architect. (b) A caterer for a wedding reception. (c) A ketchup manufacturer. (d) A builder of commercial fishing vessels. (e) A flour mill.

A company estimates total manufacturing overhead for the year at $900,000 and total direct labour hours at 50,000. Job 7A (40 units) uses direct materials of $4,200 and 60 hours of direct labour at $22 per hour. Compute the predetermined overhead rate, the overhead applied to the job, the total job cost and the unit cost.

A machine-intensive plant estimates overhead of $720,000 and 30,000 machine hours. A job uses 150 machine hours. What overhead is applied to the job?

(Multiple choice) Why do firms use a predetermined overhead rate instead of waiting for actual overhead? (A) Actual overhead is not known until the end of the period, so job costs for pricing, bidding and interim reporting would be delayed, and unit costs would swing with seasonal overhead and volume. (B) It is required by tax law. (C) It always matches actual overhead. (D) It eliminates the need for a job cost sheet.

(Multiple choice) The best allocation base for applying overhead is (A) always direct labour hours, (B) the one that is easiest to measure, (C) a cost driver, the factor that causes overhead to occur, (D) the one with the lowest total.

Using the $18 rate from Q2: (a) Actual direct labour hours were 47,000 and actual overhead was $861,000. (b) In another year actual hours were 52,000 and actual overhead was $921,000. For each case, find the overhead applied and say whether it is under or overapplied, and by how much.

Give the journal entry to dispose of the underapplied overhead in Q6(a).

In Q6(b) the overhead applied in the period ($936,000) now sits in Work in Process (10%), Finished Goods (30%) and Cost of Goods Sold (60%). Allocate the $15,000 overapplied overhead and give the journal entry.

One month's activity: direct materials issued $120,000; indirect materials $10,000; direct labour $90,000 (4,500 hours); indirect labour $30,000; depreciation of the factory $40,000; factory utilities $25,000. Overhead is applied at $20 per direct labour hour. Beginning work in process $40,000; cost of goods manufactured $290,000. Beginning finished goods $30,000; cost of goods sold (before any adjustment) $270,000. Find actual overhead, applied overhead, the over or underapplied amount, ending work in process, ending finished goods, and adjusted cost of goods sold.

(Matching) Match each document to its purpose: materials requisition form, employee time ticket, job cost sheet, production order. (a) Records the materials, labour and overhead charged to one job. (b) Shows the type and quantity of materials taken from the storeroom and the job to charge. (c) Records an employee's hours and the job worked on. (d) Authorizes work to start on a job.

(Multiple choice) Which journal entry applies manufacturing overhead to jobs? (A) Debit Manufacturing Overhead, credit Cash. (B) Debit Work in Process, credit Manufacturing Overhead. (C) Debit Finished Goods, credit Work in Process. (D) Debit Cost of Goods Sold, credit Finished Goods.

A plant estimates overhead of $480,000 and direct labour cost of $400,000. A job has direct materials $4,000 and direct labour $2,500. Using a rate based on direct labour cost, find the overhead and total cost of the job.

A firm has two departments. Department 1 has estimated overhead of $240,000 and 12,000 direct labour hours; Department 2 has $90,000 and 18,000 hours. A job uses 30 hours in Department 1 and 10 hours in Department 2. Compare the overhead assigned using departmental rates and using a single plantwide rate.

A consulting firm's senior analyst has an annual salary cost of $84,000 and $36,000 of overhead is charged to the analyst's work. The analyst has 1,200 billable hours. What is the charge-out cost per hour?

(Multiple choice) A job's average unit cost is $165. A manager says the cost of making one more unit is therefore $165. This is (A) correct, (B) incorrect, because fixed overhead does not change if another unit is made, so the incremental cost is lower than the average, (C) incorrect, because average cost is always lower, (D) correct, because overhead is variable.

Verify the physical flow of units.

Compute the equivalent units of production for materials and for conversion.

Compute the cost per equivalent unit for materials and for conversion, and the total cost per fully completed unit.

Compute the cost of the units transferred out and the cost of ending work in process.

Prepare the cost reconciliation.

Give the journal entry for the units transferred from the Mixing Department to the Bottling Department, and the entry when Bottling completes goods and sends them to finished goods.

A department started 20,000 units; 14,000 were completed and transferred out, and 6,000 remain in ending work in process, 35% complete. How many equivalent units?

(Work backwards) A department has 500 units in beginning work in process, transfers out 4,200 units and has 800 units in ending work in process that are 25% complete. How many units were started, and what are the equivalent units?

(Multiple choice) Under the weighted-average method, the percentage completion of the beginning work in process is (A) used to compute the equivalent units of the beginning inventory, (B) ignored, because the method blends costs and work from prior and current periods, (C) used only for conversion costs, (D) used only for materials.

(Multiple choice) Why are direct labour and overhead often combined into "conversion cost" in process costing? (A) Direct labour is usually a small part of cost in highly automated process settings, and both are added to the product in the same pattern. (B) It is required by GAAP. (C) To avoid computing equivalent units. (D) Overhead is always variable.

(Multi-select) Which statements describe PROCESS costing rather than job-order costing? (a) Costs are accumulated by department during a period. (b) The key document is the job cost sheet. (c) Unit costs are computed by department on a production report. (d) A single product is produced continuously and all units are identical. (e) Many different products are made to order.

(Multiple choice) Which statement about similarities between job-order and process costing is correct? (A) Only job-order costing uses the same manufacturing accounts. (B) Both assign material, labour and overhead to products and compute unit costs, and the flow of costs through the accounts is basically the same. (C) Neither uses overhead. (D) Only process costing uses work in process.

(Multiple choice) Operation costing is (A) a hybrid in which materials are charged to batches as in job-order costing and conversion costs are assigned as in process costing, (B) identical to process costing, (C) used only by banks, (D) a method for standard costs.

(Fill in the blank) A heavily automated plant organized around cells of automated equipment that reduces setup time is called a ______ ______ system.

(Matching) Match each term to its definition. Terms: prime cost, conversion cost, contribution margin, margin of safety, segment margin, degree of operating leverage, sunk cost, opportunity cost. Definitions: (a) Sales minus variable expenses. (b) Direct materials plus direct labour. (c) Contribution margin divided by net operating income. (d) A past cost that cannot be changed by any current decision. (e) Segment contribution margin minus traceable fixed expenses. (f) Actual or budgeted sales minus break-even sales. (g) Direct labour plus manufacturing overhead. (h) The benefit forgone by choosing one alternative over another.

(Direction of change) For each change, holding everything else constant, state whether the break-even point, the margin of safety and the degree of operating leverage INCREASE (I), DECREASE (D) or are UNCHANGED (U). (a) The selling price rises. (b) Fixed expenses rise. (c) Variable cost per unit rises. (d) Sales volume rises (price, costs unchanged). (e) Variable labour is replaced with fixed equipment so that income at the current volume is unchanged.

(Fill in the blank) At the break-even point, total contribution margin equals ______ and net operating income equals ______.

(Numerical input) The CM ratio is 25% and fixed expenses are $60,000. What are the break-even sales in dollars?

(Matching) Match each decision to its decision rule. Decisions: drop a segment, make or buy, accept a special order, product mix under one constraint. Rules: (a) Compare the CM lost with the avoidable fixed costs saved. (b) Compare the relevant (avoidable) cost to make with the purchase price. (c) Compare the incremental revenue with the incremental cost, including any opportunity cost of displaced sales. (d) Rank products by CM per unit of the scarce resource.

(Multi-select) A firm has idle capacity and is evaluating a one-time special order. Which of these are irrelevant? (a) Fixed manufacturing overhead that will not change. (b) Direct materials for the extra units. (c) Allocated corporate administration. (d) Direct labour that must be paid for the extra units. (e) Variable selling costs that WILL be incurred on the order.

(Multiple choice) Which statement about sunk costs is true? (A) They are relevant if they are large. (B) They cannot be changed by any current or future decision and should be ignored. (C) They always equal book value. (D) They are the same as opportunity costs.

(Multiple choice) Which of these is NOT included in manufacturing overhead? (A) Factory utilities. (B) Depreciation on factory equipment. (C) Indirect materials. (D) Sales commissions.

(Multiple choice) A hospital and a cement-mixing plant: which uses job-order costing and which uses process costing? (A) Hospital: job-order; cement: process. (B) Both job-order. (C) Hospital: process; cement: job-order. (D) Both process.

(Fill in the blank) Overhead is applied to jobs using a rate that is calculated ______ the period begins from ______ overhead and the ______ allocation base.

(True or false) "Overhead applied to jobs is calculated from actual overhead costs incurred." Explain.

(Multiple choice) A higher degree of operating leverage means (A) lower risk, (B) net operating income is more sensitive to changes in sales, both up and down, (C) lower fixed costs, (D) a larger margin of safety.

(Multi-select) Which of the following would you expect to be variable with respect to units produced in a manufacturer? (a) Direct materials. (b) Straight-line depreciation of the factory. (c) Sales commissions. (d) Plant manager's salary. (e) Indirect materials such as lubricants.

(Multiple choice) Gross margin and contribution margin differ because (A) they use different sales figures, (B) gross margin classifies costs by function (cost of goods sold versus other) while contribution margin classifies them by behaviour (variable versus fixed), (C) contribution margin includes fixed costs, (D) gross margin is always smaller.

(Multiple choice) Underapplied overhead means (A) overhead applied exceeds actual overhead, (B) actual overhead exceeds overhead applied, leaving a debit balance in the overhead account, (C) the predetermined rate is too high, (D) the balance should be added to inventory.

(Multiple choice) If a firm shifts toward selling more of its low-CM-ratio product while total sales stay the same, (A) break-even falls, (B) profit rises, (C) the weighted-average CM ratio falls, break-even rises and profit falls, (D) nothing changes.

(Multiple choice) In process costing, a department's key report is the (A) job cost sheet, (B) department production report, (C) materials requisition, (D) time ticket.

(Multi-select) Which are management accounting roles in the planning and control cycle? (a) Preparing budgets. (b) Producing performance reports comparing actual to plan. (c) Giving data for decision making. (d) Filing the corporation's tax return. (e) Auditing the financial statements for shareholders.

(Matching) Match each cost behaviour to its description. Terms: variable, fixed, mixed, step-variable. Descriptions: (a) Constant in total, falls per unit as volume rises. (b) Rises in proportion to activity, constant per unit. (c) Changes in steps with wide changes in activity, as with maintenance workers. (d) Has a fixed monthly part and a usage part.

(Multiple choice) Which type of analysis would you use first when you suspect a mixed cost's relationship to activity may not be linear or has an outlier? (A) The high-low method. (B) A scattergraph. (C) A contribution income statement. (D) A budget.