as departments, customers, or products. True
2.Cost assignment is the tracing or allocating of costs to one or more cost objectives, such as
activities and departments. True
3. A cost pool is a group of individual costs that is allocated to cost objectives using multiple
cost drivers. False
4.The contribution approach is a method of internal reporting that emphasizes the distinction
between variable and fixed costs for the purpose of better decision making. True
5. Relevant information is the historical costs and revenues that differ because of alternative courses of actions. False
6. Relevant information might have an element of difference among alternatives. False
7. The absorption approach emphasizes the distribution between fixed and variable costs. False
8. The contribution margin is computed using variable manufacturing costs, and variable selling and administrative costs. True
9. Opportunity costs need to be considered when deciding on the use of limited resources. True
10. Opportunity cost depends on alternatives available. True
11. Opportunity costs and outlay costs are widely used synonyms. False
12. Sunk cost is another term for historical cost or past cost. True
1._____ is a method of approximating cost functions.
a. Cost driver analysis b. Account analysis c. Product analysis d. Account analysis
2.______ is the application of cost measures to expected future activity levels to forecast future costs.
a.Activity analysis b. Cost prediction c. Measurement of cost behavior d. A cost function
3. The process of identifying appropriate cost drivers and their effects on the costs of making a product or providing a
service is called _____.
a. cost prediction b. cost measurement c. activity analysis d. budgeting
4. _____ is the process of reassigning cost to a cost object.
a. Cost accumulation b. Cost accounting c. Cost allocation d. Cost application
5. Where a specific product is the cost object, the hourly wages of assembly workers who work on only that product
would be classified as a(n) _____.
a.direct, variable cost b. direct, fixed cost c. indirect, variable cost d. indirect, fixed cost
6. Where a specific product is the cost object, the wages of a security guard would probably be classified as a(n) _____.
a.direct, variable cost b. direct, fixed cost c. indirect, variable cost d. indirect, fixed cost
7.Where a specific product is the cost object, the materials used to manufacture the product would probably be
classified as a(n) _____.
a.direct, variable cost b. direct, fixed cost c. indirect, variable cost d. indirect, fixed cost
8. _____ is the predicted future costs and revenues that will differ among alternative courses of action.
a.Relevant information b. Sunk costs and revenues c. Historical information d. Predictable information
9. In a special order decision, fixed costs that do not differ between two alternatives are _____.
a. of major importance to the decision b.considered opportunity costs
c. important only if they are a material dollar amount d. irrelevant
10._____ is the additional cost resulting from producing and selling one additional unit.
a.Marginal cost b.Common cost c. Opportunity cost d. Markup
11. Price elasticity measures the _____.
a. amount customers are willing to pay for a product or service
b. effect of price changes on sales volume
c. number of units a company is willing to sell
d.amount of competition in a given industry
12. In perfect competition, the profitmaximizing volume is the quantity at which _____.
a. marginal cost equals marginal revenue b. contribution margin equals fixed cost
c. marginal revenue equals price d. price exceeds marginal cost
13. Sue is considering leaving her current position to open a coffee shop. Sue’s current salary is $83,000. Annual coffee
shop revenue and costs are estimated at $260,000 and $210,000, respectively. _____ is the opportunity cost of opening
the coffee shop.
a. $83,000 b.$210,000 c. $343,000 d. $40,000
14.Mary is considering leaving her current position to open an ice cream shop. Mary’s current salary is $77,000. Annual
ice cream shop revenue and costs are estimated at $260,000 and $210,000, respectively. _____ is the opportunity cost of
remaining employed.
a. $77,000 b.$210,000 c.$287,000 d.$50,000 ($260,000 - $210,000 = $50,000)
15_____ costs will not continue if an ongoing operation is changed or deleted.
a. Avoidable b. Common c. Sunk d. Differential
16. _____ costs are costs that continue even if an operation is halted.
a. Common b. Sunk c. Unavoidable d. Variable
17.Manufacturing costs incurred after the splitoff are known as _____costs.
a. joint b.product c.split-off d. separable
18. The _____ is the juncture in manufacturing where the joint products become individually identifiable.
a.joint processing juncture b. splitoff point c. common point d. significant juncture
19._____ costs are costs of manufacturing two or more products that are not separately identifiable as individual products
until their splitoff point.
a. Separable b.Joint c. Incremental d.Sunk
20. In absorption costing, costs are separated into the major categories of_____.
a. manufacturing and nonmanufacturing b. manufacturing and fixed
c. fixed and variable d. variable and nonmanufacturing
21. _____ is (are) used for external reporting.
a.Absorption costing b. Variable costing c. Direct costing d. Absorption costing and variable costing
22. Absorption costing assigns _____ to the product.
a. variable manufacturing costs b. all variable costs
c. variable and fixed manufacturing costs d. all fixed and variable costs
23. The production-volume variance is the difference between_____.
a. applied fixed overhead and budgeted fixed overhead
b. expected fixed overhead and actual fixed overhead
c. expected fixed overhead and budgeted fixed overhead
d. budgeted fixed overhead and actual fixed overhead
1.Indicate whether each of the following costs is an Inventoriable cost (I) or a Period cost (P):
______ 1. depreciation on factory equipment
______ 2. depreciation on treasurer's desk
______ 3. direct materials
______ 4. factory supplies
______ 5. indirect labor
______ 6. factory equipment repairs and maintenance
______ 7. office supplies
______ 8. advertising expense
______ 9. depreciation on office equipment
______10. direct labor
______11. factory supervisor's salary
______12. factory utilities
______13. indirect materials
______14. office salaries
______15. sales commissions
Answer:
__I__ 1. __I__ 6. __I__11.
__P__ 2. __P__ 7. __I__12.
__I__ 3. __P__ 8. __I__13.
__I__ 4. __P__ 9. __P__14.
__I__ 5. __I__10. __P__15.
2. Timmerman Company has budgeted sales of $30,000 with the following budgeted costs:
Direct materials $6,300
Direct labor 4,100
Factory overhead:
Variable 3,700
Fixed 5,600
Selling and administrative expenses:
Variable 2,400
Fixed 3,200
Compute the average target markup for setting prices as a percentage of:
a. Total costs
b. Total variable costs
c. Variable manufacturing costs
d. Total manufacturing costs
Answer:
a. $6,300 + $4,100 + $3,700 + $5,600 + $2,400 + $3,200 = $25,300
($30,000 $25,300) / $25,300 = 19%
b. $6,300 + $4,100 + $3,700 + $2,400 = $16,500
($30,000 $16,500) / $16,500 = 82%
c. $6,300 + $4,100 + $3,700 = $14,100
($30,000 $14,100) / $14,100 = 113%
d. $6,300 + $4,100 + $3,700 + $5,600 = $19,700
($30,000 $19,700) / $19,700 = 52%
3. Orange Industries has budgeted sales of $49,500 with the following budgeted costs:
Direct materials $15,000
Direct labor 5,000
Factory overhead:
Variable 6,000
Fixed 7,000
Selling and administrative expenses:
Variable 4,500
Fixed 6,000
Compute the average target markup for setting prices as a percentage of:
a. Total manufacturing costs
b. Total variable costs
c. Total costs
d. Variable manufacturing costs
Answer:
a. $15,000 + $5,000 + $6,000 + $7,000 = $33,000
($49,500 $33,000) / $33,000 = 50%
b. $15,000 + $5,000 + $6,000 + $4,500 = $30,500
($49,500 $30,500) / $30,500 = 62%
c. $15,000 + $5,000 + $6,000 + $7,000 + $4,500 + $6,000 = $43,500
($49,500 $43,500) / $43,500 = 14%
d. $15,000 + $5,000 + $6,000 = $26,000
($49,500 $26,000) / $26,000 = 90%
4. Gwynn Company is considering the replacement of a machine that is presently used to produce its single product. The following data are available:
Old Replacement
Equipment Equipment
Original cost $210,000 $40,000
Useful life in years 12 7
Current age in years 5 0
Book value $65,000
Disposal value now $30,000
Disposal value in 7 years 0 0
Annual cash operating costs $10,000 $9,000
Required:
Ignoring income taxes, prepare a cost comparison of all relevant items for the next seven years together. Indicate the best alternative for Gwynn Company.
Answer:
Keep Replace Difference
Cash operating costs $70,000 $63,000 $7,000
Disposal value of old machine (30,000) 30,000
New machine, acquisition cost - 40,000 (40,000)
Total relevant costs $70,000 $73,000 $(3,000)
The cumulative effect over the seven years is $3,000 in favor of keeping the old machine.
5. The Hawkeye Corporation is contemplating the replacement of some old equipment. The pertinent information is as follows:
Old Replacement
Equipment Equipment
Original cost $93,000 $60,000
Useful life in years 13 6
Current age in years 7 0
Book value $57,000
Disposal value now $45,000
Disposal value in 6 years 0 0
Annual cash operating costs $15,000 $11,000
Required:
Prepare a cost comparison of all relevant items for the next six years together. Ignore income taxes. Comment on the best alternative for Hawkeye Corporation.
Answer:
Keep Replace Difference
Cash operating costs $90,000 $66,000 $24,000
Disposal value of old
equipment (45,000) 45,000
New equipment,
acquisition cost -__ 60,000 (60,000)
Total relevant costs $90,000 $81,000 $9,000
The $9,000 cumulative effect over the six years favors replacing the old equipment.
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