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Question 1

Every decision involves choosing between:

relevant and irrelevant labor costs.

at least two alternatives.

relevant and irrelevant direct materials costs.

relevant and irrelevant fixed manufacturing overhead costs.

Answer 1

at least two alternatives.

Question 2

Which of the following should be ignored when making decisions?

Sunk costs

Differential costs

Avoidable costs

Incremental costs

Answer 2

Sunk costs

Question 3

Avoidable costs are always:

variable costs.

fixed costs.

relevant costs.

sunk costs.

Answer 3

relevant costs

Question 4

Avoidable costs are always:

variable costs.

fixed costs.

relevant costs.

sunk costs.

Answer 4

relevant costs.

Question 5

Opportunity costs are always:

relevant costs.

variable costs.

sunk costs.

fixed costs.

Answer 5

relevant costs.

Question 6

Assume a merchandising company is deciding whether to keep or drop one of the many product lines that it sells at its retail store location. Which of the following would be relevant to the decision?

The general administrative expenses allocated from corporate headquarters to this product line

The rent paid for the company’s retail space, a portion of which is allocated to this product line

The contribution margin earned by this product line

The store manager’s salary

Answer 6

The contribution margin earned by this product line

Question 7

Assume a merchandising company is deciding whether to keep or drop one of the many product lines that it sells at its retail store location. Which of the following would be irrelevant to the decision?

The product’s sales

The product’s variable expenses

The product’s traceable fixed expenses

The product’s allocated common fixed expenses

Answer 7

The product’s allocated common fixed expenses

Question 8

Assume a merchandising company is deciding whether to keep or drop one of the many product lines that it sells at its retail store location. Which of the following would be irrelevant to the decision?

The product’s sales

The product’s variable expenses

The product’s traceable fixed expenses

The store manager’s salary

Answer 8

The store manager’s salary

Question 9

Assume a manufacturing company is deciding whether to make or buy a component part. Which of the following indicates the need to include an opportunity cost when making the decision?

If the company buys the part (instead of making it) it will expand the unused capacity within its plant.

If the company buys the part (instead of making it) it can use newly available capacity to introduce and produce another profitable product.

If the company buys the part (instead of making it) it will pay a price to the supplier that is less than the full manufacturing cost of the part.

If the company buys the part (instead of making it) it will continue to pay the full salary of the plant manager.

Answer 9

If the company buys the part (instead of making it) it can use newly available capacity to introduce and produce another profitable product.

Question 10

When making volume trade-off decisions managers should focus on which of the following?

Contribution margin per unit

Gross margin per unit of the constraining resource

Gross margin per unit

Contribution margin per unit of the constraining resource

Answer 10

Contribution margin per unit of the constraining resource

Question 11

When making volume trade-off decisions managers should:

calculate each product’s average fixed manufacturing overhead cost per unit.

never produce more of a product than is demanded by customers.

identify the product with the highest contribution margin per unit as the highest priority from a production scheduling standpoint.

identify the product with the lowest contribution margin per unit as the highest priority from a production scheduling standpoint.

Answer 11

never produce more of a product than is demanded by customers.

Question 12

Assume that you are trying to decide between watching a movie at the local theatre or renting a movie at home. After watching the movie at your chosen venue, you plan to order a pizza to be delivered to your home. Regarding the decision at hand, the cost of the pizza is a:

sunk cost.

differential cost.

future cost that does not differ between the alternatives.

joint cost

Answer 12

future cost that does not differ between the alternatives.

Question 13

Assigning manufacturing overhead to a specific job is complicated by all of the below except:

Manufacturing overhead is an indirect cost that is either impossible or difficult to trace to a particular job.

Manufacturing overhead is incurred only to support some jobs.

Manufacturing overhead consists of both variable and fixed costs.

The average cost of actual fixed manufacturing overhead expenses will vary depending on how many units are produced in a period.

Answer 13

Manufacturing overhead is incurred only to support some jobs.

Question 14

Which of the following statements about using a plantwide overhead rate based on direct labor is correct?

Using a plantwide overhead rate based on direct labor-hours will ensure that direct labor costs are correctly traced to jobs.

Using a plantwide overhead rate based on direct labor costs will ensure that direct labor costs will be correctly traced to jobs.

It is often overly simplistic and incorrect to assume that direct labor-hours is a company’s only manufacturing overhead cost driver.

The labor theory of value ensures that using a plantwide overhead rate based on direct labor will do a reasonably good job of assigning overhead costs to jobs.

Answer 14

It is often overly simplistic and incorrect to assume that direct labor-hours is a company’s only manufacturing overhead cost driver.

Question 15

Purves Corporation is using a predetermined overhead rate that was based on estimated total fixed manufacturing overhead of $121,000 and 10,000 direct labor-hours for the period. The company incurred actual total fixed manufacturing overhead of $113,000 and 10,900 total direct labor-hours during the period. The predetermined overhead rate is closest to:

$10.37

$12.10

$11.10

$11.30

Answer 15

$12.10

Question 16

Valvano Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine-hours. The company based its predetermined overhead rate for the current year on total fixed manufacturing overhead cost of $440,000, variable manufacturing overhead of $2.20 per machine-hour, and 50,000 machine-hours. The estimated total manufacturing overhead is closest to:

$440,000

$110,000

$440,002

$550,000

Answer 16

$550,000

Question 17

Nagle Incorporated uses a job-order costing system and its total manufacturing overhead applied always equals its total manufacturing overhead. In October the company completed job O43G that consisted of 24,000 units of one of the company’s standard products. No other jobs were in process or sold during the month. The job cost sheet for job O43G shows that the total cost for the job was $928,800. During the month, 21,000 completed units from job O43G were sold. The cost of goods sold that would appear on the income statement for October is closest to:

$928,800

$816,100

$812,700

$116,100

Answer 17

$812,700

Question 18

Which of the following does not describe a difference between activity-based costing (ABC) and traditional absorption costing?

ABC usually excludes manufacturing overhead from its calculations whereas traditional absorption costing includes it.

ABC may assign nonmanufacturing and manufacturing costs to products whereas traditional absorption costing does not assign nonmanufacturing costs to products.

ABC may exclude some manufacturing costs from its product costs whereas traditional absorption costing includes all manufacturing costs in its product cost calculations.

ABC uses numerous cost pools to allocate costs to products whereas traditional absorption costing usually uses fewer cost pools.

Answer 18

ABC usually excludes manufacturing overhead from its calculations whereas traditional absorption costing includes it.

Question 19

An activity is:

a type of duration driver used in activity-based costing systems.

an allocation base in an activity-based costing system.

an event that causes the consumption of overhead resources.

a “bucket” in which costs are accumulated in an activity-based costing system.

Answer 19

an event that causes the consumption of overhead resources.

Question 20

Which of the following is an example of a batch-level activity?

Assembling products

Setting up machines

Advertising products

Heating a manufacturing facility

Answer 20

Setting up machines

Question 21

Which of the following is an example of a product-level activity?

Assembling products

Setting up machines

Advertising product

Heating a manufacturing facility

Answer 21

Advertising product

Question 22

Which of the following statements is true?

Traditional cost systems usually allocate too much nonmanufacturing costs to products whereas activity-based costing systems usually do not allocate enough nonmanufacturing costs to products.

Traditional cost systems usually overcost high volume products and undercost low volume products when compared to activity-based costing systems.

Traditional cost systems usually undercost high volume products and overcost low volume products when compared to activity-based costing systems.

Traditional cost systems may use different allocation bases than activity-based costing systems, but ultimately both approaches result in the same amount of total cost being allocated to each product.

Answer 22

Traditional cost systems usually overcost high volume products and undercost low volume products when compared to activity-based costing systems.

Question 23

Which of the following statements is true?

First-stage allocation assigns overhead costs to activities.

First-stage allocation assigns activity costs to products or customers.

First-stage allocation assigns direct materials and direct labor to products.

First-stage allocation redistributes organization-sustaining costs to the batch-level and product-level activities.

Answer 23

First-stage allocation assigns overhead costs to activities.

Question 24

Which of the following statements is true?

Second-stage allocation assigns overhead costs to activities.

Second-stage allocation assigns activity costs to products or customers.

Second-stage allocation assigns direct materials and direct labor to products.

Second-stage allocation redistributes organization-sustaining costs to the batch-level and product-level activities

Answer 24

Second-stage allocation assigns activity costs to products or customers.

Question 25

The principal accounting record used in assigning costs to jobs is

a. a job cost sheet.
b. the cost of goods manufactured schedule.
c. the Manufacturing Overhead account.
d. the raw materials requisition form.

Answer 25

a. a job cost sheet.

Question 26

The labor costs that have been identified as indirect labor should be recorded as

a. salary expense.
b. direct labor.
c. the individual jobs worked on.
d. manufacturing overhead.

Answer 26

d. manufacturing overhead.

Question 27

Manufacturing overhead is applied to each job

a. only if the overhead costs can be directly traced to that job.
b. by means of a predetermined overhead rate.
c. at the end of the year when actual costs are known.
d. at the time when the overhead cost is incurred.

Answer 27

b. by means of a predetermined overhead rate.

Question 28

Designing a new backpack at an outdoor sports equipment company is an example of a:

A) Unit-level activity.
B) Batch-level activity.
C) Product-level activity.
D) Facility-level activity

Answer 28

C) Product-level activity.

Question 29

Departmental overhead rates may not correctly assign overhead costs due to:

A) the use of direct labor hours in allocating overhead costs to products rather than machine time or quantity of
materials used.

B) the high correlation between direct labor-hours and the incurrence of overhead costs.

C) overreliance on volume as a basis for allocating overhead costs where products differ regarding the number of units produced, lot size, or complexity of production.

D) difficulties associated with identifying cost pools for the first stage of the allocation process

Answer 29

C) overreliance on volume as a basis for allocating overhead costs where products differ regarding the number of units produced, lot size, or complexity of production.

Question 30

In activity-based costing, the activity rate for an activity cost pool is computed by dividing the total overhead
cost in the activity cost pool by:

A) the direct labor-hours required by the product.

B) the machine hours required by the product.

C) the total activity for the activity cost pool.

D) the total direct labor-hours for the activity cost pool.

Answer 30

C) the total activity for the activity cost pool.