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Multiple Choice

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I need help with the following sample assignment we received.

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Which of the following describes an opportunity cost?
A) The largest net benefit given up by choosing one action that precludes taking other actions.
B) The costs associated with taking advantage of a business opportunity.
C) The costs that appear in the cost of goods sold section of the income statement.
D) The revenues that a company will earn when it takes advantage of a business opportunity.

Use the following to answer questions 2-3:

Petersen Company has gathered the following data related to its production
process of two of its products for the week ended April 30:

Model #100 B #250C
Quantity produced 60 100
Unit level material cost $ 42,000 $ 100,000
Variable conversion cost 72,000 300,000
Total direct costs $114,000 $ 400,000
Indirect costs
Indirect production cost 163,200 272,000
Indirect operating cost 255,000 425,000
Total indirect costs 418,200 697,000
Total costs $532,200 $1,097,000

2. If the cost behaviors exhibited in this chart continue and the company produces 80 units of product 100B during May, the expected total unit level material cost of product 100 B would be:
A) $72,000
B) $56,000
C) $42,000
D) $96,000

3. The absorption cost per unit for product 250C was:
A) $1,900
B) $6,720
C) $6,970
D) $9,052

4. Under variable costing, operating income is measured by:
A) Gross margin minus operating expenses.
B) Throughput minus operating expenses.
C) Contribution margin minus indirect production and operating costs.
D) Sales minus variable costs.

5. Given the following: Transfers In $12,000; Transfers Out: $15,000; Ending Inventory: $3000.
What was the beginning balance?
A) $6,000
B) $ 0
C) $5,000
D) $9,000

6. Use the following information for Darose Manufacturing for the next three questions:

Work in Process Finished Goods
Beginning Balance $ 5,000 $ 8,000
Transfers In 25,000 ?
Transfers Out 22,000 ?
Ending Balance ? $15,000

The cost of goods sold for the period was:
A) $8,000
B) $29,000
C) $12,000
D) $15,000

7. The ending Balance in Work in Process was:
A) $ 2,000
B) $30,000
C) $ 8,000
D) $ 7,000

8. The cost of goods manufactured for the period was:
A) $22,000
B) $15,000
C) $8,000
D) Cannot be determined from the information given

9. Manufacturing overhead applied was $60,000, while actual overhead incurred was $62,000. Which of the following is always true of this situation?
A) Overhead was overapplied by $2,000
B) Overhead was underapplied by $2,000
C) Direct labor activity was overestimated
D) This difference must be reported as a loss for the period.

Use the following to answer questions 10-13:

A bottle cap manufacturer produces custom bottle caps and jar covers for large cosmetic companies. Each cosmetic company owns the custom made molds that are used for the caps and jar covers, so caps are produced only to customer order.
Each order requires the setting of molds in molding machines. Two full time mechanics, whose annual salary and benefits total $120,000 per year, are employed setting up and breaking down the molding machines. An order consists of anywhere from 50,000 to 200,000 units.

Assume 40 orders were received during the year 2000 for individual custom production runs. The total number of units produced in these orders was 5 million.

10. The activity described above would be an example of:
A) Facility level
B) Product level
C) Batch level
D) Customer level

11. The most appropriate cost driver base to allocate the salaries of the two mechanics would be:
A) Number of bottlecaps and jar covers produced.
B) Hours spent on each setup
C) Number of setups
D) Number of people employed in setup

12. The setup costs to be allocated to an order of 50,000 Nurturing Face Cream jar covers for Avalana Cosmetics using Activity Based Costing would be:
A) $1,500
B) $3,000
C) $2,400
D) $0, since this is an indirect cost and cannot be traced to the product in question

13. The per unit cost of setup under Activity Based Costing for each Nurturing Face Cream jar cover would be:
A) $0.03 per unit
B) $0.06 per unit
C) $0.05 per unit
D) $0.02 per unit

14. In determining customer profitability, it is important to include:
A) Selling costs
B) Marketing costs
C) Research and development costs
D) All of the above

15. When an unprofitable customer is discovered, managers may want to keep the customer but
A) Find ways to reduce the design activities related to the customer's product
B) Find ways to reduce the administrative costs of the customer
C) Both of the above
D) None of the above

16. As part of customer profitability analysis, the relative use of certain activities by customers is compared to a norm. When the comparison shows excessive use of an activity by a customer, which of the following questions might be asked?
A) Is the problem a recent one?
B) Is the problem an ongoing one?
C) Is the problem getting worse?
D) All are possible questions.

Use the following to answer questions 17-18:

Matthew Company has a process costing system using the weighted average cost flow method. All materials are introduced at the beginning of the process in Department 1. The following information is available for the month of January:

Units
Work in Process, January 1 (40% complete as to conversion cost) 2,000
Started in January 12,000
Transferred to Department 2 during January 11,000
Work in Process, January (20% complete as to conversion cost) 3,000

17. The number of equivalent units of production for material costs for the month of January are:
A) 14,000
B) 11,600
C) 12,000
D) 11,000

18. The number of equivalent units of production for conversion costs for the month of January are:
A) 10,800
B) 12,000
C) 11,000
D) 11,600

19. Which of the following is not a method of allocating joint costs?
A) Sales value at split off
B) net realizable value
C) byproduct method
D) physical measures method

20. Which of the following would be an appropriate cost allocation base for allocating the cost of the company cafeteria?
A) Square footage occupied by departments
B) Number of hours of use
C) Number of meals served
D) Salaries of personnel purchasing meals

Use the following to answer questions 21-24:

Quick Credit Checks produces two styles of credit reports: personal and corporate. The difference between the two is the amount of background information and data collection required. The corporate report uses more skilled personnel because additional checking and data are required. The relevant figures for the year just completed follow: Total support service costs to be allocated are $3,200,000.

Allocation base Individual Corporate
Data purchased $40,000 $80,000
Research hours 24,000 30,000
Interview hours 1,000 10,000
Number of reports 16,000 3,000

21. If service costs are allocated according to the number of reports, the service department cost to be allocated to the Individual report department will be:
A) $2,694,737
B) $505,263
C) $1,066,667
D) $290,909

22. The manager of the Individual Department would most prefer which method of allocation?
A) Data purchased
B) Research hours
C) Interview hours
D) Number of reports

23. The manager of the Corporate Report Department would least prefer which method of allocation?
A) Data purchased
B) Research hours
C) Interview hours
D) Number of reports

24. If service department costs are allocated by data purchased, the Corporate report department will receive an allocation of:
A) $1,777,778
B) $1,066,667
C) $505,263
D) $2,133,333

25. Break-even analysis assumes that:
A) total revenue is constant.
B) unit variable cost is constant.
C) unit fixed cost is constant.
D) all of the above.

26. Beilen and Sons has fixed costs of $80,000. Its contribution margin ratio is 40% and its one product sells for $50. What is its break-even point in sales dollars?
A) $ 80,000.
B) $120,000.
C) $140,000.
D) $200,000.

27. Which of the following costs are relevant in the decision to drop a business unit?
A) Unavoidable Costs
B) Avoidable Costs
C) Both of the above
D) None of the above

28. Relevant costs exclude
A) fixed costs
B) costs that change from year to year
C) costs that do not changes based upon the alternative choices
D) all of the above

29. Which of the following is not a reason for padding a budget with slack?
A) People often perceive their performance will look better in their superior's eyes if they can "beat the budget".
B) The budget was developed by top management who have no idea of what goes
on in the various units of the company.
C) Budgetary slack is often used to cope with uncertainty.
D) Budgetary cost projections often are cut in the resource allocation process.

30. Generally a variance should be investigated if:
A) benefits of investigation are greater than zero.
B) the variance is unfavorable.
C) the benefits of investigation exceed the cost of investigation.
D) the variance is favorable

31. The objective(s) of transfer pricing is / are
A) to motivate managers.
B) to provide an incentive for managers to make decisions consistent with the firm's goals.
C) to provide a basis for fairly rewarding the managers.
D) All of the above.
E) b and c

32. The Balanced Scorecard is a
A) causal model of lead indicators of performance.
B) causal model of lag indicators of performance.
C) causal model of lead and lag indicators of performance.
D) cause-and-effect relationship model of financial indicators of performance.
E) None of the above.
33. AAA Company produced a product which had a selling price of $20 and a variable cost which amounted to 40% of sales. The company wants a profit before tax of $15,000. The tax rate is 20% and fixed costs amount to $60,000. AAA must sell
A) 6,250
B) 7,396
C) 9,375
D) 9,844
E) None of the above

34. The five steps in process costing include
A) beginning inventory, costs added, units completed, ending inventory, and spoilage.
B) <!--[endif]-->units to account for, units accounted for, equivalent number of units, costs to account for, and unit costs.
C) unit reconciliation, equivalent number of units, cost of work in process beginning, costs added during the period, and unit cost.
D) unit reconciliation, equivalent number of units, costs to account for, cost per unit, and costs accounted for.
E) None of the above.

Solution Summary

The solution explains various multiple choice questions relating to process costing, balanced scorecard, variance and transfer pricing

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