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Cost Accounting Level 200: 33 Multiple Choice Questions

1. The budgeted amount of selling and administrative expense for a period can be found here
a. sales budget.
b. cash budget.
c. pro forma income statement.
d. pro forma balance sheet.

2. In multiple-product firms, the product that has the highest contribution margin per unit will
a. generate more profit for each $1 of sales than the other products.
b. have the highest contribution margin ratio.
c. generate the most profit for each unit sold.
d. have the lowest variable costs per unit.

Squeaky Clean is trying to decide whether it should keep its existing car washing machine or purchase a new one that has technological advantages (which translate into cost savings) over the existing machine. Information on each machine follows:

Old machine New machine
Original cost $10,000 $20,000
Accumulated depreciation 5,000 0
Annual cash operating costs 9,000 5,000
Current salvage value of old machine 2,000
Salvage value in 10 years 500 1,000
Remaining life 10 yrs. 10 yrs.

3. Refer to Squeaky Clean. The $5,000 of annual operating costs that are common to both the old and the new machine are an example of a(n)
a. sunk cost.
b. irrelevant cost.
c. future avoidable cost.
d. opportunity cost.

4. Refer to Squeaky Clean. The $10,000 cost of the original machine represents a(n)
a. sunk cost.
b. future relevant cost.
c. historical relevant cost.
d. opportunity cost.

5. Refer to Squeaky Clean. The $20,000 cost of the new machine represents a(n)
a. sunk cost.
b. future relevant cost.
c. future irrelevant cost.
d. opportunity cost.

6. Refer to Squeaky Clean. The estimated $500 salvage value of the existing machine in 10 years represents a(n)
a. sunk cost.
b. opportunity cost of selling the existing machine now.
c. opportunity cost of keeping the existing machine for 10 years.
d. opportunity cost of keeping the existing machine and buying the new machine.
7. Refer to Squeaky Clean. The incremental cost to purchase the new machine is
a. $11,000.
b. $20,000.
c. $13,000.
d. $18,000.

Sears Company
Sears Company produces three products: A, B, and C from the same process. Joint costs for this production run are $2,100.

Pounds
Sales price
per lb. at
split-off Disposal
cost per
lb. at
split-off
Further
processing
per pound
Final
sales price
per pound
A 800 $6.50 $3.00 $2.00 $ 7.50
B 1,100 8.25 4.20 3.00 10.00
C 1,500 8.00 4.00 3.50 10.50

If the products are processed further, Mooney Company will incur the following disposal costs upon sale: A, $3.00; B, $2.00; and C, $1.00.

8. Refer to Sears Company. Using a physical measurement method, what amount of joint processing cost is allocated to Product A (round to the nearest dollar)?
a. $700
b. $679
c. $927
d. $494

9. Refer to Sears Company. Using a physical measurement method, what amount of joint processing cost is allocated to Product B (round to the nearest dollar)?
a. $494
b. $679
c. $927
d. $700

10. The contribution margin ratio will always increase when the
a. variable costs as a percentage of net sales increase.
b. variable costs as a percentage of net sales decrease.
c. break-even point increases.
d. break-even point decreases.

12. A cost management system should
a. identify and evaluate new activities.
b. determine whether the organization is effective and efficient.
c. identify the cost of consumed resources within the organization.
d. all of the above.

13. A cost management system should provide information to
a. all functional areas of the organization.
b. only the accounting area of the organization.
c. only the production area of the organization.
d. organizational managers, but not to staff personnel.
14. A manager is attempting to determine whether a segment of the business should be eliminated. The focus of attention for this decision should be on
a. the net income shown on the segment's income statement.
b. sales minus total expenses of the segment.
c. sales minus total direct expenses of the segment.
d. sales minus total variable expenses and avoidable fixed expenses of the segment.

15. Chronologically, the last part of the master budget to be prepared would be the
a. pro forma financial statements.
b. cash budget.
c. capital budget
d. production budget.

16. Under an acceptable method of costing by-products, inventory costs of the by-product are based on the portion of the joint production cost allocated to the by-product
a. but any subsequent processing cost is debited to the cost of the main product.
b. but any subsequent processing cost is debited to revenue of the main product.
c. plus any subsequent processing cost.
d. minus any subsequent processing cost.

17. The cash budget ignores all
a. dividend payments.
b. sales of capital assets.
c. noncash accounting accruals.
d. sales of common stock.

18. The detailed plan for the acquisition and replacement of major portions of property, plant, and equipment is known as the
a. capital budget.
b. purchases budget.
c. commitments budget.
d. treasury budget.

19. Which of the following statements is false concerning a management control system?
a. A management control system may be referred to as a black box.
b. A management control system should serve as a guide to organizations.
c. A management control system should help implement strategies.
d. A management control system is separate from a cost management system.

20. Which of the following would not be considered a sunk cost?
a. direct material cost
b. direct labor cost
c. joint cost
d. building cost

21. Which of the following is a false statement about scrap and by-products?
a. Both by-products and scrap are salable.
b. A by-product has a higher sales value than does scrap.
c. By-products and scrap are the primary reason that management undertakes the joint process.
d. Both scrap and by-products are incidental outputs to the joint process.
22. The split-off point is the point at which
a. output is first identifiable as individual products.
b. joint costs are allocated to joint products.
c. some products may first be sold.
d. all of the above.

23. A product may be processed beyond the split-off point if management believes that
a. its marketability will be enhanced.
b. the incremental cost of further processing will be less than the incremental revenue of further processing.
c. the joint cost assigned to it is not already greater than its prospective selling price.
d. both a and b.

24. The budgeted payment for labor cost each period would be found in the
a. labor budget.
b. pro forma income statement.
c. selling, general, and administrative expense budget.
d. cash budget.

25. Which of the following items would not be found in the financing section of the cash budget?
a. cash payments for debt retirement
b. cash payments for interest
c. dividend payments
d. payment of accounts payable

26. If a firm's net income does not change as its volume changes, the firm('s)
a. must be in the service industry.
b. must have no fixed costs.
c. sales price must equal $0.
d. sales price must equal its variable costs.

27. Break-even analysis assumes over the relevant range that
a. total variable costs are linear.
b. fixed costs per unit are constant.
c. total variable costs are nonlinear.
d. total revenue is nonlinear.

28. Which of the following costs is irrelevant in making a decision about a special order price if some of the company facilities are currently idle?
a. direct labor
b. equipment depreciation
c. variable cost of utilities
d. opportunity cost of production

29. Who of the following are external users of data gathered by a management information system?
Creditors Regulatory Bodies Suppliers

a. yes no yes
b. no no no
c. no yes yes
d. yes yes yes
30. Feedback is reflected in which component of a management control system?
a. sensor
b. assessor
c. effector
d. detector

31. When used for performance evaluation, periodic internal reports based on a responsibility accounting system should not
a. be related to the organization chart.
b. include allocated fixed overhead.
c. include variances between actual and budgeted controllable costs.
d. distinguish between controllable and noncontrollable costs.

32. The pro forma income statement is not a component of the
a. master budget.
b. financial budgets.
c. operating budgets.
d. capital budget.

33. Reactions to information provided by the management control system are
a. formulated in the organization's strategic plan.
b. judgmental, and are based on interpretations and circumstances.
c. assessed by the communications network of the MCS.
d. determined as those activities that will be most efficient and effective given the organization's available technology.

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The solution answers Cost Accounting Level 200: 33 Multiple Choice Questions.

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