Multiple Choice

1. The Euro Company sells two kinds of luggage. The company projected the following cost information for the two products:

The company's total fixed costs are expected to be $280,000. Based this information, what is the combined number of units of the two products that would be required to breakeven (round your answer to the nearest whole unit)
A) 1,556 units
B) 2,714 units
C) 2,800 units
D) none of the above

2. All of the following are variables that could be considered in a decision to outsource a component that is currently being produced in house. Which of the following is not likely to be relevant?
A) the book value of equipment used in making the component
B) the impact on employee morale
C) the importance of vertical integration to the company
D) the reliability of the supplier

3. Brumlow Company has a contribution margin ratio of 25%. The company is considering a proposal that will increase sales by $100,000. What increase in profit can be expected assuming total fixed costs increase by $20,000?
A) $ 5,000
B) $20,000
C) $25,000
D) $15,000

4. Espy Company is trying to decide between the following two alternatives:

Which of the following conclusions can be drawn from this example?
A) Variable costs are always relevant for decision making.
B) Fixed costs are sunk and thus are never relevant for decision making.
C) Relevant costs may include variable costs and fixed costs.
D) None of the above

5. All of the following are internal failure costs except:
A) scrap costs
B) rework costs
C) downtime costs
D) inspection costs

6. Barney Company produces and sells two models of speakers for use with desktop computers. The following monthly data are provided:

Total monthly fixed costs are expected to be $15,000. What is the break-even volume in sales dollars at the expected sales mix?
A) $25,714
B) $45,000
C) $48,000
D) $60,000

7. A modern cost allocation process that employs multiple cost drivers is:
A) relevant costing
B) contribution costing
C) process costing
D) activity-based costing

8. Hartsel Company makes steel and titanium handle bars for bicycles. It requires approximately 1 hour of labor to make one handle bar of either type. During the most recent accounting period, the company made 8,000 steel bars and 2,000 titanium bars. Setup costs amounted to $48,000 for the 24 batches (i.e., 12 of each type) of bars produced during the period. If activity-based costing is used to allocate overhead costs to the two products, the amount of setup cost assigned to the titanium bars will be:
A) $ 9,600.
B) $24,000.
C) $38,400.
D) $48,000.

9. Kleinfeldt Company allocates overhead on the basis of direct labor hours. It allocates overhead costs of $4,000 to two different jobs as follows: Job 1: (10 hours) = $2,000 Job 2: (10 hours) = $2,000 Assume that, then, the production process for Job 1 was automated. Now Job 1 requires only 2 hours of direct labor but four hours of mechanical processing. As a result, total overhead increased to $6,000. How much overhead cost will be assigned to Job 2 after automation?
A) $1,000
B) $2,000
C) $3,000
D) $5,000

10. Managing quality costs to achieve the highest level of customer satisfaction is known as:
A) activity based costing.
B) quality costing
C) strategic management
D) total quality management

11. All of the following are hierarchical categories in which a firm's overhead support costs can be classified except:
A) product-level activities.
B) facility-level activities.
C) batch-level activities.
D) industry-level activities.

12. Hazell Company allocates overhead on the basis of direct labor hours. It allocates overhead costs of $4,000 to two different jobs as follows: Job 1: (10 hours) = $2,000 Job 2: (10 hours) = $2,000 Assume that, then, the production process for Job 1 was automated. Now Job 1 requires only 2 hours of direct labor but four hours of mechanical processing. As a result, total overhead increases to $6,000. Select the incorrect statement from the following.
A) While the actual processing of Job 2 was not affected by automation, it received an increase of $3,000 in its overhead allocation.
B) The increased overhead costs associated with automation should be allocated to all jobs.
C) Automation and the costing system used by the company causes the cost of Job 2 to be significantly overstated.
D) The use of machine hours as the allocation base would significantly improve the overhead cost allocations.

13. Fernando Company reported the following information for its two products:

Due to labor constraints, demand for the products is greater than supply. Product X requires 2 hours of labor to produce and product Y requires 5 hours of labor to produce. Which of the following statements is true?
A) Product X should be produced and sold because it has a lower cost than Product Y
B) Product Y should be produced and sold because it provides a higher contribution margin per unit than Product X.
C) Product X should be produced and sold because it provided a higher contribution margin per labor hour than Product Y.
D) Product Y should be produced and sold because it provides more revenue than Product X.

14. Great Products Company currently outsources an electrical switch that is a component in one of its products. The switches cost $20 each. The company is considering making the switches internally at the following projected annual production costs:

The company expects an annual need for 5,000 switches. If the company makes the product, it will have to utilize factory space currently being leased to another company for $1,500 a month. If the company decides to make the parts, total costs will be:
A) $30,500 more than if the switches are purchased.
B) $27,000 less than if the switches are purchased.
C) $20,000 less than if the switches are purchased.
D) $10,500 more than if the switches are purchased.

15. Andy is trying to decide which one of two job offers he will accept. Several items are presented below:

Select the items that are relevant to Andy's decision.
A) (1), (2), (3), (4), (5)
B) (2), (3), (4)
C) (1), (3), (5)
D) (2), (4)

16. Gleam Clean cleans and waxes floors for commercial customers. The company is presently working at less than capacity with equipment and employees at times idle. The company recently received an order from a potential customer outside the company's normal geographic service region for a price of $9,000. The size of the proposed job is 22,000 square feet. The company's normal service costs are as follows:

If the company accepts the special offer:
A) the company will lose $4,420 on the job.
B) the company will lose $2,220 on the job.
C) the company will lose $460 on the job.
D) the company will earn $5,040 on the job.

17. Kritzberg Company sells a product at $60 per unit that has unit variable costs of $40. The company's break-even sales volume is $120,000. How much profit will the company make if it sells 4,000 units?
A) $240,000
B) $120,000
C) $ 40,000
D) $ 80,000

18. Quill Company sets the selling price for its product by adding a markup to the product's variable manufacturing costs. This approach to pricing is referred to as:
A) target pricing
B) cost-plus pricing
C) target costing
D) contribution margin pricing

19. Select the correct statement regarding quantitative and qualitative information.
A) To be relevant, qualitative data must be quantified.
B) Relevant information can have both quantitative and qualitative characteristics.
C) Qualitative data should only be considered when quantitative data are inconclusive.
D) To be relevant, qualitative data need not differ between the alternatives but must be future oriented.

20. Select the correct statement regarding activity-based costing (ABC).
A) ABC does not use cost drivers.
B) ABC uses multiple activity centers and multiple cost drivers.
C) ABC uses a single activity cost center but multiple cost drivers
D) ABC uses multiple activity cost centers but a single cost driver.

21. Serious Safety Products currently outsources an electrical switch that is a component in its sprinkler systems. The switches are purchased for $20 each. The company is considering making the switches internally and has conducted a study to determine the costs involved. The costs below are projected annual production costs:

Assume that the company needs 10,000 of the switches, which would be produced in two batches. Assume also that the company will still be operating within the relevant range. If Serious Safety decides to make the parts under these conditions, the total relevant costs will be:
A) $127,500
B) $102,500
C) $107,500
D) $122,500

22. The costs and revenues associated with two alternatives are listed below:

Which alternative should be selected based on this information?
A) Alternative 1 because it has a higher profit
B) Alternative 2 because it has higher revenue
C) Alternative 1 because it has fewer unit-level costs
D) Alternative 2 because it has a higher profit

23. The following information is provided for two products:

Assume the products will be sold in a store where shelf space is a scarce resource and there is sufficient room for only one of the two products. Expected sales for Product X are 8,000 units, and expected sales for Product Y are 6,000 units. Which product should be sold and why?
A) Product X should be sold solely because expected demand is greater.
B) Product X should be sold because sales of this product will provide a greater profit.
C) Product Y should be sold because sales of this product will provide a greater profit.
D) Product Y should be sold because it provides a greater contribution margin.

24. Traditionally, the most popular company-wide base for allocating overhead to products was:
A) machine hours
B) number of units sold
C) number of units produced
D) direct labor hours or costs

25. Which of the following activity costs would not likely be included in a unit-level activity cost pool?
A) Indirect material
B) Indirect labor
C) Material handling costs
D) Machine-related utilities