1) A cost management system provides ________.

A) measures of inventory value and cost of goods sold for financial reporting
B) cost information for strategic management decisions
C) cost information for operational control
D) all of the above

2) Cost accounting is that part of the cost management system that measures costs for the sole purpose of
financial reporting. True or False

3) Which of the following costs is a direct cost to a manufactured product?

A) depreciation expense on factory equipment used for the product
B) the wages of an assembly worker who works specifically on the product
C) accountants who accumulate the costs of the product
D) a factory supervisor who oversees the production of several different types of products

4) Physically tracing ________ costs is usually straightforward, but allocating ________ costs is usually
more complex.
A) indirect; direct
B) direct; product
C) direct; indirect
D) unallocated; indirect

5) Unallocated costs ________.

A) have an identifiable relationship to a cost pool
B) lack an identifiable relationship to a cost pool
C) have an identifiable relationship to a cost object
D) lack an identifiable relationship to a cost object

6) Unallocated costs ________.

A) are not recorded in the cost accounting system
B) are not allocated to cost objects
C) are direct costs for service firms
D) are indirect costs for merchandising firms

7) The manufacturing division of an electronics company uses activity-based costing. The company has
identified three activities and the related cost drivers for indirect production costs.
Activity Cost Driver
Activity 1 Direct materials cost
Activity 2 Direct labor cost
Activity 3 Kilowatt hours

Three types of products are produced. Direct costs and cost-driver activity for each product for a month
are as follows:

Product A Product B Product C

Direct materials cost $75,000 $50,000 $125,000
Direct labor cost $6,000 $1,000 $3,000
Direct labor hours 1,000 500 1,500
Kilowatt hours 150,000 200,000 150,000

Indirect production costs for the month are as follows:

Activity 1 $12,000
Activity 2 20,000
Activity 3 16,000
Total $48,000

Required:
A) Compute the indirect production costs allocated to each product using the ABC system.
B) Compute the indirect production costs allocated to each product using a traditional costing system.
Assume indirect production costs are allocated to each product using the cost driver: direct labor hours.

8) Historical or past information can have an indirect bearing on a decision because ________.
A) the past can be changed
B) it can help predict the future
C) past decisions are always good decisions
D) none of the above

9) ________ is the predicted future costs and revenues that will differ among alternative courses of action.
A) Relevant information
B) Sunk costs
C) Predictable information
D) Target pricing

10) Information is relevant in business decisions if it is a(n) ________.

A) expected future cost or it differs among alternatives
B) expected future cost and it differs among alternatives
C) historical cost and it differs among alternatives
D) expected future cost that differs from a past cost
11) The accountant's role in decision making involves providing the relevant information for decision
makers. True or False

12) If perfectly accurate and relevant information is not available for decision making, the accountant
should consider using information that is ________.
A) precise but irrelevant
B) imprecise but irrelevant
C) imprecise but relevant
D) imprecise but timely

13) In decision making, relevance is more crucial than ________.

A) precision
B) predictability
C) variable costs
D) fixed costs

14) The ________ approach is useful for short-run decisions and the ________ approach is useful for long-
run decisions.
A) contribution; absorption
B) absorption; contribution
C) full costing; target costing
D) full costing; contribution

Comment on why an MBA should be knowledgeable about contribution and absorption methods.
Short answer please.

15) Washington Company has the following data about its only product:
Direct materials used $200,000
Direct labor 80,000
Indirect manufacturingfixed 100,000
Selling and administrativefixed 300,000
Indirect manufacturingvariable 20,000
Selling and administrativevariable 60,000
Selling price(per unit) 100

Units produced and sold 10,000

Washington Company uses the absorption approach. What is the gross margin?
A) $240,000
B) $540,000
C) $600,000
D) $660,000

16) Timmerman Company has budgeted sales of $30,000 with the following budgeted costs:
Direct materials $6,300
Direct labor 4,100
Variable factory overhead 3,700
Fixed factory overhead 5,600
Variable selling and administrative costs 2,400
Fixed selling and administrative costs 3,200

Required:

Compute the average target markup percentage for setting prices as a percentage of:
A) Total costs
B) Total variable costs
C) Variable manufacturing costs
D) Total manufacturing costs

17 ) Stangle Company manufactures ties. When 28,000 ties are produced, the costs per unit are:
Direct materials $0.60
Direct manufacturing labor 3.00
Variable manufacturing overhead 1.20
Fixed manufacturing overhead 1.60
Variable selling 0.80
Fixed selling 1.13

The ties normally sell for $22 each. The company has received a special order for 2,000 ties at $10.00 per
tie. The company has excess capacity.

Required:
Compute the amount by which the operating income would change if the order were accepted.
Comment on other non numeric factors that would influence your decision as a manager to accept or
reject a special order. See your lecture notes, this answer will not be found in the text book.

18) An opportunity cost is ________.

A) the additional costs generated by a proposed alternative
B) the difference in total cost between two alternatives
C) a cash disbursement in the future
D) the maximum available benefit foregone by using a resource for a particular purpose instead of the
best alternative use

19) Company XYZ is a small company with limited expertise with information technology. Company
XYZ has a contract with Company ZZ. Company ZZ handles all of Company XYZ's information
technology needs. For Company XYZ, this is an example of ________.
A) joint costs
B) joint decision making
C) outsourcing
D) technology transfer

20)What would be a consideration in a make-or-buy decision?

A) excess capacity
B) variable factory overhead costs
C) rental income from idle facilities when not making a part
D) all of the above

21)Fixed overhead costs that will continue regardless of a make-or-buy decision are ________ to the make-
or-buy decision.
A) relevant
B) irrelevant
C) avoidable
D) incremental

22) Goldwater Company manufactures a part for its production cycle. The annual costs per unit for
10,000 units of the part are as follows:

Direct materials $20.00

Direct labor 15.00
Variable factory overhead 16.00
Fixed factory overhead 10.00
Total costs $61.00
The fixed factory overhead costs are unavoidable. Olson Company has offered to sell 10,000 units of the
same part to Goldwater Company for $60 per unit. The facilities currently used to make the part could be
used to make 10,000 units per year of a new product that has a contribution margin of $20 per unit. No
additional fixed costs would be incurred with the new product. Goldwater Company should ________.
A) make the part to save $10,000
B) make the part to save $90,000
C) make the new product and buy the part to save $90,000
D) make the new product and buy the part to save $110,000

Comment on some of the issues of buying critical parts from a vendor verses
manufacturing them yourself. See lecture notes, answer is not found in the text.

23) Each year, Mother Company purchases 8,000 units of a part that it needs for production of its product.
The supplier notified Mother Company that a price increase will take effect shortly, which will bring the
price of the part to $25 per part. Mother Company is considering the use of idle facilities to produce the
part. The annual production costs to produce the needed 8,000 parts are as follows:

Direct materials $17,500

Direct labor 30,000
Indirect production costsvariable 14,000
Indirect production costsfixed 33,500

The idle facilities could also be rented out at an annual rent of $99,000. All the fixed indirect production
costs are avoidable.

Required:
Determine if Mother Company should buy the part or produce it internally.

24) Olson Company has three departments. Data for the most recent year is presented below:

Dept. C Dept. A Dept. T

Sales $4,000 $1,920 $2,240
Variable expenses 3,280 1,420 520
Unavoidable fixed expenses 480 180 440
Avoidable fixed expenses 555 265 360
Operating income(loss) $(315) $55 $920

Olson Company is considering eliminating Dept. C because it is operating at a loss.

Required:
A) Compute the change in operating income if Olson Company eliminates Dept. C and does not replace
it.
B) Compute the change in operating income if Olson Company eliminates Dept. C and doubles the sales
of Dept. T without increasing fixed costs.
25) A major benefit of effective budgeting is that ________.
A) it compels managers to think ahead
B) it aids managers in communicating objectives to employees
C) it provides benchmarks to evaluate subsequent performance
D) all of the above

26) The most effective budget processes facilitate communication from top management to ________ and
from lower level managers and employees to ________.
A) the SEC; the audit committee
B) stockholders; creditors
C) lower level managers and employees; top management
D) creditors; stockholders

27) A major drawback of using historical results for judging current performance is that ________.
A) past results may be inaccurate
B) results may refer to a different manager
C) inefficiencies may be concealed in past results
D) managers may have cooked the books

28) Budgets are generally more effective if they are ________.

A) created with the active participation of all affected employees
B) understood and accepted by affected managers
C) supported by top management
D) all of the above

29) Managers may ________ their budgeted costs or ________ their budgeted revenues to create a budget
target that is easier to achieve.
A) understate; overstate
B) overstate; understate
C) understate; understate
D) overstate; overstate

30) A sales forecast is ________.

A) a prediction of sales under a given set of conditions
B) the sales budget
C) based on input from the board of directors
D) based on input from the audit committee

31) Which of the following statements about long-range plans is FALSE?

A) Long-range plans provide forecasted financial statements for five to ten year periods.
B) Long-range plans guide day-to-day operations.
C) Companies coordinate long-range plans with capital budgets.
D) A decision made during long-range planning is the acquisition of a plant building.

32) ________ set the overall goals and objectives of the organization.
A) Capital budgets
B) Cash budgets
C) Master budgets
D) Strategic plans

33) Which of the following is a component of the financial budget?

A) budgeted balance sheet
B) budgeted income statement
C) sales budget
D) purchases budget

34) What is the final result of the operating budget process?

A) budgeted balance sheet
B) budgeted income statement
C) budgeted cash flow statement
D) cash budget

35) A decision made during long-range planning includes whether to delete a product from a company's
product line. True or False.

36) Bates Corporation has the following sales budget:

Month Budgeted Sales

May $84,000
June 100,000
July 92,000
August 116,000
September 98,000

Credit sales are 80% of total sales. Collections of credit sales are 80% in the month of sale, 15% in the
month after sale and 5% are never collected.

Required:
Prepare a schedule of cash collections for June, July and August.
Answer: June July August
Cash sales $20,000 $18,400 $23,200
Collections of credit sales:
Current month 64,000 58,880 74,240
Previous month 10,080 12,000 11,040
Total collections $94,080 $89,280 $108,480

Extend the three month to an annual budget.

Based on the annual budget that you have just calculated, comment on what the
line items of the following years budget need the most attention from you the
manager. What are some of the possible errors that can occur if you prepare
subsequent budgets by simply increasing a line item by a percentage? For example
annual sales of 246,400 will increase by 7 percent to $263,648 (246,400 X 1.07).

Comment on why a well prepared well thought out budget is a good offense as well
as a good defense.

Comment on how you would obtain information in estimating critical line items of
the budget.

37) Divine Intervention Company uses activity-based costing. The company is trying to estimate the
costs of the processing activity in the factory. The company has developed the following flexible
budget formula:

Y = $10.50X + $13,000

Where: Y = Total processing cost per quarter and X = Number of machine hours

What are the expected total processing costs if 10,000 machine hours are expected next quarter?
A) $13,000
B) $105,000
C) $113,000
D) $118,000

38) Puppy Company planned to produce 12,000 units. This level of activity required 20 setups at a cost of
$22,000 plus $500 per setup. Actual production was 10,000 units, requiring 15 setups. Actual setup cost
was $26,000. At 10,000 units, what is the flexible budget amount for total setup costs?
A) $7,500
B) $22,000
C) $26,000
D) $29,500

Please see Page: 308 of the text book

39) Which is NOT a reason for a static budget variance?
A) Actual sales volume was higher than projected sales volume.
B) Actual variable costs per unit were higher than expected variable costs per unit.
C) Actual fixed costs per unit were higher than expected fixed costs per unit.
D) Actual sales volume in current period was higher than projected sales volume in last period.
Please see Page: 308 of the text book