Production-cost cross-subsidization

22 May Production-cost cross-subsidization

Question 1. (TCO 1) Production-cost cross-subsidization results from: allocating indirect costs to multiple products.

assigning traced costs to each product.

assigning costs to different products using varied costing systems within the same organization.

assigning broadly averaged costs across multiple products without recognizing amounts of resources used by which products.

Question 2. Question : (TCO 1) Building or plant security is an example of:

unit-level costs.

batch-level costs.

product-sustaining costs.

facility-sustaining costs.

Question 3. Question : (TCO 1) Evaluating customer reaction of the trade-off of giving up some features of a product for a lower price would best fit which category of management decisions under activity-based management?:

Pricing and product-mix decisions

Cost reduction decisions

Design decisions

Discretionary decisions

Question 4. Question : (TCO 1) Overcosting of a product is MOST likely to result from:

misallocating direct labor costs.

overpricing the product.

undercosting another product.

understating total product costs.

Question 5. Question : (TCO 1) The MOST likely example of a batch-level cost is :

utility costs.

machine repairs.

product-designing costs.

setup costs.

Question 6. Question : (TCO 1) Which method of allocation probably best estimates actual overhead costs used? Why?: Single direct labor-hours cost driver because it is best to allocate total costs uniformly to individual jobs.

Single direct labor-hours cost driver because it is easiest to analyze and interpret.

Three activity-cost drivers because they best reflect the relative consumption of resources.

Three activity-cost drivers because product costs can be significantly cross-subsidized.

Question 7. Question : (TCO 1) Activity-based management (ABM) includes decisions about all EXCEPT:

pricing and product mix.

smoothing costs.

reducing costs.

improving processes.

Question 8. Question : (TCO 1) Activity-based costing information :

should be used when services place similar demands on resources.

usually results in peanut-butter costing.

will yield inaccurate cost numbers when products are similar.

may assist in improving product design and efficiency.

Question 9. Question : (TCO 1) Products make diverse demands on resources because of differences in all of the following EXCEPT:

volume.

selling price.

batch size.

complexity.

Question 10. Question : (TCO 1) Dalrymple Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray nozzle is $80,000. The budgeted number of nozzles to be inserted is 40,000. What is the budgeted indirect cost allocation rate for this activity?:

$0.50

$1.00

$1.50

$2.00

WEEK 2

QUIZ

Question 1. (TCO 2) Operating budgets and financial budgets :

have nothing to do with the master budget.

are prepared after the master budget.

combined, form the master budget.

are prepared before the master budget.

Question 2. Question : (TCO 2) The time coverage of a budget should be

: shorter rather than longer.

cover design through manufacture and sale of the product.

guided by the purpose of the budget.

one year.

Question 3. Question : (TCO 2) Financial budgets include the: administrative costs budget.

capital expenditures budget.

production budget.

marketing costs budget.

Question 4. Question : (TCO 2) A feature of a standard-costing system is that the costs of every product or service planned to be worked on during the period can be computed at the start of that period. This feature of standard costing makes it possible to: maintain actual costs as an integral part of the costing system.

use a simple recording system.

eliminate routine reports.

justify eliminating the budgeting process.

Question 5. Question : (TCO 2) A variance is :

the difference between a budgeted amount and a standard amount.

the gap between an actual result and a benchmark amount.

the required number of inputs for one standard output.

the difference between an actual result and a budgeted amount.

Question 6. Question : (TCO 2) Which of the following statements is true about overhead cost variance analysis using activity-based costing?

: Overhead cost variances are calculated for output-unit level costs only.

Overhead cost variances are calculated for variable manufacturing overhead costs only.

A four-variance analysis can be conducted.

Activity-based costing uses input measures for all activities, resulting in the inability to do flexible budgets needed for variance analysis.

Question 7. Question : (TCO 2) Fixed overhead costs include: the cost of sales commissions.

property taxes paid on plant facilities.

indirect materials.

energy costs.

Question 8. Question : (TCO 2) Katie Enterprises reports the year-end information from 20X8 as follows: Sales (70,000 units) $560,000; Cost of goods sold 210,000; Gross margin 350,000; Operating expenses 200,000; Operating income $150,000. Katie is developing the 20X2 budget. In 20X2, the company would like to increase selling prices by 4%, and as a result expects a decrease in sales volume of 10%. All other operating expenses are expected to remain constant. Assume that COGS is a variable cost and that operating expenses are a fixed cost. What is budgeted cost of goods sold for 20X2?:

$189,000

$196,560

$218,400

$210,000

Question 9. Question : (TCO 2) Hester Company budgets on an annual basis for its fiscal year. The following beginning and ending inventory levels (in units) are planned for the fiscal year of July 1, 20×2, through June 30, 20×3.

July 1, 20×2 June 30, 20×3

Raw material (note) 40,000 10,000

Work in process 8,000 8,000

Finished goods 30,000 5,000

(note) Three units of raw material are needed to produce each unit of finished product.

If 450,000 finished units were to be manufactured during the 2002-2003 fiscal year by Hester Company, the units of raw material needed to be purchased would be

: 1,350,000.

1,360,000.

1,320,000.

1,330,000.

Question 10. Question : (TCO 2) Information pertaining to Brenton Corporation’s sales revenue is presented in the following table:

February March April

Cash Sales $160,000 $150,000 $120,000

Credit Sales 300,000 400,000 280,000

Total Sales $460,000 $550,000 $400,000

Management estimates that 5% of credit sales are not collectible. Of the credit sales that are collectible, 60% are collected in the month of sale and the remainder in the month following the sale. Cost of purchases of inventory each month are 70% of the next month’s projected total sales. ll purchases of inventory are on account; 25% are paid in the month of purchase, and the remainder is paid in the month following the purchase.

Brenton’s budgeted total cash receipts in April are

: $448,000.

$437,000.

$431,600.

$328,000.