Unit 6 : Unit 6: Management Level Control - Final Exam



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Question 1.1.Target costing determines the desired cost for a product upon the basis of a given competitive price such that the product will: (Points : 2)

 Earn at least a small profit.
 Earn a desired profit.
 Earn the maximum profit.
 Break even.

 

Question 2.2.The five steps of strategic decision making include all of the following except: (Points : 2)

 Based on strategy and analysis, choose and implement the desired alternative.
 Identify the alternative actions.
 Determine the strategic issues surrounding the problem.
 Select the proper cost management technique.
 Provide an ongoing evaluation of the effectiveness of the decision.

 

Question 3.3.The five steps of strategic decision making include all of the following except: (Points : 2)

 Identify the alternative actions.
 Gather, summarize, and report accounting information.
 Determine the strategic issues surrounding the problem.
 Choose and implement the desired alternative.

 

Question 4.4.Strategic analysis uses which of the following to help a firm improve its competitive position through an analysis of product and production complexity? (Points : 2)

 Differential cost drivers.
 Discretionary cost drivers.
 Structural cost drivers.
 Marginal cost drivers.

 

Question 5.5.The strategy map is a tool that is used: (Points : 2)

 as one of the key aspects of the contemporary management environment
 to enhance the sustainability of the organization
 to link the perspectives of the balanced scorecard
 to organize the critical success factors of a company

 

Question 6.6.Factory overhead costs for a given period were 2 times as much as the direct material costs. Prime costs totaled $8,000. Conversion costs totaled $11,350. What are the direct labor costs for the period? (Points : 2)

 $4,650.
 $3,560.
 $4,200.
 $3,860.

 

Question 7.7.Factory overhead costs for a given period were 3 times as much as the direct material costs. Prime costs totaled $2,000. Conversion costs totaled $3,280. What are the direct labor costs for the period? (Points : 2)

 $1,220.
 $1,360.
 $1,410.
 $1,540.

 

Question 8.8.ABC Company listed the following data for the current year:

Budgeted Factory Overhead = $ 1,044,000
Budgeted Direct labor Hours = 69,600
Budgeted Machine Hours = 24,000
Actual Factory Overhead = 1,037,400
Actual Labor Hours = 72,400
Actual Machine Hours = 23,600

Assuming ABC Company applied overhead based on direct labor hours, the company's predetermined overhead rate for the year is: (Points : 2)

 $43.95 per direct labor hour.
 $15.50 per direct labor hour.
 $15.00 per direct labor hour.
 $14.28 per direct labor hour.
 $14.00 per direct labor hour.

 

Question 9.9.When completed units are transferred to the warehouse: (Points : 2)

 Cost of Goods Sold account is debited.
 Cost of Goods Manufactured account is debited.
 Finished Goods Inventory account is debited.
 Work-in-Process Inventory account is debited.
 Finished Goods Inventory account is credited.

 

Question 10.10.Effective implementation of activity-based costing (ABC) requires: (Points : 2)

 Normally the assistance of a consultant.
 A sophisticated and expensive computer system.
 Support of top management and key employees.
 Capturing properly the complexity of the data.
 ABC has no significant implementation issues.




 

Question 11.11.Standard costs are: (Points : 2)

 Planned costs the firm should attain.
 Associated with direct materials and factory overhead only.
 Associated with direct labor and factory overhead only.
 Targeted low costs the firm should strive for.
 None of the above.

 

Question 12.12.Process cost systems are used in all of the following industries except: (Points : 2)

 Chemicals.
 Ship building.
 Oil refining.
 Textiles.
 Steel.

 

Question 13.13.Wings Co. budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead:

Overhead Cost Pool Budgeted O/H $ - Budgeted Level for Cost Driver - O/H Cost Driver
Materials Handling $160,000 3,200 lbs. Material Weight
Machine Setup 13,200 390 S/U’s # of S/Us
Machine Repair 1,380 30,000 Mach. Hrs Machine Hrs.
Inspections 10,560 160 Inspections # of Inspections
Requirements for Job #971 which included 4 Units of Production:
D/L Hours = 20 Hours
D/Mat’ls = 130 lbs.
Machine S/U = 30 Set-ups
Machine Hrs. = 15,000 Machine Hours
Inspections = 15 Inspections.

Using ABC, the materials handling overhead cost assigned to Job #971 is: (Points : 2)

 $2,300.
 $990.
 $6,500.
 $690.
 $1,020.

 

Question 14.14.Randall Company manufactures products to customer specifications. A job costing system is used to accumulate production costs. Factory overhead cost was applied at 125% of direct labor cost. Selected data concerning the past year's operation of the company are presented below.

Direct Materials January 1 = $77,000
Direct Materials December 31 = 40,000
WIP January 1 = 66,000
WIP December 31 = 42,000
Finished Goods January 1 = 115,000
Finished Goods December 31 = 100,000

Other Information:
Direct Materials Purchased = $324,000
Cost of Goods Available for Sale = 950,000
Actual Factory Overhead = 206,000

The cost of goods manufactured during the year is: (Points : 2)

 $850,000.
 $348,000.
 $672,000.
 $835,000.
 $811,000.

 

Question 15.15.The point in a joint production process at which individual products can be identified for the first time is called the: (Points : 2)

 Separable point.
 By-pass point.
 Split-off point.
 Joint identification point.

 

Question 16.16.Cost-volume-profit (CVP) relationships that are curvilinear may be analyzed linearly by considering only: (Points : 2)

 Fixed and semi-variable costs.
 Relevant fixed costs.
 Relevant variable costs.
 A relevant range of volume.
 The multi-product/multi-service context.

 

Question 17.17.Which of the following provides the most accurate cost estimation? (Points : 2)

 Regression analysis with R-squared of 0.12.
 Regression analysis with F value of 1.2
 High-low method.
 Regression analysis with R squared of 0.89.

 

Question 18.18.Net Realizable Value (NRV) of a product is: (Points : 2)

 Split-off cost - profit margin - additional processing and selling cost.
 Profit at split-off + additional processing and selling cost.
 Ultimate sales value - additional processing and selling cost.
 Ultimate sales value + additional processing and selling cost.
 Cost allocation plus separable cost.

 

Question 19.19.Which of the following is an example of a physical measure used in the physical measure method? (Points : 2)

 Pounds.
 Minutes.
 Seconds.
 Dollars.
 Volume.

 

Question 20.20.Variable costs will generally be relevant for decision making because they: (Points : 2)

 Differ between options.
 Are volume-based.
 Have not been committed and differ between options.
 Differ between options and have been committed.
 Measure opportunity cost.

 

Question 21.21.Done on a regular basis, relevant cost pricing in special order decisions can erode normal pricing policies and lead to: (Points : 2)

 Overconfidence in decision-making.
 A decrease in the firm's long-term profitability.
 Goal congruence between management and sales personnel.
 A cost leadership strategy.

 

Question 22.22.Which of the following is not true regarding the appropriate discount rate to be used in conjunction with discounted cash flow (DCF) decision models? (Points : 2)

 For projects of "above average" risk, the appropriate discount rate is the weighted-average cost of capital (WACC)
 It includes an estimate of the after-tax cost of debt.
 It can differ across investment projects, according to perceived risk.
 It is also sometimes referred to as the "hurdle rate" for capital budgeting purposes.

 

Question 23.23.Joint (common) costs in a joint production process are relevant for determining: (Points : 2)

 Whether to produce at all.
 Which products should be produced up to the split-off point in the production process.
 Which products should be produced internally and which products should be outsourced.
 The set of products that should be subjected to additional processing.

 

Question 24.24.Which of the following statements regarding a joint production process is NOT true? (Points : 2)

 The essential decision facing management is whether to sell products at the split-off point or to sell these products after further processing.
 The allocation of joint (common) production costs to individual products helps management determine which products should be processed beyond the split-off point.
 Costs incurred up to the split-off point are referred to as joint production costs.
 The decision as to whether individual products should be sold "as is" or processed further is made on the basis of comparing incremental revenues and incremental costs.

 

Question 25.25.In situations when management must decide on accepting or rejecting one-time-only special orders, where there is sufficient idle capacity, which one of the following is not relevant to the decision? (Points : 2)

 Absorption costs.
 Differential costs.
 Direct costs.
 Variable costs.
 Incremental costs.

 

Question 26.26.One of the key management functions is to perform a regular review of product profitability. Which question(s) below would not be asked when performing the analysis? (Points : 2)

 Are the products priced properly?
 Which products are the most profitable?
 Which products should be advertised more aggressively?
 Should any product manager be rewarded?
 What was the product manager paid last year?

 

Question 27.27.Pique Corporation wants to purchase a new machine for $300,000. Management predicts that the machine can produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Pique's combined income tax rate is 40%. Management requires a minimum after-tax rate of return of 10% on all investments.

What is the approximate internal rate of return (IRR) of the investment? (NOTE: To answer this question, students must have access to Table 2 from Appendix C, Chapter 12.) (Points : 2)

 Less than 12%.
 Somewhere between 12% and 14%.
 Somewhere between 15% and 20%.
 Somewhere between 20% and 25%.
 Over 25%.

 

Question 28.28.____________________ is an important first step in value engineering because it identifies critical consumer preferences that will define the product's desired functionality: (Points : 2)

 Consumer analysis.
 Sales force analysis.
 Design analysis.
 R&D analysis.
 Market place analysis.

 

Question 29.29.The theory of constraints (TOC) emphasizes which of the following? (Points : 2)

 Developing competitive constraints.
 Finding and eliminating design constraints.
 Removing bottlenecks from the production process.
 Improving overall production efficiency.

 

Question 30.30.An organization's overall management accounting and control system: (Points : 2)

 Includes the planning function.
 Is also referred as the organization's core performance-measurement system.
 Is separate from its operational control system.
 Includes nonfinancial, but not financial, performance measures.
 Focuses on strategic, not operational, control

 

Question 31.31.The sequence of phases in the product or service's life in the market - from the introduction of the product or service to the growth in sales and finally maturity, decline, and withdrawal from the market is the: (Points : 2)

 Sales life cycle.
 Target life cycle.
 Market life cycle.
 Critical life cycle.
 Cost life cycle.

 

Question 32.32.Traditional financial control systems have recently been criticized because: (Points : 2)

 They use flexible, not static, budgets.
 They generally lead to goal-congruent behavior on the part of managers.
 They focus more in improving basic business processes than short-term financial results.
 They fail to incorporate nonfinancial performance indicators into the evaluation process.

 

Question 33.33.Generally, firms will price a product more competitively at which stages of the product's sales life cycle? (Points : 2)

 Product introduction and Growth.
 Maturity and Decline.
 Throughout the cycle.
 At the end of the life cycle.

 

Question 34.34.Information concerning Johnston Co.'s direct materials costs is as follows:

Standard $ per Lb. $ 6.45
Actual Lbs. Purchased 2,850
Actual Lbs. Used in production 2,750
Units of Material Produced 700
Materials Purchase Price Variance $ 855(F)
Budget Data for the Period:
Units to Manufacture 1,000
Units of DM 4,000 Lbs.

The actual purchase price per pound of direct materials is: (Points : 2)

 $6.12.
 $6.15.
 $6.50.
 $6.75.
 $7.13.

 

Question 35.35.In September, Larson Inc. sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 is fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U

The actual amount of operating income earned in September was: (Points : 2)

 $15,000.
 $40,000.
 $63,000.
 $78,000.
 $105,000.

 

Question 36.36.Of the three basic forms of management compensation (salary, bonus, benefits), the fastest growing part of total compensation is: (Points : 2)

 Salary.
 Bonus.
 Benefits.
 Salary and bonus.

 

Question 37.37.Any system of compensation: (Points : 2)

 May encourage unethical behavior.
 Must be approved by the appropriate regulatory authority.
 Should be designed by top management.
 Must be approved by the auditor.

 

Question 38.38.Under variable costing, fixed manufacturing overhead costs would be classified as: (Points : 2)

 Period costs.
 Product costs.
 Selling costs.
 Inventory costs.

 

Question 39.39.SBU is the acronym for: (Points : 2)

 Small Business Unit.
 Sustainable Business Unit.
 Standard Business Unit.
 Strategic Business Unit.

 

Question 40.40.Other things being equal, income computed by the variable costing method will exceed that computed by the full costing method if: (Points : 2)

 Units produced exceed units sold.
 Units sold exceed units produced.
 Fixed manufacturing costs, increase.
 Variable manufacturing costs increase.

 

Question 41.41."Outsourcing" a cost center is often done to: (Points : 2)

 Reduce cost and obtain strategic focus.
 Increase control over a strategic resource.
 Reduce the firm's contractual relationships.
 Shift costs within remaining cost centers.

 

Question 42.42.A current bonus can consist of: (Points : 2)

 Cash only.
 Stock only.
 Cash and/or stock.
 Membership in a fitness club.

 

Question 43.43.When strategic performance measures or critical success factors are used to determine bonus compensation, the bonus will usually depend either on the amount of improvement in the measure or on: (Points : 2)

 Maintaining the current level.
 Achieving a predetermined goal.
 Quality of work completed.
 Intensity of effort expended.

 

Question 44.44.In management compensation, the use of the balanced scorecard achieves: (Points : 2)

 Fairness.
 Alignment of manager's incentives and the organization's strategy.
 The desired ethical environment.
 Revenue generation and cost control.

 

Question 45.45.The objectives of management compensation, when compared to the objectives used to develop performance measurement systems, are: (Points : 2)

 More numerous.
 Less specific.
 Consistent in their objectives.
 Significantly broader in scope.
 More specific.

 

Question 46.46.Which one of the following refers to the firm's ability to pay its current operating expenses and maturing debt? (Points : 2)

 Discounted cash flow.
 Liquidity.
 Earnings base.
 Profitability.
 Purchasing power.

 

Question 47.47.Jackson Supply Company has a 2 to 1 current ratio. This ratio would increase to more than 2 to 1 if the company: (Points : 2)

 Purchased a marketable security for cash.
 Wrote off an uncollectible receivable.
 Sold merchandise on account that earned a normal gross margin.
 Purchased inventory on account.

 

Question 48.48.The King Mattress Company had the following operating results for 2012-2013. In addition, the company paid dividends in both 2012 and 2013 of $60,000 per year and made capital expenditures in both years of $30,000 per year. The company's stock price in 2012 was $8 and $7 in 2013. The industry average earnings multiple for the mattress industry was 9 in 2013 and the free cash flow and sales multiples were 18 and 1.5, respectively. The company is publicly owned and has 1,200,000 shares of outstanding stock at the end of 2013.

Balance Sheet, December 31
2013 2012
Cash $ 340,000 $ 100,000
Accounts Receivable 350,000 400,000
Inventory 250,000 300,000
Total Current Assets $ 940,000 $ 800,000
Long Lived Assets 1,080,000 1,100,000
Total Assets $ 2,020,000 $ 1,900,000
Current Liabilities $ 200,000 $ 300,000
Long-Term Liabilities 600,000 500,000
Stockholder’s Equity 1,220,000 1,100,000
Total Liabilities & Equity $ 2,020,000 $ 1,900,000
Income Statement for the Year Ended December 31
Sales $ 4,750,000 $ 4,500,000
Cost of Sales 4,100,000 4,000,000 
Gross Margin $ 650,000 $ 500,000
Operating Expenses 350,000 400,000
Operating Income $ 300,000 $ 100,000
Taxes 120,000 40,000
Net Income $ 180,000 $ 60,000 
Cash Flow from Operations
Net Income $ 180,000 $ 60,000
Plus Depreciation Expense 50,000 50,000
+Decrease (-Inc) in A/T and Inventory 100,000 - 0 -
+Increase (-Dec) in Current Liabilities (100,000) - 0 –
Cash Flow from Operations $ 230,000 $ 110,000

The current ratio for 2013 is: (Points : 2)

 1.8
 2.0
 3.9
 4.7

 

Question 49.49.The King Mattress Company had the following operating results for 2012-2013. In addition, the company paid dividends in both 2012 and 2013 of $60,000 per year and made capital expenditures in both years of $30,000 per year. The company's stock price in 2012 was $8 and $7 in 2013. The industry average earnings multiple for the mattress industry was 9 in 2013 and the free cash flow and sales multiples were 18 and 1.5, respectively. The company is publicly owned and has 1,200,000 shares of outstanding stock at the end of 2013.

Balance Sheet, December 31
2013 2012
Cash $ 340,000 $ 100,000
Accounts Receivable 350,000 400,000
Inventory 250,000 300,000
Total Current Assets $ 940,000 $ 800,000
Long Lived Assets 1,080,000 1,100,000
Total Assets $ 2,020,000 $ 1,900,000
Current Liabilities $ 200,000 $ 300,000
Long-Term Liabilities 600,000 500,000
Stockholder’s Equity 1,220,000 1,100,000
Total Liabilities & Equity $ 2,020,000 $ 1,900,000

Income Statement for the Year Ended December 31
Sales $ 4,750,000 $ 4,500,000
Cost of Sales 4,100,000 4,000,000 
Gross Margin $ 650,000 $ 500,000
Operating Expenses 350,000 400,000
Operating Income $ 300,000 $ 100,000
Taxes 120,000 40,000
Net Income $ 180,000 $ 60,000 


Cash Flow from Operations
Net Income $ 180,000 $ 60,000
Plus Depreciation Expense 50,000 50,000
+Decrease (-Inc) in A/T and Inventory 100,000 - 0 -
+Increase (-Dec) in Current Liabilities (100,000) - 0 –
Cash Flow from Operations $ 230,000 $ 110,000

The inventory turnover ratio for 2013 is (rounded): (Points : 2)

 11.2
 12.7
 13.7
 14.9

 

Question 50.50.During October, Rover Industries produced 35,000 units of product with costs as follows:
DM = $ 84,000
DL = 43,000
Variable O/H = 13,000
Fixed O/H = 147,000
Total =$ 287,000
What is Rover's unit cost for October, calculated on the variable costing basis? (Points : 2)

 $3.25.
 $3.75.
 $4.00.
 $4.50.
 $5.00.

 

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