course material

1. Espinosa corporation had $1,100,000 in invested assets, sales of
True or False: Please indicate whether each statement is true or false. (2 points per
question)1. The standard cost is how much a product should cost to manufacture.2. Because
accountants have financial expertise, they are the only ones that are able to set standard
costs for the production area.3. An unfavorable cost variance occurs when budgeted cost at
actual volumes exceeds actual cost.4. A centralized business organization is one in which all
major planning and operating decisions are made by top management.5. The plant
managers in a cost center can be held responsible for major differences between budgeted
and actual costs in their plants.6. Property tax expense for a department store’s store
equipment is an example of a direct expense.7. Differential revenue is the amount of
increase or decrease in revenue expected from a particular course of action as compared
with an alternative.8. The product cost concept includes all manufacturing costs plus selling
and administrative expenses in the cost amount to which the markup is added to determine
product price.9. When a bottleneck occurs between two products, the company must
determine the contribution margin for each product and manufacture the product that has
the highest contribution margin per bottleneck hour.10. Care must be taken involving
capital investment decisions, since normally a long-term commitment of funds is involved
and operations could be affected for many years.11. Average rate of return equals average
investment divided by estimated average annual income.12. Managers depend on product
costing to make decisions regarding continuing operations, advertising, and product
mix.13. The single plantwide overhead rate method is very expensive to apply.14. In the
just-in-time (JIT) philosophy, unexpected downtime is the result of unreliable
processes.15. In a just-in-time (JIT) system, the work in process account will show more
transactions than in a traditional cost system.Multiple Choice (2 points per question):16. If
the actual quantity of direct materials used in producing a commodity differs from the
standard quantity, the variance is termed:a. controllable varianceb. price
variancec. quantity varianced. rate variance17. The Joyner Corporation purchased and used
126,000 board feet of lumber in production, at a total cost of $1,449,000. Original
production had been budgeted for 22,000 units with a standard material quantity of 5.5
board feet per unit and a standard price of $12 per board foot. Actual production was
23,000 units.Compute the material price
variance.a. 63,000Fb. 63,000Uc. 6,000Fd. 6,000U18. The standard factory overhead rate is
$10 per direct labor hour ($8 for variable factory overhead and $2 for fixed factory
overhead) based on 100% capacity of 30,000 direct labor hours. The standard cost and the

2. actual cost of factory overhead for the production of 5,000 units during May were as
follows:Standard: 25,000 hours at $10 $250,000Actual: Variable factory
overhead 202,500Fixed factory overhead 60,000What is the amount of the factory overhead
volume variance?a. $12,500 favorableb. $10,000 unfavorablec. $12,500
unfavorabled. $10,000 favorable19. Espinosa Corporation had $1,100,000 in invested
assets, sales of $1,210,000, income from operations amounting to $242,000, and a desired
minimum rate of return of 15%.The profit margin for Espinosa
is:a. 20%b. 22%c. 15%d. 32%20. Materials used by Bristol Company in producing Division
C’s product are currently purchased from outside suppliers at a cost of $10 per unit.
However, the same materials are available from Division A. Division A has unused capacity
and can produce the materials needed by Division C at a variable cost of $8.50 per unit. A
transfer price of $9.50 per unit is negotiated and 30,000 units of material are transferred,
with no reduction in Division A’s current sales.How much would Division C’s income from
operations increase?a. $0b. $90,000c. $15,000d. $60,00021. The balanced scorecard
measuresa. only financial informationb. only nonfinancial informationc. both financial and
nonfinancial informationd. external and internal information22. All of the following should
be considered in a make or buy decision excepta. cost savingsb. quality issues with the
supplierc. future growth in the plant and other production opportunitiesd. the supplier will
make a profit that would no longer belong to the business23. What cost concept used in
applying the cost-plus approach to product pricing includes only desired profit in the
“markup”?a. Product cost conceptb. Variable cost conceptc. Sunk cost conceptd. Total cost
conceptTrue or False: Please indicate whether each statement is true or false. (2 points per
question)1. The standard cost is how much a product should cost to manufacture.2. Because
accountants have financial expertise, they are the only ones that are able to set standard
costs for the production area.3. An unfavorable cost variance occurs when budgeted cost at
actual volumes exceeds actual cost.4. A centralized business organization is one in which all
major planning and operating decisions are made by top management.5. The plant
managers in a cost center can be held responsible for major differences between budgeted
and actual costs in their plants.6. Property tax expense for a department store’s store
equipment is an example of a direct expense.7. Differential revenue is the amount of
increase or decrease in revenue expected from a particular course of action as compared
with an alternative.8. The product cost concept includes all manufacturing costs plus selling
and administrative expenses in the cost amount to which the markup is added to determine
product price.9. When a bottleneck occurs between two products, the company must
determine the contribution margin for each product and manufacture the product that has
the highest contribution margin per bottleneck hour.10. Care must be taken involving
capital investment decisions, since normally a long-term commitment of funds is involved
and operations could be affected for many years.11. Average rate of return equals average
investment divided by estimated average annual income.12. Managers depend on product
costing to make decisions regarding continuing operations, advertising, and product
mix.13. The single plantwide overhead rate method is very expensive to apply.14. In the
just-in-time (JIT) philosophy, unexpected downtime is the result of unreliable
processes.15. In a just-in-time (JIT) system, the work in process account will show more

3. transactions than in a traditional cost system.Multiple Choice (2 points per question):16. If
the actual quantity of direct materials used in producing a commodity differs from the
standard quantity, the variance is termed:a. controllable varianceb. price
variancec. quantity varianced. rate variance17. The Joyner Corporation purchased and used
126,000 board feet of lumber in production, at a total cost of $1,449,000. Original
production had been budgeted for 22,000 units with a standard material quantity of 5.5
board feet per unit and a standard price of $12 per board foot. Actual production was
23,000 units.Compute the material price
variance.a. 63,000Fb. 63,000Uc. 6,000Fd. 6,000U18. The standard factory overhead rate is
$10 per direct labor hour ($8 for variable factory overhead and $2 for fixed factory
overhead) based on 100% capacity of 30,000 direct labor hours. The standard cost and the
actual cost of factory overhead for the production of 5,000 units during May were as
follows:Standard: 25,000 hours at $10 $250,000Actual: Variable factory
overhead 202,500Fixed factory overhead 60,000What is the amount of the factory overhead
volume variance?a. $12,500 favorableb. $10,000 unfavorablec. $12,500
unfavorabled. $10,000 favorable19. Espinosa Corporation had $1,100,000 in invested
assets, sales of $1,210,000, income from operations amounting to $242,000, and a desired
minimum rate of return of 15%.The profit margin for Espinosa
is:a. 20%b. 22%c. 15%d. 32%20. Materials used by Bristol Company in producing Division
C’s product are currently purchased from outside suppliers at a cost of $10 per unit.
However, the same materials are available from Division A. Division A has unused capacity
and can produce the materials needed by Division C at a variable cost of $8.50 per unit. A
transfer price of $9.50 per unit is negotiated and 30,000 units of material are transferred,
with no reduction in Division A’s current sales.How much would Division C’s income from
operations increase?a. $0b. $90,000c. $15,000d. $60,00021. The balanced scorecard
measuresa. only financial informationb. only nonfinancial informationc. both financial and
nonfinancial informationd. external and internal information22. All of the following should
be considered in a make or buy decision excepta. cost savingsb. quality issues with the
supplierc. future growth in the plant and other production opportunitiesd. the supplier will
make a profit that would no longer belong to the business23. What cost concept used in
applying the cost-plus approach to product pricing includes only desired profit in the
“markup”?a. Product cost conceptb. Variable cost conceptc. Sunk cost conceptd. Total cost
concept25. All of the following qualitative considerations may impact upon capital
investments analysis except:a. time value of moneyb. employee moralec. the impact on
product qualityd. manufacturing flexibility26. All of the following are factors that may
complicate capital investment analysis except:a. the leasing alternativeb. changes in price
levelsc. sunk costd. the federal income tax27. The Nite Lite Factory produces two products –
small lamps and desk lamps. It has two separate departments – finishing and production.
The overhead budget for the finishing department is $550,000, using 500,000 direct labor
hours. The overhead budget for the production department is $400,000 using 80,000 direct
labor hours. If the budget estimates that a desk lamp will require 1 hours of finishing and 2
hours of production, how much factory overhead will be allocated to each unit of desk
lamps using the multiple production department factory overhead rate method with an

4. allocation base of direct labor hours?a. $11.10b. $4.91c. $5.00d. $10.0028. Using a plant-
wide factory overhead rate distorts product costs when:a. products require different ratios
of allocation-base usage in each production departmentb. significant differences exist in the
factory overhead rates used across different production departmentsc. both A and B
existd. either A or B exist29. Which of the following is characteristic of a traditional cost
system?a. Many work in process account transactionsb. Reliance on financial performance
measuresc. Many process control pointsd. All of the above30. The local college is
aggressively working in reducing the time that a student needs to enroll for each semester.
All except one of the following changes is helping in their efforts.a. Counselors are
specializing in common degree plans.b. One application is good at the Community college
and at the transferring University.c. A one stop area includes registration, admissions,
advising, and ID’s. Each working closely with each other.d. Reduce the number of degrees
being offered.Problems:31. Diamond Company produces a chair that requires 5 yds. of
material per unit. The standard price of one yard of material is $7.50. During the month,
8,500 chairs were manufactured, using 40,000 yards at a cost of $7.60. Determine the (a)
price variance, (b) quantity variance, and (c) cost variance (6 points).32. Some items are
omitted from each of the following condensed divisional income statements of Willis Inc (8
points):Division L Division M Division NSales $ (1) $320,000 $580,000Cost of goods
sold 480,000 120,000 $ (5)Gross profit $220,000 $ (3) $180,000Operating
expenses 95,000 160,000 $ (6)Income from operations $ (2) $ (4) $ 75,000(a) Determine
the amount of the missing items, identifying them by number.(b) Based on income from
operations, which division is the most profitable?33. Delicious Cake Factory normally sells
their specialty cake for $22. An offer to buy 100 cakes for $18 per cake was made by an
organization hosting a national event in the city. The variable cost per cake is $12. A special
decoration per cake will add another $1 to the cost. Determine the differential income or
loss per cake from selling the cakes (10
points).34.Year 6% 10% 12%1 .943 .909 .8932 1.833 1.736 1.6903 2.673 2.487 2.4024 3.46
5 3.170 3.0375 4.212 3.791 3.6056 4.917 4.355 4.1117 5.582 4.868 4.5648 6.210 5.335 4.96
89 6.802 5.759 5.32810 7.360 6.145 5.650A project is estimated to cost $273,840 and
provide annual cash flows of $60,000 for seven years. Determine the internal rate of return
for this project, using the above table (6 points).35. Nite Lite Factory produces two similar
products – small lamps and desk lamps. The total plant budget is $800,000 with 640,000
estimated direct labor hours. It is further estimated that small lamp production will have
375,000 direct labor hours and desk lamp production will require 265,000 direct labor
hours (10 points).(a) Determine the single plant factory overhead rate based on direct labor
hours.(b) How much is the factory overhead cost per unit if each small lamp uses 3 hours
per unit?(c) How much is the factory overhead cost per unit if each desk lamp uses 2.5
hours per unit?(d) How much total factory overhead will be allocated to the small lamp
production if 130,000 units are produced during the period?(e) How much total factory
overhead will be allocated to the desk lamp production if 104,000 are produced during the
period?