Cost b-1

PART ONE: TRUE OR FALSE
1. If variable manufacturing overhead is applied based on direct labor-hours, it is impossible

to have a favorable labor efficiency variance and unfavorable variable overhead
efficiency variance for the same period.
2. When activity-based costing is used for internal decision-making, the costs of idle
capacity should be considered period costs that flow through to the income statement as
an expense of the current period.
3. Under transfer prices upper price boundary is the highest market price at which market
price at which the product /service can be acquired.
4. A transaction driver provides a simple count of the number of times that an activity
occurs.
5. When a company implements activity-based costing system, manufacturing overhead
cost is often shifted from low volume products to high volume products, with a higher
unit cost resulting for the high volume products.
PART TWO: MULTIPLE CHOICES
1. Which of the following costs should not be included in product costs for internal
management reports that are used for decision-making?
A) Costs of unit-level activities. D) Costs of organization-sustaining
B) Costs of batch-level activities. activities.
C) Costs of product-level activities. E) None
Use the following to answer questions 2-5:

Arrow Industries employs a standard cost system in which direct materials inventory is
carried at standard cost. Arrow has established the following standards for one unit of
product.
Standard Standard Price Standard
Quantity or Rate Cost
Direct material .......... 8 pounds $1.80 per pound $14.40
Direct labor ............... 0.25 hour $8.00 per hour $2.00
During November, Arrow purchased 160,000 pounds of direct material at a total cost of
$304,000. The total factory wages for November were $42,000, 90 percent of which were for
direct labor. Arrow manufactured 19,000 units of product during November using 142,500
pounds of direct material and 5,000 direct labor hours.
2. The direct material price variance for November is:
A) $16,000 favorable C) $14,250 favorable
B) $16,000 unfavorable D) $14,250 unfavorable
3. The direct material quantity variance for November is:
A) $14,400 unfavorable C) $17,100 unfavorable
B) $1,100 favorable D) $17,100 favorable
4. The direct labor rate variance for November is:
A) $2,200 favorable C) $2,000 Unfavorable
B) $1,900 unfavorable D) $2,090 favorable
5. The direct labor efficiency variance for November is:
A) $2,200 favorable C) $2,000 unfavorable
B) $2,000 favorable D) $1,800 unfavorable
1
6. Which of the following is/are odd?
A) Manufacturing cycle efficiency- monetary information
B) Number of schedule changes- nonmonetary information
C) Percentage of orders delivered on time- nonmonetary information
D) All E) None
7. An organizational unit whose manager is responsible for managing revenues and current
expenses is
A) Profit center B) cost center C) investment center D) revenue center E) B and D
8. Which of the following would probably be the most accurate measure of activity to use
for allocating the costs associated with a factory's purchasing department?
A) Machine-hours D) Cost of materials purchased
B) Direct labor-hours E) None
C) Number of orders processed
9. Guerra Electronics manufactures a variety of electronic gadgets for use in the home.
Which of the following would probably be the most accurate measure of activity to use
for allocating the costs of inspecting the finished products at Guerra?
A) Machine-hours C) Inspection time
B) Direct labor-hours D) Number of inspections
10. The labor time required to assemble a product is an example of a:
A) Unit-level activity. C) Product-level activity.
B) Batch-level activity. D) Organization-sustaining activity.
11. Production order processing is an example of a:
12. Assembling a product is an example of a:
B) Batch-level activity. D) Organization-sustaining
13. Setting up a machine to change from producing one product to another is an example of a
14. Designing a new product is an example of a:
15. The plant manager's salary is an example of a:
16. Mar Company has two decentralized divisions, X and Y. Division X has always purchased
certain units from Division Y at $75 per unit. Because Division Y plans to raise the price to
$100 per unit, Division X is seeking an outside supplier of the part for the old price of $75
per unit. Division Y's costs follow:
Y’s variable costs per unit ..................................... $70
Y’s annual fixed costs ........................................... $15,000
Y’s annual production of these units for X ........... 1,000 units
If Division X buys from an outside supplier, the facilities Division Y uses to manufacture these
units would be idle. What would be the result if the top management of Mar Company insists
that Division X purchase from Division Y at a transfer price of $100 per unit?
2
A) It would reduce the company's overall profit because Division X should buy from
outside suppliers at $75 per unit if possible.
B) it would provide lower overall company net operating income than the old transfer
price of $75 per unit.
C) it would provide higher overall company net operating income than the old transfer
price of $75 per unit.
D) it would be more profitable for the company than allowing X to buy from outside
suppliers at $75 per unit.
e) none
17. When computing standard cost variances, the difference between actual and standard price
multiplied by actual quantity yields a(n):
A) Combined price and quantity variance. B) efficiency variance. C)
Price variance. D) quantity variance. E) none
18. Which of the following statements concerning ideal standards is incorrect?
A) Ideal standards generally do not provide the best motivation for workers.
B) Ideal standards do not make allowances for waste, spoilage, and machine breakdowns.
C) Ideal standards are better suited for cash budgeting than practical standards.
D) Ideal standards may be better than practical standards when managers seek continual
improvement.
19. One of the following is not advantage of decentralization
A) Requires more effective communication abilities
B) Reduces decision making time
C) Allows the use of management by E) None
exception A)
D) Provides job enrichment
20. Transfer prices are used in organization to
A) Enhance goal congruence.
B) Make performance evaluations among segments more comparable.
C) Change a cost center into a pseudo-profit center.
D) All E) none
3
Part I Part II multiple
true or false choices
1 4 1 6 11 16
2 5 2 7 12 17
3 3 8 13 18
4 9 14 19
5 10 15 20

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PART ONE: TRUE OR FALSE

1. If variable manufacturing overhead is applied based on direct labor-hours, it is impossible

Use the following to answer questions 2-5:

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