Managerial Costing and Accounting Question Answer 2021

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The closing inventory if any under variable costing is valued at

Variable manufacturing cost per unit

 

Which of the following will not appear in cash budget

Depreciation of machinery

 

Resources that are limited in quantity are called as

Key factors

 

Gain on sale of investment property should be disclosed in the safety of profit and loss as

Other income

 

Cost of factory lighting is an example of

Indirect cost

 

Based on the following information for Shine Ltd. answer the given questions

Cost of a Machine                                                      ₹ 200000

Estimated life                                                              10 years

Scrap value                                                                  ₹ 6000

Factory operation hours in a week                        48

Machine breakdown time                                        15%

Electricity used by machinery is 10 units/hr         ₹ 60 p/unit

Calculate Machine hour rate?

1)           Rs. 14 per hour

2)           Rs. 11.61 per hour

3)           Rs. 12.60 per hour

4)           Rs. 18 per hour

Ans Rs. 12.60 per hour

 

Q:  Based on the following information for Shine Ltd. answer the given questions

Cost of a Machine                                                      ₹ 200000

Estimated life                                                              10 years

Scrap value                                                                  ₹ 6000

Factory operation hours in a week                        48

Machine breakdown time                                        15%

Electricity used by machinery is 10 units/hr         ₹ 60 p/unit

Calculate Depreciation rate per hour?

Rs. 8.01 per hour

Rs. 9.43 per hour

Rs. 5.61 per hour

Rs. 6.60 per hour

Ans 9.43 per hour

 

Q:  Based on the following information for Shine Ltd. answer the given questions

Cost of a Machine                                                      ₹ 200000

Estimated life                                                              10 years

Scrap value                                                                  ₹ 6000

Factory operation hours in a week                        48

Machine breakdown time                                        15%

Electricity used by machinery is 10 units/hr         ₹ 60 p/unit

Calculate Depreciation on Machine?

Ans 19400 p.a.

 

Q:  Based on the following information for Shine Ltd. answer the given questions

Cost of a Machine                                                      ₹ 200000

Estimated life                                                              10 years

Scrap value                                                                  ₹ 6000

Factory operation hours in a week                        48

Machine breakdown time                                        15%

Electricity used by machinery is 10 units/hr         ₹ 60 p/unit

Calculate Electricity consumption rate per hour?

Rs. 6 per hour

Rs. 10 per hour

60 paisa per hour

Rs. 60 per hour

Ans Rs. 6 per hour

 

Q: Based on the following information for Shine Ltd. answer the given questions

Cost of a Machine                                                      ₹ 200000

Estimated life                                                              10 years

Scrap value                                                                  ₹ 6000

Factory operation hours in a week                        48

Machine breakdown time                                        15%

Electricity used by machinery is 10 units/hr         ₹ 60 p/unit

 

Calculate the Effective machine hours worked in a year?

1). 2496 hours

2) 374 hours – – as per answer given in above questions-solutions

3) 2122 hours

4) 576 hours

Ans 2122 hours

 

What is Syl’s break-even point in sales dollars? (CPA adapted)

A. $200,000.
B. $160,000.
C. $50,000        ($800,000 – 160,000)/$800,000 = 80%; $40,000/.80 = $50,000.
D. $40,000.

 

Profit and loss from discounting operations and other comprehensive income are not included in the profit and loss for computing

EBITDA

 

Activity based costing ABC is a costing technique that uses a two-stage allocation process and the two stages are

The cost are assigned to activities and then to the products based upon their use of the activities

 

These are the course which would change as a result of the decision under consideration

Relevant cost

 

__ attached with the balance sheet forms as a part of the financial statements

Schedules or notes to accounts

 

Formula for gross margin

Sales revenue less cost of goods manufactured and sold

 

The model is a technique to determine the economic order quantity is based on the restrictive assumptions namely

All of these

 

When corperation seek to headgear to financial situation the pressure to engage in

Unethical and illegal

 

A current asset that can be transferred into cash within 3 months is known as

Cash equivalent

 

One of the following is not included in costing and control of factory overheads

Absorption of overheads

 

Current ratio of a concern is 1 net working capital will be

Nil

 

What is the main difference between traditional budgeting and zero based budgeting

ZBB starts at zero

 

Which of the following would be considered a cash flow item from a financing activity

Cash outflow to repurchase the forms own common stock

 

__ are the assets which the management expects to convert into cash within 12 months after the balance sheet date

Current asset

 

Factory overhead cost refer to all indirect manufacturing costs which cannot be identified with a particular orders or units of product. It includes

Depreciation on factory plant and equipment’s factory building

 

On the basis of _ budget is classified into long-term budget short term budget and current budget

Time

 

The following is true about activity based costing

Two stage cost allocation system

 

The underlying difference between absorption costing and variable costing lies in the treatment of

Fixed cost

 

The word relevant range as used in cost accounting means the range over which

Cost relationships are valid

 

Items of property plant and equipment for sale

Non-current

 

ABC system is a widely used classification technique, should exercise the maximum control on items of inventory data

Most costly or slowest turning

 

Debt equity ratio is equal to or below

1:1

 

Conflict of interest is built into the accounting system because for the firm is working

for the company whose account it is auditing

 

Financial statements of the company are required to be presented in the format prescribed in _ Companies Act 2013

Schedule III

 

Cost of raw materials used in production is an example of

Product cost

 

Cash flows arung from the purchase and sale of dealing or trading securities are classified as _ for a brokerage firm

 

Non operating activities

Investing activities

Financing activities

Operating activities <

 

Quick assets do not include

Inventories <

Cash

Book debts

Cash equivalents

 

A special order can be acknowledged at

 

Below marginal cost

Below total cost but above marginal cost <

Below fixed cost

Above total cost

 

In case of a bank interest income should be recognised in the statement of profit and loss as

Revenue

 

Vertical analysis requires preparation of             financial statement.

Common-size

 

Gross profit margin is calculated by dividing gross profit by

Revenue

 

First budget prepared is

sales budget

 

Excess of ASR over the break even sales value is known as

Margin of safety

 

It is a separate performance obligation

Service warranty

 

Which of the following is an irrelevant cost

Sunk cost

 

_ are not recognised in the balance sheet as they do not meet the definition of a liability

Contingent liabilities

 

Distribution of common cost among user departments is known as

Apportionment

Allocation

 

If an accounting form certifies a company’s financial statements, it should have to make the firm’s financial situation look better than it is

Motivation

 

The main operations related expenses of the business are termed as

Operating expenses

 

The point at which different individual products are separated after common stage of production is known as

Split off point

 

Activity based management reffer to a set of actions that management can take to increase profitability

All of these

 

Goodwill are self generated intangible assets

 

The following cost are irrelevant for a special order that will allow an organisation to utilise some of its present idle capacity

Unavaoidable fixed overhead

 

Current assets are also known as

working capital

 

_ fixed cost are reckoned in sales or further process type of decision making

Non incremental

 

In shutdown or continue decisions factor to be considered are

Unavaoidable fixed overhead

 

Research and development and advertisement expenses in the profit and loss statement are

Discretionary expenses

 

Cash receipt received from the sales fixed assets are registered under the head of

Investing activities

 

Opportunity cost represent the _ foregone by not choosing best alternative

Benefit

 

Horizontal analysis requires preparation of __ financial statements

Indexed

 

Sunk cost _ cost

committed cost

 

Objectivity and Independence are important ethical values in the accounting profession. Accountants must remain

All of these

 

Form of balancesheet is

horizontal or vertical

 

Crucial step in the cvp analysis is the determination of break even point which is defined as the sales level at which

Total revenues equal total cost

 

A capacity in which the normal working hours of a machine or worker or employee are considered is  known as

theoritical capacity

 

BEP 2000 units

VC 8rs

Sales 14rs

Fixed cost?

Ans- 12000

 

A firm requires 8,000 nos. of certain component, which it bought at Rs 60 each. The cost of placing an order and following it up is 60 and the annual storage charges work out to 10% of the cost of the item. To get maximum benefit the firm should place order for how many units at a time?

Ans- = 2*8000*60 / 6 = 400 units

 

2*ordercost 10*unit 7800 /carrying

 

2 1lakh 20

 

Annual requirement is 100000 units. Unit price ` 5, order cost ` 20 per order. Carrying cost ` 1 per unit and lead time is 2 week, The Economic order quantity would be.

2000 units

 

The tax expense in the statement of profit and loss is 40,00,000. Current tax liability at the beginning and at the end of the year was 2,00,000 and 3,00,000 respectively. Cash outflow during the year on account of income tax payment was ___

3900000

 

p/v is 40% and margin of safety is 20% and sales is 20 lakh . what is break even point

16 lakhs

 

Tibu Company expects sales of Product W to be 60,000 units in April, 75,000 units in May, and 70,000 units in June. The company desires that the inventory on hand at the end of each month be equal to 40% of the next month’s expected unit sales. Due to excessive production during March, on March 31 there were 30,000 units of Product W in the ending inventory. Given this information, Tibu Company’s production of Product W for the month of April should be

60000

 

SEBI requires non Finance Companies to present cash flows using ___ method

Indirect

 

The cost allocation process comprise of one of the basic activities which is

Rationalisation of activities

 

Which of the following equation represents breakeven point? Ans- Contribution=Fixed Cost

For a financial institution interest paid and interest and dividends received are classified as         cash flow

Ans- Operating

Assumptions regarding the VCP graphs are

 

Ans- All of these

The costs of a single process, or a series of processes that simultaneously produce two or more products of significant sales value is

 

Ans- Joint cost

 

is not charged on items included in capital work in progress Ans- Depreciation

companies earn interest from investments and therefore for them interest income is not revenue

Ans- Non-financial

The term ‘financial statement’ covers

Ans- Profit & Loss Statement and Balance sheet If a company revalues its assets, its net worth Ans- Will improve

is a proxy for pre-tax cash operating margins Ans-EBITDA

analysis is used for trend analysis Ans-Horizontal

Quick ratio is also called Ans- acid-test ratio

refers to the ability to direct the use of and obtain substantially all of the remaining benefits from the assets.

Ans- control of an asset

In two stage system whether traditional or ABC will first allocate cost to

Ans- Departments or activities and then allocates costs to product or services

Many manufactures make more than one type of product and the relative proportion of each product solid in the aggregate sales is known as the

 

Ans-sales-mix

 

If an accounting firms certifies a company’s financial statement, it should have     to make the firm financial situation look better than it is

Ans- no financial incentive

The overheads are absorbed into different products under activity costing system Ans- Using departmental overhead rate

An asset is classified as a          asset if its value is not determinable in a fixed amount of cash. Ans- Non-monetary

All those costs which affect the decision are known as- Ans- Relevant costs

A capacity in which the normal working hours of a machine or worker or employee are considered is known as             ?

Ans-Practical capacity

Fixed costs are fixed for a relevant range of volume for a given

 

Ans- budget period

Income from ‘after sales services’ to customers should be included in

 

Ans-Other operating income

The Activity Based Costing (ABC) system has advantages

 

Ans-All of these

The following is true about activity-based costing

Ans- It is a two-stage cost allocation system that allocates costs to activities and then to products based on their use of the activities

Current tax asset is classified as

 

Ans-Current asset

Interest received; dividend received are an example of

 

Ans-Other income

 

are the only self-generated intangible assets allowed to be recognized in financial statement by GAAP

Ans-Softwares

Ethics and integrity standards are based on the following except: Ans-There are no clear rules and responsibilities in the group.

Which report gives a review on the profitability of a business Ans-Income statement

 

Costs that consist of both fixed costs and variable costs are known as

 

Ans- Mixed costs

It is a separate performance obligation Ans-Service warranty

The fixed manufacturing cost can be carried forward to next period as part of inventory cost in which of the following costing system        ?

Ans- Full costing

The difference between total sales and total variable costs is called as

 

Ans- The Contribution margin. P&L statement is also known as

Ans-All of these

The following is included in overheads:

Ans-All of these

Relevant costs are costs which would change as a result of the_ Ans- Decision

is the traditional method of income determination which includes all manufacturing costs i.e. variable and fixed expenses.

Ans-Absorption costing

Financial assistance to companies which invest in pollution control equipment is an example of

 

Ans- Government grant

 

are the expenses related to business activity but are disproportionate in amount or occur infrequently

Ans- Exceptional items

When production is less than units sold then the income under absorption costing will be ____ in   comparison to income under variable costing

Higher

Lower

Same

Difference of production and sales unit doesn’t affect profits.

Ans- Lower

When production is more than units sold then the income under absorption costing will be ____ in   comparison to income under variable costing

Ans- Higher

When a department or product line is dropped, the common fixed costs which had been allocated to that department:

Ans- are allocated to the remaining departments or product lines

Cash flow arising from the purchase and sale of dealing or trading securities are classified as       for a brokerage firm

Ans- Operating activities

 

When corporations seek to hide their true financial situation, the pressure to engage in

bookkeeping techniques falls on their accountants. Ans- Unethical & Illegal

Costs that tend to vary in direct proportion or in a one-to-one relationship to changes in production activity sales activity or some other measure of volume within relevant range for a given budget period are referred to as

 

Ans- Variable Costs

 

is an example of non-cash expense. Ans- Depreciation

From total income, when CoGS, Admin and Selling & Distribution expenses are deducted resulting profit is known as

 

Ans-EBITDA

 

The basis of absorption of factory overheads is

 

Ans-All of these

Flexible budget estimates costs at several levels of

 

Ans- Activity

Flexible budgets as a tool of planning and control, are superior to fixed budgets. The major weaknesses of fixed budgets are their inability to:

Ans- Show the potential variability of various estimates used in the preparation of the budget

 

Master budget is the overall budget for the entire     Ans- Organisation

 

The principle underlying the variable costing is that the fixed manufacturing overheads are               Ans-all of these

 

For an organization involved in construction of diverse type of housing like HIG, MIG and LIG houses, which of the following costing system is appropriate for absorptions of overheads?

Ans-Absorption costing

 

Which of the following would not cause the breakeven point to change? Ans- Sales volume decreases

 

Buy back of shares is an ____ of fund

 

Ans- Investment

 

Notes

Cost-Volume-Profit Analysis

 

  1. Break-even analysis assumes that over the relevant range: (CPA adapted)
A. Total Fixed Costs are nonlinear.
B. Total Costs are unchanged.
C. Unit Variable Costs are unchanged.
D. Unit Revenues are nonlinear.

The assumption is that over the relevant range unit variable costs remain unchanged or linear.

 

  1. At the break-even point, the total contribution margin equals total: (CPA adapted)
A. Variable costs.
B. Sales.
C. Selling and administrative costs.
D. Fixed costs.

This statement defines break-even (e.g., contribution margin – fixed costs = zero).

 

  1. On January 1, 2013, Lake increased its direct labor wage rates. All other budgeted costs and revenues were unchanged. How did this increase affect Lake’s budgeted break-even point

and budgeted margin of safety? (CPA adapted)

 

A. Option A
B. Option B
C. Option C
D. Option D

Direct labor is a variable cost, so the unit contribution margin will decrease, increasing the break-even point. Since break-even increases and sales are unchanged, the margin of safety decreases.

 

  1. During 2012, Thor Lab supplied hospitals with a comprehensive diagnostic kit for $120.

At a volume of 80,000 kits, Thor had fixed costs of $1,000,000 and a profit before income taxes of

$200,000. Due to an adverse legal decision, Thor’s 2013 liability insurance increased by $1,200,000 over 2012. Assuming the volume and other costs are unchanged, what should the 2013 price be if Thor is to make the same $200,000 profit before income taxes? (CPA adapted)

 

A. $122.50.
B. $135.00.
C. $152.50.
D. $240.00.

 

2012 CM% is 12.5% ($15/$120). 2013 CM = $2,400,000 ($1,000,000 + $200,000; 2013 CM per unit =

$2,400,000/80,000 units = $30 CM per unit; 2013 selling price per unit = $30/.125 = $240

 

  • The following information pertains to Syl :

What is Syl’s break-even point in sales dollars? (CPA adapted)

A. $200,000.
B. $160,000.
C. $50,000        ($800,000 – 160,000)/$800,000 = 80%; $40,000/.80 = $50,000.
D. $40,000.

 

 

  1. The following pertains to Clove Co. for the year ending December 31, 2012:

Clove’s margin of safety is: (CPA adapted)

A. $300,000.                                               $1,000,000 – $700,000 = $300,000.
B. $400,000.
C. $500,000.
D. $800,000.

 

  • Kator manufactures industrial components. One of its products used as a subcomponent in auto manufacturing is KB-96. The selling price and cost per unit data for 9,000 units of KB-96 are as follows.

 

During the next year, sales of KB-96 are expected to be 10,000 units. All costs will remain the same except for fixed manufacturing overhead, which will increase by 20%,

and material, which will increase by 10%. The selling price per unit for next year will be $160. Based on these data, Kator Inc.’s total contribution margin for next year will be: (CMA adapted)

A. $882,000.
B. $980,000.
C. $972,000.
D. $1,080,000.      [($160 – 22 – 15 – 12 – 3)10,000 units] = $1,080,000.

 

  • Sanfran has the following data:

How many units must Sanfran produce and sell in order to break even?

A. 8,333 units.
B. 12,500 units.
C. 15,000 units.
D. 22,500 units.         ($150,000 + 120,000)/($40 – 22 – 6) = 22,500 units

.

  • Sanfran has the following data:

How many units must Sanfran produce and sell in order to achieve a profit of $30,000 per month?

A. 10,000 units.
B. 8,824 units.
C. 25,000 units.          ($150,000 + 120,000 + 30,000)/($40 – 22 – 6) = 25,000 units.
D. 15,000 units.

 

  • Sanfran has the following data:

If Sanfran produces and sells 30,000 units, what is the margin of safety in units?

A. 5,000 units.
B. 7,500 units.                30,000 – 22,500 = 7,500 units
C. 22,500 units.
D. 30,000 units.

 

  1. Acme Sales has two store locations. Store A has fixed costs of $125,000 per month and a variable cost ratio of 60%. Store B has fixed costs of $200,000 per month and a variable cost ratio of 30%. What is the break-even sales volume for Store B?
A. $666,667.
B. $325,000.
C. $285,714.                       $200,000/(1 – .3) = $285,714.
D. Cannot determine with the information given.

 

  1. Which of the following would not cause the break-even point to change?
A. Sales price increases.
B. Sales volume increases.
C. Fixed cost increases.
D. Variable costs per unit decreases.
E. Product mix shifts towards the cheaper products.

Volume changes do not affect the break-even point.

 

  1. If the fixed costs for a product increase and the variable costs (as a percentage of sales dollars) increase, what will be the effect on the contribution margin ratio and the break-even point, respectively?

 

A. Option A
B. Option B
C. Option C
D. Option D

A variable cost increase will decrease CM%; a fixed cost increase will increase the break-even point.

 

  1. A company’s break-even point will not be increased by:
A. an increase in the number of units produced and sold.
B. a decrease in the selling price per unit.
C. an increase in the variable cost per unit.
D. an increase in the variable cost ratio.
E. an increase in total fixed costs.

Volume changes do not affect the break-even point.

  1. A company’s break-even point will not be changed by:
A. a change in total fixed costs.
B. a change in the number of units produced and sold.
C. a change in the variable cost ratio.
D. a change in the contribution margin ratio.
E. a change in the product mix.

Volume changes do not affect the break-even point.

 

  1. If both the variable cost per unit and the selling price per unit increase, the new contribution margin ratio in relation to the old contribution margin ratio will be:
A. Lower.
B. Higher.
C. Unchanged.
D. Cannot determine with the information given.

Need to know size of increase of each.

 

  • Misa Corporation manufactures circuit boards and is in the process of preparing next year’s The pro forma income statement for the current year is presented below.

For the coming year, the management of Misa Corporation anticipates a 5 percent decrease in sales, a 10 percent increase in all variable costs, and a $45,000 increase in fixed costs.

The operating profit for next year would be:

A. $477,500.
B. $492,500.
C. $552,500.
D. $831,250.

($3,500,000 × .95) – ($1,775,000 × 1.10) – ($850,000 + 45,000) = $477,500.

 

  1. You have been provided with the following information:

If sales decrease by 10%, what level of fixed costs will maintain the current operating profit?

A. $12,000.
B. $20,400.                  $36,000 × .9 – 12,000 = $20,400.
C. $21,600.
D. $24,000.

 

  1. The difference between total sales in dollars and total variable costs is called:
A. operating profit.
B. net profit.
C. the gross margin.
D. the contribution margin.

Contribution margin = Total sales – Total variable costs.

 

  1. Which of the following formulas is used to calculate the contribution margin ratio?
A. (Sales – Fixed costs) ÷ Sales.
B. (Sales – Cost of goods sold) ÷ Sales.
C. (Sales – Variable costs) ÷ Sales.
D. (Sales – Total costs) ÷ Sales.

(Sales – Variable costs) ÷ Sales.

 

  1. Break-even analysis assumes that:
A. total costs are constant.
B. the average fixed cost per unit is constant.
C. the average variable cost per unit is constant.
D. variable costs are nonlinear.

The average variable cost per unit is constant.

  1. If Q equals the level of output, P is the selling price per unit, V is the variable cost per unit, and F is the fixed cost, then the break-even point in units is:
A. Q ÷ (P-V).
B. F ÷ (P-V).
C. V ÷ (P-V).
D. F ÷ [Q(P-V)].

Unit sales to break-even = Fixed costs ÷ Unit CM or F ÷ (P-V).

  1. The margin of safety percentage is computed as:
A. Break-even sales ÷ Total sales.
B. Total sales – Break-even sales.
C. (Total sales – Break-even sales) ÷ Break-even sales.
D. (Total sales – Break-even sales) ÷ Total sales.

Margin of safety percentage = Margin of safety in dollars ÷ Total budgeted (or actual) sales

 

  1. The amount by which a company’s sales can decline before losses are incurred is called the:
A. contribution margin ratio.
B. degree of operating leverage.
C. margin of safety.
D. contribution margin.

This is a basic description for margin of safety.

  • Mancuso Corporation has provided its contribution format income statement for The company produces and sells a single product.

If the company sells 3,100 units, its total contribution margin should be closest to:

A. $27,045.
B. $181,000.
C. $162,400.
D. $173,600.

See calculation below.

 

* Sales $269,700 ÷ 2,900 = $93.00 per unit Variable costs $107,300 ÷ 2,900 = $37.00 per unit Sales 3,100 units × $93 per unit = $288,300

Variable costs (Manufacturing) 3,100 units × $37 per unit = $114,700

 

  1. Which of the following statements is (are) true regarding cost behaviors?
    • In general, accounting records accumulate cost information according to its
    • Cost behaviors are the most important consideration in managerial decision
A. Only A is true.
B. Only B is true.
C. Both A and B are true.
D. Neither A nor B is true.

Accounting records are by account and not by behavior.

  1. Which cost estimation method does not use the company’s cost information as its primary source of information about the relationship between total costs and activity levels?
A. Scattergraph.
B. High-low.
C. Account analysis.
D. Regression analysis.
E. Engineering estimates.

The engineering method uses time and motion studies (estimates), rather than cost estimates.

  1. A manager is trying to estimate the manufacturing costs of a new product. The company makes several other products that utilize some of the same manufacturing procedures as the new product. Which cost estimation method would be the best method to determine the total cost of manufacturing the new product?
A. Engineering estimates.
B. Regression analysis.
C. Account analysis.
D. Scattergraph.
E. High-low.

A new product has no previous history so there is no past data regression or account analysis ability.

  1. Engineering cost estimates are usually based on operating conditions that are considered:
A. optimal.
B. practical.
C. attainable.
D. historical.
E. realistic.

Engineering estimates are often based on optimal conditions. This a difficulty in selecting this technique.

  1. Which of the following costs would most likely be classified as variable, assuming the account analysis method is used to determine cost behaviors?
A. Indirect materials.
B. Supervisory salaries.
C. Equipment maintenance.
D. Annual Christmas party.
E. Building occupancy costs.

Only indirect materials would have variable behavior. All the other items have fixed behavior.

 

  1. In the cost equation TC = F + VX, X is best described as the:
A. costs that do not vary with changes in the activity level.
B. costs that do vary with changes in the activity level.
C. total cost estimate at a particular activity level.
D. activity level used to estimate the total cost.

For example, this would be the volume in number of units of output, by definition

 

  1. In the cost equation TC = F + VX, V is best described as the:
A. costs that do not vary with changes in the activity level.
B. intercept of the cost equation.
C. slope of the cost equation.
D. activity level used to estimate the dependent variable.

This is the variable cost per unit which makes up the slope of the variable cost curve.

  1. Which of the following cost estimation methods finds the fixed portion of a mixed cost before calculating the variable portion?
A. Scattergraph.
B. High-low method.
C. Account analysis.
D. Linear regression.
E. Engineering approach.

All of the other methods estimate the variable portion either first or simultaneously with fixed costs.

  1. The term “relevant range” as used in cost accounting means the range over which:
A. relevant costs are incurred.
B. costs may fluctuate.
C. cost relationships are valid.
D. cost data is available.

This is the level of activity for which a cost estimate may be valid.

  1. The of the following cost estimation methods finds the variable portion of a mixed cost before calculating the fixed portion?
A. Scattergraph.
B. High-low method.
C. Account analysis.
D. Linear regression.
E. Engineering approach.

Account analysis finds the fixed first; regression and engineering find fixed and variable simultaneously.

 

  1. A disadvantage of the high-low method of cost analysis is that it:
A. typically results in a totally inaccurate cost formula.
B. is too time consuming to apply.
C. uses only two data points, which may not be representative of normal conditions.
D. relies totally on the judgment of the person performing the cost analysis.

The estimates are not always inaccurate, it is fast to apply, and it doesn’t rely solely on judgment.

 

  1. In the standard regression equation of y = a + bx, the letter b is best described as the:
A. independent variable.
B. dependent variable.
C. slope of the equation.
D. intercept of the equation.

This a basic definition of the term of the formula.

38 .In the standard regression equation of y = a + bx, the letter a is best described as the:

A. independent variable.
B. dependent variable.
C. slope of the equation.
D. intercept of the equation.

This a basic definition of the term of the formula.

  1. In the standard regression equation of y = a + bx, the letter y is best described as the:
A. independent variable.
B. dependent variable.
C. slope of the equation.
D. intercept of the equation.

This a basic definition of the term of the formula.

 

  1. Given actual amounts of a semivariable cost for various levels of output, the method that will always give the most reliable measure of the fixed and variable components is the:
A. high-low method.
B. linear regression method.
C. scattergraph method.
D. account analysis method.

Linear regression will always give the best line, high-low may give the best line, scattergraph and account analysis rely on judgment.

 

  1. Which of the following statements regarding regression analysis is (are) true?
    • One way to control the effects of a nonlinear relationship between total costs and activity is reduce the relevant range.
    • The linear cost estimate tends to understate the slope of the cost line in ranges close to
A. Only A is true.
B. Only B is true.
C. Both A and B are true.
D. Neither A nor B is true.

When capacity is approached there are more scheduling problems and overtime may be needed, changing the variable cost.

  1. Mount Company incurred a total cost of $8,600 to produce 400 units of pulp. Each unit of pulp required five (5) direct labor hours to What is the total fixed cost if the variable cost was $1.50 per direct labor hour?
A. $1,700.
B. $3,000.
C. $5,600.
D. $8,000.

$8,600 = FC + $1.50(400)(5); FC = $5,600

 

  1. Given the following information, compute the total number of units for the period:

 

A. 360.
B. 432.
C. 640.
D. 840.

$132,600 = $75(units) + 12,000($2.70) + .50(12,000)($2.70) + $36,000; Units = 640

  1. The Shapely Company uses the high-low method to determine its cost equation. The following information was gathered for the past year:

What are the direct labor costs per machine hour?

A. $20.00.
B. $16.00.
C. $14.29.
D. $10.00.

VC per M/C Hr. = ($200,000 – 120,000)/(14,000 – 6,000) = $10.00

 

  1. A common cost that should not be assigned to a particular product on a segmented income statement is:
  2. the product’s advertising

B.    the salary of the corporation president.                X

  1. direct materials
  2. the product manager’s salary.

 

  1. Segment margin is sales minus:
  2. variable
  3. traceable fixed expenses.
  4. variable expenses and common fixed

D.    variable expenses and traceable fixed expenses.                                                                                                               X

 

  • Would the following costs be classified as product or period costs under variable costing at a retail clothing store?
  1. Option A
  2. Option B
  3. Option C

D.    Option D          X

 

Chapter 6 multiple choice questions Variable costing

 

  • Would the following costs be classified as product or period costs under variable costing at a retail clothing store?
    1. Option A
    2. Option B
    3. Option C

D.    Option D          X

 

  • Fixed manufacturing overhead is included in product costs under:
    1. Option A
    2. Option B
    3. Option C

D.    Option D           X

 

  1. Which of the following are considered to be product costs under variable costing?

 

  1. Variable manufacturing
  2. Fixed manufacturing
  • Selling and administrative

A.    I.              X

  1. I and
  2. I and
  3. I, II, and

 

  1. Which of the following are considered to be product costs under absorption costing?

 

  1. Variable manufacturing
  2. Fixed manufacturing
  • Selling and administrative
  1. I, II, and
  2. I and
  3. I and

 

  1. Under variable costing, costs that are treated as period costs include:
    1. only fixed manufacturing
    2. both variable and fixed manufacturing

C.    all fixed costs.                       X

  1. only fixed selling and administrative

 

  1. Selling and administrative expenses are considered to be:
    1. a product cost under variable
    2. a product cost under absorption
    3. part of fixed manufacturing overhead under variable

D.    a period cost under variable costing.                X

 

  1. A portion of the total fixed manufacturing overhead cost incurred during a period may:

A.    be excluded from cost of goods sold under absorption costing.                                                                                             X

  1. be charged as a period cost with the remainder deferred under variable
  2. never be excluded from cost of goods sold under absorption
  3. never be excluded from cost of goods sold under variable

 

  1. Net operating income reported under absorption costing will exceed net operating income reported under variable costing for a given period if:
    1. production equals sales for that

B.    production exceeds sales for that period.             X

  1. sales exceed production for that
  2. the variable manufacturing overhead exceeds the fixed manufacturing

 

  1. If the number of units produced exceeds the number of units sold, then net operating income under absorption costing will:
    1. be equal to the net operating income under variable

B.    be greater than net operating income under variable costing.                                                                                             X

  1. be equal to the net operating income under variable costing plus total fixed manufacturing
  2. be equal to the net operating income under variable costing less total fixed manufacturing

 

  1. Over an extended period of time in which the final ending inventories are zero, the accumulated net operating income figures reported under absorption costing will be:
    1. greater than those reported under variable
    2. less than those reported under variable costing.

C.    the same as those reported under variable costing.                                                                                               X

  1. higher or lower since no generalization can be made.

 

  1. A common cost that should not be assigned to a particular product on a segmented income statement is:
    1. the product’s advertising

B.    the salary of the corporation president.                X

  1. direct materials
  2. the product manager’s salary.

 

 

  1. Segment margin is sales minus:
    1. variable
    2. traceable fixed expenses.
    3. variable expenses and common fixed

D.    variable expenses and traceable fixed expenses.                                                                                                               X

 

  • Gangwer Corporation produces a single product and has the following cost structure:

The absorption costing unit product cost is:

A. $95                 X

  1. $119
  2. $61
  3. $56

 

 

  • A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

What is the total period cost for the month under variable costing? A. $185,000

  1. $117,600
  2. $273,200

D. $302,600                 X

 

 

 

  • Cockriel Inc., which produces a single product, has provided the following data for its most recent month of operations:

There were no beginning or ending inventories. The variable costing unit product cost was:

  1. $42
  2. $43

C. $37                 X            DM + DL + VMOH  (14 +22+1= 37)

  1. $48

 

 

  • Roy Corporation produces a single product. During July, Roy produced 10,000 Costs incurred during the month were as follows:

Under absorption costing, any unsold units would be carried in the inventory account at a unit product cost of:

  1. $5.10

B. $4.40                   X         10,000 +20,000+ 5,000+ 9,000 = 44,000/ 10,000 Units = 4.40

  1. $3.80
  2. $3.50

 

  1. Last year, Heidenescher Corporation’s variable costing net operating income was $63,600 and its inventory decreased by 600 Fixed manufacturing overhead cost was $1 per unit. What was the absorption costing net operating income last year?
  2. $64,200

B. $63,000               X

  1. $63,600
  2. $600

 

 

  1. Sproles Inc. manufactures a variety of products. Variable costing net operating income was $90,500 last year and its inventory decreased by 3,500 units. Fixed manufacturing overhead cost was $6 per unit. What was the absorption costing net operating income last year?
  2. $90,500
  3. $21,000

C. $69,500                 X

  1. $111,500

 

 

  1. Tsuchiya Corporation manufactures a variety of products. Last year, the company’s variable costing net operating income was $57,500. Fixed manufacturing overhead costs deferred in inventory under absorption costing amounted to $35,400. What was the absorption costing net operating income last year?
  2. $22,100
  3. $35,400
  4. $57,500

D. $92,900                                      X

 

  1. The ARB Company has two divisions: Electronics and DVD/Video Sales. Electronics has traceable fixed expenses of $146,280 and the DVD/Video Sales has traceable fixed expenses of $81,765. If ARB Company has a total of $322,490 in fixed expenses, what are its common fixed expenses?

A. $94,445           X

  1. $322,490
  2. $228,045
  3. $47,223

 

Common fixed expenses = Total fixed expenses – Traceable fixed expenses

= $322,490 – ($146,280 + $81,765) =$94,445

 

 

  1. Sugiki Corporation has two divisions: the Alpha Division and the Delta Division. The Alpha Division has sales of $820,000, variable expenses of $369,000, and traceable fixed expenses of $347,300. The Delta Division has sales of $460,000, variable expenses of $294,400, and traceable fixed expenses of $134,100. The total amount of common fixed expenses not traceable to the individual divisions is $97,300. What is the company’s net operating income?
  2. $135,200

B. $37,900                      X

  1. $616,600
  2. $519,300

 

 

 

 

Ch 7 MULTIPLE CHOICES ( ABC)

 

  1.          is the length of time required to produce one product;                                                                                                  is the number of units that can be produced in a given period of
a. Cycle time; velocity
b. Velocity; cycle time
c. Activity time; cycle production
d. Cycle time; activity output
e. Velocity; cycle production

 

  1. The identification and elimination of activities that fail to add value refers to:
a. activity selection
b. activity sharing
c. activity reduction
d. activity elimination

 

  1. The process of choosing among different sets of activities caused by competing strategies refers to:
a. activity elimination
b. activity reduction
c. activity selection
d. activity sharing

 

  1. The process of decreasing the time and resources required by an activity is known as:
a. activity reduction
b. activity sharing
c. activity elimination
d. activity selection

 

  1. Increasing the efficiency of necessary activities by using economies of scale is known as:
a. activity elimination
b. activity sharing
c. activity reduction
d. activity selection
  1. Setups, material handling, and inspection are all possible examples of:
a. non-unit level overhead activities
b. unit level overhead activities
c. product diversity
d. sustainable development
e. none of these

 

  1. is present whenever products have different consumption ratios for different overhead
a. Volume costing
b. Activity based costing
c. Product diversity
d. Allocable costing
e. None of these

 

  1. A ratio measures the proportion of an activity consumed by a
a. production
b. consumption
c. efficiency
d. quality
e. usage

 

  1. A costing system that first assigns costs to activities and then to products is:
a. activity based costing
b. kaizen costing
c. production costing
d. volume based costing
e. unit-level costing

 

  1. A list of activities accompanied by information that describes each activity is an activity .
a. manifesto
b. Diary
c. Journal
d. dictionary
e. Note
  1.          are assigned using direct tracing and resource
a. Resources
b. Costs
c. Profits
d. Materials
e. Products
  1.          is concerned with identifying the root causes of activity
a. Direct analysis
b. Activity analysis
c. Driver analysis
d. Causal analysis
e. None of these

 

  1. Which of the following is not one of the three conditions necessary to be classified as a discretionary activity?
a. the activity produces a change of state
b. the change of state was not achievable by preceding activities
c. the activity enables other activities to be performed
d. the activity increases efficiency
  1.          activities are unnecessary
a. Frivolous
b. Nonvalue-added
c. Expensive
d. Under-performing
e. none of these

 

  1. Using only unit-based activity drivers to assign non-unit-related overhead costs can cause:
a. distorted product costs
b. product diversity
c. efficiency
d. activity sharing
e. none of these

 

  1. Activity drivers can be classified as either or          .
a. unit-level; non-unit-level
b. exact; inexact
c. inputs; outputs
d. right; wrong

 

  1. In an activity dictionary, types of resources consumed is an example of a(n)
a. activity sharing
b. Quality
c. activity attribute
d. Allocation

 

  1. A is derived from the interview process (or written survey).
a. work distribution matrix
b. activity explanation matrix
c. driver consumption matrix
d. value analysis matrix
e. tracing matrix

 

  1. To calculate an activity rate, the of each activity must be
a. Value
b. expenditure level
c. processing ratio
d. practical capacity

 

  1. Which of the following is not a possible source of customer diversity?
a. sales support
b. order frequency
c. delivery frequency
d. geographic distance
e. Pricing
  1. All of the following are supplier-driven activities except:
a. Receiving
b. Purchasing
c. Efficiency
d. inspection of incoming components

 

  1. Which is NOT a component of process value analysis?
a. driver analysis
b. Velocity
c. activity analysis
d. performance measurement
e. none of these

 

  1. Complying with the filing requirements of the IRS is an example of a:
a. recreational activity
b. discretionary activity
c. recommended activity
d. required activity

 

  1. Which of the following is NOT an example of a nonvalue-added activity?
a. Inspecting
b. Scheduling
c. Moving
d. Waiting
e. Supervising

 

  1.          focuses on the relationship of activity inputs to activity
a. Quality
b. Efficiency
c. Time
d. Cycle time
e. none of these

 

From the following details calculate Interest Coverage Ratio:
Net profit after tax – ₹ 7,00,000
6% debentures of ₹ 20,00,000
Tax Rate 30%

Solution :

Net Profit Before Tax – Tax paid = Net Profit After Tax
x – 30/100 (x) = ₹7,00,000
x = ₹ 7,00,000 (100/70)
x = ₹ 10,00,000
Net Profit Before Tax = ₹ 10,00,000
Interest Payment = 6/100 (₹ 20,00,000) = ₹ 1,20,000
Earning Before Interest and Tax = Net Profit Before Tax + Interest Payment
= ₹ 10,00,000 + ₹ 1,20,000
= ₹11,20,000
Interest Coverage ration =Earning Before Interest and TaxInterest Expense =Earning Before Interest and TaxInterest Expense
Interest Coverage Ratio =₹11,20,000/₹1,20,000=₹11,20,000/₹1,20,000
Interest Coverage Ratio =9.33 times.

 

 

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