Final Exam PDF

Chapter 04 - Process Costing
Chapter 04
Process Costing
Multiple Choice Questions
13. In a process costing system, manufacturing overhead applied is usually recorded as a debit
to:
A. Finished goods.
B. Work in process.
C. Manufacturing overhead.
D. Cost of goods sold.
AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Knowledge
Learning Objective: 04-01 Record the flow of materials; labor; and overhead through a process costing system
Level: Easy
14. A company has two processing departments: A and B. Which of the following entries or
sets of journal entries would be used to record the transfer between processing departments
and from the final processing department to finished goods?
A.
B.
C.
D.

Bloom's: Comprehension
Level: Medium
4-1
15. A process costing system:

A. uses a separate Work in Process account for each processing department.
B. uses a single Work in Process account for the entire company.
C. uses a separate Work in Process account for each type of product produced.
D. does not use a Work in Process account in any form.

Level: Medium
16. A company should use process costing, rather than job order costing, if:
A. production is only partially completed during the accounting period.
B. the product is manufactured in batches only as orders are received.
C. the product is composed of mass-produced homogeneous units.
D. the product goes through several steps of production.

Bloom's: Knowledge
Level: Easy
17. Which of the following characteristics applies to process costing, but does not apply to job
order costing?
A. The need for averaging.
B. The use of equivalent units of production.
C. Separate, identifiable jobs.
D. The use of predetermined overhead rates.

Bloom's: Knowledge
Level: Easy
4-2
18. Equivalent units for a process costing system using the weighted-average method would
be equal to:
A. units completed during the period and transferred out.
B. units started and completed during the period plus equivalent units in the ending work in
process inventory.
C. units completed during the period less equivalent units in the beginning inventory, plus
equivalent units in the ending work in process inventory.
D. units completed during the period plus equivalent units in the ending work in process
inventory.

Learning Objective: 04-02 Compute the equivalent units of production using the weighted-average method
Level: Medium
19. The cost of beginning inventory under the weighted-average method is:
A. added in with current period costs in determining costs per equivalent unit for a given
period.
B. ignored in determining the costs per equivalent unit for a given period.
C. considered separately from costs incurred during the current period.
D. subtracted from current period costs in determining costs per equivalent unit for a given
period.

Bloom's: Knowledge
Learning Objective: 04-03 Compute the cost per equivalent unit using the weighted-average method
Level: Easy
4-3
20. The Nichols Company uses the weighted-average method in its process costing system.
The company recorded 29,500 equivalent units for conversion costs for November in a
particular department. There were 6,000 units in the ending work in process inventory on
November 30, 75% complete with respect to conversion costs. The November 1 work in
process inventory consisted of 8,000 units, 50% complete with respect to conversion costs. A
total of 25,000 units were completed and transferred out of the department during the month.
The number of units started during November in the department was:
A. 24,500 units
B. 23,000 units
C. 27,000 units
D. 21,000 units
Beginning work in process inventory + Units started into production = Ending work in
process inventory + Units completed and transferred out
Units started into production = Ending work in process inventory + Units completed and
transferred out - Beginning work in process inventory
= 6,000 + 25,000 - 8,000 = 23,000
AACSB: Analytic
Bloom's: Application
Level: Medium
4-4
21. The Assembly Department started the month with 14,000 units in its beginning work in
process inventory. An additional 296,000 units were transferred in from the prior department
during the month to begin processing in the Assembly Department. There were 14,000 units
in the ending work in process inventory of the Assembly Department.
How many units were transferred to the next processing department during the month?
A. 293,000
B. 310,000
C. 324,000
D. 296,000
Beginning work in process inventory + Units started into production or transferred in =

Ending work in process inventory + Units completed and transferred out
Units started into production or transferred in = Ending work in process inventory + Units
completed and transferred out - Beginning work in process inventory
= 14,000 + 296,000 - 14,000 = 296,000
AACSB: Analytic
Level: Easy
4-5
22. Diston Company uses the weighted-average method in its process costing system. The
first processing department, the Welding Department, started the month with 18,000 units in
its beginning work in process inventory that were 30% complete with respect to conversion
costs. The conversion cost in this beginning work in process inventory was $44,820. An
additional 90,000 units were started into production during the month. There were 21,000
units in the ending work in process inventory of the Welding Department that were 10%
complete with respect to conversion costs. A total of $677,970 in conversion costs were
incurred in the department during the month.
What would be the cost per equivalent unit for conversion costs for the month? (Round off to
three decimal places.)
A. $8.112
B. $8.300
C. $7.533
D. $6.108
Units transferred to the next department = Units in beginning work in process + Units started
into production - Units in ending work in process
= 18,000 + 90,000 - 21,000 = 87,000
AACSB: Analytic
Level: Medium
4-6
23. Loll Company uses the weighted-average method in its process costing system. Operating
data for the first processing department for the month of June appear below:
According to the company's records, the conversion cost in beginning work in process
inventory was $46,915 at the beginning of June. Additional conversion costs of $825,183
were incurred in the department during the month.
What was the cost per equivalent unit for conversion costs for the month? (Round off to three
decimal places.)
A. $8.420
B. $6.934
C. $8.530
D. $8.322
into production - Units in ending work in process = 11,000 + 98,000 - 21,000 = 88,000
AACSB: Analytic
Level: Medium
4-7
24. The following information pertains to Yap Company's Grinding Department for the month
of April:
All materials are added at the beginning of the process. Using the weighted-average method,
the cost per equivalent unit for materials is closest to:
A. $0.59
B. $0.55
C. $0.45
D. $0.43
AACSB: Analytic
Level: Medium
Source: CMA, adapted
4-8
25. Hardouin Company uses the weighted-average method in its process costing system. The
first processing department, the Welding Department, started the month with 22,000 units in
its beginning work in process inventory that were 20% complete with respect to conversion
additional 97,000 units were started into production during the month and 101,000 units were
completed in the Welding Department and transferred to the next processing department.
There were 18,000 units in the ending work in process inventory of the Welding Department
that were 40% complete with respect to conversion costs. A total of $529,380 in conversion
costs were incurred in the department during the month.
What would be the cost per equivalent unit for conversion costs for the month? (Round off to
A. $5.300
B. $5.458
C. $4.603
D. $5.108
AACSB: Analytic
Level: Medium
4-9
26. Parmentier Company uses the weighted-average method in its process costing system. The
Molding Department is the second department in its production process. The data below
summarize the department's operations in January.
The accounting records indicate that the conversion cost that had been assigned to beginning
work in process inventory was $5,096 and a total of $87,668 in conversion costs were
incurred in the department during January.
What was the cost per equivalent unit for conversion costs for January in the Molding
Department? (Round off to three decimal places.)
A. $1.654
B. $1.752
C. $1.490
D. $1.499
AACSB: Analytic
Level: Medium
4-10
27. Scheney Company uses the weighted-average method in its process costing system. The
company's work in process inventory on March 31 consisted of 20,000 units. The units in the
ending work in process inventory were 100% complete with respect to materials and 70%
complete with respect to labor and overhead. If the cost per equivalent unit for March was
$2.50 for materials and $4.75 for labor and overhead, the total cost in the March 31 work in
process inventory was:
A. $145,000
B. $116,500
C. $101,500
D. $78,500
AACSB: Analytic
Learning Objective: 04-04 Assign costs to units using the weighted-average method
Level: Medium
4-11
28. The following data were taken from the accounting records of the Hazel Corporation
which uses the weighted-average method in its process costing system:
The equivalent units for conversion costs was:

A. 102,000 units
B. 112,000 units
C. 111,000 units
D. 100,000 units
AACSB: Analytic
Level: Medium
4-12
29. Borwan Company uses the weighted-average method in its process costing system. The
Assembly Department started the month with 8,000 units in its beginning work in process
inventory that were 70% complete with respect to conversion costs. An additional 69,000
units were transferred in from the prior department during the month to begin processing in
the Assembly Department. There were 5,000 units in the ending work in process inventory of
the Assembly Department that were 20% complete with respect to conversion costs.
What were the equivalent units for conversion costs in the Assembly Department for the
month?
A. 67,400
B. 73,000
C. 72,000
D. 66,000
AACSB: Analytic
Level: Medium
4-13
30. Jastak Company uses the weighted-average method in its process costing system.
Operating data for the Painting Department for the month of April appear below:
What were the equivalent units for conversion costs in the Painting Department for April?
A. 106,100
B. 91,500
C. 98,970
D. 106,270
AACSB: Analytic
Level: Medium
4-14
31. Fayard Corporation uses the weighted-average method in its process costing system. The
Assembly Department started the month with 5,000 units in its beginning work in process
inventory that were 70% complete with respect to conversion costs. An additional 67,000
units were transferred in from the prior department during the month to begin processing in
the Assembly Department. During the month 63,000 units were completed in the Assembly
Department and transferred to the next processing department. There were 9,000 units in the
ending work in process inventory of the Assembly Department that were 50% complete with
respect to conversion costs.
month?
A. 71,000
B. 64,000
C. 63,000
D. 67,500
AACSB: Analytic
Level: Easy
4-15
32. Nguyen Corporation uses the weighted-average method in its process costing system.
Operating data for the Lubricating Department for the month of October appear below:
What were the equivalent units for conversion costs in the Lubricating Department for
October?
A. 53,700
B. 52,280
C. 54,080
D. 50,100
AACSB: Analytic
Level: Easy
4-16
33. Sanchez Corporation uses the weighted-average method in its process costing system. The
Fitting Department is the second department in its production process. The data below
summarize the department's operations in March.
The Fitting Department's cost per equivalent unit for conversion cost for March was $8.66.
How much conversion cost was assigned to the units transferred out of the Fitting Department
during March?
A. $480,630
B. $450,320
C. $444,258
D. $510,940
AACSB: Analytic
Level: Medium
4-17
34. The Gasson Company uses the weighted-average method in its process costing system.
The company's ending work in process inventory consists of 10,000 units, 100% complete
with respect to materials and 70% complete with respect to labor and overhead. If the costs
per equivalent unit are $4.50 for the materials and $2.00 for labor and overhead, the balance
of the ending work in process inventory account would be:
A. $44,500
B. $50,500
C. $59,000
D. $65,000
AACSB: Analytic
Level: Easy
4-18
35. Ravalt Corporation uses the weighted-average method in its process costing system. The
Molding Department is the second department in its production process. The data below
summarize the department's operations in January.
The Molding Department's cost per equivalent unit for conversion cost for January was $7.90.
How much conversion cost was assigned to the ending work in process inventory in the
Molding Department for January?
A. $27,729
B. $30,810
C. $3,081
D. $5,056
AACSB: Analytic
Level: Easy
4-19
36. In February, one of the processing departments at Carpentier Corporation had beginning
work in process inventory of $14,000 and ending work in process inventory of $29,000.
During the month, $148,000 of costs were added to production and the cost of units
transferred out from the department was $133,000. In the department's cost reconciliation
report for February, the total cost to be accounted for would be:
A. $310,000
B. $162,000
C. $324,000
D. $43,000
AACSB: Analytic
Learning Objective: 04-05 Prepare a cost reconciliation report
Level: Easy
4-20
37. In February, one of the processing departments at Whisenhunt Corporation had beginning
During the month, the cost of units transferred out from the department was $410,000. In the
department's cost reconciliation report for February, the total cost to be accounted for would
be:
A. $46,000
B. $807,000
C. $842,000
D. $421,000
AACSB: Analytic
Level: Medium
Jumper Company uses the weighted-average method in its process costing system. The
following data pertain to operations in the first processing department for a recent month:
4-21
38. How many units were in the ending work in process inventory?
A. 600 units
B. 1,000 units
C. 800 units
D. 1,400 units
Units in ending work in process = Units in beginning work in process + Units started into
production - Units transferred to the next department = 400 + 15,000 - 14,400 = 1,000
AACSB: Analytic
Level: Medium
39. What was the cost per equivalent unit for conversion cost?
A. $5.00
B. $12.30
C. $8.50
D. $14.75
AACSB: Analytic
Level: Medium
4-22
40. How much cost, in total, was transferred to the next department during the month?
A. $315,200
B. $306,000
C. $312,000
D. $317,100
AACSB: Analytic
Level: Medium
4-23
Atwich Corporation uses the weighted-average method in its process costing system. This
month, the beginning inventory in the first processing department consisted of 600 units. The
costs and percentage completion of these units in beginning inventory were:
A total of 5,100 units were started and 4,400 units were transferred to the second processing
department during the month. The following costs were incurred in the first processing
department during the month:
The ending inventory was 75% complete with respect to materials and 10% complete with
Note: Your answers may differ from those offered below due to rounding error. In all cases,
select the answer that is the closest to the answer you computed. To reduce rounding error,
carry out all computations to at least three decimal places.
4-24
41. What are the equivalent units for conversion costs for the month in the first processing
department?
A. 4,400
B. 4,530
C. 130
D. 5,700
Units in beginning work in process inventory + Units started into production or transferred in
= Units in ending work in process inventory + Units completed and transferred out
600 + 5,100 = Units in ending work in process inventory + 4,400
Units in ending work in process inventory = 600 + 5,100 - 4,400 = 1,300
AACSB: Analytic
Level: Medium
4-25
42. The cost per equivalent unit for materials for the month in the first processing department
is closest to:
A. $21.28
B. $20.07
C. $19.29
D. $18.19
AACSB: Analytic
Level: Medium
4-26
43. The cost per equivalent unit for conversion costs for the first department for the month is
closest to:
A. $34.18
B. $39.93
C. $43.00
D. $45.15
AACSB: Analytic
Level: Medium
4-27
44. The total cost transferred from the first processing department to the next processing
department during the month is closest to:
A. $366,430
B. $284,600
C. $309,200
D. $282,858
AACSB: Analytic
Level: Medium
4-28
45. The cost of ending work in process inventory in the first processing department according
to the company's cost system is closest to:
A. $26,342
B. $62,679
C. $8,357
D. $83,572
AACSB: Analytic
Level: Medium
4-29
Byklea Corporation uses the weighted-average method in its process costing system. This
46. How many units are in ending work in process inventory in the first processing
department at the end of the month?
A. 500
B. 900
C. 300
D. 6,800
production - Units transferred to the next department = 200 + 7,000 - 6,700 = 500
AACSB: Analytic
Level: Easy
4-30
department?
A. 6,925
B. 7,200
C. 6,700
D. 225
AACSB: Analytic
Level: Medium
4-31
is closest to:
A. $18.88
B. $18.75
C. $18.33
D. $18.46
AACSB: Analytic
Level: Medium
4-32
closest to:
A. $32.03
B. $30.81
C. $33.63
D. $31.64
AACSB: Analytic
Level: Medium
4-33
A. $351,100
B. $366,552
C. $356,800
D. $341,097
AACSB: Analytic
Level: Medium
4-34
A. $22,910
B. $15,703
C. $25,455
D. $11,455
AACSB: Analytic
Level: Medium
4-35
Chae Corporation uses the weighted-average method in its process costing system. This
A. 1,100
B. 900
C. 600
D. 7,600
production - Units transferred to the next department = 500 + 8,100 -7,500 = 1,100
AACSB: Analytic
Level: Easy
4-36
department?
A. 8,600
B. 825
C. 7,500
D. 8,325
AACSB: Analytic
Level: Medium
4-37
is closest to:
A. $16.32
B. $17.17
C. $15.91
D. $16.73
AACSB: Analytic
Level: Medium
4-38
A. $486,614
B. $472,000
C. $459,200
D. $424,373
AACSB: Analytic
Level: Medium
4-39
Epstein Corporation uses the weighted-average method in its process costing system. This
department?
A. 405
B. 6,905
C. 6,500
D. 7,400
AACSB: Analytic
Level: Medium
4-40
is closest to:
A. $12.84
B. $13.32
C. $13.08
D. $12.61
AACSB: Analytic
Level: Medium
4-41
A. $248,529
B. $218,303
C. $236,700
D. $228,800
AACSB: Analytic
Level: Medium
4-42
Froment Corporation uses the weighted-average method in its process costing system. This
4-43
A. $328,155
B. $309,200
C. $311,600
D. $299,796
AACSB: Analytic
Level: Medium
4-44
A. $28,359
B. $18,433
C. $7,090
D. $11,809
Weighted-average method:
AACSB: Analytic
Level: Medium
4-45
Grosseiller Corporation uses the weighted-average method in its process costing system. This
A. 2,100
B. 1,200
C. 5,500
D. 900
AACSB: Analytic
Level: Easy
4-46
62. What are the equivalent units for materials for the month in the first processing
department?
A. 1,365
B. 6,565
C. 7,300
D. 5,200
AACSB: Analytic
Level: Medium
department?
A. 7,300
B. 5,515
C. 5,200
D. 315
AACSB: Analytic
Level: Medium
4-47
is closest to:
A. $12.93
B. $14.38
C. $16.38
D. $14.73
AACSB: Analytic
Level: Medium
4-48
closest to:
A. $26.89
B. $22.34
C. $31.05
D. $29.57
AACSB: Analytic
Level: Medium
4-49
A. $270,600
B. $238,935
C. $335,428
D. $242,700
AACSB: Analytic
Level: Medium
4-50
A. $62,720
B. $31,668
C. $14,474
D. $96,493
AACSB: Analytic
Level: Medium
4-51
Heller Corporation uses the weighted-average method in its process costing system. Data
concerning the first processing department for the most recent month are listed below:
department?
A. 840
B. 9,140
C. 9,700
D. 8,300
AACSB: Analytic
Level: Medium
4-52
department?
A. 8,650
B. 9,700
C. 8,300
D. 350
AACSB: Analytic
Level: Medium
4-53
is closest to:
A. $10.51
B. $10.12
C. $9.91
D. $9.54
AACSB: Analytic
Level: Medium
4-54
closest to:
A. $18.29
B. $17.42
C. $15.54
D. $17.10
AACSB: Analytic
Level: Medium
4-55
A. $246,800
B. $270,979
C. $240,400
D. $231,869
AACSB: Analytic
Level: Medium
4-56
A. $14,930
B. $23,466
C. $9,778
D. $39,110
AACSB: Analytic
Level: Medium
4-57
Kramer Corporation uses the weighted-average method in its process costing system. Data
4-58
A. $306,682
B. $353,149
C. $334,000
D. $341,000
AACSB: Analytic
Level: Medium
4-59
A. $32,527
B. $46,467
C. $34,317
D. $39,497
AACSB: Analytic
Level: Medium
4-60
Lothian Corporation uses the weighted-average method in its process costing system. Data
department?
A. 5,200
B. 325
C. 5,525
D. 5,700
AACSB: Analytic
Level: Medium
4-61
closest to:
A. $34.05
B. $32.17
C. $32.43
D. $30.30
AACSB: Analytic
Level: Medium
4-62
A. $8,919
B. $15,405
C. $5,925
D. $23,700
AACSB: Analytic
Level: Medium
4-63
Duhamel Corporation uses the weighted-average method in its process costing system. This
A. 1,400
B. 7,200
C. 900
D. 800
AACSB: Analytic
Level: Easy
4-64
department?
A. 8,400
B. 7,700
C. 7,000
D. 700
AACSB: Analytic
Level: Medium
4-65
is closest to:
A. $25.74
B. $23.81
C. $24.87
D. $26.89
AACSB: Analytic
Level: Medium
4-66
Ire Corporation uses the weighted-average method in its process costing system. Data
concerning the first processing department for the most recent month are listed below
department?
A. 8,800
B. 1,045
C. 10,700
D. 9,845
AACSB: Analytic
Level: Medium
4-67
is closest to:
A. $10.50
B. $9.95
C. $10.89
D. $10.32
AACSB: Analytic
Level: Medium
4-68
Jaderston Corporation uses the weighted-average method in its process costing system. Data
4-69
is closest to:
A. $19.55
B. $19.20
C. $20.46
D. $20.09
AACSB: Analytic
Level: Medium
4-70
closest to:
A. $38.29
B. $36.47
C. $34.68
D. $36.06
AACSB: Analytic
Level: Medium
The information below was obtained from the records of the first processing department of
Moore Company for the month of May. The company uses the weighted-average method in
its process costing system.
All materials are added at the beginning of the process.
4-71
86. The equivalent units for materials for the month of May were:
A. 60,000 units
B. 74,000 units
C. 64,000 units
D. 69,800 units
AACSB: Analytic
Level: Easy
87. The equivalent units for labor and overhead for the month of May were:
A. 60,000 units
B. 69,800 units
C. 65,800 units
D. 73,800 units
AACSB: Analytic
Level: Easy
4-72
Nando Company uses the weighted-average method in its process costing system.
Department J is the second of three sequential processes at the company. During October,
Department J collected the following data:
4-73
88. The total cost assigned to units transferred out during October was:
A. $264,600
B. $316,000
C. $342,000
D. $358,400
AACSB: Analytic
Level: Hard
4-74
89. The total cost assigned to ending work in process inventory was:
A. $75,400
B. $101,400
C. $152,800
D. $59,000
AACSB: Analytic
Level: Medium
In January, one of the processing departments at Seidl Corporation had ending work in
process inventory of $35,000. During the month, $111,000 of costs were added to production
and the cost of units transferred out from the department was $86,000.
4-75
90. In the department's cost reconciliation report for January, the cost of beginning work in
process inventory for the department would be:
A. $51,000
B. $10,000
C. $76,000
D. $60,000
Cost of beginning work in process inventory = Cost of ending work in process inventory +
Cost of units transferred out - Costs added to production = $35,000 + $86,000 - $111,000 =
$10,000
AACSB: Analytic
Level: Medium
91. In the department's cost reconciliation report for January, the total cost accounted for
would be:
A. $242,000
B. $232,000
C. $121,000
D. $45,000
Total cost accounted for = Cost of ending work in process inventory + Cost of units
transferred out
= $35,000 + $86,000 = $121,000
AACSB: Analytic
Level: Easy
In August, one of the processing departments at Knepp Corporation had beginning work in
process inventory of $17,000 and ending work in process inventory of $13,000. During the
month, $178,000 of costs were added to production.
4-76
92. In the department's cost reconciliation report for August, the cost of units transferred out
of the department would be:
A. $182,000
B. $195,000
C. $169,000
D. $165,000
Cost of units transferred out = Cost of beginning work in process inventory + Cost added to
production - Cost of ending work in process inventory = $17,000 + $178,000 - $13,000 =
$182,000
AACSB: Analytic
Level: Medium
93. In the department's cost reconciliation report for August, the total cost to be accounted for
would be:
A. $30,000
B. $390,000
C. $195,000
D. $373,000
Total cost accounted for = Cost of ending work in process inventory + Cost of units
transferred out
= $17,000 + $178,000 = $195,000
AACSB: Analytic
Level: Easy
4-77
10. The FIFO method provides a major advantage over the weighted-average method in that:
A. the calculation of equivalent units is less complex under the FIFO method.
B. the FIFO method treats units in the beginning inventory as if they were started and
completed during the current period.
C. the FIFO method provides measurements of work done during the current period.
D. the weighted-average method ignores units in the beginning and ending work in process
inventories.

Learning Objective: 04A-02 Compute the equivalent units of production using the weighted-average method
Learning Objective: 04A-06 Compute the equivalent units of production using the FIFO method
Level: Medium
4-78
11. The weighted-average method of process costing differs from the FIFO method of process
costing in that the weighted-average method:
A. can be used under any cost flow assumption.
B. does not require the use of predetermined overhead rates.
C. keeps costs in the beginning inventory separate from current period costs.
D. does not consider the degree of completion of units in the beginning work in process
inventory when computing equivalent units of production.

Level: Medium
12. Equivalent units for a process costing system using the FIFO method would be equal to:
A. units completed during the period plus equivalent units in the ending work in process
inventory.
B. units started and completed during the period plus equivalent units in the ending work in
process inventory.
C. units completed during the period and transferred out.
D. units started and completed during the period plus equivalent units in the ending work in
process inventory plus work needed to complete units in the beginning work in process
inventory.

Level: Medium
4-79
13. The computation of equivalent units under the FIFO method:

A. treats units in the beginning work in process inventory as if they were started and
completed during the current period.
B. treats units in the beginning work in process inventory as if they represent a separate batch
of goods separate and distinct from goods started and completed during the current period.
C. treats units in the ending work in process inventory as if they were started and completed
during the current period.
D. ignores units in the beginning and ending work in process inventories.

Level: Medium
4-80
14. Elard Company uses the FIFO method in its process costing system. The first processing
department, the Welding Department, started the month with 17,000 units in its beginning
work in process inventory that were 70% complete with respect to conversion costs. The
conversion cost in this beginning work in process inventory was $101,150. An additional
68,000 units were started into production during the month. There were 23,000 units in the
ending work in process inventory of the Welding Department that were 80% complete with
respect to conversion costs. A total of $565,125 in conversion costs were incurred in the
department during the month.
The cost per equivalent unit for conversion costs is closest to:
A. $8.50
B. $8.31
C. $8.25
D. $7.84
FIFO method
Units started and completed during the period = Units started into production during the
period - Units in ending work in process inventory = 68,000 - 23,000 = 45,000
AACSB: Analytic
Learning Objective: 04A-07 Compute the cost per equivalent unit using the FIFO method
Level: Medium
4-81
15. Mannarelli Corporation uses the FIFO method in its process costing system. Operating
data for the Casting Department for the month of September appear below:
inventory was $15,660 at the beginning of September. Additional conversion costs of
$526,524 were incurred in the department during the month.
The cost per equivalent unit for conversion costs for September is closest to: (Round off to
A. $5.916
B. $5.340
C. $5.220
D. $5.213
FIFO method
4-82
AACSB: Analytic
Level: Medium
16. Castle Company uses the FIFO method in its process costing system. In the Cutting
Department in June, units were four-fifths complete with respect to conversion in the
beginning work in process inventory and one-third complete with respect to conversion in the
ending work in process inventory. Other data for the department for June follow:
The cost per equivalent unit for conversion cost is closest to:
A. $1.40
B. $1.35
C. $1.21
D. $1.64
FIFO method
Units started and completed during the period = Units completed during the period - Units in
beginning work in process inventory = 135,000 - 25,000 = 110,000
4-83
Units in beginning work in process inventory + Units started into production during the period
= Units in ending work in process inventory + Units completed during the period
25,000 + 140,000 = X + 135,000
X = 25,000 + 140,000 - 135,000 = 30,000
Y = X 1/3 = 30,000 1/3 = 10,000
Z = 5,000 + 110,000 + Y = 5,000 + 110,000 + 10,000 = 125,000
AACSB: Analytic
Level: Medium
4-84
17. Imbram Corporation uses the FIFO method in its process costing system. The first
processing department, the Forming Department, started the month with 23,000 units in its
beginning work in process inventory that were 40% complete with respect to conversion
additional 86,000 units were started into production during the month and 86,000 units were
completed and transferred to the next processing department. There were 23,000 units in the
ending work in process inventory of the Forming Department that were 10% complete with
respect to conversion costs. A total of $221,480 in conversion costs were incurred in the
department during the month.
The cost per equivalent unit for conversion costs for the month is closest to:
A. $2.80
B. $2.29
C. $3.01
D. $2.58
FIFO method
AACSB: Analytic
Level: Medium
4-85
18. Qik Corporation uses the FIFO method in its process costing system. Operating data for
the Cutting Department for the month of March appear below:
inventory was $45,662 at the beginning of March. Additional conversion costs of $305,576
were incurred in the department during the month.
The cost per equivalent unit for conversion costs for March is closest to:
A. $5.77
B. $5.72
C. $5.91
D. $6.04
FIFO method
4-86
AACSB: Analytic
Level: Medium
19. Herston Company uses the FIFO method in its process costing system. The beginning
work in process inventory in a particular department consisted of 6,000 units, two-thirds
complete with respect to conversion costs. During the month, 42,000 units were started and
40,000 units were completed and transferred out of the department. The company had 40,000
equivalent units for conversion costs. The ending work in process inventory in the department
consisted of:
A. 8,000 units, 25% complete with respect to conversion costs
B. 0 units
C. 8,000 units, 50% complete with respect to conversion costs
D. 4,000 units, 100% complete with respect to conversion costs
FIFO method
2,000 + 34,000 + X = 40,000

X = 40,000 - 2,000 - 34,000 = 4,000
6,000 + 42,000 = Y + 40,000
Y = 6,000 + 42,000 - 40,000 = 8,000
YZ=X
8,000 Z = 4,000
Z = 4,000 8,000 = 0.50
4-87
AACSB: Analytic
Level: Hard
20. Bennett Company uses the FIFO method in its process costing system. During April the
equivalent units of production with respect to conversion costs totaled 24,600 units. Work in
process inventory on April 1 consisted of 8,000 units, 40% complete with respect to
conversion costs. A total of 25,000 units were started into production during the month and
20,000 units were transferred to finished goods. Based on this information, Bennett
Company's work in process inventory on April 30 consisted of:
A. 13,000 units, 40% complete with respect to conversion costs
B. 5,000 units, 40% complete with respect to conversion costs
C. 13,000 units, 60% complete with respect to conversion costs
D. 4,600 units, 40% complete with respect to conversion costs
FIFO method
4,800 + 12,000 + X = 24,600

X = 24,600 - 4,800 - 12,000 = 7,800
8,000 + 25,000 = Y + 20,000
Y = 8,000 + 25,000 - 20,000 = 13,000
YZ=X
13,000 Z = 7,800
Z = 7,800 13,000 = 0.60
4-88
AACSB: Analytic
Level: Hard
21. Cargin Company uses the FIFO method in its process costing system. The Assembly
Department started the month with 15,000 units in its beginning work in process inventory
that were 50% complete with respect to conversion costs. An additional 71,000 units were
transferred in from the prior department during the month to begin processing in the
Assembly Department. There were 9,000 units in the ending work in process inventory of the
Assembly Department that were 30% complete with respect to conversion costs.
month?
A. 77,000
B. 79,700
C. 65,000
D. 72,200
FIFO method
AACSB: Analytic
Level: Medium
4-89
22. Kharbanda Corporation uses the FIFO method in its process costing system. Operating
data for the Enameling Department for the month of May appear below:
What were the equivalent units for conversion costs in the Enameling Department for May?
A. 57,960
B. 55,800
C. 51,000
D. 55,920
FIFO method
AACSB: Analytic
Level: Medium
4-90
23. Jolly Company uses the FIFO method in its process costing system. Beginning inventory
in the mixing processing center consisted of 4,000 units, 75% complete with respect to
conversion costs. Ending work in process inventory consisted of 3,000 units, 60% complete
with respect to conversion costs. If 12,000 units were transferred to the next processing center
during the period, the equivalent units for conversion costs would be:
A. 13,200 units
B. 10,800 units
C. 12,000 units
D. 13,000 units
FIFO method
AACSB: Analytic
Level: Medium
4-91
24. Intask Company uses the FIFO method in its process costing system. Beginning inventory
in the mixing department consisted of 6,000 units that were 75% complete with respect to
conversion costs. Ending work in process inventory consisted of 5,000 units that were 60%
complete with respect to conversion costs. If 12,000 units were transferred to the next
processing department during the period, the equivalent units for conversion cost would be:
A. 12,500 units
B. 10,500 units
C. 13,500 units
D. 13,000 units
FIFO method
AACSB: Analytic
Level: Medium
4-92
25. The following data were taken from the accounting records of Abacus Company which
uses the FIFO method in its process costing system:
The equivalent units are:

A. Material, 90,000 units; labor and overhead, 89,000 units
B. Material, 100,000 units; labor and overhead, 91,000 units
C. Material, 60,000 units; labor and overhead, 53,000 units
D. Material, 80,000 units; labor and overhead, 79,000 units
FIFO method
AACSB: Analytic
Level: Medium
4-93
26. Branden Company uses the FIFO method in its process costing system. All materials are
introduced at the beginning of the process in Department One. The following data relate to the
month of May for Department One:
What are the equivalent units for the month of May?
A. Option A
B. Option B
C. Option C
D. Option D
FIFO method
AACSB: Analytic
Level: Medium
4-94
27. Galos Corporation uses the FIFO method in its process costing system. The Grinding
Department started the month with 3,000 units in its beginning work in process inventory that
were 70% complete with respect to conversion costs. An additional 82,000 units were
transferred in from the prior department during the month to begin processing in the Grinding
Department. During the month 74,000 units were completed in the Grinding Department and
transferred to the next processing department. There were 11,000 units in the ending work in
process inventory of the Grinding Department that were 10% complete with respect to
conversion costs.
What were the equivalent units for conversion costs in the Grinding Department for the
month?
A. 74,000
B. 75,100
C. 90,000
D. 73,000
FIFO method
period -
Units in ending work in process inventory = 82,000 - 11,000 = 71,000
AACSB: Analytic
Level: Medium
4-95
28. Ozogus Company uses the FIFO method in its process costing system. Operating data for
the Brazing Department for the month of November appear below:
What were the equivalent units for conversion costs in the Brazing Department for
November?
A. 36,600
B. 35,800
C. 39,300
D. 34,800
FIFO method
period -
Units in ending work in process inventory = 35,300 - 5,000 = 30,300
AACSB: Analytic
Level: Medium
4-96
29. Severn Company uses the FIFO method in its process costing system. The following data
were taken from the accounting records of the company for last month:
The cost of the units in the ending Work in Process inventory is:
A. $17,000
B. $20,000
C. $10,000
D. $22,500
FIFO method
4-97
AACSB: Analytic
Learning Objective: 04A-08 Assign costs to units using the FIFO method
Level: Hard
30. Tepla Corporation uses the FIFO method in its process costing system. Operating data for
the Curing Department for the month of March appear below:
inventory was $40,608 at the beginning of March. The cost per equivalent unit for conversion
costs for March was $9.30.
How much conversion cost would be assigned to the units completed and transferred out of
the department during March?
A. $562,152
B. $561,720
C. $520,800
D. $521,544
4-98
FIFO method
AACSB: Analytic
Level: Medium
4-99
31. In October, one of the processing departments at Schones Corporation had beginning
During the month, $279,000 of costs were added to production and the cost of units
transferred out from the department was $288,000. The company uses the FIFO method in its
process costing system. In the department's cost reconciliation report for October, the total
cost to be accounted for would be:
A. $584,000
B. $43,000
C. $610,000
D. $305,000
FIFO method
AACSB: Analytic
Learning Objective: 04A-09 Prepare a cost reconciliation report using the FIFO method
Level: Easy
4-100
32. In November, one of the processing departments at Ijames Corporation had ending work
in process inventory of $26,000. During the month, $426,000 of costs were added to
production and the cost of units transferred out from the department was $436,000. The
company uses the FIFO method in its process costing system. In the department's cost
reconciliation report for November, the total cost to be accounted for would be:
A. $924,000
B. $888,000
C. $62,000
D. $462,000
FIFO method
AACSB: Analytic
Level: Medium
Zippy Company has a process costing system. Information about units processed and
processing costs incurred during a recent month in the Refining Department follow:
The beginning work in process inventory had $10,946 of processing cost attached to it at the
beginning of the month. During the month, the Department incurred an additional $289,954 in
processing cost.
4-101
33. Assuming that the company uses the weighted-average method, what are the equivalent
units for processing costs for the Department for the month?
A. 94,000
B. 100,300
C. 100,000
D. 112,000
Weighted-average method
AACSB: Analytic
Level: Medium
4-102
34. Assuming that the company uses the weighted-average method, what is the cost per
equivalent unit for processing for the month?
A. $2.89
B. $2.98
C. $3.00
D. $3.08
AACSB: Analytic
Learning Objective: 04A-03 Compute the cost per equivalent unit using the weighted-average method
Level: Hard
4-103
35. Assuming that the company uses the FIFO method, what are the equivalent units for
processing costs for the Department for the month?
A. 97,300
B. 91,300
C. 94,000
D. 100,300
FIFO method
AACSB: Analytic
Level: Medium
4-104
36. Assuming that the company uses the FIFO method, what is the cost per equivalent unit of
production for processing for the month?
A. $2.89
B. $2.98
C. $3.00
D. $3.09
FIFO method
AACSB: Analytic
Level: Medium
Nyman Company successfully switched to a lean production system at the beginning of

March. Therefore, as shown by the summary below, there were no work in process
inventories on hand at the end of the month.
4-105
37. If Nyman Company uses the FIFO cost method, the March equivalent units for conversion
would be:
A. 150,000 units
B. 190,000 units
C. 172,000 units
D. 168,000 units
FIFO method
AACSB: Analytic
Level: Medium
4-106
38. If Nyman Company uses the weighted-average cost method, the March equivalent units
for materials would be:
A. 190,000 units
B. 174,000 units
C. 150,000 units
D. 166,000 units
AACSB: Analytic
Level: Medium
4-107
39. If Nyman continues to successfully employ lean production and starts 140,000 units into
production during April (the next month), the April equivalent units for conversion costs
using the weighted-average method would be:
A. 150,000 units
B. 140,000 units
C. 190,000 units
D. 160,000 units
With lean production there should be no beginning or ending inventories.
AACSB: Analytic
Level: Medium
The activity in Nolan Company's Blending Department for the month of April is given
below:
All materials are added at the beginning of processing in the Blending Department.
4-108
40. The equivalent units for material for the month, using the FIFO method, are:
A. 50,000 units
B. 58,000 units
C. 54,000 units
D. 60,000 units
FIFO method
AACSB: Analytic
Level: Medium
4-109
41. The equivalent units for labor and overhead for the month, using the FIFO method, are:
A. 47,000 units
B. 51,000 units
C. 5,000 units
D. 54,000 units
FIFO method
AACSB: Analytic
Level: Medium
4-110
42. The equivalent units for material for the month, using the weighted-average method, are:
A. 48,000 units
B. 50,000 units
C. 58,000 units
D. 52,000 units
Units in beginning work in process inventory + Units started into production = Units in
ending work in process inventory + Units transferred to the next department
Units transferred to the next department = Units in beginning work in process inventory +
Units started into production - Units in ending work in process inventory = 8,000 + 50,000 -
10,000 = 48,000
AACSB: Analytic
Level: Medium
4-111
43. The equivalent units for labor and overhead for the month, using the weighted-average
method, are:
A. 50,000 units
B. 51,000 units
C. 47,000 units
D. 55,000 units
Units in beginning work in process inventory + Units started into production = Units in
ending work in process inventory + Units transferred to the next department
Units transferred to the next department = Units in beginning work in process inventory +
Units started into production - Units in ending work in process inventory = 8,000 + 50,000 -
10,000 = 48,000
AACSB: Analytic
Level: Medium
Wilson Company has a process costing system. The Assembly Department had the following
costs for May:
4-112
44. Assume that Wilson uses the FIFO method, and that for May the company computed
16,000 equivalent units for materials. The cost per equivalent unit for materials for the month
would have been:
A. $12.50
B. $3.00
C. $5.00
D. $9.50
FIFO method
AACSB: Analytic
Level: Medium
4-113
45. Assume that Wilson uses the weighted-average method and that for May the company
computed 20,000 equivalent units for labor and overhead. The cost per equivalent unit for
labor and overhead for the month would have been:
A. $1.60
B. $10.00
C. $8.40
D. $16.00
AACSB: Analytic
Learning Objective: 04A-03 Compute the cost per equivalent unit using the weighted-average method
Level: Easy
4-114
Morvan Corporation uses the FIFO method in its process costing system. Data concerning the
first processing department for the most recent month are listed below:
select the answer that is the closest to the answer you computed.
4-115
department?
A. 9,000
B. 375
C. 8,300
D. 8,715
FIFO method
beginning work in process inventory = 8,500 - 200 = 8,300
AACSB: Analytic
Level: Medium
4-116
department?
A. 9,000
B. 8,500
C. 8,300
D. 150
FIFO method
AACSB: Analytic
Level: Medium
4-117
is closest to:
A. $27.70
B. $26.82
C. $28.13
D. $28.40
FIFO method
AACSB: Analytic
Level: Medium
4-118
closest to:
A. $48.50
B. $44.72
C. $42.59
D. $43.33
FIFO method
AACSB: Analytic
Level: Medium
4-119
50. The cost of a completed unit transferred out of the department is closest to:
A. $74.51
B. $68.27
C. $74.02
D. $70.29
FIFO method
AACSB: Analytic
Level: Medium
A. $603,400
B. $597,619
C. $632,583
D. $614,400
4-120
FIFO method
Note: The answer without any rounding error is $597,619.
AACSB: Analytic
Level: Medium
4-121
A. $35,144
B. $16,775
C. $10,543
D. $26,358
FIFO method
Note: The answer without any rounding error is $16,775.
AACSB: Analytic
Level: Medium
4-122
Prasad Corporation uses the FIFO method in its process costing system. Data concerning the
4-123
department?
A. 10,500
B. 960
C. 8,300
D. 9,530
FIFO method
AACSB: Analytic
Level: Medium
4-124
closest to:
A. $38.96
B. $43.33
C. $40.98
D. $40.91
FIFO method
AACSB: Analytic
Level: Medium
A. $449,250
B. $528,560
C. $485,100
D. $473,100
4-125
FIFO method
Note: With no rounding, the answer is $449,250.
AACSB: Analytic
Level: Medium
4-126
Qdynamic Corporation uses the FIFO method in its process costing system. Data concerning
the first processing department for the most recent month are listed below:
56. How many units were started AND completed during the month in the first processing
department?
A. 6,100
B. 5,500
C. 7,600
D. 7,000
FIFO method
AACSB: Analytic
Level: Medium
4-127
closest to:
A. $42.49
B. $43.96
C. $45.00
D. $41.87
FIFO method
AACSB: Analytic
Level: Medium
4-128
Nilgiri Corporation uses the FIFO method in its process costing system. Data concerning the
4-129
department?
A. 1,680
B. 7,150
C. 8,200
D. 5,200
FIFO method
AACSB: Analytic
Level: Medium
4-130
closest to:
A. $40.57
B. $45.33
C. $39.31
D. $37.44
FIFO method
AACSB: Analytic
Level: Medium
4-131
Osborne Corporation uses the FIFO method in its process costing system. Data concerning
the first processing department for the most recent month are listed below:
4-132
department?
A. 6,600
B. 440
C. 7,150
D. 7,600
FIFO method
AACSB: Analytic
Level: Medium
4-133
is closest to:
A. $16.87
B. $15.65
C. $15.09
D. $18.00
FIFO method
AACSB: Analytic
Level: Medium
4-134
The information below was obtained from the records of one of the departments of Cushing
Company for the month of August. The company uses the FIFO method in its process costing
system.
62. The equivalent units for materials for the month of August are:
A. 75,000 units
B. 85,000 units
C. 87,500 units
D. 95,000 units
FIFO method
AACSB: Analytic
Level: Medium
4-135
63. The equivalent units for labor and overhead for the month of August are:
A. 85,000 units
B. 95,000 units
C. 87,500 units
D. 82,500 units
FIFO method
AACSB: Analytic
Level: Medium
In February, one of the processing departments at Grosz Corporation had beginning work in
process inventory of $18,000 and ending work in process inventory of $11,000. During the
month, the cost of units transferred out from the department was $204,000. The company uses
the FIFO method in its process costing system.
4-136
64. In the department's cost reconciliation report for February, the costs added to production
in the department would be:
A. $211,000
B. $197,000
C. $186,000
D. $193,000
FIFO method
AACSB: Analytic
Level: Medium
4-137
65. In the department's cost reconciliation report for February, the total cost accounted for
would be:
A. $29,000
B. $412,000
C. $215,000
D. $430,000
FIFO method
AACSB: Analytic
Level: Easy
In May, one of the processing departments at Lukman Corporation had beginning work in
process inventory of $11,000. During the month, $120,000 of costs were added to production
and the cost of units transferred out from the department was $94,000. The company uses the
FIFO method in its process costing system.
4-138
66. In the department's cost reconciliation report for May, the cost of ending work in process
inventory would be:
A. $15,000
B. $63,000
C. $37,000
D. $26,000
FIFO method
AACSB: Analytic
Level: Medium
4-139
67. In the department's cost reconciliation report for May, the total cost to be accounted for
would be:
A. $48,000
B. $251,000
C. $262,000
D. $131,000
FIFO method
AACSB: Analytic
Level: Easy
5. Gatlin Company has several service departments that provide services for each other as
well as for operating departments within the company. The method that would be least
accurate in allocating the company's service department costs would be:
A. by the step-down method.
B. by the direct method.
C. by cost behavior.
D. by the reciprocal method.

Bloom's: Knowledge
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Easy
4-140
6. The step-down method of allocating service department costs:

A. is a less accurate method of allocation than the direct method.
B. can't be used when a company has more than two service departments.
C. is a simpler allocation method than the direct method.
D. ignores some interdepartmental services.

Level: Medium
4-141
7. Hidden Corporation uses the direct method to allocate service department costs to operating
departments. The company has two service departments, Administrative and Facilities, and
two operating departments, Assembly and Wholesaling.
Administrative costs are allocated on the basis of employee hours and Facilities costs are
allocated on the basis of space occupied. The total Wholesaling Department cost after the
allocations of service department costs is closest to:
A. $389,876
B. $378,900
C. $392,340
D. $392,544
Allocation base for Administrative costs = 26,000 + 14,000 = 40,000

Allocation base for Facilities costs = 33,000 + 6,000 = 39,000
AACSB: Analytic
Level: Easy
4-142
8. Balthazar Clinic uses the direct method to allocate service department costs to operating
departments. The clinic has two service departments, Personnel and Support, and two
operating departments, Prenatal and Pediatrics.
Personnel Department costs are allocated on the basis of employee hours and Support
Department costs are allocated on the basis of space occupied in square feet. The total
Pediatrics Department cost after the allocations of service department costs is closest to:
A. $304,880
B. $310,281
C. $312,290
D. $312,554
Allocation base for Personnel costs = 23,000 + 13,000 = 36,000

Allocation base for Support costs = 37,000 + 6,000 = 43,000
AACSB: Analytic
Level: Easy
4-143
9. Amorim Corporation uses the direct method to allocate service department costs to
operating departments. The company has two service departments, Data Processing and
Personnel, and two operating departments, Assembly and Finishing.
Data Processing Department costs are allocated on the basis of computer workstations and
Personnel Department costs are allocated on the basis of employees. The total amount of Data
Processing Department cost allocated to the two operating departments is closest to:
A. $34,944
B. $145,367
C. $31,329
D. $25,774
Data Processing costs to be allocated = $34,944
AACSB: Analytic
Level: Easy
4-144
10. The direct method is used by Colquitt Publishing, Inc., to allocate service department
costs to operating departments. The company has two service departments, Information
Technology and Personnel, and two operating departments, Prepress and Printing.
Information Technology Department costs are allocated on the basis of computer workstations
and Personnel Department costs are allocated on the basis of employees. The total Prepress
Department cost after service department allocations is closest to:
A. $516,249
B. $522,964
C. $520,389
D. $510,887
Allocation base for Information Technology costs = 59 + 38 = 97

Allocation base for Facilities costs = 106 + 33 = 139
AACSB: Analytic
Level: Easy
4-145
11. Silton Surgical Hospital uses the direct method to allocate service department costs to
operating departments. The hospital has two service departments, Telecommunications and
Administration, and two operating departments, Surgery and Recovery.
Telecommunications Department costs are allocated on the basis of the number of

telecommunications ports in departments and Administration Department costs are allocated
on the basis of employees. The total Surgery Department cost after service department
allocations is closest to:
A. $278,389
B. $276,783
C. $274,208
D. $269,621
Allocation base for Telecommunication costs = 49 + 49 = 98

Allocation base for Administration costs = 49 + 48 = 97
AACSB: Analytic
Level: Easy
4-146
12. Rich Company has a Custodial Services department which services the company's
Maintenance department and two operating departments, Machinery and Milling. Costs of
Custodial Services are allocated to the other departments on the basis of square footage of
space occupied. The amount of space occupied by each department is given below:
Budgeted costs in Custodial Services amount to $86,400. The amount of Custodial Services
cost allocated to Maintenance under the step-down method would be:
A. $5,184
B. $5,400
C. $0
D. $5,760
Allocation rate for Custodial services costs = Cost to be allocated Allocation base
= $86,400 (9,000 square feet + 45,000 square feet + 90,000 square feet) =$0.60 per square
foot
Custodial services department cost allocated to Maintenance = $0.60 per square foot 9,000
square feet = $5,400
AACSB: Analytic
Level: Medium
4-147
13. Bankert Corporation uses the step-down method to allocate service department costs to
operating departments. The company has two service departments, General Management and
Physical Plant, and two operating departments, Sales and After-Sales. Data concerning those
departments follow:
General Management Department costs are allocated first on the basis of employee time and
Physical Plant Department costs are allocated second on the basis of space occupied. The total
After-Sales Department cost after allocations is closest to:
A. $307,594
B. $300,100
C. $310,240
D. $310,376
Allocation base for General Management costs = 2,000 + 33,000 + 13,000 = 48,000
Allocation base for Physical Plant costs = 33,000 + 8,000 = 41,000
AACSB: Analytic
Level: Easy
4-148
14. Poteete, Inc., allocates service department costs to operating departments using the step-
down method. The company has two service departments, Administration and Physical Plant,
and two operating departments, Assembly and Testing. Data concerning those departments
follow:
Administration Department costs are allocated first on the basis of employee time and
Physical Plant Department costs are allocated second on the basis of space occupied. The total
Testing Department cost after allocations is closest to:
A. $539,189
B. $526,180
C. $538,930
D. $537,376
Allocation base for Administration costs = 1,000 + 26,000 + 17,000 = 44,000

Allocation base for Physical Plant costs = 38,000 + 2,000 = 40,000
AACSB: Analytic
Level: Easy
4-149
15. Diprima Clinic uses the step-down method to allocate service department costs to
operating departments. The clinic has two service departments, Personnel and Information
Technology (IT), and two operating departments, Family Medicine and Pediatric. Data
concerning those departments follow:
Personnel costs are allocated first on the basis of employees and IT costs are allocated second
on the basis of PCs. The total Pediatric Department cost after allocations is closest to:
A. $233,732
B. $238,715
C. $238,298
D. $205,318
Allocation base for Personnel costs = 20 + 137 + 170 = 327

Allocation base for IT costs = 129 + 104 = 233
AACSB: Analytic
Level: Easy
4-150
16. Stazenski Children's Clinic allocates service department costs to operating departments
using the step-down method. The clinic has two service departments, Administration and
Information Technology (IT), and two operating departments, Prenatal and Pediatric. Data
Administration costs are allocated first on the basis of employees and IT costs are allocated
second on the basis of PCs. The total Pediatric Department cost after allocations is closest to:
A. $435,029
B. $390,920
C. $434,832
D. $423,486
Allocation base for Administration costs = 26 + 115 + 169 = 310

AACSB: Analytic
Level: Easy
4-151
The Uinta Company has two service departments and two operating departments. The
following data are available from last year:
The costs of service departments 1 and 2 are allocated on the basis of number of transactions
and square feet occupied respectively. No distinction is made between fixed and variable
costs.
17. Assuming that Uinta allocates service department costs by the direct method, the total
overhead costs allocated from Department 1 to Department X are:
A. $18,000
B. $25,200
C. $42,000
D. $29,400
Allocation base for Service Department 1 costs = 14,000 + 16,000 = 30,000

AACSB: Analytic
Level: Medium
4-152
18. Assuming that Uinta allocates service department costs by the direct method, the total
overhead costs allocated from Department 2 to Department Y are:
A. $22,400
B. $16,800
C. $42,000
D. $14,000

AACSB: Analytic
Level: Medium
4-153
19. Assume that Uinta allocates service department costs by the step-down method, starting
with Department 1. The total overhead costs allocated from Department 1 to Department X
are:
A. $12,115
B. $21,000
C. $24,000
D. $33,600
Allocation base for Service Department 1 costs = 12,000 + 14,000 + 16,000 = 42,000
AACSB: Analytic
Level: Medium
4-154
20. Assume that Uinta allocates service department costs by the step-down method, starting
with Department 1. The total overhead costs allocated from Department 2 to Department Y
are:
A. $18,000
B. $24,000
C. $21,000
D. $25,200
Allocation base for Service Department 1 costs = 12,000 + 14,000 + 16,000 = 42,000
AACSB: Analytic
Level: Medium
The Grand Company has budgeted departmental costs and operating activity in its four
departments for the coming year as follows:
The company does not distinguish between fixed and variable service department costs.
Custodial costs are allocated on the basis of square feet occupied. Repair costs are allocated
on the basis of the number of repair requests.
4-155
21. Assume Grand uses the direct allocation method. After all allocations, how much of the
company's total overhead cost will be charged to the Production Department for the coming
year?
A. $43,400
B. $46,200
C. $45,941
D. $41,728
Allocation base for Custodial costs = 1,200 + 3,600 = 4,800

Allocation base for Repair costs = 220 + 100 = 320
AACSB: Analytic
Level: Medium
4-156
22. Assume Grand uses the step-down allocation method with Custodial costs allocated first.
After all allocations, how much of the company's total overhead cost will be charged to the
company's Finishing Department for the coming year?
A. $57,274
B. $55,184
C. $59,777
D. $56,854
Allocation base for Custodial costs = 200 + 1,200 + 3,600 = 5,000

Allocation base for Repair costs = 220 + 100 = 320
AACSB: Analytic
Level: Medium
Reddin Corporation has two service departments, Administrative and Facilities, and two
operating departments, Assembly and Customer Solutions.
The company uses the direct method to allocate service department costs to operating
departments. Administrative costs are allocated on the basis of employee hours and Facilities
costs are allocated on the basis of space occupied.
4-157
23. The total amount of Administrative Department cost allocated to the Assembly
Department is closest to:
A. $20,991
B. $29,484
C. $23,460
D. $23,009

AACSB: Analytic
Level: Easy
4-158
24. The total Customer Solutions Department cost after the allocations of service department
costs is closest to:
A. $674,310
B. $686,040
C. $683,705
D. $686,473

AACSB: Analytic
Level: Easy
President Clinic has two service departments, Administrative and Support, and two operating
departments, Adult Medicine and Pediatrics.
The clinic uses the direct method to allocate service department costs to operating
departments. Administrative Department costs are allocated on the basis of employee hours
and Support Department costs are allocated on the basis of space occupied in square feet.
4-159
25. The total amount of Administrative Department cost allocated to the Adult Medicine
Department is closest to:
A. $28,368
B. $31,096
C. $43,235
D. $32,340

AACSB: Analytic
Level: Easy
4-160
26. The total Pediatrics Department cost after the allocations of service department costs is
closest to:
A. $475,220
B. $491,880
C. $488,839
D. $491,683

AACSB: Analytic
Level: Easy
Brannigan Corporation uses the direct method to allocate service department costs to
operating departments. The company has two service departments, Information Technology
and Personnel, and two operating departments, Fabrication and Customization.
and Personnel Department costs are allocated on the basis of employees.
4-161
27. The total amount of Information Technology Department cost allocated to the two
operating departments is closest to:
A. $141,772
B. $26,749
C. $30,820
D. $22,503
Information Technology costs to be allocated = $30,820
AACSB: Analytic
Level: Easy
28. The total Fabrication Department cost after service department allocations is closest to:
A. $604,655
B. $606,735
C. $599,122
D. $602,460

Allocation base for Support costs = 70 + 41 = 111
AACSB: Analytic
Level: Easy
4-162
Enzor Surgical Hospital uses the direct method to allocate service department costs to
operating departments. The hospital has two service departments, Information Technology
and Administration, and two operating departments, Surgery and Recovery.
and Administration Department costs are allocated on the basis of employees.
29. The total amount of Information Technology Department cost allocated to the two
operating departments is closest to:
A. $23,841
B. $29,414
C. $113,244
D. $19,695
Information Technology costs to be allocated = $29,414
AACSB: Analytic
Level: Easy
4-163
30. The total Surgery Department cost after service department allocations is closest to:
A. $500,818
B. $498,775
C. $494,416
D. $503,713

Allocation base for Administration costs = 61 + 32 = 93
AACSB: Analytic
Level: Easy
Goodland Corporation uses the step-down method to allocate service department costs to
operating departments. The company has two service departments, Service Department A and
Service Department B, and two operating departments, Operating Department X and
Operating Department Y. Data concerning those departments follow:
Service Department A costs are allocated first on the basis of allocation base A and Service
Department B costs are allocated second on the basis of allocation base B.
4-164
31. In the first step of the allocation, the amount of Service Department A cost allocated to the
Operating Department X is closest to:
A. $9,760
B. $20,608
C. $19,800
D. $18,032
Allocation base for Service Department A costs = 2,000 + 33,000 + 16,000 = 51,000
Allocation base for Service Department B costs = 31,000 + 8,000 = 39,000
AACSB: Analytic
Level: Easy
4-165
32. The total Operating Department Y cost after allocations is closest to:
A. $423,352
B. $425,820
C. $416,220
D. $425,966
Allocation base for Service Department A costs = 2,000 + 33,000 + 16,000 = 51,000
Allocation base for Service Department B costs = 31,000 + 8,000 = 39,000
AACSB: Analytic
Level: Easy
Ponce Corporation, a manufacturer, uses the step-down method to allocate service

department costs to operating departments. The company has two service departments,
Administration and Facilities, and two operating departments, Assembly and Finishing. Data
Administration Department costs are allocated first on the basis of labor hours and Facilities
Department costs are allocated second on the basis of space occupied.
4-166
33. In the first step of the allocation, the amount of Administration Department cost allocated
to the Assembly Department is closest to:
A. $19,515
B. $22,370
C. $21,330
D. $10,040

AACSB: Analytic
Level: Easy
4-167
34. The total Finishing Department cost after allocations is closest to:
A. $515,170
B. $510,933
C. $504,110
D. $515,379

AACSB: Analytic
Level: Easy
Duda Clinic uses the step-down method to allocate service department costs to operating
departments. The clinic has two service departments, Personnel and Information Technology
(IT), and two operating departments, Family Medicine and Geriatric Medicine. Data
on the basis of PCs.
4-168
35. In the first step of the allocation, the amount of Personnel Department cost allocated to the
Family Medicine Department is closest to:
A. $17,804
B. $20,296
C. $37,408
D. $18,700

AACSB: Analytic
Level: Easy
4-169
36. The total Geriatric Medicine Department cost after allocations is closest to:
A. $163,616
B. $188,179
C. $194,726
D. $194,717

AACSB: Analytic
Level: Easy
Deardurff Legal Services, LLC, uses the step-down method to allocate service department
costs to operating departments. The firm has two service departments, Personnel and
Information Technology (IT), and two operating departments, Family Law and Corporate
Law. Data concerning those departments follow:
on the basis of PCs.
4-170
37. In the first step of the allocation, the amount of Personnel Department cost allocated to the
Family Law Department is closest to:
A. $20,121
B. $13,937
C. $15,637
D. $14,430

AACSB: Analytic
Level: Easy
4-171
38. The total Corporate Law Department cost after allocations is closest to:
A. $417,451
B. $417,540
C. $410,562
D. $394,660

AACSB: Analytic
Level: Easy
4-172
Chapter 06
Variable Costing and Segment Reporting: Tools for Management
20. Routsong Company had the following sales and production data for the past four years:
Selling price per unit, variable cost per unit, and total fixed cost are the same in each year.
Which of the following statements is not correct?
A. Under variable costing, net operating income for Year 1 and Year 2 would be the same.
B. Because of the changes in production levels, under variable costing the unit product cost
will change each year.
C. The total net operating income for all four years combined would be the same under
variable and absorption costing.
D. Under absorption costing, net operating income in Year 4 would be less than the net
operating income in Year 2.

Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Hard
4-173
21. Would the following costs be classified as product or period costs under variable costing
at a retail clothing store?
A. Option A
B. Option B
C. Option C
D. Option D

Level: Medium
4-174
22. Fixed manufacturing overhead is included in product costs under:
A. Option A
B. Option B
C. Option C
D. Option D

Bloom's: Knowledge
Level: Easy
23. Which of the following are considered to be product costs under variable costing?
I. Variable manufacturing overhead.

II. Fixed manufacturing overhead.
III. Selling and administrative expenses.
A. I.
B. I and II.
C. I and III.
D. I, II, and III.

Bloom's: Knowledge
Level: Easy
4-175
24. Which of the following are considered to be product costs under absorption costing?
I. Variable manufacturing overhead.

II. Fixed manufacturing overhead.
III. Selling and administrative expenses.
A. I, II, and III.
B. I and II.
C. I and III.
D. I.

Bloom's: Knowledge
Level: Easy
25. Under variable costing, costs that are treated as period costs include:
A. only fixed manufacturing costs.
B. both variable and fixed manufacturing costs.
C. all fixed costs.
D. only fixed selling and administrative costs.

Bloom's: Knowledge
Level: Easy
26. Selling and administrative expenses are considered to be:

A. a product cost under variable costing.
B. a product cost under absorption costing.
C. part of fixed manufacturing overhead under variable costing.
D. a period cost under variable costing.

Bloom's: Knowledge
Level: Easy
4-176
27. 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.
B. be charged as a period cost with the remainder deferred under variable costing.
C. never be excluded from cost of goods sold under absorption costing.
D. never be excluded from cost of goods sold under variable costing.

Level: Hard
28. A company using lean production methods likely would show approximately the same net
operating income under both absorption and variable costing because:
A. ending inventory would be valued in the same manner for both methods under lean
production.
B. production is geared to sales under lean production and thus there would be little or no
ending inventory.
C. under lean production fixed manufacturing overhead costs are charged to the period
incurred rather than to the product produced.
D. there is no distinction made under lean production between fixed and variable costs.

Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Medium
4-177
29. Dull Corporation has been producing and selling electric razors for the past ten years.
Shown below are the actual net operating incomes for the last three years of operations at
Dull:
Dull Corporation's cost structure and selling price has not changed during its ten years of
operations. Based on the information presented above, which of the following statements is
true?
A. Dull Corporation operated above the breakeven point in each of the three years presented.
B. For the three years presented in total, Dull Corporation sold more units than it produced.
C. In Year 10, Dull Corporation produced fewer units than it sold.
D. In Year 9, Dull Corporation produced more units than it sold.

Level: Hard
30. Net operating income reported under absorption costing will exceed net operating income
reported under variable costing for a given period if:
A. production equals sales for that period.
B. production exceeds sales for that period.
C. sales exceed production for that period.
D. the variable manufacturing overhead exceeds the fixed manufacturing overhead.

Level: Medium
4-178
31. If the number of units produced exceeds the number of units sold, then net operating
income under absorption costing will:
A. be equal to the net operating income under variable costing.
B. be greater than net operating income under variable costing.
C. be equal to the net operating income under variable costing plus total fixed manufacturing
costs.
D. be equal to the net operating income under variable costing less total fixed manufacturing
costs.

Level: Medium
32. 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:
A. greater than those reported under variable costing.
B. less than those reported under variable costing.
C. the same as those reported under variable costing.
D. higher or lower since no generalization can be made.

Level: Hard
33. In an income statement segmented by product line, a fixed expense that cannot be
allocated among product lines on a cause-and-effect basis should be:
A. classified as a traceable fixed expense and not allocated.
B. allocated to the product lines on the basis of sales dollars.
C. allocated to the product lines on the basis of segment margin.
D. classified as a common fixed expense and not allocated.

Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use
it to make decisions
Level: Medium
4-179
34. A common cost that should not be assigned to a particular product on a segmented income
statement is:
A. the product's advertising costs.
B. the salary of the corporation president.
C. direct materials costs.
D. the product manager's salary.

Bloom's: Knowledge
Level: Easy
35. All other things being equal, if a division's traceable fixed expenses increase:
A. the division's contribution margin ratio will decrease.
B. the division's segment margin ratio will remain the same.
C. the division's segment margin will decrease.
D. the overall company profit will remain the same.

Level: Medium
36. All other things equal, if a division's traceable fixed expenses decrease:
A. the division's segment margin will increase.
B. the overall company net operating income will decrease.
C. the division's contribution margin will increase.
D. the division's sales volume will increase.

Level: Medium
4-180
37. Segment margin is sales minus:

A. variable expenses.
B. traceable fixed expenses.
C. variable expenses and common fixed expenses.
D. variable expenses and traceable fixed expenses.

Bloom's: Knowledge
Level: Easy
4-181
38. Clayton Company produces a single product. Last year, the company's variable production
costs totaled $8,000 and its fixed manufacturing overhead costs totaled $4,800. The company
produced 4,000 units during the year and sold 3,600 units. Assuming no units in the beginning
inventory:
A. under variable costing, the units in ending inventory will be costed at $3.20 each.
B. the net operating income under absorption costing for the year will be $480 lower than net
operating income under variable costing.
C. the ending inventory under variable costing will be $480 lower than the ending inventory
under absorption costing.
D. the net operating income under absorption costing for the year will be $800 lower than net
AACSB: Analytic
Level: Medium
4-182
39. Gangwer Corporation produces a single product and has the following cost structure:
The absorption costing unit product cost is:

A. $95
B. $119
C. $61
D. $56
AACSB: Analytic
Level: Easy
4-183
40. Olds 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 absorption costing unit product cost was:
A. $97
B. $130
C. $99
D. $207
AACSB: Analytic
Level: Easy
4-184
41. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
What is the absorption costing unit product cost for the month?
A. $102
B. $130
C. $97
D. $125
AACSB: Analytic
Level: Easy
4-185
What is the variable costing unit product cost for the month?
A. $103
B. $99
C. $94
D. $90
AACSB: Analytic
Level: Easy
4-186
What is the total period cost for the month under variable costing?
A. $185,000
B. $117,600
C. $273,200
D. $302,600
AACSB: Analytic
Level: Easy
4-187
44. Swiatek Corporation produces a single product and has the following cost structure:
The variable costing unit product cost is:

A. $161
B. $225
C. $153
D. $158
AACSB: Analytic
Level: Easy
4-188
45. 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:
A. $42
B. $43
C. $37
D. $48
AACSB: Analytic
Level: Easy
4-189
What is the total period cost for the month under absorption costing?
A. $58,300
B. $37,100
C. $259,900
D. $201,600
AACSB: Analytic
Level: Easy
4-190
47. Roy Corporation produces a single product. During July, Roy produced 10,000 units.
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:
A. $5.10
B. $4.40
C. $3.80
D. $3.50
Absorption costing unit product cost = $44,000 10,000 units = $4.40 per unit
AACSB: Analytic
Level: Medium
4-191
What is the net operating income for the month under variable costing?
A. $21,600
B. $(15,200)
C. $8,000
D. $13,600
4-192
Variable costing unit product cost
Variable costing income statement
AACSB: Analytic
Level: Medium
4-193
What is the net operating income for the month under absorption costing?
A. $5,300
B. $3,000
C. $(12,700)
D. $8,300
Unit product cost under absorption costing:
Absorption costing income statement
4-194
AACSB: Analytic
Level: Medium
4-195
The total gross margin for the month under absorption costing is:
A. $42,000
B. $14,700
C. $69,000
D. $79,800
Absorption costing income statement
4-196
AACSB: Analytic
Level: Easy
51. A company produces a single product. Last year, fixed manufacturing overhead was
$30,000, variable production costs were $48,000, fixed selling and administration costs were
$20,000, and variable selling administrative expenses were $9,600. There was no beginning
inventory. During the year, 3,000 units were produced and 2,400 units were sold at a price of
$40 per unit. Under variable costing, net operating income would be:
A. a profit of $6,000.
B. a profit of $4,000.
C. a loss of $2,000.
D. a loss of $4,400.
Variable costing unit product cost = $48,000 3,000 units produced = $16 per unit
AACSB: Analytic
Level: Medium
4-197
The total contribution margin for the month under variable costing is:
A. $183,600
B. $90,000
C. $70,400
D. $169,200
Unit product cost under variable costing:
4-198
AACSB: Analytic
Level: Easy
53. Last year, Heidenescher Corporation's variable costing net operating income was $63,600
and its inventory decreased by 600 units. Fixed manufacturing overhead cost was $1 per unit.
What was the absorption costing net operating income last year?
A. $64,200
B. $63,000
C. $63,600
D. $600
AACSB: Analytic
Level: Medium
4-199
54. 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?
A. $90,500
B. $21,000
C. $69,500
D. $111,500
AACSB: Analytic
Level: Medium
4-200
55. Roberts Company produces a single product. This year, the company's net operating
income under absorption costing was $2,000 lower than under variable costing. The company
sold 8,000 units during the year, and its variable costs were $8 per unit, of which $2 was
variable selling and administrative expense. If production cost was $10 per unit under
absorption costing, then how many units did the company produce during the year? (The
company produced the same number of units last year.)
A. 7,500 units
B. 7,000 units
C. 9,000 units
D. 8,500 units
Variable production cost per unit = $8 per unit - $2 per unit = $6 per unit
Absorption unit product cost = Variable production cost per unit + Fixed production cost per
unit
$10 per unit = $6 per unit + Fixed manufacturing overhead cost per unit
Fixed manufacturing overhead cost per unit = $10 per unit - $6 per unit = $4 per unit
Since absorption costing net operating income was $2,000 lower than its variable costing net
operating income, $2,000 of fixed manufacturing overhead cost was released from inventory
under absorption costing.
Fixed manufacturing overhead cost released from inventory under absorption costing = Fixed
manufacturing overhead cost per unit Decrease in units in inventory
$2,000 = $4 per unit Decrease in units in inventory
Decrease in units in inventory = $2,000 $4 per unit = 500 units
Units sold = Units produced + Decrease in units in inventory

8,000 units = Units produced + 500 units
Units produced = 8,000 units - 500 units = 7,500 units
AACSB: Analytic
Level: Hard
4-201
56. Evans Company produces a single product. During the most recent year, the company had
a net operating income of $90,000 using absorption costing and $84,000 using variable
costing. The fixed overhead application rate was $6 per unit. There were no beginning
inventories. If 22,000 units were produced last year, then sales for last year were:
A. 15,000 units
B. 21,000 units
C. 23,000 units
D. 28,000 units
Since absorption costing net operating income was greater than its variable costing net
operating income by $6,000, it must have deferred $6,000 of fixed manufacturing overhead
costs in inventory under absorption costing.
Fixed manufacturing overhead costs deferred in inventory under absorption costing = Fixed
manufacturing overhead cost per unit Increase in units in inventory
$6,000 = $6 per unit Increase in units in inventory
Increase in units in inventory = $6,000 $6 per unit = 1,000 units
Therefore, since there were no beginning inventories and 1,000 units of the 22,000 units that
were produced were in ending inventories, sales must have been 21,000 units.
AACSB: Analytic
Level: Hard
4-202
57. Craft Company produces a single product. Last year, the company had a net operating
income of $80,000 using absorption costing and $74,500 using variable costing. The fixed
manufacturing overhead cost was $5 per unit. There were no beginning inventories. If 21,500
units were produced last year, then sales last year were:
A. 16,000 units
B. 20,400 units
C. 22,600 units
D. 27,000 units
Since absorption costing net operating income was greater than its variable costing net
operating income by $5,500, it must have deferred $5,500 of fixed manufacturing overhead
costs in inventory under absorption costing.
Fixed manufacturing overhead costs deferred in inventory under absorption costing = Fixed
manufacturing overhead cost per unit Increase in units in inventory
$5,500 = $5 per unit Increase in units in inventory
Increase in units in inventory = $5,500 $5 per unit = 1,100 units
Therefore, since there were no beginning inventories and 1,100 units of the 21,500 units that
were produced were in ending inventories, sales must have been 20,400 units.
AACSB: Analytic
Level: Hard
4-203
58. Moore Company produces a single product. During last year, Moore's variable production
costs totaled $10,000 and its fixed manufacturing overhead costs totaled $6,800. The
company produced 5,000 units during the year and sold 4,600 units. There were no units in
the beginning inventory. Which of the following statements is true?
A. The net operating income under absorption costing for the year will be $800 higher than
net operating income under variable costing.
B. The net operating income under absorption costing for the year will be $544 higher than
net operating income under variable costing.
C. The net operating income under absorption costing for the year will be $544 lower than net
D. The net operating income under absorption costing for the year will be $800 lower than net
Therefore, net operating income under absorption costing would be $544 higher than net
AACSB: Analytic
Level: Medium
4-204
59. Last year, Salada Corporation's variable costing net operating income was $97,000. Fixed
manufacturing overhead costs released from inventory under absorption costing amounted to
$14,000. What was the absorption costing net operating income last year?
A. $14,000
B. $111,000
C. $97,000
D. $83,000
AACSB: Analytic
Level: Easy
4-205
60. 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?
A. $22,100
B. $35,400
C. $57,500
D. $92,900
AACSB: Analytic
Level: Easy
4-206
61. Stephen Company produces a single product. Last year, the company had 20,000 units in
its ending inventory. During the year, Stephen's variable production costs were $12 per unit.
The fixed manufacturing overhead cost was $8 per unit in the beginning inventory. The
company's net operating income for the year was $9,600 higher under variable costing than it
was under absorption costing. The company uses a last-in-first-out (LIFO) inventory flow
assumption. Given these facts, the number of units of product in the beginning inventory last
year must have been:
A. 21,200
B. 19,200
C. 18,800
D. 19,520
Since the variable costing operating net income was $9,600 higher under variable costing than
under absorption costing, fixed manufacturing overhead costs must have been released from
inventory under absorption costing. In other words, the ending inventory must have been
lower than the beginning inventory. Under the LIFO inventory flow assumption, all of the
units in ending inventory were also in beginning inventory. Therefore, the reduction in
inventory must have been 1,200 units (= $9,600 $8 per unit).
Units in ending inventory = Units in beginning inventory - Reduction in units in inventory

20,000 units = Units in beginning inventory - 1,200 units
Units in beginning inventory = 20,000 units + 1,200 units = 21,200 units
AACSB: Analytic
Level: Hard
4-207
62. Hansen Company produces a single product. During the last year, Hansen had net
operating income under absorption costing that was $5,500 lower than its income under
variable costing. The company sold 9,000 units during the year, and its variable costs were
$10 per unit, of which $6 was variable selling expense. If fixed production cost is $5 per unit
under absorption costing every year, then how many units did the company produce during
the year?
A. 7,625 units
B. 8,450 units
C. 10,100 units
D. 7,900 units
Since net operating income under absorption costing was $5,500 lower than under variable
costing, inventories must have decreased. A reduction in inventories results in releasing fixed
manufacturing overhead from inventories.
Fixed manufacturing overhead costs released from inventory under absorption costing =
Fixed manufacturing overhead per unit Reduction in the units in inventory
$5,500 = $5 per unit Reduction in the units in inventory
Reduction in the units in inventory = $5,500 $5 per unit = 1,100 units
Units in beginning inventory + Units produced = Units sold + Units in ending inventory
Units in beginning inventory - Units in ending inventory = Units sold - Units produced
Reduction in the units in inventory = Units sold - Units produced
1,100 units = 9,000 units - Units produced
Units produced = 9,000 units - 1,100 units = 7,900 units
AACSB: Analytic
Level: Hard
4-208
63. Hatch Company has two divisions, O and E. During the year just ended, Division O had a
segment margin of $9,000 and variable expenses equal to 70% of sales. Traceable fixed
expenses for Division E were $19,000. Hatch Company as a whole had a contribution margin
ratio of 40%, a segment margin of $25,000, and sales of $200,000. Given this data, the sales
for Division E for last year were:
A. $50,000
B. $150,000
C. $87,500
D. $116,667
4-209
E segment margin = Total segment margin - O segment margin = $25,000 - $9,000 = $16,000
E segment margin = E contribution margin - E traceable expenses

E contribution margin = E segment margin + E traceable expenses
$16,000 + $19,000 = $35,000
Total contribution margin = Total sales Total contribution margin ratio = $200,000 0.40 =
$80,000
4-210
Total contribution margin = O contribution margin + E contribution margin

O contribution margin = Total contribution margin - E contribution margin
= $80,000 - $35,000 = $45,000
O CM ratio = 1 - O variable expense ratio = 1 - 0.70 = 0.30

O contribution margin = O CM ratio O sales
$45,000 = 0.30 O sales
O sales = $45,000 0.30 = $150,000
Total sales = O sales + E sales

E sales = Total sales - O sales = $200,000 - $150,000 = $50,000
4-211
AACSB: Analytic
Level: Hard
64. During April, Division D of Carney Company had a segment margin ratio of 15%, a
variable expense ratio of 60% of sales, and traceable fixed expenses of $15,000. Division D's
sales were closest to:
A. $100,000
B. $60,000
C. $33,333
D. $22,500
Segment margin = 0.15 Segment sales

Segment variable expenses = 0.60 Segment sales
Segment traceable fixed expenses = $15,000
Segment margin = Segment sales - Segment variable expenses - Segment traceable fixed
expenses
0.15 Segment sales = Segment sales - 0.60 Segment sales - $15,000
0.25 Segment sales = $15,000
Segment sales = $15,000 0.25 = $60,000
AACSB: Analytic
Level: Hard
4-212
65. Colasuonno Corporation has two divisions: the West Division and the East Division. The
corporation's net operating income is $88,800. The West Division's divisional segment margin
is $39,500 and the East Division's divisional segment margin is $166,900. What is the amount
of the common fixed expense not traceable to the individual divisions?
A. $255,700
B. $206,400
C. $117,600
D. $128,300
Total segment margin = $39,500 + $166,900 = $206,400

Total net operating income = Total segment margin - Common fixed expenses
$88,800 = $206,400 - Common fixed expenses
Common fixed expenses = $206,400 - $88,800 = $117,600
AACSB: Analytic
Level: Medium
66. Gore Corporation has two divisions: the Business Products Division and the Export
Products Division. The Business Products Division's divisional segment margin is $55,700
and the Export Products Division's divisional segment margin is $70,600. The total amount of
common fixed expenses not traceable to the individual divisions is $107,400. What is the
company's net operating income?
A. $233,700
B. $(126,300)
C. $126,300
D. $18,900

Total net operating income = Total segment margin - Common fixed expenses
= $126,300 - $107,400 = $18,900
AACSB: Analytic
Level: Easy
4-213
67. More Company has two divisions, L and M. During July, the contribution margin in
Division L was $60,000. The contribution margin ratio in Division M was 40% and its sales
were $250,000. Division M's segment margin was $60,000. The common fixed expenses were
$50,000 and the company net operating income was $20,000. The segment margin for
Division L was:
A. $0
B. $10,000
C. $50,000
D. $60,000
Net operating income = Total segment margin - Common fixed expenses

$20,000 = Total segment margin - $50,000
Total segment margin = L segment margin + M segment margin

$70,000 = L segment margin + $60,000
L segment margin = $70,000 - $60,000 = $10,000
AACSB: Analytic
Level: Hard
4-214
68. Stephen Company has the following data for its three stores last year:
Given the above data, the total company sales were:

A. $1,250,000
B. $1,375,000
C. $1,450,000
D. $800,000
4-215
Segment A Variable expense ratio = Segment A Variable expenses Segment A Sales

0.60 = $240,000 Segment A Sales
Segment A Sales = $240,000 0.60 = $400,000
Segment B CM ratio = Segment B Contribution margin Segment B Sales

0.20 = $120,000 Segment B Sales
Segment B Sales = $120,000 0.20 = $600,000
Segment C CM ratio = 1 - Segment C Variable expense ratio

Segment C Variable expense ratio = 1 - Segment C CM ratio = 1 - 0.40 = 0.60
Segment C Variable expense ratio = Segment C Variable expenses Segment C Sales
Segment C Sales = Segment C Variable expenses Segment C Variable expense ratio
= $150,000 0.60 = $250,000
Total sales = $400,000 + $600,000 + $250,000 = $1,250,000
4-216
AACSB: Analytic
Level: Hard
4-217
69. Johnson Company operates two plants, Plant A and Plant B. Last year, Johnson Company
reported a contribution margin of $40,000 for Plant A. Plant B had sales of $200,000 and a
contribution margin ratio of 40%. Net operating income for the company was $27,000 and
traceable fixed expenses for the two stores totaled $50,000. Johnson Company's common
fixed expenses were:
A. $43,000
B. $50,000
C. $93,000
D. $120,000
4-218
Plant B Contribution margin = Plant B CM ratio Plant B Sales = 0.40 $200,000 = $80,000
Net operating income = Segment margin - Common fixed expenses

Common fixed expenses = $70,000 - $27,000
4-219
AACSB: Analytic
Level: Hard
70. 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
B. $322,490
C. $228,045
D. $47,223
Common fixed expenses = Total fixed expenses - Traceable fixed expenses

= $322,490 - ($146,280 + $81,765) =$94,445
AACSB: Analytic
Level: Medium
4-220
71. Leis Retail Company has two Stores, M and N. Store N had sales of $180,000 during
March, a segment margin of $54,000, and traceable fixed expenses of $26,000. The company
as a whole had a contribution margin ratio of 25% and $120,000 in total contribution margin.
Based on this information, total variable expenses in Store M for the month must have been:
A. $140,000
B. $260,000
C. $300,000
D. $360,000
4-221
CM ratio = Contribution margin Sales

0.25 = $120,000 Sales
Sales = $120,000 0.25 = $480,000
Contribution margin = Sales - Variable expenses

$120,000 = $480,000 - Variable expenses
Variable expenses = $480,000 - $120,000 = $360,000
Store N Segment margin = Store N Contribution margin - Segment N Traceable fixed

expenses
$54,000 = Store N Contribution margin - $26,000
Store N Contribution margin = $54,000 + $26,000 = $80,000
4-222
Store N Contribution margin = Store N Sales - Store N Variable expenses

$80,000 = $180,000 - Store N Variable expenses
Store N Variable expenses = $180,000 - $80,000 = $100,000
Total Variable expenses = Store M Variable expenses + Store N Variable expenses

$360,000 = Store M Variable expenses + $100,000
Store M Variable expenses = $360,000 - $100,000 = $260,000
AACSB: Analytic
Level: Hard
4-223
72. 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?
A. $135,200
B. $37,900
C. $616,600
D. $519,300
AACSB: Analytic
Level: Easy
4-224
73. Phillipson Corporation has two divisions: the IEB Division and the PIH Division. The
corporation's net operating income is $83,900. The IEB Division's divisional segment margin
is $149,700 and the PIH Division's divisional segment margin is $60,100. What is the amount
of the common fixed expense not traceable to the individual divisions?
A. $233,600
B. $209,800
C. $144,000
D. $125,900

$83,900 = ($149,700 +$60,100) - Common fixed expenses
Common fixed expenses = $209,800 - $83,900 = $125,900
AACSB: Analytic
Level: Medium
The Pacific Company manufactures a single product. The following data relate to the year
just completed:
During the last year, 5,000 units were produced and 4,800 units were sold. There were no
beginning inventories.
4-225
74. Under variable costing, the unit product cost would be:
A. $91.00
B. $72.00
C. $58.00
D. $43.00
Under variable costing, the unit product cost is the variable production cost of $43 per unit.
AACSB: Analytic
Level: Easy
75. The carrying value of finished goods inventory at the end of the year under variable
costing would be:
A. $8,800 greater than under absorption costing.
B. $8,800 less than under absorption costing.
C. $5,800 less than under absorption costing.
D. The same as absorption costing.
Fixed manufacturing overhead per unit = Fixed manufacturing overhead Units produced
= $145,000 5,000 units = $29 per unit
Change in units in inventory = Units produced - Units sold = 5,000 units - 4,800 units = 200
units
Since inventories increased by 200 units, fixed manufacturing overhead is deferred in

inventories and absorption costing net operating income will be greater than variable costing
net operating income.
Manufacturing overhead deferred in inventory = Fixed manufacturing overhead per unit

Increase in units in inventory = $29 per unit 200 unit increase = $5,800
AACSB: Analytic
Level: Medium
4-226
76. Under absorption costing, the cost of goods sold for the year would be:
A. $206,400
B. $345,600
C. $278,400
D. $360,000
AACSB: Analytic
Level: Medium
Carr Company produces a single product. During the past year, Carr manufactured 25,000
units and sold 20,000 units. Production costs for the year were as follows:
Sales totaled $850,000, variable selling expenses totaled $110,000, and fixed selling and
administrative expenses totaled $170,000. There were no units in beginning inventory.
Assume that direct labor is a variable cost.
4-227
77. The contribution margin per unit would be:

A. $12.10
B. $22.10
C. $17.70
D. $16.60
Variable expenses per unit:
Selling price per unit = $850,000 20,000 units = $42.50 per unit
Unit CM = Selling price per unit - Variable expenses per unit
= $42.50 per unit - $25.90 per unit = $16.60 per unit
AACSB: Analytic
Level: Medium
4-228
78. Under absorption costing, the ending inventory for the year would be valued at:
A. $179,500
B. $213,500
C. $222,000
D. $152,000
AACSB: Analytic
Level: Medium
4-229
79. The net operating income for the year under variable costing would be:
A. $28,000 lower than under absorption costing
B. $28,000 higher than under absorption costing
C. $50,000 lower than under absorption costing
D. $50,000 higher than under absorption costing
Change in units in inventory = Units produced - Units sold

= 25,000 units - 20,000 units = 5,000 unit increase
Fixed manufacturing overhead per unit = Fixed manufacturing overhead Units produced
= $250,000 25,000 units = $10.00 per unit
Since the units produced exceeds the units sold, fixed manufacturing overhead costs will be
deferred in inventory and absorption costing net operating income will exceed variable
costing net operating income.
Manufacturing overhead deferred in inventory = Fixed manufacturing overhead per unit

Increase in units in inventory = $10.00 per unit 5,000 units = $50,000
AACSB: Analytic
Level: Medium
4-230
Favini Company, which has only one product, has provided the following data concerning its
80. What is the unit product cost for the month under variable costing?
A. $98
B. $125
C. $118
D. $91
AACSB: Analytic
Level: Easy
4-231
81. What is the unit product cost for the month under absorption costing?
A. $91
B. $125
C. $118
D. $98
AACSB: Analytic
Level: Easy
4-232
82. What is the net operating income for the month under variable costing?
A. $11,800
B. $3,700
C. $8,100
D. $(23,600)
AACSB: Analytic
Level: Medium
4-233
83. What is the net operating income for the month under absorption costing?
A. $11,800
B. $3,700
C. $8,100
D. $(23,600)
AACSB: Analytic
Level: Medium
4-234
Hadlock Company, which has only one product, has provided the following data concerning
its most recent month of operations:
A. $61
B. $71
C. $69
D. $79
AACSB: Analytic
Level: Easy
4-235
85. The total contribution margin for the month under the variable costing approach is:
A. $192,000
B. $128,000
C. $72,800
D. $140,800

= $91 per unit - $69 per unit = $22 per unit
Contribution margin = Unit CM Unit sales = $22 per unit 6,400 units = $140,800
AACSB: Analytic
Level: Medium
86. What is the total period cost for the month under the variable costing approach?
A. $125,600
B. $108,800
C. $176,800
D. $68,000
AACSB: Analytic
Level: Hard
4-236
A. $15,200
B. $4,000
C. $(9,200)
D. $19,200
AACSB: Analytic
Level: Medium
4-237
Abe Company, which has only one product, has provided the following data concerning its
A. $99
B. $81
C. $106
D. $88
AACSB: Analytic
Level: Easy
4-238
A. $88
B. $99
C. $81
D. $106
AACSB: Analytic
Level: Easy
A. $162,600
B. $378,000
C. $226,800
D. $319,200

= $126 per unit - ($81 per unit + $7 per unit) = $126 per unit - $88 per unit = $38 per unit
Contribution margin = Unit CM Unit sales = $38 per unit 8,400 units = $319,200
AACSB: Analytic
Level: Medium
4-239
91. The total gross margin for the month under the absorption costing approach is:
A. $319,200
B. $16,800
C. $226,800
D. $256,500
AACSB: Analytic
Level: Medium
4-240
A. $156,600
B. $210,000
C. $366,600
D. $307,800
AACSB: Analytic
Level: Hard
93. What is the total period cost for the month under the absorption costing approach?
A. $156,600
B. $210,000
C. $151,200
D. $366,600
AACSB: Analytic
Level: Hard
4-241
A. $11,400
B. $16,800
C. $5,400
D. $(12,900)
AACSB: Analytic
Level: Medium
4-242
A. $11,400
B. $(12,900)
C. $16,800
D. $5,400
AACSB: Analytic
Level: Medium
4-243
Ingerson Company, which has only one product, has provided the following data concerning
A. $109
B. $79
C. $99
D. $89
AACSB: Analytic
Level: Easy
4-244
A. $12,000
B. $8,000
C. $(27,600)
D. $4,000
AACSB: Analytic
Level: Medium
4-245
Jarvinen Company, which has only one product, has provided the following data concerning
The company produces the same number of units every month, although the sales in units
vary from month to month. The company's variable costs per unit and total fixed costs have
been constant from month to month.
A. $62
B. $58
C. $91
D. $87
AACSB: Analytic
Level: Medium
4-246
A. $91
B. $87
C. $62
D. $58
AACSB: Analytic
Level: Medium
4-247
A. $11,600
B. $2,900
C. $8,700
D. $0
AACSB: Analytic
Level: Medium
4-248
A. $2,900
B. $0
C. $8,700
D. $11,600
AACSB: Analytic
Level: Medium
4-249
DeAnne Company produces a single product. The company's variable costing income
statement for August appears below:
The company produced 35,000 units in August and the beginning inventory consisted of
8,000 units. Variable production costs per unit and total fixed costs have remained constant
over the past several months.
4-250
102. The value of the company's inventory on August 31 under the absorption costing method
is:
A. $27,000
B. $42,000
C. $36,000
D. $47,000
Units sold = $600,000 $15 per unit = 40,000 units
Units in beginning inventory + Units produced = Units sold + Units in ending inventory
8,000 units + 35,000 units = 40,000 units + Units in ending inventory
Units in ending inventory = 8,000 units + 35,000 units - 40,000 units = 3,000 units
AACSB: Analytic
Level: Hard
4-251
103. Under absorption costing, for the month ended August 31, the company would report a:
A. $20,000 profit
B. $5,000 loss
C. $35,000 profit
D. $5,000 profit
AACSB: Analytic
Level: Hard
Fahey Company manufactures a single product that it sells for $25 per unit. The company has
the following cost structure:
There were no units in beginning inventory. During the year, 18,000 units were produced and
15,000 units were sold.
4-252
104. Under absorption costing, the unit product cost is:

A. $9
B. $12
C. $13
D. $16
AACSB: Analytic
Level: Easy
105. The company's net operating income for the year under variable costing is:
A. $60,000
B. $81,000
C. $57,000
D. $69,000
AACSB: Analytic
Level: Medium
4-253
Galino Company, which has only one product, has provided the following data concerning its
4-254
A. $124,800
B. $49,400
C. $20,400
D. $143,000
AACSB: Analytic
Level: Medium
4-255
A. $49,400
B. $18,200
C. $73,400
D. $124,800
AACSB: Analytic
Level: Medium
4-256
A. $31,200
B. $104,400
C. $117,400
D. $135,600
AACSB: Analytic
Level: Hard
A. $104,400
B. $31,200
C. $13,000
D. $135,600
AACSB: Analytic
Level: Hard
4-257
Kilihea Corporation produces a single product. The company's absorption costing income
statement for July follows:
The company's variable production costs are $20 per unit and its fixed manufacturing
overhead totals $80,000 per month.
4-258
110. Net operating income under the variable costing method for July would be:
A. $53,000
B. $49,800
C. $61,000
D. $57,000
AACSB: Analytic
Level: Hard
111. The contribution margin per unit during July was:

A. $17
B. $20
C. $25
D. $6
AACSB: Analytic
Level: Medium
4-259
112. The break-even point in units for the month under variable costing is:
A. 6,850 units
B. 4,000 units
C. 3,200 units
D. 5,100 units
Fixed expenses = Fixed selling and administrative expense + Fixed manufacturing overhead
= $57,000 + $80,000 = $137,000
Unit sales to break even = Fixed expenses Unit CM
= $137,000 $20
= 6,850 units
AACSB: Analytic
Level: Medium
Eagle Corporation manufactures a picnic table. Shown below is Eagle's cost structure:
In its first year of operations, Eagle produced and sold 10,000 tables. The tables sold for $120
each.
4-260
113. If Eagle had sold only 9,000 tables in its first year, what total amount of cost would have
been assigned to the 1,000 tables in finished goods inventory under the absorption costing
method?
A. $37,100
B. $45,800
C. $58,000
D. $74,200
AACSB: Analytic
Level: Medium
4-261
114. How would Eagle's variable costing net operating income have been affected in its first
year if only 9,000 tables were sold instead of 10,000?
A. net operating income would have been $37,100 lower
B. net operating income would have been $45,800 lower
C. net operating income would have been $56,000 lower
D. net operating income would have been $62,000 lower

= $120 per unit - ($58 per unit + $6 per unit) = $120 per unit - $64 per unit = $56 per unit
Change in contribution margin = Unit CM ratio Change in unit sales

= $56 per unit 1,000 units = $56,000
Since fixed expenses would not be affected by this change in unit sales, the change in
contribution margin would drop directly to the bottom line, decreasing net operating income
by $56,000.
AACSB: Analytic
Level: Medium
4-262
115. How would Eagle's absorption costing net operating income have been affected in its
first year if 12,000 tables were produced instead of 10,000 and Eagle still sold 10,000 tables?
A. net operating income would not have been affected
B. net operating income would have been $27,000 higher
C. net operating income would have been $31,500 higher
D. net operating income would have been $116,000 lower
Absorption costing income statement with production and sales of 10,000 units:
Absorption costing income statement with production of 12,000 units and sales of 10,000
units:
Therefore, net operating income would have been $27,000 higher (= $398,000 - $371,000)
AACSB: Analytic
Level: Hard
4-263
Green Enterprises produces a single product. The following data were provided by the
company for the most recent period:
116. Under variable costing, the unit product cost is:

A. $20
B. $18
C. $15
D. $22
Under variable costing, the unit product cost is the variable manufacturing cost.
AACSB: Analytic
Level: Easy
4-264
117. Under absorption costing, the unit product cost is:

A. $20
B. $18
C. $15
D. $25
AACSB: Analytic
Level: Easy
118. For the period above, one would expect the net operating income under absorption
costing to be:
A. higher than the net operating income under variable costing.
B. lower than the net operating income under variable costing.
C. the same as the net operating income under variable costing.
D. The relation between absorption costing net operating income and variable costing net
operating income cannot be determined.
When production exceeds sales, net operating income under absorption costing will always be
higher than under variable costing. A portion of fixed manufacturing cost will be deferred in
ending inventory rather than being included in the income statement.
AACSB: Analytic
Level: Easy
4-265
Whitney, Inc., produces a single product. The following data pertain to one month's
operations:
119. The carrying value on the balance sheet of the ending finished goods inventory under
variable costing would be:
A. $16,000
B. $10,000
C. $19,000
D. $12,000
AACSB: Analytic
Level: Easy
4-266
absorption costing would be:
A. $16,000
B. $10,000
C. $12,000
D. $21,000
AACSB: Analytic
Level: Easy
121. For the month referred to above, net operating income under variable costing will be:
A. higher than net operating income under absorption costing.
B. lower than net operating income under absorption costing.
C. the same as net operating income under absorption costing.
D. The relation between variable costing and absorption costing net operating income cannot
be determined.
Since production exceeds sales, the net operating income for variable costing will be lower
than for absorption costing. This occurs because under absorption costing, some of the fixed
manufacturing overhead cost is deferred in ending inventories.
AACSB: Analytic
Level: Medium
4-267
Mennig Corporation produces a single product and has the following cost structure:
122. The unit product cost under absorption costing is:

A. $92
B. $228
C. $182
D. $85
AACSB: Analytic
Level: Easy
4-268
123. The unit product cost under variable costing is:

A. $182
B. $92
C. $87
D. $94
AACSB: Analytic
Level: Easy
Byron Company, which has only one product, has provided the following data concerning its
4-269
A. $86
B. $77
C. $83
D. $92
AACSB: Analytic
Level: Easy
A. $83
B. $92
C. $86
D. $77
AACSB: Analytic
Level: Easy
4-270
During the last year, Snyder Co. produced 10,000 units of its only product. Costs incurred by
Snyder during the year were as follows:
126. The unit product cost under absorption costing was:

A. $5.43
B. $3.81
C. $4.71
D. $4.12
AACSB: Analytic
Level: Medium
4-271
127. The unit product cost under variable costing was:

A. $3.20
B. $3.81
C. $4.12
D. $3.51
AACSB: Analytic
Level: Medium
Deboer Company, which has only one product, has provided the following data concerning
4-272
A. $8,400
B. $17,600
C. $26,000
D. $22,000
AACSB: Analytic
Level: Hard
A. $8,400
B. $17,600
C. $26,000
D. $13,600
AACSB: Analytic
Level: Hard
4-273
The following cost formula relates to last year's operations at Lemine Manufacturing
Corporation:
Y = $84,000 + $60.00X
In the formula above, 75% of the fixed cost and 90% of the variable cost are manufacturing
costs. Y is the total cost and X is the number of units produced and sold.
130. If Lemine produces and sells 7,000 units, what is the unit product cost under each of the
following methods?
A. Option A
B. Option B
C. Option C
D. Option D
Variable manufacturing cost = 0.90 $60.00 = $54.00

Fixed manufacturing cost = 0.75 $84,000 = $63,000
AACSB: Analytic
Level: Easy
4-274
131. If Lemine produces and sells only 6,000 units, what is the unit product cost under each of
the following methods?
A. Option A
B. Option B
C. Option C
D. Option D
Variable manufacturing cost = 0.90 $60.00 = $54.00

Fixed manufacturing cost = 0.75 $84,000 = $63,000
AACSB: Analytic
Level: Easy
4-275
Pellman 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.
132. The unit product cost under absorption costing was:

A. $91
B. $72
C. $25
D. $32
AACSB: Analytic
Level: Easy
4-276
133. The unit product cost under variable costing was:

A. $33
B. $32
C. $72
D. $40
AACSB: Analytic
Level: Easy
Elbon Company, which has only one product, has provided the following data concerning its
4-277
A. $10,200
B. $(19,000)
C. $8,800
D. $1,400
AACSB: Analytic
Level: Medium
4-278
A. $1,400
B. $(19,000)
C. $8,800
D. $10,200
AACSB: Analytic
Level: Medium
Gordon Company produces a single product that sells for $10 per unit. Last year there were
no beginning inventories, 100,000 units were produced, and 80,000 units were sold. The
company has the following cost structure:
4-279
136. Net operating income under variable costing would be:

A. $114,000
B. $210,000
C. $234,000
D. $330,000
AACSB: Analytic
Level: Medium
4-280
absorption costing would be:
A. $80,000
B. $104,000
C. $110,000
D. $124,000
AACSB: Analytic
Level: Medium
Clements Company, which has only one product, has provided the following data concerning
4-281
A. $61,500
B. $51,000
C. $55,500
D. $43,600
AACSB: Analytic
Level: Medium
4-282
A. $19,500
B. $51,000
C. $74,000
D. $55,500
AACSB: Analytic
Level: Medium
4-283
Kierst Company, which has only one product, has provided the following data concerning its
The company produces the same number of units every month, although the sales in units
vary from month to month. The company's variable costs per unit and total fixed costs have
been constant from month to month.
4-284
A. $10,600
B. $16,200
C. $6,200
D. $7,500
AACSB: Analytic
Level: Medium
4-285
A. $7,500
B. $16,200
C. $6,200
D. $10,600
AACSB: Analytic
Level: Medium
Krug Corporation manufactures a variety of products. The following data pertain to the
company's operations over the last two years:
4-286
142. What was the absorption costing net operating income last year?
A. $86,200
B. $89,100
C. $88,800
D. $91,400
AACSB: Analytic
Level: Medium
4-287
143. What was the absorption costing net operating income this year?
A. $91,300
B. $93,300
C. $95,900
D. $88,500
AACSB: Analytic
Level: Medium
Enz Corporation manufactures a variety of products. The following data pertain to the
company's operations over the last two years:
4-288
A. $56,000
B. $37,000
C. $57,000
D. $75,000
AACSB: Analytic
Level: Easy
A. $92,000
B. $56,000
C. $73,000
D. $75,000
AACSB: Analytic
Level: Easy
4-289
Vanstee Corporation manufactures a variety of products. Variable costing net operating

income last year was $60,000 and this year was $67,000. Last year, $37,000 in fixed
manufacturing overhead costs were deferred in inventory under absorption costing. This year,
$8,000 in fixed manufacturing overhead costs were released from inventory under absorption
costing.
A. $60,000
B. $23,000
C. $97,000
D. $89,000
AACSB: Analytic
Level: Easy
4-290
A. $38,000
B. $96,000
C. $75,000
D. $59,000
AACSB: Analytic
Level: Easy
Condit Corporation manufactures a variety of products. Variable costing net operating

income was $75,600 last year and was $80,100 this year. Last year, inventory decreased by
3,400 units. This year, inventory increased by 3,000 units. Fixed manufacturing overhead cost
is $5 per unit.
4-291
A. $77,600
B. $75,600
C. $92,600
D. $58,600
AACSB: Analytic
Level: Medium
4-292
A. $78,100
B. $95,100
C. $65,100
D. $73,600
AACSB: Analytic
Level: Medium
The Rial Company's income statement for June is given below:
4-293
150. If sales for Division F increase $40,000 with a $10,000 increase in the Division's
traceable fixed costs, the overall company net operating income should:
A. increase by $30,000
B. increase by $6,000
C. increase by $2,889
D. decrease by $4,000
CM ratio = Contribution margin Sales = $88,000 $220,000 = 0.40

Change in contribution margin = CM ratio Change in sales = 0.40 $40,000 =
Change in net operating income = Change in contribution margin - Increase in traceable fixed
costs
= $16,000 - $10,000 = $6,000
AACSB: Analytic
Level: Hard
4-294
151. During June, the sales clerks in Division F received salaries totaling $35,000. Assume
that during July the salaries of these sales clerks are discontinued and instead they are paid a
commission of 18% of sales. If sales in Division F increase by $65,000 as a result of this
change, the July segment margin for Division F should be:
A. $42,700
B. $19,400
C. $54,400
D. $94,000
Projected sales = $220,000 + $65,000 = $285,000

Current variable expense ratio = $132,000 $220,000 = 0.60
Projected variable expense ratio = 0.60 + 0.18 = 0.78
Projected variable expenses = 0.78 $285,000 = $222,300
Projected traceable fixed expenses = $55,000 - $35,000 = $20,000
AACSB: Analytic
Level: Hard
4-295
152. If the sales in Division L increase by 30% while common fixed expenses in the company
decrease by $10,000, the segment margin for Division L should:
C. decrease by $22,400

Change in contribution margin = CM ratio Change in sales = 0.60 (0.30 $180,000) =
$32,400
The decrease in common fixed expenses has no impact on the Division L segment margin.
Therefore, the Division L segment margin will increase by $32,400.
AACSB: Analytic
Level: Hard
153. A proposal has been made that will lower variable expenses in Division L to 35% of
sales. However, this reduction can only be accomplished by a $15,000 increase in Division
L's traceable fixed expenses. If this proposal is implemented and if sales remain constant,
overall company net operating income should:
C. decrease by $15,000
AACSB: Analytic
Level: Medium
4-296
Pong Incorporated's income statement for the most recent month is given below.
154. If Store G sales increase by $40,000 with no change in fixed costs, the overall company
net operating income should:
D. increase by $20,000

Change in contribution margin = CM ratio Change in sales = 0.50 $40,000 = $20,000
Since there is no change in fixed costs, the net operating income should increase by $20,000.
AACSB: Analytic
Level: Medium
4-297
155. The marketing department believes that a promotional campaign for Store H costing
$8,000 will increase the store's sales by $15,000. If the campaign is adopted, overall company
net operating income should:
A. decrease by $5,000
B. decrease by $5,500
CM ratio = Contribution margin Sales = $60,000 $90,000 = 2/3

Change in contribution margin = CM ratio Change in sales = 2/3 $15,000 = $10,000
Change in net operating income = Change in contribution margin - Cost of promotional
campaign
= $10,000 - $8,000 = $2,000
AACSB: Analytic
Level: Medium
Ring, Incorporated's income statement for the most recent month is given below.
For each of the following questions, refer back to the original data.
4-298
156. If Store Q sales increase by $30,000 with no change in fixed expenses, the overall
company net operating income should:

Since there is no change in any other cost, the net operating income should increase by
$12,000.
AACSB: Analytic
Level: Medium
157. The marketing department believes that a promotional campaign at Store P costing
$5,000 will increase sales by $15,000. If the campaign is adopted, overall company net
operating income should:
A. decrease by $800

Change in net operating income = Change in contribution margin - Cost of promotional
campaign
= $4,200 - $5,000 = -$800
AACSB: Analytic
Level: Medium
4-299
158. A proposal has been made that will lower variable costs in Store P to 65% of sales.
However, this reduction can only be accomplished by a $16,000 increase in Store P's
traceable fixed costs. If this proposal is implemented and sales remain constant, overall
company net operating income should:
A. remain the same
Proposed variable expense ratio = 0.65

Proposed variable expenses = 0.65 $200,000 = $130,000
AACSB: Analytic
Level: Medium
4-300
159. If sales in Store Q increase by $30,000 as a result of a $7,000 increase in traceable fixed
costs:
A. Store Q's contribution margin should increase by $18,000
B. Store Q's segment margin should increase by $12,000
C. Store Q's contribution margin should increase by $11,000
D. Store Q's segment margin should increase by $5,000

Change in net operating income = Change in contribution margin - Increase in traceable fixed
costs
= $12,000 - $7,000 = $5,000
AACSB: Analytic
Level: Hard
4-301
160. Currently the sales clerks receive a salary of $17,000 per month in Store Q. A proposal
has been made to change from a fixed salary to a sales commission of 5%. Assume that this
proposal is adopted, and that as a result sales in Store Q increase by $40,000. The new
segment margin for Store Q should be:
A. $47,000
B. $61,000
C. $85,000
D. $44,000
Current variable expense ratio = Variable expenses Sales = $240,000 $400,000 = 0.60
Projected variable expense ratio = 0.60 + 0.05 = 0.65
Projected sales = $400,000 + $40,000 = $440,000
Projected variable expenses = 0.65 $440,000 = $286,000
Projected traceable fixed expenses = $110,000 - $17,000 = $93,000
AACSB: Analytic
Level: Hard
The Gasson Company sells three products, Product A, Product B and Product C, and had
sales of $1,000,000 during the month of June. The company's overall contribution margin
ratio was 37% and fixed expenses totaled $350,000. Sales were: Product A, $500,000;
Product B, $300,000; and Product C, $200,000. Traceable fixed costs were: Product A,
$120,000; Product B, $100,000; and Product C, $60,000. The variable expenses of Product A
were $300,000 and the variable expenses of Product B were $180,000.
4-302
161. The net operating income for the company as a whole for June was:
A. $20,000
B. $90,000
C. $170,000
D. $300,000
Total contribution margin = Overall CM ratio Total sales = 0.37 $1,000,000 = $370,000
Net operating income = Total contribution margin - Total fixed expenses = $370,000 -
$350,000 = $20,000
AACSB: Analytic
Level: Hard
4-303
162. The contribution margin ratio for Product C is:

A. 75%
B. 69%
C. 31%
D. 25%
Total contribution margin = Overall CM ratio Total sales = 0.37 $1,000,000 = $370,000
Total contribution margin = Total sales - Total variable expenses

$370,000 = $1,000,000 - Total variable expenses
Total variable expenses = $1,000,000 - $370,000 = $630,000
Total variable expenses = Product A variable expenses + Product B variable expenses +

Product C variable expenses
$630,000 = $300,000 + $180,000 + Product C variable expenses
Product C variable expenses = $630,000 - $300,000 - $180,000 = $150,000
Product C contribution margin = $200,000 - $150,000 = $50,000

Product C CM ratio = Product C contribution margin Product C sales = $50,000 $200,000
= 0.25
4-304
AACSB: Analytic
Level: Hard
163. The common fixed expense for Gasson Company for the month of June was:
A. $350,000
B. $280,000
C. $70,000
D. $20,000
Total traceable fixed expenses = $120,000 + $100,000 + $60,000 = $280,000

Common fixed expenses = Total fixed expenses - Total traceable fixed expenses
= $350,000 - $280,000 = $70,000
AACSB: Analytic
Level: Hard
164. The product line segment margin for Product A for June was:
A. $200,000
B. $80,000
C. $65,000
D. $10,000
AACSB: Analytic
Level: Hard
4-305
165. The contribution margin in dollars for Product B for June was:
A. $20,000
B. $111,000
C. $120,000
D. $200,000
AACSB: Analytic
Level: Hard
Tennison Corporation has two major business segments-Consumer and Commercial. Data for
the segment and for the company for May appear below:
In addition, common fixed expenses totaled $371,000 and were allocated as follows:
$186,000 to the Consumer business segment and $185,000 to the Commercial business
segment.
4-306
166. The contribution margin of the Commercial business segment is:

A. $769,000
B. $272,000
C. $313,000
D. $86,000
AACSB: Analytic
Level: Easy
167. A properly constructed segmented income statement in a contribution format would

show that the segment margin of the Consumer business segment is:
A. $272,000
B. $270,000
C. $86,000
D. $514,000
AACSB: Analytic
Level: Easy
4-307

show that the net operating income of the company as a whole is:
A. $769,000
B. $104,000
C. $475,000
D. -$267,000
AACSB: Analytic
Level: Easy
Stryker Corporation has two major business segments-East and West. In April, the East
business segment had sales revenues of $500,000, variable expenses of $280,000, and
traceable fixed expenses of $80,000. During the same month, the West business segment had
sales revenues of $970,000, variable expenses of $514,000, and traceable fixed expenses of
$184,000. The common fixed expenses totaled $280,000 and were allocated as follows:
$112,000 to the East business segment and $168,000 to the West business segment.
4-308
169. The contribution margin of the West business segment is:

A. $456,000
B. $140,000
C. $28,000
D. $676,000
AACSB: Analytic
Level: Easy

show that the segment margin of the East business segment is:
A. $108,000
B. $28,000
C. $140,000
D. $280,000
AACSB: Analytic
Level: Easy
4-309

A. $412,000
B. $676,000
C. -$148,000
D. $132,000
AACSB: Analytic
Level: Easy
Canon Company has two sales areas: North and South. During last year, the contribution
margin in the North Area was $50,000, or 20% of sales. The segment margin in the South was
$15,000, or 8% of sales. Traceable fixed expenses are $15,000 in the North and $10,000 in the
South. During last year, the company reported total net operating income of $26,000.
4-310
172. The total fixed expenses (traceable and common) for Canon Company for the year were:
A. $49,000
B. $25,000
C. $24,000
D. $50,000
4-311
Total traceable fixed expenses = North Traceable fixed expenses + South Traceable fixed
expenses
= $15,000 + $10,000 = $25,000
North Segment margin = North Contribution margin - North Traceable fixed expenses
= $50,000 - $15,000 = $35,000
Total Segment margin = North Segment margin + South Segment margin

= $35,000 + $15,000 = $50,000
4-312

Common fixed expenses = Segment margin - Net operating income = $50,000 - $26,000 =
$24,000
The total fixed expenses = Traceable fixed expenses + Common fixed expenses
= $25,000 + $24,000 = $49,000
AACSB: Analytic
Level: Hard
4-313
173. The variable expenses for the South Area for the year were:
A. $230,000
B. $185,000
C. $162,500
D. $65,000
South Segment margin = 0.08 South Sales

$15,000 = 0.08 South Sales
South Sales = $15,000 0.08 = $187,500
South segment margin = South contribution margin - South traceable fixed expenses
$15,000 = South contribution margin - $10,000
South contribution margin = $15,000 + $10,000 = $25,000
South Contribution margin = South Sales - South Variable expenses

$25,000 = $187,500 - South Variable expenses
South Variable expenses = $187,500 - $25,000 = $162,500
4-314
AACSB: Analytic
Level: Hard
Data for June for Ozaki Corporation and its two major business segments, North and South,
appear below:
In addition, common fixed expenses totaled $145,000 and were allocated as follows: $73,000
to the North business segment and $72,000 to the South business segment.
174. The contribution margin of the South business segment is:

A. $343,000
B. $63,000
C. $119,000
D. $192,000
AACSB: Analytic
Level: Easy
4-315

show that the segment margin of the North business segment is:
A. $270,000
B. $119,000
C. $207,000
D. $192,000
AACSB: Analytic
Level: Easy
4-316

A. $(56,000)
B. $89,000
C. $343,000
D. $234,000
AACSB: Analytic
Level: Easy
Falquez Company sells three products: R, S, and T. Data for activity of Falquez Company
during July are as follows:
Common fixed expenses for July amounted to $90,000.
4-317
177. Net operating income for the company was:

A. $166,000
B. $256,000
C. $334,000
D. $46,000
Contribution margin = CM ratio Sales = 0.32 $800,000 = $256,000

Net operating income = Contribution margin - Traceable fixed expenses - Common fixed
expenses
= $256,000 - $120,000 - $90,000 = $46,000
AACSB: Analytic
Level: Hard
4-318
178. The contribution margin for Product R was:

A. $48,750
B. $63,500
C. $51,000
D. $48,000
4-319
Total Sales = R Sales + S Sales + T Sales

$800,000 = $150,000 + S Sales + $200,000
S Sales = $800,000 - ($150,000 + $200,000) = $450,000
S Contribution margin = S CM ratio S Sales = 0.25 $450,000 = $112,500
T Contribution margin = T CM ratio T Sales = 0.40 $200,000 = $80,000
Total Contribution margin = R Contribution margin + S Contribution margin + T

Contribution margin
$256,000 = R Contribution margin + $112,500 + $80,000
R Contribution margin = $256,000 - ($112,500 + $80,000) = $63,500
4-320
AACSB: Analytic
Level: Hard
4-321
179. The segment margin for Product T was:

A. $45,000
B. $85,000
C. $(10,000)
D. $80,000
Total Traceable fixed expenses = R Traceable fixed expenses + S Traceable fixed expenses +
T Traceable fixed expenses
$120,000 = $25,000 + $60,000 + T Traceable fixed expenses
T Traceable fixed expenses = $120,000 - ($25,000 + $60,000) = $35,000
T Segment margin = T Contribution margin - T Traceable fixed expenses

= $80,000 - $35,000 = $45,000
4-322
AACSB: Analytic
Level: Hard
Chapter 11
Performance Measurement in Decentralized Organizations
12. Residual income is a better measure for performance evaluation of an investment center
manager than return on investment because:
A. the problems associated with measuring the asset base are eliminated.
B. desirable investment decisions will not be rejected by divisions that already have a high
ROI.
C. only the gross book value of assets needs to be calculated.
D. returns do not increase as assets are depreciated.

Learning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales; expenses; and assets affect ROI
Learning Objective: 11-02 Compute residual income and understand its strengths and weaknesses
Level: Medium
13. Turnover is computed by dividing average operating assets into:

A. invested capital.
B. total assets.
C. net operating income.
D. sales.

Bloom's: Knowledge
Level: Easy
4-323
14. Which of the following statements provide(s) an argument in favor of including only a
plant's net book value rather than gross book value as part of operating assets in the ROI
computation?
I. Net book value is consistent with how plant and equipment items are reported on a balance
sheet.
II. Net book value is consistent with the computation of net operating income, which includes
depreciation as an operating expense.
III. Net book value allows ROI to decrease over time as assets get older.
A. Only I.
B. Only III.
C. Only I and II.
D. Only I and III.

Level: Medium
15. In computing the margin in a ROI analysis, which of the following is used?
A. Sales in the denominator
B. Net operating income in the denominator
C. Average operating assets in the denominator
D. Residual income in the denominator

Level: Medium
4-324
16. Which of the following is not an operating asset?

A. Cash
B. Inventory
C. Plant equipment
D. Common stock

Bloom's: Knowledge
Level: Easy
17. In determining the dollar amount to use for operating assets in the return on investment
(ROI) calculation, companies will generally use either net book value or gross cost of the
assets. Which of the following is an argument for the use of gross cost rather than net book
value?
A. It is consistent with how assets are reported on the balance sheet.
B. It eliminates the depreciation method as a factor in ROI calculations.
C. It encourages the replacement of old, worn-out equipment.
D. all of the above.

Level: Medium
18. Which of the following will not result in an increase in the residual income, assuming
other factors remain constant?
A. An increase in sales.
B. An increase in the minimum required rate of return.
C. A decrease in expenses.
D. A decrease in operating assets.

Level: Medium
4-325
19. All other things the same, which of the following would increase residual income?
A. Increase in average operating assets.
B. Decrease in average operating assets.
C. Increase in minimum required return.
D. Decrease in net operating income.

Level: Medium
20. Which of the following three statements are correct?
I. A profit center has control over both cost and revenue.

II. An investment center has control over invested funds, but not over costs and revenue.
III. A cost center has no control over sales.
A. Only I
B. Only II
C. Only I and III
D. Only I and II

Learning Objective: Other topics
Level: Medium
21. The purpose of the Data Processing Department of Falena Corporation is to assist the
various departments of the corporation with their information needs free of charge. The Data
Processing Department would best be evaluated as a:
A. cost center.
B. revenue center.
C. profit center.
D. investment center.

Bloom's: Knowledge
Learning Objective: Other topics
Level: Easy
4-326
22. Average operating assets are $110,000 and net operating income is $23,100. The company
invests $25,000 in new assets for a project that will increase net operating income by $4,750.
What is the return on investment (ROI) of the new project?
A. 21%
B. 19%
C. 18.5%
D. 20%
ROI = Net operating income Average operating assets

= $4,750 $25,000 = 19%
AACSB: Analytic
Level: Medium
23. Last year a company had stockholder's equity of $160,000, net operating income of
$16,000 and sales of $100,000. The turnover was 0.5. The return on investment (ROI) was:
A. 10%
B. 9%
C. 8%
D. 7%
Margin = Net operating income Sales = $16,000 $100,000 = 16%

ROI = Margin Turnover = 16% 0.5 = 8%
AACSB: Analytic
Level: Medium
4-327
24. Sales and average operating assets for Company P and Company Q are given below:
What is the margin that each company will have to earn in order to generate a return on
investment of 20%?
A. 12% and 16%
B. 50% and 100%
C. 8% and 4%
D. 2.5% and 5%
Company P:
Turnover = Sales Average operating assets = $20,000 $8,000 = 2.5
ROI Turnover = Margin = 20% 2.5 = 8%
Company Q:
Turnover = Sales Average operating assets = $50,000 $10,000 = 5
ROI Turnover = Margin = 20% 5 = 4%
AACSB: Analytic
Level: Hard
25. Reed Company's sales last year totaled $150,000 and its return on investment (ROI) was
12%. If the company's turnover was 3, then its net operating income for the year must have
been:
A. $6,000
B. $2,000
C. $18,000
D. it is impossible to determine from the data given.
4-328
ROI = Margin Turnover

Margin = ROI Turnover = 12% 3 = 4%
Margin = Net operating income Sales
Net operating income = Margin Sales = 4% $150,000 = $6,000
AACSB: Analytic
Level: Hard
26. A company's current net operating income is $16,800 and its average operating assets are
$80,000. The company's required rate of return is 18%. A new project being considered
would require an investment of $15,000 and would generate annual net operating income of
$3,000. What is the residual income of the new project?
A. 20.8%
B. 20%
C. ($150)
D. $300
AACSB: Analytic
Level: Easy
27. Soderquist Corporation uses residual income to evaluate the performance of its divisions.
The company's minimum required rate of return is 11%. In April, the Commercial Products
Division had average operating assets of $100,000 and net operating income of $9,400. What
was the Commercial Products Division's residual income in April?
A. -$1,600
B. $1,600
C. $1,034
D. -$1,034
4-329
AACSB: Analytic
Level: Easy
28. In August, the Universal Solutions Division of Jugan Corporation had average operating
assets of $670,000 and net operating income of $77,500. The company uses residual income,
with a minimum required rate of return of 12%, to evaluate the performance of its divisions.
What was the Universal Solutions Division's residual income in August?
A. $2,900
B. -$2,900
C. -$9,300
D. $9,300
AACSB: Analytic
Level: Easy
29. Division B had an ROI last year of 15%. The division's minimum required rate of return is
10%. If the division's average operating assets last year were $450,000, then the division's
residual income for last year was:
A. $67,500
B. $22,500
C. $37,500
D. $45,000
4-330

Net operating income = ROI Average operating assets = 15% $450,000 = $67,500
AACSB: Analytic
Level: Hard
30. Garnick Corporation keeps careful track of the time required to fill orders. The times
recorded for a particular order appear below:
The delivery cycle time was:

A. 3.5 hours
B. 8.7 hours
C. 34.9 hours
D. 36.1 hours
Throughput time = Process time + Inspection time + Move time + Queue time
= 0.9 hours + 0.3 hours + 3.5 hours + 5.2 hours = 9.9 hours
Delivery cycle time = Wait time + Throughput time

= 26.2 hours + 9.9 hours = 36.1 hours
AACSB: Analytic
Learning Objective: 11-03 Compute delivery cycle time; throughput time; and manufacturing cycle efficiency (MCE)
Level: Easy
4-331
31. Galanis Corporation keeps careful track of the time required to fill orders. Data
concerning a particular order appear below:
The throughput time was:

A. 38.8 hours
B. 33.4 hours
C. 14.1 hours
D. 5.4 hours
AACSB: Analytic
Level: Easy
32. Hoster Corporation keeps careful track of the time required to fill orders. The times
The throughput time was:

A. 8.9 hours
B. 18 hours
C. 4.5 hours
D. 22.5 hours
4-332
AACSB: Analytic
Level: Easy
33. Botelho Corporation keeps careful track of the time required to fill orders. Data
The delivery cycle time was:

A. 33.1 hours
B. 3.7 hours
C. 12.6 hours
D. 30.9 hours

AACSB: Analytic
Level: Easy
4-333
34. Niemiec Corporation keeps careful track of the time required to fill orders. The times
The manufacturing cycle efficiency (MCE) was closest to:

A. 0.20
B. 0.06
C. 0.12
D. 0.96
MCE = Value-added time (Process time) Throughput (manufacturing cycle) time

= 1.5 hours 12.8 hours = 0.12
AACSB: Analytic
Level: Easy
35. Mordue Corporation keeps careful track of the time required to fill orders. Data
The manufacturing cycle efficiency (MCE) was closest to:

A. 0.15
B. 0.53
C. 0.05
D. 0.16
4-334

= 1.7 hours 10.9 hours = 0.16
AACSB: Analytic
Level: Easy
Aide Industries is a division of a major corporation. Data concerning the most recent year
appears below:
36. The division's margin is closest to:

A. 21.8%
B. 5.0%
C. 23.0%
D. 28.0%
Margin = Net operating income Sales = $870,000 $17,400,000 = 5.0%
AACSB: Analytic
Level: Easy
4-335
37. The division's turnover is closest to:

A. 20.00
B. 4.35
C. 0.22
D. 3.57
Turnover = Sales Average operating assets = $17,400,000 $4,000,000 = 4.35
AACSB: Analytic
Level: Easy
4-336
38. The division's return on investment (ROI) is closest to:

A. 4.1%
B. 21.75%
C. 17.9%
D. 1.1%
ROI = Net operating income Average operating assets = $870,000 $4,000,000 = 21.75%
AACSB: Analytic
Level: Easy
The Reed Division reports the following operating data for the past two years:
The return on investment at Reed was exactly the same in Year 1 and Year 2.
4-337
39. The margin in Year 2 was:

A. 48%
B. 32%
C. 20%
D. 10%
ROI in Year 1:
By assumption, the ROI is the same in Year 2 as in Year 1. Therefore, in Year 2:

40% = Margin 2
Margin = 40% 2 = 20%
AACSB: Analytic
Level: Hard
40. Sales in Year 2 amounted to:

A. $250,000
B. $300,000
C. $325,000
D. $350,000
ROI in Year 1:

Sales = Net operating income Margin = $60,000 20% = $300,000
AACSB: Analytic
Level: Medium
4-338
41. Average operating assets in Year 1 were:

A. $160,000
B. $150,000
C. $125,000
D. $100,000

Sales = Net operating income Margin
= $40,000 16% = $250,000
Turnover = Sales Average operating assets

Average operating assets = Sales Turnover
= $250,000 2.5 = $100,000
AACSB: Analytic
Level: Hard
42. Net operating income in Year 2 amounted to:

A. $60,000
B. $50,000
C. $40,000
D. $35,000
ROI in Year 1: ROI = Margin Turnover = 16% 2.5 = 40%

AACSB: Analytic
Level: Hard
Beall Industries is a division of a major corporation. Last year the division had total sales of
$20,160,000, net operating income of $1,592,640, and average operating assets of $8,000,000.
4-339

A. 39.7%
B. 47.6%
C. 7.9%
D. 19.9%
Margin= Net operating income Sales

= $1,592,640 $20,160,000 = 7.9%
AACSB: Analytic
Level: Easy

A. 2.52
B. 2.10
C. 0.20
D. 12.66

= $20,160,000 $8,000,000 = 2.52
AACSB: Analytic
Level: Easy
4-340

A. 19.9%
B. 16.6%
C. 1.6%
D. 5.7%

= $1,592,640 $8,000,000 = 19.9%
AACSB: Analytic
Level: Easy
The West Division of Shekarchi Corporation had average operating assets of $620,000 and
net operating income of $80,100 in March. The minimum required rate of return for
performance evaluation purposes is 14%.
46. What was the West Division's minimum required return in March?
A. $80,100
B. $86,800
C. $11,214
D. $98,014
Minimum required return = Average operating assets Minimum required rate of return
= $620,000 14% = $86,800
AACSB: Analytic
Level: Easy
4-341
47. What was the West Division's residual income in March?

A. -$6,700
B. $6,700
C. -$11,214
D. $11,214
AACSB: Analytic
Level: Easy
The Consumer Products Division of Weiter Corporation had average operating assets of
$570,000 and net operating income of $65,100 in March. The minimum required rate of
return for performance evaluation purposes is 12%.
48. What was the Consumer Products Division's minimum required return in March?
A. $7,812
B. $76,212
C. $68,400
D. $65,100
Minimum required return = Average operating assets Minimum required rate of return
= $570,000 12% = $68,400
AACSB: Analytic
Level: Easy
4-342
49. What was the Consumer Products Division's residual income in March?
A. -$3,300
B. $3,300
C. -$7,812
D. $7,812
AACSB: Analytic
Level: Easy
Estes Company has assembled the following data for its divisions for the past year:
4-343
50. Division A's sales are:

A. $400,000
B. $625,000
C. $125,000
D. $200,000

Sales = Average operating assets Turnover
= $500,000 1.25 = $625,000
AACSB: Analytic
Level: Hard
51. Division A's residual income is:

A. $20,000
B. $30,000
C. $35,000
D. $45,000
AACSB: Analytic
Level: Medium
4-344
52. Division B's average operating assets is:

A. $81,200
B. $2,080,000
C. $1,333,333
D. $130,000

= $520,000 4 = $130,000
AACSB: Analytic
Level: Medium
Operating data from Tindall Company for last year follows:
4-345
53. The average operating assets amounted to:

A. $600,000
B. $400,000
C. $500,000
D. $800,000

= $900,000 1.5 = $600,000
AACSB: Analytic
Level: Hard
54. The residual income was:

A. $18,000
B. $10,000
C. $12,000
D. $16,000

= $900,000 1.5 = $600,000

Net operating income = ROI Average operating assets
= 12% $600,000 = $72,000
AACSB: Analytic
Level: Hard
4-346
55. The margin used in ROI calculations was closest to:

A. 18.00%
B. 8.00%
C. 6.67%
D. 15.00%

Margin = ROI Turnover
= 12% 1.5 = 8%
AACSB: Analytic
Level: Hard
The Baily Division recorded operating data as follows for the past two years:
Baily Division's turnover was exactly the same in both Year 1 and Year 2.
4-347
56. Sales in Year 1 amounted to:

A. $400,000
B. $900,000
C. $750,000
D. $1,200,000
Turnover = ROI Margin = 22.5% 15% = 1.5

Sales = Average operating assets Turnover = $600,000 1.5 = $900,000
AACSB: Analytic
Level: Hard
57. The net operating income in Year 1 was:

A. $90,000
B. $135,000
C. $140,000
D. $150,000
Turnover = ROI Margin = 22.5% 15% = 1.5

Sales = Average operating assets Turnover = $600,000 1.5 = $900,000

Net operating income = Sales Margin = $900,000 15% = $135,000
AACSB: Analytic
Level: Hard
4-348
58. The margin in Year 2 was:

A. 18.75%
B. 27.00%
C. 22.50%
D. 12.00%
Turnover in Year 1 = ROI in Year 1 Margin in Year 1 = 22.5% 15% = 1.5

Margin in Year 2 = ROI in Year 2 Turnover in Year 2
= ROI in Year 2 Turnover in Year 1
= 18% 1.5 = 12%
AACSB: Analytic
Level: Hard
59. The average operating assets in Year 2 were:

A. $720,000
B. $750,000
C. $800,000
D. $900,000
Turnover in Year1 = ROI in Year 1 Margin in Year 1 = 22.5% 15% = 1.5
Turnover in Year 2 = Sales in Year 2 Average operating assets in Year 2

Average operating assets in Year 2 = Sales in Year 2 Turnover in Year 2
= Sales in Year 2 Turnover in Year 1
= $1,200,000 1.5 = $800,000
AACSB: Analytic
Level: Hard
4-349
The following data are available for the South Division of Redride Products, Inc. and the
single product it makes:
60. How many units must South sell each year to have an ROI of 16%?
A. 240,000
B. 1,300,000
C. 52,000
D. 65,000

Net operating income = ROI Average operating assets
= 16% $1,500,000 = $240,000
Unit sales to attain a target profit = (Target profit + Fixed expenses) Unit CM
= ($240,000 + $280,000) ($20 per unit - $12 per unit)
= $520,000 $8 per unit
= 65,000 units
AACSB: Analytic
Level: Hard
4-350
61. If South wants a residual income of $50,000 and the minimum required rate of return is
10%, the annual turnover will have to be:
A. 0.32
B. 0.80
C. 1.25
D. 1.50

We need to determine the Sales that would generate a residual income of $50,000.
Residual income = Net operating income - Average operating assets Minimum required rate
of return
$50,000 = Net operating income - ($1,500,000 10%)
Net operating income = $50,000 + ($1,500,000 10%) = $200,000
Dollar sales to attain a target profit = (Target profit + Fixed expenses) CM ratio
= ($200,000 + $280,000) [($20 per unit - $12 per unit)/$20 per unit]
= $480,000 ($8 per unit/$20 per unit)
= $480,000 0.40
= $1,200,000

= $1,200,000 $1,500,000 = 0.8
AACSB: Analytic
Level: Hard
4-351
The following data pertain to the Whalen Division of Northern Industries.
The margin at Whalen was exactly the same in Year 2 as it was in Year 1.
62. The average operating assets for Year 2 amounted to:

A. $400,000
B. $800,000
C. $600,000
D. $500,000

= $600,000 1.2 = $500,000
AACSB: Analytic
Level: Hard
4-352
63. The return on investment in Year 1 was:

A. 48.00%
B. 32.50%
C. 7.58%
D. 1.92%

= 9.6% 1.2 = 8%
ROI in Year 1 = Margin in Year 1 Turnover in Year 1

= 8% 6 = 48%
AACSB: Analytic
Level: Hard
4-353
64. The minimum required rate of return in Year 1 was:

A. 18%
B. 17%
C. 16%
D. 15%

Net operating income = Sales Margin
= $300,000 8% = $24,000

= 9.6% 1.2 = 8%

= 8% 6 = 48%

48% = $24,000 Average operating assets
Average operating assets = $24,000 48% = $50,000
Residual income = Net operating income - Average operating assets Minimum required rate
of return
$16,000 = $24,000 - $50,000 Minimum required rate of return
$50,000 Minimum required rate of return = $24,000 - $16,000
Minimum required rate of return = $8,000 $50,000 = 16%
AACSB: Analytic
Level: Hard
4-354
Dickonson Products is a division of a major corporation. The following data are for the last
year of operations:

A. 26.4%
B. 10.0%
C. 2.4%
D. 24.0%

= $399,360 $16,640,000 = 2.4%
AACSB: Analytic
Level: Easy

A. 3.78
B. 41.67
C. 4.16
D. 0.10

= $16,640,000 $4,000,000 = 4.16
AACSB: Analytic
Level: Easy
4-355

A. 0.2%
B. 41.6%
C. 10.0%
D. 1.9%

= $399,360 $4,000,000 = 9.984%
AACSB: Analytic
Level: Easy
68. The division's residual income is closest to:

A. $(320,640)
B. $1,119,360
C. $399,360
D. $(2,595,840)
AACSB: Analytic
Level: Easy
Chace Products is a division of a major corporation. Last year the division had total sales of
$21,300,000, net operating income of $575,100, and average operating assets of $5,000,000.
The company's minimum required rate of return is 12%.
4-356

A. 26.2%
B. 23.5%
C. 2.7%
D. 11.5%
Margin = Net operating income Sales = $575,100 $21,300,000 = 2.7%
AACSB: Analytic
Level: Easy

A. 3.82
B. 4.26
C. 0.12
D. 37.04
Turnover = Sales Average operating assets = $21,300,000 $5,000,000 = 4.26
AACSB: Analytic
Level: Easy
4-357

A. 49.0%
B. 11.5%
C. 0.3%
D. 2.2%

= $575,100 $5,000,000 = 11.502%
AACSB: Analytic
Level: Easy
72. The division's residual income is closest to:

A. $575,100
B. $1,175,100
C. $(1,980,900)
D. $(24,900)
AACSB: Analytic
Level: Easy
4-358
Diorio Corporation keeps careful track of the time required to fill orders. The times recorded
for a particular order appear below:
73. The delivery cycle time was:

A. 29.1 hours
B. 30.6 hours
C. 8 hours
D. 2.7 hours
AACSB: Analytic
Level: Easy
4-359
74. The throughput time was:

A. 4.2 hours
B. 9.5 hours
C. 30.6 hours
D. 26.4 hours
AACSB: Analytic
Level: Easy
75. The manufacturing cycle efficiency (MCE) was closest to:

A. 0.15
B. 0.05
C. 0.45
D. 0.18
= 1.4 hours 9.5 hours = 0.15
AACSB: Analytic
Level: Easy
Hart Manufacturing operates an automated steel fabrication process. For one operation, Hart
has found that 45% of the total throughput (manufacturing cycle) time is spent on non-value-
added activities. Delivery cycle time is 12 hours, waiting time during the production process
is 3 hours, queue time prior to starting the production process is 2 hours, and inspection time
is 1.2 hours.
4-360
76. The manufacturing cycle efficiency (MCE) for this operation is:
A. 55%
B. 45%
C. 6.6 hours
D. 5.4 hours
Percentage of time spent on non-value-added activities = 100% - MCE

45% = 100% - MCE
MCE = 100% - 45% = 55%
AACSB: Analytic
Level: Medium
4-361
77. What is the move time recorded for the operation?

A. 1.5 hours
B. 6.5 hours
C. 5.8 hours
D. 0.85 hours

12 hours = 3 hours + Throughput time
Throughput time = 12 hours - 3 hours = 9 hours
Percentage of time spent on non-value-added activities = 100% - MCE

45% = 100% - MCE
MCE = 100% - 45% = 55%

55% = Process time 9 hours
Process time = 9 hours 55% = 4.95 hours
9.00 hours = 4.95 hours + 1.20 hours + Move time + 2.00 hours
Move time = 9.00 hours - (4.95 hours + 1.20 hours + 2.00 hours)
= 9.00 hours - 8.15 hours = 0.85 hours
AACSB: Analytic
Level: Hard
4-362
78. What is the throughput (manufacturing cycle) time for the operation?
A. 12.0 hours
B. 9.0 hours
C. 10.0 hours
D. 5.8 hours

12 hours = 3 hours + Throughput time
Throughput time = 12 hours - 3 hours = 9 hours
AACSB: Analytic
Level: Hard
Saffer Corporation keeps careful track of the time required to fill orders. Data concerning a
particular order appear below:
79. The throughput time was:

A. 9.3 hours
B. 4.9 hours
C. 30.9 hours
D. 26 hours
AACSB: Analytic
Level: Easy
4-363
80. The manufacturing cycle efficiency (MCE) was closest to:

A. 0.17
B. 0.05
C. 0.43
D. 0.19

= 1.6 hours 9.3 hours = 0.17
AACSB: Analytic
Level: Easy
81. The delivery cycle time was:

A. 7.5 hours
B. 29.1 hours
C. 30.9 hours
D. 3.1 hours

AACSB: Analytic
Level: Easy
4-364
4. When the selling division in an internal transfer has unsatisfied demand from outside
customers for the product that is being transferred, then the lowest acceptable transfer price as
far as the selling division is concerned is:
A. variable cost of producing a unit of product.
B. the full absorption cost of producing a unit of product.
C. the market price charged to outside customers, less costs saved by transferring internally.
D. the amount that the purchasing division would have to pay an outside seller to acquire a
similar product for its use.

Learning Objective: 11A-05 Determine the range; if any; within which a negotiated transfer price should fall
Level: Medium
5. Division X makes a part that it sells to customers outside of the company. Data concerning
this part appear below:
Division Y of the same company would like to use the part manufactured by Division X in
one of its products. Division Y currently purchases a similar part made by an outside
company for $70 per unit and would substitute the part made by Division X. Division Y
requires 5,000 units of the part each period. Division X can already sell all of the units it can
produce on the outside market. What should be the lowest acceptable transfer price from the
perspective of Division X?
A. $75
B. $66
C. $16
D. $50
Because there is no opportunity cost, the selling division should not accept any transfer price
less than its variable cost of $75 per unit.
AACSB: Analytic
Level: Medium
4-365
6. Part WY4 costs the Eastern Division of Tyble Corporation $26 to make-direct materials are
$10, direct labor is $4, variable manufacturing overhead is $9, and fixed manufacturing
overhead is $3. Eastern Division sells Part WY4 to other companies for $30. The Western
Division of Tyble Corporation can use Part WY4 in one of its products. The Eastern Division
has enough idle capacity to produce all of the units of Part WY4 that the Western Division
would require. What is the lowest transfer price at which the Eastern Division should be
willing to sell Part WY4 to the Central Division?
A. $30
B. $26
C. $23
D. $27
Because the selling division has ample idle capacity there is no opportunity cost and therefore
the lowest price the part should be sold for is the total amount of variable costs that would be
incurred, which is $23 per unit (= $10 per unit + $4 per unit + $9 per unit).
AACSB: Analytic
Level: Easy
4-366
7. Division P of Turbo Corporation has the capacity for making 75,000 wheel sets per year
and regularly sells 60,000 each year on the outside market. The regular sales price is $100 per
wheel set, and the variable production cost per unit is $65. Division Q of Turbo Corporation
currently buys 30,000 wheel sets (of the kind made by Division P) yearly from an outside
supplier at a price of $90 per wheel set. If Division Q were to buy the 30,000 wheel sets it
needs annually from Division P at $87 per wheel set, the change in annual net operating
income for the company as a whole, compared to what it is currently, would be:
A. $600,000
B. $225,000
C. $750,000
D. $135,000
AACSB: Analytic
Level: Hard
4-367
8. Division X makes a part that it sells to customers outside of the company. Data concerning
Division Y of the same company would like to use the part manufactured by Division X in
one of its products. Division Y currently purchases a similar part made by an outside
company for $49 per unit and would substitute the part made by Division X. Division Y
requires 5,000 units of the part each period. Division X has ample excess capacity to handle
all of Division Y's needs without any increase in fixed costs and without cutting into outside
sales. According to the formula in the text, what is the lowest acceptable transfer price from
the standpoint of the selling division?
A. $50
B. $49
C. $46
D. $30
Since Division X has ample excess capacity and consequently there is no opportunity cost, the
lowest price the part should be sold for is the variable cost of $30 per unit.
AACSB: Analytic
Level: Medium
4-368
9. Division A makes a part that it sells to customers outside of the company. Data concerning
Division B of the same company would like to use the part manufactured by Division A in
one of its products. Division B currently purchases a similar part made by an outside company
for $38 per unit and would substitute the part made by Division A. Division B requires 5,000
units of the part each period. Division A has ample capacity to produce the units for Division
B without any increase in fixed costs and without cutting into sales to outside customers. If
Division A sells to Division B rather than to outside customers, the variable cost be unit
would be $1 lower. What should be the lowest acceptable transfer price from the perspective
of Division A?
A. $40
B. $38
C. $30
D. $29
Since Division X has ample excess capacity and consequently there is no opportunity cost, the
lowest price the part should be sold for is the variable cost that would be incurred or $29 per
unit (= $30 per unit - $1 per unit).
AACSB: Analytic
Level: Hard
4-369
The Milk Chocolate Division of Mmmm Foods, Inc. had the following operating results last
year:
Milk Chocolate expects identical operating results this year. The Milk Chocolate Division has
the ability to produce and sell 200,000 pounds of chocolate annually.
10. Assume that the Peanut Butter Division of Mmmm Foods wants to purchase an additional
20,000 pounds of chocolate from the Milk Chocolate Division. Milk Chocolate will be able to
increase its profit by accepting any transfer price above:
A. $0.40 per pound
B. $0.08 per pound
C. $0.15 per pound
D. $0.25 per pound
Because the Milk Chocolate Division has ample excess capacity and consequently there is no
opportunity cost, the profit of the division would be increased by any transfer price in excess
of its variable cost of $0.25 per pound (= $37,500 150,000 pounds).
AACSB: Analytic
Level: Medium
4-370
11. Assume that the Milk Chocolate Division is currently operating at its capacity of 200,000
pounds of chocolate. Also assume again that the Peanut Butter Division wants to purchase an
additional 20,000 pounds of chocolate from Milk Chocolate. Under these conditions, what
amount per pound of chocolate would Milk Chocolate have to charge Peanut Butter in order
to maintain its current profit?
A. $0.40 per pound
B. $0.08 per pound
C. $0.15 per pound
D. $0.25 per pound
Since the Milk Chocolate Division is already operating at capacity, it would have to charge
the Peanut Butter Division its current selling price on the outside market of $0.40 per pound
to maintain its current profit.
AACSB: Analytic
Level: Medium
Division X makes a part with the following characteristics:
Division Y of the same company would like to purchase 10,000 units each period from
Division X. Division Y now purchases the part from an outside supplier at a price of $17
each.
4-371
12. Suppose Division X has ample excess capacity to handle all of Division Y's needs without
any increase in fixed costs and without cutting into sales to outside customers. If Division X
refuses to accept the $17 price internally and Division Y continues to buy from the outside
supplier, the company as a whole will be:
A. worse off by $70,000 each period.
B. better off by $10,000 each period.
C. worse off by $60,000 each period.
D. worse off by $20,000 each period.
Instead of incurring a cost of $11 per unit, the company would have to incur a cost of $17 per
unit to purchase from an outside supplier. Therefore, the company would be worse off by
$60,000 per period = ($17 per unit - $11 per unit) 10,000 units per period.
AACSB: Analytic
Level: Medium
13. Suppose that Division X is operating at capacity and can sell all of its output to outside
customers. If Division X sells the parts to Division Y at $17 per unit, the company as a whole
will be:
A. better off by $10,000 each period.
B. worse off by $20,000 each period.
C. worse off by $10,000 each period.
D. There will be no change in the status of the company as a whole.
Instead of being able to sell the units for $18 per unit on the outside market, the company
would save $17 per unit transferring them internally. The net effect is a reduction of $10,000
per period = ($18 per unit - $17 per unit) 10,000 units per period.
AACSB: Analytic
Level: Medium
4-372
Division A produces a part with the following characteristics:
Division B, another division in the company, would like to buy this part from Division A.
Division B is presently purchasing the part from an outside source at $28 per unit. If Division
A sells to Division B, $1 in variable costs can be avoided.
14. Suppose Division A is currently operating at capacity and can sell all of the units it
produces on the outside market for its usual selling price. From the point of view of Division
A, any sales to Division B should be priced no lower than:
A. $27
B. $29
C. $20
D. $28
Because Division A is already operating at capacity, it would have to charge Division B at

least $29 per unit ($30 per unit less the $1 per unit in variable cost that can be avoided by
transferring internally rather than selling on the external market).
AACSB: Analytic
Level: Medium
4-373
15. Suppose that Division A has ample idle capacity to handle all of Division B's needs
without any increase in fixed costs and without cutting into its sales to outside customers.
From the point of view of Division A, any sales to Division B should be priced no lower
than:
A. $29
B. $30
C. $18
D. $17
Because Division A has excess operating capacity, the opportunity cost is zero. Hence,
Division A would make money charging Division B anything more than $17 per unit ($18
variable cost per unit less the $1 in variable cost that can be avoided by transferring internally
rather than selling on the outside market).
AACSB: Analytic
Level: Medium
The Post Division of the M.T. Woodhead Company produces basic posts which can be sold
to outside customers or sold to the Lamp Division of the M.T. Woodhead Company. Last year
the Lamp Division bought all of its 25,000 posts from Post at $1.50 each. The following data
are available for last year's activities of the Post Division:
The total fixed costs would be the same for all the alternatives considered below.
4-374
16. Suppose there is ample capacity so that transfers of the posts to the Lamp Division do not
cut into sales to outside customers. What is the lowest transfer price that would not reduce the
profits of the Post Division?
A. $0.90
B. $1.35
C. $1.41
D. $1.75
Since the Post Division has excess operating capacity, the opportunity cost is zero. Therefore,
the Post Division's profits would not be reduced if the transfer price is at least the variable
cost of $0.90 per unit.
AACSB: Analytic
Level: Medium
17. Suppose the transfers of posts to the Lamp Division cut into sales to outside customers by
15,000 units. What is the lowest transfer price that would not reduce the profits of the Post
Division?
A. $0.90
B. $1.35
C. $1.41
D. $1.75
Total contribution margin on lost sales = ($1.75 per unit - $0.90 per unit) 15,000 units
= $0.85 per unit 15,000 units = $12,750
Opportunity cost = Total contribution margin on lost sales Number of units transferred
= $12,750 25,000 units = $0.51 per unit
Transfer price > Variable cost per unit + Opportunity cost per unit
= $0.90 per unit + $0.51 per unit = $1.41 per unit
AACSB: Analytic
Level: Hard
4-375
18. Suppose the transfers of posts to the Lamp Division cut into sales to outside customers by
15,000 units. Further suppose that an outside supplier is willing to provide the Lamp Division
with basic posts at $1.45 each. If the Lamp Division had chosen to buy all of its posts from
the outside supplier instead of the Post Division, the change in net operating income for the
company as a whole would have been:
A. $1,250 decrease
B. $10,250 increase
C. $1,000 decrease
D. $13,750 decrease
The incremental change in net operating income to the company as a whole would be 25,000
units @ $0.04 per unit, for a total of $1,000 in decreased profits.
AACSB: Analytic
Level: Hard
4-376
The Pole Division of Hillyard Company produces poles which can be sold to outside
customers or transferred to the Flag Division of Hillyard Company. Last year the Flag
Division bought 50,000 poles from Pole at $2.50 each. The following data are available for
last year's activities in the Pole Division:
In order to sell 50,000 poles to the Flag Division, the Pole Division must give up sales of
30,000 poles to outside customers. That is, the Pole Division could sell 380,000 poles each
year to outside customers (rather than only 350,000 poles as shown above) if it were not
making sales to the Flag Division.
19. According to the formula in the text, what is the lowest acceptable transfer price from the
viewpoint of the selling division?
A. $2.50
B. $2.00
C. $2.60
D. $3.00
From the perspective of the selling division, profits would increase as a result of the transfer if
and only if:
Transfer price > Variable cost per unit + Opportunity cost per unit
where Opportunity cost per unit = Total contribution margin on lost sales Number of units
transferred
Total contribution margin on lost sales = ($3 per unit - $2 per unit) 30,000 units = $30,000
Opportunity cost per unit = Total contribution margin on lost sales Number of units
transferred
= $30,000 50,000 units = $0.60 per unit
AACSB: Analytic
Level: Hard
4-377
20. Suppose that last year an outside supplier would have been willing to provide the Flag
Division with the basic poles at $2.10 each. If Flag had chosen to buy all of its poles from the
outside supplier instead of the Pole Division, the change in net operating income for the
company as a whole would have been:
A. $45,000 increase
B. $20,000 decrease
C. $20,000 increase
D. $25,000 increase
The cost would be lower by $25,000 if the poles were purchased from the outside supplier.
Hence, the net operating income would be higher by $25,000.
AACSB: Analytic
Level: Hard
7. For performance evaluation purposes, variable costs of service departments should be

charged to operating departments at the end of the period on the basis of:
A. the actual rate based on peak-period service needed.
B. the budgeted rate based on peak-period service needed.
C. the actual rate based on actual service provided.
D. the budgeted rate based on actual service provided.

Learning Objective: 11B-06 Charge operating departments for services provided by service departments
Level: Medium
4-378
8. Fixed service department costs should be charged to operating departments at the end of the
period according to which one of the following the formulas?
A. Budgeted rate x Budgeted activity.
B. Budgeted rate x Actual activity.
C. Actual rate x Actual activity.
D. Budgeted total cost x Percentage of peak-period capacity required.

Level: Medium
9. Piedmont Company has one service department and three operating departments. During a
particular year, a substantial variance developed between the actual costs and the budgeted
costs of the service department. For performance evaluation purposes, the variance should be:
A. allocated to the operating departments on the basis of usage.
B. allocated to operating departments, but on some basis other than usage.
C. kept in the service department, and not charged to the operating departments at all.
D. shared equitably among all departments.

Level: Medium
4-379
10. Matrix Company has a Maintenance Department that maintains the machines in
departments A and B. Next year Department A is budgeted to have 6,000 machine-hours of
activity and Department B is budgeted to have 24,000 machine-hours. Fixed costs in the
Maintenance Department are budgeted at $60,000 per year and are incurred in order to
support peak period activity. Department A requires 25% of the peak period capacity and
Department B requires 75% of the peak period capacity. How much of the fixed cost of the
Maintenance Department should be charged to Department B?
A. $45,000
B. $30,000
C. $48,000
D. $60,000
Allocation of Maintenance Department fixed costs to Department B = 75% $60,000 =

$45,000
AACSB: Analytic
Level: Medium
4-380
11. Norgaard Corporation has two operating divisions: a Consumer Division and a
Commercial Division. The company's Customer Service Department provides services to both
divisions. The variable costs of the Customer Service Department are budgeted at $70 per
order. The Customer Service Department's fixed costs are budgeted at $245,000 for the year.
The fixed costs of the Customer Service Department are determined based on the peak period
orders.
At the end of the year, actual Customer Service Department variable costs totaled $348,920
and fixed costs totaled $259,790. The Consumer Division had a total of 1,520 orders and the
Commercial Division had a total of 3,360 orders for the year. For performance evaluation
purposes, how much actual Customer Service Department cost should NOT be charged to the
operating divisions at the end of the year?
A. $14,790
B. $22,110
C. $7,320
D. $0
Total spending variance not charged to the operating divisions = $7,320 + $14,790 = $22,110
AACSB: Analytic
Level: Medium
4-381
12. Fairview Hospital has a Food Services department that provides food for patients in all
other departments of the hospital. For May, variable food costs were budgeted at $3 per meal,
based on 15,000 meals served during the month. At the end of the month, it was determined
that 16,000 meals had been served at a total cost of $54,000. How much food cost should be
charged to the other departments at the end of the month?
A. $45,000
B. $51,200
C. $48,000
D. $50,625
Total variable cost charged to the operating departments = $3 per meal 16,000 meals =
$48,000
AACSB: Analytic
Level: Medium
4-382
13. Hilbun Corporation has two operating divisions-an Atlantic Division and a Pacific
Division. The company's Logistics Department services both divisions. The variable costs of
the Logistics Department are budgeted at $34 per shipment. The Logistics Department's fixed
costs are budgeted at $371,700 for the year. The fixed costs of the Logistics Department are
determined based on peak-period demand.
How much Logistics Department cost should be charged to the Atlantic Division at the end of
the year for performance evaluation purposes?
A. $187,895
B. $158,100
C. $292,950
D. $205,065
AACSB: Analytic
Level: Easy
4-383
14. Janner Corporation has two operating divisions-a Consumer Division and a Commercial
Division. The company's Order Fulfillment Department provides services to both divisions.
The variable costs of the Order Fulfillment Department are budgeted at $79 per order. The
Order Fulfillment Department's fixed costs are budgeted at $302,500 for the year. The fixed
costs of the Order Fulfillment Department are determined based on the peak period orders.
At the end of the year, actual Order Fulfillment Department variable costs totaled $446,016
Commercial Division had a total of 3,980 orders for the year. For purposes of evaluation
performance, how much Order Fulfillment Department cost should be charged to the
Commercial Division at the end of the year?
A. $526,170
B. $546,235
C. $532,527
D. $552,979
AACSB: Analytic
Level: Easy
4-384
15. Dunkle Corporation's Maintenance Department provides services to the company's two
operating divisions-the Paints Division and the Stains Division. The variable costs of the
Maintenance Department are budgeted based on the number of cases produced by the
operating departments. The fixed costs of the Maintenance Department are budgeted based on
the number of cases produced by the operating departments during the peak period. Data
appear below:
For performance evaluation purposes, how much Maintenance Department cost should be
charged to the Paints Division at the end of the year?
A. $298,800
B. $498,000
C. $289,000
D. $240,000
AACSB: Analytic
Level: Medium
4-385
16. The fixed costs of Baxter Company's personnel department are allocated to operating
departments on the basis of direct labor-hours. The following data have been provided:
The fixed costs of the personnel department are budgeted at $56,000 per year and are incurred
in order to support long-run average requirements. How much of this fixed cost should be
charged to Operating Department X at the end of the year for performance evaluation
purposes?
A. $35,000
B. $33,600
C. $52,500
D. $22,400
Percentage of long-run average requirements for Operating Department X

= 15,000 DLHs/(15,000 DLHs + 10,000 DLHs) = 60%
Fixed cost of personnel department allocated to Operating Department X
= 60% $56,000 = $33,600
AACSB: Analytic
Level: Medium
4-386
17. Peake Corporation's Maintenance Department provides services to the company's two
operating departments. The fixed costs of the Maintenance Department are budgeted based on
the number of cases produced by the operating departments during the peak period. Data
appear below:
For performance evaluation purposes, how much Maintenance Department cost should be
charged to the Stains Division at the end of the year?
A. $669,623
B. $637,339
C. $625,500
D. $657,584
AACSB: Analytic
Level: Medium
4-387
18. Wilson Company maintains a cafeteria for its employees. For June, variable food costs
were budgeted at $45 per employee based on a budgeted level of 200 employees in other
departments. During the month, an average of 190 employees worked in other departments
and actual food costs totaled $9,250. How much food cost should be charged to the other
departments at the end of the month for performance evaluation purposes?
A. $9,000
B. $9,250
C. $8,550
D. $9,737
Total variable food costs allocated to other departments = 190 employees $45 per employee
= $8,550
AACSB: Analytic
Level: Medium
4-388
19. Omeara Corporation has two operating divisions-an Atlantic Division and a Pacific
At the end of the year, actual Logistics Department variable costs totaled $505,920 and fixed
costs totaled $438,080. The Atlantic Division had a total of 3,900 shipments and the Pacific
Division had a total of 6,300 shipments for the year. How much Logistics Department cost
should be charged to the Pacific Division at the end of the year for performance evaluation
purposes?
A. $583,059
B. $626,100
C. $641,040
D. $568,976
AACSB: Analytic
Level: Medium
4-389
20. Herriott Corporation has two operating divisions-an Atlantic Division and a Pacific
costs totaled $217,870. The Atlantic Division had a total of 3,000 shipments and the Pacific
Division had a total of 2,600 shipments for the year. For performance evaluation purposes,
how much actual Logistics Department cost should NOT be charged to the operating divisions
at the end of the year?
A. $8,870
B. $15,030
C. $6,160
D. $0
1
5,600 actual shipments $43 per shipment = $240,800
AACSB: Analytic
Level: Medium
4-390
Marazzi Corporation has two operating divisions-an East Division and a West Division. The
company's Logistics Department services both divisions. The variable costs of the Logistics
Department are budgeted at $47 per shipment. The Logistics Department's fixed costs are
budgeted at $328,600 for the year. The fixed costs of the Logistics Department are determined
based on peak-period demand.
costs totaled $340,240. The East Division had a total of 2,300 shipments and the West
Division had a total of 4,600 shipments for the year.
21. How much Logistics Department cost should be allocated to the West Division at the end
of the year?
A. $462,650
B. $477,360
C. $435,267
D. $449,007
AACSB: Analytic
Level: Easy
4-391
22. How much actual Logistics Department cost should not be allocated to the operating
divisions at the end of the year?
A. $0
B. $20,610
C. $11,640
D. $8,970
1
6,900 actual shipments $47 per shipment = $324,300
AACSB: Analytic
Level: Easy
The Juab Company has a Freight Department that delivers scrap metal from salvage yards to
its two fabricating facilities--the Emory Plant and the Salina Plant. Operating data for the two
plants for last year follow:
Budgeted costs consist of $150,000 fixed costs and $0.50 variable cost for each ton of scrap
delivered to the plants. Actual costs incurred in the Freight Department were $52,800
variable, and $165,000 fixed. Juab allocates variable and fixed service department costs
separately. The level of budgeted fixed costs is determined by peak-period needs. The Emory
Plant requires 40% of the peak-period capacity and the Salina Plant requires 60%.
4-392
23. How much fixed Freight Department costs should be charged to the Emory Plant at the
end of the year for performance evaluation purposes?
A. $60,000
B. $65,625
C. $66,000
D. $56,250
AACSB: Analytic
Level: Medium
24. How much variable Freight Department costs should be charged to the Salina Plant at the
end of the year for performance evaluation purposes?
A. $30,000
B. $33,000
C. $25,000
D. $22,500
AACSB: Analytic
Level: Medium
4-393
25. How much of the actual Freight Department cost should not be charged to either plant at
the end of the year for performance evaluation purposes?
A. $0
B. $15,000
C. $17,800
D. $27,800
1
80,000 actual tons $0.50 per ton = $40,000
Total spending variance not charged to either plant = $12,800 + $15,000 = $27,800
AACSB: Analytic
Level: Hard
Lindon Hospital has a Food Services Department that provides meals for all patients in the
hospital. Budgeted and actual meals served for June follow:
The budgeted variable cost of meals for June was $75,000; the actual variable cost of meals
for the month was $97,500.
4-394
26. How much Food Services cost should be charged to the Surgical Department at the end of
June for performance evaluation purposes?
A. $71,250
B. $74,100
C. $50,000
D. $52,000
Budgeted variable cost per meal = $75,000 60,000 meals = $1.25 per meal
AACSB: Analytic
Level: Medium
27. How much of the actual Food Services cost for June should be kept in the Food Services
Department and not be charged to the other departments for performance evaluation
purposes?
A. $22,500
B. $3,000
C. $3,750
D. $0
Budgeted variable cost per meal = $75,000 60,000 meals = $1.25 per meal
AACSB: Analytic
Level: Hard
4-395
Gunnison Foods has two operating departments, Processing and Packaging. It also has a
Housekeeping Department that serves the two operating departments. The costs of the
Housekeeping Department are all variable and are allocated to the operating departments on
the basis of the number of employees. Data for last year follow:
The budgeted costs of the Housekeeping Department were $40,800 and the actual costs were
$44,980.
28. How much Housekeeping Department cost should have been charged to Packaging at the
end of last year for performance evaluation purposes?
A. $26,988
B. $25,600
C. $17,340
D. $27,680
Budgeted variable cost per employee = $40,800 (1,700 employees + 3,400 employees) = $8
per employee
AACSB: Analytic
Level: Medium
4-396
29. How much of the actual Housekeeping Department costs should not have been charged to
the operating departments for performance evaluation purposes?
A. $4,180
B. $0
C. $18,460
D. $3,380
Budgeted variable cost per employee = $40,800 (1,700 employees + 3,400 employees) = $8
per employee
AACSB: Analytic
Level: Medium
Boudrie Corporation's Maintenance Department provides services to the company's two

operating departments. The fixed costs of the Maintenance Department are determined by the
number of cases produced by the operating departments during the peak period. Data appear
below:
4-397
30. How much Maintenance Department cost should be allocated to the Stains Division at the
end of the year?
A. $578,735
B. $648,836
C. $564,170
D. $664,006
AACSB: Analytic
Level: Easy
4-398
31. How much actual Maintenance Department cost should not be allocated to the operating
divisions at the end of the year?
A. $22,632
B. $0
C. $17,602
D. $5,030
Total spending variance not allocated to the operating divisions = $17,602 + $5,030 =
$22,632
AACSB: Analytic
Level: Easy
Fixed costs budgeted for Caldwell Company's Maintenance Department for the year totaled
$480,000; actual fixed costs for the year totaled $510,000. The level of budgeted fixed costs is
determined by peak-period requirements. The Milling Department requires 1/3 of the peak-
period capacity and the Assembly Department requires 2/3.
4-399
32. How much fixed maintenance cost should be charged to the Assembly Department at the
end of the year for purposes of measuring performance?
A. $320,000
B. $340,000
C. $360,000
D. $382,500
AACSB: Analytic
Level: Medium
33. How much of the actual fixed maintenance cost for the year should be kept in the
Maintenance Department and not allocated to the other departments for performance
evaluation purposes?
A. $0
B. $30,000
C. $90,000
D. $85,000
AACSB: Analytic
Level: Hard
4-400
Higuera Corporation has two operating divisions-a Consumer Division and a Commercial
Division. The company's Order Fulfillment Department provides services to both divisions.
The variable costs of the Order Fulfillment Department are budgeted at $28 per order. The
Order Fulfillment Department's fixed costs are budgeted at $280,800 for the year. The fixed
costs of the Order Fulfillment Department are budgeted based on the peak period orders.
At the end of the year, actual Order Fulfillment Department variable costs totaled $152,810
Commercial Division had a total of 3,460 orders for the year.
34. How much Order Fulfillment Department cost should be allocated to the Commercial
Division at the end of the year?
A. $284,441
B. $274,018
C. $293,492
D. $265,360
AACSB: Analytic
Level: Easy
4-401
35. How much actual Order Fulfillment Department cost should not be allocated to the
operating divisions at the end of the year?
A. $0
B. $5,780
C. $13,550
D. $7,770
Total spending variance not allocated to the operating divisions = $7,770 + $5,780 = $13,550
AACSB: Analytic
Level: Easy
Chapter 12
Differential Analysis: The Key to Decision Making
17. Costs which are always relevant in decision making are those costs which are:
A. variable.
B. avoidable.
C. sunk.
D. fixed.

Bloom's: Knowledge
Learning Objective: 12-01 Identify relevant and irrelevant costs and benefits in a decision
Level: Easy
4-402
18. A general rule in relevant cost analysis is:

A. variable costs are always relevant.
B. fixed costs are always irrelevant.
C. differential future costs and revenues are always relevant.
D. depreciation is always irrelevant.

Bloom's: Knowledge
Level: Easy
19. The opportunity cost of making a component part in a factory with no excess capacity is
the:
A. variable manufacturing cost of the component.
B. fixed manufacturing cost of the component.
C. total manufacturing cost of the component.
D. net benefit foregone from the best alternative use of the capacity required.

Level: Medium
4-403
20. Freestone Company is considering renting Machine Y to replace Machine X. It is

expected that Y will waste less direct materials than does X. If Y is rented, X will be sold on
the open market. For this decision, which of the following factors is (are) relevant?
I. Cost of direct materials used

II. Resale value of Machine X
A. Only I
B. Only II
C. Both I and II
D. Neither I nor II

Bloom's: Knowledge
Level: Easy
21. Which of the following are valid reasons for eliminating a product line?
I. The product line's contribution margin is negative.

II. The product line's traceable fixed costs plus its allocated common corporate costs are less
than its contribution margin.
A. Only I
B. Only II
C. Both I and II
D. Neither I nor II

Bloom's: Knowledge
Learning Objective: 12-02 Prepare an analysis showing whether a product line or other business segment should be added or dropped
Level: Easy
4-404
22. When there is a production constraint, a company should emphasize the products with:
A. the highest unit contribution margins.
B. the highest contribution margin ratios.
C. the highest contribution margin per unit of the constrained resource.
D. the highest contribution margins and contribution margin ratios.

Learning Objective: 12-05 Determine the most profitable use of a constrained resource
Level: Medium
23. In a sell or process further decision, which of the following costs are relevant?
I. A variable production cost incurred prior to the split-off point.

II. An avoidable fixed production cost incurred after the split-off point.
A. Only I.
B. Only II.
C. Both I and II.
D. Neither I nor II.

Learning Objective: 12-07 Prepare an analysis showing whether joint products should be sold at the split-off point or processed further
Level: Medium
4-405
24. Scherer Corporation is preparing a bid for a special order that would require 720 liters of
material U48N. The company already has 560 liters of this raw material in stock that
originally cost $6.30 per liter. Material U48N is used in the company's main product and is
replenished on a periodic basis. The resale value of the existing stock of the material is $5.80
per liter. New stocks of the material can be readily purchased for $6.65 per liter. What is the
relevant cost of the 720 liters of the raw material when deciding how much to bid on the
special order?
A. $4,592
B. $4,788
C. $4,456
D. $4,176
The relevant cost is the current market cost which is 720 liters current market $6.65 per liter
= $4,788.
AACSB: Analytic
Level: Hard
Source: CIMA, adapted
4-406
25. Cung Inc. has some material that originally cost $68,400. The material has a scrap value
of $30,100 as is, but if reworked at a cost of $1,400, it could be sold for $30,800. What would
be the incremental effect on the company's overall profit of reworking and selling the material
rather than selling it as is as scrap?
A. -$69,100
B. -$700
C. $29,400
D. -$39,000
AACSB: Analytic
Level: Medium
4-407
26. Liffick Corporation is a specialty component manufacturer with idle capacity.

Management would like to use its extra capacity to generate additional profits. A potential
customer has offered to buy 6,200 units of component VFG. Each unit of VFG requires 8
units of material C79 and 6 units of material X70. Data concerning these two materials
follow:
Material C79 is in use in many of the company's products and is routinely replenished.
Material X70 is no longer used by the company in any of its normal products and existing
stocks would not be replenished once they are used up.
What would be the relevant cost of the materials, in total, for purposes of determining a
minimum acceptable price for the order for product VFG?
A. $528,551
B. $523,280
C. $476,350
D. $484,455
Materials requirements for C79: 6,200 units of VFG 8 units of C79 per unit of VFG =
49,600 units of C79
Materials requirements for X70: 6,200 units of VFG 6 units of X70 per unit of VFG =
37,200 units of X70
* 37,200 units - 31,060 units = 6,140 units
4-408
AACSB: Analytic
Level: Hard
27. Schemm Inc. regularly uses material F04E and currently has in stock 460 liters of the
material for which it paid $2,622 several weeks ago. If this were to be sold as is on the open
market as surplus material, it would fetch $5.25 per liter. New stocks of the material can be
purchased on the open market for $5.85 per liter, but it must be purchased in lots of 1,000
liters. You have been asked to determine the relevant cost of 800 liters of the material to be
used in a job for a customer. The relevant cost of the 800 liters of material F04E is:
A. $5,850
B. $4,200
C. $4,404
D. $4,680
The relevant cost is the current market value: 800 liters current market $5.85 per liter =
$4,680
AACSB: Analytic
Level: Hard
4-409
28. Stampka Corporation is a specialty component manufacturer with idle capacity.

Management would like to use its extra capacity to generate additional profits. A potential
customer has offered to buy 4,200 units of component JJF. Each unit of JJF requires 6 units of
material O38 and 9 units of material P56. Data concerning these two materials follow:
Material O38 is in use in many of the company's products and is routinely replenished.
Material P56 is no longer used by the company in any of its normal products and existing
stocks would not be replenished once they are used up.
What would be the relevant cost of the materials, in total, for purposes of determining a
minimum acceptable price for the order for product JJF?
A. $146,790
B. $199,080
C. $155,610
D. $212,340
Materials requirements for O38: 4,200 units of JJF 6 units of O38 per unit of JJF = 25,200
units of O38
Materials requirements for P56: 4,200 units of JJF 9 units of P56 per unit of JJF = 37,800
units of P56
AACSB: Analytic
Level: Hard
4-410
29. Janus Corporation has in stock 43,700 kilograms of material L that it bought five years
ago for $6.10 per kilogram. This raw material was purchased to use in a product line that has
been discontinued. Material L can be sold as is for scrap for $3.23 per kilogram. An
alternative would be to use material L in one of the company's current products, E99D, which
currently requires 2 kilograms of a raw material that is available for $9.45 per kilogram.
Material L can be modified at a cost of $0.62 per kilogram so that it can be used as a
substitute for this material in the production of product E99D. However, after modification, 3
kilograms of material L is required for every unit of product E99D that is produced. Janus
Corporation has now received a request from a company that could use material L in its
production process. Assuming that Janus Corporation could use all of its stock of material L
to make product E99D or the company could sell all of its stock of the material at the current
scrap price of $3.23 per kilogram, what is the minimum acceptable selling price of material L
to the company that could use material L in its own production process?
A. $3.23
B. $5.68
C. $6.92
D. $2.45
The value of using material L to produce E99D is greater than its scrap value, so the company
would be giving up benefits of $5.68 per kilogram if it were to sell material L. Therefore, the
minimum acceptable price is $5.68 per kilogram.
AACSB: Analytic
Level: Hard
4-411
30. Lampshire Inc. is considering using stocks of an old raw material in a special project. The
special project would require all 160 kilograms of the raw material that are in stock and that
originally cost the company $1,136 in total. If the company were to buy new supplies of this
raw material on the open market, it would cost $7.25 per kilogram. However, the company
has no other use for this raw material and would sell it at the discounted price of $6.50 per
kilogram if it were not used in the special project. The sale of the raw material would involve
delivery to the purchaser at a total cost of $75 for all 160 kilograms. What is the relevant cost
of the 160 kilograms of the raw material when deciding whether to proceed with the special
project?
A. $1,040
B. $965
C. $1,136
D. $1,160
The company's relevant cost in this case is how much it could earn by selling the 160
kilograms at the discounted price of $6.50 per kilogram, less delivery costs of $75 for all 160
kilograms.
AACSB: Analytic
Level: Hard
4-412
31. A study has been conducted to determine if Product A should be dropped. Sales of the
product total $200,000 per year; variable expenses total $140,000 per year. Fixed expenses
charged to the product total $90,000 per year. The company estimates that $40,000 of these
fixed expenses will continue even if the product is dropped. These data indicate that if
Product A is dropped, the company's overall net operating income would:
A. decrease by $20,000 per year
B. increase by $20,000 per year
C. decrease by $10,000 per year
D. increase by $30,000 per year
Net operating income would decline by $10,000 if Product A were dropped.
AACSB: Analytic
Level: Easy
4-413
32. The Kelsh Company has two divisions--North and South. The divisions have the
following revenues and expenses:
Management at Kelsh is pondering the elimination of North Division. If North Division were
eliminated, its traceable fixed expenses could be avoided. The total common corporate
expenses would be unaffected. Given these data, the elimination of North Division would
result in an overall company net operating income of:
A. $100,000
B. $150,000
C. $(140,000)
D. $50,000
The company currently has a net operating income of $50,000the combined effect of the
apparent $50,000 loss in the North Division and the apparent $100,000 profit in the South
Division. Dropping the North Division would reduce net operating income by $190,000.
Therefore, after dropping the North Division, the overall company net operating loss would be
$140,000 (= $50,000 - $190,000).
AACSB: Analytic
Level: Medium
4-414
33. Power Systems Inc. manufactures jet engines for the United States armed forces on a cost-
plus basis. The production cost of a particular jet engine is shown below:
If production of this engine was discontinued, the production capacity would be idle, and the
supervisor would be laid off. The depreciation referred to above is for special equipment that
would have no resale value and that does not wear out through use. When asked to bid on the
next contract for this engine, the minimum unit price that Power Systems should bid is:
A. $408,000
B. $365,000
C. $397,000
D. $385,000
The relevant (avoidable) cost of producing an engine is:
AACSB: Analytic
Level: Medium
4-415
34. The management of Heider Corporation is considering dropping product J14V. Data from
the company's accounting system appear below:
In the company's accounting system all fixed expenses of the company are fully allocated to
products. Further investigation has revealed that $211,000 of the fixed manufacturing
expenses and $172,000 of the fixed selling and administrative expenses are avoidable if
product J14V is discontinued. What would be the effect on the company's overall net
operating income if product J14V were dropped?
A. Overall net operating income would decrease by $55,000.
B. Overall net operating income would increase by $160,000.
C. Overall net operating income would increase by $55,000.
D. Overall net operating income would decrease by $160,000.
Net operating income would decline by $160,000 if Product J14V were dropped. Therefore,
the product should not be dropped. Another way of saying this is that the company is actually
currently making $160,000 on this product.
AACSB: Analytic
Level: Easy
4-416
35. Product R19N has been considered a drag on profits at Buzzeo Corporation for some time
and management is considering discontinuing the product altogether. Data from the
company's accounting system appear below:
products. Further investigation has revealed that $49,000 of the fixed manufacturing expenses
and $30,000 of the fixed selling and administrative expenses are avoidable if product R19N is
discontinued. What would be the effect on the company's overall net operating income if
product R19N were dropped?
B. Overall net operating income would decrease by $22,000.
D. Overall net operating income would increase by $22,000.
Net operating income would decline by $59,000 if Product R19N were dropped. Therefore,
the product should not be dropped. Another way of saying this is that the company is actually
currently making $59,000 on this product.
AACSB: Analytic
Level: Easy
4-417
36. Lusk Company produces and sells 15,000 units of Product A each month. The selling
price of Product A is $20 per unit, and variable expenses are $14 per unit. A study has been
made concerning whether Product A should be discontinued. The study shows that $70,000 of
the $100,000 in fixed expenses charged to Product A would continue even if the product was
discontinued. These data indicate that if Product A is discontinued, the company's overall net
operating income would:
A. decrease by $60,000 per month
B. increase by $10,000 per month
C. increase by $20,000 per month
D. decrease by $20,000 per month
Net operating income would decline by $60,000 if Product A were dropped. Therefore, the
product should not be dropped. Another way of saying this is that the company is actually
making $60,000 on this product.
AACSB: Analytic
Level: Easy
4-418
37. Peluso Company, a manufacturer of snowmobiles, is operating at 70% of plant capacity.

Peluso's plant manager is considering making the headlights now being purchased from an
outside supplier for $11 each. The Peluso plant has idle equipment that could be used to
manufacture the headlights. The design engineer estimates that each headlight requires $4 of
direct materials, $3 of direct labor, and $6.00 of manufacturing overhead. Forty percent of the
manufacturing overhead is a fixed cost that would be unaffected by this decision. A decision
by Peluso Company to manufacture the headlights should result in a net gain (loss) for each
headlight of:
A. $(2.00)
B. $1.60
C. $0.40
D. $2.80
It would cost the company $0.40 less to make the part than to buy it for $11.00.
AACSB: Analytic
Learning Objective: 12-03 Prepare a make or buy analysis
Level: Medium
4-419
38. Part I51 is used in one of Pries Corporation's products. The company makes 18,000 units
of this part each year. The company's Accounting Department reports the following costs of
producing the part at this level of activity:
An outside supplier has offered to produce this part and sell it to the company for $15.80
each. If this offer is accepted, the supervisor's salary and all of the variable costs, including
direct labor, can be avoided. The special equipment used to make the part was purchased
many years ago and has no salvage value or other use. The allocated general overhead
represents fixed costs of the entire company. If the outside supplier's offer were accepted,
only $26,000 of these allocated general overhead costs would be avoided.
If management decides to buy part I51 from the outside supplier rather than to continue
making the part, what would be the annual impact on the company's overall net operating
income?
A. Net operating income would decline by $81,800 per year.
B. Net operating income would decline by $55,800 per year.
C. Net operating income would decline by $119,800 per year.
D. Net operating income would decline by $29,800 per year.
4-420
Net operating income would decline by $119,800 per year if the part were purchased rather
than made internally.
AACSB: Analytic
Level: Easy
4-421
39. Iwasaki Inc. is considering whether to continue to make a component or to buy it from an
outside supplier. The company uses 13,000 of the components each year. The unit product
cost of the component according to the company's cost accounting system is given as follows:
Assume that direct labor is a variable cost. Of the fixed manufacturing overhead, 30% is
avoidable if the component were bought from the outside supplier. In addition, making the
component uses 1 minute on the machine that is the company's current constraint. If the
component were bought, this machine time would be freed up for use on another product that
requires 2 minutes on this machine and that has a contribution margin of $5.20 per unit.
When deciding whether to make or buy the component, what cost of making the component
should be compared to the price of buying the component?
A. $22.40
B. $19.80
C. $17.28
D. $19.88
AACSB: Analytic
Level: Hard
4-422
40. Part N29 is used by Farman Corporation to make one of its products. A total of 11,000
units of this part are produced and used every year. The company's Accounting Department
reports the following costs of producing the part at this level of activity:
An outside supplier has offered to make the part and sell it to the company for $21.20 each. If
this offer is accepted, the supervisor's salary and all of the variable costs, including the direct
labor, can be avoided. The special equipment used to make the part was purchased many
years ago and has no salvage value or other use. The allocated general overhead represents
fixed costs of the entire company, none of which would be avoided if the part were purchased
instead of produced internally. In addition, the space used to make part N29 could be used to
make more of one of the company's other products, generating an additional segment margin
of $29,000 per year for that product. What would be the impact on the company's overall net
operating income of buying part N29 from the outside supplier?
B. Net operating income would increase by $29,000 per year.
D. Net operating income would increase by $19,100 per year.
Net operating income would decline by $32,600 per year if the part were purchased rather
than made internally.
4-423
AACSB: Analytic
Level: Medium
4-424
41. Fillip Corporation makes 4,000 units of part U13 each year. This part is used in one of the
company's products. The company's Accounting Department reports the following costs of
producing the part at this level of activity:
An outside supplier has offered to make and sell the part to the company for $21.60 each. If
this offer is accepted, the supervisor's salary and all of the variable costs, including direct
fixed costs of the entire company. If the outside supplier's offer were accepted, only $3,000 of
these allocated general overhead costs would be avoided. In addition, the space used to
produce part U13 would be used to make more of one of the company's other products,
generating an additional segment margin of $13,000 per year for that product.
What would be the impact on the company's overall net operating income of buying part U13
from the outside supplier?
A. Net operating income would increase by $13,000 per year.
4-425
Net operating income would increase by $9,200 per year if the part were bought from the
outside supplier.
AACSB: Analytic
Level: Medium
4-426
42. Ethridge Corporation is presently making part H25 that is used in one of its products. A
total of 9,000 units of this part are produced and used every year. The company's Accounting
Department reports the following costs of producing the part at this level of activity:
An outside supplier has offered to make and sell the part to the company for $15.40 each. If
this offer is accepted, the supervisor's salary and all of the variable costs can be avoided. The
special equipment used to make the part was purchased many years ago and has no salvage
value or other use. The allocated general overhead represents fixed costs of the entire
company, none of which would be avoided if the part were purchased instead of produced
internally. If management decides to buy part H25 from the outside supplier rather than to
continue making the part, what would be the annual impact on the company's overall net
operating income?
C. Net operating income would increase by $58,500 per year.
Net operating income would decline by $24,300 per year if the part were purchased from the
outside supplier.
4-427
AACSB: Analytic
Level: Easy
43. Pitkin Company produces a part used in the manufacture of one of its products. The unit
product cost of the part is $33, computed as follows:
An outside supplier has offered to provide the annual requirement of 10,000 of the parts for
only $27 each. The company estimates that 30% of the fixed manufacturing overhead costs
above will continue if the parts are purchased from the outside supplier. Assume that direct
labor is an avoidable cost in this decision. Based on these data, the per unit dollar advantage
or disadvantage of purchasing the parts from the outside supplier would be:
A. $3 advantage
B. $1 advantage
C. $1 disadvantage
D. $4 disadvantage
Because the part could be purchased from the outside supplier for $27, but costs $30 to make
internally, purchasing the parts from the outside supplier would yield a $3 advantage.
AACSB: Analytic
Level: Easy
4-428
44. A customer has requested that Inga Corporation fill a special order for 2,000 units of
product K81 for $25.00 a unit. While the product would be modified slightly for the special
order, product K81's normal unit product cost is $19.90:
Direct labor is a variable cost. The special order would have no effect on the company's total
fixed manufacturing overhead costs. The customer would like modifications made to product
K81 that would increase the variable costs by $1.20 per unit and that would require an
investment of $10,000 in special molds that would have no salvage value.
This special order would have no effect on the company's other sales. The company has ample
spare capacity for producing the special order. If the special order is accepted, the company's
overall net operating income would increase (decrease) by:
A. $13,000
B. $(9,700)
C. $10,200
D. $(2,200)
AACSB: Analytic
Learning Objective: 12-04 Prepare an analysis showing whether a special order should be accepted
Level: Easy
4-429
45. Rojo Corporation has received a request for a special order of 8,000 units of product W68
for $27.20 each. Product W68's unit product cost is $18.50, determined as follows:
Direct labor is a variable cost. The special order would have no effect on the company's total
fixed manufacturing overhead costs. The customer would like modifications made to product
W68 that would increase the variable costs by $7.90 per unit and that would require an
investment of $31,000 in special molds that would have no salvage value.
This special order would have no effect on the company's other sales. The company has ample
spare capacity for producing the special order. If the special order is accepted, the company's
overall net operating income would increase (decrease) by:
A. $(4,400)
B. $69,600
C. $30,600
D. $(24,600)
AACSB: Analytic
Level: Easy
4-430
46. Ellis Television makes and sells portable televisions. Each television regularly sells for
$210. The following cost data per television is based on a full capacity of 10,000 televisions
produced each period.
A special order has been received by Ellis for a sale of 2,000 televisions to an overseas
customer. The only selling costs that would be incurred on this order would be $6 per
television for shipping. Ellis is now selling 6,000 televisions through regular channels each
period. What should be the minimum selling price per television in negotiating a price for this
special order?
A. $174
B. $168
C. $210
D. $180
The selling price should at least cover the variable cost of $174 per unit.
AACSB: Analytic
Level: Medium
4-431
47. An automated turning machine is the current constraint at Naik Corporation. Three
products use this constrained resource. Data concerning those products appear below:
Rank the products in order of their current profitability from most profitable to least
profitable. In other words, rank the products in the order in which they should be emphasized.
A. OP, KU, YY
B. YY, OP, KU
C. KU, YY, OP
D. YY, KU, OP
AACSB: Analytic
Level: Easy
4-432
48. Pappan Corporation makes three products that use compound W, the current constrained
resource. Data concerning those products appear below:
Rank the products in order of their current profitability from most profitable to least
A. RH, GY, QF
B. GY, RH, QF
C. QF, GY, RH
D. RH, QF, GY
AACSB: Analytic
Level: Easy
4-433
49. Consider the following production and cost data for two products, X and Y:
The company has 15,000 machine hours available each period, and there is unlimited demand
for each product. What is the largest possible total contribution margin that can be realized
each period?
A. $120,000
B. $125,000
C. $135,000
D. $150,000
Since there is unlimited demand for each product, all of the available capacity should be used
to produce Product Y.
Production of Product Y = 15,000 machine-hours 2 machine-hours per unit = 7,500 units

Total contribution margin = $18.00 per unit 7,500 units = $135,000
AACSB: Analytic
Level: Hard
4-434
50. The constraint at Mcglathery Corporation is time on a particular machine. The company
makes three products that use this machine. Data concerning those products appear below:
Assume that sufficient time is available on the constrained machine to satisfy demand for all
but the least profitable product. Up to how much should the company be willing to pay to
acquire more of the constrained resource?
A. $75.26 per unit
B. $38.94 per unit
C. $11.80 per minute
D. $15.20 per minute
The company should be willing to pay up to $11.80 per minute to produce more CR.
AACSB: Analytic
Learning Objective: 12-06 Determine the value of obtaining more of the constrained resource
Level: Medium
4-435
51. Wright Company produces products I, J, and K from a single raw material input.
Budgeted data for the next month follows:
If the cost of the raw material input is $78,000, which of the products should be processed
beyond the split-off point?
A. Option A
B. Option B
C. Option C
D. Option D
Only Product I and Product K should be processed beyond the split-off point.
AACSB: Analytic
Level: Medium
4-436
52. Two products, IF and RI, emerge from a joint process. Product IF has been allocated
$25,300 of the total joint costs of $46,000. A total of 2,000 units of product IF are produced
from the joint process. Product IF can be sold at the split-off point for $11 per unit, or it can
be processed further for an additional total cost of $10,000 and then sold for $13 per unit. If
product IF is processed further and sold, what would be the effect on the overall profit of the
company compared with sale in its unprocessed form directly after the split-off point?
A. $31,300 less profit
B. $6,000 less profit
C. $16,000 more profit
D. $19,300 more profit
AACSB: Analytic
Level: Medium
4-437
53. Coakley Beet Processors, Inc., processes sugar beets in batches. A batch of sugar beets
costs $48 to buy from farmers and $10 to crush in the company's plant. Two intermediate
products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be
sold as is for $24 or processed further for $16 to make the end product industrial fiber that is
sold for $36. The beet juice can be sold as is for $44 or processed further for $28 to make the
end product refined sugar that is sold for $70. How much profit (loss) does the company make
by processing the intermediate product beet juice into refined sugar rather than selling it as
is?
A. $(31)
B. $(60)
C. $(2)
D. $(12)
AACSB: Analytic
Level: Easy
4-438
54. Galluzzo Corporation processes sugar beets in batches. A batch of sugar beets costs $51 to
buy from farmers and $14 to crush in the company's plant. Two intermediate products, beet
fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $20
or processed further for $18 to make the end product industrial fiber that is sold for $45. The
beet juice can be sold as is for $41 or processed further for $21 to make the end product
refined sugar that is sold for $62. How much profit (loss) does the company make by
processing one batch of sugar beets into the end products industrial fiber and refined sugar?
A. $(104)
B. $(4)
C. $7
D. $3
AACSB: Analytic
Level: Easy
4-439
55. Beilke Corporation processes sugar beets in batches that it purchases from farmers for $53
a batch. A batch of sugar beets costs $12 to crush in the company's plant. Two intermediate
products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be
sold as is for $20 or processed further for $10 to make the end product industrial fiber that is
sold for $26. The beet juice can be sold as is for $30 or processed further for $29 to make the
end product refined sugar that is sold for $79. Which of the intermediate products should be
processed further?
A. beet fiber should be processed into industrial fiber; beet juice should be processed into
refined sugar
B. beet fiber should NOT be processed into industrial fiber; beet juice should be processed
into refined sugar
C. beet fiber should NOT be processed into industrial fiber; beet juice should NOT be
processed into refined sugar
D. beet fiber should be processed into industrial fiber; beet juice should NOT be processed
into refined sugar
Beet fiber should not be processed into industrial fiberit should be sold as is at the split-off
point. Beet juice should be processed into refined sugar.
AACSB: Analytic
Level: Easy
4-440
56. Zollars Cane Products, Inc., processes sugar cane in batches. The company buys a batch
of sugar cane from farmers for $70 which is then crushed in the company's plant at a cost of
$19. Two intermediate products, cane fiber and cane juice, emerge from the crushing process.
The cane fiber can be sold as is for $21 or processed further for $13 to make the end product
industrial fiber that is sold for $42. The cane juice can be sold as is for $44 or processed
further for $26 to make the end product molasses that is sold for $88. How much profit (loss)
does the company make by processing one batch of sugar cane into the end products industrial
fiber and molasses?
A. $26
B. $2
C. $(24)
D. $(128)
AACSB: Analytic
Level: Easy
4-441
57. Kempler Corporation processes sugar cane in batches. The company purchases a batch of
sugar cane for $34 from farmers and then crushes the cane in the company's plant at the cost
of $15. Two intermediate products, cane fiber and cane juice, emerge from the crushing
process. The cane fiber can be sold as is for $26 or processed further for $17 to make the end
product industrial fiber that is sold for $41. The cane juice can be sold as is for $32 or
processed further for $22 to make the end product molasses that is sold for $51. Which of the
intermediate products should be processed further?
A. Cane fiber should be processed into industrial fiber; Cane juice should be processed into
molasses
B. Cane fiber should NOT be processed into industrial fiber; Cane juice should NOT be
processed into molasses
C. Cane fiber should be processed into industrial fiber; Cane juice should NOT be processed
into molasses
D. Cane fiber should NOT be processed into industrial fiber; Cane juice should be processed
into molasses
Cane fiber should NOT be processed into industrial fiber and cane juice should NOT be
processed into molasses, both products should be sold as is without further processing.
AACSB: Analytic
Level: Easy
Two alternatives, code-named X and Y, are under consideration at Afalava Corporation.

Costs associated with the alternatives are listed below.
4-442
58. Are the materials costs and processing costs relevant in the choice between alternatives X
and Y? (Ignore the equipment rental and occupancy costs in this question.)
A. Only materials costs are relevant
B. Only processing costs are relevant
C. Both materials costs and processing costs are relevant
D. Neither materials costs nor processing costs are relevant
The materials costs are not relevant because they do not differ between the alternatives. The
processing costs are relevant because they do differ between the alternatives.
AACSB: Analytic
Level: Easy
59. What is the differential cost of Alternative Y over Alternative X, including all of the
relevant costs?
A. $103,000
B. $39,000
C. $142,000
D. $122,500
AACSB: Analytic
Level: Easy
4-443
Zurasky Corporation is considering two alternatives: A and B. Costs associated with the
alternatives are listed below:
60. Are the materials costs and processing costs relevant in the choice between alternatives A
and B? (Ignore the equipment rental and occupancy costs in this question.)
A. Neither materials costs nor processing costs are relevant
B. Only processing costs are relevant
C. Only materials costs are relevant
D. Both materials costs and processing costs are relevant
Materials costs are relevant because they differ between the alternatives. Processing costs are
not relevant because they do not differ between the alternatives.
AACSB: Analytic
Level: Easy
4-444
61. What is the differential cost of Alternative B over Alternative A, including all of the
relevant costs?
A. $44,000
B. $149,000
C. $105,000
D. $127,000
AACSB: Analytic
Level: Easy
Austin Wool Products purchases raw wool and processes it into yarn. The spindles of yarn
can then be sold directly to stores or they can be used by Austin Wool Products to make
afghans. Each afghan requires one spindle of yarn. Current cost and revenue data for the
spindles of yarn and for the afghans are as follows:
Each month 4,000 spindles of yarn are produced that can either be sold outright or processed
into afghans.
4-445
62. If Austin chooses to produce 4,000 afghans each month, the change in the monthly net
operating income as compared to selling 4,000 spindles of yarn is:
A. $24,000 decrease
B. $24,000 increase
C. $16,000 decrease
D. $16,000 increase
AACSB: Analytic
Level: Medium
63. What is the lowest price Austin should be willing to accept for one afghan as long as it
can sell spindles of yarn to the outside market for $12 each?
A. $32
B. $30
C. $28
D. $26
AACSB: Analytic
Level: Hard
4-446
The Tingey Company has 500 obsolete microcomputers that are carried in inventory at a total
cost of $720,000. If these microcomputers are upgraded at a total cost of $100,000, they can
be sold for a total of $160,000. As an alternative, the microcomputers can be sold in their
present condition for $50,000.
64. The sunk cost in this situation is:

A. $720,000
B. $160,000
C. $50,000
D. $100,000
The value of the obsolete microcomputers in inventory, $720,000, is a sunk cost.
AACSB: Analytic
Level: Easy
65. What is the net advantage or disadvantage to the company from upgrading the computers
rather than selling them in their present condition?
A. $110,000 advantage
B. $660,000 disadvantage
C. $10,000 advantage
D. $60,000 advantage
AACSB: Analytic
Level: Easy
4-447
66. Suppose the selling price of the upgraded computers has not been set. At what selling
price per unit would the company be as well off upgrading the computers as if it just sold the
computers in their present condition?
A. $100
B. $770
C. $300
D. $210
The selling price of the upgraded computers would have to cover the opportunity cost of
$50,000 for selling the computers as is as well as the $100,000 cost of upgrading.
The point of indifference would be $150,000 500 computers = $300 per computer.
AACSB: Analytic
Level: Medium
The management of Fries Corporation has been concerned for some time with the financial
performance of its product R89H and has considered discontinuing it on several occasions.
Data from the company's accounting system appear below:
products. Further investigation has revealed that $31,000 of the fixed manufacturing expenses
and $46,000 of the fixed selling and administrative expenses are avoidable if product R89H is
discontinued.
4-448
67. According to the company's accounting system, what is the net operating income earned
by product R89H?
A. $143,000
B. $8,000
C. $(8,000)
D. $(143,000)
AACSB: Analytic
Level: Easy
4-449
68. What would be the effect on the company's overall net operating income if product R89H
were dropped?
B. Overall net operating income would decrease by $8,000.
Overall net operating income would decrease by $66,000.
AACSB: Analytic
Level: Easy
The management of Freshwater Corporation is considering dropping product C11B. Data

from the company's accounting system appear below:
All fixed expenses of the company are fully allocated to products in the company's accounting
system. Further investigation has revealed that $211,000 of the fixed manufacturing expenses
and $122,000 of the fixed selling and administrative expenses are avoidable if product C11B
is discontinued.
4-450
69. According to the company's accounting system, what is the net operating income earned
by product C11B?
A. $74,000
B. $(521,000)
C. $(74,000)
D. $521,000
AACSB: Analytic
Level: Easy
4-451
70. What would be the effect on the company's overall net operating income if product C11B
were dropped?
B. Overall net operating income would increase by $74,000.
C. Overall net operating income would decrease by $74,000.
Overall net operating income would decrease by $188,000.
AACSB: Analytic
Level: Easy
4-452
The Western Company is considering the addition of a new product to its current product
lines. The expected cost and revenue data for the new product are as follows:
If the new product is added to the existing product line, then sales of existing products will
decline. As a consequence, the contribution margin of the other existing product lines is
expected to drop $78,000 per year.
71. If the new product is added next year, the increase in net operating income resulting from
this decision would be:
A. $387,000
B. $261,000
C. $183,000
D. $207,000
AACSB: Analytic
Level: Hard
4-453
72. What is the lowest selling price per unit among those listed below that could be charged
for the new product and still make it economically desirable to add the new product?
A. $240
B. $222
C. $291
D. $249
The selling price would have to cover the total cost of $744,000. On a per unit basis, this
would be $744,000 3,000 units = $248 per unit. The lowest selling price that is listed that is
larger than $248 per unit is $249 per unit.
AACSB: Analytic
Level: Hard
4-454
Condensed monthly operating income data for Cosmo Inc. for November is presented below.
Additional information regarding Cosmo's operations follows the statement.
Three-quarters of each store's traceable fixed expenses are avoidable if the store were to be
closed.
Cosmo allocates common fixed expenses to each store on the basis of sales dollars.
Management estimates that closing the Town Store would result in a ten percent decrease in
Mall Store sales, while closing the Mall Store would not affect Town Store sales.
The operating results for November are representative of all months.
4-455
73. A decision by Cosmo Inc. to close the Town Store would result in a monthly increase
(decrease) in Cosmo's operating income of:
A. $4,000
B. $(10,800)
C. $(800)
D. $(6,000)
AACSB: Analytic
Level: Hard
4-456
74. Cosmo is considering a promotional campaign at the Town Store that would not affect the
Mall Store. Increasing annual promotional expenses at the Town Store by $60,000 in order to
increase Town Store sales by ten percent would result in a monthly increase (decrease) in
Cosmo's operating income of:
A. $(16,800)
B. $3,400
C. $7,000
D. $(1,400)
AACSB: Analytic
Level: Hard
The Cabinet Shoppe is considering the addition of a new line of kitchen cabinets to its current
product lines. Expected cost and revenue data for the new cabinets are as follows:
If the new cabinets are added, it is expected that the contribution margin of other product lines
at the cabinet shop will drop by $20,000 per year.
4-457
75. If the new cabinet product line is added next year, the increase in net operating income
resulting from this decision would be:
A. $80,000
B. $225,000
C. $125,000
D. $105,000
AACSB: Analytic
Level: Medium
4-458
76. What is the lowest selling price per unit that could be charged for the new cabinets from
the following list and still make it economically desirable to add the new product line?
A. $160
B. $164
C. $171
D. $151
The selling price would have to cover all of the costs of $795,000. On a per unit basis, the
cost is $159 per unit (= $795,000 5,000 units). The lowest selling price on the list that
covers the cost is $160 per unit.
AACSB: Analytic
Level: Hard
4-459
Knaack Corporation is presently making part R20 that is used in one of its products. A total
of 18,000 units of this part are produced and used every year. The company's Accounting
An outside supplier has offered to produce and sell the part to the company for $27.70 each. If
fixed costs of the entire company, none of which would be avoided if the part were purchased
instead of produced internally.
4-460
77. If management decides to buy part R20 from the outside supplier rather than to continue
income?
Because of the higher cost to purchase, net operating income would decline by $50,400 per
year.
AACSB: Analytic
Level: Easy
4-461
78. In addition to the facts given above, assume that the space used to produce part R20 could
be used to make more of one of the company's other products, generating an additional
segment margin of $27,000 per year for that product. What would be the impact on the
company's overall net operating income of buying part R20 from the outside supplier and
using the freed space to make more of the other product?
Because of the higher cost of purchasing, net operating income would decline by $23,400 per
year.
AACSB: Analytic
Level: Medium
4-462
Meltzer Corporation is presently making part O13 that is used in one of its products. A total
of 3,000 units of this part are produced and used every year. The company's Accounting
An outside supplier has offered to produce and sell the part to the company for $27.00 each. If
fixed costs of the entire company. If the outside supplier's offer were accepted, only $3,000 of
these allocated general overhead costs would be avoided.
4-463
79. If management decides to buy part O13 from the outside supplier rather than to continue
income?
Net operating income would decline by $8,700 per year.
AACSB: Analytic
Level: Easy
4-464
80. In addition to the facts given above, assume that the space used to produce part O13 could
be used to make more of one of the company's other products, generating an additional
segment margin of $26,000 per year for that product. What would be the impact on the
company's overall net operating income of buying part O13 from the outside supplier and
using the freed space to make more of the other product?
C. Net operating income would increase by $2,900 per year.
Net operating income would increase by $17,300 per year.
AACSB: Analytic
Level: Medium
4-465
Ahsan Company makes 60,000 units per year of a part it uses in the products it manufactures.
The unit product cost of this part is computed as follows:
An outside supplier has offered to sell the company all of these parts it needs for $45.70 a
unit. If the company accepts this offer, the facilities now being used to make the part could be
used to make more units of a product that is in high demand. The additional contribution
margin on this other product would be $318,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part
would be avoided. However, $3.50 of the fixed manufacturing overhead cost being applied to
the part would continue even if the part were purchased from the outside supplier. This fixed
manufacturing overhead cost would be applied to the company's remaining products.
81. How much of the unit product cost of $40.50 is relevant in the decision of whether to
make or buy the part?
A. $40.50
B. $15.20
C. $27.90
D. $37.00
AACSB: Analytic
Level: Easy
4-466
82. What is the net total dollar advantage (disadvantage) of purchasing the part rather than
making it?
A. $318,000
B. $(522,000)
C. $(312,000)
D. $(204,000)
AACSB: Analytic
4-467
83. What is the maximum amount the company should be willing to pay an outside supplier
per unit for the part if the supplier commits to supplying all 60,000 units required each year?
A. $40.50
B. $42.30
C. $45.80
D. $5.30
AACSB: Analytic
Level: Hard
Talboe Company makes wheels which it uses in the production of children's wagons.
Talboe's costs to produce 200,000 wheels annually are as follows:
An outside supplier has offered to sell Talboe similar wheels for $0.80 per wheel. If the
wheels are purchased from the outside supplier, $25,000 of annual fixed manufacturing
overhead would be avoided and the facilities now being used to make the wheels would be
rented to another company for $55,000 per year.
4-468
84. If Talboe chooses to buy the wheel from the outside supplier, then the change in annual
net operating income is a:
A. $5,000 decrease
B. $50,000 increase
C. $70,000 increase
D. $40,000 increase
The change in annual net operating income is a $50,000 increase.
AACSB: Analytic
Level: Medium
4-469
85. What is the highest price that Talboe could pay the outside supplier for each wheel and
still be economically indifferent between making or buying the wheels?
A. $0.95
B. $1.15
C. $1.00
D. $1.05
The company could pay up to $1.05 per unit ($210,000 200,000 units).
AACSB: Analytic
Level: Hard
The Rodgers Company makes 27,000 units of a certain component each year for use in one
of its products. The cost per unit for the component at this level of activity is as follows:
Rodgers has received an offer from an outside supplier who is willing to provide 27,000 units
of this component each year at a price of $25 per component. Assume that direct labor is a
variable cost. None of the fixed manufacturing overhead would be avoidable if this
component were purchased from the outside supplier.
4-470
86. Assume that there is no other use for the capacity now being used to produce the
component and the total fixed manufacturing overhead of the company would be unaffected
by this decision. If Rodgers Company purchases the components rather than making them
internally, what would be the impact on the company's annual net operating income?
A. $94,500 increase
B. $81,000 decrease
C. $237,600 decrease
D. $124,000 increase
Expenses would increase by $81,000 (= $675,000 - $594,000), so annual net operating

income would decrease by $81,000.
AACSB: Analytic
Level: Medium
4-471
87. Assume that if the component is purchased from the outside supplier, $35,100 of annual
fixed manufacturing overhead would be avoided and the facilities now being used to make the
component would be rented to another company for $64,800 per year. If Rodgers chooses to
buy the component from the outside supplier under these circumstances, then the impact on
annual net operating income due to accepting the offer would be:
A. $18,900 decrease
B. $18,900 increase
C. $21,400 decrease
D. $21,400 increase
Expenses would decrease by $18,900 (= $629,100 - $610,200), so annual net operating

income would increase by $18,900.
AACSB: Analytic
Level: Hard
4-472
Meacham Company has traditionally made a subcomponent of its major product. Annual
production of 20,000 subcomponents results in the following costs:
Meacham has received an offer from an outside supplier who is willing to provide 20,000
units of this subcomponent each year at a price of $28 per subcomponent. Meacham knows
that the facilities now being used to make the subcomponent would be rented to another
company for $75,000 per year if the subcomponent were purchased from the outside supplier.
Otherwise, the fixed overhead would be unaffected.
88. If Meacham decides to purchase the subcomponent from the outside supplier, how much
higher or lower will net operating income be than if Meacham continued to make the
subcomponent?
A. $45,000 higher
B. $70,000 higher
C. $30,000 lower
D. $70,000 lower
Expenses would decrease by $45,000 (= $530,000 - $485,000), so if Meacham decides to

purchase the subcomponent from the outside supplier, its net operating income would be
$45,000 higher.
AACSB: Analytic
Level: Medium
4-473
89. Suppose the price for the subcomponent has not been set. At what price per unit charged
by the outside supplier would Meacham be economically indifferent between making the
subcomponent or buying it from the outside?
A. $30.25
B. $29.25
C. $26.50
D. $31.50
The purchase price at which the company would be indifferent is $30.25 per unit (= $605,000
20,000 units).
AACSB: Analytic
Level: Hard
4-474
Elhard Company produces a single product. The cost of producing and selling a single unit of
this product at the company's normal activity level of 40,000 units per month is as follows:
The normal selling price of the product is $51.10 per unit.

An order has been received from an overseas customer for 2,000 units to be delivered this
month at a special discounted price. This order would have no effect on the company's normal
sales and would not change the total amount of the company's fixed costs. The variable selling
and administrative expense would be $0.10 less per unit on this order than on normal sales.
Direct labor is a variable cost in this company.
4-475
90. Suppose there is ample idle capacity to produce the units required by the overseas
customer and the special discounted price on the special order is $41.60 per unit. By how
much would this special order increase (decrease) the company's net operating income for the
month?
A. $2,000
B. $25,200
C. $(8,400)
D. $(18,800)
AACSB: Analytic
Level: Medium
4-476
91. Suppose the company is already operating at capacity when the special order is received
from the overseas customer. What would be the opportunity cost of each unit delivered to the
overseas customer?
A. $5.40
B. $5.30
C. $9.50
D. $22.00
The opportunity cost is the contribution margin on normal sales.
AACSB: Analytic
Level: Hard
4-477
92. Suppose there is not enough idle capacity to produce all of the units for the overseas
customer and accepting the special order would require cutting back on production of 200
units for regular customers. The minimum acceptable price per unit for the special order is
closest to:
A. $38.80
B. $31.20
C. $51.10
D. $45.80
4-478
Minimum acceptable price:
AACSB: Analytic
Level: Hard
4-479
The Varone Company makes a single product called a Hom. The company has the capacity to
produce 40,000 Homs per year. Per unit costs to produce and sell one Hom at that activity
level are:
The regular selling price for one Hom is $60. A special order has been received at Varone
from the Fairview Company to purchase 8,000 Homs next year at 15% off the regular selling
price. If this special order were accepted, the variable selling expense would be reduced by
25%. However, Varone would have to purchase a specialized machine to engrave the
Fairview name on each Hom in the special order. This machine would cost $12,000 and it
would have no use after the special order was filled. The total fixed costs, both manufacturing
and selling, are constant within the relevant range of 30,000 to 40,000 Homs per year.
Assume direct labor is a variable cost.
4-480
93. If Varone can expect to sell 32,000 Homs next year through regular channels and the
special order is accepted at 15% off the regular selling price, the effect on net operating
income next year due to accepting this order would be a:
A. $52,000 increase
B. $80,000 increase
C. $24,000 decrease
D. $68,000 increase
*Regular selling price: $60 (1 - 15%) = $51

**Variable selling expense: $8 (1 - 25%) = $6
AACSB: Analytic
Level: Medium
4-481
94. If Varone can expect to sell 32,000 Homs next year through regular channels, at what
special order price from Fairview should Varone be economically indifferent between either
accepting or not accepting this special order?
A. $51.00
B. $48.20
C. $42.50
D. $39.60
*Variable selling expense: $8 (1 - 25%) = $6
Varone is economically indifferent between either accepting or not accepting this special
order at the point where revenue equals cost, so the selling price would have to be at least
$42.50 per unit (= $340,000 8,000 units).
AACSB: Analytic
Level: Hard
4-482
95. If Varone has an opportunity to sell 37,960 Homs next year through regular channels and
the special order is accepted for 15% off the regular selling price, the effect on net operating
income next year due to accepting this order would be a:
A. $33,320 decrease
B. $33,320 increase
C. $35,480 decrease
D. $35,480 increase
Since the special order would displace 5,960 units of normal sales, the lost contribution
margin would be $101,320 (= $17 per unit 5,960 units).
*Regular selling price: $60 (1 - 15%) = $51

**Variable selling expense: $8 (1 - 25%) = $6
Consequently, accepting the special order would generate incremental net operating income
of $68,000, but would displace normal sales generating a contribution margin of $101,320,so
the net effect would be a $33,320 decrease (= $101,320 - $68,000) in net operating income.
4-483
AACSB: Analytic
Level: Hard
The Immanuel Company has just obtained a request for a special order of 6,000 jigs to be
shipped at the end of the month at a selling price of $7 each. The company has a production
capacity of 90,000 jigs per month with total fixed production costs of $144,000. At present,
the company is selling 80,000 jigs per month through regular channels at a selling price of
$11 each. For these regular sales, the cost for one jig is:
If the special order is accepted, Immanuel will not incur any selling expense; however, it will
incur shipping costs of $0.30 per unit. Total fixed production cost would not be affected by
this order.
96. If Immanuel accepts this special order, the change in monthly net operating income will
be a:
A. $12,600 increase
B. $14,400 increase
C. $3,600 increase
D. $1,800 increase
AACSB: Analytic
Level: Medium
4-484
97. At what selling price per unit should Immanuel be indifferent between accepting or
rejecting the special offer?
A. $7.40
B. $7.70
C. $6.40
D. $4.90
Immanuel Company is economically indifferent between either accepting or not accepting this
special order at the point where revenue equals cost; this would occur when the selling price
is $4.90 per unit (= $29,400 6,000 units).
AACSB: Analytic
Level: Medium
4-485
98. Suppose that regular sales of jigs total 85,000 units per month. All other conditions remain
the same. If Immanuel accepts the special order, the change in monthly net operating income
will be:
A. $14,400 increase
B. $7,200 increase
C. $3,600 decrease
D. $5,400 decrease
The special order would generate incremental net operating income of $12,600, but would
displace normal sales with a contribution margin of $5,400. The net effect would be a $7,200
increase (= $12,600 - $5,400) in net operating income.
AACSB: Analytic
Level: Hard
4-486
Mckerchie Inc. manufactures industrial components. One of its products, which is used in the
construction of industrial air conditioners, is known as G62. Data concerning this product are
given below:
The above per unit data are based on annual production of 9,000 units of the component.
Direct labor can be considered to be a variable cost.
99. The company has received a special, one-time-only order for 300 units of component G62.
There would be no variable selling expense on this special order and the total fixed
manufacturing overhead and fixed selling and administrative expenses of the company would
not be affected by the order. Assuming that Mckerchie has excess capacity and can fill the
order without cutting back on the production of any product, what is the minimum price per
unit on the special order below which the company should not go?
A. $26
B. $67
C. $55
D. $160
The selling price for the special order would have to at least cover the variable cost per unit of
$26.
AACSB: Analytic
Level: Medium
4-487
100. The company has received a special, one-time-only order for 300 units of component
G62. There would be no variable selling expense on this special order and the total fixed
manufacturing overhead and fixed selling and administrative expenses of the company would
not be affected by the order. However, assume that Mckerchie has no excess capacity and this
special order would require 50 minutes of the constraining resource, which could be used
instead to produce products with a total contribution margin of $6,900. What is the minimum
price per unit on the special order below which the company should not go?
A. $90
B. $23
C. $49
D. $78
The selling price for the special order would have to cover both the $26 variable cost per unit
and the opportunity cost of $6,900.
AACSB: Analytic
Level: Hard
4-488
101. Refer to the original data in the problem. What is the current contribution margin per unit
for component G62 based on its selling price of $160 and its annual production of 9,000
units?
A. $28
B. $134
C. $93
D. $132
AACSB: Analytic
Level: Easy
The constraint at Dalbey Corporation is time on a particular machine. The company makes
three products that use this machine. Data concerning those products appear below:
4-489
102. Rank the products in order of their current profitability from most profitable to least
A. WP, FE, MB
B. FE, WP, MB
C. FE, MB, WP
D. MB, FE, WP
AACSB: Analytic
Level: Easy
4-490
103. Assume that sufficient time is available on the constrained machine to satisfy demand for
all but the least profitable product. Up to how much should the company be willing to pay to
acquire more of this constrained resource?
A. $12.50 per minute
B. $29.96 per unit
C. $10.70 per minute
D. $71.92 per unit
The company should be willing to pay up to the contribution margin per minute for the
marginal job, which is $10.70 per minute for WP.
AACSB: Analytic
Level: Medium
Marrin Corporation makes three products that use the current constraint-a particular type of
machine. Data concerning those products appear below:
4-491
104. Rank the products in order of their current profitability from most profitable to least
A. KZ, XB, ZP
B. ZP, KZ, XB
C. XB, ZP, KZ
D. KZ, ZP, XB
AACSB: Analytic
Level: Easy
4-492
105. Assume that sufficient constraint time is available to satisfy demand for all but the least
profitable product. Up to how much should the company be willing to pay to acquire more of
the constrained resource?
A. $14.30 per minute
B. $14.80 per minute
C. $33.81 per unit
D. $118.69 per unit
marginal job, which is $14.30 per minute for KZ.
AACSB: Analytic
Level: Medium
Cress Company makes four products in a single facility. Data concerning these products
appear below:
The milling machines are potentially the constraint in the production facility. A total of
11,500 minutes are available per month on these machines.
4-493
106. How many minutes of milling machine time would be required to satisfy demand for all
four products?
A. 12,000
B. 10,800
C. 9,000
D. 11,500
AACSB: Analytic
Level: Easy
4-494
107. Which product makes the LEAST profitable use of the milling machines?
A. Product A
B. Product B
C. Product C
D. Product D
Product A makes the least profitable use of the milling machines.
AACSB: Analytic
Level: Medium
4-495
108. Which product makes the MOST profitable use of the milling machines?
A. Product A
B. Product B
C. Product C
D. Product D
Product D makes the most profitable use of the milling machines.
AACSB: Analytic
Level: Medium
4-496
109. Up to how much should the company be willing to pay for one additional minute of
milling machine time if the company has made the best use of the existing milling machine
capacity? (Round off to the nearest whole cent.)
A. $7.46
B. $15.20
C. $19.40
D. $0.00
marginal job, which is $7.46 per minute for Product A.
AACSB: Analytic
Level: Medium
4-497
Broze Company makes four products in a single facility. These products have the following
unit product costs:
Additional data concerning these products are listed below.
The grinding machines are potentially the constraint in the production facility. A total of
53,600 minutes are available per month on these machines.
Direct labor is a variable cost in this company.
4-498
110. How many minutes of grinding machine time would be required to satisfy demand for all
four products?
A. 56,100
B. 40,900
C. 53,600
D. 13,000
AACSB: Analytic
Level: Easy
4-499
111. Which product makes the LEAST profitable use of the grinding machines?
A. Product A
B. Product B
C. Product C
D. Product D
Product C makes the least profitable use of the grinding machines.
AACSB: Analytic
Level: Hard
4-500
112. Which product makes the MOST profitable use of the grinding machines?
A. Product A
B. Product B
C. Product C
D. Product D
Product D makes the MOST profitable use of the grinding machines.
AACSB: Analytic
Level: Hard
4-501
113. Up to how much should the company be willing to pay for one additional minute of
grinding machine time if the company has made the best use of the existing grinding machine
capacity? (Round off to the nearest whole cent.)
A. $35.90
B. $0.00
C. $8.58
D. $11.60
marginal job, which is $8.58 per minute for Product C.
AACSB: Analytic
Level: Hard
4-502
Dunford Company produces three products with the following costs and selling prices:
114. If Dunford has a limit of 20,000 direct labor hours but no limit on units sold or machine
hours, then the ranking of the products from the most profitable to the least profitable use of
the constrained resource is:
A. X, Y, Z
B. Y, Z, X
C. X, Z, Y
D. Z, Y, X
AACSB: Analytic
Level: Medium
4-503
115. If Dunford has a limit of 30,000 machine hours but no limit on units sold or direct labor
hours, then the ranking of the products from the most profitable to the least profitable use of
the constrained resource is:
A. Y, Z, X
B. X, Y, Z
C. X, Z, Y
D. Z, X, Y
AACSB: Analytic
Level: Medium
Sohr Corporation processes sugar beets that it purchases from farmers. Sugar beets are
processed in batches. A batch of sugar beets costs $50 to buy from farmers and $15 to crush
in the company's plant. Two intermediate products, beet fiber and beet juice, emerge from the
crushing process. The beet fiber can be sold as is for $20 or processed further for $19 to make
the end product industrial fiber that is sold for $58. The beet juice can be sold as is for $41 or
processed further for $23 to make the end product refined sugar that is sold for $58.
4-504
116. How much profit (loss) does the company make by processing one batch of sugar beets
into the end products industrial fiber and refined sugar?
A. $(107)
B. $(4)
C. $9
D. $13
AACSB: Analytic
Level: Easy
4-505
117. How much profit (loss) does the company make by processing the intermediate product
beet juice into refined sugar rather than selling it as is?
A. $(71)
B. $(6)
C. $(39)
D. $(21)
The company incurs a loss of $(6) a unit by processing the intermediate product beet juice
into refined sugar rather than selling it as is.
AACSB: Analytic
Level: Easy
4-506
118. Which of the intermediate products should be processed further?

A. beet fiber should NOT be processed into industrial fiber; beet juice should be processed
into refined sugar
B. beet fiber should NOT be processed into industrial fiber; beet juice should NOT be
processed into refined sugar
C. beet fiber should be processed into industrial fiber; beet juice should be processed into
refined sugar
D. beet fiber should be processed into industrial fiber; beet juice should NOT be processed
into refined sugar
Beet fiber should be processed into industrial fiber; beet juice should NOT be processed into
refined sugar.
AACSB: Analytic
Level: Easy
Resendes Refiners, Inc., processes sugar cane that it purchases from farmers. Sugar cane is
processed in batches. A batch of sugar cane costs $48 to buy from farmers and $16 to crush in
the company's plant. Two intermediate products, cane fiber and cane juice, emerge from the
crushing process. The cane fiber can be sold as is for $24 or processed further for $17 to make
the end product industrial fiber that is sold for $38. The cane juice can be sold as is for $34 or
processed further for $23 to make the end product molasses that is sold for $76.
4-507
119. How much profit (loss) does the company make by processing one batch of sugar cane
into the end products industrial fiber and molasses?
A. $16
B. $(104)
C. $(6)
D. $10
AACSB: Analytic
Level: Easy
120. How much profit (loss) does the company make by processing the intermediate product
cane juice into molasses rather than selling it as is?
A. $3
B. $19
C. $(45)
D. $(13)
AACSB: Analytic
Level: Easy
4-508
121. Which of the intermediate products should be processed further?

A. Cane fiber should NOT be processed into industrial fiber; Cane juice should be processed
into molasses
B. Cane fiber should be processed into industrial fiber; Cane juice should be processed into
molasses
C. Cane fiber should NOT be processed into industrial fiber; Cane juice should NOT be
processed into molasses
D. Cane fiber should be processed into industrial fiber; Cane juice should NOT be processed
into molasses
Cane fiber should NOT be processed into industrial fiber; Cane juice should be processed into
molasses.
AACSB: Analytic
Level: Easy
Dodrill Company makes two products from a common input. Joint processing costs up to the
split-off point total $43,200 a year. The company allocates these costs to the joint products on
the basis of their total sales values at the split-off point. Each product may be sold at the split-
off point or processed further. Data concerning these products appear below:
4-509
122. What is the net monetary advantage (disadvantage) of processing Product X beyond the
split-off point?
A. $26,800
B. $7,000
C. $4,800
D. $29,000
AACSB: Analytic
Level: Medium
123. What is the net monetary advantage (disadvantage) of processing Product Y beyond the
split-off point?
A. $(4,200)
B. $21,800
C. $24,400
D. $(1,600)
AACSB: Analytic
Level: Medium
4-510
124. What is the minimum amount the company should accept for Product X if it is to be sold
at the split-off point?
A. $26,800
B. $19,800
C. $52,200
D. $45,200
The minimum amount the company should accept for Product X if it is to be sold at the split-
off point is $26,800.
AACSB: Analytic
Level: Hard
Payne Company makes two products, M and N, in a joint process. At the split-off point,
40,000 units of M and 50,000 units of N are available each month. Monthly joint production
costs are $270,000.
Product M can be sold at the split-off point for $4.20 per unit. Product N can either be sold at
the split-off point for $3.20 per unit or it can be processed further and sold for $6.30 per unit.
If N is processed further, additional processing costs of $2.50 per unit will be incurred.
4-511
125. If N is processed further and then sold, rather than being sold at the split-off point, the
change in monthly operating income would be a:
A. $30,000 increase
B. $315,000 increase
C. $155,000 increase
D. $125,000 decrease
Total profit = $0.60 per unit 50,000 units = $30,000
AACSB: Analytic
Level: Medium
4-512
126. What would the selling price per unit of product N need to be after further processing in
order for Payne Company to be economically indifferent between selling N at the split-off
point or processing N further?
A. $8.70
B. $6.70
C. $7.20
D. $5.70
Profit from further processing
The company would be indifferent between selling Product N at the split-off point or
processing Product N further when the sales value at the split-off point equals the incremental
profit that the company could earn by processing further.
Sales value at split-off point = Final sales value after further processing - Cost of further
processing
$3.20 = Final sales value after further processing - $2.50
Final sales value after further processing = $3.20 + $2.50 = $5.70
AACSB: Analytic
Level: Medium
4-513

Final Exam PDF

Transféré par

Informations du document

Description originale:

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Final Exam PDF

Transféré par

Droits d'auteur :

Formats disponibles

Chapter 04 - Process Costing

Multiple Choice Questions

AACSB: Reflective Thinking

AACSB: Reflective Thinking

15. A process costing system:

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

Beginning work in process inventory + Units started into production or transferred in =

The equivalent units for conversion costs was:

All materials are added at the beginning of the process.

All materials are added at the beginning of the process.

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

13. The computation of equivalent units under the FIFO method:

AACSB: Reflective Thinking

2,000 + 34,000 + X = 40,000

4,800 + 12,000 + X = 24,600

The equivalent units are:

What are the equivalent units for the month of May?

Nyman Company successfully switched to a lean production system at the beginning of

Note: The answer without any rounding error is $597,619.

Note: The answer without any rounding error is $16,775.

Note: With no rounding, the answer is $449,250.

All materials are added at the beginning of the process.

AACSB: Reflective Thinking

6. The step-down method of allocating service department costs:

AACSB: Reflective Thinking

Allocation base for Administrative costs = 26,000 + 14,000 = 40,000

Allocation base for Personnel costs = 23,000 + 13,000 = 36,000

Data Processing costs to be allocated = $34,944

Allocation base for Information Technology costs = 59 + 38 = 97

Telecommunications Department costs are allocated on the basis of the number of

Allocation base for Telecommunication costs = 49 + 49 = 98

Allocation base for Administration costs = 1,000 + 26,000 + 17,000 = 44,000

Allocation base for Personnel costs = 20 + 137 + 170 = 327

Allocation base for Administration costs = 26 + 115 + 169 = 310

Allocation base for Service Department 1 costs = 14,000 + 16,000 = 30,000

Allocation base for Service Department 1 costs = 14,000 + 16,000 = 30,000

Allocation base for Custodial costs = 1,200 + 3,600 = 4,800

Allocation base for Custodial costs = 200 + 1,200 + 3,600 = 5,000

Allocation base for Administrative costs = 34,000 + 17,000 = 51,000

Allocation base for Administrative costs = 34,000 + 17,000 = 51,000

Allocation base for Administrative costs = 33,000 + 17,000 = 50,000

Allocation base for Administrative costs = 33,000 + 17,000 = 50,000

Information Technology costs to be allocated = $30,820

Allocation base for Information Technology costs = 47 + 45 = 92

Information Technology costs to be allocated = $29,414

Allocation base for Information Technology costs = 40 + 37 = 77

Ponce Corporation, a manufacturer, uses the step-down method to allocate service

Allocation base for Administration costs = 2,000 + 27,000 + 14,000 = 43,000

Allocation base for Administration costs = 2,000 + 27,000 + 14,000 = 43,000

Allocation base for Personnel costs = 25 + 110 + 183 = 318

Allocation base for Personnel costs = 25 + 110 + 183 = 318

Allocation base for Personnel costs = 24 + 111 + 176 = 311

Allocation base for Personnel costs = 24 + 111 + 176 = 311

Multiple Choice Questions

AACSB: Reflective Thinking

AACSB: Reflective Thinking