Management Advisory Services – Review

Quiz #3 (Management Accounting)

NAME:_______________________________ SECTION:_________ DATE:_______________

Directions: Encircle the letter of best answer.

1. The following statements are true, except:

a. Managerial accounting places less emphasis on precision and more emphasis on flexibility
and relevance than financial accounting.
b. Managerial accounting is not governed by generally accepted accounting principles.
c. When carrying out planning activities, managers rely on feedback to ensure that the plan
is actually carried out and is appropriately modified as circumstances change.
d. When carrying out their directing and motivating activities, managers mobilize the
organization's human and other resources so that the organization's plans are carried
out.

2. The following statements are incorrect, except:

a. Staff departments generally have direct authority over line departments in an
organization.
b. Informal relationships and channels of communication often develop that do not appear on
the organization chart.
c. The controller's position in a retail company is considered a line position rather than a
staff position.
d. A strategy requires effective use of Six Sigma improvement techniques.

3. One consequence of a change from a push to a properly implemented pull production system
can be:
a. an increase in work in process inventories.
b. an extremely difficult cultural change due to enforced idleness when demand falls below
production capacity.
c. an increased mismatch between what is produced and what is demanded by customers.
d. an increase in raw materials inventories.

4. The five step framework used to guide Six Sigma improvement efforts includes all of the
following EXCEPT:
a. Analyze.
b. Control.
c. Digitize.
d. Measure.

5. The Sarbanes-Oxley Act of 2002 contains all of the following provisions EXCEPT:
a. The audit committee of the board of directors of a company must hire, compensate, and
terminate the public accounting firm that audits the company's financial reports.
b. Financial statements must be audited once every three years by the Government Accounting
Office.
c. Both the CEO and CFO must certify in writing that their company's financial statements
and accompanying disclosures fairly represent the results of operations.
d. A company's annual report must contain an internal control report.
6. Which of the following statements about managerial accountants is false?
a. Managerial accountants more and more are considered "business partners."
b. Managerial accountants often are part of cross-functional teams.
c. An increasing number of organizations are segregating managerial accountants in separate
managerial-accounting departments.
d. In a number of companies, managerial accountants make significant business decisions and
resolve operating problems.
e. The role of managerial accountants has changed considerably over the past decade.

7. Employee empowerment involves encouraging and authorizing workers to take initiatives to:
a. improve operations.
b. reduce costs.
c. improve product quality.
d. improve customer service.
e. all of the above.

8. Managerial accounting:
a. is unregulated.
b. produces information that is useful only for manufacturing organizations.
c. is based exclusively on historical data.
d. is regulated by the Securities and Exchange Commission (SEC).
e. generally focuses on reporting information about the enterprise in its entirety rather
than by subunits.

9. Which of the following statements represents a similarity between financial and managerial
accounting?
a. Both are useful in providing information for external users.
b. Both are governed by GAAP.
c. Both draw upon data from an organization's accounting system.
d. Both rely heavily on published financial statements.
e. Both are solely concerned with historical transactions.

10. Which of the following typically does not relate to the role of a controller?
a. A controller supervises the accounting department.
b. A controller safeguards an organization's assets.
c. A controller oversees the preparation of reports required by governmental authorities.
d. None of the above.

11. The two dimensions of managerial accounting are:

a. a decision-facilitating dimension and a decision-influencing dimension.
b. a decision-facilitating dimension and a financial-influencing dimension.
c. a decision-influencing dimension and a cost-minimizing dimension.
d. a cost-minimizing dimension and a profit-maximizing dimension.
e. a decision-influencing dimension and a profit-maximizing dimension.

12. Which of the following statement(s) about just-in-time (JIT) inventory management is (are)
true?
i. The emphasis of JIT is on "pull" manufacturing.
ii. Raw materials are purchased just in time to be used in production.
 iii. JIT is an inventory technique that focuses on reduction of both inventory and
related inventory costs.
a. I only.
b. II only.
c. III only.
d. II and III.
e. I, II, and III.

13. MESHEREP Corporation recently implemented a just-in-time (JIT) production system along
with a series of continuous improvement programs. If the firm is now considering adopting
a total quality management (TQM) program, it would likely find that TQM:
a. is consistent with both JIT and continuous improvement.
b. is consistent with JIT but inconsistent with continuous improvement.
c. is consistent with continuous improvement but inconsistent with JIT.
d. is inconsistent with both JIT and continuous improvement.
e. is an antiquated management technique.

14. Which of the following choices correctly depicts activities that would be included in a
manufacturer's value chain?
Research and Development Marketing Distribution
a. Yes Yes No
b. Yes No Yes
c. Yes Yes Yes
d. No Yes No
e. No Yes Yes

15. The activities performed by a manufacturing organization could be categorized as pre-

production (such as research and development and product design), production-related, and
post-production (such as marketing and customer service). Which activities should the firm
focus on if management understands the value chain concept and desires to meet
organizational goals?
a. Pre-production activities.
b. Production-related activities.
c. Post-production activities.
d. Pre-production, production-related, and post-production activities.
e. Pre-production and production-related activities.

16. The process of managing the various activities in the value chain, along with the
associated costs, is commonly known as:
a. activity-based costing.
b. strategic cost management.
c. total quality management.
d. computer-integrated costing.
e. sound management practices (SMP).

17. Which of the following is not another name for the term manufacturing overhead?
a. Factory overhead
b. Pervasive costs
c. Burden
d. Indirect manufacturing costs
 18. Which one of the following is a cost that would not likely be associated with computer-
integrated manufacturing?
a. Manufacturing overhead associated with allocation of equipment depreciation
b. Direct labor costs of a welder on the production floor
c. Manufacturing overhead associated with allocation of the plant lease to the latest
production run
d. Direct materials cost with several fuse plates for a new automobile

19. Which one of the following is an activity not associated with TQM?
a. Tightening the bolts on a chassis so that the frame will not drop out
b. Redesigning the gas tank after fuel efficiency standards are not being met
c. Verifying the 10 check points associated with producing the highest quality loaf of bread
d. Ensuring that the mattress just manufactured meets the standard of comfort of a random
factory line worker

20. What is ERP’s primary benefit?

a. It can eliminate stand-alone systems that do not share information easily for manage-
ment’s use.
b. It allows management to rely on the simplest way to utilize information systems in a
manufacturing environment.
c. It permits line workers to perform accounting and marketing tasks.
d. It calculates year-end bonuses to a precision not available in traditional information
systems management.

21. All of the cost categories listed below are usually found in a company's accounting
records, except for:
a. sunk costs.
b. inventoriable costs.
c. opportunity costs.
d. marketing costs.

22. GOMOGOKYO Company's manufacturing overhead is 20% of its total conversion costs. If direct
labor is $38,000 and if direct materials are $47,000, the manufacturing overhead is:
a. $152,000
b. $11,750
c. $21,250
d. $9,500

Solution:
Conversion costs = Direct labor + Manufacturing overhead
Conversion costs = $38,000 + Manufacturing overhead

0.20 × Conversion costs = Manufacturing overhead

0.20 × ($38,000 + Manufacturing overhead) = Manufacturing overhead
$7,600 + 0.20 × Manufacturing overhead = Manufacturing overhead
$7,600 = 0.80 × Manufacturing overhead
Manufacturing overhead = $9,500
 23. During the month of November, direct labor cost totaled $12,000 and direct labor cost was
30% of prime cost. If total manufacturing costs during November were $86,000, the
manufacturing overhead was:
a. $46,000
b. $40,000
c. $28,000
d. $74,000

Solution:
0.30 × Prime cost = Direct labor
0.30 × Prime cost = $12,000
Prime cost = $40,000
Prime cost = Direct materials + Direct labor
$40,000 = Direct materials + $12,000
Direct materials = $28,000

Total manufacturing costs = Direct materials + Direct labor + Manufacturing Overhead

$86,000 = $28,000 + $12,000 + Manufacturing Overhead
Manufacturing overhead = $46,000

24. Using the following data for a recent period, calculate the beginning finished goods
inventory:

Sales $40,000
Beginning finished goods inventory ?
Cost of goods manufactured $16,000
Ending finished goods inventory $ 5,000
Cost of goods sold ?
Gross margin $17,000
Administrative and selling expenses ?
Net operating income $10,000

The beginning finished goods inventory was:

a. $24,000
b. $23,000
c. $7,000
d. $12,000

Solution:
Cost of goods sold = Sales − Gross margin
Cost of goods sold = $40,000 − $17,000
Cost of goods sold = $23,000

Beginning finished goods inventory + Cost of goods manufactured − Ending finished goods inventory
= Cost of goods sold
Beginning finished goods inventory + $16,000 − $5,000 = $23,000
Beginning finished goods inventory = $12,000
 25. The cost of goods manufactured for October at PANCHITAO Manufacturing Corporation was
$907,000. The following changes occurred in PANCHITAO inventory accounts during November:

Decrease in raw materials inventory $24,000

Decrease in work in process inventory $17,000
Increase in finished goods inventory $38,000

What was PANCHITAO's cost of goods sold for October?

a. $869,000
b. $886,000
c. $928,000
d. $945,000

Solution:

26. During the month of November, BOBREY Company incurred $30,000 of manufacturing overhead,
$40,000 of direct labor, and purchased $25,000 of raw materials. Between the beginning and
the end of the month, the raw materials and work in process inventories decreased by $4,000
and $3,000, respectively. The total manufacturing costs used in the computation of cost of
goods manufactured during the month of April was:
a. $88,000
b. $91,000
c. $99,000
d. $102,000

Solution:
First calculate raw materials used:
Beginning inventory raw materials + Purchases − Ending inventory raw materials = Raw materials
used

By rearranging:
Purchases + ( Beginning inventory raw materials − Ending inventory raw materials) = Raw materials
used
Since raw material inventory decreased by $4,000, we know that:
Beginning inventory raw materials − Ending inventory raw materials = $4,000

Substituting into equation:

$25,000 + $4,000 = Raw materials used
$29,000 = Raw materials used

Next, solve for total manufacturing costs:

Raw materials used + Direct labor + Manufacturing overhead = Total manufacturing costs
$29,000 + $40,000 + $30,000 = $99,000

27. During 2018, HITCHUWIDA Manufacturing expected Job No. 51 to cost $450,000 of overhead,
$750,000 of materials, and $300,000 in labor. HITCHUWIDA applied overhead based on direct
labor cost. Actual production required an overhead cost of $420,000, $825,000 in materials
used, and $330,000 in labor. All of the goods were completed. What amount was transferred
to Finished Goods?
a. $1,605,000
b. $1,650,000
c. $1,500,000
d. $1,575,000

28. SEXBOMB ROCHELLE Manufacturing Company developed the following data:

Beginning work in process inventory $180,000

Direct materials used 140,000
Actual overhead 220,000
Overhead applied 160,000
Cost of goods manufactured 240,000
Ending work in process 300,000

SEXBOMB ROCHELLE Manufacturing Company's total manufacturing costs for the period is
a. $380,000.
b. $360,000.
c. $260,000.
d. cannot be determined from the data provided.

29. KUYA WIL Company has a process costing system in which it uses the weighted-average
method. The equivalent units for conversion costs for the month were 47,500 units. The
beginning work in process inventory consisted of 15,000 units, 60% complete with respect to
conversion costs. The ending work in process inventory consisted of 10,000 units, 75%
complete with respect to conversion costs. The number of units started during the month
was:
a. 25,000 units
b. 34,000 units
c. 35,000 units
d. 40,000 units

Solution:
Units transferred out 40,000 *
Ending work in process (10,000 units × 75% complete) 7,500
Equivalent units for conversion costs 47,500
* Solve backwards: 47,500 − 7,500 = 40,000

Units in beginning inventory 15,000

+ Units started 35,000 *
 − Units in ending inventory 10,000
= Units transferred out 40,000
* Solve backwards: Units started = 40,000 −15,000 + 10,000 = 35,000

30. MLAKMENK Corporation uses a weighted-average process costing system to collect costs
related to production. The following selected information relates to production for March:

Units completed and transferred out 5,000

Units in work in process, March 31 800
Equivalent units, materials 5,800
Equivalent units, conversion costs 5,200

Materials Conversion
Costs in work in process on March 1 $ 2,900 $ 4,680
Costs added to production during March 71,050 131,040
Total cost $ 73,950 $ 135,720

All materials at MLAKMENK are added at the beginning of the production process. Conversion
costs are incurred uniformly over the production process. What total amount of cost should be
assigned to the units in work in process at the end of March?
a. $14,840
b. $15,420
c. $24,920
d. $25,860

Solution:
Materials Conversion Total
Total cost $73,950 $135,720
÷ Equivalent units 5,800 5,200
= Cost per equivalent unit $12.75 $26.10
× Ending inventory
Materials: 800 units × $12.75 $10,200
Conversion costs: *200 units × $26.10 $5,220 $15,420

Units in work in process, March 31 800

Less: Uncompleted as to conversion (5,800 total − 5,200 equivalent units) 600
Equivalent units in ending work in process: conversion 200

31. TROY BAUHTEN Music Company manufactures air guitars and uses a FIFO process costing system
to collect costs related to its production. TROY BAUHTEN only accounts for conversion costs
because the only direct material, air, has no cost. The following information relates to
September production:

Number of units Percent complete (conversion)

Work in process, September 1 20,000 20%
Units started into production 90,000
Work in process, September 30 8,000 75%

Conversion cost in work in process on September 1 $ 263,120

 Conversion cost added to production during September 5,262,400
Total cost $5,525,520

What amount of cost should TROY BAUHTEN assign to the units (guitars) in work in process on
September 30?
a. $125,580
b. $303,600
c. $318,780
d. $343,200

Solution:

Equivalent Units of Production

Materials Conversion
To complete beginning work in process
(materials: 20,000 units × 100% complete;
conversion: 20,000 units × 80% complete) 20,000 16,000

Units started and completed during the period

(90,000 units started − 8,000 units in ending inventory) 82,000 82,000

Ending work in process

(materials: 8,000 units × 0% complete;
conversion: 8,000 units × 75% complete) 0 6,000

Equivalent units of production 102,000 104,000

Cost per Equivalent Unit

Materials Conversion
Cost added during the period (a) $0 $5,262,400
Equivalent units of production (b) 102,000 104,000
Cost per equivalent unit (a) ÷ (b) $0.00 $50.60

Costs of Ending Work in Process Inventory and Units Transferred Out

Materials Conversion Total
Ending work in process inventory:
Equivalent units of production 0 6,000
Cost per equivalent unit $0.00 $50.60
Cost of ending work in process inventory $0 $303,600 $303,600

32. PICHAPAY Company uses the FIFO method in its process costing system. The equivalent units
for March for conversion costs totalled 37,500 units. The beginning work in process
inventory in March consisted of 15,000 units, 60% complete with respect to conversion
costs. The ending work in process inventory in March consisted of 10,000 units, 75%
complete with respect to conversion costs. The number of units started during the month
was:
a. 41,500 units
b. 34,000 units
c. 25,000 units
d. 72,500 units
 Solution:
Equivalent Units of Production Calculation:
To complete beginning work in process
(15,000 units × 40% complete) 6,000
Units started and completed during the period
(? units started − 10,000 units in ending inventory) ?
Ending work in process (10,000 units × 75% complete) 7,500
Equivalent units of production 37,500

To solve for Units started and completed during the period, solve algebraically:
6,000 + ? + 7,500 = 37,500
? = 24,000
Next:
Units started and completed = units started – 10,000 units from ending inventory
24,000 = units started – 10,000
= 34,000

33. Utility costs at RIVERDALE LA CRUZ, Inc. are a mixture of fixed and variable components.
Records indicate that utility costs are an average of $0.40 per hour at an activity level
of 9,000 machine hours and $0.25 per hour at an activity level of 18,000 machine hours.
Assuming that this activity is within the relevant range, what is the expected total
utility cost if the company works 13,000 machine hours?
a. $4,225
b. $5,200
c. $4,000
d. $3,250

Solution:
Machine-Hours Average Cost per Hour Total Utility Cost
(machine-hours ×
average cost per hour)
High activity level 18,000 $0.25 $4,500
Low activity level 9,000 $0.40 $3,600

Variable cost = Change in cost ÷ Change in activity

= ($4,500 − $3,600) ÷ (18,000 – 9,000)
= $0.10

Fixed cost element = Total cost − Variable cost element

= $4,500 − ($0.10 × 18,000)
= $2,700

Therefore, the cost formula for total utility cost is $2,700 per period plus $0.10 per machine-
hour, or Y = $2,700 + $0.10X.

At an activity level of 13,000 machine-hours, total cost is estimated to be:

Y = $2,700 + ($0.10 × 13,000) = $4,000
 34. Clerical costs in the billing department of GRINCH Company are a mixture of variable and
fixed components. Records indicate that average unit processing costs are $0.50 per account
processed at an activity level of 32,000 accounts. When only 22,000 accounts are processed,
the total cost of processing is $12,500. Assuming that this activity is within the relevant
range, at a budgeted level of 25,000 accounts:
a. processing costs are expected to total $8,750.
b. fixed processing costs are expected to be $10,400.
c. the variable processing costs are expected to be $0.35 per account processed.
d. processing costs are expected to total $14,975.

Solution:
Accounts Average Cost per Account Processed Total Utility Cost
(accounts ×
average cost per
account processed)
High activity level 32,000 $0.50 $16,000
Low activity level 22,000 $12,500*
*Given

Variable cost = Change in cost ÷ Change in activity

= ($16,000 − $12,500) ÷ (32,000 – 22,000)
= $0.35

Fixed cost element = Total cost − Variable cost element

= $16,000 − ($0.35 × 32,000)
= $4,800

Therefore, the cost formula for total utility cost is $4,800 per period plus $0.35 per account
processed, or Y = $4,800 + $0.35X.

At an activity level of 25,000 accounts, total cost is estimated to be:

Y = $4,800 + ($0.35 × 25,000) = $13,550

35. The relationship between cost and activity is termed:

a. cost estimation.
b. cost prediction.
c. cost behavior.
d. cost analysis.
e. cost approximation.

36. AB NORMAN Company pays a sales commission of 5% on each unit sold. If a graph is
prepared, with the vertical axis representing per-unit cost and the horizontal axis
representing units sold, how would a line that depicts sales commissions be drawn?
a. As a straight diagonal line, sloping upward to the right.
b. As a straight diagonal line, sloping downward to the right.
c. As a horizontal line.
d. As a vertical line.
e. As a curvilinear line.
 37. CHUKCHAK, Inc., used the high-low method to derive its cost formula for electrical power
cost. According to the cost formula, the variable cost per unit of activity is $3 per
machine-hour. Total electrical power cost at the high level of activity was $7,600 and at
the low level of activity was $7,300. If the high level of activity was 1,200 machine
hours, then the low level of activity was:
a. 800 machine hours
b. 900 machine hours
c. 1,000 machine hours
d. 1,100 machine hours

Solution:

Variable cost = Change in cost ÷ Change in activity

= ($7,600 − $7,300) ÷ (1,200 − X)
= $3, where X = low level of activity
=> $300 ÷ (1,200 – X) = $3
=> $300 = $3 × (1,200 – X)
=> $100 = $1,200 – X
=> X = $1,100

38. The management of CARDO TALISAY believes that the number of trees trimmed each month is an
appropriate activity measure for total operating cost. Shown below are the number of trees
trimmed and operating costs in each of the last three months:

Trees Trimmed Operating Cost

March 12 $2,600
April 18 $2,990
May 20 $3,250

What is CARDO TALISAY's cost formula for monthly operating cost using the least-squares
regression method?
a. Y = $478.40 + $176.80X
b. Y = $1,625 + $81.25X
c. Y = $1,655 + $77.50X
d. Y = $8,840 + $176.80X

slope = $77.50 per tree

intercept = $1,655 per month

Comparative income statements for CHENESIS Company for the last two months are presented
below:

July August
Sales in units 11,000 10,000
Sales $165,000 $150,000
Cost of goods sold 72,600 66,000
Gross margin 92,400 84,000
Selling and administrative expenses:
Rent 12,000 12,000
Sales commissions 13,200 12,000
 Maintenance expenses 13,500 13,000
Clerical expense 16,000 15,000
Total selling and administrative expenses 54,700 52,000
Net operating income $ 37,700 $ 32,000

All of the company's costs are either fixed, variable, or a mixture of the two (i.e., mixed).
Assume that the relevant range includes all of the activity levels mentioned in this problem.

39. Which of the selling and administrative expenses of the company is variable?
a. Rent
b. Sales Commissions
c. Maintenance Expense
d. Clerical Expense

40. The total monthly fixed cost for CHENESIS Company is:
a. $12,000
b. $22,500
c. $25,000
d. $40,000

Solution:

Variable component of sales commissions:

Variable cost = Change in costs/Change in units
Variable cost = ($13,200 − $12,000)/(11,000 − 10,000)
Variable cost = $1.20

Fixed cost of sales commissions:

High volume: $13,200 − $1.20 × 11,000 = $0 (answer will be zero fixed costs, because these
sales commissions are variable, not mixed)
Low volume: $12,000 − $1.20 × 10,000 = $0

Variable component of maintenance expenses:

Variable cost = Change in costs/Change in units
Variable cost = ($13,500 − $13,000)/(11,000 − 10,000)
Variable cost = $0.50

Fixed cost of maintenance expenses:

High volume: $13,500 − $0.50 × 11,000 = $8,000
Low volume: $13,000 − $0.50 × 10,000 = $8,000

Variable component of clerical expense:

Variable cost = Change in costs/Change in units
Variable cost = ($16,000 − $15,000)/(11,000 − 10,000)
Variable cost = $1.00

Fixed cost of clerical expense:

High volume: $16,000 − $1.00 × 11,000 = $5,000
Low volume: $15,000 − $1.00 × 10,000 = $5,000
Total variable cost per unit:
$1.20 + $0.50 + $1.00 = $2.70

Total fixed cost:

$0 + $8,000 + $5,000 + $12,000* = $25,000
*Rent
***